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Operator: Good evening. This is the conference operator. Welcome, and thank you for joining the Rexel Fourth Quarter Sales and Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Guillaume Texier, CEO of Rexel. Please go ahead, sir. Guillaume Jean Texier: Good evening, everyone, and thank you for joining us today for our full year 2025 results presentation. I'm with Laurent Delabarre, our Group CFO, who will take you through the financials and the detailed numbers in a few minutes. And before that, let me briefly set the scene and share the key messages. 2025 was another year of market outperformance and margin resilience, and this is a particularly remarkable outcome as it was delivered in a mixed environment. It also clearly demonstrates the transformation of Rexel's model that is underway and gathering pace. Beyond the results, an additional element of satisfaction is that behind the scenes, we continue to take initiatives to strengthen the group for the next phase. Building momentum in high-growth verticals such as data centers, actively managing the portfolio and accelerating our transformation through digital, AI and productivity initiatives, which supports our confidence in our midterm ambition. With that, let's get started. And let me begin with a quick overview of the key highlights of the year. First of all, as I mentioned, our sales and margin performance offers an important proof point that Rexel's transformed business model is working, not only in favorable macro conditions, but also in a more mixed environment. Second, we adapted quickly to a very different environment in Europe and North America. As conditions evolved through the year, we stayed close to our customers, and we accelerated execution progressively, adjusting priorities and protecting performance. And third, as I said, we stepped up self-help actions through our Axelerate28 strategic plan. These initiatives are very operational and concrete, strengthening discipline, improving efficiency and ensuring we continue to build the foundations for future performance. So overall, resilient results today, rapid adaptation throughout the year and action plans that support the next steps of our journey to reach our midterm ambition. With that, let's move on and take a look at the year in more detail. And turning to our full year achievements on Slide 4. We met or exceeded the guidance we set for the year on all KPIs. First, on top line. We achieved plus 2.5% same-day sales growth, above the initial guidance that we had raised in October. Second, profitability remains very solid. We delivered a current adjusted EBITA margin of 6%, fully in line with our guidance, again, illustrating the resilience of our margins in a challenging environment. And third, cash generation was strong. Our free cash flow conversion before interest and tax reached 76%, well above our guidance of above 65% when excluding the impact of the EUR 124 million French anti-trust fine. So overall, we delivered growth, we maintained margin and generated strong cash, providing a solid base as we move into the next year and execute our priorities. Let me then take a step back on the backdrop. It was not a particularly easy environment. Europe stayed weak, notably in residential, North America was impacted by uncertainty and a delayed recovery in industrial automation. And Asia Pacific remained subdued. The clear area of strength was AI-driven data center investment and favorable pricing in the U.S., supported by trade tariffs. In that context, Rexel did what we set out to do. We outperformed and gained share across our key markets. We are seeing a real payoff from the work we've been doing over the last several years on sales force excellence, higher digital penetration and the ramp-up of advanced services. We also leaned into data centers and broadband infrastructure, particularly in the U.S. with dedicated teams and branches, and we further strengthened our position in the telecom space with Talley acquisition. In addition, we stayed agile on the portfolio with 5 acquisitions and 2 disposals. Overall, top markets but strong execution, and we've continued to build momentum in the right growth areas. From a geographical standpoint, the year really comes down to how we manage the 2 main engines of the group, North America and Europe. In North America, the focus was on managing profitable growth. We captured the trends in higher growth segments. And at the same time, we managed the tariff situation in a disciplined way. And importantly, we kept tight control of the cost base, delivering growth while operating with a broadly similar FTE level. In Europe, the environment was more muted with negative volumes and flat pricing. So we moved fast on costs. We rapidly implemented adaptation plans, leading to a workforce reduction of around 4%, about 600 FTEs in 2025, while keeping a strong focus on margins. Taken together, this is what drove improved margin resilience versus previous cycle downturns. Let me now focus on data centers in North America on Slide 7. What began 3 years ago as a targeted initiative is now achieving scale to become one of our most attractive growth platforms. In the U.S., we are reinforcing our position. We continue to significantly outperform the market with very strong momentum in Q4 and across the year, and data center already represents a meaningful share of our sales. To support that growth, we expanded our footprint and capabilities close to project sites, adding, for example, around 200,000 square feet of storage capacity in key locations like Atlanta, Mesa and Reno, with further potential to scale. Our model is simple, local branches and resources backed by national coordination. That allows us to be close to customers on execution while still bringing the breadth of Rexel expertise, availability and consistency across multiple sites. We also broadened our offering into new product categories that matter for data centers built, and we are continuing to add dedicated resources and expertise to capture the next wave of projects. In Canada, also, we are off to a promising start. Here, the activity for us is concentrated in the Western region. We are active in the gray room offering from UPS to panels and datacom accessories. And we have a strong backlog that supports continued momentum for 2026. So the key takeaways here is that our scale, logistics capabilities and technical expertise give us a clear advantage in this segment. We are well positioned with strong momentum ahead of us. I'm now on Slide 8. Portfolio management remains a key lever of our strategy. 2025 was another year of active portfolio management with 4 acquisitions completed and 2 disposals, further sharpening the group's footprint and profitability profile. We've strengthened our footprint through the additions of Warshauer and Schwing in the U.S. In Canada and Italy, we've expanded into adjacent higher-margin businesses with Jacmar [Technical Difficulty] while completing around EUR 2 billion net of disposals. And in total, we've closed 21 acquisitions over that period, including 4 in 2025. And what I would like to stress is the quality and the direction of this M&A. Around 60% is in our core electrical distribution business, around 40% in adjacencies where we see attractive structural growth and higher value-added opportunities. We have been particularly focused on North America with 14 acquisitions, representing more than 70% of acquired sales, including about EUR 0.5 billion in adjacencies. And this is clear value creation. On average, we see value creation from year 2, earlier than initially targeted. And our combined 2025 performance imply roughly 7x EV to EBITDA multiple after synergies below Rexel valuation multiple. And we also move forward on the other side of the portfolio with 2 targeted divestments completed in 2025, and these actions reinforce the robustness of our balance sheet and provide flexibility to continue investing in growth. Moving to Slide 9. Digital is a very tangible differentiator for Rexel and it continues to gain traction. Today, we are a B2B leader in digital with more than 1/3 of our sales going through digital channels, and this is not slowing down. Digital penetration has been progressing by between 200 and 300 basis points per year over the last 15 years. What's driving it is a mix of constant improvement in the customer experience with more tailor-made features, including AI-powered capabilities, plus continuous data enrichment and also, frankly, a generational shift in how customers want to buy and interact. The benefits of these long-term efforts are very concrete. And I believe this is one also of the explanation of our good set of results recently. Digital increased its customer stickiness and share of wallet. It widens the service gap versus smaller competitors who have increasing difficulties following the pace of the race to more data and more features. And finally, it also improves the efficiency and productivity of our teams, which is critical to our business model. All in all, it's a key engine of differentiation and performance for Rexel. Beyond the short-term environment, we are accelerating a set of deeper transformation to pave the way for future performance as shown on Slide 10. First, we are boosting sales force productivity through organizational changes and increasing adoption of AI-based tools to help our teams spend more time selling and improve the quality of execution. Second, we're optimizing the supply chain through more automation, stronger internal synergies and AI, improving service levels while taking structural costs out. Third, we are resetting parts of the cost base in lower profitability countries. This is about staying disciplined, adapting the model to the reality of the market and protecting margins. Fourth, we are leveraging our full offering, expanding in adjacent product categories and services where we can create more value for customers and capture more of their spend. And finally, we continue to roll out smart pricing programs that leverage data to improve consistency and value capture. Those OpEx are not only to Rexel obviously as we constantly strive to improve, but 2025 was a year of clear acceleration. First of all, because the business environment pushed us to move faster and sometimes think out of the box. And secondly, because we launched our new strategic plan, Axelerate28. And most of those plans we are talking about are multiyear efforts, which means that you will see them progressively delivering benefits to our P&L. Focusing on next slide on AI. AI is another area where we are moving fast. And it's not just -- I'm on Slide 11, and it's not just running pilots, but now scaling real use cases into day-to-day operations. On the left of the slide, you see the main areas where we had identified clear AI opportunities, tools to speed up RFQs, smart automation for order entry, automatic data enrichment and internal category expert capability, customer-facing chatbots. And on the right, you see where we are today, not in terms of shiny proof-of-concept demos but in terms of reduction by the teams and real-life industrial live tools. In the U.S., more than 50% of the quoting teams, for example, are already using the new quotation tools. In France, around 25% of e-mails quotes are handled through AI tools. And on order entry, we now have over 65% of U.S. teams and more than 70% of French teams using AI-powered tools. We are also rolling out internal expert capabilities by categories, deploying customer-facing chatbots across additional countries. So the message here is simple. AI is already improving speed, quality and productivity, and we are scaling it pragmatically use case by use case. And Slide 12 is about productivity, a major KPI for us. The message here is that over the last 5 years, we have lifted the baseline of what we are able to deliver in terms of productivity every year. What differentiates this cycle from previous downturns is the speed and depth of our cost adaptation. Through workforce adjustments, productivity initiatives, tighter cost control, we protected margins despite lower volumes, reinforcing the resilience of our operating model. Historically, between 2016 and 2021, our productivity ratio averaged around 0.9%. Over the last few years, it has stepped up and in 2025, it reached 2.8%. This improvement is not coming from one single level. It's a combination of structural initiatives that I just presented, including the ramp-up of digital and the early impact of AI tools, together with rapid cost adaptations in more challenging markets. So 2025 was another demonstration of Rexel's resilience at the bottom of the cycle. The key takeaway is that we are not just managing through the cycle, we are structurally improving how efficiently the group operates, which supports margin readiness and future performance. With that, let me now hand over to Laurent, who will take you through the detailed 2025 numbers, and I will come back for the guidance. Laurent Delabarre: Thank you, Guillaume, and good morning to all of you. Evening. Good evening, sorry. On Slide 14, you can see how momentum improved throughout the year '24 and '25. With the quarterly same-day sales growth trend at group level and the regional breakdown, we moved from minus 4.6% in Q1 '24 to a progressively better trend quarter after quarter, and we closed 2025 with plus 3.8% in Q4. That's a very clear reflection of better momentum, disciplined execution in the field and better pricing management. First, selling prices contributed positively in Q4 '25 by 1.7%, improving compared to Q3 '25. And more specifically, non-cable pricing were unshaded in Q4 '25 at 0.9%, with improving trends in North America, mainly offset by China. Selling price on cable improved to plus 0.8%, notably thanks to Europe. And briefly on geography that I will highlight in the next 2 slides. North America remains the main growth engine. Growth accelerated through the year and ended it at plus 7.9% in Q4 '25. And Europe remained difficult, but the trend improved sequentially, and we are back to flat sales evolution in Q4 '25. And more specifically for Asia Pacific accounting for 6% of group revenue. China was up 3.1%, supported by industrial automation project in a better environment while selling price were just back to flat in Q4 '25. In Australia, sales growth accelerated in the quarter, notably boosted by solar activity, further supported by subsidies on batteries. Lastly, India, which is small, but sales increased by plus 16.9%, driven by strong growth in our industrial automation activity. I'll now go into more detail in the next 2 slides on Europe and North America. So moving to Slide 15. Europe remained impacted by muted construction environment and delayed electrification trends. Despite this, Rexel gained market share in its most important countries and delivered a resilient performance. Same-day sales in Europe were flat in Q4, improving from minus 0.5% in Q3. Volumes were broadly stable despite the political and macro uncertainties. And we also saw a sequential improvement in pricing in Q4 versus Q3, mainly driven by cable. And to put the underlying trend in perspective, our growth excluding solar, which represents about 4% of our sales in Europe, was up plus 0.5%. By end market, residential was flat, excluding solar, with first sign of recovery in a few countries, notably Sweden and the Netherlands. Non-residential was broadly flat and we saw a slight improvement in industry. Let me highlight the main country dynamics in the quarter. France was up plus 3% despite a challenging environment with broad-based market share gains and strong HVAC contribution. Benelux was up plus 2.6%, driven by electrical distribution activity in the Netherlands, and the acceleration of solar growth in Belgium. DACH was a key offset, deteriorating sequentially on business selectivity in a difficult macro environment. Also, we continue to take market share in Austria. Sweden was flat with a sequential improvement driven by industrial segment and supported by a smaller drag from solar in Q4 compared to Q3. And finally, U.K./Ireland was down minus 6.7%. Ireland remained positive with a favorable industrial market. But the U.K. market stayed tough with London showing the first sign of our recent investment. So overall, still a soft market, but improving trends from Q4 and continued market share gains in several countries. In this context, productivity initiatives helped mitigate the impact of lower activity. And this positioned well to benefit from any market recovery, particularly as leading indicators in some countries begin to stabilize. On Slide 16, we turn to North America, which remains the growth engine in Q4, driven by both volume and pricing where we saw improvement in non-cable, mainly driven by piping and conduit families. First, same-day sales were up strongly in the quarter with Canada driving the acceleration versus Q3 '25, specifically in data center project as presented by Guillaume. We also benefited from strong continued market share gains and positive contribution in datacom. And second, the U.S. continues to be driven by high-growth verticals, particularly data center and broadband infrastructure, which represents more than 55% of the growth in the quarter. We also saw strong activity in solar and EV charging. By end markets, all 3 markets were positive, with non-residential clearly driving the acceleration and the industrial automation up 8%. Lastly, the backlog remains solid, representing 2.7 months of activity at the end of December. Moving now to the full year picture. I'll start on Slide 17 with the bridge of our full year sales, showing how growth was built between scope organic, FX and calendar. We delivered full year '25 sales of EUR 19.4 billion, up 0.7% on a reported basis. Organic performance was the main driver. As we saw, same-day sales growth was plus 2.5% for the year, with volume contributing plus 1.2% and pricing adding plus 0.6% in non-cable and plus 0.7% in cable. So a solid volume contribution plus disciplined pricing across both cable and non-cable. M&A also contributed meaningfully. Acquisition added plus 1.8% more than offsetting the minus 0.9% impact from disposals. These positives were partly offset by external factors. First, the FX was a headwind of minus 2.2%, mainly from weakening of the U.S. and Canadian dollar as well as a calendar impact of minus 0.5%. That was the sales bridge for the year and we'll now move to profitability and margin performance. In this Slide 18, we bridge our adjusted EBITA margin year-on-year and the key message is simple. Record productivity more than compensates what we call the delta inflation headwind. Adjusted EBITA margin increased from 5.9% in full year '24 to 6% in full year '25. First, portfolio and FX were positive, contributing 11 basis points, while the calendar effect was a drag of minus 5 basis points. Second, you see the operating leverage, slightly negative because due -- mainly due to the new European environment and the underabsorption of fixed costs, notably in underperforming countries, mitigated by positive operating leverage in North America. Third, the main headwinds in the year was what we call the delta inflation, which represent the gap between selling price increase and OpEx inflation, 19 basis point headwind, in line with our expectations. Cost inflation was around plus 2.2% in full year '25, while selling price increase were up 1.3%. And these headwinds was more than offset by the 2 following actions: first, the gross margin improvement adding 9 basis points, supported by pricing initiatives; and second, our action plan delivered a further 33 basis points, in line with the expectation and already illustrated by Guillaume in the slide dedicated to productivity. Let me remind you that FTEs was down 2.3%, while volume contribution to sales were up 0.7% in actual days. But operating discipline is what allow us to protect and slightly expand despite inflationary pressure. Lastly, and we are further investing in the business notably through digital and footprint investment that impact our EBITA margin by 11 basis points. On Slide 19, we look at the bottom-line part of our P&L., with a zoom on other income and expense, financial expense, tax rate and recurring net income. Other income and expense stood at EUR 56 million, notably including minus EUR 41.1 million in restructuring, mainly in Europe, more than last year in order to accelerate adaptation to a tougher environment, notably in U.K. and Germany. EUR 36 million of capital gains on disposal. Minus EUR 29.7 million in asset impairment in the U.K. Minus EUR 20 million in others, including integration costs and pension settlement in Canada. Financial expense stood at EUR 214 million, slightly above last year with a rise in gross debt, offsetting the lower cost of debt now at 4% versus 4.4% last year. It includes EUR 72 million of interest on lease liabilities and pure financial cost of EUR 142 million. And for '26, we anticipate financial expense of circa EUR 250 million, including less than EUR 70 million of interest on lease liabilities and around EUR 145 million plus of pure financial expense, excluding one-off. And assuming current interest rate continues, condition remain unchanged. Our income tax rate stood at 30.2% due to the impact of the exceptional tax in France. And going forward, we anticipate the tax rate to be at circa 30% in '26, take into consideration the additional tax in France that will apply for the second year. And for '27 onwards, we anticipate then the tax rate to go back to circa 27% in the absence of exceptional tax renewal in France. And as a result, net income increased by 73% and recurring net income stood at EUR 308 million, up 2.4%. Moving to slide 20. We generated robust cash flow before interest and tax, reaching a high level of EUR 938 million, implying a free cash flow conversion rate of 76%, well above last 4 years' above average, that stood at 69%. This is excluding the EUR 124 million fine imposed by French tax authorities and paid in April '25. The trade working capital as a percentage of the last 12 months of sales increased to 15% versus 14.6% last year, mainly related to the sales growth acceleration in H2 and mainly Q4. In a number of days, embedding the last 3 months of sales, both inventory and receivables improved and were partially offset by lower payables. Indeed, the DOI and DSO decreased by respectively, 1.5 and 1 days and DPO was down 2 days. Non-trade working capital was an inflow of EUR 24 million on an outflow of EUR 100 million, including the payment of the EUR 124 million fine. CapEx remained disciplined at EUR 136 million, with growth CapEx representing 0.7% of sales, stable versus last year. So overall, we converted earnings into cash at a very strong rate, supported by tight working capital and disciplined investment levels. On Slide 21, I want to come back to free cash flow conversion profile over the last 5 years, a key proof point of the quality of our execution. As you can see, we delivered a record level again, above 70% for the third consecutive year. [ 7.6% ] conversion rate is at the top end of what we have delivered in recent years and clearly above our full year guidance of above 65% in our midterm ambition. And this performance is a result of two very disciplined execution. First, a well-balanced investment approach with roughly 55% of our CapEx in digital and about 45% in network and supply chain modernization. Second, active working capital management as we have seen, especially the quality and structure of inventory and receivables. So overall, this strong cash generation built on repeatable levels support our financial flexibility going forward. As shown on Slide 24, our capital allocation focus on both acquisition and return to shareholders. Overall, net debt slightly increased by EUR 147 million, mainly resulting from 2 factors. First, the EUR 227 million impact from net financial investments, mainly the acquisition of Warshauer, Schwing, Jacmar and TECNO BI mentioned earlier by Guillaume. Second, the dividend payment related to the 2024 performance for EUR 355 million, corresponding to EUR 1.20 per share. Lastly, we also bought back shares for EUR 100 million, in line with our midterm objectives. And since mid-2022, we bought back EUR 400 million and reduced the number of outstanding shares to 296 million. All this leads to net debt close to EUR 2.6 billion, including earnout for circa EUR 30 million, and the indebtedness ratio stands at 2x, representing a strong achievement. In short, we continue to invest in value-creating growth while maintaining a healthy balance sheet and a consistent return to shareholders. Let's turn now on Slide 23 to the breakdown of our main debt maturity and liquidity. 2024 was a very active year in terms of refinancing. In addition to all operations presented in H1, the second half was also intense, and we further extended our debt maturity profile. As a reminder, we have first issued a new EUR 100 million Schuldschein in July with a '29 maturity. Second issued EUR 400 million senior notes with 4% coupons maturing in 2030 but extended 2 securitization programs for more than EUR 800 million from '25 to '28. And finally, we increased our senior credit agreement by EUR 200 million to EUR 900 million and extended it to 2031. Overall, we have a well-balanced funding structure, extending maturities and comfortable liquidity, and we can stay focused on executing the strategy. As always, we are evaluating market opportunities in the volatile debt market environment. Moving to the next slide, we summarize our shareholder returns through the dividend. For the year, the Board will propose a dividend of EUR 1.20 per share, maintaining our strong track record. This implied payout ratio of 52%, which is at the high end of our guidance and reflect our confidence in the resilience of the business model and in our cash generation. Subject to the general assembly approval in April 22, 2026, the dividend will be payable in cash on May 13. So overall, we remain fully committed to a disciplined capital allocation policy, combining value creation growth investments and an attractive return to shareholders. Let me hand back to Guillaume before we move on to your questions. Guillaume Jean Texier: Thank you, Laurent. And let me now turn to our outlook for 2026, and let me go to Slide 26. It's a busy slide, but it illustrates also well the way we see the short-term future. Many moving parts, a good level of uncertainty, but probably overall, more encouraging trends than the opposite. Starting with North America, prospects are clearer and we continue to expect further growth. Of course, there are still macro uncertainties, including around tariffs, and we see less traction in some electrification solutions. But structurally, the key growth engines remain in place. We expect continued progression in data centers, and we are also seeing more positive signals in industrial automation, supported by reshoring and the One Beautiful Bill. In Europe, the environment is still challenging. Construction remains near the trough and confidence is not yet back. That said, we see more and more encouraging early indicators, and we do expect improving trends, especially in the back part of the year. The comparison base becomes easier for electrification. The lower interest rate environment is starting to improve. And as I said, we see leading indicators in residential improving. And in Germany, finally, the infrastructure plan could begin to materialize later in the year. On pricing and inflation, we still expect OpEx inflation to remain slightly higher than selling price increases. At the same time, we should benefit from the carryover of 2025 pricing in the U.S. We may also see additional price increases reflecting the recent rise in copper and silver, but it is a little bit too early to tell with certainty. And finally, self-help remains a very important part of the equation. We will benefit from the carryover of actions already launched, and we have also new initiatives to implement in 2026. So overall, North America should remain solid and supportive. Europe should gradually improve. And in all cases, we stay focused on execution and self-help to deliver in an uncertain environment, which brings us to our full year 2026 guidance on Slide 27. On the top line, we expect same-day sales growth of 3% to 5%. On profitability, we guide for a current adjusted EBITA margin of around 6.2%. At this stage, we still expect a slightly negative inflation gap with cost inflation running ahead of selling price increases although improving compared to 2025. And that will be offset by a clear set of cost and productivity initiatives, including the continued rollout of digital and AI tools. In addition, copper price rose sharply recently. Of course, as a distributor, we will pass the price increases from suppliers. We don't know yet how much price increase will be passed by those suppliers. And we believe that the situation may vary by country, by suppliers, leading to progressive price increases. We prefer to be cautious that it is very early in the year, which means that we took the equivalent in terms of copper of $11,000 per tonne price of copper to design this guidance. And we will adjust during the year depending on the evolution of the situation. And finally, on cash, we are guiding for free cash flow conversion now above 65%, reflecting our disciplined CapEx policy and continued focus on working capital. So overall, our 2026 guidance reflects continued growth, resilient margins through self-help and strong cash generation in a global environment that remains marked by a little bit of uncertainty. Turning to Slide 28. Before we conclude, I think it's worth taking a step back to consider how Rexel's ongoing transformation has taken roots over time and is still ramping up. Building on foundations laid in 2010 to 2019, particularly when it comes to digital penetration, we have been broadening and accelerating our transformation since 2020 to more dimensions of our operating model. We have raised the bar on operational excellence with more standardization, automation, discipline and execution. We have also made portfolio management much more active using bolt-on M&A and selective disposals to improve the quality of the group. In parallel, we have scaled advanced services and focus more on the market where we see structural acceleration, electrification, energy efficiency and of course, data centers and datacom. And now we're entering a new phase where AI-boosted tools are becoming a real game changer in customer experience and productivity level, not a concept. What matters is that these levels reinforce each other, stronger digital, better operations, a sharper portfolio, more value-added services and higher productivity. So when we talk about Axelerate2028 and our medium-term ambitions, it's the continuation and acceleration of the transformation that has been underway for years. The Axelerate2028 plan is now fully underway. And as I said at the beginning of the presentation, 2025 was a very busy year in a number of new initiatives launched. This gives us great confidence in our ability to deliver on our midterm ambitions, even in a less supportive market environment. And I'm now on Slide 29. Since 2024, when we issued our midterm guidance at our Capital Markets Day, what has first changed is the market backdrop. The macro cycle recovery has been delayed. We faced a delta inflation headwind in 2024 and 2025 and electrification market in Europe has been a little bit more muted than expected. But on the other hand, several factors have moved in the right direction with some of them, many of them being in our control. So first, we are leaning even more into high-growth verticals, especially data centers. Second, the adoption of GenAI is accelerating faster than we initially anticipated, and this will prove clearly beneficial to our business model. Third, we have reinforced our focus on cost initiatives and productivity across the group. And finally, pricing is more supportive in '25 and '26 with higher selling price increases coming from U.S. tariffs, pricing programs and potential impact from copper. So when you put all of that together, there are pluses and minuses, but the combination of that allows us to confirm our medium-term objectives, sales growth of 5% to 8%, including 2% to 3% from acquisitions, an adjusted EBITA margin above 7% and cash conversion of 65%. In other words, the market is certainly not giving us a free ride, but the strategy and the self-help levers are stronger and this is why we are confident in our midterm ambition. And in a way, the fact that we now rely more and more on our own efforts on what is in our hands than on the market is an element of security that is good news for the future. So let me close this presentation with 4 key messages before we open the call for Q&A. First, 2025 was another clear demonstration of Rexel's resilience through the bottom of the cycle, proof that our transformed model is working. Second, the momentum we saw in Q4 in both Europe and North America, that we continue to see in January, has carried into early 2026, which gives us a very good starting point. Third, with the launch of Axelerate2028, we are accelerating transformational change across the group from productivity and cost efficiency to digital and AI adoption to unlock our next phase of performance. And despite slightly less market support, we are keeping a high level of ambition, and we remain fully committed to reaching our midterm guidance. Finally, I'd like to finish by saying, our teams have once again shown remarkable commitment and agility in 2025. And with that, I would like to thank our employees, customers and partners for their continued trust. Thank you for your time and attention. And now Laurent and I are happy to take your questions. Operator: [Operator Instructions] First question is from Daniela Costa, Goldman Sachs. Daniela Costa: I have 2 questions, if possible. I'll ask them one at a time. But the first one is regarding the free cash flow. As you mentioned on the presentation, you've beaten your targets on free cash flow for a few years there. But you're once again guiding for around 65% on the conversion. Can you talk why you don't upgrade that target? And what would drive you back down to a weaker cash conversion than what you have had, for example, this year, excluding the charge? That's number one. And then I'll ask the other one. Guillaume Jean Texier: Okay. Thank you very much, Daniela. And thank you, first of all, to recognize the important effort that we make to optimize free cash flow and to deliver good performance. Now we have upgraded in reality, the free cash flow guidance. You have probably noticed that, but we went to around 65% and then to above 65%, which is the guidance that we are giving. So it's progressing. Now on this one, we prefer to be cautious because, as you know, the free cash flow delivery depends very much on the shape of the last part of the year. In a year of acceleration, which we experienced in Q4 2025, that's always a little bit favorable to free cash flow. And to the opposite, and we have seen that during COVID, for example, in a year of a deceleration, the free cash flow in terms of transformation is always a little bit more challenged because of working capital at the end of the year. So there are many things in the free cash flow delivery that we master, inventory and number of days throughout the years in average is something that we control well. CapEx is something we control very well. But when it comes to payables and receivables, because of this uncertainty, we prefer to be cautious. But you're right, over the last 3 years, we have systematically delivered more than 70%. And in the last 2 years, more than 75%. I mean I don't know, Laurent, if you want to add anything to that. Laurent Delabarre: Maybe on the CapEx side, we had years of more important logistic investment in the past where we were below this 70%. That's why I think the above 65% is a reasonable target. Guillaume Jean Texier: If the question is, does it hide anything in terms of additional expenses or additional CapEx that you will have in mind, no, not really. I mean we feel that 2026 is going to be the same kind of profile in terms of CapEx as 2025. So no, no, no particular -- I don't know if it was your question, but I'm answering it. Daniela Costa: Great. And then just on this AI productivity benefits that you talked about. I was wondering if -- when you planned your targets in 2024, was this what you were already foreseeing would happen in '25? Or should we look at this sort of productivity improvements as over and above what you were expecting back then? And once the market comes, what should be the incremental upside to margin from these extra initiatives or extra productivity that you find if this is extra? Guillaume Jean Texier: So directionally, I think you're absolutely right. This was not completely in our minds, not to this extent when we did our initial midterm guidance in 2024. So the benefits of that, which is double digit in terms of productivity will come on top and above that. We have productivity targets. But clearly, GenAI potentialities are probably adding a layer to those productivity targets. But to the opposite, as we showed on our Slide 29, there are a few things which are probably temporary. I mean when we're talking about delayed cycle recovery, that's probably something, which you're right, in the long term is going to come back. And the same thing about delta inflation headwind. But -- so at some point, it will come over and above. So if you're talking about the absolute potential of Rexel, mid-cycle potential of Rexel, maybe that -- which is going to be an additional benefit to what we guided to in 2024, but I'm very focused on what we call midterm, which was 3 to 5 years. And in this time frame, I think this may be something which will help us offset potential macro delays. That's what we are saying. Operator: Next question is from Akash Gupta, JPMorgan. Akash Gupta: I have 2 as well. My first one is on copper prices dynamics because when I look at movement in copper price in Q4, we had roughly a 20% increase in U.S. We had 9% on LME. And when I look at your copper price, in Q4 of 0.8%, that looks a bit lower than implied by changes in copper prices. So maybe if you can talk about why it is not yet reflected in your growth rates? And then when it comes to the outlook, and thanks for specifying that your guidance is on $11,000 per copper. So if we assume that the current level of $13,000 stay for rest of the year, is it fair to assume that we need to add probably 200 basis points annualized to your growth rates? Guillaume Jean Texier: Laurent? Laurent Delabarre: Yes. First, I mean, the copper is not as mechanical as you see. What we guided in the past is that a $500 increase in copper would drive around 0.4% of top line growth. But with this sharp increase in copper recently and in the current environment, and there are also FX components into that, what we see today is that the supplier, they are lagging effect to pass through the copper improvement into the cable price increase. And we turn also our inventory in 2 months, so there is also this lag. That's why at the end, it will gradually come into our performance into '26, and that the effect in Q4 is slightly lower than what you were calculating. Guillaume Jean Texier: Yes. The wild card is really very much what the manufacturers, what the cable manufacturers and also what the other materials manufacturers, which include copper, are going to do with that. And in the follow-up, I'd say, I understand that it was very automatic. It's been a little bit less the case in the recent past because of strong variations. And so we'll see what happens there. And as far as if things were completely automatic, what would it mean in terms of top line? I think your ballpark calculation is probably approximately right, maybe slightly high because Laurent said that it's a 5:4 ratio, but we are not that precise anyway. So yes... Akash Gupta: And my follow-up is on the growth guidance. So at midpoint, you're guiding 4% organic same-day growth. And can you break it down into what sort of volume assumptions you have assumed in that calculation? And when we look at the margin drop-through, is the margin drop through of additional 1 percentage point growth from volume versus price? Is there any difference on the drop-through on margins, like, let's say, if we have 1% higher growth from volume, would that have any different drop-through than 1% higher pricing? Guillaume Jean Texier: Yes. I mean Laurent, do you want to answer on that. I mean first, I will answer the easy part of the question, which is that the assumption is half-half. Now Laurent, for the more difficult part, which is drop-through volume versus drop-through on price, et cetera. Laurent Delabarre: No, that mechanically, the drop-through on price is a bit higher because you have less variable costs. You have just the commission of the salespeople and some bonuses whereas a drop-through on volume will include transportation costs and other cost, inventory cost. But again, it's -- yes, the drop-through on price is a bit higher. Guillaume Jean Texier: But that's not exactly the way we calculate our bridge. I mean we look at the drop-through on volume. And if we look at -- if we try to do a back-of-the-envelope math, if we look at 2025 to 2026, we look at, let's say, 2% volume, we say, the drop-through on this volume is approximately 20 bps, so that's beneficial. Then you have additional action plans. But on the other hand, as I mentioned in my comments, we also think that our inflation, which should be around -- inflation of our costs, I mean, which should be around 2.5% is going to be higher than the inflation that we assume in our gross margin and in our products, the price content of the gross margin, which is going to be around 2%. So those 2 blocks should offset more or less each other. And that's the reason why, at the end of the day, and the drop-through on price is included in this calculation, in the second calculation between inflation of gross margin and inflation of cost. So that's the reason why at the end of the day, we are guiding for around 20 bps of improvement. Laurent Delabarre: And to be specific, on the bridge '24 to '25 that I presented to the point of Guillaume on the operating leverage, we had a lot with op volume only. The pricing part is in the delta inflation of that, yes. That's the way we do it. So yes. Operator: Next question is from William Mackie, Kepler Cheuvreux. William Mackie: A couple actually, maybe looking at the bridge again. Last year, well, in '24, you made great progress with your action plans in dropping out cost. In '25, I think you've called it out as 33 basis points. Could you put some color or financial color around the expectations for how the action plans in '26 should play out, obviously partly contingent on the market development? Guillaume Jean Texier: Laurent, do you want to take this one? Laurent Delabarre: Yes, it was quite heavier, and you have seen it in the restructuring cost that we have factored in '25 For '26, we expect to have a bit less restructuring costs more in the EUR 20 million range. So meaning that we will have at the end a bit less benefits in terms of cost savings. We have additional initiatives plus the carryover of the initiatives that we implemented in the second half. The carryover is a bit less than 10 basis points, and we'll have additional action next year, but we are in a year which we will grow on the top line. So the productivity will more come from the volume than by the reduction of cost. Guillaume Jean Texier: So I mean the answer is approximately half of what we had last year. We did a lot of the heavy lifting last year. And I think we have now a lean cost structure ready for growth. But still around 10, 15 bps of cost savings. 15 bps. William Mackie: The follow-up would be related to the portfolio or the capital allocation more broadly, 2x net debt after a very positive year of free cash generation. And you've made great progress over 4 years with the portfolio development on acquisitions and disposals. But at this sort of level of leverage and with the portfolio today, is there much that could leave after Finland? And what is the sort of target opportunity looking like? Guillaume Jean Texier: Look, I mean, I will give you -- I will not answer your question, but I will give you a very general and worthy answer, which is that everything is under review all the time. Whenever we are in a situation where we think that we can improve a country or a business to our goals, even if we have to invest, even if it takes some time, we do it. But in some cases, and it was the case in most of the divestments that we have made in Spain, in New Zealand, in Norway and in Finland. There are situations where we feel that either we will not get to it because of the competitive situation of the country or the business or that there is a very attractive offer on the table from somebody who wanted to buy the business. And then we are very pragmatic in terms of value creation. But our preference is to improve organically what we have in general. So which means that, no, we don't have immediate plans of selling something. But then everything is reviewed every year based on those criteria. One, are we able -- do we have a credible plan to the Rexel goals -- to contribute to the Rexel midterm goals? And two, is there a super attractive value creation offer on the table? So that's what we do. But at this stage, we have nothing in preparation in the next few months. William Mackie: And on the buy side, how do you see the sort of valuation range and range of opportunities? Guillaume Jean Texier: On the buy side, we will continue to be active in terms of acquisitions. We have a pipeline which is healthy those days. So you may see a little bit of that. We are talking small and midsized acquisitions. We are talking the same focus as we had in the previous years, which is mostly in North America and mostly focused on the most value-added parts of the business if we can, which are services, et cetera, but not neglecting the potential to do a synergistic consolidation, acquisition. So I think you will see acquisitions in 2025 -- in 2026. If I had to bet, but it's always difficult to bet before the acquisitions are done, I would say that you're going to see slightly more than what we have done in 2025. And in terms of multiple environment, look, I mean, the multiple environment is relatively rich. I mean there is competition out there when it comes to acquisitions. But as you have seen over the last few years, and I think this is in the slides that Laurent mentioned, or in the slides that I commented in terms of acquisitions because we are able usually to add a sizable amount of synergies, we were able, and that's not a forward-looking, but that's a backward-looking calculation. We were able to deliver an average multiple, which is around 7x, which compared to our current multiple, which fortunately at the same time, has increased also to 10x, is a good value creation. So we will continue to be disciplined in that to make sure that we continue to build this track record. Operator: Next question is from George Featherstone, Barclays. George Featherstone: I just wanted to come back to the price versus cost dynamic that you flagged. I mean it sounds like demand is getting better. Are you still flagging this headwind for 2026. So I just wondered what the main reason is that you're unable to sort of match the cost inflation with prices? Or is it simply just a timing? That would be the first question, please. Guillaume Jean Texier: No. I mean let me be clear. When we are talking about that, we are not taking the price versus cost inflation. That's not exactly what we mean. On one hand, we have the price increases from our suppliers. And usually, we are very good because it's our core business, passing through those price increases to the market. Here, the pass-through is extremely good or if not perfect. But that being said, we cannot -- if there is a price increase of 4% by supplier A, we cannot say to the market that the price increase is going to be 6%. We do not have this ability because those price increases are usually well-known in the industry. Now so that's one thing. This is a price effect that we get mostly by decisions of our suppliers about how they are going to go to the market. And then there is the second part, which is completely separated, which is our own cost equation. In our SG&A, 2/3 of our costs are salaries. The rest is occupation costs with leases, et cetera. And that we also try to optimize, but we are also bound by different arrays of constraints, which are basically the average salary increase in the given country. We always try to optimize, but that's a little bit what it is. And what we are saying, for example, for next year is that we think that our OpEx inflation, salaries, rents, et cetera, transportation costs, is going to increase around 2.5%. And that as far as we see today, based on what we see from our suppliers, but it's the early beginning of the year, and it may change. We think that the price increases, which is the price component of the gross margin is going to be around 2%. So to be clear, what we are saying is certainly not that we are not able to pass the price to the market, which is what I heard a little bit in your sentence, but more than this particular equation, sometimes it's very favorable when there is a strong inflation in the industry because, for example, of shortages. And in this case, the salaries continue to increase with general inflation and the price of product is increasing by 5%. It happened to us in the past. And sometimes in other years, the price increases passed by the suppliers are a little bit more shy because they want to protect their market shares. And in this case, we have to work on our self-help action plans, productivity, et cetera, to offset that. That's a little bit the way it works and the way we try to explain it. I hope I was clear. George Featherstone: No, that's perfect. That's makes total sense. Then maybe just a question on the backlog in the U.S. I just wondered how much of this is data center versus projects in other end markets? And just whether you can comment at all on how that backlog has evolved sort of data center versus non-data center, if it is split like that? Guillaume Jean Texier: Look, you're asking a question to which I was not prepared, unfortunately. I think -- I don't know. I don't know in the backlog, how much is data center, how much is the rest. What I know is that overall, the backlog remains at the North American level, very stable, higher than the historical average, with maybe Canada increasing a little bit which may be the effects of data centers and the U.S. being a little bit lower than Q3, but very incrementally. Now what I can tell qualitatively is that in data centers, we have a good degree of confidence that we will continue to deliver a good growth rate. And when I say the growth rate, you saw that our data center growth was more than 50% for the year and more than that in Q4. We think that we -- you can safely say that our data center growth next year is going to be at least north of 20%. Operator: Next question is from Andre Kukhnin, UBS. Andre Kukhnin: I'll just go one at a time. Firstly, on pricing, just to clarify what you said, if you talk about non-cable pricing specifically, and kind of low voltage and automation products, we've seen evidence of price increase letters being sent to customers by major suppliers in China. But your comments suggest that this hasn't happened in European countries or in the U.S. Is that the case? Guillaume Jean Texier: Can you repeat your last sentence, our comments? Andre Kukhnin: Yes. We've seen there was press that kind of published letters to customers announcing price increases by major international and local vendors in the voltage and industrial automation in China. And from your comments, it sounds like this hasn't happened in France, Germany, Netherlands, U.K. or the U.S. So I just wondered if that's the case, if I've got the right reading of that. Guillaume Jean Texier: I mean first of all, we think that we are going to see price increases during the year. We talk to suppliers, and we feel that they are willing to increase price. Now what we don't know is the extent of that and by how much it's going to be proportional to the copper evolution when it comes to cable, et cetera. So that's what we are saying. We're not saying that suppliers are not going to increase price. And as we said, we have an hypothesis of price increase for next year, which is around 2%. Now what I would say also is that the dynamics between the Chinese market and the other markets is totally different in terms of price. Price, especially when it comes to -- I mean, China, especially when it comes to industrial automation, has experienced a price war around -- during the last 2 years, which is coming down in the second part of 2025. And it's not a surprise that the suppliers would want to catch up and to increase price. So no, I want to be clear. If my comments were read as, we don't see suppliers wanting to increase price. It's not what I wanted to say. We think that there are going to be price increases very clearly. We have evidence -- I don't know if the letters were sent, but we have evidence of suppliers telling us that they will increase the price very clearly. Now the uncertainty is really about the quantum. Andre Kukhnin: Got it. Got it. And then the other question I had is along the lines of a couple of sort of questions on the delta inflation or the inflation gap. I'm just trying to think about a macro sort of external scenario where you could have your margins expanding like really meaningfully by, say, 30, 50 basis points in the year. What would you need to see for that to happen? Does it just need faster growth than 3% to 5% for that to take place? Guillaume Jean Texier: Look, I mean, that's very easy. If you look at the guidance for next year, we are guiding for 20 bps of drop-through improvement in volume on a reasonable year, which is a 2% growth year. I think a 2% growth year is a reasonable average year. So that's one thing. And we are guiding also to, as I said, 15 bps of cost savings improvement. So that's already 35 bps if you are in a balanced situation, which is going to happen on a given cycle between those 2 inflation figures. So right there, on a year like 2026, you're delivering -- I mean, it's not done. I mean we have to deliver it, but you're delivering 35 bps of improvement. If you have a little bit more growth, which is not crazy to think of when you think about all the prospects of data centers, electrification, et cetera, and the recovery in Europe. If you have a little bit more growth, you're going to easily get to 50 bps. So I think it's not crazy to imagine a scenario like that because what I should say is that when I look at the 15 bps of cost savings, I am quite confident that this is something which is sustainable on a yearly basis. You have seen our figures about productivity evolution. We are quite proud of what we have done in terms of setting the bar higher in terms of productivity. And when we come to cost savings, productivity is a good proxy of what we are doing. And we will continue to do that. And AI is a potential help in that. So yes, absolutely. I mean that's a good question because when you look at the 20 bps improvement between '25 and '26, you may think, okay, 7% is far away. But in reality, when we look at the prospects of a recovery in Europe or the prospects of having a normalization of this effect of differential between our cost inflation and the rest, we are quite confident. And when we look also at the acceleration of our action plans, we are quite confident about that. Andre Kukhnin: That's really helpful. If I may, just a very quick one. You mentioned solar and EV charging sort of prebuy in the U.S., I think, is what the comments implied ahead of some regulation change. Is that something we need to -- could you quantify that? Guillaume Jean Texier: Mostly on solar. I mean overall, solar, if I look at the solar business, the solar business in the U.S. grew by 4.2% in Q4 2025, which is the first time that we had -- I mean, no, I mean, I think it's at a group level, it grew by 4.2%, which is the first time in many quarters that it grew, and that's because of this U.S. effect. Now in the U.S., the situation is that there is on one hand some of the federal subsidies, which are going to disappear at some point during the year. So there is a little bit of to pre-buy to qualify the project, and it will be going to continue to go on for commercial projects during the year. And there is a fact also that there is also a lot of regulations which happen at state level and a bulk of our business is done in California, which means that on the other hand, I think California wants to try to offset that and to push solar. So we see where it goes. But at the end of the day, we got good figures in solar in Q4 '25 and positive figures. Now that being said, you know that solar today in our mix of businesses represents approximately 3.5% of our total sales. A few years ago, it used to be at 6% when there was a boom in Europe. We continue to see -- we will continue to see growth in the future. Is it going to come back to 6%, I don't think so. Not anytime soon, but that's a little bit the situation. Operator: [Operator Instructions] Next question is from Aron Ceccarelli, Bank of America. Aron Ceccarelli: I have 2, please. The first one is on Europe, in the presentation, you called out market share gains in a challenging market in France, but also in Austria. I was wondering if you can expand a little bit about how you think about the sustainability of these market share gains as we enter 2026, please? Guillaume Jean Texier: Look, I mean, first of all, I'm always quite cautious about market share gains. Now what I feel comfortable with is that those gains were not acquired by price. And you have seen that, and we have been able to be quite disciplined in terms of margin overall at group level. But I can tell you that in France and in Austria, we didn't buy market share. We gained market share through better service and competition, through better value add that we bring to our customers. And you have to understand that our B2B customers, they are obviously focused on the price of the products. But they are very interested in the value that we can add and in the value that they can lose if the distributor is not providing the right level of expertise, service, et cetera. So because of that, I'm quite encouraged by that to the fact that it's going to be durable. Is it going to last forever? Certainly not. We have good competitors. They will do their homework. And at some point, in the midterm, they will rebalance things probably. But right now, I think we are on the momentum, which is going to last for a few more quarters, I hope. And I have a good degree of confidence because of the way we have gained market share. Aron Ceccarelli: Got it. My second question is on your opening remarks. You mentioned several times, good momentum in industrial automation in different countries. Could you perhaps expand a little bit on this topic and how you see industrial automation at the moment for you? Guillaume Jean Texier: Look, I mean, first of all, I should give you an exposure to where we are big in industrial automation. We are big in industrial automation in the U.S., in Canada, a little bit in Europe, in China and in India. And I can also give you figures, our industrial automation business in Q1, Q2, Q3, Q4 in the U.S., which is the most important country, was minus 4%, 1%, 3%, 8%. We saw a clear acceleration during the year of industrial automation, which is due to the fact that when you look at the recent publications, the [ ISM ] is now, for the first time, significantly above 50, which is a good sign. You have the clear effect starting to kick in of the tariffs, which is triggering reshoring. We flagged since the beginning, the fact that at some point, it would happen. When I look at the prospects of the industrial automation suppliers, they seem to be quite encouraging also. So at the end of the day, what is happening is not a surprise. And because we are big in industrial automation in the U.S., we benefit from that. When it comes to other countries, I think we commented a little bit on China and on the price effect in the second part of the year. Now that being said, in terms of volume, it continues to be relatively subdued, and let's put it this way. India is good, but it's small. And in Europe, the topic is the overall industrial investment, which is not great, the level of confidence in many countries in Europe, including in Germany and in France, which are 2 big countries where we have industrial automation is not yet mid-cycle to say the at least. So there is potential in there. Aron Ceccarelli: If I may, just a clarification on pricing. So you -- am I correct saying you mentioned 2% is coming from the suppliers so the cable one, and then the remaining is going to be flat? Is that the guidance for the year? Guillaume Jean Texier: No. We said 2% overall average, including copper, including suppliers, including all suppliers. We think that there is going to be price in almost all categories. It's going to depend once again on the specific category, supplier/country situation, but we think there's going to be price a little bit everywhere. Operator: Last question is from Eric Lemarie, CIC Market Solutions. Eric Lemarié: I've got 2. The first one, you mentioned at the last strategic update. You said roughly that 10% of the data centers market is addressable by distributors? Is it still the case today? Or is it now more than 10%? And my second question regarding the so-called acceleration businesses you presented at the last Capital Markets Day this time. Could you tell us the growth generated by these businesses in 2025 and maybe the weight in the sales from acceleration businesses? Guillaume Jean Texier: Yes. So I don't remember saying 10% of the market of data centers was addressable by distribution. And if said it, it was more order of magnitude. I don't think that I had in mind precise studies saying that. What I can tell you is that, first of all, the proportion of data centers in our business is growing. When you look at North America, when you look at the U.S., I think it's North America, we are now at 7% of our business, which is data centers. So it's starting to be sizable. I mean a few quarters ago, we were talking about 3%. We are now at 7%. The second thing I would say is that the range of products that we supply to the data centers industry is expanding. We started with -- and it may be particular to Rexel. Some other competitors may be more advanced than us, but I think we are catching up fast. We started with cable, and now we get a little bit more into more advanced things, like switch gear, et cetera. Now we are staying in the gray part of the data centers. I don't think it's going to be easy for us to enter into the white part of the data center, which is very much going direct or through specialized players. But we are expanding the proportion that we were able to address and we're expanding that quarter after quarter, which I mean, first of all, the opportunity is growing fast and our ability to grab a bigger part of this opportunity is also progressing. I think on the acceleration businesses, I can give you the figure for Q4 because I have it under my eyes. I don't have the full year, maybe I'll find it back for the next opportunity. Basically, the total business accelerators, including solar, HVAC, EV, industrial automation, datacom, utilities, is representing in Q4, 30% of our mix, and it's growing at 3.9% which is very slightly above the overall growth of the group in Q4 2025, which was 3.8%. And so the fact is that data centers are not included in that. The datacom part is included in that, but data centers because we try to be consistent with what we have given you in 2024 is not included in that. If I was to add data centers, obviously, we would add 3% at group level, and we would add a 3%, which grew in Q4 at north of 50%. So it would improve a little bit the accelerating part of it. And I think that's the beauty also of those acceleration businesses. There are years where things are accelerating in solar. And then the next year it's going to be less good in solar, but it's going to be good in data centers, et cetera. And the good thing is because there is not one trend, but 5 or 10 trends supporting the acceleration of our business, we're always going to see the benefit of that. I hope I gave sufficient answer even if I didn't find the full year results. Eric Lemarié: Can I ask a follow-up one? Guillaume Jean Texier: Sure. Eric Lemarié: Yes. Could you -- you mentioned that your range of products are expanding for data centers, but could you tell us whether Rexel will be well placed in your view for the future deployment of 800 VDC solution within data centers. Is it something that you will be able to? Guillaume Jean Texier: Can I come back to you later on that because I don't have the answer to that. I need to talk with my teams. Operator: Mr. Texier, there are no more questions registered at this time. Guillaume Jean Texier: Look, I mean, thank you very much for your questions and your interest in Rexel. As you can tell, we had solid results in 2025. We are proud of those results. And we think that we're entering 2026 with good momentum, both on the market side and also on our internal momentum side, so we have confidence in the future. And we'll talk to you for the Q1 sales in April. Thank you very much, and have a good evening. Bye-bye.
Helen Lofthouse: Good morning, and welcome to ASX's results briefing for the first half of the financial year ending 31st of December 2025. Thank you for taking part in this virtual presentation, and I hope you're well wherever you're joining us. My name is Helen Lofthouse, and I'm the Managing Director and CEO of ASX. I'm pleased to be presenting these results today, along with ASX's Chief Financial Officer, Andrew Tobin. I'd like to acknowledge the Gadigal people of the Eora Nation, who are the traditional custodians of the country where I'm speaking today. We recognize their continuing connection to the land and waters and pay our respects to elders past and present, and we extend that respect to any First Nations people joining us today. Before discussing the results, I wanted to address the CEO transition. So, on Tuesday, we announced that I'll be stepping down as Managing Director and CEO of ASX in May this year. It's been a privilege to serve ASX for 11 years, almost 4 of which as CEO at an organization that's at the heart of Australia's financial markets. It's been a challenging time for ASX with some tough decisions along the way. And I'm particularly proud of the achievements we've made on our transformation journey during my time as CEO. And it's been a rewarding but also demanding journey with enormous personal growth. And having reflected on what ASX needs for its next phase, together with the Board, I've agreed that this is the right time for a new person to bring fresh energy to the work ahead. And we've made great strides even as we face challenges, and I want to thank everyone at ASX for their dedication and support and our customers for their partnership. And as you'll have seen in the announcement, a comprehensive process is now underway to identify the next CEO. So moving now to today's presentation. It will cover areas, and then Andrew and I will take your questions. So I'll begin by talking about highlights from our first half results before Andrew provides a more detailed view. And the main focus of my presentation will be on the outcomes and commitments arising from the ASIC inquiry panels interim report and an update on our transformation strategy. And I'll then provide an update on progress on some of our customer-driven growth opportunities and conclude with some observations on market outlook and its implications for ASX. And we'll finish with Q&A. So let's begin with some highlights from our first half results. As you may have seen, we announced the headlines of our unaudited first half results on the 28th of January, alongside updated FY '26 total expense growth guidance. And today, I'm pleased to provide a more detailed view of our results. ASX delivered a solid financial performance in the half with particularly strong revenue growth. We reported operating revenue of $602.8 million, which is up 11.2% compared to the prior corresponding period or PCP. Underlying net profit after tax increased by 3.9% and was impacted by the growth in total expenses. Statutory profit was up by 8.3%, noting that significant items impacted the PCP. The Board has determined a fully franked interim dividend of $1.018 per share, reflecting a payout ratio of 75% of underlying NPAT, which as we flagged in our announcement in December, is at the bottom of our updated guidance range. Our EBITDA margin decreased by 180 basis points to 61.4%, primarily impacted by the growth in total expenses, including the cost of our response to the ASIC inquiry. Underlying return on equity was stable at 13.5%. Moving now to the ASIC inquiry. The ASIC Inquiry Panel released its interim report in December last year. The interim report represents a critical inflection point for ASX. It contains some serious interim findings, and we've taken the time to reflect deeply on the primacy of ASX's stewardship role as an operator of critical market infrastructure. And for us, stewardship means that we are trusted custodians who are accountable for delivering long-term sustainable outcomes for the Australian economy, supporting innovation and growth. Every day, we run critical market infrastructure that sits at the heart of Australia's financial markets and supports the stability of our financial system. Our markets help direct capital to where it's needed, driving Australia's economy and helping our customers and investors grow. And with this role comes significant responsibility to manage risk well, build resilient systems for the long term and continue innovating to prepare Australia's markets for the future. ASX has enjoyed a history of solid financial success and notable commercial and service innovation. And this has been an enduring strength for us, but it has not always served us well. At times, it's allowed a level of complacency and insularity to surface instead of benchmarking ourselves to the highest standards. And in more recent years, we've had too many instances where our customers and regulators have had their confidence tested. Our challenges have been many years in the making. And while there have been material changes over the past three years, we're taking immediate steps to make further changes, which will likely require a multiyear effort. We're committed to building an ASX that is sustainably different into the future. And the ASIC inquiry panel's interim report is tough reading, but it's fair. The inquiry process and the interim report have prompted us to carefully consider why some parts of our transformation strategy haven't progressed as quickly as we would have liked and what cultural factors have made it challenging to achieve. The panel's interim report states that it contains the substantive conclusions that will comprise the basis of their final report, which is to be released by the end of March this year. ASIC proposed a strategic package of actions for ASX to address the recommendations that the report contained. And we've committed to delivering these actions, and I'll talk about how we're doing this in a bit more detail shortly. Importantly, the inquiry panel also identifies the need for a new supervisory approach, which places greater emphasis on delivering outcomes that can benefit the whole market with open constructive engagement from all parties. Implementing our commitments to ASIC is a high priority for us. As we said at our announcement on the 28th of January, we'll deliver our commitments planned to ASIC by the end of this month, and we're already getting on with delivering the outcomes. First, we're creating a clear dedicated governance structure for our clearing and settlement functions. It will promote the independence of and responsible investment in each of the clearing and settlement facilities to support financial system stability. All ASX Limited directors have now stepped down from the clearing and settlement facility boards, which now comprise only independent nonexecutive directors. These boards will also be supported by dedicated resources as well as clearly defined shared services support from ASX Group. Our aim is to bring greater independence while maintaining the benefits for these entities and our customers of being part of the ASX Group. Our second commitment is to reset the Accelerate program. This is a vehicle delivering long-term enterprise-level change to enhance how ASX delivers on its stewardship of critical market infrastructure, embedding risk management excellence, resilience and sustainable business operations as standard practice. We are conducting a strategic reset of this program to align with our regulators to set appropriately aspirational work stream target states and with an additional governance and independence work stream to address key findings from the interim inquiry report. Work on this reset is underway, and we'll aim to agree our final plan with our regulators by the end of June this year. I'll talk in more detail about our approach shortly. Third, ASX will accumulate an additional $150 million above our current net tangible asset value by the 30th of June 2027. This capital charge is expected to be funded by lower dividend payments for at least the next three dividends at 75% of underlying NPAT, the bottom end of our revised dividend ratio -- payout ratio range. We also intend to operate a discounted dividend reinvestment plan for at least the next three dividends. And this work is being delivered as part of a strategy, investment and capital work stream as we refresh our strategy and ensure that we have the right investment plans in place to support it. It's important that our people demonstrate behaviors and decision-making that are aligned with our role as a steward of critical market infrastructure. ASX's leaders are expected to model these behaviors, which are now part of our performance and remuneration structures to ensure that these are deeply embedded and enduring in our organization. Our Board have an intense focus on this area of uplift, which we're delivering as part of the culture, capability and capacity work stream in the Accelerate program. And finally, we welcome the inquiry panel's recommendation for a revised regulatory approach that provides strong alignment to deliver outcomes that can benefit the entire market. And this involves uplifting our own regulatory engagement, too. The ASIC inquiry panel is expecting to publish a final report by the end of March, and we welcome further insights that it may provide. Now I'll focus on some important milestones that we've achieved in the past three years as part of our transformation. So, three years ago, we launched our strategy to transform ASX, and I'm proud of the progress that we've made in many areas during my time as CEO. And the inquiry panel's interim report underscores an even greater urgency to the transformation that we're pursuing. The investments we've already made in ASX through each of our strategic pillars have been important. So I want to focus on some key ones today. We've significantly reduced our technology risk and are building future-ready technology by delivering our modernization road map. And this includes the delivery of key ASX-wide capabilities such as our data, digital and observability platforms as well as cloud services. And these provide reusable capabilities for our critical services that are delivering scalability, resilience, security and best-in-class technology for ASX and our customers. We're partnering with our customers to evolve our offering and shape the future of financial markets. I won't list all of these new customer-driven initiatives as there are many, but some examples include the increase in trading opportunities from the creation of a post-auction trading session for our cash markets and the delinking of the bond role, driving greater liquidity in our rates futures market. We've also added environmental futures and debt market data products to our offering. And we've been undertaking some key reforms in our listings market as we look to play a leadership role in strengthening Australia's public markets. And we're enhancing our data and digital capability with a new platform that makes trusted data accessible, securely managed and integrated with analytics. Over time, we aim for all of our key data to be on this platform with AI to provide new insights for our customers to help them make decisions. And finally, as part of our commitment to invest in our people and ASX' culture, we now have a modern workplace experience here at our new head office in Sydney. As I said earlier, the ASIC inquiry panel's interim report is a critical inflection point for ASX. It comes at a time when markets and technology are changing fast. And as a Board and executive team, we are reflecting on our strategy and where changes may be needed to reflect the changing environment and our future aspirations. It's an opportunity to focus on the next horizon and on innovation for a future-ready exchange to power a stronger economy while also incorporating learnings and feedback from our stakeholders. Our strategy refresh will reflect our special position in the Australian economy and in supporting financial system stability. We run critical market infrastructure every day and the financial markets depend on us. We'll continue to focus on partnering with our customers and innovating to deliver the solutions that they need to prosper. And an important part of our strategy refresh is our role in shaping and stewarding the future of Australia's financial markets and how we deliver them to the world. Tokenization of assets, digital currencies, real-time trading and settlement and instant movement of collateral around the world are all important developments, which we're exploring. The Board and executive team are taking this important work forward together, and I know it will continue to evolve with the contributions of a new CEO in due course. ASX's technology underpins the daily operations of our markets and services. And we've taken a strategic approach to our long-term investment in technology, and this is delivering the enterprise capabilities we need now as well as supporting innovation and scale into the future. Our technology strategy is centered on core enterprise platforms, which provide our key ASX-wide services and are delivered as part of the major projects in our modernization road map. These projects are not just about replacing the technology that we have, they're building our future capability, flexibility and speed to market as markets evolve. We're leveraging leading global capability through our technology partnerships so that we can keep pace with emerging trends, innovation and best practice. We partner with a leading global cloud provider, delivering scalability, security and resilience for our new clearing and settlement services. We're also using cloud services for our new data platform, which, as I mentioned earlier, will enable new insights for our customers to help them make decisions. Our partnerships deliver the security, availability and recoverability that are important for critical market infrastructure. And we're also implementing an end-to-end observability platform to accelerate our detection of anomalies that could disrupt our services, improving our resilience and supporting our ability to operate through disruption. We're also partnering with specialist industry providers for business-specific applications. And this includes NASDAQ and TCS, who are delivering modern trading, clearing and settlement platforms with us. These best-in-class offerings benefit our customers with leading capability and ongoing globally driven product evolution for the future of Australia's financial markets. Our investments in technology mean that we're making product and process enhancements in some areas without some of the constraints of a legacy technology environment. As we look forward, these platform capabilities can provide the foundation for us to shape the future of financial markets. We'll consider global trends and explore innovation opportunities such as scaling our adoption of AI, end-to-end digitization for our customers and the digitization of financial markets for Australia. So let's focus on our technology modernization delivery road map, which we published at our AGM in October. We then -- since then, we've commenced our rollout of new network equipment to customer sites as part of our trading networks infrastructure replacement project. And when it's complete, it will deliver upgraded, resilient customer connectivity with current trading platforms, but also for upcoming cash market trading platform enhancements and for the new derivatives market trading platform. And for the derivatives market trading platform, our previous target window for go-live was late FY '27 or early FY '28. And as you can see on this road map, this has been updated to target late FY '28. Once it's in place, customers will benefit from a contemporary platform, which is aligned with global industry standards. It will deliver enhanced features and functionality, including new order entry and market data protocols and improved integration with our customers' pre-trade risk management systems. ASX will continue to invest in technology to support the evolving needs of financial markets now and into the future. For Release 1 of the CHESS project, ASX is targeting go-live in April 2026. This is a significant milestone for ASX and for Australian financial markets. The production parallel test is currently underway ahead of final preparations for all approved market operators for go-live. Release 1 will mean that we're delivering our clearing services on a contemporary platform, supporting resilience and security as well as growth in market volumes. And Release 1 is an important step in the delivery of ASX's technology strategy. It leverages the new cloud and data platforms, which provide improved resilience and secure access to high-quality data. Work on Release 2 continues in parallel with Release 1 with the first code release to the external industry test environment targeted for March this year. Our primary build is targeting to be completed by the end of 2027, and we've allowed a significant amount of time for industry testing and readiness preparation ahead of our targeted go-live in 2029. As we've previously announced, Clive Triance, our Group Executive of Securities and Payments, will be retiring. I'd like to sincerely thank him for his contribution to ASX. He'll be stepping down at the end of this month, and Andrew Jones, who's currently General Manager of Equities, has been appointed as Interim Group Executive. Andrew's instrumental role in the CHESS project ensures continuity as we move towards Release 1. The Accelerate program is the other key element of the great fundamentals pillar of our transformation strategy. The objective of this program is to enhance how ASX delivers on its stewardship of critical market infrastructure. It's embedding risk management excellence, resilience and sustainable business operation as standard practice. And we'll achieve this through a series of work streams, many of which we've talked about before. And since launching midway through last year, we've delivered key milestones, including uplifted core enterprise-level risk frameworks and controls, remediated key technology risks and launched a leadership program to develop our capability to drive our transformation. As I said earlier, we are undertaking a strategic reset of this program. We're carefully reviewing the target states for each work stream to make sure that they're appropriately aspirational. And this program is a high priority for us. We're aiming to agree the scope and target states of Accelerate with our regulators before the end of June. And I'll now hand over to Andrew to provide a detailed view of our financial results. Andrew Tobin: Thanks, Helen, and good morning, everyone. As announced on 28th January, we delivered strong operating revenue in the first half, demonstrating the quality of our portfolio of businesses. Operating revenue was $602.8 million, which was an increase of 11.2% compared to the prior corresponding period or PCP. Total expenses for the half were $264.3 million, which is up by 20%. Excluding the additional expenses relating to the ASIC inquiry, total expenses growth was 12.1% for the half. Net interest income was down by 6.7% to $40.2 million, impacted by lower earnings on ASX cash balances due to cuts in the RBA target cash rate. This was combined with higher interest expenses from the commencement of the lease at our new head office in Sydney. Underlying net profit after tax was up 3.9% compared to PCP as the strong revenue growth was partially offset by higher total expenses and lower net interest income. ASX's statutory net profit after tax was up by 8.3%, noting that significant items impacted the PCP. Our EBITDA margin was 61.4%, a decline of 180 basis points. And our underlying earnings per share of $1.357 is broadly consistent with the trend in underlying net profit after tax. Underlying ROE generated in the half was stable at 13.5% compared to the PCP. Now turning to the business unit revenue outcomes. Starting with Listings. Total listings revenue grew by 1.4% to $106.4 million compared to PCP. Annual listing fees make up just over half of total revenue for listings and are driven by market capitalization as at 31 May each year. Higher market capitalization in May 2025 supported revenue growth of 3.2% to $57.3 million in the period. We recognize the revenue derived from initial listings and secondary raisings over five years and three years, respectively. And so the revenue outcomes reported mainly reflect prior period activity. This is shown in the bar charts on the slide. This amortization profile was the primary driver of lower initial listings revenue recognized in the half of $9.1 million, down 3.2%. Secondary raisings revenue was $34.3 million, down 1.7% compared to PCP. Investment products and other listing fees were up 11.8% due to a higher number of ETF listings and growth in funds under management. Total net new capital quoted for the half was $27.3 billion compared to a net decline of $9.2 billion in 1H '25 due to stronger activity across our listing markets, particularly secondary raisings and dual listings. Moving now to the Markets business. This business generated revenue of $192.7 million, up 14.4% compared to PCP. Futures and OTC revenue of $142.9 million was up 13.1%, supported by a 10.5% increase in total futures and options on futures volumes as global interest rate market conditions in the period drove strong activity across the curve. Strong growth was observed across all major products, including 90-day bank bill futures and 3- and 10-year treasury bond futures with traded volumes up 14%, 13% and 10%, respectively. Commodities revenue was up primarily driven by higher trading activity in electricity derivatives. Cash market trading revenue was $41.6 million, up 24.6% on PCP, driven by a 22.7% increase in the total ASX on-market value traded. This was also supported by options traded value, which was up by 19.2%. ASX's share of on-market cash market trading averaged 88% for the period, which was consistent with the PCP. Equity options revenue was $8.2 million, down 4.7%, reflecting lower trading activity in single stock options, which was partially offset by an increase in index stock options. Now looking at the Technology and Data business. Today, we have published several new drivers that give a clearer view of the key revenue drivers for this business, which I will now outline. Technology and Data had another strong period with total revenue of $142.9 million, increasing by 7.5% compared to 1H '25. Information Services generated revenue of $89.3 million, up 8.6%, supported by strong demand for data across equities and derivatives markets. This drove real-time display and nondisplay data with the latter reflecting growth -- the growth trend in machine readable data that we have seen in recent years. Technical Services revenue of $53.6 million was up 5.7%. Growth was primarily driven by an increase in connectivity services, which provide access for participants to our markets. The number of ALC cabinets declined in the period, primarily due to customer consolidation and a shift in mix towards higher-powered cabinets, which attract a higher average fee for ASX. And finally, moving on to our fourth business segment, Securities and Payments. This business generated revenue of $160.8 million, up 18.5%. Issuer Services and equity post-trade services are subject to the new building block pricing model, which was implemented from 1 July 2025. Under this model, ASX's revenue requirement is derived by applying a regulated return to the efficient cost of providing these services. The revenue figures announced today are net of any over or under return experienced in the period, and we have accrued an over-recovery rebate of $7 million in the half. We provide a more detailed breakdown of this revenue calculation in the appendix of the investor presentation. Issuer Services revenue was $34.8 million, up 15.6%, driven by primary market facilitation fees and a higher number of CHESS statements issued, reflecting higher activity in cash markets. Equity post-trade services revenue also benefited from higher activity in cash markets, increasing by 22.2% to $81.5 million. Austraclear generated revenue of $44.5 million, up 14.4% compared to last year. It benefited from strong debt market activity during the period, leading to a 13.2% increase in transaction volume and 8.9% growth in the balance of issuances to $3.2 trillion at 31 December. Austraclear revenue also includes the net operating contribution from Sympli, ASX's property settlement joint venture. ASX's share of Sympli's operating loss was $4.4 million compared to a loss of $5.3 million in the PCP following a further restructure of their cost base. There remains ongoing uncertainty around the timing of interoperability between e-conveyancing platforms, and we continue to review the strategic value of this investment. Turning now to expenses. Total expenses for the half were $264.3 million, up 20% on the PCP. Operating expenses relating to our response to the ASIC inquiry was $17.3 million in the period. And excluding these additional costs, total expense growth was 12.1% or 7.8%, excluding depreciation and amortization. Employee expenses were up by 3.8%. Average permanent and contractor headcount increased from 1,265 in the PCP to 1,354 at the end of this period. The growth in project-related headcount primarily relates to our technology modernization program and OpEx headcount growth primarily relates to the investment in the Accelerate program. Technology expenses were higher, primarily due to higher licensing fees and costs related to the technology projects. Growth in administration expenses was driven by investments in the Accelerate program. And we reported depreciation and amortization of $31.9 million, up 54.1% as more elements of our new technology systems started to go live. This reflects our expectation of D&A increasing by approximately $20 million each financial year for the medium term. Turning now to total expenses growth. On 28th January, we announced an increase to our FY '26 total expense growth guidance range from between 14% and 19% compared to the PCP to be between 20% and 23%. Excluding the costs related to our response to the ASIC inquiry, we are guiding for total expense growth of between 13% and 15%. There are three key drivers of the higher range. We are increasing investment in the capacity and capability of resources to uplift risk management and support our major technology platforms. We have progressed the development of our commitments plan to respond to ASIC as part of the inquiry interim report. And finally, we have updated forecasts associated with trading volumes, primarily postage and timing of various legal actions. We also announced that we expect costs related to our response to the ASIC inquiry to be at the upper end of the previously provided $25 million to $35 million range, which now includes the expected commitments plan costs. We intend to provide FY '27 total expense growth guidance by the end of the financial year. Now moving to capital expenditure. CapEx for the first half was $83.1 million, and we are guiding for FY '26 CapEx to be between $170 million and $180 million and $160 million and $180 million in FY '27. This reflects the multiyear delivery profiles of our major projects, but noting the inherent delivery risks in the technology program may impact this guidance. We also expect an average depreciation and amortization schedule of 5 to 10 years for these major projects once they go live, noting that the CHESS project is expected to be amortized over 10 years. Moving now to net interest income. Net interest income consists of net interest earned on ASX's cash balances and net interest earned from the collateral balances lodged by participants to meet margin requirements. Total net interest income for the half was $40.2 million, representing a decline of 6.7% compared to the PCP. Interest income on ASX group cash of $26.8 million was down 16.8%, impacted by a lower RBA target cash rate in the period. Financing interest expense was 10.7% lower, largely driven by lower financing costs related to the corporate bond. Lease interest expenses primarily relate to the lease for our new headquarters in Sydney, which commenced on 1 October last year and also equipment leases. Net interest earned on the collateral balances was $26.1 million this half, up 16.5% compared to the PCP. This reflects an increase in the average collateral balance to $12.3 billion this half due to growth in activity across our markets. This was combined with a 3 basis point increase in the average investment spread on these balances to 18 basis points, driven by higher returns on government securities and overnight reverse repos. And we expect this spread to stay around the current level for the remainder of the financial year. The average collateral balances subject to risk management haircuts increased from $7.7 billion to $8.5 billion this period as overall collateral balances increased. As at 31 January, average collateral balances of $10.3 billion and balances subject to risk management haircuts of $6.8 billion were below the first half average, primarily due to the netting impact in index futures combined with a reduction in open interest. ASX's balance sheet continues to be strong and positioned conservatively with an S&P long-term rating of AA-. From a shareholder return perspective, underlying ROE for the half was 13.5%, which was stable compared to the PCP. An increase in reported underlying profit was offset by an increase in total equity over this period. As Helen mentioned earlier, we will accumulate $150 million above our current net tangible assets in line with our commitments to deliver ASIC's strategic package of actions. As part of this capital accumulation, the Board has declared an interim dividend of $1.018 per share for the half, which as previously indicated, is at the bottom end of our dividend payout ratio range of between 75% and 85% of underlying NPAT. In addition, we are also introducing a 2.5% discount to our existing dividend reinvestment plan. Depending on the participation rates in the DRP, we also have the flexibility to partially underwrite the DRP to achieve our capital targets over time. Our balance sheet and capital management options provide the flexibility to support ASX's future funding requirements. We currently hold available cash and short-term investments in excess of $200 million above the financial resource requirements for our licensed entities. This includes default and nondefault requirements to support our clearing and settlement licenses as well as financial resources to support the group's 5 other licenses, including its two financial markets licenses. We increased our default fund contribution by $50 million during the period to support the cash equities and exchange-traded options clearing business. Other financial resource requirements, which are calculated primarily based on revenue and expenses for the licensed entities, also increased by a similar amount. As mentioned previously, we will be accumulating an additional $150 million above the 31 December 2025 NTA position by June 2027. So, to summarize our results, the strong operating revenue we reported in the half reflects the strength of ASX's diversified businesses. Our medium-term underlying ROE target range of between 12.5% and 14% reflects our focus on our ongoing investment in the organization as well as delivering the right products and services for our customers. And with that, I will hand back to Helen. Thank you. Helen Lofthouse: Thanks, Andrew. So I'll now provide an update on our customer-driven growth opportunities before finishing up with outlook and guidance. Growing and improving our offering by listening to and partnering with our customers remains a priority by improving market quality and pursuing new initiatives. And today, I'll provide an update on the progress of some of our near-term opportunities. Market quality is about ensuring that our markets have the right settings to create transparency and liquidity and to drive capital allocation to the right opportunities. And as I mentioned earlier, we recently announced the appointment of seven members to the newly constituted advisory group on corporate governance, which replaces the ASX Corporate Governance Council. Chaired by Dr. Philip Lowe, this advisory group has been appointed to act in the interest of the market as a whole with members bringing deep expertise in listed entity governance, investment, superannuation, markets and stakeholder engagement. We also have an ongoing review into potential changes to the listing rules, which relate to shareholder approval requirements for dilutive acquisitions and changes in admission status for dual listed entities. We've received 45 submissions, and we look forward to providing an update later this half. These activities are examples of how we make sure that our market keeps evolving to remain attractive to companies and investors in Australia and around the world. And new initiatives are about adding new products and services in partnership with our customers to give them what they need to prosper as the global economy evolves. In the first half, we launched options over gold ETFs, which extends our ETF options offering into the commodities asset class for the first time. And we also added morning and peak electricity contracts to our environmental futures product suite as our customers' risk management needs evolve. And we've had our first customers use our ASX colo on-demand service, which we launched in late June as part of our -- an expansion of our technical services offering in our technology and data business. And this is a fully managed Infrastructure-as-a-Service solution within the Australian liquidity data center. It enables rapid client onboarding and scalability, allowing access to ASX's trading and clearing and settlement services without the need for on-premises equipment. So, looking now to outlook and starting with our listings business. There was solid momentum in listings activity in the first half. And during that period, there were 62 new listings, including the IPO of BMC Minerals as well as several dual listings, including Channel Infrastructure and Ryman Healthcare. And we're seeing a higher level of inquiries from entities considering a listing compared to this time last year. And as I just mentioned, market quality is a key focus for us and net new capital quoted is an important metric to measure the quality of our listings market because it takes into account delistings, new listings and secondary capital raisings. Net new capital quoted was $28.7 billion in the first seven months of the financial year, which was driven by this new listings activity as well as secondary capital raisings. And we also saw significant growth in the number of international listings with 13 in the first half, which demonstrates our strong global value proposition. Strong cash market activity continued into the second half with total value for January up by 47% compared to the same month last year. And we've seen volume growth continue to be driven by volatility caused by geopolitical events as well as expectations around local and global central bank monetary policy. Strong passive manager flows are also driving growth in options activity, particularly during index rebalancing events. Total futures and options on futures volumes were also strong in January, increasing by 31% compared to the prior period. The current rate futures environment remains supportive with activity across the curve. And at the short end, activity has been driven by changing market expectations around RBA monetary policy settings. And at the longer end of the curve, volumes have been driven by domestic and foreign issuance of Australian debt and global economic dynamics and their impact on Central Bank rates and currencies. Moving now to guidance. So as announced on the 28th of January, total expense growth for FY '26 is expected to be between 20% and 23%. And this includes the operating expenses associated with our response to the ASIC inquiry and development of our commitments plan and is expected to be at the upper end of our $25 million to $35 million range. Excluding these additional costs, we expect total expense growth of between 13% and 15%. FY '26 capital expenditure is expected to be between $170 million and $180 million and for FY '27, between $160 million and $180 million. As you know, the majority of our CapEx spend relates to the major technology projects as part of our modernization plan. Future investment by ASX, which will be considered as part of our strategy refresh, will reflect aspirations for innovation, findings from the inquiry panel and change load on ASX and our customers. Given the CEO transition, we'll no longer be holding our investor forum in June. Instead, we intend to provide our FY '27 total expense growth guidance together with CapEx guidance for FY '28 by the end of the financial year. And finally, underlying ROE remains a key metric as we continue to focus on growth opportunities while increasing our investment in the organization, and we're targeting between 12.5% and 14% in the medium term. Thank you, and I'll now invite questions. Operator: [Operator Instructions] Your first question comes from Julian Braganza with Goldman Sachs. Julian Braganza: Just a couple of questions from me. Just firstly, on the spread just on the participant balances, that continues to improve 18 basis points. Can you just help us understand better that trend has been consistently improving over the last few halves. Just want to get a sense whether there's a bit of conservatism here or just in terms of the outlook, how should we be expecting that to track? Helen Lofthouse: I'm sorry, Julian. I didn't quite -- did you catch that Andrew? Andrew Tobin: The spread movement. Helen Lofthouse: Okay. Andrew Tobin: So, Julian, if I understand the question, it was the 18 basis points on the spread that we reported. We are expecting to see that extend into the second half of this financial year. But beyond that, at this point in time, we haven't provided any guidance. To your point, though, it has been expanding. We have seen changing in dynamics with the reduction in cash in the overall system. That is providing further opportunities to increase that spread slightly. But we're really focused at this point in time on the second half, which is to continue with that 18 basis point spread into that second period. Julian Braganza: And has that spread been improving over the course of the half? Is that how we should be thinking about it? Andrew Tobin: Julian, I think the prior period comparison, it went up by about 3 basis points. So it can move around a little bit in any given month, but we're talking 1 or 2 basis points here in the scheme of things, but 18 basis points for the half, and that's expected to continue in the second half. Julian Braganza: Okay. That's clear. And then maybe just on the market futures average fee per contract, that improved to about $1.40. Can I just understand the thematics that's driving that improvement and also just your expectations around that going forward? Andrew Tobin: Yes, happy to. So we've seen a significant increase in volume over the period and also a change in mix. Commodities is part of the answer here that we've seen an increase in the commodities futures contracts over that period of time. And we've also seen the rebate process or outcome change over that period. So it's a combination of mix, higher commodities volumes coming through and sort of a lower rebate rate per contract over the period that's led to that $1.40. We haven't given guidance going forward, but you can see sort of that moves around depending on the mix of products there and that rebate mix. Julian Braganza: Okay. Got it. That's clear. And then maybe then just touching on the settlement and clearing business here. I just want to understand just in the appendices, the expense allocation to that division. It feels like there's been an increase in expenses based on the management accounts that were published for FY '25 and what you're giving us here for FY '26 seems like it's about $20 million, $25 million. It's about probably half the expense increase for the operating costs for the ASX Group ex the ASIC inquiry costs, et cetera. I just want to understand just the expense allocation between the two and how you're comfortable that, that increase is the right increase that should be allocated to the settlement and clearing business for pricing purposes. Andrew Tobin: So, Julian, I think you're talking -- so it's a bit muffled and difficult to hear you. But I think the question was going to the clearing and settlement allocation of costs. Is that correct? Julian Braganza: That's right. And then just also understanding that it be clear that the increase in expenses into FY '26 is in the order of about $22 million in terms of what's being allocated to the settlement and clearing business for pricing purposes. Andrew Tobin: So to determine the expense base allocated to clearing settlement and Issuer Services, we go through an activity-based allocation process. And so depending on where those resources are allocated, that will determine the expense outcomes allocated to clearing settlement and Issuer Services. On an annual basis, we actually published the budget number for the year ahead. And so following the end of this financial year, once we've concluded our budgets, we will be publishing the budget allocated to the clearing settlement and Issuer Services. So you'll be able to pick it up at that point in time. Julian Braganza: Okay. But just to that number at the bottom in the appendices is $147 million that's the budgeted number for? Andrew Tobin: That's correct. That's a budgeted number for FY '25 -- FY '26, I'm sorry. Julian Braganza: Yes. So just to be clear, so that's a $20 million, $25 million increase from last year based on the actual expenses for last year. So I just want to be clear because it's about 50% of the increase in ASX group cost that's being allocated here if I compare like-for-like. I just want to make sure that, that's consistent with how you're thinking about the cost allocation between the group versus settlement and clearing at this stage in the investment cycle. Andrew Tobin: That's correct. It's based on, as I mentioned, that activity-based allocation of costs to those particular activities. Julian Braganza: Okay. Got it. And then maybe just a last question. In terms of the ROE, you've given us a fair bit of numbers there in terms of the capital of the business and expenses, et cetera. But in terms of the ROE that you're seeing within settlement and clearing at the moment for the first half based on activity levels, where would that be? Andrew Tobin: Julian, you -- again, sorry, it's a bit muffled, but I think you're asking about the group ROE target. Julian Braganza: Yes. Apologies. I was asking about just the clearing at the moment for first half '26 on ROE. You've given us the fair numbers in terms of the capital in the business, the D&A, et cetera. So I just want to be clear given the in the first half, where the ROE for the first half '26. Andrew Tobin: So let me try and capture it. I think we've clearly stated our ROE targets at a group level, the 12.5% to 14%. But I think your question was also going to the clearing and settlement activities. And really, the way to think about the return in that business, it's a targeted return that determines the revenue allocation, if you like. So if you look at the slide in the back of the investor pack, the BBM slide, it talks about a targeted rate of return of 11.44%. That's the regulated cap, if you like. cap and floor for that business activity. So I think that answers your question, hopefully, Julian. Julian Braganza: Sorry, Andrew, I was asking what would have been the ROE for the first half of '26 for settlement and clearing? Andrew Tobin: Well, it's targeted to that return. So we -- 11.44% is the regulated cap. We mentioned today that we've included a rebate of $7 million in the clearing settlement issuer services revenue, and that really aligns that outcome with that 11.44% return. Operator: The next question comes from Ed Henning with CLSA. Ed Henning: A couple from me. Just the first one, just a clarification what you were just running through then on just a regulated return. Have you over earned $7 million in the period, so that is accrued. So therefore, if you underearn on the return, whether in the second half, you can then book that revenue? And the second part to that is can this be continued to accrue? Or is it -- can it be over multi years? Or is it can only be accrued for a year? Andrew Tobin: Yes, that's a great question, Ed. So we've published our pricing policy that goes into a lot of detail around this. Effectively, it is an accrual based on our estimation of what will be paid out as a rebate to our customers, but we need to let the full year complete. And so it will be determined based on the 30 June 2026 position. And in the pricing policy, there are certain sort of, I suppose, tolerances around an under or over accrual. So, for example, if there's an over-earning of a number beyond 5% is paid as a cash rebate to customers immediately. If it's between 0% and 5%, it's really retained by the organization to offset potential ups and downs or variances into the future periods as well. I mean if I just draw your attention to the pricing policy, and it sets out the tolerances around how the mechanisms work. Ed Henning: Okay. So this 7%, I imagine is within the 0% to 5%. So you -- just to clarify, you have booked this in the period. Okay. And -- but there could be a swing factor where if you overearn in the next period, you may not be able to book as much? Andrew Tobin: That's correct. Think about it as the regulated rate of return, the 11.44% that we've got in the example really sets that outcome, and we sort of monitor that on a regular basis. But the true measurement is 30 June each year. At 31 December, we have booked our best estimate of that $7 million accrual. Ed Henning: But as I said, that accrual has gone through the P&L or that is sitting there outside that hasn't been booked through the P&L? Helen Lofthouse: It could it go up or down. Andrew Tobin: Could it go up or down. It could go up or down. It's gone through the P&L, Ed. So it's a net rebate against the revenue we've recognized in the period. Ed Henning: Okay. No worries. Second question for you, Helen. In the speech today, you talked a number of times about aspirational targets and work streams. Is this a potential issue for ASIC? Because I'm surely they want realistic work streams and targets, not aspirations. Are your aspirations realistic? They're actually hard targets as opposed to aspirations? Helen Lofthouse: Well, look, I think as we reset the Accelerate program, those are exactly the questions we'll be focusing in on. I think that there's a balance to be had here, right, because the work streams absolutely need to be practical and deliverable and realistic. But they also need to really be couched in a deep understanding of our role as a steward of critical market infrastructure. And so when we talk about them being aspirational, we're really talking about being aligned with that and what are our aspirations for both resilience, for example, for Australia's financial markets, but also how do we make sure we're future-ready and supporting innovation across the markets. So we will be going through exactly those types of questions with ASIC to try and make sure we're aligned. But just to be clear, our target state definitions will be clear and measurable. But as we consider what those target states are, one of the questions we'll be asking ourselves is do they have the right level of aspiration in them given the important role that we play in Australia's markets. Ed Henning: Okay. And just to clarify, you will not expect any material changes from the interim report to the final? Helen Lofthouse: Well, look, I clearly don't know what's in the final report. I guess the things I would draw your attention to is the fact that in the interim report, they clearly state that the substantive findings from the inquiry panel are there in the interim report. I'm sure there'll be a lot more detail in the final report. But based on their prior comments, our expectation is that the substantive findings have already been identified. Operator: Your next question comes from Kieren Chidgey with UBS. Kieren Chidgey: I just have two questions. First one on costs. Following on, I guess, from that comment there, Helen, if ASX interim report is a substantive view of changes required, how should we think about, I guess, the information you've already put out to market in terms of the second half OpEx outlook. Obviously, it's stepping up 12% to 13% relative to first half. I think there was talk of various factors in there such as legal costs and volumes, but a key driver presumably is some of that response and bringing on additional people to enact that change. So just wondering sort of how much of what you think is required to be done is going to be there in second half, given it will obviously take time to sort of get all those people and processes in place. Is that a reasonable guide of the cost base as we look into '27, second half? Or is sort of that run rate in terms of the ASIC response going to step up further in '27? Helen Lofthouse: Look, it's a really understandable question, Kieren. But obviously, to really give a good sense of what FY '27 is going to look like, we need to make sure we've done the planning to substantiate that. Obviously, when we considered the updated guidance for FY '26, clearly we considered the factors that we laid out and made sure that with some flexibility as well because, of course, we haven't done our final submission of the commitments plan with ASIC, and we're still liaising with them to make sure that our plan is in line with expectations. So we've made sure that there's some flexibility there for adjustments that we might need to make during the half. But the planning and the detailed guidance for FY '27, I'm afraid, will come by the end of June. Kieren Chidgey: Yes. So yes, I don't want to sort of try and draw you too much on the '27 number, but maybe just to understand what you've allowed for in second half '26. So maybe you can just explain, I guess, are a lot of the cost responses that are coming through in second half in relation to the ASIC inquiry, the people, if there are additional heads, given you only announced that change sort of last month, like I presume the exit run rate at the end of the second half in terms of headcount, is that going to be particularly different to sort of where we sit today? Andrew Tobin: Yes. Happy to provide a comment here, Kieren, as well. I suppose there's an exercise to reset the Accelerate program, and that's part of what we need to do. And as Helen mentioned, that will also be informed by the final report once we receive that. That's due to be delivered to ASIC by the end of June. And really, then I think about the sort of the ongoing cost base to be part of the Accelerate delivery program. And a large part of that program is built into our cost base I think about the nonrecurring costs in this particular year will be the ASIC inquiry costs in total. And so that guidance of $30 million to $35 million that we provided to the marketplace, I do think about that as a one-off or nonrecurring cost. Kieren Chidgey: Yes. Okay. Second question sort of on a different subject on Sympli, we've seen AI release a couple of reports on interoperability and sort of cost benefit analysis across the system that showed, I guess, only a couple of scenarios that would drive a net positive economic contribution to the country over the next 20 or so years. Like has that altered your view or your commitment to that business? Andrew Tobin: Kieren, happy to take that one as well. As I called out in the speech this morning, we are considering that position and considering the sort of the strategic investment that we've made in Sympli, fully aware of the sort of ARNECC reports. But ARNECC are yet to sort of, I suppose, announce a date for interoperability, and that's the key uncertainty at this point in time. Operator: Your next question comes from Siddharth Parameswaran with JPMorgan. Siddharth Parameswaran: A couple of questions, if I can. Firstly, Helen and Andrew, I was hoping you could just provide some color on the very strong growth we've been getting on the revenue side in cash markets and also futures and just the sustainability into the future. So where -- maybe if you could just break down retail versus in-store versus offshore. What are you seeing? Maybe just whatever color you can give about the strong growth we've seen and your expectations on sustainability in the short and medium term? Helen Lofthouse: Maybe the comment I'd make there, Sid, is obviously, volumes for us are driven by a couple of different things. So one of them, of course, is the work we do with our customers to ensure we have market quality to add new products, new services, new trading opportunities, make sure we've got the market settings right. But of course, also a big part of it is global markets and volatility and what's happening more broadly. And so as you'd expect, the drivers of growth that we're seeing are both of those things. I think we've made a series of really important investments in capacity, in functionality for our customers, in the structural settings for our markets that are all supporting part of the volume increase that we're seeing. But part of what we're seeing is also a globally observed broad increase in market activity in both rates and the cash equity markets. So there are both kind of global macroeconomic and volatility factors there as well as the work that we've been doing to invest in and continue to grow and improve our markets to support that and make sure that we're benefiting from that increase of activity when it comes. And so if you look at long-term trends, and I'd encourage you to do that. We do have some good information, I think, on the -- on multiyear trends, then you can see that we are -- there are always ups and downs, and that's the sort of global market factors. But what we're seeing is broadly consistent with a long-term growth trend, notwithstanding that because of the ups and downs in different periods, you sort of have to draw a bit of a line of best fit there. But I think that this kind of level of volume growth is something that we've seen consistently over the years, but with some fluctuation up and down sort of in individual years given whatever market factors are at the time. Does that answer your question, Sid? Siddharth Parameswaran: Not fully. I was just hoping you could give some color around just the composition, retail versus offshore and just also domestic -- just on the futures side, just -- I understand the long-term growth drivers and you think it's consistent, but just where we are today. Helen Lofthouse: Yes. I think I can add a couple of things. Siddharth Parameswaran: It's much higher than the long-term growth. The recent has been extraordinary. So just what's driving it and how sustainable is this as a base? Helen Lofthouse: So maybe we might follow up separately and update you on the retail percentage because I don't think I have it handy. But what I would observe is that we have seen good diversification of participation in both markets. So seeing a range of different users very active in both the cash equity market and in our futures market. I think that our futures market has become an attractive market to trade on a global basis. And we're certainly seeing the diversified participation being no evidence of that. Siddharth Parameswaran: Yes. Okay. Just a second question, just on the strategy refresh, which I think you alluded to in your presentation. Just wanted to understand what is within the remit of what the Board is considering as worthy of a refresh. The financial targets, I presume, are not going to be changed. I mean you've obviously reaffirmed today, but I'm just wondering when you do a strategy refresh, you could look at all sorts of things. You're still privy to what is on the -- what is being considered? Just keen to understand exactly what is being considered in that strategy refresh and whether all the financial targets are likely to stay and not be addressed. Helen Lofthouse: Look, I think some of the really -- we've absolutely intended anyway to do a significant refresh at this point because halfway through our -- what we originally set out as a five-year strategy, what that means is that our current horizon for what we've currently laid out really only goes for the next couple of years. And I think it's very important for any organization that we have a longer perspective than that. But I think the factors that I would add from an ASX perspective are, firstly, that Markets and technology around market infrastructure are changing fast. We are seeing -- just as one example of that, all around the world, we're seeing significant changes in how regulators and organizations around the world are dealing with things like tokenization and digital currency. We've seen things like the GENIUS Act in the U.S. in the U.K., the Bank of England sort of Sandbox for digital currency. Now these are significant changes on a global basis and are really important for us to consider for ASX and think about what does that mean in terms of the services that we need to be offering, making sure that our strategy is supporting innovation and new services for Australia and that our technology strategy is taking account of those things as well. So, in a fast-moving environment, there's really a desire to make sure that our lens is looking not just at the transformation that's underway at the moment that's really foundational, but also what does that mean for the future? How do we make sure we're delivering future-ready market infrastructure. And of course, added to that, we have lots of stakeholder feedback, including the ASIC inquiry panels report. And I think there's important feedback from that in both how we make sure that we're really articulating our critical role in shaping and stewarding Australia's financial markets and making sure that we're very clear about how that feeds into our strategy and the investments that we're making. Siddharth Parameswaran: Okay. Yes. So the financial targets are not part of the consideration. It's all about the future in terms of where the financial markets are heading. Helen Lofthouse: Well, as we develop the strategy, we've obviously given some financial targets and guidance. The FY '27 expense guidance and the FY '28 CapEx guidance that we're intending to give will, of course, be informed by some of the strategic refresh that we're going through. Siddharth Parameswaran: Yes. But the ROE targets, et cetera, medium term? Andrew Tobin: It's medium term, and I just had a comment, that's the appropriate target at this point in time. Operator: Your next question comes from Freya Kong with Bank of America. Freya Kong: Just on the new pricing policy for clearing and settlements, so that was implemented 1st July 2025. Is there any need to review this? Or is it consistent with the criticisms and recommendations of the interim report that we got? Helen Lofthouse: Do you want to take this? Andrew Tobin: Sure. Thanks, Freya. So the new pricing policy went through an extensive consultation process with the industry prior to its implementation, and it's not part that we can see in terms of the recommendations out of the interim inquiry report at this point in time. Freya Kong: Okay. And then I guess, given the big uplift in resourcing you expect in clearing and settlements, has this already started to be reflected in pricing? Probably that follow. Andrew Tobin: Yes, Freya, it probably goes back to a prior question that effectively, the pricing policy really regulates the absolute return for those business activities, clearing settlement Issuer services. That goes into sort of considering the capital base. So that would include the CapEx in relation to the CHESS Release 1 and Release 2, for example. It would include costs that are allocated to those activities, and that really determines a revenue target, but that aligns to that overall return target for those business activities. And so all of those go into determining what the appropriate return is. Freya Kong: Okay. But I guess my question is because you've increased the resourcing to the clearing and settlement facilities based on ASIC recommendations, this should naturally automatically flow into the pricing just to inform the return. Is that fair? Helen Lofthouse: To the extent that it impacts the specific licenses that are part of the pricing policy, and that's the ASX Clear and ASX settlement licenses. Those are the two entities that provide the cash market clearing, settlement and issuer services. then yes, that would be true. The greater independence of clearing and settlement does capture other license facilities as well. Freya Kong: Okay. Okay. Great. And then just a question on the interim report and what's really changed. But I guess the report was quite critical of ASX, but also critical of the uncoordinated approach of regulators, which has contributed to what you called a defensive culture at ASX. Since the report, do you sense there's been any change in the working relationship that you've got with the regulator? Helen Lofthouse: Well, I think that certainly from our interactions so far, we can see that our regulators have taken that feedback very seriously and are very committed to having a very outcomes-focused approach. And it's also important to note that part of that is ASX improving our own regulatory engagement, too and making sure that we are really clear on what it is that our regulators need in order to fulfill their important function and trying to make sure that we deliver the right information at the right time as well. So I think there's a genuine commitment on all sides for that to be an important factor. Operator: There are no further questions at this time. I'll now hand back to Ms. Helen Lofthouse for closing remarks. Helen Lofthouse: So, thank you. This concludes our first half results presentation. And thank you much -- thank you very much, everyone, for -- on what I know is a busy day for joining us today. So, goodbye. Andrew Tobin: Thank you.
Operator: Good afternoon, and welcome to HubSpot, Inc. Q4 2025 earnings call. My name is Gigi, and I will be your operator today. At this time, all participant lines are in a listen-only mode, and there will be an opportunity for questions and answers after management’s prepared remarks. If you would like to enter the queue for questions, you may do so by dialing 11 on your telephone keypad. I would now like to hand the conference over to Head Director of Investor Relations, Charles MacGlashing. Please go ahead. Charles MacGlashing: Thanks, operator. Good afternoon, and welcome to HubSpot, Inc.’s fourth quarter and full year 2025 earnings conference call. Today, we are discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon are Yamini Rangan, Chief Executive Officer; Dharmesh Shah, our Co-founder and CTO; and Kathryn A. Bueker, our Chief Financial Officer. Before we start, I would like to draw your attention to the safe harbor statement included in today’s press release. During this call, we will make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements, including those regarding management’s expectations of future financial and operational performance, operational expenditures, expected growth, FX movement, business outlook, including our financial guidance for the first fiscal quarter and full year 2026. Forward-looking statements reflect our views only as of today, and, except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today’s press release and our Form 10-Ks, which will be filed with the SEC this afternoon, for discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today’s call, we will refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between such measures, can be found within our fourth quarter and fiscal year 2025 earnings press release in the Investor Relations section of our website. Now it is my pleasure to turn the call over to HubSpot, Inc. Chief Executive Officer, Yamini Rangan. Yamini? Yamini Rangan: Thank you, Chuck, and welcome everyone to the call. I will start with our Q4 and full year 2025 results, and the consistent themes driving those results. Then I will highlight our 2026 strategy, how we are positioned to lead and win with AI, and the specific levers we are activating to drive growth. Let’s dive in. We had a solid finish to 2025. Q4 revenue grew 18.2% year over year in constant currency, and full year 2025 revenue grew 18.2% to $3.1 billion. We delivered another quarter of standout operating profit growth, with operating margin of 22.6% in Q4, and 18.6% for the full year. We now serve more than 288,000 customers globally. We added 9,800 net new customers in Q4, and more than 40,000 customers for the year. That growth at our scale says something important. Customers trust HubSpot, Inc. during a time of transformative change in the industry driven by AI. I am also pleased to announce that our board of directors has authorized a share repurchase program of up to $1,000,000,000, a clear signal of the confidence we have in our business and the growth opportunity ahead. Two themes drove our performance in 2025: strong core fundamentals and momentum with our agentic customer platform. First, our core fundamentals are solid. Upmarket momentum was consistent all year, with a strong finish in December. Large companies are consolidating on HubSpot, Inc. because we deliver the power they want with the ease of use they need. In 2025, deals over $5,000 in monthly recurring revenue grew 33% and deals over $10,000 grew 41%. The number of customers with 500 or more seats grew fivefold, making it one of the strongest upmarket years. This is the direct result of years of focused product investment, the moat we have built with our partner ecosystem, and our growing brand credibility with larger companies. Rentokil Initial, a global leader in pest control, used Marketing Hub to increase leads by 76% and deliver a 671% ROI. That success led them to expand HubSpot, Inc. Now they use HubSpot, Inc.’s enterprise product suite across more than 100 teams to scale their go-to-market strategy. Mercantile Bank, a financial institution with over 700 employees, consolidated six separate solutions onto Marketing Hub and saw an immediate improvement in efficiency and personalization capabilities. This success prompted them to expand to Sales Hub, Service Hub, and Content Hub, and replace their legacy CRM, giving them a unified view of the customer while lowering costs. Multihub adoption accelerated again this year. In 2025, 62% of new Pro Plus customers landed with multiple hubs. We saw two common patterns with new customers: they landed with Marketing and Sales Hub, or with Marketing, Sales, Service, Content, and Operations—five hubs operating as one go-to-market platform. Multihub expansion is also showing up across our install base, with 40% of Pro Plus installed base by ARR owning four or more hubs, up six points year over year. We are the agentic customer platform of choice for scaling companies, and multihub adoption is the new norm. Our pricing changes also created meaningful tailwind in 2025. As a reminder, we lowered the price point to get started, removed seat minimums to make upgrades easy, and added Core Seats that deliver platform value. That shift is largely complete. Approximately 90% of our legacy customers have moved into the new pricing model, and almost 50% of our ARR has gone through their first renewal. The impact is showing up clearly in the data. We continue to see strength in net customer additions aided by the changes. Despite the questions we get on seat compression, we saw customers buy more Sales Hub seats, Service Hub seats, and Core Seats throughout the year. All of this reinforces our confidence that our core fundamentals are strong, and built to drive durable growth. Strong fundamentals matter, but what defined 2025 was our momentum in AI. We are clear about who we serve: growing companies with two to 2,000 employees. That is where we win, and that is who we build for. Our AI strategy is simple and focused on helping those companies grow. We embed AI across the platform. We deliver agents that do real work, and we give teams tools like Brief Assistant and LLM connectors to turn their data into action. That strategy is resonating. AI natives like Lovable, Browserbase, and Squint.ai are choosing HubSpot, Inc. as their platform to drive growth. Now let us talk about AI adoption. Our agents gained real traction last year. Customer Agent handles support tickets and answers questions across the full customer journey. More than 8,000 customers activated it last year and are seeing mid-60s resolution rates, driven by product innovation. Prospecting Agent helps sales teams research accounts, personalize outreach, and engage prospects. Over 10,000 customers have activated it, up 57% quarter over quarter. This is a clear use case with strong pull. Customers using it are booking nearly twice as many meetings compared to last year. At INBOUND, we launched Data Agent, which automatically enriches customer data. More than 2,500 customers have already activated it, a clear signal that customers want AI to take on the manual work that slows teams down. And while it is still early, our usage-based credits model is starting to scale. In Q4, Customer Agent accounted for about 60% of credits consumed. Data Agent, Prospecting Agent, and intent monitoring each contribute between 10% to 15% of credits consumed. All of this reinforces the clear point: AI is becoming a core driver of how our customers grow and, therefore, how we grow. Okay. Let us look ahead to 2026. Our strategy is clear, and focused on three things: making AI work for growth companies; reimagining marketing with a new playbook and products; and accelerating upmarket growth with a platform that delivers both power and simplicity. First, we are focused on making AI work for growth companies. While there is no shortage of AI solutions in the market, there is a real gap between generating AI output and driving growth outcomes. Closing that gap is what will unlock broad AI adoption. And that requires context—having the right information at the right time with the judgment to know what to do with it. And that is where HubSpot, Inc. has a clear advantage. Most AI tools ask customers to bring their own context—upload brand guidelines, teach the system who their customer is and how their business works—then do it again for the next agent or LLM, and again. That is backwards. With HubSpot, Inc., context is shared and powers everything. Our AI vision is to lead with our agentic customer platform, where unified customer data, business context, peer benchmarks across more than 288,000 customers, and deep domain expertise power workflows and agents. To do this, we are bringing together three interconnected layers: context layer, where customer understanding lives; action layer with our hubs and agents where they help do work; and a coordination layer to connect everything. You will see us accelerate this vision throughout this year. It will show up in powerful use cases where AI does real work for teams and drives measurable growth. That is our AI strategy. At the same time, marketing is going through the biggest shift we have seen in decades. Search traffic is declining as AI-generated answers become the starting point for product and brand discovery. Customers are spending time across more channels, and AI is creating new ways for companies to be found. We saw these changes coming and have deliberately diversified our marketing channels. Last year, YouTube leads grew 68%. Newsletter leads grew 53%. And HubSpot, Inc. became the most visible CRM in LLM-generated answers. And now we are turning what we have learned into a playbook and products for our customers. We launched The Loop, a new growth playbook for the AI era, along with AI-powered solutions to help teams put it into action. Data Hub gives customers a clean, unified data foundation, essential for marketing in the AI era. And Marketing Studio provides an AI-powered workspace to plan and create campaigns faster. And our AEO tools give marketers a real opportunity to offset declines in traditional search. Customers are already seeing results. Decibel, an AI-powered learning platform with over 1,000 employees, shifted towards AEO as organic traffic declined. Using HubSpot, Inc., they improved their visibility in LLMs and saw 13% of their leads come from new AI-driven sources. And Crunch Fitness, a global brand with over 200 employees and 500 locations, used HubSpot, Inc. to deliver personalized, on-brand messages at scale, sending more than 15,000,000 targeted emails a month and generating 2,000,000 leads in a year. HubSpot, Inc. helped define the inbound marketing era, and we are uniquely positioned to lead what comes next. The third pillar of our strategy is to keep winning upmarket. Last year was one of our strongest upmarket years. That was driven by product innovation that delivered real results for larger customers. Within their first year on HubSpot, Inc., upmarket customers generated more leads, closed more deals, and improved ticket close rates. In 2026, we are doubling down on that momentum. We are aligning dedicated product to the needs of this segment and increasing sales capacity to drive growth. This is a large market where we have clear product-market fit and significant room to grow, a strong and energized partner ecosystem. Our strategy shows up clearly in our growth levers. Our core drivers remain strong and durable: upmarket momentum, multihub adoption, and pricing tailwinds. These are working consistently, and we expect them to continue to scale. As we enter a more transformational phase with AI, we see two emerging growth levers: Core Seat adoption and credits. We have significantly expanded the value of the Core Seat by including Brief Assistant, enriched company data with buying intent signals, and platform features that bring teams together. As a result, adoption of enriched data jumped from 51% to nearly 70% in Q4, a clear signal of the value customers are seeing with Core Seat. Our goal is to make the Core Seat the foundation for every go-to-market employee and to drive broad adoption across teams. And as customers rely on agents to do more work on their behalf, we will scale credits consumption. Together, these levers expand how customers get value from HubSpot, Inc. and how we accelerate growth. With that, I will hand it over to our CFO, Kathryn A. Bueker, to walk you through our financial and operating results. Thanks, Yamini. Kathryn A. Bueker: Let us turn to our fourth quarter and full year 2025 financial results. Q4 revenue grew 18% year over year in constant currency, and 20% on an as-reported basis. Q4 subscription revenue grew 21% year over year, while services and other revenue increased 12% on an as-reported basis. Q4 domestic revenue grew 17% year over year, and international revenue growth was 19% in constant currency and 24% as reported, representing 49% of total revenue. For the full year of 2025, revenue grew 18% year over year in constant currency and 19% as reported. Full-year subscription revenue grew 18% year over year in constant currency, and 19% as reported. Services and other revenue grew 16% on an as-reported basis. We added 9,800 net new customers in Q4, bringing our total customer count to over 288,000, growing 16% year over year, with particular strength in Pro Plus customer additions in the quarter. Average subscription revenue per customer was $11,700 in Q4, up a point year over year in constant currency and up three points on an as-reported basis. Moving into 2026, we continue to expect net additions in the 9,000 to 10,000 range, with low- to mid-single-digit ASRPC growth in constant currency. Customer dollar retention remained in the high 80s in Q4. While net revenue retention increased sequentially, as expected, to 105%. For the full year of 2025, net revenue retention was 103.5%, up from 101.8% in 2024, reflecting continued momentum in seat expansion and the benefit from our pricing change. Looking ahead to 2026, we expect to grow net revenue retention by another one to two points year over year, driven by a combination of continued seat expansion and ramping credit adoption. As a reminder, we tend to see a seasonal downtick in net revenue retention in Q1, followed by expansion as we move through the year. Q4 calculated billings were $971,000,000, growing 20% year over year in constant currency, 27% on an as-reported basis. Q4 billings benefited from strong upmarket performance, resulting in a modest increase in overall billings duration in the quarter. For the full year of 2025, calculated billings were $3,400,000,000, growing 19% year over year in constant currency, and 23% on an as-reported basis. The remainder of my comments will refer to non-GAAP measures. Q4 operating margin was 23%, up four points compared to the year-ago period and three points sequentially. Full-year 2025 operating margin was 18.6%, up one point year over year. We delivered operating leverage as a result of disciplined hiring, as well as the ongoing benefits of our partner commissions changes. Net income was $163,000,000, or $3.09 in Q4, and $516,000,000, or $9.70 per fully diluted share for the full year of 2025. Free cash flow was $209,000,000, or 25% of revenue in Q4, and $595,000,000, or 19% of revenue for the full year of 2025. Our cash and marketable securities totaled $1,800,000,000 at December. As Yamini shared, our board has authorized a new $1,000,000,000 share repurchase program. While we remain focused on investing in organic product innovation and selective M&A, we also see the opportunity to return capital to shareholders through an additional share repurchase program. This reflects our continued confidence in the long-term opportunity ahead. I want to highlight several factors shaping our 2026 growth outlook and the underlying strength of our business performance. In 2025, net new ARR growth exceeded constant currency revenue growth in every quarter, with full-year net new ARR growing 24% year over year, six points above constant currency revenue growth. Looking ahead, we expect full-year 2026 net new ARR growth to outpace constant currency revenue growth, supported by the underlying trends Yamini outlined: continued upmarket momentum, multihub adoption, and pricing benefits, and the emerging impact of Core Seat adoption and credits. Going forward, we plan to share net new ARR growth on an annual basis as part of our Q4 earnings. With that, let us dive into our guidance for the first quarter and full year of 2026. For the first quarter, total as-reported revenue is expected to be in the range of $862,000,000 to $863,000,000, up 16% year over year in constant currency and 21% on an as-reported basis. Non-GAAP operating profit is expected to be between $144,000,000 and $145,000,000, representing a 17% operating profit margin. Non-GAAP diluted net income per share is expected to be between $2.46 and $2.48. This assumes 52,500,000 fully diluted shares outstanding. And for the full year of 2026, total as-reported revenue is expected to be in the range of $3.69 to $3.70 billion, up 16% year over year in constant currency, and 18% on an as-reported basis, modestly above our guidance for Q1 constant currency revenue growth. Non-GAAP operating profit is expected to be in the range of $736,000,000 to $740,000,000, representing a 20% operating profit margin. Non-GAAP diluted net income per share is expected to be between $12.38 and $12.46. This assumes 51,800,000 fully diluted shares outstanding. As you adjust your models, please keep in mind the following. We expect our legacy Clearbit business to be a 40 basis point headwind to full-year 2026 revenue growth, moderating slightly from the 60 basis point headwind for 2025. Our EPS guidance for Q1 and full year 2026 includes the expected impact from our share repurchase program. And we expect CapEx as a percentage of revenue to be 5% to 6% for the full year of 2026 and free cash flow to be about $740,000,000. With that, I will turn the call back over to Yamini for her closing remarks. Okay. In closing, I am energized by our position. Yamini Rangan: Heading into 2026, we are moving with urgency and focus, innovating quickly to help our customers grow with AI, and evolving how we operate to support that pace. We have transformed how we build products and how we serve customers with AI. And we are turning those learnings into real value for our customers. We enter 2026 with clear momentum. Our core growth drivers remain strong, and our emerging AI levers are gaining traction. Together, they give us confidence in our ability to deliver durable growth. I want to thank our customers, partners, and investors for your continued trust and support. And a heartfelt thank you to HubSpotters around the world for staying focused on solving for our customers every single day. With that, operator, please open up the call for questions. Thank you. If you would like to ask a question, please dial star followed by 11 on your telephone keypad now. If you change your mind, please dial and limit yourself to one question per person. Please standby for our first question. Our first question comes from the line of Samad Saleem Samana from Jefferies. Samad Saleem Samana: So Yamini, I thought I would kick off with just ripping off the Band-Aid that everybody is focused on. The software complex is under a ton of pressure on AI disruption fears. It is asked on every earnings call of every company. And you spoke a lot in your prepared remarks about context and moats. But can you dig deeper into how defensible HubSpot, Inc.’s role is as a system of record, maybe what your fear on LLM disruption is? And related to that, how would you respond to investors that fear that more data will be sucked into and be retained in third-party agents, that this could threaten the role of a system of record itself? I know there is a lot to unpack there. I think that is what we get asked the most every day now. Yamini Rangan: Alright, Samad. Let us start with ripping off the Band-Aid. I will probably start with disruption threat and, specifically, our moat to address that. Then I will take the second part of your question, which is about value getting captured outside of SaaS as data gets sucked out of solutions. Alright. First off, in terms of disruption, there is a big difference between point SaaS solutions and platforms, and that difference matters even more in the AI era. In the last decade, HubSpot, Inc. won as a platform because we were the source for customer data. With AI, we will win because we are the source of customer context, and that matters. As I talk to customers right now, the biggest challenge we see with AI adoption, particularly in mid-market companies, is not access to more AI tools, more LLMs, more agents. There are plenty of those. The biggest challenge that I see is that there is a huge gap between AI output and AI outcomes. And when I say outcomes, I mean more leads, more deals, more growth. And, by the way, that is all our customers want to talk to us about. Mid-market companies do not care about AI for the sake of AI, do not want to just adopt it. They care about driving growth. And if AI can help with that, they will adopt it. And in order for AI and agents to drive outcomes, you need customer context. This is the context that was in the heads of people, but now you need the patterns of what works, what does not work in your business, in your industry, your particular function. And then you need to be able to take an action on it. And that is what a platform like HubSpot, Inc. delivers. I will give you a practical example. You can ask an LLM to generate outreach for 100 prospects, and then do the same thing in a platform, with a history of interactions, with the prioritization of what sales cares about, with how your best reps handle competitive objections within your industry, and then ask it to generate outreach. The difference is one will be AI output, and the other will be AI outcomes. One produces words, the other wins deals. One knows a lot about the external world. The platform knows specifically about the customer’s world and what is happening today. There is this whole idea that AI is like a magic wand, and you can abstract away all of this problem and expect agents to work. It just will not. Context has to come from somewhere. It has to be trusted. It needs to be real time, and it needs to be actionable. And that is what a platform like HubSpot, Inc. delivers. Our strategy, as I just articulated, is to be that intelligence of customer context. And we have the data, but more importantly, we have the business context, the industry context, and the domain context to deliver it. And that is why customers come to us. They rely on us for that context, want to use more of our APIs. Partners want to customize and build on top of us. And as AI adoption accelerates, the value of our agentic platform increases. Okay. Now going to your second part of the question, which is can all the data just be completely sucked out such that there is no value captured by SaaS? Well, first of all, that assumes that, you know, we will not build agents rapidly ourselves. We are building agents on top of that customer context, and it is working, and we are seeing that adoption. Second, it assumes that SaaS platforms are data. SaaS platforms are more than data. It is the logic. Right? You can certainly get a nondeterministic output for a sales email, but try taking a nondeterministic output for your sales forecast. That is not possible. It is workflows like forecasting, routing, approvals, permissions. That is logic. It is not data to be sucked away. And ownership, accountability, and governance, all of those live inside applications, and it is much easier to bring AI into these applications rather than try to abstract all of this away as if it is just data. It is not. And then the last thing I will say is that we serve companies that have two to 2,000 employees. That mid-market segment is what we care about. They are focused on growing business. They are not managing model complexity. They are not looking at the latest LLM version, stitching together AI infrastructure. They want AI that just works and drives measurable growth. And that is our focus, making AI simple, practical, and actionable, and driving outcomes for scaling companies. That is our strategy, and we think it is very defensible for the segment of customers that we are delivering value for. Operator: One moment for our next question. Our next question comes from the line of Jackson Edmund Ader from KeyBanc Capital Markets. Jackson Edmund Ader: Great. Thanks for taking our questions, guys. The question I had was on acceleration. You know, the guidance for 16% constant currency growth this year, you know, it is certainly not an acceleration, but all the breadcrumbs that you are giving us on kind of net new ARR would mathematically just lead to acceleration. So I am curious what the disconnect is there between guidance of slowing growth and net new ARR, which would hint at accelerating growth. Thank you. Kathryn A. Bueker: Yeah, Jackson. Thanks for the question. I will just start by saying that we remain confident that we can reaccelerate and hit our 20% revenue growth goal. You are right. All of the leading indicators are pointing in the right direction. Net new ARR is an important forward indicator of growth for us. And we have delivered net new ARR growth in excess of revenue growth now over the last six quarters. Our revenue guidance implies a modest acceleration throughout 2026. As I shared in my prepared remarks, net revenue retention is expected to expand by another one to two points this year. And we are also expecting that 2026 net new ARR growth is also going to outpace constant currency revenue growth. And that is supported by all of those underlying trends that Yamini talked about: continued upmarket momentum, continued multihub adoption, continued benefit from our ongoing pricing changes, and then those emerging growth levers of Core Seat adoption and credits. The momentum that we are seeing with net new ARR is what gives us the confidence that we will be able to deliver 20% revenue growth in the future. Operator: Thank you. One moment for our next question. Our next question comes from the line of Keith Frances Bachman from BMO. Mark Ronald Murphy: Hi. Thank you very much. It is a good follow-on question to the previous one. Kate, I was hoping to dig a little more into the context of guidance. In particular, a few things I wanted to flush out. You talked about pricing, and I just wanted to try to understand, a) how much pricing help was in 2025 versus 2026, and b) if you could comment a little bit about any guidance, so to speak, on how much Core Seat growth may add and/or credits as we think about what is embedded in guidance, as you articulated. And then the final one, I know a multipart question here, sorry, is could you give any color on what like-for-like seat growth was in 2025 and how you think that may be different or the same in 2026? So sort of three engines within the context of guidance of CY 2026. Thank you. Kathryn A. Bueker: Yeah. Maybe I am going to just start by giving a high-level view of how we set guidance for 2026. And the short answer there is that we set guidance in a way that is very consistent with how we have always set guidance. And that is we, you know, it is early in the year, we want to set guidance that we feel comfortable that we can meet or exceed throughout the year under a set of outcomes across economic and execution outcomes that capture a range. Again, it is early in the year and we want to establish a set of guidance that we are comfortable that we can deliver against. That said, our starting point guidance for 2026 is higher than our starting point guidance for 2025. It is up about a half a point from last year. Our full-year guidance this year is higher than our Q1 guidance. And so that would indicate that Q1 is going to be the low point for growth this year, and that we are going to accelerate growth throughout the year. So it is early. We wanted to put forward guidance that is consistent in terms of methodology, that we are comfortable we can deliver against, and that shows that we can reaccelerate revenue over time. Thank you. Operator: One moment for our next question. Our next question comes from the line of Gabriela Borges from Goldman Sachs. Hey, good afternoon. Thank you for taking my question. Gabriela Borges: Yamini, I remembered your Dario keynote from INBOUND. And, Dharmesh, I know you spent a lot of time in the core ecosystem. Maybe talk to us about how you see your leading-edge customers using a tool like Claude CoWork alongside HubSpot, Inc. to get to better and complementary outcomes with both tools working side by side. Thank you. Dharmesh Shah: Hi. Thanks for the question. So, you know, Anthropic’s Claude CoWork is still very early, and it is solving for consumer-oriented use cases. So it is still very early to kind of see our customers using it. What we do see customers using is our Claude connector that connects an individual’s account on Claude to HubSpot, Inc. via our connector, and that is getting increased usage. And what gives us a lot of optimism is around what that is really doing: it is extending the customer platform that Yamini has been talking about and providing it via a new channel, which is these kind of AI applications like Claude and ChatGPT. So we are not seeing Claude CoWork’s core use yet, but we are seeing the classic Claude connector and the ChatGPT connector being used. Operator: Thank you. One moment for our next question. Our next question comes from the line of Aleksandr J. Zukin from Wolfe Research. Yeah. Hey, guys. Aleksandr J. Zukin: Thanks for taking the question. And maybe following on the previous question, to the extent that the modality develops around third-party agents and agent networks that continuously have to access both to read and to action information within HubSpot, Inc., can you just give us a framework for how you are thinking about monetization in that type of environment? And then to some extent, how should we think about the, to keep this to four questions, kind of the potential for consumption tailwinds on ARR growth, net new ARR growth for the credit side for 2026 and maybe beyond? Yamini Rangan: Alex, thanks a lot for the question. So I will start with the first one, then talk about the credit consumption. So on the first part, the way we think about ourselves is we are an open platform. That is how we won in the last decade. That is how we will win in the next decade. And we want customers to bring in and use as much data as possible. So we are very open about that. We do not charge for customers bringing in the data. The more complete the customer context, the better outcomes that we can deliver. We do not try to restrict that, and we try to enable that. The second thing I would say is we also want partners building on top of HubSpot, Inc. And this could be workflows, this could be agents, this could be custom apps. And we want that to happen. And we have always been partner-friendly. We will continue to operate that way. The part that we will say we are very disciplined is around platform access at scale. If other agents or other platforms that are emerging are relying on our customer context, that access we will monitor it, we will meter it, and we will monetize it. And, specifically, if it is high-frequency extraction at scale, if it is like bulk export of data or content or context, we will govern it and monetize that accordingly. So the way to think about our platform is we are open by design, but we are not a free data pipeline for everybody to take that information out. An intelligent customer platform—access to that context is valuable. We will price it in a way that is fair, scalable, and aligned to the value that we create for customers, which means we will also share that value. So that is in terms of our posture. The second question you asked is around monetization, specifically of credits, and how we think about that as a tailwind now and maybe in the future. And I will start by saying that we are beginning to see real usage beyond included credits. And that is again happening because customers are getting clearer, measurable value. And the biggest driver today that we see is Customer Agent. I talked about this. This has got clear product-market fit and clear value. And customers are using it to resolve support tickets, but they are also using it to answer tickets in terms of marketing as well as sales. And it represents nearly 60% of the credits that are getting consumed right now. We are also seeing very strong adoption in three other use cases. Prospecting Agent has found really clear fit. And think about this agent: it can do account research. It can monitor your contacts. And then it can drive outreach based on the signal that you get about a company or a particular contact. And given how much disruption is happening in terms of the leads, this has got more pull. I talk to customers day in and day out about Prospecting Agent. Now what is interesting is how customers are buying credits. They are not just thinking of this as an experiment. They are beginning to scale it. They are starting with what is included, then they replace real work, and then they allocate more budget. And that is a real positive green shoot. One of our customers, SkyTrak and Vault-Tec, they piloted this Customer Agent and started with 10,000 support chats a month. That agent was so effective that it used up all of the included credits in four hours. Then they allocated another $50,000 of their budget for credits, and treated it more like a work replacement. So where we are is we have the scaffolding in place. Agents are clearly adding value. They are being adopted. The credit mechanisms are in place. We are beginning to deliver value, and we see this as a tailwind and an emerging lever both in 2026 as well as many years to come. Operator: Thank you. One moment for our next question. Our next question comes from the line of Parker Lane from Stifel. Jack (for Parker Lane): Yes. Hi, good afternoon. This is Jack on for Parker. Thanks for taking my question. Yamini, with the agentic ecosystem buildout seemingly accelerating throughout the quarter, whether it be through Frontier, Claude Code, Opus, etc., how did deal velocity trend in the quarter relative to prior periods? Are the weekly announcements of the next use case-specific agent or a new model that specializes in coding causing any sort of confusion or slowdown in the pipeline? Maybe a better way of asking it is, how are customers and prospects digesting these announcements in real time? Yamini Rangan: I actually really like this question. I will tell you there is a huge disconnect between what is happening in terms of announcements and how investors are processing it and the actual conversations that we are having with customers in terms of AI adoption and use cases. And, again, I will remind that the segment that we serve, they are two to 2,000 employee companies. They have a business to run, and they are not chasing every announcement that is happening out there. And if you look at the pipeline and what we are talking about, the first conversation that we have is how can it drive innovation and growth. It is not how can I adopt, you know, name the announcement of this week. It is really how can I drive adoption and growth for ourselves, and we deliver that. We deliver our platform. We deliver solutions that are easy to use, that have fast time to implement, and they look to us to drive it. So, we talked about, you know, Q4. In Q4, specifically, upmarket was very strong. If you look at the nature of the conversations we had, it was consolidating multiple applications, driving growth through innovation, and then making sure that there is clear data and clean context to be able to get them to grow. That is the kind of conversation that we have. Again, huge disconnect and thank you. You know, we had a very robust Q4. One moment for our next question. Our next question comes from the line of Taylor Anne McGinnis from UBS. Yes. Hi. Thanks so much for— Taylor Anne McGinnis: Kate, maybe just on the acceleration that we could see throughout this year. You mentioned a lot of growth drivers earlier, but could you just break out how much price is contributing to that versus some of the other growth drivers around seats and credit adoption? Like, could we be getting to the point that you mentioned earlier that credits are scaling? Could that start to add a point to growth this year? We would just love to hear a little bit more about the breakout of this. Kathryn A. Bueker: Yeah. Thanks so much for the question. I actually think, Taylor, the easiest way to talk about it is through the trends that we are seeing in net revenue retention. As you know, revenue retention was up this year to 105 in Q4. It was up to 103 for the full year, and that is about 1.7 points up from last year. The components of that, if you think about what was actually driving the expansion, it was very much all of the benefits of the seats pricing model change. Now that is not pricing. The biggest impact actually is that we saw higher upgrade rates for seats across Sales seats, Service seats, and Core Seats. As you remember, one of the things that happened with the pricing model change is that we lowered the barrier to entry to get started with HubSpot, Inc. So people bought the seats that they needed, and there was a much more natural upgrade path from there. The other contributor was what you are talking about, which is, as customers migrated and came up for a renewal, they would see up to a 5% pricing increase, and that did help support net revenue retention in 2025. It will support net revenue retention in 2026 again to a similar amount. But the bigger driver of the expansion this year and into next year were the other factors associated with the pricing change. Operator: Thank you. One moment for our next question. Our next question comes from the line of Kirk Materne from Evercore ISI. Kirk Materne: Yeah. Thanks very much, and thanks for taking the question. I was wondering, Yamini, if you could just talk about the benefits you are seeing from AI internally, just in terms of your own R&D and maybe sales and marketing efficiency, where you are seeing some real levers there? Just any anecdotal comments would be great. Thanks. Yamini Rangan: Yeah. Thanks a lot, Kirk. Look. We have been transforming HubSpot, Inc. completely through AI. And I will start with coding. The way we build products has transformed completely. 97% of the code that was committed last year was done with AI assist. And, you know, if you look at our top engineers, they are living and breathing in agentic coding, with Claude Code, and that is how we build. And that has certainly changed the pace of innovation, but also the types of innovation that we are able to bring to the customers. So that is number one. It has changed dramatically. And then when you think about how we serve, we have been on this path of transforming with AI. Support, you know, completely done. Our first-tier support—nearly 60% of our support—is handled by AI, which means our teams are spending time on much more complex cases. We have been using AI to transform marketing as well as prospecting. Our prospecting approach internally has changed the level of meetings and the level of pipeline that we bring. And in a given quarter, 10,000 to 15,000 meetings are being set up internally through prospecting. And almost everything that we do from sales in terms of note capture, in terms of deal progression, in terms of smart guidance for getting deals, all of that has grown, which means at the end of the day, our efficiency in terms of support, our efficiency in terms of sales, and our efficiency in terms of building pipeline has increased. And overall, as a company, we are leaning very hard into AI. We set ourselves a target last year to say we want every HubSpotter to be inspired and work in this new AI-first manner, and we put out targets. We blew through it. At the end of the year, almost every HubSpotter is using AI every day of their week. And so we are transformed, and that helps us, of course, to move faster and operate at speed. But more importantly, everything that we learn of what works and what does not, we are building it into the product, and we are sharing it as best practices for the customer. And so, you know, really good story that we are happy with that, and, you know, we are going to continue to do that. Now it is like we are on to the second phase of AI transformation internally to scale up our efforts even more. Thank you. One moment for our next question. Operator: Our next question comes from the line of Rishi Jaluria from RBC. Rishi Jaluria: Hi, wonderful. This is Rishi Jaluria. Thanks so much for taking my questions. Maybe I wanted to drill into one thing. So, Yamini, I was struck by you mentioning Lovable as a customer during the prepared remarks. But without talking specifically about a single customer, it is definitely striking that the market clearly is not worried that AI coding is going to replace incumbent platforms, but one of the leaders in AI coding is using your intelligence to power that. So my question is really this. As you think about your own adoption amongst AI natives, especially the cutting-edge ones that have become household names over the past year, in many cases, over the past six months, can you talk about why you might feel HubSpot, Inc. is uniquely positioned for those companies and why they are choosing to use you instead of leveraging all the AI coding tools and Claude Code and Codex, etc., to try to build their own? Thank you. Yamini Rangan: I mean, coding has gotten easier, but domain expertise and platform value has not just gone away. Right? So people just equate coding to your ability to build everything. Look. I just said that internally, in terms of how we build products, it is completely transformed. And we are building products completely. And, of course, everybody within the company knows AI coding. Our product managers do it, our UX managers do it, our marketers do AI coding. But it does not mean that we are turning around and replacing our core platform. A core HR platform, ERP platform. We are not building any of that code. And so I think there is a lot that is getting lost in terms of ability to code versus value of a platform. And that is what I would come back to, which is what we deliver is a platform, and it used to be that that platform had unified data. That is why customers came to us. We built something organically. People came to us because there was value in unifying Marketing, Sales, and Service. But what has fundamentally changed now is that it is not just about the data. It is the context. Because context is what you need to make decisions, whether you are an agent or you are a team member that is making decisions on behalf of that agent, and that is what we deliver. And that is why all AI-native companies, including the ones that you mentioned, are starting with HubSpot, Inc. as their platform of choice in terms of go-to-market. Dharmesh, go ahead. Dharmesh Shah: Yeah. Once again, as someone that spends hours a day using agentic coding tools, both AI-native companies and non-AI companies, the best companies spend the most amount of calories in adding value to their customers. They do not spend their engineering calories going off and AI coding a CRM or an ERP or an HR whatever. That just makes sense. So just because it is possible—so we have, as Yamini mentioned, a large engineering team that knows what they are doing, spending 95% to 97% of their calories using agentic coding tools. They are not doing it to replace internal platforms. So we think the best companies, both AI and non-AI, will not be using AI coding to replace core systems. They will be doing it to add value to their customer. That is what Lovable is doing. I think that is what some of the best companies in the world will continue to do. Operator: Thank you. One moment for our next question. Our next question comes from the line of Raimo Lenschow from Barclays. Damian Koggan (for Raimo Lenschow): Hi, guys. This is Damian Koggan on for Raimo. Thanks for taking the question. Great to hear that YouTube and newsletter leads are driving to differentiation with LLM-generated answers. Given the challenges that the SEO channel faced throughout 2025, should we think about that as a tailwind to top line throughout 2026? Yamini Rangan: I will be brief and talk about the TOFU trends, the top-of-the-funnel trends. And look, yes, there has been overall decline in terms of content-generated traffic, traffic that comes to the website. But that is something that we have seen coming. We have diversified the channels. We have talked about our playbook. And that playbook is working. Right? And, specifically, you mentioned a couple of channels for us. YouTube has grown. Newsletters—leads from newsletters have increased more than 50%, and AEO is increasing. And I think part of the way you should think about it is that the diversification strategy, as well as our ability to lead with AI, is going to help us continue to drive top of the funnel, which is why you are seeing us double down on our guidance of net customer additions of 9,000 to 10,000 every quarter going forward. Last year, we added, you know, 40,000 customers, and this year, we will continue to do it at that pace. And a lot of what we have done in terms of the playbook is what helps us drive customer additions even in a very challenging environment when marketing is completely changing. Thank you. One moment for our next question. Our next question comes from the line of Siti Panigrahi from Mizuho. Great. Thanks for taking my question. Siti Panigrahi: Yamini, I just want to ask about the early adopters of AI agents who are using it. What kind of trends are you seeing in terms of them talking about their user expansion or seat expansion? Where is that actually getting funded? All the AI investment they are doing right now? Also, are you seeing any trend differently from your small segment versus scaling mid-market companies? Yamini Rangan: Okay. Great question, Siti. So I will start with what are we seeing, and then is there any difference between segments. In terms of the AI use cases, use cases that are getting resonance are the ones that show clear, measurable value and clear outcomes. So it is really about delivering value and showing clear outcomes that is driving the usage. I would say the strongest traction is Customer Agent. And I would also say Prospecting Agent. We talked about both of these agents. Data Agent that we launched at INBOUND is another one. So all three agents are seeing really good traction and adoption. And in terms of what customers look for: Is it easy to implement and get started? And is it clear enough to see value? And can they get confidence that the credit consumption is somewhat predictable? And I think it checks the box in each of those areas. The one thing I will talk about is Core Seats. Right? Because when we think about AI monetization, it is both Core Seats as well as credits. And we have talked a lot about the credits. On the Core Seat side, as you remember, Siti, last year, we included Brief Assistant into the Core Seat. And now 50% of Core Seat users have tried and are using Brief Assistant. So we know that AI is adding value there. Similarly, we added all of the company enrichment data into Core Seat. Again, the level of adoption for that Core Seat has really increased in the last couple of quarters. So our strategy to add a lot of AI and data value into the Core Seat is working. And the combination of Core Seat plus credits is what we think of as durable emerging levers in terms of AI tailwinds. And, in terms of what you mentioned in terms of upmarket and downmarket, look, broadly speaking, very similar trends. I think upmarket customers care a little bit more about data security. In fact, a lot of them talk to me about which prompts are encrypted, which prompts are retained, and so on. So there is a little bit more sensitivity towards data security and prompt usage versus the downmarket segment. But use cases are about the same. Thank you. Operator: One moment for our next question. Our next question comes from the line of Brian Christopher Peterson from Raymond James. Brian Christopher Peterson: Thanks for taking the question. Yamini, I wanted to follow up on the unified data model. I am curious where you think the near-term cross-sell opportunity is most significant. Historically, I think we have heard a lot about building on Marketing Hub with Sales Hub. But as you have kind of broadened out the portfolio, where do you see that incremental product adoption really ramping up in 2026? Thank you. Yamini Rangan: Maybe clarify the question a little bit when you said unified data model. Are you just talking about multihub adoption, or are you talking about something else? Brian Christopher Peterson: Yeah. Multihub adoption, more from a cross-sell perspective. So as you are looking to kind of go back into your base, where do you see the biggest opportunity for cross-sell in 2026? Yeah. Yamini Rangan: That is a great question. Look. I think, in terms of where our customers land, they mostly land with Marketing plus Sales Hub. That is a common land pattern. Or they land with all five hubs. Right? Those are the two common patterns. If they land with Marketing Hub and Sales Hub, then what happens is that in a few months, they begin to see the need for Data Hub. Because in almost everything that you do with Loop, or in almost everything that you are doing with sales automation, you need better quality data, ability to ingest more data, ability to, in real time, bring data through AI prompts, and that is what Data Hub provides. And so the next combination we see is Data Hub. Service Hub is another one where there is a ton of cross-sell opportunity. Especially with the advancements that we have made with Customer Agent, but also across the full platform—embedding summarization of tickets, sentiment analysis, as well as being able to respond quickly—we are beginning to see Service Hub adoption. So the patterns are: land with Marketing Hub and Sales Hub; expand to Service Hub, Data Hub, and Content Hub. And we are continuing to invest across the platform, and that is the motion that we want to continue to build. Thank you. Operator: One moment for our next question. Our next question will be from the line of Arjun Rohit Bhatia from William Blair. Arjun Rohit Bhatia: Perfect. Thank you so much. I just want to touch on maybe the other side of the net retention rate dynamics. I am curious where sort of upsell and upgrades—basically, the non-seat-based expansion levers—how those are playing out and whether we have seen sort of an uptick there at all. And maybe as a part of that, would just love to hear from you on how the broader SMB macro environment is evolving, given we have heard a little bit of noise there. Kathryn A. Bueker: Yeah. Thanks, Arjun. We have been talking about the dynamics with net revenue retention for a number of quarters now, so I think that you are familiar. But we always start the conversation on NRR with customer dollar retention, and dollar retention has remained really strong and consistent for us in the high 80s. It ticked up a little bit this year, and we expect the same next year. Where we have seen really strong upgrade motions is in the seats upgrade motion—adding Service Hub seats, adding Sales Hub seats, adding Core Seats—and we are starting to see a building trend around credit adoption. The other upgrade motions that we have been talking about—contact tier upgrades, some of the cross-sell motions—they have sort of been in this holding pattern for a while. That is the conversation we have been having over time. And, you know, people are adding contacts. They are just not doing it at a rate and pace that is increasing. And our expectation is that those trends are going to continue here for some time. That said, as I shared, we do expect net revenue retention to be up one to two points next year, and that is going to be driven by the continued success in seat upgrade rates as well as building momentum around Core Seats and credits. Operator: Thank you. This concludes the HubSpot, Inc. Q4 2025 earnings call. Thank you to everyone who was able to join us today. You may now disconnect your lines.
Operator: Good afternoon my name is Kevin, and I will be your conference operator today. At this time, I would like to welcome to the Q2 Holdings, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when called upon. 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 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, Inc. 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 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-Ks 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-Ks 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 will 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 will 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 $56,600,000. 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 eight total Tier 1 and enterprise deals. Notable wins included the Tier 1 institution that bought relationship pricing and commercial digital banking, a $40,000,000,000 digital banking customer that expanded its commercial and new fraud products, and a Helix deal with a top five credit union. Within our sales execution during the quarter, we continued to see a healthy balance of net new and expansion activity 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 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 booking 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 a top five 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-sold product as well. They also contributed meaningfully to our success upmarket throughout the year, including the largest fraud deal in company history with a $200,000,000,000 bank. Lastly, as bank M&A activity began to pick back up in 2025, that 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 the go-forward solution. We believe our experience in effectively executing post-technology conversions is a competitive advantage for us and one that helps our customers de-risk their transactions and realize value in their M&A deals. Looking beyond sales and product success, 2025 was also a year we successfully executed against our profitable growth strategy. We will 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 are 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 gives us a durable competitive advantage. To demonstrate the scale of our commercial solutions, in 2025, we processed over $4,000,000,000,000 in transactions representing 21% year-over-year growth, with December being our first month ever to break $400,000,000,000 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 deepened relationships with existing customers. It is 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 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 organization. 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 is continuous, cross-channel, and embedded in nearly every digital interaction across retail, small business, and commercial. Thank you. As a result, financial institutions are placing greater emphasis on 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, 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 fraud-led 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 context 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 positions 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 Operator: First, Matthew Flake: 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 login, transaction, alert, message, and user decision—coveted data that gives us the real-time signals needed to understand what is 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 differentiated 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 is 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 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 have 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 in early adopter stage today. Over time, we believe our product innovation can create monetization 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 be 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 are 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 are seeing in our pipeline as we head into 2026. We exited 2025 with a very strong back-half bookings performance, and at a macro level, fundamentals of our end market remain solid: improving credit quality, stable margins, and reaccelerating M&A activity, 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 enterprise activity to be weighted toward the back half of the year. Overall, we feel great about our momentum and pipeline, and we are confident in our ability to continue executing in 2026 and beyond. With that, I will turn the call over to Jonathan to walk through our updated guidance and long-term outlook. Thanks, Matt. Jonathan Price: We are 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 installed 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. I will finish with our 2026 guidance as well as our longer-term financial framework. Total revenue for the fourth quarter was $208,200,000, 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 $794,800,000, 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 non-subscription revenues increased by 2% for the full year in 2025, partially driven by an increase in services revenue, 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 $921,000,000, up 12% year over year from $824,000,000 at the end of 2024. Our subscription ARR grew to $780,000,000, up 14% from $682,000,000 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 have discussed in non-subscription-based revenue over the last few years. Our ending backlog of $2,700,000,000 increased by $175,000,000 sequentially, or 7%, and $472,000,000 year over year, representing 21% growth. The year-over-year and sequential increases were supported by bookings success across new, expansion, and renewal activity. While we continue to see ample opportunity ahead, 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 twelve-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 were $78,900,000, or 37.9% of revenue, compared to $75,400,000, or 41.2% of revenue, in 2024 and $76,100,000, 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 $306,700,000 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 $51,200,000 in the fourth quarter, up 36% from $37,600,000 in the prior-year period, and up 5% from $48,800,000 in the previous quarter. Full year adjusted EBITDA was $186,500,000, up 49% from $125,300,000 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 $433,000,000, down from $569,000,000 at the end of the previous quarter, driven by the retirement of $191,000,000 of 2025 convertible notes that matured in November, as well as the repurchase of $5,000,000 of our stock in the open market. We generated cash flow from operations of $64,000,000 in the fourth quarter, driven by new bookings, larger annual invoices, and seasonal strength in working capital. We also generated free cash flow of $57,000,000 in the quarter, resulting in free cash flow for the year of $173,000,000, 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 $212,500,000 to $216,500,000 and full-year revenue in the range of $871,000,000 to $878,000,000, 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 $52,500,000 to $55,500,000 and full-year 2026 adjusted EBITDA in the range of $225,000,000 to $230,000,000, representing approximately 26% of revenue for the full year. We are now in the final year of the three-year framework we introduced in February 2024, and we have meaningfully outperformed those initial goals. Those targets call 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 three-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 three-year framework and reflects 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%–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 five 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, also driving meaningful expansion in profitability and cash flow conversion. As we enter 2026, we are raising our subscription revenue outlook for the year and providing a clearer view of 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 will turn the call back over to Matt for his closing remarks. Matthew Flake: Thanks, Jonathan. I will close by stepping back and putting the year into perspective. 2025 was a defining year for Q2. We have delivered strong execution across bookings, revenue, and profitability. We are seeing demand across our major product lines—digital banking, relationship pricing, and risk and fraud—and we are 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 in banking. Whether it be deposit growth, fraud management, or AI, we are confident in our ability to continue executing, investing thoughtfully, and delivering value for our customers and our shareholders. With that, operator, let us open the call up for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. A reminder that if you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. And our first question comes from Alex Sklar of Raymond James. Your line is open. Please go ahead. Great. Thank you. Matt, first one for you. Just with some of the growing expectations around Jonathan Price: core modernization within your FI base over the next years. Can you just talk about what you typically see in terms of demand for your own Alex Sklar: solutions when an FI decides to migrate its core to the cloud or switch core vendors? How often does that create an at-bat for you, and any change in terms of what you are seeing there in the pipeline related to those opportunities? Operator: Yeah. Thanks, Alex. Matthew Flake: You know, anytime a bank or credit union has decided to make a change to their technology, whether it is in the core area in particular, it opens up an opportunity for us. And we are expecting to get some opportunities from that. I have found money. I have not had it—I do not have it built into the numbers this year. But I think we are well positioned to get a lot of at-bats for those that happen. I do not know the timing on those, and there are some natural conversions that happen every year. But as you know, some of the core providers are forcing conversions, so it should create some opportunity. It is just hard to quantify it. But I like how we are positioned, and I think it should create opportunities for us. Alex Sklar: Alright. Great. And then, Jonathan, maybe one for you. I appreciate the early view, and you are 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 growth? Is it just on the strength and 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: Yeah. Thanks, Alex. No, we feel good about the early look into 2027 and the range we provided. I think you should definitely look to the 2026 bookings execution as having an impact potentially on 2027 that could drive upside to that. But we feel good about what we are 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 are very comfortable with the range we provided, and I would just look to once you get to the back half of 2026, the likelihood of it having a big impact in 2027 is smaller. So it is really our first-half bookings execution that could theoretically drive upside to that range. Alex Sklar: Alright. Great. Thank you both. Operator: Thanks, Alex. Thanks, Alex. Operator: And your next question comes from Eleanor Smith of JPMorgan. Your line is open. Please go ahead. Eleanor Smith: Good evening. Thank you for taking my question. So first for Matt, you cited very good transaction 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: Yeah. Well, 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 $5,000,000,000, only 10% of them have all three of our retail, commercial, and relationship pricing and fraud solutions. If you look at just the fraud opportunity, it is a little tricky because we have so many fraud solutions that are in the hands of clients stand-alone, meaning they are just on fraud products, and we can use that opportunity to cross-sell into digital. If you look at the digital banking customer base and say, how much opportunity could we resell fraud products into that base, we still think there is 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 is 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. Thank you. 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: Yeah. Well, what I would 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 have continued down that path throughout January and into February here. But that does not 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 will point to is as you look at the operating leverage in the business implied in our 2026–2027 outlook, you can see less expansion than what we have shown in 2023, 2024, and 2025 in the next two 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. Eleanor Smith: Great. Thanks so much. Jonathan Price: Thanks, Ella. Operator: And your next question comes from Terrell Tillman of Truist. Your line is open. Please go ahead. Alex Sklar: Yeah. Hopefully you can hear me okay. And congratulations on the fourth quarter strong bookings finish. The first question is going to be double-clicking into just digital banking holistically. I am curious if we take a step back, where do you think we are in terms of a baseball analogy on innings of just dynamism and kind of replacement opportunities for retail? Matthew Flake: Small business, and then commercial. And then I had a follow-up for Jonathan. Yeah, 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 are great companies. They will be around for a long time. But the demand environment kind of tells you that we are 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 eight quarters. So whether it is 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. You look at it, stocks are up. They are operating in this environment pretty well. They got through the 2022–2023 period of time. And they are focused on what we have been talking about all the time: deposit acquisition, retention, and growth. They are looking for operating efficiencies. They are 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 2026 and hopefully 2027. So I do not know what inning that is. Let us just say the beginning of the fourth. Terrell Tillman: Okay. Alright. Fine. That is a good answer there. Appreciate that. I guess for Jonathan, you know, risk and fraud, could you remind us again? I am sure you have an aggressive pipeline for 2026, but I am just curious, like, how quickly is that a 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 a kind of a meaningful swing factor if you do upside your sub revenue? Would it come from, like, risk and fraud, those products going faster? Thank you. Jonathan Price: Thanks, Terry. I mean, I hate to say it really depends, but it does from the standpoint of are you selling it stand-alone to a customer, in which case we can typically see implementation timelines that are faster than traditional digital banking. But if it is 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 is already live on digital, though, that is where you can see fast time-to-revenue because if we are cross-selling a Centrix solution or an Innovation Studio partner on the fraud and risk side, that is where you can see much, much faster time-to-revenue outcomes. So it is a little bit of both, but 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. Terrell Tillman: Thank you. Operator: Thanks, Terry. Thanks, Terry. Operator: And your next question comes from Andrew Schmidt of KeyBanc. Your line is open. Please go ahead. Operator: Hey, Matt. Hey, Jonathan. Andrew Schmidt: Good results here. Thanks for taking the question. 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 F5s, and I think you are hitting that pretty well. Maybe talk about just how demand has evolved for the last couple years and the demand into 2026 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 we could drill down on that, that would be super helpful. Thanks so much. Matthew Flake: Yeah. The real driver for the demand was the change in rates and the access to deposits and the importance of deposits. And as I have said many times, commercial deposits are the stickiest, the largest, and the most profitable because they are able to charge for services around that, whether it is wires, ACH, information reporting. And so you are 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 do not think we are ever going to get back, not in my lifetime, back to the zero rate or 1% rate. I think that demand is going to continue because that is the lifeblood of these businesses. They have 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 will see Operator: larger Matthew Flake: 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 will see more out of PrecisionLender in the first half and more fraud in the first half just because of the momentum we have there. But we have got a really healthy digital banking pipeline with some significant Tier 2s and Tier 3s and a couple Tier 1s that are working for the first half. I feel very good about the pipe for the first half. You know, you are closer to it until 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 of the company, to feel that way, we feel really blessed. Andrew Schmidt: Yeah. I know. It all sounds great. Thank you, Matt. And then maybe I could just ask on the 2030 targets, the margin targets, and 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? If you could unpack that a little bit, that would be helpful. Thanks so much. Yeah. Thanks, Andrew. It is really a combination of all the things you mentioned as well as Jonathan Price: the continued mix shift on the subscription side. So, in 2025, full year 2025 subscription revenue mix was 82%. As you get out to 2030, I would expect that to continue to mix up into the mid-80s, if not higher. That is going to be a contributor. From a cost of sales perspective, we see efficiency opportunities throughout those line items. And we are still optimizing from a global offshoring perspective. We are later in stage in that one, but there is still some execution there that will drive opportunity over the next five 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 could see that in the 2026 and 2027 numbers specifically—by the time you get out to 2030, we expect there will be efficiency that is driven from that line item as well. Andrew Schmidt: Super. Appreciate it, Jonathan. Jonathan Price: Thank you. Thanks, Andrew. Operator: And your next question comes from Matthew VanVliet of Cantor Fitzgerald. Your line is open. Please go ahead. Matthew VanVliet: You know, I guess as we look at AI, you mentioned a number of Operator: opportunities. Matthew VanVliet: 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 is 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 not the most compute-intensive like we might see in other areas. Matthew Flake: Yeah, Matt. You know, the beauty of the Innovation Studio is we have a revenue-sharing model already in place. And we firmly believe we are the gateway for these AI products and features that could be coming to us, and our customers are asking us Operator: to help Matthew Flake: with AI and how we are going to work together to do that. And then what is interesting is a lot of the companies that go to these banks directly Terrell Tillman: are Matthew Flake: the banks are steering them to us. And so it just reiterates the point that we think there is an opportunity to partner with people, to build our own products. And, you know, 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 have built with these customers over the last twenty-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 this is for Jonathan, but, you know, 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: Yeah. I would say they would be upside to the targets. I think we have conviction in this model, in this framework, in the paradigm we are operating in today. Not to say that from an efficiency standpoint we are not already seeing and expect to see more benefits throughout that 2030 time period. But if you are talking about specific monetization opportunities and the benefits from what Matt talked about, that would be upside to this framework. Matthew VanVliet: Alright. Great. Thank you. Operator: Thanks, Matt. Thanks, Matt. Operator: And your next question comes from Peter Karos of Stifel. Your line is open. Please go ahead. Matthew Kikkert: This is Matthew Tricker on for Parker. Thank you for taking my questions. To start, what is your view on kind of the 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 is picking up. And, you know, as we said in the prepared remarks and we have said historically, last year, we were, 93% of the time, we are 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 $5,000,000,000, I think it is up to 200 now—50% of the top 100. So we feel very well positioned in the M&A environment. And, Jonathan, do you want to talk about—and I think it is going to continue, obviously. And, Jonathan, do you want to talk about in the plan? Jonathan Price: Yeah. And what we know in terms of deals that have been announced and where we have either booked a contract with regards to an M&A deal that is now closed, or we have visibility into it, that would be captured. What we do not do is model hypothetical M&A that may be coming or that we do not 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 2026 guide we are giving. And most of the time, we would expect there to be upside from the M&A outcome. And if there is anything that happened the other way, I think we could absorb it within the context of that framework anyway. Matthew Kikkert: Okay. Thank you. And then my second question—sorry. Go ahead. Second question is, on internal AI efficiencies. I am just wondering what you are 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 are 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 is using AI tools to drive efficiencies in their business. And how we layer it in, we are going to be cautious with that because there is an expense to get all these tools, and then it takes a little time to do that. But we are seeing some early signs of some real positive outcomes. Jonathan Price: What I would just add to that is as you think about the 2026 and 2027 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 is 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 are going to be seeing some meaningful leverage when it comes to AI across this company. Operator: Okay. Thank you. Thanks, Patrick. Thank you. Operator: And your next question comes from James Faucette of Morgan Stanley. Your line is open. Please go ahead. Operator: Hey, guys. It is Mike Enfante. Any interesting trends in the actual tech Chris Kennedy: spend of your customers and how they are reallocating dollars right now? In particular, I am curious if you are 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, etcetera. Operator: Thanks. Yeah. I do not Matthew Flake: I have not seen it for AI purposes, but if you go back to 2022 and 2023 when rates went up so rapidly, you began to see vendor consolidation occur, and it was the vendor consolidation of 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 2023 through 2025. So I think that that is where they started to drive the efficiency 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 are certainly in a position to capitalize on in talking with our customers. Chris Kennedy: That is helpful, Matt. And then maybe just on your agentic strategy broadly, like, what is 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? Thanks, guys. Matthew Flake: Yeah. 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 when they start looking at technology solutions. So as I said earlier, all of our customers that we have talked with are coming to us and asking about how they should think about it. We are 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 is one of the reasons we talked about the system of context and 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 is a lot of opportunity there, and we are working with our customers. But we have tried some things and some have worked and some have not, but we definitely think that is going to be a pretty big tailwind for us as we get deeper with our customers. Operator: Thanks, Scott. Thanks, Michael. Operator: And your next question comes from Charles Nabhan of Stephens. Your line is open. Please go ahead. Matthew Flake: Good afternoon, and thank you for taking my question. I know it is becoming a smaller piece of the revenue pie, but can you talk about the outlook for non-subscription revenue? And given that it is dilutive, to the degree to which any recovery is assumed in the 2027 or longer-term framework? Jonathan Price: Yeah. So from a non-subscription standpoint, I 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 are right, those are margin-dilutive line items, but we also do not 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 do not expect that to grow off of the elevated levels of 2025. So you really do not see the opportunity to grow those line items to the extent we did in 2025 as we look forward. So did that answer your question, Chuck? In general, we expect the profile to be in mid-single-digit degradation in those line items, and they are margin dilutive, but they are also shrinking in scale. Terrell Tillman: Got it. That is super helpful. And as a follow-up, and apologies if Matthew Flake: 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 Josh Yankovich: in your overall AI initiatives. Jonathan Price: Yeah. I mean, it has 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 are 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 the value of our data and our distribution are something that the best technologies, whether it is 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 do not think we would 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 do not necessarily build. Operator: Got it. Appreciate all the color. Thank you. Matthew Flake: Thanks, Josh. Operator: And your next question comes from Alexander Sklar of RBC Capital Markets. Your line is open. Please go ahead. Hey there. This is Matthew on for Dan Perlin at RBC. I was wondering if you guys could update us on the Matthew Kikkert: 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: Yeah. Definitely. So you sort of see it in our framework when you look at 2026 guide. We have included in that framework for 2026 gross margin expectation of north of 60%. When you look at it, whether you look at the Q4 or the full year of 2025, we are expecting a significant step up in that gross margin metric. And then as you think about, you know, 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 are in a great position to capitalize from seeing all of those data center-related costs roll off the P&L. So that is really the biggest driver of that step up in the 2026 gross margin guidance that you are seeing. And then as you see that evolve to the target we put out for 2030, it is some of the levers I talked about earlier. And one of them includes, once we have 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 AWS, to understand how to do that with conviction and safety for our customers. But as we get into 2027 and beyond, we think there is another step-function opportunity from a gross margin perspective within that cloud spend bucket. Matthew Kikkert: That sounds great. Thanks, guys. Thank you. Thanks, Matthew. Operator: And your next question comes from Cris Kennedy of William Blair. Your line is open. Please go ahead. Chris Kennedy: Hey, guys. Thanks for taking the question. There have 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: Yeah. I mean, I think from a regulatory perspective, I would not say there is anything up in the last three months that has changed our outlook for the Helix business. I think we are continuing to see opportunities. You know, we talked about one in the quarter. A very large credit union that chose Helix for one of their strategic product offerings. And we continue to see banks and credit unions exploring what I will 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 is 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 have executed well in renewing our large number of—or our 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 are seeing the benefit of that. So no real change. Clearly, the demand environment that we saw back in 2020 through 2022, but nothing in the last three months that has pivoted our outlook on the Helix business at large. Chris Kennedy: Great. Thanks for that. And then we noticed the 50 SMB customers on the digital banking platform. Can you just talk about the opportunity to expand that metric? Thank you. Operator: Yeah. I mean, Jonathan Price: when we think about SMB and commercial still, and you think about the total of about 500 digital banking customers, that is 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 talks about, the demand for commercial is extraordinarily high, and we think our positioning and our differentiation on the commercial side are helping us win a lot in the market. So I think Matthew Flake: banks can—as the bigger banks get bigger, they kind of abandon businesses that are $2,500,000,000 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 is another tailwind for us. Chris Kennedy: Got it. Thank you, guys. Appreciate it. Thanks, Chris. Appreciate it. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: At this time, participants are in listen-only mode. Thank you for standing by, and welcome to the Ascendis Pharma A/S Fourth Quarter 2025 Earnings Conference Call. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during this 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 I would like to introduce your host for today’s program, Chad Fugier, Vice President, Investor Relations. Please go ahead, sir. Thank you, operator, and thank you, everyone, for joining our full-year 2025 financial results conference call. I am Chad Fugier, Chad Fugier: Vice President, Investor Relations at Ascendis Pharma A/S. Joining me on the call today are Jan Moller Mikkelsen, President and Chief Executive Officer; Scott T. Smith, Chief Financial Officer; Sherrie Glass, Chief Business Officer; Jay Donovan Wu, Executive Vice President and President, Ascendis US; and Aimee Shu, Chief Medical Officer. Before we begin, I would like to remind you that this conference call will contain forward-looking statements that are intended to be covered under the safe harbor provided by the Private Securities Litigation Reform Act. Examples of such statements may include, but are not limited to, statements regarding our commercialization and continued development of Skytrofa and Yorvipath, as well as certain expectations regarding patient access and financial outcomes; our pipeline candidates and our expectations with respect to their continued progress; our strategic plans, partnerships, and investments; potential commercialization; our goals regarding our clinical pipeline, including the timing of clinical results and trials; our ongoing and planned regulatory filings; and our expectations regarding the timing of regulatory decisions and the result. These statements are based on information that is available to us as of today. Actual results may differ materially from those in our forward-looking statements, and you should not place undue reliance on these statements. We assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see our forward-looking section in today’s press release and the Risk Factors section of our most recent annual report on Form 20-F filed with the SEC on 02/11/2026. TransCon Growth Hormone or TransCon hGH is now approved in the US by the FDA for the replacement of endogenous growth hormone in adults with growth hormone deficiency, in addition to the treatment of pediatric growth hormone deficiency, and in the EU has received MAA authorization from the European Commission for the treatment of pediatric growth hormone deficiency. TransCon PTH is approved in the US by the FDA for treatment of hypoparathyroidism in adults, and the European Commission and the United Kingdom’s Medicines and Healthcare Products Regulatory Agency have granted marketing authorization for TransCon PTH as a replacement therapy indicated for the treatment of adults with chronic hypoparathyroidism. Otherwise, please note that our product candidates are investigational and not approved for commercial use. As investigational products, the safety and effectiveness of product candidates have not been reviewed or approved by any regulatory agency. None of the statements during this conference call regarding our product candidates shall be viewed as promotional. On the call today, we will discuss our full-year 2025 financial results and we will provide further business updates. Following some prepared remarks, we will then open up the call for your questions. With that, let me turn the call over to Jan. Thanks, Chad. Good afternoon, everyone. With strong execution across our business, and continued progress to delivering on our Vision 2030. Jan Moller Mikkelsen: Ascendis is transforming into a leading global biopharma company. We believe this progression demonstrates the power Chad Fugier: platform. Jan Moller Mikkelsen: And our R&D capabilities to deliver a sustainable pipeline. While our global commercial infrastructure and financial profile continue to strengthen, we believe we are now at the base of a steep growth, where we expect to achieve operating cash flow of around €500,000,000 in 2026 and where we aspire to achieve at least €5,000,000,000 in annual product revenue by 2030. At the same time, we are building an expanded pipeline of blockbuster product opportunities. We saw multiple achievements across the organization in the fourth quarter, starting with Yorvipath. The fourth quarter was another period of strong execution for the global launch of Yorvipath. Revenue for the quarter was €187,000,000, bringing full-year 2025 Yorvipath revenue to €477,000,000. In the US, access continued to expand. To year end, more than 5,300 patients were prescribed Yorvipath by nearly 2,400 unique healthcare providers, Chad Fugier: highlighting continued Jan Moller Mikkelsen: strong and steady demand. To date, less than 5% of US patients are currently on Yorvipath treatment, highlighting the significant long-term growth opportunity ahead. The overall insurance approval rate is about 70% of total enrollment, and we continue to see this figure moving higher over time. In addition, we continue to see a majority of approvals within eight weeks. This provides a strong foundation for expected additional growth in 2026 and beyond as more patients initiate Yorvipath in line with treatment guidelines that support its use. Outside the US, we continue to reach more patients. As a reminder, Yorvipath is now available commercially or through named patient programs in more than 30 countries. We have full commercial reimbursement in four countries in our Europe direct markets and two countries in our international markets. In Japan, our partner Taisho launched Yorvipath commercially last November. In 2026, we expect full commercial launches in 10 additional new countries. We also advanced development activity to broaden Yorvipath’s label in a number of areas. In the US, we are working to expand the range of doses toward PATHway-6 trial, and globally we continue to advance clinical trials to expand Yorvipath to patients under the age of 18. Our work is progressing rapidly on once-weekly TransCon PTH for patients who have been titrated with daily Yorvipath for conventional therapy and have achieved a stable daily dose for a well-defined period. Last month, at the annual J.P. Morgan Healthcare Conference, we shared preclinical data that support the target product profile for a once-weekly TransCon PTH candidate matching the release PK/PD as seen with daily Yorvipath treatment over the entire week, thus providing a comparable efficacy and safety profile. Overall, we remain confident that Yorvipath has the potential to be a durable long-term growth driver for Ascendis globally. Turning now to growth disorders, comprising our once-weekly growth hormone Skytrofa, or TransCon Growth Hormone, and our once-weekly TransCon CNP. Skytrofa delivered another solid quarter with Q4 revenue of €53,000,000, bringing full-year Skytrofa revenue to €206,000,000. This performance reflects the strength and value of the brand. As a reminder, Skytrofa is now approved in pediatric growth hormone deficiency in the US and adult growth hormone deficiency. Today, Skytrofa has an overall market share of around 7% in the US. During the fourth quarter, we initiated our Phase III basket trial evaluating TransCon Growth Hormone in additional established growth hormone indications, including ISS, SHOX deficiency, Turner syndrome, and SGA, which comprise up to half of the growth hormone market. Over the long term, these indications represent meaningful opportunity to expand the role of Skytrofa as a treatment of choice in additional growth disorders. We also see an opportunity to potentially expand Skytrofa’s use to novel indications where growth hormone has not previously been approved for use, such as achondroplasia, in combination with TransCon CNP. TransCon CNP is expected to be the first and only once-weekly treatment with monotherapies addressing the overactive FGFR3 tyrosine Chad Fugier: kinase. Jan Moller Mikkelsen: In addition, in our pivotal trial, TransCon CNP achieved a significant improvement profile compared to placebo, with a very low rate of injection-site reaction, spinal canal dimension, and a similar safety and tolerability and no cases of symptomatic hypertension. In the US, in leg bowing compared to placebo, our NDA for children with achondroplasia remains under review with a PDUFA date of February 28. In the EU, the MAA review is underway, Chad Fugier: last October with a regulatory decision expected in the fourth quarter Jay Donovan Wu: tried in infants. Jan Moller Mikkelsen: with achondroplasia ages 0 to 2 is going well, and we anticipate complete enrollment later this year. Turning to the combination therapy, our 52-week data in achondroplasia underscore the potential power of dual treatment with TransCon CNP and TransCon Growth Hormone. Continuous exposure to CNP enables the benefit of sustained exposure to unmodified growth hormone. In comparison, Operator: Monotape Jan Moller Mikkelsen: trials of daily growth hormone in achondroplasia delivered only a limited effect on growth and no group-reported benefit on linear growth. Our 52-week data from the Phase II combination trial support our vision to significantly raise the bar for treatment of achondroplasia, with linear growth improvements in achondroplasia-specific height score that were three to four times what has been shown with CNP or daily growth hormone monotherapy in the same Operator: Focused development programs in both our monotherapy and combination therapy programs. Importantly, all children completed fifty two weeks of treatment and remain in the trial. Reinforcing the benefit of treatment and acceptable treatment burden of the once weekly machine. These phase two results demonstrate the effect of these complementary therapies. Supporting that TransCon CNP act in synergy with growth promoting effect of TransCon growth hormone. And has positive effect beyond linear growth. We believe over time the standard of care in achondroplasia and other growth disorder long term will include dual therapy as a treatment option. Building on the potential road of TransCon CNP as an essential fundamental therapy. We recently had a successful end of phase two FDA Meeting And Scientific Advice Meeting In EU to align on our phase three trial for this novel combination approach for treatment children with achondroplasia. We also remain on track for additional Cokes trial updates including 78 by mid year and 104 by year end. And plan to explore further opportunity in other group disorders. To sustain doable long term growth for Ascendis. Well into the next decade. We plan to continue to invest in label expansion. Of our current products in rare endocrine diseases. In addition, we have a strong focus on the development of new blood product opportunities, both inside and outside rare endocrine diseases. To food significant product revenue growth in the future. Looking at our partnerships. TransCon Technologies support a continuous flow of highly differentiated product opportunity across multiple therapeutic areas, more than we can develop and commercialize ourselves. For this reason, our Vision 2,030, includes a focus on creating additional value through partnership and collaboration. Our collaboration with Novo Nordisk for once monthly transconcemic glutide continue to advance towards the clinic. Adarconis TransCon anti VEGF is on track to enter the clinic this year. In Japan, Talypian received approval for Europatch in August 25, and commercial launched it in November 2025. In addition, vision approval of Skytrova in China in late. January twenty six. In summary, 2025 was another positive and transformative year for the SETIs. With two commercial TransCon products, continue to scale, the potential approval of the third high value TransCon product in the coming weeks. And a growing pipeline of highly differentiated programs. We believe we have the fundamentals in place to deliver global long term growth. A rapidly strengthening financial profile gives us confidence to achieve an expected operating cash flow of around €500,000,000, in 2026 and our aspiration to achieve at least €5,000,000,000 in annual product revenue by twenty twenty third. All consistent with our Vision 2030 strategy. I will now turn the call over to Scott. Thank you, Yan, and thank you, Chad, for a well read FLS. Chad Fugier: The significant achievements we made in 2025 provide us with substantial financial strength to drive our strategic priorities and goals in 2026, which include achieve blockbuster status for Yorvipath, solidify our leadership in hypoparathyroidism through rapid while advancing development of our once weekly PTH candidate progress of our label expanding clinical trials of TransCon PTH, successfully launched TransCon CNP if approved in the US and other countries around the world, and expand our leadership in growth disorders through clinical and regulatory progress with once-weekly Skytrofa, including in combination with once-weekly TransCon CNP. With that, I will touch on some key points surrounding our fourth quarter results. Quarter and full-year financial results which we mostly already announced at J.P. Morgan. But for further details, please refer refer to our annual report on Form 20-F filed today. As previously announced in January, Yorvipath delivered strong global performance in Q4 2025, revenue increasing to €187,000,000, up from €140,000,000 in Q3. Foreign currency had a negligible impact compared to the previous quarter. Total Yorvipath revenue for 2025 was €477,000,000. For the full year, the weaker US dollar negatively impacted Yorvipath revenue by approximately €27,000,000. Skytrofa contributed €53,000,000 in Q4 with negligible foreign currency impact compared to Q3 2025. Total Skytrofa revenue for 2025 was €206,000,000. For the full year, the weaker US dollar negatively impacted Skytrofa revenue by approximately €9,000,000. Including €7,000,000 in collaboration revenue, total Q4 2025 revenue amounted to €248,000,000, and total revenue for full-year 2025 was €720,000,000. Continuing on to expenses. As previously announced, total operating expenses for Q4 were €214,000,000, and total operating Jan Moller Mikkelsen: total Chad Fugier: operating expenses for the full year 2025 were €761,000,000. As we previously noted, Jan Moller Mikkelsen: profit for Q4 2025 was €10,000,000 with Chad Fugier: Q4 operating cash flow of €73,000,000. As we have discussed for some time, below operating profit, the drivers include the noncash accounting related to our convertible notes. Net finance expense, which was primarily driven by noncash items, including remeasurement loss of financial liabilities of €106,000,000, was €93,000,000 net. Net cash finance financial expense, however, for the full year 2025 was about €8,000,000. In future periods, we may introduce a non-IFRS EPS measure adjusting for the impact of certain items to increase the comparability of period-to-period results. We ended 2025 with €616,000,000 in cash and cash equivalents, as previously reported, up from €560,000,000 as of December 31, 2024. Turning to our commercial outlook and to help inform your revenue modeling for the coming year. For Yorvipath, we expect continued strong revenue growth in 2026 based on steady patient uptake with some expected seasonality in reported revenue throughout the year. For Skytrofa, we expect to follow a similar seasonal pattern to 2025 with full-year revenue growth expected to track growth in prescriptions. Longer term, Skytrofa revenue is expected to come through geographic Jan Moller Mikkelsen: Epic and label expansion. Chad Fugier: As always, we continue to watch the euro-US dollar exchange rate for any potential impact. And finally, we also look forward to the potential US approval of TransCon CNP later this month, which, as a reminder, has been excluded from this 2026 outlook. With that, operator, we are now ready to Jan Moller Mikkelsen: Certainly. And once again, ladies and gentlemen, we ask that you please limit yourself to one question each. Our first question comes from the line of Jessica Macomber Fye from J.P. Morgan. Your question please. Jessica Macomber Fye: Hey, guys. Good afternoon. Thanks so much for taking my question. What is your confidence level heading into the TransCon CNP PDUFA? Are you comfortable that the issue leading to the review Operator: Yes. Can you remember Jessica Macomber Fye: extension has been resolved to the FDA’s satisfaction? Thank you. Operator: your Jan Moller Mikkelsen: Ask me a question one time, and the conference Operator: And can you remember my answer? Jessica Macomber Fye: I do remember the answer. Operator: And what was your question? You can ask the same question. Jan Moller Mikkelsen: The hey. Jessica Macomber Fye: I remember your answer, but it was about a different product, if I recall, but your answer was yes. Jan Moller Mikkelsen: Yes. Operator: So this is the same. You asked me, will TransCon PTH be approved? And I said yes. And you can ask me the same question today. Will TransCon CNP be approved? And I would say yes. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Tazeen Ahmad from Bank of America. Your question please. Tazeen Ahmad: Hi. Good afternoon. Thanks for taking my question. You mentioned that 70% Jan Moller Mikkelsen: Insurance approval rate in the US so far for Yorvipath. Where is that relative to where you thought it would be at this stage of the launch? And what is it going to take to expand that to a higher number, where do you think long do you think it is going to be before you get to 100%, basically? Thank you. I think it will be infinity, because Operator: because I have never seen a product hitting 100%. Scott T. Smith: So Operator: I think the highest bar for seen is something like 85% or something like that, perhaps up to 90. The element of where we are today, I am really highly satisfied with it because it is also a compromise about how aggressive you are going into contracting and other things like that. So I think it is a balance between the two things where in the end Tazeen Ahmad: The overall Operator: and ultimate goal is basically to provide most value back to our shareholders and others, and at the same time help the patient to as fast as possible to come on treatment. I do not know, Jay, if you have additional comments to my I will now say pre-prepared remarks. Jan Moller Mikkelsen: Yeah. Operator: One is that I would say two things. Scott T. Smith: We are very happy with the overall approval rate that we are seeing, and I think the speed in which you are seeing this product be covered again Operator: It is a testament Jan Moller Mikkelsen: to the strong clinical value proposition that we are Tazeen Ahmad: Seeing in hypoparathyroidism. It is the first and only approved Scott T. Smith: therapy in this category. So, again, this approval rating is something that we are very encouraged by. Based on where we are today, I think to your second part of the Jan Moller Mikkelsen: question, Tazeen, which is, you know, when might Scott T. Smith: you get to 100%? I Jan Moller Mikkelsen: echo what Jan said earlier as Scott T. Smith: well, which is I do not know that many drug analogs will get to 100%, and that actually has less to do with Jan Moller Mikkelsen: coverage, and Operator: also has to just to do with Jan Moller Mikkelsen: every single enrollment that comes in. Not Tazeen Ahmad: single one of Scott T. Smith: them will be eligible relative to the label. Jan Moller Mikkelsen: So there is some element of just natural filtering that comes that way. But more importantly, what I would say is that there are state Medicaid plans, for example, that review things on a staggered Gavin Clark-Gartner: cycle. So you will anticipate that some of this will creep up over time. But it will take some time before it continues to inch upwards. Operator: We need to some way, this is a Yeah. Okay. But but I think I think still low. all approvals in enrollment. US discussion. The US discussion is built on 70% of Gavin Clark-Gartner: We are not there. Operator: So when you go in and look on an old cohort that perhaps have been six months through it, your actual will get NMOS higher number on it. Just to clarify that 70% on it, that is when you take everyone accumulated. If you take an old cohort, it is much higher. And when you go ex-US, the system is quite different. When you get a prescription, you nearly in every other country, you are axiom approved. So you can say the 100% yes is basic when you get a prescription outside US in traditional countries, you will be 100% electable and already approved for reimbursement. Tazeen Ahmad: Got it. Thank you for the color. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Gavin Clark-Gartner from Evercore ISI. Your question please. Gavin Clark-Gartner: Hey, guys, thanks for taking the question. Just on your Yorvipath pricing, so there was an 8% WAC increase in January. Maybe you could just discuss how net pricing will trend this year, including how to quantify the magnitude of the Q1 seasonality here. Operator: I do not think we really are discussing net prices. We would love to do it, but we have never done it, and I do not think we ever will discuss net prices. Gavin Clark-Gartner: Maybe if I could just ask a follow-up then. Just on patient enrollment, are you planning to still report those forms going forward for Yorvipath or maybe just focus more on revenue? Operator: I think it, Gavin, is 100% right. We will focus on revenue because now we basically have been in the market now in the US. We are on the market for about four quarters now, when we come to here the fifth quarter, I think you have seen a steady state development from 2025 where we basically got an increase in basic revenue from both US and ex-US, about €40,000,000 to €50,000,000 net every quarter. I think you will somewhat see a stability in how we are executing in it. We still have ex-US. We will expect 10 additional countries being fully reimbursed next year. I am sure that is always improving what we call the net revenue we will generate outside the US. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Yaron Benjamin Werber from TD Cowen. Your question please. Great. Thanks so much. I have sort of two not really related, but I am going to try to link them to keep it as one question. Scott T. Smith: Maybe the first one, can you give us a little bit of a sense for Yorvipath? How it is being used out there? I mean, it is almost like when you look at this 2,400 unique prescribers and 5,300 unique patient enrollment, so is it that each physician just has one or two patients in the practice, are they prescribing it there and then they are going deeper? And then Gavin Clark-Gartner: secondly, just at the end of Jan Moller Mikkelsen: Phase II meeting with FDA relating to CNP and growth hormone for achondroplasia, maybe just can you give us a little bit of an update, what was the outcome and when will you start the Phase III? Operator: Thanks. Okay. That is perfect. I think, Jay, you can give some about how we are both expanding the physician prescriber base, but also go in more in the deep of the different patient, but still are far away to reach delivery where we want to be. Jay, Gavin Clark-Gartner: Yep. So in the US, I think the question is really around segmentation and what types of patients are being treated. So if you think about the prescriber base, this is where you first started your question from. We are seeing broad uptake across the entire range of prescribers. So to your point, there are some physicians that might only see a couple patients, but there are also some physicians that might see upwards of 10 patients. More importantly, because we are seeing broad uptake across both high-decile and low-decile providers, we are not seeing a major discrepancy as to the type of prescriber that would prescribe, but we are seeing that breadth continue to increase. As it relates to the number of patients per physician, we are also seeing the depth of prescribing per physician also increase over time, which again is encouraging. That is both a testament to positive experience that they have with Yorvipath as well as increased awareness of the hypoparathyroidism condition and option for it amongst patients. I think the last Jessica Macomber Fye: Now they are being an up thing I would say is Gavin Clark-Gartner: when you think about the types of patients that come Jessica Macomber Fye: through, Gavin Clark-Gartner: you can look at it in two ways. One, the vast majority of them are postsurgical, so about 70%. The remaining 30% perhaps due to other factors, whether it is genetic, autoimmune, etc. We are seeing broad across both of those segments, so that is not a major driver. Really where you are seeing some of the earlier uptake is patients that are self-aware of the condition that they have, and therefore, are linking the symptoms that they have to the underlying condition that they have, Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Operator: Okay. Joseph Schwartz. Gavin Clark-Gartner: a combination of them advocating for themselves as well as providers having conviction in the product as well. So all in all, we are seeing broad uptake across provider groups as well as patient segments as well. Operator: Before you the question start, perhaps I can answer the last part of related to the COACH trial. Yes. We had extremely positive meetings both US right and from the EU side, it was really impressive feedback to the data. There Jessica Macomber Fye: have never seen Operator: data before that basically are providing this kind of benefit to an achondroplasia treatment. I am not only talking about the linear Jan Moller Mikkelsen: growth where we basically on Operator: z-score got a three to fourfold more than you can see with monotherapy in the same time period, but also unique elements like such an improvement in body proportionality. What was really what really they have never really seen in such a meaningful manner was a really important element, the arm span, where we also saw in the combination trial a unique improvement in arm span. And Aimee is sitting here with the sales team, and she is really doing everything to get this trial recruited as fast, be ready to go. Protocol is finished and everything. Be open site. Just remember that our pivotal trial in monotherapy, we recruited it just in three or four months, just because of the interest of the patient. Therefore, the bar for Aimee is very, very, very hard if she needs to do that faster. Sorry for coming in. Jan Moller Mikkelsen: Absolutely. Not a problem. Our next question comes from the line of Joseph Schwartz from Leerink Partners. Your question please. Joseph Schwartz: Hi. This is Heidi Jacobson on for Joe Schwartz. Thanks so much for taking our question. Can you help us understand how the TransCon CNP launch could factor into your $500,000,000 operating cash flow target for 2026, Li Watsek: particularly with respect to launch investment and early revenue contribution? Jan Moller Mikkelsen: Thanks. It is pretty simple. It is not incorporated. When we are coming into the launch, we see the initial uptake, which we believe will be pretty high, not only in the US but also outside US because we can utilize the US approval to go to countries outside US, specifically in the international market. From that perspective, we will come and provide you a better guidance and improved guidance when we have seen that. Scott is smiling, are you counting money or Scott T. Smith: taxes and money. Jan Moller Mikkelsen: If you will come back after that. Joseph Schwartz: Great. Thanks. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Derek Christian Archila from Wells Fargo. Your question please. Derek Christian Archila: Hey, good afternoon. Thanks for taking the questions. I just wanted to understand your confidence level around Yorvipath growth ex-US. Obviously, the launch in Germany and Austria, is that a good proxy? Or is it going to be more depth in those types of countries than just kind of expansion in, you know, I guess, I think you said 10 additional countries. So how will that be sequenced through the year? Thanks. Operator: That is an extremely complicated answer because the heterogeneity of the ex-US is so heterogeneous that we cannot really compare to what we, for example, see in Spain now, what we see in France, what we see in Germany, what we see in Austria. It is really different things because we see different speed of penetration. For example, Germany has less endos, so the bottleneck is really more tight. It takes longer time to get them on therapy because there are fewer in the general population. If we go to Spain, there are more. There are more in France, and we also see, therefore, a faster uptake because we basically have a pipe that is larger. When we get 10 more additional countries on full commercial, we will see different uptake, but what we are doing is everything will be accumulated in the way where we now see from 30 to 35 countries named patient programs. When we go full commercial, what we see every place is basically an acceleration of patient uptake, because of the burdensome nature of a named patient program. It takes so much effort to get every single patient on it, and every patient deserves to be under treatment. So when you come to 2026, we will see initial speeding up in all these countries. When we come to 2027, 2028, you will continue to do it because, just by nature, we just got approval now in Canada, and we are basically taking one country after the country, first going in and getting approval, and then we are going to put reimbursement. Jan Moller Mikkelsen: Our next question comes from the line of Li Watsek from Cantor. Your question please. Li Watsek: Hey, thank you so much for taking our question. It is Daniel Brondo on for Li. Can you give us a little bit of color on how you expect your TransCon CNP launch to go? It seems like there are a few patients who Jan Moller Mikkelsen: currently are on treatment. Where do you think you will capture the majority of patients Aimee Shu: initially? Operator: Pretty clear. The improvement that we see with TransCon CNP to what we can provide. Not only related to when we look on tolerability, injection-site reaction, having one in 20 injection-site reaction compared to one every second year. Being in a position to look on no risk of hypertension. The element of just having the improvement on the once-weekly product and then show the data package that we have generated with TransCon CNP, for first time ever shown in a well-controlled trial against placebo, benefit beyond linear growth. For example, the leg bowing, which we have shown multiple times, we have shown improvement in muscle strength. We have improved quality of life. I think this is obvious. Li Watsek: Every Operator: patient that decides to be on treatment should have the opportunity to have the best possible treatment option, and I think there is a public interest in the US to ensure that it always will happen. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Eliana Rachel Merle from Barclays. Your question please. Eliana Rachel Merle: Hey, guys. Thanks so much for taking my question. Curious if you can elaborate on your strategy for commercializing TransCon CNP ex-US. Just given the majority of vosoritide sales are ex-US, could you elaborate on your strategy for the commercial launches globally and the degree of investment that that will take? And then just a second question on TransCon CNP in the US, can you talk a little bit more about how you are thinking about the cadence of uptake and which segments do you expect the most uptake from between, say, treatment naive versus switches? Thanks. Jan Moller Mikkelsen: Yeah. I will dial a little bit back now because what we did Operator: global when we said that we want to have commercial Aimee Shu: effort. Operator: We actually started all our infrastructure building to Yorvipath. And now you see what we have done with Yorvipath recognized their fast revenue, commercial revenue for more than 30 countries. We are penetrating them exactly as we can do. We will reach 60 to 70 countries in less than two to three years. So what we have done, we already have built up the infrastructure to be ready that we can take our integrated pipeline of rare disease endocrine product into all these different countries in already the setup via step links around Yorvipath. So this is the positive element that we are not, you can say, a company that needs first to take up an infrastructure to support a globalization. We have already established that. So I feel really confident that all the success we see now with Yorvipath on a global scale we will just take it in. Do not forget, for example, even in Japan, the collaboration we have with Taisho is for all three products, the same thing in China and other places. So when we make this agreement, we are not making single product, single country. We make it as a pipeline product. And this is why we do not need to go out and make new agreements or anything. It is just going to be done extremely fast from that perspective. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Leland James Gershell from Oppenheimer. Your question please. Leland James Gershell: Great. I want to ask, as we look at the €5,000,000,000 number you have put out there for product sales by 2030. I know you are not giving specific product guidance here, but if you could share with us how you think about the relative contributions of your presumably three products by that point in time in terms of how they will weigh into that total sum. Obviously, you have much more expansion opportunity in hypoparathyroid, you have TransCon CNP potentially launching soon, and Skytrofa perhaps getting additional indications in combination. I would love to just hear maybe just philosophically how your outlook adds up with those three parts. Thank you. Operator: Yeah. That is an element where we always in our forecasting are operating under different assumptions, where we are basically building up models for each single country and then we accumulate that on a global setup. We first take 2026, we take 2027, 2028, and 2029. Then what we are doing, you always will go in and look on the risk balance. Where do we have potential extra upside that we can explore. What are we going to do with this fountainhead? But I think what makes Ascendis unique today is that we are not a single product in a single region. We will have three approved products in perhaps 20 different indications in about 30 to 40 countries. Meaning that what we really want to do, we will not be dependent on one single product in one single region. This is how we build up a sustainable company that has a continued stable revenue flow for multiple years. Do not forget these product opportunities we have. When I look on the pipeline for each of them, I definitely do not have sleepless nights. I can guarantee that. There is no doubt that when I see the profile and how we design it to be best in class, we also see that realized. Out from that perspective, it is a combination product with lifespan of IP extremely long. This is where you have the durable durability of it. This is why we take the value perspective of each single product opportunity instead of fast revenue. This is not how we operate. We go for value, and because the element of that is this is the product really to serve this treatment because we are providing not only a unique benefit for the patient but also for the society and everyone. Aimee Shu: Great. Thanks very much. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Paul Choi from Goldman Sachs. Your question please. Paul Choi: Hi, good afternoon. Thanks for taking our question. I think your Phase II REACH IN study is scheduled to reach primary completion next month. Will you be in a position to file an sNDA for the newborn infant population this year? And in terms of the newborn infant population, in your discussions with the FDA and EMA for your Phase III combination study, does your study design allow for those newborn patients to be included in this study population, or will that require a separate study? Thank you. Operator: I think when you discuss a label discussion, that typically is different between, now I just take the two main regulatory areas because we can also take Japan into it, but if you take, for example, US, it is much harder some way to be coming to a situation where they will accept a label expansion to the infant without having the data in hand. In Europe, it is much more flexible because you have a discussion with them, and you can have what I call partly rolling of data that is being generated to our Gavin Clark-Gartner: trial. Operator: So there will likely be a difference between the three geographic regions. Now simplified, Japan is mostly perhaps the easiest way to get it down to infant immediately. What we are doing now is to ensure we generate the right data and we are doing that in a trial. It is a placebo-controlled trial, and what we see is everything we hoped for. It is living up to our expectation. Why I can say that? Because in the enrollment we have six patients on a, what I call, physical treatment on it. You take them in, and there is no randomization. You can follow them, and Aimee can tell a few words about the benefit we have seen from that perspective. Aimee Shu: So Jan is talking about the sentinel kids who are not part of the randomized piece of the study, and they are doing well, tolerating the medicine as well as we would expect, growing and starting to see early signals of the other benefits as well, particularly radiology. Jan Moller Mikkelsen: Yeah. So we are really so pleased with the progress we are doing in helping patients with achondroplasia, not only on linear growth, but also benefit beyond linear growth. Jan Moller Mikkelsen: Thank you. Our next question comes from the line of Yun Zhong from Wedbush. Your question please. Yun Zhong: Hi, good afternoon. Thank you very much for taking the question. My question is on the weekly TransCon PTH. Is it reasonable to expect that the program could potentially enter the clinic in 2026, or do you think that there is no such need to rush? Also, you mentioned matching PK to the daily product. With data from Yorvipath available, what would you see as the most efficient clinical pathway to maybe take the weekly PTH to approval? Operator: I think what you are addressing is two things that are interconnected. Because if you, for example, can show the PK profile, and it can even be healthy volunteers or patients with hypopara, that over the entire Yun Zhong: week, Operator: of treatment, you basically are bioequivalent to Yorvipath. That is the aspiration how we designed it, that you basically will always be in an excellent PTH level compared to your Yorvipath daily dose for the entire week. Then we know you basically will get the expected safety, the durability from that perspective, and this will make a much more simplified, easy way to conduct the clinical trial. It was why we designed it exactly in this manner. Yun Zhong: Okay. Thank you very much. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Luca Issi from RBC. Your question please. Luca Issi: Great. Thanks so much for taking my question. Congrats on the progress. Maybe, Jan, kind of big picture, I think one of the goals for 2030, as you articulated at J.P. Morgan, is to remain an independent and profitable biotech company, and we have seen many examples of that in our industry recently. However, how are you thinking about maybe continuing that same vision under the broader umbrella of a larger pharmaceutical company? I guess the question is how are you thinking about strategic path A versus strategic path B at this point? Any color there much appreciated. And then maybe, Jay, quickly, I think BioMarin has announced that they will file vosoritide for full approval versus I believe you will initially get approved on an accelerated approval basis for TransCon CNP. How should we think about that difference? Will that have implications for formulary access and reimbursement? Do you not view that difference as material for adoption given you obviously have a less frequent dosing versus— Operator: I think I will liberate Jay for answering the last Jan Moller Mikkelsen: question. I think when I look on this discussion on accelerated approval that BioMarin filing for, that has no Yun Zhong: impact Jan Moller Mikkelsen: on our regulatory pathway and approval and other things like that. Totally independent. It is not any way how you can build up any barrier or any way in this way. The second thing, yes, in our vision there is independent, and I believe that is a great word because we want to be independent like a teenager growing up. One of the things, at least I have four children, I am teaching them when they are going to be aging, you need to be financially independent as the first element in their life. I think that is a great thing to see Ascendis Pharma now moving away from being a teenager, but basically can go up to a more adult life. We have shown now we are completely independent on Scott T. Smith: asking Jan Moller Mikkelsen: investors and others for any kind of revenue, and I think this is how we see independency. Luca Issi: Super helpful. Thank you. Jan Moller Mikkelsen: And as a reminder, ladies and gentlemen, we ask you to please limit yourselves to one question. You may get back in Maxwell Nathan Skor: Our next question comes from the line of Maxwell Nathan Skor from Morgan Stanley. Your question please. Great. Thank you very much. My question was asked, but I will take a shot at this. Could you give any color on the once-monthly TransCon semaglutide program? Any gating factors, when we should expect an update? Any additional color would be helpful. Thank you. Operator: Yeah. Let me go back to all the element and all the IP we have done, files and data and everything like that before we went into this extremely productive collaboration with our neighbor in Copenhagen, Novo Nordisk. What was really the idea behind once-monthly semaglutide? The idea was to be sure that you can get fast weight loss and at the same time have a high level of tolerability. Just think about, I can define it, you have a naked GLP-1 molecule that when you give it weekly or potentially want to use a weekly product in a once-monthly, you need to add much more compound to compensate for the half-life to have a large AUC. By doing this, you add a high Cmax dose. Because it is naked, you will have a very short Tmax, meaning that you will have a steep curve from the lowest level just before you start to give a dose up to the maximum concentration. That is basically what often gives the tolerability issue where you get the element that basically limits people to stay on treatment and what you can achieve. This is what I call the naked product. This is like metacresol and everything. This is a naked protein. What we are doing now is defining what we call packed-in semaglutide. Even if you give it high dose, you liberate it slowly, slowly, slowly, so you are getting a very long Tmax. By doing that, you basically have a slope that is not as steep at all as you see with a naked molecule, then you can see you still have a big AUC because you provide so much compound, give it over the entire month, and at the same time, you do not have this steepness in the slope. By that, you do not have that. It was designed to have maximal weight loss as fast as possible with the best tolerability profile, and it was how we designed it at that time. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Alexander Thompson from Stifel. Your question please. Alexander Thompson: Hey, great. Thanks for taking our question. Maybe for Scott, could you talk a little bit about OpEx trajectory in 2026 in the context of the CNP launch and then the schedule of the label expansion both with mono and the combo pivotal studies? Thanks. Scott T. Smith: No problem. We talked a little bit about this at the J.P. Morgan conference event. Using Q4 OpEx as a run rate for the full year is not a bad way to think about it. If things change, we will come in and update you. Overall, everything related to CNP, as we said before, we will come out and discuss more following approval. Yeah. But that is mainly related to the revenue, because Operator: what we have now, we have a really mature company. It is not like we take something in a pipeline, actually take product out of the pipeline all the time. So R&D is basically constant for the last three or four years. Our global commercialization, specifically the direct market that we have built up already now, adding a few more people there, not major impact on anything like that. This is the benefit of a pipeline in the same therapeutic area and scale that we have now. Alexander Thompson: Thanks. Appreciate it. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Joori Park from Wolfe Research. Your question please. Joori Park: Hey. Thanks for taking the question. I have one on the competitive landscape. Wondering how you are thinking about this internally as other agents like encaleret are looking to expand into the chronic hypoparathyroidism landscape, and then does your longer-term outlook for Yorvipath include that potential impact from such emerging agents? Thank you. Jessica Macomber Fye: So Operator: I could be polite, or I can be a straight shooter. I have seen a lot of idiotic ideas. This one is really one of the most idiotic ideas I heard about. Yun Zhong: You have patient Operator: that is missing a hormone, PTH, and giving encaleret is not increasing and providing any hormone to this. We are talking about a hormone replacement therapy where you are helping multiple organs, the brain, so you have greater cognitive effects. The bone needs to have the right metabolic system. The kidney needs to have the right phosphate elimination. It needs to have the right calcium absorption. I can continue one organ after the other organ. Then you believe you can take a compound incubator that basically is a calcium sensitizing compound, take it into a person that does not have the hormone, and then you think you have a treatment. It is really one of the most unscientific ideas where I cannot see any meaningful effect that it will help the patient. You can increase the element of one single thing, absorption of calcium, but that is not in any way coming in as a hormone replacement therapy. So no. We have not calculated that in. There is an idea in the ADH1 patient, which have a mutation in the calcium sensitizer 1, it makes sense for this small amount of patients. It makes sense but not for a person that misses PTH. Jan Moller Mikkelsen: Got it. Thank you. Thank you. And our next question comes from the line of Dingding Shi from Jefferies. Your question please. Dingding Shi: Hey guys, thanks for taking the question. Just wanted to ask, Jan, maybe because you are giving some open thoughts on competitive landscape. Can you discuss your latest thoughts on the CNP competitive landscape, including upcoming FGFR data from BridgeBio and also the earlier-stage long-acting CNP from BioMarin. Jan Moller Mikkelsen: I think that is an interesting Yun Zhong: aspect cause Operator: we have seen the benefit of CNP therapy for multiple years now. We are seeing it in large patient populations, and one of the things I am 100% aligned with BioMarin on is that the CNP therapy has shown to be extremely safe and well tolerated, except that you have elements like if you take too high concentration, you can get hypotension, you can get injection-site Jan Moller Mikkelsen: right. If you are not really encapsulated. When I see the CNP therapy, I understand why BioMarin are trying to copy us and trying to develop a product that is providing a sustained liberation of CNP over one week, because they have seen out from our data how we are highly differentiated compared to vosoritide. That is a completely different case about do we really have a once-weekly product or not. You cannot just take out from AUC. You need to see the profile over one week and other things like that. As I am not seeing these data or anything on the long-acting product for BioMarin, I do not know if anyone can judge that it is a viable product opportunity in any way. We need to see the PK fold, get the half-life, and all the different things, then we can take a judgment about it. The element of tyrosine kinase is a completely different element for me, because that is using a nonspecific action of a compound that is addressing the tyrosine kinase. If you go to the BridgeBio, it is a nonspecific tyrosine kinase that inhibits the three different receptors FGFR1, FGFR2, and FGFR3. This is why it is called nonspecific. I am not worried that you will not see a treatment effect, because when you address the tyrosine kinase, you see an improvement in linear growth because you are inhibiting the superactive pathway. Will we see the same kind of benefit that we see beyond linear growth? That is up to them to show. Can we see an improvement in muscle strength? Can we see an improvement in leg bowing? Can we see all the elements of improved quality of life with that? Yun Zhong: But what worries me is the nonspecific thing, Operator: and I really do not care about phosphate. People say, oh, Jan, are you worried about if they have elevated phosphate? First of all, elevated phosphate, you cannot go in and grade it 1, 2, or 3, 4. You need to see on the patient what is the phosphate level before treatment and after treatment, because then you see do the treatment on each single subject have an impact on the phosphate level. If it has impact on the phosphate level, we know it is a nonspecific inhibition Jan Moller Mikkelsen: of FGFR1. When you have a nonspecific inhibition of FGFR1, you also have nonspecific inhibition of FGFR2. When you know that FGFR2 is one of the key receptors that is part of the CNS development of the brain, I am extremely worried because it is not something you really see easily in a preclinical model. You do not see it in short-term clinical trials. You see it after three, perhaps four or five years of treatment. That worries me from our patient focus. How can you accept that any patient should take this risk without being extremely well informed about it. Dingding Shi: Got it. Thank you for your insight. Yun Zhong: Thank you. Jan Moller Mikkelsen: This does conclude the question-and-answer session as well as today’s program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day. Thank you for standing by, and welcome to the Ascendis Pharma A/S Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press 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 I would like to introduce your host for today’s program, Chad Fugier, Vice President, Investor Relations. Please go ahead, sir. Gavin Clark-Gartner: Thank you, operator, and thank you, everyone, for joining our full-year 2025 financial results conference call. I am Chad Fugier, Vice President, Investor Relations at Ascendis Pharma A/S. Joining me on the call today are Jan Moller Mikkelsen, President and Chief Executive Officer; Scott T. Smith, Chief Financial Officer; Sherrie Glass, Chief Business Officer; Jay Donovan Wu, Executive Vice President and President, Ascendis US; and Aimee Shu, Chief Medical Officer. Before we begin, I would like to remind you that this conference call will contain forward-looking statements that are intended to be covered under the Safe Harbor provided by the Private Securities Litigation Reform Act. Examples of such statements may include, but are not limited to, statements regarding our commercialization and continued development of Skytrofa and Yorvipath, as well as certain expectations regarding patient access and financial outcomes; our pipeline candidates and our expectations with respect to their continued progress in potential commercialization; our strategic plans, partnerships, and investments; our goals regarding our clinical pipeline, including the timing of clinical results and trials; our ongoing and planned regulatory filings; and our expectations regarding the timing and the results of regulatory decisions. These statements are based on information that is available to us as of today. Actual results may differ materially from those in our forward-looking statements, and you should not place undue reliance on these statements. We assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see our forward-looking statements section in today’s press release and the Risk Factors section of our most recent annual report on Form 20-F filed with the SEC on February 11, 2026. TransCon Growth Hormone or TransCon hGH is now approved in the US by the FDA for the replacement of endogenous growth hormone in adults with growth hormone deficiency, in addition to the treatment of pediatric growth hormone deficiency, and in the EU has received MAA authorization from the European Commission for the treatment of pediatric growth hormone deficiency. TransCon PTH is approved in the US by the FDA for the treatment of hypoparathyroidism in adults, and the European Commission and the United Kingdom’s Medicines and Healthcare Products Regulatory Agency have granted marketing authorization for TransCon PTH as a replacement therapy indicated for the treatment of adults with chronic hypoparathyroidism. Otherwise, please note that our product candidates are investigational and not approved for commercial use. As investigational products, the safety and effectiveness of product candidates have not been reviewed or approved by any regulatory agencies. None of the statements during this conference call regarding our product candidates shall be viewed as promotional. On the call today, we will discuss our full-year 2025 financial results and we will provide further business updates. Following some prepared remarks, we will then open up the call for your questions. With that, let me turn the call over to Jan. Yun Zhong: Thanks, Chad. Operator: Good afternoon, everyone. With strong execution across our business and continued progress Dingding Shi: to Operator: delivering on our Vision 2030, Ascendis is transforming into a leading global biopharma company. We believe this progression demonstrates the power of our TransCon Yun Zhong: platform. Operator: And our R&D capabilities to deliver a sustainable pipeline, while our global commercial infrastructure and financial profile continue to strengthen. We believe we are now at the base of a steep curve, where we expect to achieve operating cash flow of around €500,000,000 in 2026 and where we aspire to achieve at least €5,000,000,000 in annual product revenue by 2030. At the same time, we are building an expanded pipeline of blockbuster product opportunities. In the fourth quarter, we saw multiple achievements across the organization, starting with Yorvipath. The fourth quarter was another period of strong execution for the global launch of Yorvipath. Revenue for the quarter was €187,000,000, bringing full-year 2025 Yorvipath revenue to €477,000,000. In the US, access continued to expand. To year end, more than 5,300 patients were prescribed Yorvipath by nearly 2,400 unique healthcare providers, highlighting continued strong and steady demand. To date, less than 5% of US patients are currently on Yorvipath treatment, highlighting the significant long-term growth opportunity ahead. The overall insurance approval rate is about 70% of the total enrollment, and we continue to see this figure moving higher over time. In addition, we continue to see a majority of approvals within eight weeks. This provides a strong foundation for expected additional growth in 2026 and beyond as more patients initiate Yorvipath in line with treatment guidelines that support its use. Outside the US, we continue to reach more patients. As a reminder, Yorvipath is now available commercially or through named patient programs in more than 30 countries. We have full commercial reimbursement in four countries in our Europe direct markets and two countries in our international markets. In Japan, our partner Taisho launched Yorvipath commercially last November. In 2026, we expect full commercial launches in 10 additional new countries. We also advanced development activity to broaden Yorvipath’s label in a number of areas. In the US, we are working to expand and globally, the range of doses to our PATHway-6 trial, and we continue to advance clinical trials to expand Yorvipath to patients under the age of 18. Our work is progressing rapidly on once-weekly TransCon PTH for patients who have been titrated with daily Yorvipath or conventional therapy and have achieved a stable daily dose for a well-defined period. Last month, at the annual J.P. Morgan Healthcare Conference, we shared preclinical data that support the target product profile for a once-weekly TransCon PTH candidate matching the release PK/PD as seen with daily Yorvipath treatment over the entire week, thus providing a comparable efficacy and safety profile. Yun Zhong: Overall, we would we remain confident. Operator: That Yorvipath has the potential to be a durable long-term growth driver for Ascendis globally. Turning now to growth disorders. Comprising our once-weekly growth hormone, Skytrofa, or TransCon Growth Hormone, or once-weekly TransCon CNP. Skytrofa delivered another solid quarter with Q4 revenue of €53,000,000, bringing full-year Skytrofa revenue to €206,000,000. This performance reflects the strength and value of the brand. As a reminder, Skytrofa is now approved in growth hormone deficiency in the US and adult growth hormone deficiency. Today, Skytrofa has an overall market share of around 7% in the US. During the fourth quarter, we initiated our Phase III basket trial evaluating TransCon Growth Hormone in additional established growth hormone indications, including ISS, SHOX deficiency, Turner syndrome, and SGA, which comprise up to half of the growth hormone market. Over the long term, these indications represent meaningful opportunity to expand the role of Skytrofa as a treatment of choice in additional growth disorders. We also see an opportunity to potentially expand Skytrofa’s use to novel indications where growth hormone has not previously been approved for use, such as achondroplasia, in combination with TransCon CNP. TransCon CNP is expected to be the first and only once-weekly treatment for children with achondroplasia, providing the full linear growth outcome that can be achieved with monotherapies addressing the overactive FGFR3 tyrosine can. Kinase. In addition, in our pivotal trial, TransCon CNP achieved significant improvement in leg bowing compared to placebo, increasing spinal canal and a similar safety and tolerability profile compared to placebo, with a very low rate of injection-site reaction, and no cases of symptomatic hypertension. In the US, our NDA for children with achondroplasia remains under review with a PDUFA date of February 28. In the EU, the MAA review is underway following our submission last October with a regulatory decision expected in Q4 2026. Recruitment of our ongoing trials in infants with achondroplasia ages 0 to 2 is going well, and we anticipate complete enrollment later this year. Turning to the combination therapy, our 52-week data in achondroplasia underscore the potential power of dual treatment with TransCon CNP and TransCon Growth Hormone. Continuous exposure to CNP enables the benefit of sustained exposure to unmodified growth hormone. In comparison, monotherapy trials of daily growth hormone in achondroplasia delivered only a limited effect on growth and no group-reported benefit on linear growth. Our 52-week data from the Phase II combination trial support our vision to significantly raise the bar for treatment of achondroplasia with linear growth improvements in achondroplasia-specific height score that were three to four times what has been shown with CNP or daily growth hormone monotherapies in the same time period. In addition, the combination trial demonstrated accelerated improvement in body proportionality, and for the first time, a meaningful improvement in arm span has been reported, without compromising safety or tolerability. Importantly, these benefits are meaningful to the achondroplasia community and have been a core objective of our patient-focused development program in both our monotherapy and combination therapy programs. Importantly, all children completed 52 weeks of treatment and remain in the trial, reinforcing the benefit of treatment and acceptable treatment burden of the once-weekly regimen. These Phase II results demonstrate the effect of these complementary therapies, supporting that TransCon CNP acts in synergy with the growth-promoting effect of TransCon Growth Hormone and has positive effects beyond linear growth. We believe over time the standard of care in achondroplasia and other growth disorders long term will include dual therapy as a treatment option. Building on the potential role of TransCon CNP as an essential fundamental therapy, we recently had a successful end-of-Phase II FDA meeting and Scientific Advice Meeting in the EU to align on our Phase III trial for this novel combination approach for treating children with achondroplasia. We also remain on track for additional COACH trial updates including week 78 by midyear and week 104 by year end, and plan to explore further opportunity in other growth disorders. Yun Zhong: To sustain doable Operator: long-term growth for Ascendis well into the next decade, we plan to continue to invest in label expansion of our current products in rare endocrine diseases. In addition, we have a strong focus on the development of new blockbuster product opportunities, both inside and outside rare endocrine diseases, to fuel significant product revenue growth in the future. Looking at our partnerships, TransCon technologies support a continuous flow of highly differentiated product opportunities across multiple therapeutic areas, more than we can develop and commercialize ourselves. For this reason, our Vision 2030 includes a focus on creating additional value through partnership and collaboration. Our collaboration with Novo Nordisk for once-monthly TransCon semaglutide continues to advance towards the clinic. Adarx’s TransCon anti-VEGF is on track to enter the clinic this year. In Japan, Taisho received approval for Yorvipath in August 2025, and launched it commercially in November 2025. In addition, VISEN received approval of Skytrofa in China in late January 2026. In summary, 2025 was another positive and transformative year for Ascendis, with two commercial TransCon products continuing to scale, the potential approval of the third high-value TransCon product in the coming weeks, and a growing pipeline of highly differentiated programs. We believe we have the fundamentals in place to deliver global long-term growth. A rapidly strengthening financial profile gives us confidence to achieve an expected operating cash flow of around €500,000,000 in 2026 and our aspiration to achieve at least €5,000,000,000 in annual product revenue by 2030, all consistent with our Vision 2030 strategy. I will now turn the call over to Scott. Scott T. Smith: Thank you, Jan, and thank you, Chad, for a well-read FLS. The significant achievements we made in 2025 provide us with substantial financial strength to drive our strategic priorities and goals in 2026, which include achieve blockbuster status for Yorvipath, solidify our leadership in hypoparathyroidism through rapid progress of our label clinical trials of TransCon PTH while advancing development of our once-weekly PTH candidate, successfully launch TransCon CNP if approved in the US and other countries around the world, and expand our leadership in growth disorders through clinical and regulatory progress with once-weekly Skytrofa, including in combination with once-weekly TransCon CNP. With that, I will touch on some key points surrounding our fourth quarter and full-year financial results, which we mostly already announced at J.P. Morgan. For further details, please refer to our annual report on Form 20-F filed today. As previously announced in January, Yorvipath delivered strong global performance in Q4 2025, with revenue increasing to €187,000,000, up from €140,000,000 in Q3. Foreign currency had a negligible impact compared to the previous quarter. Total Yorvipath revenue for 2025 was €477,000,000. For the full year, the weaker US dollar negatively impacted Yorvipath revenue by approximately €27,000,000. Skytrofa contributed €53,000,000 in Q4 with negligible foreign currency impact compared to Q3 2025. Total Skytrofa revenue for 2025 was €206,000,000. For the full year, the weaker US dollar negatively impacted Skytrofa revenue by approximately €9,000,000. Including €7,000,000 in collaboration revenue, total Q4 2025 revenue amounted to €248,000,000, and total revenue for full-year 2025 was €720,000,000. Continuing on to expenses, as previously announced, total operating expenses for Q4 were €214,000,000, and total operating expenses for the full year 2025 were €761,000,000, as we previously noted. Operating profit for Q4 2025 was €10,000,000, with Q4 operating cash flow of €73,000,000. As we have discussed for some time, below operating profit the drivers include the noncash accounting related to our convertible notes. Noncash net finance expense, which was primarily driven by noncash items including remeasurement loss of financial liabilities of €106,000,000, was €93,000,000 net. Net cash finance expense, however, for the full year 2025 was about €8,000,000. In future periods, we may introduce a non-IFRS EPS measure adjusting for the impact of certain items to increase the comparability of period-to-period results. We ended 2025 with €616,000,000 in cash and cash equivalents as previously reported, up from €560,000,000 as of December 31, 2024. Turning to our commercial outlook to help inform your revenue modeling for the coming year, for Yorvipath we expect continued strong revenue growth in 2026 based on steady patient uptake with some expected seasonality in reported revenue throughout the year. For Skytrofa, we expect to follow a similar seasonal pattern to 2025 with full-year revenue growth expected to track growth in prescriptions. Longer term, Skytrofa revenue is expected to come through geographic and label expansion. As always, we continue to watch the euro-US dollar exchange rate for any potential impact. Finally, we also look forward to the potential US approval of TransCon CNP later this month, which, as a reminder, has been excluded from this 2026 outlook. With that, operator, we are now ready to take questions. Jan Moller Mikkelsen: Certainly. And once again, ladies and gentlemen, we ask that you please limit yourself to one question each. Our first question comes from the line of Jessica Macomber Fye from J.P. Morgan. Your question please. Jessica Macomber Fye: Hey, guys. Good afternoon. Thanks so much for taking my question. What is your confidence level heading into the TransCon CNP PDUFA? Are you comfortable that the issue leading to the review extension has been resolved to the FDA’s satisfaction? Thank you. Operator: Yes. Can you remember you asked me a question one time, and the J.P. Morgan conference. Can you remember my answer? Jessica Macomber Fye: I do remember the answer. Operator: And what was your question? You can ask the same question. Jessica Macomber Fye: I remember your answer, but it was about a different product if I recall, but your answer was yes. Operator: Yes. So this is the same. You asked me, will TransCon PTH be approved, and I said yes. You can ask me the same question today. Will TransCon CNP be approved, and I will say yes. Jessica Macomber Fye: Okay. Thank you. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Tazeen Ahmad from Bank of America. Your question please. Tazeen Ahmad: Hi. Good afternoon. Thanks for taking my question. You mentioned a 70% insurance approval rate in the US so far for Yorvipath. When might you get to 100%, basically? Operator: I think it would be infinity, because I have never seen a product hitting 100%. I think the highest bar I have seen is something like 85%, perhaps up to 90. Where we are today, I am highly satisfied because it is also a compromise about how aggressive you are going into contracting and other things. It is a balance between the two things where in the end, the overall and ultimate goal is to provide most value back to our shareholders and others, and at the same time help the patient to come on treatment as fast as possible. I do not know, Jay, if you have additional comments to my I would not say, pre-prepared remarks. Gavin Clark-Gartner: Yeah. I would say two things. One is that we are very happy with the overall approval rate that we are seeing. I think the speed in which you are seeing this product be covered, again, is a testament to the strong clinical value proposition that we are seeing in hypoparathyroidism. It is the first and only approved therapy in this category. So, again, this approval rating based on where we are today is something that we are very encouraged by. I think to your second part of the question, Tazeen, which is when might you get to 100%, I echo what Jan said earlier as well, which is I do not know that many drug analogs will get to 100%, and that actually has less to do with coverage and also has to do with every single enrollment that comes in. Not every single one of them will be eligible relative to the label. So there is some element of natural filtering that comes that way. More importantly, what I would say is that there are state Medicaid plans, for example, that review things on a staggered cycle. So you will anticipate that some of this will creep up over time, but it will take some time before it continues to inch upwards. Yun Zhong: Yeah. Okay. But I think Operator: I think still we need to, some way, this is a US discussion. The US discussion is built on 70% of all approvals in enrollment are there. When you look at an old cohort that perhaps has been six months through it, your actual will get an almost higher number on it. Just to clarify that 70%, that is when you take everyone accumulated. If you take an old cohort, it is much higher. When you go ex-US, the system is quite different. When you get a prescription, in nearly every other country, you are axiom approved. So you can say the 100% yes is basic. When you get a prescription outside US in traditional countries, you will be 100% eligible and already approved for reimbursement. Tazeen Ahmad: Got it. Thank you for the color. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Gavin Clark-Gartner from Evercore ISI. Your question please. Gavin Clark-Gartner: Hey, guys, thanks for taking the question. Just on your 8% WAC increase in January. Maybe you could discuss how net pricing will trend this year? Scott T. Smith: Including how to quantify the magnitude of the Q1 seasonality here. Operator: I do not think we really are discussing net prices. We would love to do it, but we have never done it, and I do not think we ever will discuss net prices. Maybe if I could just ask a follow-up then. Just on Kelly Shi: patient enrollment, are you planning to still report those forms going forward for Yorvipath, or maybe just focus more on revenue? Operator: I think in the end, Gavin, is 100% right. We will focus on revenue because now we have been in the market in the US for about four quarters now. When we come to the fifth quarter, I think you have seen a steady state development from 2025 where we basically got an increase in revenue from both US and ex-US of about €40,000,000 to €50,000,000 net every quarter. I think you will see a stability in how we are executing. We still have ex-US. We expect 10 additional countries being fully reimbursed next year. I am sure that is always improving what we call the net revenue we will generate outside the US. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Yaron Benjamin Werber from TD Cowen. Your question please. Yaron Benjamin Werber: Great. Thanks so much. I have a sort of two not really related, but I am going to try to link them to keep it as one question. Scott T. Smith: Maybe the first one, can you give us a little bit of a sense for Yorvipath? How it is being used out there? When you look at 2,400 unique prescribers and 5,300 unique patient enrollment, is it that each physician has one or two patients in the practice, or are they prescribing it and then going deeper? And then secondly, just at the end-of-Phase II meeting with FDA relating to CNP and growth hormone for achondroplasia, can you give us an update on the outcome and when will you start the Phase III? Thanks. Operator: Okay. That is perfect. I think, Jay, you can give some about how we are expanding the physician prescriber team base, but also go deeper on the different patient, but still are far away to reach the level where we want to be. Jay. Yep. So in the US, I think the question is really around Gavin Clark-Gartner: segmentation and what types of patients are being treated. If you think about the prescriber base, this is where you started your question. We are seeing broad uptake across the entire range of prescribers. To your point, there are some physicians that might only see a couple patients, but there are also some physicians that might see upwards of 10 patients. More importantly, because we are seeing broad uptake across both high-decile and low-decile providers, we are not seeing a major discrepancy as to the type of prescriber that would prescribe, but we are seeing that breadth continue to increase. As it relates to the number of patients per physician, we are also seeing the depth of prescribing per physician increase over time, which again is encouraging. That is both a testament to positive experience with Yorvipath as well as increased awareness of hypoparathyroidism and now there being an option for it amongst patients. The last thing I would say is, when you think about the types of patients that come through, you can look at it in two ways. The vast majority of them are postsurgical, about 70%. The remaining 30% perhaps due to other factors, whether it is genetic, autoimmune, etc., and we are seeing broad uptake across both of those segments, so that is not a major driver. Really where you are seeing some of the earlier uptake is patients that are self-aware of the condition that they have, are linking the symptoms that they have to the underlying condition that they have, and therefore, a combination of them advocating for themselves as well as providers having conviction in the product as well. So all in all, we are seeing broad uptake across provider groups as well as patient segments. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Yaron Benjamin Werber: Joseph Schwartz. Operator: Before you start, perhaps I can answer the last part of the question related to the COACH trial. Yes. We had extremely positive meetings from the US side and from the EU side. It was really impressive feedback because of the data. They have never seen data before that are providing this kind of benefit to an achondroplasia treatment. I am not only talking about the linear growth where we basically on z-score got a three to fourfold more than you can see with monotherapies in the same time period, but also unique elements like such an improvement in body proportionality. What really they have never seen in such a meaningful manner was a really important element, the arm span, where we also saw in the combination trial a unique improvement in arm span. Aimee is sitting here, and she is really doing everything to get this trial recruited as fast. We are ready to go. Protocol is finished and everything. Be open site. Just remember that our pivotal trial in monotherapy, we recruited it just in three or four months, just because of the interest of the patient. Therefore, the bar for Aimee is very hard if she needs to do that faster. Sorry for coming in. Jan Moller Mikkelsen: Absolutely. Not a problem. Our next question comes from the line of Joseph Schwartz from Leerink Partners. Your question please. Li Watsek: Hi. This is Heidi Jacobson on for Joe Schwartz. Thanks so much for taking our question. Can you help us understand how the TransCon CNP launch could factor into your $500,000,000 operating cash flow target for 2026, particularly with respect to launch investment and early revenue contribution? Yun Zhong: Thanks. Operator: It is pretty simple. It is not incorporated. When we are coming into the launch, we see the initial uptake, which we believe will be pretty high, not only in the US but also outside US because we can utilize the US approval to go to countries outside US, especially in the international market. From that perspective, we will come and provide you a better guidance and improved guidance when we have seen that. Scott is smiling, are you counting money or what are you doing? Kelly Shi: Taxes and money. Operator: If you will come back after that. Eliana Rachel Merle: Great. Thanks. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Derek Christian Archila from Wells Fargo. Your question please. Derek Christian Archila: Hey, good afternoon. Thanks for taking the questions. I wanted to understand your confidence level around Yorvipath growth ex-US. Obviously, the launch in Germany and Austria, is that a good proxy? Or is it going to be more depth in those types of countries than just expansion in, I think you said, 10 additional countries. How will that be sequenced through the year? Thanks. Operator: That is extremely complicated because the heterogeneity of ex-US is so heterogeneous that we cannot compare what we see in Spain now, what we see in France, what we see in Germany, what we see in Austria. It is different because we see different speed of penetration. For example, Germany has fewer endos, so the bottleneck is tighter. It takes longer to get them on therapy because there are fewer in the general population. If we go to Spain, there are more. There are more in France, and we also see a faster uptake because the pipe is larger. When we get 10 more additional countries on full commercial, we will see different uptake, but what we are doing is everything will be accumulated in the way where we now see from 30 to 35 countries named patient programs. When we go full commercial, everywhere we see an acceleration of patient uptake because of the burdensome nature of a named patient program. It takes so much effort to get every single patient on it, and every patient deserves to be under treatment. In 2026 we will see initial speeding up in all these countries. In 2027, 2028, you will continue to do it because by nature, we just got approval now in Canada, and we are taking one country after the country, first getting approval, and then putting reimbursement. Jan Moller Mikkelsen: Our next question comes from the line of Li Watsek from Cantor. Your question please. Li Watsek: Hey, thank you so much for taking our Kelly Shi: question. It is Daniel Brondo on for Li. Can you give us a little bit of color on how you expect your TransCon CNP launch to go? It seems like there are a few patients who are not currently on treatment. Where do you think you will capture the majority of patients initially? Yun Zhong: Pretty clear. Operator: Improvement that we see with TransCon CNP to what we can provide. Not only related to tolerability injection-site reaction, having one in 20 injection-site reaction compared to one every second year, being in a position to look at no risk of hypertension, the element of improvement on the once-weekly product, and then show the data package that we have generated with TransCon CNP, for first time ever shown in a well-controlled trial against placebo, benefit beyond linear growth. For example, the leg bowing, which we have shown multiple times, we have shown improvement in muscle strength. We have improved quality of life. I think this is obvious. Every patient that decides to be on treatment should have the opportunity to have the best possible treatment option, and I think there is a public interest in the US to ensure that this always will happen. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Eliana Rachel Merle from Barclays. Your question please. Eliana Rachel Merle: Hey, guys. Thanks so much for taking my question. Curious if you can elaborate on your strategy for commercializing TransCon CNP ex-US. Given the majority of vosoritide sales are ex-US, could you elaborate on your strategy for the commercial launches globally and the degree of investment that will take? And second, on TransCon CNP in the US, can you talk about cadence of uptake and which segments do you expect the most uptake from between treatment naive versus switches? Thanks. Kelly Shi: Yeah. I will dive a little bit back now because Operator: what we did when we said that we want to have global commercial Yun Zhong: effort. Operator: We actually started all our infrastructure building to Yorvipath. Now you see what we have done with Yorvipath. We recognized their fast revenue, commercial revenue for more than 30 countries. We are penetrating them exactly as we can do. We will reach 60 to 70 countries in less than two to three years. We already have built up the infrastructure to be ready that we can take our integrated pipeline of rare disease endocrine products into all these different countries in the setup via step links around Yorvipath. This is the positive element that we are not a company that needs first to build infrastructure to support globalization. We have already established that. So I feel really confident all the success we see now with Jan Moller Mikkelsen: Yorvipath on a global scale, Operator: we will just take it in. Do not forget, for example, even in Japan, the collaboration we have with Taisho is for all three products, the same in China and other places. When we make these agreements, we are not making single product, single country. We make it as a pipeline Yun Zhong: product. And this is why we do not need to go out and make new agreements or anything. Operator: It is just going to be done extremely fast from that perspective. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Leland James Gershell from Oppenheimer. Your question please. Leland James Gershell: Great. I want to ask, as we look at the €5,000,000,000 number you have put out there for product sales by 2030, you are not giving specific product guidance, but if you could share how you think about the relative contributions of your presumably three products by that point in time, in terms of how they will weigh into that total sum. Obviously, you have much more expansion opportunity in hypoparathyroid, you have TransCon CNP potentially launching soon, and Skytrofa perhaps getting additional indications in combination. I would love to hear Yun Zhong: with those three parts. Thank you. Leland James Gershell: maybe just philosophically how your outlook adds up Operator: Yeah. That is an element where we always in our forecasting are operating under different assumptions, where we are building models for each country and then aggregate globally. We first take 2026, then 2027, 2028, and 2029. Then you always look at the risk balance. Where do we have potential extra upside that we can explore? But what makes Ascendis unique today is that we are not a single product in a single region. We will have three approved products in perhaps 20 different indications in about 30 to 40 countries. We will not be dependent on one single product in one single region. This is how we build a sustainable company that has a continued stable revenue flow for multiple years. Do not forget these product opportunities. When I look at the pipeline for each of them, I definitely do not have sleepless nights. There is no doubt that when I see the profile and how we design it to be best in class, we also see that realized. From that perspective, it is a combination of products with IP lifespan extremely long. This is where you have the durability of it. This is why we take the value perspective of each single product opportunity instead of fast revenue. This is not how we operate. We go for value, because this is the product really deserved as treatment because we are providing not only a unique benefit for the patient, but also for the society and everyone. Kelly Shi: Great. Thanks very much. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Paul Choi from Goldman Sachs. Your question please. Paul Choi: Hi, good afternoon. Thanks for taking our question. I think your Phase II REACH IN study is scheduled to reach primary completion next month. Will you be in a position to file an sNDA for the newborn infant population this year? In terms of the newborn infant population, in your discussions with the FDA and EMA for your Phase III combination study, does your study design allow for those newborn patients to be included in the study population, or will that require a separate study? Thank you. Operator: I think when you discuss a label discussion, that typically is different between the main regulatory areas. If you take, for example, US, it is much harder to come to a situation where they will Yun Zhong: accept Operator: a label expansion to the infant without having the data in hand. In Europe, it is more flexible because you have a discussion with them, and you can have what I call rolling addition of data that is being generated to our trial. There will likely be a difference between the three geographic regions. Simplified, Japan is perhaps the easiest way to get it down to infant immediately. What we are doing now is to ensure we generate the right data, and we are doing that in a trial. It is a placebo-controlled trial, and what we see is everything we hope for. It is living up to our expectation. Why I can say that? Because in the enrollment, we have six patients on a, what I call, visible treatment. You take them in, and there is no randomization. You can follow them, and Aimee can tell a few words about the benefit we have seen from that perspective. Aimee Shu: So, Jan is talking about the sentinel kids who are not part of the randomized piece of the study. They are doing well, tolerating the medicine as well as we would expect, growing, and starting to see early signals of other benefits as well, particularly radiology. Jan Moller Mikkelsen: Yeah. So we are really so pleased with the progress we are doing in helping patients with achondroplasia, not only on linear growth, but also benefit beyond linear growth. Jan Moller Mikkelsen: Thank you. Our next question comes from the line of Yun Zhong from Wedbush. Your question please. Yun Zhong: Hi, good afternoon. Thank you very much for taking the question. My question is on the weekly TransCon PTH. Is it reasonable to expect that the program could potentially enter the clinic in 2026, or do you think that there is no such need to rush? Also, you mentioned matching PK to the daily product. With data from Yorvipath available, what do you see as the most efficient clinical pathway to maybe take the weekly PTH to approval? Operator: I think what you are addressing is two things that are interconnected. If you can show the PK profile, and it can even be healthy volunteers or patients with hypopara, that over the entire week of treatment you are bioequivalent to Yorvipath, that is the aspiration how we designed it. You will always be in an excellent PTH level compared to your Yorvipath daily dose for the entire week. Then we know you will get the expected safety, the expected tolerability from that perspective. This will make a much more simplified, easy way to conduct the clinical trial. It is why we designed it in this manner. Yun Zhong: Okay. Thank you very much. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Luca Issi from RBC. Your question please. Luca Issi: Great. Thanks so much for taking my question. Congrats on the progress. Maybe, Jan, big picture, one of the goals for 2030, as you articulated at J.P. Morgan, is to remain an independent and profitable biotech company, and we have seen many successful examples of that recently. However, how do you think about continuing that same vision under the broader umbrella of a larger pharmaceutical company? How are you thinking about strategic path A versus strategic path B at this point? Any color appreciated. And then maybe, Jay, quickly, I think BioMarin has announced that they will file vosoritide for full approval versus I believe you will initially get approved on an accelerated approval basis Kelly Shi: for TransCon CNP. How should we think about that difference? Will that have implications for formulary access and reimbursement? Do you not view that difference as material for adoption given you have a less frequent dosing versus—thoughts about that? Excellent. I think I have been I think I will liberate Jay for answering the last Operator: question. I think when I look at this discussion on accelerated approval that BioMarin is filing for, that has no Dingding Shi: impact Jan Moller Mikkelsen: on our regulatory pathway and approvals and other things like that. Totally independent. It is not any way how you can build up any barrier. The second thing, yes, in our vision there is independent, and I believe that is a great word because we want to be independent like a teenager growing up. I have four children. I am teaching them when they are going to be 18, you need to be financially independent as the first element in their life. I think that is a great thing to see Ascendis Pharma now moving away from being a teenager but basically can go up to a more adult life, because we have shown now we are completely independent on asking investors and others for any kind of revenue. I think this is how we see independency. Kelly Shi: Super helpful. Thank you. Jan Moller Mikkelsen: Thank you. And as a reminder, ladies and gentlemen, we ask you to please limit yourselves to one question. You may get back in queue as time allows. Our next question comes from the line of Maxwell Nathan Skor from Morgan Stanley. Your question please. Maxwell Nathan Skor: Great. Thank you very much. My question was asked, but I will take a shot at this. Could you give any color on the once-monthly TransCon semaglutide program? Any gating factors? When should we expect an update? Any additional color would be helpful. Thank you. Operator: Yeah. Let me go back to all the elements and all the IP we have done, files and data and everything like that before we went into this extremely productive collaboration with our neighbor in Copenhagen, Novo Nordisk. What was the idea behind once-monthly semaglutide? The idea was to be sure that you can get fast weight loss and at the same time have a high level of tolerability. Think about a naked GLP-1 molecule. When you give it weekly or potentially want to use a weekly product once monthly, you need to add much more compound to compensate for the half-life to have a large AUC. By doing this, you add a high Cmax. Because it is naked, you will have a very short Tmax, meaning that you will have a steep curve from the lowest level just before you start to give a dose up to the maximum concentration. That often gives the tolerability issue where you get the element that limits people to stay on treatment and what you can achieve. This is what I call the naked product. This is like metacresol and everything. It is a naked protein. What we are doing now is defining what we call packed-in semaglutide. Even if you give it high dose, you liberate it slowly, slowly, slowly, so you are getting a very long Tmax. By doing that, you have a slope that is not as steep at all as you see with a naked molecule. You still have a big AUC because you provide so much compound, give it over the entire month, and at the same time you do not have this steepness in the slope. It was designed to have maximal weight loss as fast as possible with the best tolerability profile, and it was how we designed it at that time. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Alexander Thompson from Stifel. Your question please. Alexander Thompson: Hey, great. Thanks for taking our question. Maybe for Scott, could you talk a little bit about OpEx trajectory in 2026 in the context of the CNP launch and then the schedule for label expansion both with mono and the combo pivotal studies? Thanks. Scott T. Smith: No problem. We talked a little bit about this at the J.P. Morgan conference event. Using Q4 OpEx as a run rate for the full year is not a bad way to think about it. If things change, we will update you. Overall, everything related to CNP, as we said before, we will come out and discuss more following approval. Yeah. But that is mainly related Operator: to the revenue because what we have now, we have a really mature company. It is not like we take something in a pipeline, actually take product out of the pipeline all the time. So R&D is basically constant for the last three or four years. Our global commercialization, specifically the direct market that we have built up already now, adding a few more people there, not major impact on anything like that. This is the benefit of a pipeline in the same therapeutic area and scale that we have now. Alexander Thompson: Thanks. Appreciate it. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Joori Park from Wolfe Research. Your question please. Joori Park: Yeah. Hey. Thanks for taking the question. Kelly Shi: I had one on the competitive landscape. Joori Park: Wondering how you are thinking about this internally as Kelly Shi: other agents like Joori Park: encaleret are looking to expand into the Kelly Shi: chronic hypoparathyroidism landscape. And then does your longer-term outlook for Yorvipath include that potential impact from such emerging agents? Thank you. Jessica Macomber Fye: So Operator: I could be polite, or I can be a straight shooter. I have seen a lot of idiotic ideas. This one is really one of the most idiotic ideas I heard about. You have patient that is missing a hormone, PTH, and giving encaleret is not increasing and providing any hormone to this. We are talking about a hormone replacement therapy where you are helping multiple organs, the brain so you have greater cognitive effects. The bone needs to have the right metabolic system. The kidney needs to have the right phosphate elimination. It needs to have the right calcium absorption. I can continue one organ after the other organ. Then you believe you can take a compound, incubate, that basically calcium-sensitizing compound, take it into a person that does not have the hormone and then you think you have a treatment. It is really one of the most unscientific ideas where I cannot see any meaningful effect that it will help the patient. You can increase the element of one single thing, absorption of calcium, but that is not anyway coming in as a hormone replacement therapy. So no. We have not calculated that in. There is an idea in the ADH1 patient which has a mutation in the calcium sensitizer 1. It makes sense for this small amount of patients. It makes sense but not for a person that misses PTH. Kelly Shi: Got it. Thank you. Jan Moller Mikkelsen: Thank you. And our next question comes from the line of Dingding Shi from Jefferies. Your question please. Dingding Shi: Hey guys, thanks for taking the question. Just wanted to ask, Jan, maybe because you are giving some open thoughts on competitive landscape. Can you discuss your latest thoughts on the CNP competitive landscape, including upcoming FGFR data from BridgeBio and also the earlier-stage long-acting CNP from BioMarin. Operator: Yeah. I think that is Dingding Shi: an interesting Kelly Shi: aspect Operator: because we have seen the benefit of CNP therapy for multiple years now. We are seeing it in large patient population, and one of the things I am 100% aligned with BioMarin on is that the CNP therapy has shown to be extremely safe and well tolerated, except that if you take too high concentration, you can get hypotension, you can get injection-site Yun Zhong: right. Operator: If you are not really encapsulated. When I see the CNP therapy, I understand why BioMarin are trying to copy us and trying to develop a product that is providing a sustained liberation of CNP over one week, because we have seen from our data how we are highly differentiated compared to vosoritide. That is a completely different Yun Zhong: case about Operator: do we really have a once-weekly product or not? You cannot just take out from AUC. You need to see the profile over one week and other things like that. As I am not seeing these data or anything on the long-acting product for BioMarin, I do not know if anyone can judge that it is a viable product opportunity in any way. We need to see the PK profile, get the half-life, and all the different things. Then we can take a judgment about it. The element of tyrosine kinase is a completely different element for me, because that is using a nonspecific action of a compound that is addressing the tyrosine kinase. If you go to the BridgeBio, it is a nonspecific tyrosine kinase that inhibits the three different receptors FGFR1, FGFR2, and FGFR3. This is why it is called nonspecific. I am not worried that you will not see a treatment effect, because when you address the tyrosine kinase, you see an improvement in linear growth because you are inhibiting the superactive pathway. Will we see the same kind of benefit that we see beyond linear growth? Kelly Shi: That is up to them to show, can we see an improvement in muscle strength? Operator: Can we see an improvement in leg bowing? Can we see all the elements of improved quality of life with that? But what worries me is the nonspecific thing, and I really do not care about phosphate. People say, oh, Jan, are you worried that they have elevated phosphate? First of all, elevated phosphate, you cannot grade it 1, 2, or 3, 4. You need to see on the patient what is the phosphate level before treatment and after treatment, because then you see, does the treatment on each subject Yun Zhong: have an Operator: impact on the phosphate level. If it has impact on the phosphate level, we know it is a nonspecific inhibition Kelly Shi: of FGFR1. Operator: When you have a nonspecific inhibition of FGFR1, you also have nonspecific inhibition of FGFR2. When you know that FGFR2 is one of the key receptors that is part of the CNS development of the brain, I am extremely worried because it is not something you see easily in a preclinical model. You do not see it in short-term clinical trials. You see it after three, perhaps four or five years of treatment. That worries me from our patient focus. How can you accept that any patient should take this risk without being extremely well informed about it. Dingding Shi: Got it. Thank you for your insight. Yun Zhong: Thank you. Jan Moller Mikkelsen: This does conclude the question-and-answer session as well as today’s program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.
Operator: Hello, and welcome, everyone, joining today's Neurocrine Biosciences Fourth Quarter and Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] And it is now my pleasure to turn the meeting over to Todd Tushla, Vice President of Investor Relations. Please go ahead. Todd Tushla: Happy Wednesday to everyone, and welcome to Neurocrine Biosciences Fourth Quarter and 2025 Year-end Earnings Call. With me today are Kyle Gano, Chief Executive Officer; Matt Abernethy, Chief Financial Officer; Eric Benevich, Chief Commercial Officer; Sanjay Keswani, Chief Medical Officer; and for the first time, we are very pleased to be joined by Samir Siddhanti, Vice President of Strategy and Corporate Development. During today's call, we will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to review the risk factors discussed in our latest SEC filings. After prepared remarks, we'll be happy to address any questions. With that, Kyle, take it away. Kyle Gano: Thanks, Todd. Good afternoon, everyone. A hallmark of a healthy company is the strength of the foundation beneath it. As Neurocrine enters 2026, our foundation is stronger than at any point in our more than 30-year history and it continues to strengthen, with growing enterprise-wide momentum and strategic and balanced diversification, Neurocrine has entered a new era of meaningful growth led by our first and best-in-class commercial brands. INGREZZA performance continues to impress, strategic investments in access and sales force expansion drove a record year for both new and total prescriptions. This momentum carries us into 2026, where despite 9 years post launch, we expect double-digit volume-driven growth supported by continued demand from the roughly 9 out of 10 TD or HD chorea patients not currently taking a VMAT2 inhibitor. Like INGREZZA, CRENESSITY's launch has also been exceptionally strong. By the end of the fourth quarter, our first full commercial year after its approval in December 2024, prescriptions covered over 10% of the classic and general adrenal hyperplasia patient population, underscoring the tremendous unmet need. What a great start, and I'd like to thank our team for making this all possible. This strong early adoption across patients, caregivers and prescribers reinforces our conviction that CRENESSITY will become Neurocrine's second blockbuster product. With an FDA-approved label supporting uncompromised efficacy, including an efficacious first dose with no requirement for titration, multiple formulations for pediatric and adult populations and a favorable safety and tolerability profile, CRENESSITY is rapidly becoming the standard of care for patients with classic CAH. This profile mirrors the attributes that supported the success of INGREZZA and underscores our confidence in CRENESSITY's impact for patients and Neurocrine moving forward. Turning to research and development. At our December R&D Day, we outlined three strategic pillars. First, we aim to lead the VMAT2 category by leveraging our deep INGREZZA experience and advancing next-generation VMAT2 inhibitors. By way of background, INGREZZA was the first approved treatment for tardive dyskinesia and Neurocrine paved the path for the development of new medicines in this space. Our nearly 20-year history provides a durable foundation for category leadership. This starts with NBI-'890, which recently entered into Phase II in tardive dyskinesia and with NBI-'675, which is falling close behind. Both of these products have the potential for long-acting injectable formulations. Second, we are delivering on the promise of CRF through a two-pronged approach: advancing next-generation CRF1 antagonist, such as NBIP-'1435 in CAH and expanding the platform with CRF2 agonist starting with NBIP-'2118 into adjacent areas, including metabolic diseases such as obesity. For more than 30 years, Neurocrine has been a pioneer in CRF biology, and this experience uniquely positions us to evolve and expand what CRF-based therapies can deliver. Third, we are maximizing and evolving the pipeline, which is stronger than ever. This is led by our late-stage industry-leading neuropsychiatry portfolio, including two Phase III programs, osavampator, major depressive disorder and direclidine in schizophrenia. Like INGREZZA and CRENESSITY before them, both represent potential first and best-in-class medicines. We expect top-line data from the osavampator studies in the first of 2 direclidine studies in 2027 which is shaping up to be the most data-rich year in Neurocrine's history. In 2025, we achieved our Phase I through Phase III objectives for the first time, making it the most productive clinical year in our history. We also have a clear line of sight to repeating this level of performance in 2026, accelerating us towards our goal of delivering one new medicine every 2 years at steady state. As I said from the outset, we entered 2026 with the strongest foundation in Neurocrine's history. It is incumbent upon me, our leadership team and the entire organization to continue executing and delivering for patients and shareholders. We appreciate your support. And with that, I'll turn the call over to Matt. Matthew Abernethy: Thank you, Kyle, and good afternoon, everyone. 2025 was a noteworthy year for Neurocrine as total product sales grew to more than $2.8 billion, representing 22% year-over-year growth. This performance reflects continued strength and durability from INGREZZA and the successful initial launch of CRENESSITY. Together, these products form the foundation of our growth and generate durable cash flows that support long-term shareholder value creation. INGREZZA generated just over $2.5 billion in revenue, up 9% year-over-year, driven by double-digit volume growth, partially offset by pricing concessions associated with formulary access investments to support long-term growth. Fourth quarter performance was in line with expectations outlined on our Q3 call. New prescriptions remain near record levels achieved in Q3, a strong result given the ongoing sales force expansion. Looking ahead, we are guiding to INGREZZA sales in the range of $2.7 billion to $2.8 billion in 2026, representing approximately 10% growth. This outlook reflects continued double-digit volume growth, including contributions from the expanded sales force in the second half of the year partially offset by price declines tied to formulary access improvements implemented in 2025. Overall, we expect net pricing in 2026 to be relatively consistent with levels exiting 2025. INGREZZA enters the year with strong NRx momentum, broad access and an expanded commercial team ready to execute. For CRENESSITY, we exited 2025 with over $300 million in net product sales and approximately 10% of addressable patients being prescribed CRENESSITY. As a first-in-disease launch, quarter-to-quarter enrollment form activity can be variable, but what gives us confidence is the number of patients on therapy, refill behavior and the speed of reimbursement. Feedback remains extremely positive and our first year on the market exceeded both internal and external expectations. Given that CRENESSITY is the first product approved for classic CAH in more than 70 years, with much still to learn around market dynamics, we are not providing specific sales guidance for 2026. Later in the call, Eric will discuss the initiatives underway to continue developing this attractive market. Turning to the financials. Our cash position increased by approximately $700 million from $1.8 billion at the end of 2024 to $2.5 billion at the end of 2025, reflecting strong operating performance and a healthy balance sheet. While maximizing near-term profitability is not our primary objective, we remain highly profitable, delivering approximately 30% non-GAAP operating margin or roughly $850 million of non-GAAP operating income for 2025, including $83 million of R&D milestones and IP R&D expense. In 2026, we expect another strong year of non-GAAP operating income, driven by increased product sales partially offset by investments across SG&A and R&D. These investments align with our top capital allocation priorities of driving revenue growth and advancing our pipeline. SG&A growth year-over-year primarily reflects investments related to our 2026 sales force expansion, which we expect to be completed by the end of the first quarter. At the midpoint of our guidance range, GAAP SG&A is expected to be in the low 40% of sales for 2026. R&D expense growth reflects a full year of investment in our Phase III programs for osavampator and direclidine with data expected in 2027 as well as the initiation of multiple Phase II and Phase I programs, including obesity. Overall, we expect GAAP R&D expense, excluding approximately $25 million in milestones to be in the mid-30% of sales range, consistent with our prior commentary. Overall, 2026 is shaping up to be another important year for Neurocrine as we continue to grow INGREZZA and CRENESSITY while advancing our pipeline. We entered the year with strong momentum and are well positioned for continued growth. With that, I'll turn the call over to Eric Benevich, our Chief Commercial Officer. Eric? Eric Benevich: Thanks, Matt. I'm very proud of our team's performance last year across both CRENESSITY and INGREZZA, and I'm equally enthusiastic about the significant opportunity ahead for both brands. Matt covered the financial highlights, so I'll add additional color and highlight key focus areas to drive continued growth for both brands. For the CRENESSITY launch, you've heard us say so far, so great, and 2025 certainly lived up to that mantra with over $300 million of net sales in the first full year on the market. Throughout 2025, we saw strong demand across pediatric and adult patients and across both genders with prescriptions now trending towards a majority of pediatric patients in female patients on therapy. Importantly, while new patient starts may vary from week-to-week and quarter-to-quarter, once the patient initiates treatment with CRENESSITY, they tend to stay on CRENESSITY. This real-world experience is consistent with our experience in the open-label extension studies. As we've said from the outset, as a first-in-disease medicine, CRENESSITY is a learning launch, very much aligned with our experience with INGREZZA in TD. In fact, the parallels between the two launches are remarkably similar. Both INGREZZA and CRENESSITY are first in disease therapies for conditions that previously lacked specifically FDA-approved treatment options and both achieved approximately $300 million in sales in their first 12 months. Being a first in disease launch, we still have much to learn about the patient population, the prescriber base and potential seasonal dynamics. And similar to INGREZZA, while we're not providing specific annual guidance in year 2, we remain highly confident that CRENESSITY will be Neurocrine's second blockbuster medicine as we establish it together with replacement of glucocorticoids as the standard of care treatment for patients with classic congenital adrenal hyperplasia. As we enter CRENESSITY's second full year on the market, the natural question is, so what's next? As I noted this time last year, long-term success CRENESSITY will be driven by our ability to reach, educate and activate the CAH community on this breakthrough medicine. To date, more than 1,000 prescribers have written a prescription for CRENESSITY, yet roughly 2/3 have treated only one patient so far, underscoring both the progress we've made and the opportunity ahead. To support continued growth, we're focused on several key priorities in 2026. As previously announced, we're expanding the CRENESSITY sales force with new representatives hitting the field in April. This is a rare disease team so the overall FTE numbers are still small. However, this expansion will allow us to go deeper within the existing endocrinology HCP base and allow us to expand our reach into additional potential prescribers. While endocrinologists remain central, we've learned some classic CAH patients are managed outside of endocrinology by primary care providers or OB-GYNs. We're excited to leverage AI and other technology tools to help identify and engage providers likely to be caring for classic CAH patients. We're also continuing to invest in medical education to improve the community's understanding of CAH, the limitations of GC monotherapy and reinforce CRENESSITY's compelling product profile. It remains the first and only new CAH specific treatment in 70 years. As a potent and selective CRF1 antagonist, CRENESSITY targets the source of dysregulation in CAH and directly prevents the surge of excess ACTH from the pituitary to restore downstream androgen control and enable physiologic steroid dosing. Furthermore, CRENESSITY has the largest data set in adults and children with classic CAH, which includes greater than 450 patient years of clinical trial exposure and greater than 550 patient years of real-world exposure. With a favorable long-term safety profile, robust efficacy and broad labeling, it's clear why uptake has been so strong after only 1 year on the market. In fact, we estimate that we've gotten approximately 10% of the classic CAH population on therapy in the first year of availability. This is an important milestone for us. We believe as the word continues to spread in the CAH community, as the endocrinology prescriber base expands and as they share their real-world clinical experiences, we'll see a continued peer-to-peer effect that will deepen disease understanding and drive broader adoption. Now turning to INGREZZA. We had a record number of new patient starts and a record number of total patients on therapy in 2025. Today, we estimate only about 10% of the prevalent TD population is currently taking a VMAT2 inhibitor. Even 9 years since our launch, there remains a substantial opportunity to grow the class, grow our market share and help more patients start and stay on therapy. With double-digit growth momentum, strong Formulary Access and an expanded and reorganized sales force set to hit the field in Q2, a class-leading and differentiated product profile and 12 more years of remaining exclusivity, INGREZZA is well poised to help many, many more TD and HD patients. So with that, I'll turn the call over to my colleague, Dr. Sanjay Keswani, to share our pipeline progress. Sanjay Keswani: Thanks, Eric, and good afternoon, everyone. In keeping with this year's focus on momentum and strategic diversification, our clinical organization will enroll and advance more studies than at any point in Neurocrine's history. While most of my future earnings remarks will center on enrollment progress and study initiations. Today, I'll highlight recently disclosed data for our 2 commercial assets, INGREZZA and CRENESSITY. An optimal way to compare therapies is through head-to-head studies. With that in mind, we recently published first of its kind head-to-head data comparing INGREZZA and AUSTEDO XR at the 64th Annual Meeting of the American College of Neuropharmacology. PET imaging results confirmed what we've long believed, not all VMAT2 inhibitors are equal. In this study, INGREZZA demonstrated a nearly twofold higher VMAT2 target occupancy compared with therapeutic doses of AUSTEDO XR, an important finding that indicates INGREZZA's superior efficacy in treating tardive dyskinesia. Turning to CRENESSITY. We recently shared data from our open-label extension study. While multiple analyses are still underway and will be presented at upcoming endocrinology meetings, including ENDO 2026, the main takeaway is clear. Across both adult and pediatric CAH patients, CRENESSITY continues to show robust sustained clinically meaningful benefits through 2 years of treatment. We see durable reductions in excess ACTH and androgens directly addressing the underlying pathophysiology of CAH and maintaining control over time. In pediatrics, CRENESSITY delivered sustained ACTH suppression while preserving normal physiological signaling, including the immune stress response. Hence, rates of adrenal insufficiency remained very low, 0 in the pediatric double-blind study and 1.6% in adults, identical between active and placebo patients. In a prepubertal subset, we also observed slowing of bone age advancement, translating to a predicted adult height increase of over 2 inches. In adults, approximately 70% of patients were brought into the physiological steroid range while maintaining androgen control and about 40% of overweight or obese patients achieved at least 5% weight loss over 2 years, reflecting CRENESSITY's beneficial cardiometabolic effects. Safety and tolerability remain excellent with approximately 80% retention at 2 years, no new safety signals and over 35,000 patient weeks of exposure. Overall, these data reinforce CRENESSITY's strong differentiation across efficacy, safety and tolerability and support our conviction that it will continue to be the standard of care treatment for patients with classical congenital adrenal hyperplasia. Regarding our industry-leading neuropsychiatry programs, the late-stage Phase III studies for osavampator in major depressive disorder and direclidine in schizophrenia are enrolling well. And just last month, we initiated a Phase II study of NBI-'890, our next-generation VMAT2 inhibitor for the treatment of tardive dyskinesia. All other studies in our portfolio are advancing as expected, and we look forward to keeping you apprised of our progress. With that, I will hand the call back to Kyle. Kyle Gano: Thanks, I think we can go ahead and take questions now. Operator: [Operator Instructions] Our first question comes from Paul Matteis with Stifel. Paul Matteis: Congrats. I appreciate that you're not guiding on CRENESSITY, but I was wondering if you could maybe give us either a window into the first 6 weeks of 2026 or just more broadly, the number on the revenue side, obviously way above consensus in 4Q. But as we look at start forms, there's a slight decline from 2Q to 3Q and 3Q to 4Q. Curious in your perspective on what you're seeing now and where you think this kind of patient add rate might plateau in, say, the near to midterm? Matthew Abernethy: Paul, so we're going to start giving weekly sales information out on the web. Just kidding. I mean it's been a tremendous year -- it's been a tremendous year for CRENESSITY over $300 million in the first year. Congratulations to the team. And we really look forward to year 2 being another strong, exciting year. We do anticipate meaningful steady new patient additions every single quarter that's going to lead to a very nice growth year. We still, of course, have a whole lot to learn associated with this launch. As you remember, with INGREZZA it took us about 4 years to get to a guide, but we will be providing insight every quarter as it relates to net sales, demand and overall reimbursement dynamics. I'd say looking around the table, we couldn't be more proud of the team and what's been accomplished this year and really feel good with how we're positioned for the years ahead. Operator: We'll take our next question from Cory Kasimov with Evercore ISI. Cory Kasimov: I wanted to ask about that receptor occupancy poster from late January regarding INGREZZA versus AUSTEDO. Curious how you might use this information? And what are the potential implications here with regard to your next-gen VMAT2 inhibitors? Sanjay Keswani: Yes. So we're quite excited by the data we showed, which is essentially a head-to-head PET study between AUSTEDO XR and INGREZZA. And as we articulated in our recent press release, we saw nearly double the target occupancy for INGREZZA after 1 dose versus AUSTEDO XR. And even when we measured at steady-state concentrations, we still had a markedly superior advantage in terms of VMAT2 target engagement. We think this underlines the efficacy that we see in INGREZZA in the community of patients with tardive dyskinesia as our belief is that the higher the rate of VMAT2 target occupancy, the greater the efficacy in terms of control of tardive dyskinesia. In terms of the second part of your question, we clearly have a lot of experience in terms of matching receptor occupancy with clinically efficacious doses. And we're utilizing that relationship with our 2 VMAT2 follow-ons. Indeed, we started a Phase II study of our first follow-on in tardive dyskinesia quite recently. Operator: We'll take our next question from Phil Nadeau with TD Cowen. Philip Nadeau: Congratulations on a productive year. I just want to follow up on Paul's question on patient dynamics with CRENESSITY. I think in your prepared remarks, you mentioned the possibility of seasonality in patient demand. And I think investors were all debating whether there could have been an early launch bolus to patient initiations. Appreciating that you still have a lot to learn, what have you learned about those 2 factors and patient dynamics, one in early launch bolus and two, whether there's any seasonality as you go through the year? Kyle Gano: Yes. Thanks, Phil. This is Kyle. Good question here on that. I think it's important to keep in mind that the similarities that Eric called out in his opening remarks here are quite true and accurate across the Board. In terms of the first year of launch, we've gone through our first Q1 through Q4. As we've learned in most orphan diseases and launches, whether it was INGREZZA or looking at others, there's always ebbs and flows in enrollment forms. And in particular, early in launch, it's typically a function of frequency of office visits when patients initially hear about the opportunity for a new medicine and physicians getting the word out. So I think it's too early to call whether or not there's any seasonality component. It takes a couple of quarters to draw those conclusions across multiple years. And it took us a while to get to that level of confidence with INGREZZA. So I think it's prudent right now to collect that information and make a more sound decision about guidance, enrollment forms, things of that sort as we get a little bit further in the launch. But rest assured, great feedback out there across all the stakeholders, prescribers, physicians and even payers out there. So nothing out there is saying that we're anywhere but moving towards changing the standard of care and achieving blockbuster status like we've done with INGREZZA. Operator: We'll take our next question from Brian Abrahams with RBC Capital Markets. Brian Abrahams: My congrats as well on a very productive year. Question on the expense side. It seems like you're expecting a little bit of an uptick in R&D expenses for this year relative to 2025. Can you talk a little bit more about the components of that? How much of that is some of the earlier-stage programs like obesity? And how quickly could some of those costs potentially roll off in 2027 once the Phase IIIs readout? Matthew Abernethy: Yes. Thank you for the question. The cost increase is really on the heels of the Phase III trials and pushing those forward for a full year this year in 2026. The obesity investment is actually quite minimal for 2026, but of course, is a really important program for us to be able to drive shareholder value creation, which we would expect some level of data in '27. But from an expense, when do expenses roll off, we would anticipate for the major Phase III programs. Those will carry on through 2027 with a big chunk falling off in 2028. Operator: We'll move next to Tazeen Ahmad with Bank of America. Tazeen Ahmad: I wanted to go back to CRENESSITY for a second. So I know it took, what is it, 3 or 4 years before you guys started giving guidance on INGREZZA. What kind of metrics did you need to collect in order to get confident in providing guidance? And do you have a sense of whether or not it would take that length of time before you get confident with CRENESSITY and providing sales guidance for that as well? Eric Benevich: Tazeen, maybe I'll tackle the second question first. It may not take as long to get to a point where we feel comfortable giving guidance with CRENESSITY as it did with INGREZZA. This is a rare disease. INGREZZA is not a rare disease, but it was at the time, a rarely diagnosed disease. We have a single -- essentially a single prescriber base in endocrinology versus multiple different specialties and different sites of care and so on, which made getting a handle on INGREZZA a little bit more challenging early on. As I mentioned in my prepared remarks, both are first-in-disease therapies, both are breakthrough medicines. But as Kyle stated, we've gone through one cycle so far with CRENESSITY in classic CAH and it has been a learning launch for us. There's a few factors that have been a little bit different than what we expected, but different in the positive. The adoption rate was greater than what we had expected coming into this launch, which is awesome. Certainly, the reimbursement has been favorable, and we've been very pleased with the persistency that we've seen when patients start treatment, they tend to stay on it. So as we get more experience in this community in the CAH community and as we learn more about how we're able to reach sort of beyond that first 10% of the population that I talked about, then I think we'll get to a point down the road where we feel more comfortable providing specific guidance. Matthew Abernethy: Let's not confuse not providing guidance with not expecting significant growth this year. Everything that we see from steady enrollments of new patients along with patients staying on therapy, everything points to there continuing to be strong growth. It's just a company decision that we made to not provide a guide here. Operator: We'll move next to Corinne Johnson with Goldman Sachs. Corinne Jenkins: I guess beyond the pricing discussion with respect to INGREZZA and AUSTEDO, which I guess is now better understood, how are you thinking about volume impact to INGREZZA next year with AUSTEDO becoming a negotiated product? And how do you think formularies are going to handle here in products in the context of maybe more like relatively competitive pricing than we could have expected? Eric Benevich: Yes. I mean, obviously, we've been thinking and preparing for the 2027 formulary year and the impact of deuterated tetrabenazine having an MFP negotiated price. But certainly, we're very focused on 2026 as we kind of prepare to go into that next phase. We're in a position now, and Kyle talked about it with his prepared remarks of carrying a lot of momentum into 2026 in terms of our volume growth and new patient starts, having favorable coverage, especially in the Medicare formularies and being able to leverage all of that as we enter into the formulary negotiations for 2027. So we feel good about our strategy for 2027. We believe we'll be able to maintain formulary coverage to enable continued growth. And this is a market that has been growing at a double-digit clip for the last several years, which is pretty amazing, especially for a category that's coming into year 9, year 10. So we feel good about 2026, expect to have another really strong year for INGREZZA, and we feel good about our strategy for maintaining that growth in 2027 and beyond. Kyle Gano: And the only thing I would add to that, this is Kyle, by the way, is that on the 2026, we have our contracting done that we pulled through in 2025. So we expect that to be stable this year, no midyear adds like we saw in 2025. So entering '26, we expect the net revenue per prescription to be roughly similar throughout the course of the year. So revenue growth should also track nicely volume growth this year. That's our expectation. So a strong year here like in 2025, we expect good double-digit volume growth and to increase our market share throughout the course of the year. Operator: We'll take our next question from Jay Olson with Oppenheimer. Jay Olson: Congrats on all the progress. We're curious about the 569 study in Alzheimer's psychosis and any potential lessons learned from the ADEPT-2 study of Cobenfy, especially in terms of managing trial conduct across the study sites and any strategies you can use to mitigate operational risks for that study? Sanjay Keswani: Yes. We are watching the progress of Cobenfy in AD psychosis quite carefully. But just as an aside, psychiatry studies deserve specific attention. And we are fortunate to have a very experienced team who've successfully executed psychiatry studies. So for both our Phase III studies, we spent a lot of time carefully selecting sites and ensuring that the patients enrolled in our studies are real patients rather than professional patients who may inflate a placebo response. And indeed, with respect to placebo mitigation, we have a multifold strategy with respect to design of the study, 1:1 randomization, keeping the study sites relatively small. So for example, we only have 20 sites per Phase III study for direclidine in our schizophrenia studies. And also a great deal of hands-on monitoring of sites and site investigators by our internal team. So I think the BMS data were invited some caution with respect to ensuring that we adequately monitor these sites, but we feel in a pretty good position in terms of doing that already. Operator: We'll take our next question from Anupam Rama with JPMorgan. Joyce Zhou: This is Joyce on for Anupam. Could you discuss the feedback you've been getting from KOLs about your 2-year CRENESSITY data, specifically as it relates to durability of benefit and just how you see this data continuing to support and drive strong persistence of patients on drug? Sanjay Keswani: Yes. So we've been getting a lot of positive support from clinicians who have been prescribing CRENESSITY, as you say, for some time now. And we recently showed that 2-year data and again, listed a lot of positive feedback. I think what's important for these patients and often their parents is showing that androgens are reduced in a chronic fashion. And by doing so, reducing doses of glucocorticoids to physiological levels. And that's a huge deal for this patient population who are essentially plagued by the side effects of chronic glucocorticoid use. So in our 2-year data set, we saw reductions in weight for those individuals who are obese, improved insulin tolerance. And with respect to androgen suppression, we also saw attenuation of bone age advancement and that's a big deal for these patients. And again, their parents because often these individuals have precocious puberty and don't attain the potential with respect to adult height. So really pleased to see that data and also the positive impact on the community. Lastly, I'll say that the drug is actually really well tolerated, very important, particularly in a pediatric population. So no surprises at all despite collecting over 35,000 patient weeks of exposure. Of note, we do preserve the vasopressin-induced ACTH stimulus. I mentioned that because adrenal insufficiency is always a worry, particularly as you reduce glucocorticoids. And we're very happy with that adrenal insufficiency data. Indeed, no cases in the pediatric population and an active versus placebo rate that was equivalent in the adult population. So hopefully, that addressed your question. Kyle Gano: Yes. This is Kyle. Maybe just to add 2 quick comments on there. I think the pieces that are really important is if you think about safety and tolerability, the open-label extension, 90% of subjects rolled over and then 80% out to 2 years. Just an amazing safety and tolerability profile. In CAH, although you could say this about many disease states more so than ever for CAH, efficacy gets your foot in the door, but safety and tolerability wins the day. I think the other piece is on the efficacy that we see at 2 years, it really describes the benefits of long-term treatment. You can really bend the course of the disease in terms of progression. The earlier you treat, the younger you are and the longer you stay on treatment. So all good things to think about when we continue to accumulate this longer-term data. Operator: We'll move next to Mohit Bansal with Wells Fargo. Mohit Bansal: So one is regarding the expenses on the SG&A side. It seems like the sales and marketing increase is more than what we have seen last year. Can you just help us understand is it more towards CRENESSITY or INGREZZA? And then I would also love to understand how you're thinking about INGREZZA given that you are guiding for a 10% growth, which is higher than last year. So do you expect volumes to continue to grow at the rate of last year? Or it's just like you're not seeing price decline this year. So that's probably what is driving it? Matthew Abernethy: So SG&A expense is really the sales force expansion that we mentioned on the last call is a significant part of that. And we also have other ancillary initiatives surrounding CRENESSITY as well as INGREZZA to ultimately drive sales. But this coming year, we do expect double -- or this year, we expect double-digit growth, as we've said. That's partially offset by price, call it, negative 4% based upon the pricing that we -- the contracting that we had entered into in the first half of last year. So you're talking about volume growth at the midpoint of our guidance range for INGREZZA to be in the mid-teens. So we feel really good with where the team is positioned. And of course, with the sales force expansion going to be in place at the end of Q1, we'd expect to see more benefit in the second half of the year. Operator: We'll take our next question from Myles Minter with William Blair. Myles Minter: I just had a question on the number of Tuesdays in each quarter. I'm actually going to ask about the sales force expansion for CRENESSITY onboard in April. Is that required to keep this steady new patient flow in for the product? Or would you expect sometime in the second half of the year maybe that, that sales force expansion helps inflect the product? Eric Benevich: Yes. The way I would characterize it is that we're investing in growth. We're very optimistic about the opportunity with CRENESSITY in classic CAH. And we made our sales force size and structure decisions prior to the launch without the sort of, I'll call it, the Monday morning quarterback opportunity of having more data to work with. So obviously, we have been executing this expansion on a relative basis. It's not a large number of FTEs that we're adding into the CRENESSITY team, but we do think it will allow us to do a couple of things. One is to go deeper within the existing prescriber base. And in my prepared remarks, I talked about how we now have over 1,000 doctors that have prescribed CRENESSITY and yet 2/3 of them have only treated one patient thus far. So we know that there's more patients in those practices. And given the very large territory sizes, this will allow us to get in and follow up with the existing prescribers a little bit more frequently. Secondly, we also recognize that there are some patients out there that we haven't been able to reach through the existing sales team. So we can go deeper into endocrinology, and we recognize that some patients are not cared for by an endocrinologist. They might be seeing an internal medicine or a family medicine physician or even an OB/GYN. So we have the opportunity now to explore that a little bit with the expanded sales team. Last thing I'll say is that we're excited about the reputation that we've created within the endocrinology community. We're able to attract some really high potential and I think people with great track records onto the team. We've actually completed the expansion of that group. They're going through training now and we'll be ready to deploy into the new organizational structure at the beginning of Q2. So full steam ahead with the expansion and certainly very excited about the additional bandwidth that we'll have created as we execute against it. Matthew Abernethy: So Myles, I'll be holding a webinar about the calendar and how it lays out the rest of the year. Just kidding, but I did want to go back to a question that Phil had regarding CRENESSITY seasonality, and I think Kyle and Eric addressed it nicely in terms of not having enough experience with CRENESSITY demand side. I meant to mention there is a gross to net impact in the first quarter. It's about 5%, and it's associated with the commercial co-pay reset. So that's one thing I wanted to make sure as you're developing your models and expectations for Q1 for CRENESSITY, that would be something that you take into consideration. Operator: We'll move next to Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: Congrats on all the progress. I just wanted to probe a little further on the 10% share in CAH. Is it correct that that's all endos? Are you seeing any early share from some of the other categories you mentioned like PCPs and OB/GYN. And I'm wondering to what extent at this point you can use some of the AI database inferencing to sort of tease out which PCPs and OB/GYNs may be the best candidates for CRENESSITY? Eric Benevich: Yes. So yes, I just want to clarify when -- in my prepared remarks, I talked about the fact that we estimate that we've reached and gotten on board treatment of approximately 10% of the prevalent CAH population. So taking a step back, in the U.S., we estimate it's around 20,000 people with classic CAH. And obviously, in year 1 to get to about 10% of them and get them on treatment is a really important milestone for us. Virtually all of those new patient starts have been originated within endocrinology. And we recognize that for us to be able to continue to expand the use of CRENESSITY and get broader within that patient population, we're going to have to be able to reach patients beyond the prescriber base that we've reached thus far. And you mentioned patient finding. I talked about that a little bit in my prepared remarks. So we are leveraging different technology platforms and different data sets that will allow us to identify where are patients that look similar, at least in the data to the patients that we've already gotten on treatment and then allow our field sales organization to follow up and to confirm whether those patients exist at this or that practice. Using that information and feeding it back makes the system smarter and allows us to improve our targeting. So this is a rare disease, and there isn't a specific diagnosis code for classic CAH. And so for us to continue to grow and to have that steady growth that we expect, we have to leverage technology, and we also have to leverage the team. Operator: We'll move next to David Amsellem with Piper Sandler. David Amsellem: Maybe I'll ask another CRENESSITY question, but a different way. As you think about furthering penetration, are you getting any kind of pushback from endocrinologists? Or maybe I'll ask differently, what -- are there any barriers to further adoption that you're seeing? And also, as you think about the competitor that's in development, the ACTH antagonist, do you have a sense that doctors are waiting out the availability of that drug to put patients on that modality as opposed to CRENESSITY. Maybe you can talk about that dynamic as well. Eric Benevich: Yes. Maybe I'll tackle the second question first. The answer is no. I don't think that community endocrinologists are for the most part, aware of an investigational drug or are warehousing or holding back treatment of patients for a drug that may or may not be available several years down the road. In terms of what's the biggest barrier, I would say it's lack of knowledge. And the reason I say that is that, yes, there are some endocrinologists that are quite familiar with and skilled in managing these patients. But the vast majority of community endocrinologists have little experience with classic CAH. And if they have CAH patients in their practice, they might have a couple of them. And so a big part of our educational effort, I mentioned this in my prepared remarks, is really continuing to educate around classic CAH, the inadequacies of high-dose glucocorticoid treatments, the consequences of patients being either over or undertreated and then tying that back to the clinical profile that's emerged for CRENESSITY, especially the very strong safety and tolerability that we've seen both in the trials and in the real-world experience. So it's really getting physicians past this sort of, I'll call it, pre-CRENESSITY belief that they're treating their patients with these steroids. They think they're doing fine. But when they look closer, they realize that they're having a lot of comorbidities and a lot of complications from either their disease or from their GCs. And as we continue to make that education more broad, certainly, we're seeing that doctors are realizing that, hey, CRENESSITY is a whole new way of treating CAH. It's a paradigm shift. And I think that, that's been borne out in the adoption. The other thing that I'll say is that we've been working really closely with the patient advocacy group, the CARES Foundation. They've been a wonderful partner in terms of educating their membership. And certainly, coming into this launch, we recognize that a lot of patients with CAH or families with CAH didn't fully understand the consequences of either uncontrolled androgens and/or excess glucocorticoid exposure. And so we continue to direct our educational efforts, not just towards HCPs, but also towards the patient community, and I think it's really a benefit to both groups. Operator: We'll move next to Brian Skorney with Baird. Luke Herrmann: This is Luke on for Brian. So on CRENESSITY, with regard to the remaining estimated 90% untreated prevalent market, can you remind us what proportion is managed at an endocrinologist compared to primary care or other settings? Eric Benevich: Yes. I think we're learning that. And so it's difficult to give you an exact proportion of what proportion are under the care of an endo versus a PCP. And one of the things that we've seen at least in the cohort of patients that have been started already on CRENESSITY is that some of them appear to be co-managed by endocrinologists and primary care. And it may be that they see their endocrinologists once a year, but they may be seeing their primary care physician more frequently in the questions who's managing their CAH and refilling their prescriptions and so on. So as we go forward, teasing that out of the data, I think, is really important. And I think that, as I mentioned earlier, being able to identify those primary care or OB practices that appear to have multiple CAH patients and having our sales team go in there and follow up, that creates the mechanism or the feedback loop that allows us to understand where these patients are and the best way to educate, motivate and activate these patients. Operator: We'll take our next question from Marc Goodman with Leerink Partners. Marc Goodman: Matt, just a clarification. You mentioned negative 4% price thoughts for 2026. Is that off the $5,500 that was, I think, previously guided for the full year of '25? And then I just actually have another follow-on on the conversation about ACTH antagonist and just how you guys view that drug to be used eventually if it ever comes out with everyone hopefully on CRENESSITY by then? Like is it an add-on? Do you think it will be a competitive product? Or how do you even view it at that point? Matthew Abernethy: We haven't disclosed what the net price was for 2025, but you can think about the 4% being year-on-year, more heavily concentrated year-on-year in the first half of this year based upon the timing of when we entered into contracting. But importantly, and Kyle mentioned this earlier, is that exiting 2025, our net revenue per script is going to be very similar throughout all of 2026. So we did take a bit of price through 2025, but do expect a lot of stability on the net price side as well as and most importantly, on the access side to continue to allow us to build this market. Kyle Gano: And then Marc, on your competitor question, I've learned a lot over the course of my first full year as CEO, and one of them is how to talk about competition. When it comes to CRENESSITY, we're really talking about 2 different programs, 2 different medicines at 2 different states. CRENESSITY is an approved medicine. It's had a great launch, and we have a multiple year head start. I think we've got a medicine that's changing the standard of care across the efficacy, the safety, tolerability, the formulations, and we're generating a lot of data over time. I think it leaves us in a really good position. And I think that you all listening on the phone, certainly, I've been doing that here, looking at orphan drug launches, I'm really hard-pressed to see any medicine that delivers on the profile of CRENESSITY and is displaced at all by any future medicine. So I'm really excited about what we have with CRENESSITY. It's a 2 variable positive year for us. We've got a great medicine and a great team that's out there doing great things with prescribers and patients that are there, and we're going to focus on building this brand into a great medicine for patients in the company. Operator: We'll move next to Akash Tewari with Jefferies. Phoebe Tan: This Phoebe on for Akash. My question is on CRENESSITY as well, but more so on the pipeline. We saw that there's a Phase II study being initiated for patients under 4 years old, which we know is not currently on the label. Can you talk about kind of the importance of the study and when we should expect an update here? And could we expect this to be sort of a growth opportunity when and if on market for this population? Sanjay Keswani: Yes. So as indicated, we are soon initiating 2032, which is a pediatric study. These are individuals less than 4 years of age, the youngest age being 3 months. And the intent is to expand our label, which currently is 4 years and above. So again, we're excited about this opportunity. We should have some data next year on that study. Operator: We'll move next to Sumant Kulkarni with Canaccord. Sumant Kulkarni: Bigger picture one here. It looks like you sold your U.K. and European rare commercial business recently. What does this mean for your plans to develop crinecerfont in U.K. and the rest of Europe? And does that decision mean Neurocrine is going to remain U.S. focused? And how much did the potential enforcement of most favored nations pricing have to do that decision? Kyle Gano: Yes. This is Kyle. I appreciate the question. I think when it comes to the EU business, the programs that we're working on over there weren't necessarily a good alignment for what we have for our own portfolio today. So we found a good place for those programs to go with the new team there. In terms of our own interest, obviously, we're focusing on the U.S. market now and making sure that we have a really good launch here with CRENESSITY and so far, so good there, and we want to keep focusing our attention there. And look at ways we can potentially bring CRENESSITY and other future medicines to Europe. Right now, we're not really looking at considerations and variables that play in most favored nation per se as much as we are focusing on the U.S. market. But it is an area that is evolving. And before we make any decisions definitively outside the U.S., we'll want to get clarity on where that's going here in terms of a policy standpoint. Operator: We'll take our next question from Sean Laaman with Morgan Stanley. Sean Laaman: I have a pipeline question on 890. Just going back to the recent data you showed for INGREZZA and the 80% receptor occupancy, it seems like a pretty high hurdle. So do you think you can beat that with 890? Or is it really with 890 more about just expanding the population base through that long-acting profile? Sanjay Keswani: Yes. Really good question because with INGREZZA, as you mentioned, we're actually doing really well from a receptor occupancy point of view. So with respect to 890, we're expecting at least the same receptor occupancy. But to your point, the potential for long-acting injectable formulations, that's because of reduced clearance and also reduced aqueous solubility. So it's a molecule that really is designed to be both oral but administered relatively infrequently. And we think that could capture patients who are not doing so well or not so compliant on their current treatment. Kyle Gano: Yes. Just to add to that, we've certainly looked at that potential with INGREZZA over time, and it's not a well-suited molecule for that as well as other follow-on molecules that we've had over time. So we're quite excited what we have with 890 and 675. Those are the next-generation VMAT2 inhibitors. And it's taken us a while to get a molecule that actually has a profile that we think is competitive or if not better than INGREZZA. So we're excited about getting this Phase II study up and running and looking to have data sometime towards the end of next year. Operator: And we'll take our last question from Danielle Brill with Truist. Danielle Brill Bongero: So I know we talked a lot about general barriers to prescribing CRENESSITY and mentioned a few times that 2/3 of your prescribers have written a single prescription. I guess I'm just trying to understand what's driving that pattern specifically. Like how many CAH patients do these physicians typically manage? What feedback are you hearing regarding barriers or hesitations to expand adoption more broadly for these specific prescribers, patient bases at this point? Eric Benevich: Yes. I think the circumstances are going to be different from physician to physician. But generally speaking, I think the 2 biggest factors here that are guiding the pace of adoption, especially with those that have written one prescription is really just the flow of patients into the practice. As I mentioned earlier, a lot of these community endocrinologists that are treating adult patients, they may only see their patient once a year. So that is a factor. And then the second one is, and this is not unique to CRENESSITY. A lot of these physicians also when they start a patient, they want to see how it does and get some clinical experience. A few months into treatment typically is when they would be starting the GC tapering. And anecdotally, what I'm hearing is that many of them are taking it easy in terms of just slowly bringing down the GC doses. So it's not sort of a forced down titration. So I think those 2 factors together kind of get at what might be inhibiting some of these doctors from getting their second or their third patient on treatment. But like I mentioned earlier, most community, adult endocrinologists, if they have classic CAH in their practice, only have a few patients. So this is a market that is -- has a small number of what I'd call KOLs or experts and then a large number out in the community that have very few patients. And so it's an inch deep and a mile wide, so to speak. But in order for us to really optimize this opportunity, we have to reach and educate everyone, and that's what we're doing. And obviously, we're very pleased with the first year, and we expect to have a lot of success in 2026 and beyond. Operator: That does end the Q&A session for today's call. I would now like to hand the call back to Kyle for any additional or closing remarks. Kyle Gano: Thanks, Clay. I want to thank you all for joining today and for the constructive discussion. During the call, we shared updates on our commercial performance and development programs as well as the outlook for the business. I want to be clear, our focus remains on disciplined execution as we think about 2026, which means a couple of things: driving revenue growth and diversification with INGREZZA and CRENESSITY, advancing the pipeline and the process of delivering meaningful -- and in this process, delivering meaningful long-term value for patients and shareholders. We've got a lot of momentum that we're building this year for a data-rich 2027. That's just going to be the tip of the iceberg. The way that the pipeline is set up will deliver a constant flow of data starting from '27 and in future years. So in close, please don't hesitate to reach out on any of the topics that we discussed today. We look forward to continuing the dialogue and meeting with many of you as we progress throughout the year. So thanks again, and talk to you soon. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, and welcome to the McGraw Hill Fiscal Third Quarter 2026 Earnings Conference Call for the quarter ended December 31, 2025. [Operator Instructions] As a reminder, today's call is being recorded, and a written transcript will be made available in the Events and Presentations section of the company's Investor Relations website. A webcast replay of today's call will also be made available on the company's Investor Relations website. [Operator Instructions] I would now like to turn the call over to your host, Danielle Kloeblen, Treasurer and Senior Vice President, Investor Relations. Please go ahead, Danielle. Danielle Kloeblen: Good evening, and welcome to McGraw Hills Fiscal third quarter 2026 earnings call. Joining me today are Simon Allen, Chair of the Board of Directors; Philip Moyer, President and Chief Executive Officer; and Bob Sallmann, Executive Vice President and Chief Financial Officer. As announced on January 6, 2026, Simon retired as President and CEO on February 9 and remains Chair of the Board. During today's call, we'll be making forward-looking statements about the company. These statements are based on our current expectations and the current economic environment. Forward-looking statements, estimates and projections are inherently subject to significant economic, competitive, regulatory and other uncertainties and contingencies, many of which are beyond the control of management. These forward-looking statements are also subject to the cautionary statement that is included in our fiscal third quarter 2026 earnings release, the accompanying investor presentation and our Form 10-Q for the fiscal third quarter 2026 and other filings with the SEC. Important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release issued day as well as in our SEC filings. We will also refer to certain non-GAAP measures today. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. In the earnings press release, the appendix of the accompanying investor presentation and as a supplemental file on our Investor Relations website, you can find a definition of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures. For those who listen to the recording of this call, we remind you that the remarks made herein are as of today, February 11, 2026, and have not been subsequently updated. With that, I'll turn the call over to the Chair of the Board of Directors, Simon Allen. Simon Allen: Thank you, Danielle, and good morning, everyone. It's an exciting time for McGraw Hill as we continue to build momentum, deliver strong quarterly results and position ourselves for a return to growth in fiscal year 2027. Revenue for the third quarter increased 4.2% year-over-year, driven by our higher education business, which continues to outperform the market. Reoccurring revenue grew 14.8% over prior year, representing 82% of total revenue, while digital revenue expanded 11%, representing 84% of total revenue. Adjusted EBITDA increased 7.7% versus prior year, yielding a margin of 31.3%. These fiscal Q3 results reflect strong execution and ongoing momentum, giving us the confidence to raise fiscal year 2026 guidance, which Bob will discuss shortly. Education is fundamental to society and our mission serves as our foundation fueling our resilient high-margin, cash-generative business model. Our trusted content and innovative technology doesn't just deliver information, it empowers educators to engage learners with personalized experiences that enrich understanding and growth. Our multilayered mode built on intellectual property, first-party data fueled by billions of learning interactions each year and domain expertise across the learning life cycle creates what we believe is a distinct competitive advantage at scale. Unlike generic AI, McGraw applies AI thoughtfully to improve learning outcomes, leveraging our multilayered moat to deliver evidence-based impact while saving educators valuable time. This approach is resonating A recent study conducted by Morning Consult ranked us as the top education company for effectively utilizing AI recognized by both students and instructors. Before moving forward, I want to acknowledge my decision to retire as CEO and President. Leading this team of over 4,000 mission-driven employees to transform a legacy publisher into a market-leading digital education solutions provider powered by the trust, innovation and strong financial profile that you'll hear more about today has been the greatest honor of my career. I will continue as Chair of the Board and will remain deeply engaged to ensure a smooth transition to Philip Moyer, who will lead the next chapter of McGraw Hill's proud history. When the Board and I began our search for my successor, we were looking for a seasoned CEO and technology leader who could not only appreciate our strong foundation financial profile and trusted brand, but also harness these strengths to fully capitalize on the enormous opportunities ahead from McGraw Hill. We led a comprehensive search, and I can say with absolute confidence that we found the right leader in Philip. Philip brings a wealth of experience from senior technology-focused roles at Google, Amazon, Microsoft and most recently the CEO of Vimeo. One of the many attributes that set him apart with his early career passion for using technology to envision the future of education. From his creation of the digital software solution to modernize the management of individualized education plans to the growth he led in the education sector, while at Vimeo, we believe that Philip brings the perfect blend of operational excellence, strategic vision and customer-centric technology expertise to honor the commitments we have made to grow profitably, to expand margins and to achieve our 2 to 2.5x net leverage target. Philip, I'm extremely excited about our partnership. Welcome to McGraw Hill. Philip Moyer: Thank you, Simon. I have to thank you and acknowledge the incredible foundation that you and the team have built. It's a privilege to take the baton at a time that McGraw Hill is expanding market share, executing on its financial commitments and positioning itself for long-term growth. What attracted me to this role wasn't just McGraw Hill's strong financial profile. It's the mission of the company, and it's the trusted position in the industry. Throughout my career, I've seen how technology can transform industries but education is where technology can transform lives. We're at an important juncture in the education industry. Technology can be both a distraction or an accelerant to learning. It is essential to support teachers and school administrators in engaging this generation of students with new and more effective technologies. The experience I have in building enterprise-grade AI platforms and global video distribution technologies provides a unique vantage point into the opportunity ahead. While AI adoption grows, it's not a one-size-fits-all model that will be solved by large AI model companies. Instead, personalized learning and personalized AI is essential for the student and the educator. McGraw Hill is well positioned to lead in this next generation of learning. We're harnessing one of the most trusted curriculum libraries in the world. We're building new learning technologies, leveraging billions of proprietary data points about what does and does not make learning effective. And importantly, we have one of the most respected global distribution and customer service teams in the world that connects directly with educators and students to make sure that they are successful in using our tools. My focus will be on accelerating growth scaling our business and maintaining our brand trust and academic integrity, while we build some of the most engaging and exciting learning tools in the world. I admire the financial rigor that Bob and Simon have instilled, and I look forward to progressing further on our goals, as we reinvest in growth opportunities and expand margins, reducing our debt and leveraging McGraw Hill's strong brand and seasoned talent. I'm eager to partner with Simon, Bob and the rest of the leadership team and our Board to drive shareholder value. I look forward to meeting many of you in the coming months ahead and to speaking with you again in June when we report fiscal year end of 2026 results. Simon Allen: Thank you, Philip. Let's dive into some more details underpinning our exceptional third quarter performance. In higher education, we continued to significantly outperform the market with 24% year-over-year revenue growth supported by our record high 30% market share according to MPI, our go-to-market execution, first mover advantage in product innovation and portfolio expansion. Building on this momentum, our Evergreen platform now boasts a growing library of over 700 telatuals. Evergreen streamlines workflow management for educators and enhances sales rep productivity, allowing an increased focus on takeaways. Additionally, our new ALEKS for calculus solution supports a more comprehensive STEM offering that unlocks approximately $100 million in market opportunity globally. AI-powered solutions are driving deeper engagement, improving efficiency and fostering academic success all while boosting platform utilization and reinforcing our position as a leader in education innovation. For example, AI Reader reached over 1 million higher education students in Q3, generating 16 million learning interactions, up from 11 million in Q2 for a total of 27 million since inception. We recently expanded AI Reader into our First Aid Forward and access medicine offerings within our global professional segment. Enhancing the learning experience with alternative explanations summaries and personalized quizzes. Building on this AI innovation, clinical reasoning is also gaining recognition from medical professionals for its ability to foster critical thinking and real-world application. We are experiencing promising momentum in institutional pilots and are advancing its impact by introducing new modules and virtual cases in the months ahead. As we scale, we are pursuing a greater institutional focus and deeper integration among our offerings. Sharpen Advantage, a new AI-powered enterprise solution exemplifies this through an attractive TAM extension that leverages our existing content and capability to offer unique content. Redefining our traditional professor focused high registration approach sharpened advantage deepens penetration by selling institution-wide with solutions for administrators, professors and students alike which all work together to improve student outcomes. Integrating Sharpen with ALEKS, this fall should drive incremental upsell. In K-12, we've gained market share in a smaller year, building on strong prior year performance. We are ranked first or second in 10 of the top 11 adoption opportunities with success in science as well as ELA. As we've said before, we've not experienced any material impact from proposed federal education policy changes. Fiscal year 2027 marks a larger market opportunity driven by purchasing cycles in California Math, Florida ELA and Texas Math. Active pilots in the California math market are progressing, and we have secured some early wins. In Florida ELA, we secured a leadership position this year, which we believe should position us well moving forward. And we are optimistic for Texas math where our offering will integrate with McGraw Hill Plus, a platform that has seen district access up 86% year-over-year and a 40% increase in average time spent on the platform since the start of the school year. We believe that our investments in innovation and portfolio breadth provide more integrated end-to-end solutions moving forward. Supplemental and intervention solutions like ALEKS Adventure with 4x more monthly student users than last year, McGraw Hill Plus and AI capabilities like teacher assistant and writing assistance, enhance our capabilities to fuel growth beyond the core. To this end, we have secured an early win with our K-5 literacy curriculum emerge and launched Summit and saw for grades 6 to 12. These programs deliver cohesive personalized literacy solutions integrated with tools like teacher assistant and writing assistant, which integrate Essaypop, which we acquired in March of 2025. We're strengthening our competitive edge by delivering more integrated end-to-end solutions positioning ourselves to drive growth beyond our core offerings. Now I'll turn the call over to Bob to discuss the financials. Robert Sallmann: Thank you, Simon. I'll review the fiscal third quarter results shortly, but first, I want to express my deepest gratitude for your mentorship and friendship during my tenure at McGraw Hill. You have been a transformative leader who has driven an exceptional financial turnaround that positions McGraw Hill as the global leader in education solutions. Under your guidance, the company has developed a unique culture that combines passion, excellence and innovation, empowering teams to achieve exceptional results and laying the foundation for continued success in the years to come. You lapped an indelible mark on this organization, and we are all better for it. I've already spent significant time with Philip, and I'm energized by our partnership as we focus on scaling the business, expanding margins reinvesting in growth and achieving our net leverage target. Now on to the results, which demonstrate our strong earnings quality our resilient business model and unwavering dedication to meet our commitments even in a seasonally small quarter for the business. In the quarter, total revenue reached $434 million growth of 4.2% year-over-year, while fiscal year-to-date revenue increased 0.7% versus prior year. Reoccurring revenue grew 14.8% year-over-year to $357 million, representing 82% of total revenue, showcasing a robust digital mix. Digital revenue grew 11% versus last year to $364 million. Growth in higher-margin digital subscriptions continues to strengthen our financial profile. -- adding a layer of predictability that is reflected in our remaining performance obligation, which stood at $1.7 billion at the end of the quarter and will move higher as we begin to capture the first wave of larger K-12 opportunities. Gross profit margin expanded nearly 100 basis points year-over-year to 85.3% due to efficient operations and favorable digital mix with no impact from tariffs on our business. Adjusted EBITDA rose to $136 million in the quarter, achieving a 31.3% margin, up nearly 100 basis points year-over-year, reflecting strong operating leverage amid ongoing reinvestment. Internally, we continue to infuse technology to streamline processes and enhance operations. In Q3, we launched an offer management system to strengthen our go-to-market by simplifying the sales process, compressing time to close deals and improving pricing visibility. We also expanded AI use cases across product development and operations to enhance efficiencies and unlock incremental margin opportunities over time. Now moving on to the segments. Higher education revenue grew an impressive 24% year-over-year to $225 million in the quarter, with reoccurring revenue growing 33.5% and digital revenue expanding 24.8%. This strong performance was fueled by market share gains, increased demand for our innovative portfolio offerings, enrollment growth and strategic value-based pricing. Inclusive Access now represents 60% of higher education revenue with nearly 2/3 of fall 2025 growth driven by new course adoptions from existing customers, highlighting strong cross-selling efforts. Onboarding approximately 100 new campuses annually further supports multiyear growth visibility as accounts typically scale within 2 to 3 years. And we expect the activations for accounts landed in fiscal year 2026 to increase by 15 to 20x in the next few years. 70% of Higher Education revenue now comes through Evergreen, exceeding our initial expectations. Professors are increasingly adopting the latest releases without sales rep intervention, allowing our sales team to focus on new opportunities, which positions us well for retention and market share takeaways heading into fiscal year 2027. Our exposure to resilient enrollment pockets also remains favorable. 1/3 of our higher education business is tied to 2-year colleges and our portfolio overindexes to disciplines like business management, which continues to demonstrate relative strength. K-12 revenue was $128 million, a decline of 14.6%, in line with our expectations, given the impact of the smaller market this year and the lapping of exceptional capture rates in the prior year. In Q3, reoccurring revenue only declined 1.6%, benefiting from strong prior year sales. As Simon mentioned, this year, we continued to gain market share, and we took a lead in Florida ELA. We also continue to show momentum in science adoptions in Alabama and Tennessee. We are actively preparing for the fiscal year 2027 [indiscernible] cycle. California math pilots continue as we enter the key selling season. In addition, we have seen initial success in ELA with an early K-5 emerge when in open territory ahead of the California ELA adoption in fiscal year 2028. We bring forward a competitive value proposition leveraging integrated solutions like McGraw Hill Plus and a broader portfolio to drive growth beyond the core. Global Professional revenue increased by 2%, and its recurring revenue grew by 3.5% in the quarter. Growth in digital medical and engineering solutions has successfully offset the impact of our noncore print exit. Additionally, early momentum from our AI-powered clinical reasoning solution further strengthens our confidence in future opportunities. International revenue declined narrowed sequentially to 1.8% year-over-year in the quarter. While higher education headwinds persist, we are gaining market share and remain optimistic about growth opportunities driven by new innovative solutions like ALEKS Calculus. We ended the quarter with $514 million in cash and $964 million in liquidity with our revolving credit facility remaining undrawn. Net leverage was 2.9x as of December 31. We generated $309 million in cash flow from operating activities in the quarter, an increase of 12% year-over-year. Our attractive cash flow profile enabled us to prepay an additional $50 million in term loan principal in December, for a total of $200 million in the quarter. Year-to-date, we prepaid $596 million in term loan debt, generating over $41 million in annualized cash interest savings. Our disciplined capital allocation strategy continues to prioritize reinvestment and debt reduction while maintaining flexibility to optimize our capital structure. We remain committed to a net leverage target of 2 to 2.5x and pursuing strategic tuck-in M&A. Looking ahead, based on our strong performance, RPO visibility sustained share gains and favorable enrollment trends, we are raising our full year fiscal 2026 financial guidance. We now anticipate total revenue for fiscal year 2026 in a range of $2.067 billion to $2.087 billion. Reoccurring revenue ranging from $1.516 billion to $1.526 billion and adjusted EBITDA between $729 million to $739 million. We continue to expect unlevered free cash flow to slightly exceed the low end of the 50% to 100% adjusted EBITDA conversion range, while CapEx and product development as a percentage of revenue remains unchanged at 8% to 9% of total revenue. Finally, a couple of modeling items for Q4. Stock-based compensation is expected to be in the range of $1 million to $2 million and tax expense is expected to breakeven in the quarter. We will share our fiscal year 2027 financial guidance during the fiscal year-end earnings call in June. We remain confident in fiscal year 2026 and the foundation for fiscal year 2027, with a return to revenue growth and continued margin expansion. Now we will open the call up for your questions. Operator: [Operator Instructions] Your first question comes from the line of George Tong with Goldman Sachs. Unknown Analyst: Can you help unpack the growth drivers that you're seeing in higher ed and how you're thinking about fiscal 4Q perhaps talk a bit about Evergreen as a differentiator? Simon Allen: George, it's Simon. Thank you. It's a great question. I feel like I'm a broken record when I talk about our higher education business because every quarter I explained to you all that -- we are so proud of the growth we've had, our continuing ability to take market share, significant market share really. And you look at the growth rates, and we're just extremely pleased with where we've landed this quarter. And there's a lot of reasons why we've had this growth, but primarily, I think you mentioned Evergreen, that's a wonderful innovation that we have that is unique to McGraw Hill in providing continual updates to faculty, making sure that they no longer need to think about new additions and ensuring that they have most up-to-date information, meeting our reps need to spend really far less time working with the faculty and making much more -- paying much more attention to growing market share by working new adoptions. That's been very successful for us. And our faculty tell us our customers how much they really enjoy Evergreen because it just gives them the immediacy and the knowledge that they've got the most current and engaging information for their students, and that's really very important. I think our go-to-market teams have done incredibly well, our customer success groups, our representatives that we have a learning specialists, you name it. ALEKS specials we've done so well across all of our go-to-market. It really is very, very pleasing for us. And I think the last thing I'd say, and there is a lot, George, I could say about higher ed than the growth that we've had. But -- when I think about the Morning Consult survey that we referenced in our script a little earlier, we're very proud that they cited us McGraw Hill as the company that uses AI most effectively and that, of course, is told to us by our educator customers and our student customers. And that gives us great pride. And I think you put all those together, the value proposition that we've explained so carefully the ability to innovate with so many different tools now with AI Reader really coming on stream, making a big difference to higher education students in pretty much every discipline. Evergreen now 70% of our revenue even more than we expected. It's just a very pleasing picture, George. Philip Moyer: And Simon, maybe let me quantify some of that George, I'll quantify some of that for you and lean into a little bit of Q4 how we're thinking about it. On the 24% growth, 17% year-to-date, 3% to 4% of that is coming from enrollment. You may have seen enrollments quoted at a lower number from the National Student Clearinghouse. Obviously, as we over-index into 2-year colleges as well as business management that allowed us to have a little bit stronger growth there. In addition, and I mentioned in the past, we continue to realize price. And so we go out with inflationary price, it sticks. But you have to offset that with some of the mix as it's associated with inclusive access. So on a net basis, we're getting over 1% of price in higher education. We also benefited in the quarter related to a sales return release. And that's really a result of a couple of factors. But first being lower level of returns coming in, in the quarter. And this is a mechanical exercise we do every quarter. You could read about it more in our disclosures. But the other part I do want to highlight is we continue to move to more concentration of inclusive access, that higher quality revenue tends to show a lower level of return. So again, it positions us well as we think about the future. And then when we think about the fourth quarter, we think about sort of how to think about the full year, I would just get you to think about double-digit growth in billings and on a revenue basis. So when you do that math, you're still seeing that 4% to 5% growth from share gains. And you can tie that back to some of the MPI data that Simon had referenced before. So those are the areas. And you're probably coming on to the fourth quarter question around, hey, what that change or why are we seeing the growth rates slightly decline. As we highlighted before, we come to a difficult comp in the fourth quarter. And again, as we think about the full year, we're going to still experience that double-digit growth, but we are facing a more difficult comp in the fourth quarter. Operator: Your next question comes from the line of Ryan MacDonald with Needham & Company. Ryan MacDonald: Congrats on a great quarter, and welcome to Philip. Maybe just to start, first question for me is around the K-12 business. Obviously, continuing to benefit from the strong market share gains, obviously, from last quarter. But as we look ahead to fiscal '27, can you just unpack a little bit more about what gives you that confidence in sort of the return to growth and magnitude of growth for that business? And as you look across the 3 sort of large state opportunities, with California, Florida and Texas. I'm curious to get your thoughts on sort of the trajectory for the Texas opportunity we've been hearing more and more about how -- as they've changed their adoption cycle and some of the mechanics there. There's just a lot more material -- instructional materials that they have to review ahead of the sort of purchasing cycle. Any concerns that, that could delay decisions at all ahead of fiscal '27? Simon Allen: Ryan. That's a lot of questions in that one. And let me take them piece by piece, if I may. And you're quite right. We're very pleased with our K-12 performance as well. And you know that FY '26 was -- is a smaller market size and yet we've continued to grow market share. And that's what's important to us. We've got to keep outperforming our competitors at every level. And we're very pleased that we've ranked #1 or #2 in the top -- and really in 10 of the top 11 adoption opportunities this year. And that's driven a lot by our ongoing success in science and ELA and as Bob indicated in our earlier comments. And in states like Alabama and Tennessee, we're very, very pleased with our performance there. I would -- and also looking ahead, I mean, to your question, Florida ELA, we've got a good start there in year 0. We're feeling very good about what that could mean for us going forward. We will make sure that we recognize the market growth opportunity and what that means for us in FY '27. I think we've mentioned before, Ryan, that we're looking at about a $300 million increase in the term for next year. So we're obviously optimistic about what that means for us. It's very early in the adoption process. As you know, the selling season really begins January and doesn't conclude until Memorial Day or even slightly after. So we're in the stages right now in the battle, which we love. And we'll know a lot more about how things are when we get to the end of May, early June, and we can update you at that stage then. But we're very pleased with the pilots we're offering. We've had some good wins with Emerge our K-6 literacy program. As you know, we've launched also our 6 to 9, 9 to 12 Summits products, which are very exciting. We had a wonderful sales meeting in New Orleans. I won't give you all the details, but I will say that we had a great launch with that product. And about 6 or so 100 reps very excited about what they're seeing, which is marvelous. So we feel very good about that. Very briefly on Texas. Your point is a good one. I mean they're changing the style in a way, but we've got great relationships. They're really great market and a fine knowledge of how that state operates. We welcome new competitors. It may change. You mentioned the delay. We're not sure about that. The way decisions are made are extremely effective. They're very strong as they always have been. And really, we really feel that the end-to-end offerings that we have through all of our content technology, you name it, that's something that other companies cannot provide. And they usually lack in the technology development that really integrates with a lot of the content. That's the key strength of McGraw Hill, as you know, which is why we feel good about how that's going to develop for us. Ryan MacDonald: Really appreciate all the color there, Simon. And maybe as a follow-up, I would love to propose one to Philip. obviously, early on in your tenure, but just curious as you evaluate the opportunity coming in, would love to get your view, particularly as a technologist, sort of McGraw's AI strategy and how you think you can continue to evolve that in the role moving forward? Philip Moyer: Ryan, thank you very much for the question. I would -- I have to start by saying AI is only good as the data and the quality of the training. And coming in, it's one of the things that attracted me most to McGraw Hill. As you think about building a next-generation company, just any company. You're going to need data. You're going to need experience with workflows. You're going to need integrations, you're going to need to go-to-market, you're going to need a whole variety of things. And ultimately, you're going to build a system that has experience in answering questions or taking action. We're coming into this next generation with simply unmatched assets in the education industry. We've got one of the largest vetted localized content platform or tones in the world, with literally tens of thousands of specific AI or images and assessment specific to -- specific learning pathways. We also have mapped out these learning pathways that developed tens of -- tens of thousands of discrete skills along the way at every single age. We have billions of data points an algorithm that understands when somebody is on the pathway and someone is off the pathway. And we can serve the teacher and also the student in really unique ways with that knowledge. And then we have go-to-market and service teams that have deep enterprise relationships and they understand the regulatory environment down to a ZIP code level. And over the past 5 years, I have to say, coming in, what was so evident to me is in the past 5 years, there's been a really significant investment in technology and AI and you're seeing that. I don't think what's been talked about and what you're not seeing underneath the iceberg is all the tools that have been released over the past 12 to 24 months, ALEKS Calculus, an AI Reader, Teacher and Writing Assistant. Sharpen as an example, we just released within 9 months, and we already have 1 million active users on that platform. And so I'm excited about the pace at which we're innovating. I'm excited about the assets and I'm really, really excited about all the opportunities ahead. So I feel very, very good as someone that's lived in tech my whole life about what we're going to do. Operator: Your next question comes from the line of Stephen Sheldon with William Blair. Stephen Sheldon: Maybe I wanted to start with Philip as well. I guess you started the new role this week. I guess if you think about the coming months, what are some of your early priorities where do you envision spending your time across the organization as you think about the coming months? Philip Moyer: Sure. First, obviously, I'm learning the organization, I'm learning the products, but most importantly for me is getting out with the customers. Already, the customers that I've been spending a little bit of time with, I hear very firsthand from customers already. Many are really concerned about AI. Many are confused around technology. Many are unsure whether or not their students are engaged and whether or not they're comprehending when they're using AI. And so most importantly for me is getting out with our higher ed customers with our K-12 customers with our global professional customers with our international customers. And I think that a lot of them want to know that there's going to be a trusted partner as they go into this next generation. So for me, it's going to be listening and it's also going to be assuring them that we're going to be a partner every step of the way. The second thing I would tell you that's very important to me as well is just what I -- a little bit of what I was just talking about. We've got a great pace of innovation, and I really want to spend time to make sure that we've got a really solid vision for the customer, for the student, for the teacher, for the administrator of where we're going in McGraw Hill with our technology and do -- are we executing as quickly as we can. I'm really looking forward as well to spending time with our go-to-market teams. They're world-class. They're world renowned. They have incredible relationships. And so I also want to hear to them how we can empower them more to serve that customer base. Stephen Sheldon: That's great. I appreciate that. And then maybe one for Bob as a follow-up. It sounds like the team is confident about the return to growth in K-12 for next year, and you gave some hopeful commentary on the factors driving growth in the higher ed segment. So just curious, if you look at higher ed and thinking about fiscal 2027, how much visibility do you have at this point on the potential growth heading into next year. So it seems like some of the factors that are supporting growth like broader adoption of inclusive access. Some of those things should have some legs. So just at the high level, I know you're not giving guidance or anything at this point, but just -- yes, how are you thinking about growth heading into next year? And how much visibility do you have into it at this point? Robert Sallmann: Yes, sure. And as you're aware, we'll provide guidance in our June call. And at that point, I'll be leaning into some of those early indicators which we watch would be fast applications, high school graduation rates, information like that. But some of the things that give us confidence, we look at the RPO, we see activations in January in the spring. Some of that will carry into next year. So all of those things -- and I'd say the thing that we are most confident about is our ability to continue to take share. We've demonstrated that. We're seeing takeaways as we walk into next year already. So all of those things bode really well for us as we think about next year. Operator: Your next question comes from the line of Steven Koenig with Macquarie Group. Steven Koenig: It's Steven Koenig with Macquarie. Nice to be on the call. Congratulations is due to Simon, I want to echo previous comments by others on your contribution financially, operationally and certainly culturally to McGraw Hill. So you leave a really -- really good position here for Philip to build on and welcome to Philip. Philip Moyer: Let me just say thank you. Steven Koenig: Yes. You're quite welcome. Good. Yes, it's pretty clear what your contributions have been and it puts you in great [indiscernible]. On the -- I wanted to ask Yes, I wanted to ask maybe kind of a 2-part question it's related. So one part of the question maybe for you, Simon, is -- you mentioned that Sharpen Advantage expands your TAM by providing the institution-wide solutions not only for professors, but for administrators and students. Can you expand on that, and then I'm going to put the related question out there as well. And Philip, feel free to give us your thoughts on this as well. I think something that a lot of investors miss certainly about my software coverage is like the competitive moat isn't just from the IP. It's from kind of the customer lock-in that happens when you integrate the solutions, you deploy them, you integrate them with the data, processes, workflows, et cetera. And you're clearly doing that at McGraw Hill, and I'm not talking about just the technology solutions, but also your go-to-market and what you're doing to make yourself irreplaceable in the institutions. I'd love to hear your thoughts on how your technology, your go-to-market, your content all influence that? And then I'll leave it there. Simon Allen: Thank you very much, Steve. And again, thank you very much for your very kind comments. And I'll kick off a little on Sharpen and thank you for asking. It's -- we're very proud of Sharpen the kind of product that we have there, as you may remember, is very much focused on how students learn today. That lovely quote that -- it's like my textbook and TikTok had a baby. And that's how so many of students learn in their first and second year, particularly at University and ecologist. What we've done with Sharpen and we've got a proven model with students. We know that it works well. We know that they really appreciate the type of video-based learning and quiz focused activity, really a lot of gamification tools in there. And then what we discovered is that the market increasingly asked us to look at this in a more broader sense on what can we provide for the institution. So over time, what we've done is make sure that we can focus on a broader coverage, allowing the educator to include their own content, for example, making the institution at that level, use sharpened materials across the entire network, every single class, every single sector and department where we operate, which is pretty much everywhere. So the breadth of coverage at the institutional level really opens up a significant market for us, new market, if you like, beyond just that student and of course, the faculty relationships that are so near and dear to our company. And I think with Sharpen, we're just really excited about how quickly, as Philip said earlier, we've really developed some serious revenue and customer base and now we're looking forward very much to seeing that expand exponentially at the institutional level. And I'll pass it over to Philip now for the additional questions that you had on AI. Philip Moyer: Sure. I get asked a lot about LLMs in the context of education. And I'd like to say that every generation of technology, whether or not it was a PC, PC, the Internet, the cloud, every one -- every one of those needs deep domain expertise to bridge the last mile for the big tech platforms. I lived in that for a long time. And I know that, that we -- it was a very vibrant ecosystem of software companies, services companies. It's become a massive industry to bridge that last mile. This error is no different in artificial intelligence. And I think that our moat is going to be really clear. A couple of things, as I mentioned, we have -- we understand local education requirements down to the ZIP code, and today, more than ever, educational requirements are becoming down to the ZIP code level. We have these specific age appropriate learning pathways. I'd like to say that LLM may know what you're asking, but we know why you're asking it. We are able to build security and trust and psychological safety into what we're building. We have the ability of building personalization for every student, for every teacher. We can enter new curriculum markets in a way that we've never been able to before, with fine grain supplemental work. And we're able to do really engaging learning experiences that just a standard LOM is not going to do. And then also just the ability to understand whether or not someone's comprehending what the answers are that they're giving to the teacher and then also the teacher to understand their students. We think there's all these fantastic opportunities to build great moats with artificial intelligence and LOM technology. Steven Koenig: That's super helpful. Operator: Your next question comes from the line of Marvin Fong with BTIG. Marvin Fong: Congratulations on the great results as well as Philip for the new role and Simon I didn't have that long a time to work with you, but certainly hope to continue the relationship there and best of luck. Just a couple of questions. Again, on AI, biopic, maybe a different angle for either Simon or Philip to answer. But from the outside as investors, how would you suggest we measure the impact of AI on your business? And I know you also [indiscernible] some internal metrics on time to development and costs that AI has benefited you from maybe on both sides of that coin, how can we measure AI and how it's impacting your business? Simon Allen: Thank you very much, Marvin. It's Allen. I'll kick off and then pass it over to our new CEO, Philip and I think what I would say, first of all, is that with everything that we do with AI, we've done a ton. We've released some tremendous products, all that we focus on is ensuring that we use a human in the loop approach to make sure that everything that is delivered, we know has efficacious value to the teacher and the focus of a lot of our AI tools, if I think of writing a system, teaching assistant. The focus there is providing the educator more time to spend face-to-face with the student. That's got to be really emphasized all the time. And you will have read a great deal recently about the need for that human interaction for the teacher and student to really bond and spend significant time together. So a lot of the AI tools that we've innovated in the last few months allow that. And they allow it because we're increasing the efficiency levels. You think about AI Reader and higher education we're allowing the students to really understand more complicated materials in ways, repetitive ways, in fact, it really help them grasp difficult concepts and enable them to then have more meaningful conversations with their professor. I think at the K-12 level, again, writing instruction tools, how the students begin to think about creating sentences, paragraph structure, you name it, again, allowing for that formative discussion with the teacher at every stage. And then as I look at our medical business, clinical reasoning another great new innovation that we've provided for medical students that are looking at how they can diagnose what they can think about utilizing as they look at the patient interactive evaluation tool that we provided, so they can start to immediately relate to a patient's situation that they may need help within. And I think all of our tools that we've created, I know all of the tools that we created are very valuable. We test them incessantly before we release anything to make sure that we're adding value to what we provide. So it's a very thoughtful process, Marvin will -- shall continue to be but it's wonderful to have the opportunity to do this with the technology now that and the advancements in AI, we've been operating with machine learning, as you know, for over 20 years with ALEKS. But now we really can stretch your head with AI. But I'll pass it over to Philip. He may have other comments as well. Philip Moyer: Coming at this as technologies, I always look at user engagement. So I want to know how many users are using it, how many are using it daily and how long are they spending on the tool. So internally, we'll be tracking that. We're also going to be tracking outcomes. And we're seeing some pretty extraordinary outcomes already on our tools in terms of like grade level improvements and kind of engaged and improvements overall in comprehension. So that's the second one. So really the learning outcome. But then a few other areas that you should really -- that you're going to be able to watch us focus on I've heard a statistic, I think it was just today that the average district has as many as 1,000 learning tools that are inside of their organization. And that's going to become even more complex. Imagine AI tools sitting inside of a local district or a local university. And so enterprise adoption is going to be a really good focus. We're going to try and simplify for the institution the use of AI, whether or not it's from a cost perspective, whether or not it's from a content perspective, whether it's not from a safety or security perspective. So enterprise adoption is important. And the last thing, the way that we use AI is accelerating our own development and entry into new markets. And so I also expect that our ability to be able to do more supplemental work to be able to do hyper localization, so these markets, entering new markets. When you look at the overall education industry on a worldwide basis is about $7.3 trillion, and it's growing to about $10 trillion by 2030. And so how big can we think and how many markets can we be in and how many educators and students can we serve. I think it's really going to be driven by our harnessing of AI. Marvin Fong: Got it. That's terrific. And second question, maybe Bob can [indiscernible] here as well. In terms of like -- and I know you mentioned we'll be discussing your outlook for next fiscal year in the upcoming quarter. But just as in terms of spending priorities now and where you're focusing your incremental dollars, anything you can kind of help us out there as you balance both product development and obviously maintaining all the great field sales. Just kind of elaborate a little bit more on what your pending clarity [indiscernible]? Robert Sallmann: Yes. And thanks. We definitely have our road map laid out. And as we execute against that road map, we know where we're deploying the product development and technology spend. So we're just adhering to that. There's been no meaningful change. And over time, we expect that to remain to be the 8% to 9%. We don't really see a change in that. Now it may mix shift in where we spend those dollars over time. But as we've gone through our strategic plans and understood sort of where we're spending dollars on that road map, we expect it to remain between 8% and 9%. All of that why we continue to expand margins. So that's the other key point that we want to reiterate is that as we make those investments back into the business, we'll continue to be able to leverage and scale and expand our margins. Marvin Fong: That's great. Operator: Your next question comes from the line of Jeff Silber with BMO Capital Markets. Jeffrey Silber: I know it's late. I'll just ask one. I know you don't give specific guidance for the quarter. but obviously, results were better than expected. Were there any timing issues either in terms of revenue recognition or maybe deferring some expenses into the fourth quarter that we should be aware about? Simon Allen: No, I'd just come back to as we think about the comp that we have in [indiscernible], I just want to reiterate that, that we do have a difficult comp as we think about the fourth quarter. But we're all doing this while we're taking share, and we've seen share gains in all of our businesses. And so as I think about the fourth quarter, really leaning into the RPO, also looking at the early activations that we saw on higher ad positions us to increase our guide, and that's sort of the drivers for us. Jeffrey Silber: So there was nothing specific in the third quarter to call out one time? Simon Allen: Well, let me come back to that reserve. I mentioned it in higher ed. I didn't mention it was about 400 basis points of benefit to us in the quarter. I just want to come back, that is not onetime, if that's what you're alluding to. I mean, we have a mechanical process that we do every quarter, and we disclosed that in the Q. But it was slightly larger than we've experienced in the past. That's why I wanted to call that out. The reason for it being higher is just because of the smaller reserves that we -- returns we experienced in the quarter. And that's why it was notable for us this quarter, and I wanted to call it out. Jeffrey Silber: Really appreciate that. Simon Allen: You bet. Operator: Your next question comes from the line of Henry Hayden with Rothschild & Co Redburn. Henry Hayden: I'd like to add to the congratulations, Simon, on your retirement. I guess to start off, it's great to see leverage continuing to come down towards the target range. Could you please give us an update on capital allocation and how you're thinking about leverage progression from here? And since you commented on it, how are you thinking about M&A in that context? And what sort of assets would be of most interest. Simon Allen: Sure. Thanks, Henry, and thanks for staying up late. First -- our first priority is always the organic opportunities, right? So as we look at where we deploy capital we see organic opportunities to generate the greatest ROI. We'll continue to do those. Those have always been fully funded both in our budget, which -- our guidance for next year as well as our strategic plans. So we'll continue to put our dollars there first. Secondly, it comes back to our commitment to deleveraging. And so you saw that we were at 2.9x leverage at the end of the quarter. And we have a seasonal cash flow, which will result, and that's slightly picking up as we think about both the fourth quarter into Q1. And then ultimately, as we enter the fall, you'll see that, that cash continues to build. However, we're really excited about where we sit in cash, our cash position as well. So we anticipate paying down another $50 million in the fourth quarter. So in addition to the $200 million we paid down in the third quarter, we will be paying down another $50 million here in the fourth quarter, given just the strength of our cash position. And then lastly, around M&A. We're looking at some bolt-on tuck-ins. We have a very active funnel. And I would tell you that they sit in all of our BUs. We're looking at things internationally in the global professional space, higher ad in K-12, both as technology advancements as well as other small tuck-ins. There's nothing transformative in the funnel today, but we'll continue to look at things. And opportunistically, we'll execute when it makes sense, utilizing cash on the balance sheet. But again, we have -- we're excited about where we sit, the investments that we're making, continue to pay down and delever. And just as a reminder, I think it for modeling purposes, as a reminder, Q4 and Q1 represent our cash trough, and then it will continue to cycle back up as we build the RPO in Q2. Henry Hayden: That's very helpful. And then just as a quick follow-up. What sort of appetite are you seeing in the market for Teacher Assistant from the customer side -- and how should we think about the relative growth uplift from that product as it gets a broader rollout kind of in the next year? Robert Sallmann: That's a good one. And it's an encouraging answer. I think, Henry. We Teacher Assistance is designed for exactly what is described -- and it really has been well received to just enable the K-12 teaching community that they're feeling pretty beat enough in many situations. It's been a pretty tumultuous time for a lot of the teachers that particularly since COVID, they're looking for tools that whatever we can provide them that allow them the chance to do classroom preparation activities in a far more straightforward way and a more enthusiastic way for their students. And just a chance to really build course material that they can teach with and utilize external materials as well that we can link towards just helping them find the right use of their time. And it's really important that for us, it's a very competitive tool for us. No one else has anything like this. We're very proud of how it integrates with our materials, our content. And we're very, very pleased with how it's been launched. As you say, it's only recently launched, but the early signals are extremely encouraging for us. Henry Hayden: That's very clear. Operator: Your next question comes from the line of Jeff Meuler with Baird. Jeffrey Meuler: Simon. Welcome, Philip. This question is for Philip. So I hear you on being well positioned with a lot of assets to leverage for the AI opportunity and hear you a lot of clear on the related boats. Just on the comments about continued margin expansion for the enterprise I just want to gauge what gives you confidence that you're spending at the appropriate level to fully harness the AI opportunities? Philip Moyer: Well, I've been here for 3 days. This is my third day. So I got the confidence of 3 days. So I officially started on Monday. But what I would say to you is that already my exposure around the efficiency and also the effectiveness of the development teams. I mentioned before, we've been able to release a record number of AI tools over about the past 12 to 24 months. And these are good tools. They're tackling really difficult problems. And so I'm excited, first and foremost, around the talent that's inside of the organization. The second thing is that we're not just talking about building AI. We're also using AI ourself, and we're also using cutting-edge tools. We're using processes -- we are educating ourselves and we have a culture of learning internally around the use of these tools. And I could not be more happy to be following Simon and Bob and the work that's been done over these past 5 years to really get, I'll say, the cost structure in line with where it should be. This is -- when you really look at our gross margins, and you also look at our overall margins. We are set up to be a next-generation company, probably better than most of our peers in the industry based on the cost that we've taken out and also the innovation and the increases in the development teams and also the improvements in development processes that we've already built, and really evident to me that we've got a technology and digital-first culture here. Jeffrey Meuler: Appreciate the perspective 3 days in. And then just there was a comment about no material impact from proposed federal education policy changes. There's also been some government shutdowns and there's been some headlines around like federal student at disbursement around those things. Just, I guess, what are you still watching for potential impact? Or I guess, similar question, level of confidence that the risks related to that and risk related to the changes around Department of Education are not going to impact you? Simon Allen: Yes, it's a good one. I mean without being naive, it really is true that we've seen no damage to our business. We obviously look with great interest of what's happening and that you mentioned the formative [indiscernible], that is a good example. But honestly, it's made no difference to our business whatsoever because how we operate is very much directly with the school districts or with the states in the case of K-12, directly with instructors and institutions in higher education, and this is true around the world. And clearly, there is no desire for any government or any federal or governmental institutions to want to remove the focus on education, they would never get reelected again. So we don't see the effect on our business whatsoever. Where we describe ourselves, as you remember, it's a very defensible company because the resiliency that we have. So the defense that we have is simply that our products are needed by school, by students, by universities and colleges globally, medical schools and while that happens, there is no government intervention that will damage our business because the core of what we offer is so important to every aspect of society. Robert Sallmann: And as a reminder, Jeff, there's a very small amount of strict budgets come from the federal government as well. Operator: Your next question comes from the line of Josh Chan with UBS. Joshua Chan: Congrats, Simon and welcome Philip. I'll just ask one to Simon. I guess, historically, in your experience as you gain share in higher ed, does it become easier or harder to keep gaining share? I guess I'm just asking kind of a momentum question. And then what does it take to kind of keep up the momentum? Simon Allen: That's a good question. What I would say is -- and I've done this for 40 years in August, actually, Josh, 40 years on August [ 16 ], if you want to be precise. And I can tell you that since I've been in higher education and the momentum that you get is a joyful situation because you -- it really does success breeds success. And the reason is that you have, for example, the growth we've seen in inclusive access. And you heard Bob earlier talk about continued growth well beyond 20% yet again this quarter. You look at what that does, as you realize that the land-and-expand strategy with inclusive access gives you a far greater number in the second and third year of the institution's use of Inclusive Access. That momentum just continues and continues in a wonderful way. when you provide products like Evergreen or solutions like Evergreen that allow our professors to immediately continue with our product. It frees up time for our reps to go after new business. that, again, creates momentum, and we're seeing that already when we look at the pipeline very early in the selling season, but we see that already as we think about the year ahead. And then with higher education, when you start to get a greater presence on the college campus in any discipline in any department, it just grows and you find that you almost flower as you go through the selling season and you get to a level of maturity that's quite joyful to see. And really success breeds success. It's why we've had continued market share growth every quarter I've spoken to you and why that will continue. And we're very proud of our higher ed business, and we're taking substantial market share as you've seen. Joshua Chan: Congrats on your accomplishments, Simon. Simon Allen: Thank you very much, Josh. That's very kind. Operator: Your next question comes from the line of Toni Kaplan with Morgan Stanley. Toni Kaplan: Congrats on the quarter and also on Simon, on your retirement. It's been great working with you. You mentioned the strong stats on McGraw Hill plus with the 86% increase in district access and 40% increase in average time spent. Just to get maybe a little bit of additional context. Hoping to understand what the penetration rate is across the business from the school districts for that and how the forward pipeline looks for the platform? And is it -- I know in the past, like when you're signing new K-12 districts and trying to retain old ones, I think largely, the retention hasn't necessarily been a big thing, but could this change that dynamic where you do start to see more retention of old districts because they like that personalization. Simon Allen: That's a very thoughtful question, Toni. And let me start -- the latter statement, I think, is what you've hit on is so crucial for us. When you think about why we created McGraw Hill Plus initially in mathematics, as you know, and now extending into ELA and other disciplines quickly and going from just a handful of states now to more than -- getting on for dozen, I think going forward. The reason that we're so excited about this product and you touched on it, is that once you get integrated with McGraw Hill Plus and you utilize the data and you can see just how your students in the classroom are performing, and you can look at that knowledge graph and recognize every component of the education system that the students have succeeded with and where there may be gaps that data becomes very -- in a positive way, very addictive. And the only way that you continue to -- you can continue to understand how your class is performing is by continuing to use our products and particularly with McGraw Hill Plus, the integration with that data-driven tool alongside our core product alongside our supplemental, if you think of math, you've got reveal map or everyday math, and then you've got ALEKS as a supplementary product. And then you've got all of the data provided with those tools on McGraw Hill Plus then you start to utilize that year-on-year. It's very difficult to leave because you rely on the data, you rely on what it tells you about your students performing. And as you move a student from second grade to third grade to fourth grade, you can track their progress in a wonderful way, this longitudinal student record is very attractive to the schools themselves. So you hit the nail on the head. It is that ability for us to truly integrate the products that will increase retention because the products and the solutions we provided will really be very difficult to live without once you've integrated them in. Toni Kaplan: Great. And then just as my follow-up, I think in past quarters, we've sort of talked a lot about the ability to use AI across the business through scribe I sort of noticed that scribe hasn't really been mentioned. I know you've talked about margin expansion, so not trying to sort of imply that you're not seeing margin expansion. But I guess, trying to understand if Scribe is going to be a big driver? Is it still -- like any update on it? Should we not be thinking about Scribe as sort of 1 of the biggest levers for margin expansion? Or maybe we're just talking about it in a different way. So just want to understand that. Simon Allen: Yes. And Tony, yes, so we didn't specifically call it out. We continue to lean in to Scribe. We continue to find new use cases every day. And so we were gathered today and meeting Scribe as a big portion of our discussion. So we see it as a meaningful opportunity for us to continue to reduce cost and accelerate time to market. It will be something you'll continue to hear us talk about as we move forward. But we're still in the early days of the use cases and actually seeing the cost savings. But we still are very excited about that opportunity, and we'll continue to talk about it going forward because it is a meaningful opportunity for the business. Toni Kaplan: Perfect. Congrats gain. Simon Allen: Thank you. Operator: Your next question comes from the line of David Karnovsky with JPM. David Karnovsky: Maybe just following up on supplemental within K-12. Can you just update on the ongoing crossing opportunity there? And what the uptake has looked like recently for products like ALEKS? Simon Allen: Yes. It's a good one. I mean, David, again, ALEKS is a very good example for the supplemental intervention sector. I mean, for us, ALEKS, is we've owned it since 2013. It's been around since year 2000 and it is a tremendous tool that provides students in math and now chemistry, the ability to either with their teacher or really self-directed, understand how they're progressing as they learn math having directive question-and-answer processes to really enhance their learning and focus them in ways that's very personal because it can tell you exactly where you've made a mistake as you go through the workings of any answer. And ALEKS, for us, not just in K-12, but also very much in higher education, that the placement tool that we use, the placement program it allows instructors to understand the level of performance they can expect out of their students. And it really is the -- it's the backbone, frankly, of our supplemental business for that. But -- let's not forget what we've accomplished with Achieve3000 for literacy and the reason that we made that acquisition some 5 years ago now, was really to augment our position in the supplemental there. and give us strength, not just in math, but then also in literacy and with Achieve3000 and actively loan, we've done exactly that, and we're very pleased with the growth that we've seen. And the ability to serve all of our customers, it's not just about being the leading core provider as in K-12, as you know, McGraw Hill already is. But it's also about providing supplemental material to help students beyond the core. And that's something that we focused a lot of attention on. We see a lot of growth coming from that sector, David. And I think it's exciting for us. Core is still the majority of our K-12 business. but we definitely see serious growth opportunities ahead in supplemental and intervention. Robert Sallmann: And I'll add, that's where we saw us expanding our portfolio ahead of the larger market opportunities in Math. So we have a full portfolio to address that opportunity, which is exciting for us. I think we're very well positioned as we think about the coming years. Operator: Your next question comes from the line of Faiza Alwy with Deutsche Bank. Faiza Alwy: I was also going to ask actually about the supplemental. And I think you addressed it on the prior question, but -- just specifically, I was curious, you mentioned the stat around 1,000 different tools that sit inside the average district. And I was curious, like, what do you think the real limitation is to kind of moving that or integrating that within the McGraw Hill offering. And I guess I'm just surprised that we still have that many tools. So I'm just curious if there is a limiting factor that the opportunity seems quite compelling. Simon Allen: Yes. That's -- you're exactly right. We too, frankly, Pfizer, we were also surprised. I mean, it's a bit of an outrageous statistic to be honest. And you imagine for schools, just how do they cope with that level of supplementary material or tools that they are expected to review? I mean, it's impossible to think about. I think like we do with a lot of the AI material that we've provided and you know this, the focus is on providing teacher relief. It support for the teacher, giving them more time to be with their students directly and that's never more evident than right now when you look at the number of applications they have to work through. It's become unwieldy. I think you could say that the core market in K-12, Pfizer, you know this, the moats that we have is very deep and very wide. And it's a very difficult segment for any company just to enter. When you look at supplemental intervention, there are dozens and dozens and frankly, hundreds of different companies. And I think that's where you get the overload of applications that may be where the school districts are going to struggle. There's just too much to review. Our job is to make sense of the chaos quite frankly, and I think we can do that very effectively because no one understands the teaching community, the community better than McGraw Hill, no one understands the product needs that they have that are genuinely helpful in how they teach and, it's all about the efficacious delivery of materials in a simplified way to help the teacher get through the day and really flourish with their students. That's why we're very optimistic as we think about simplifying the choices and making them better and easier for the teachers going forward. Faiza Alwy: Great. That makes sense. And just -- I wanted to also ask about higher ed, right? I'm trying to reconcile some of your comments. And I know, Bob, you talked about a decline in revenue because of the tough comp. So -- but if I look at the numbers and not to get into the modeling details, but -- if I look at what you did in 4Q last year and what you did this quarter, it's not that different, you're still growing 24-something percent. So -- and I know you sound really good about the higher ed opportunity. So really just trying to reconcile sort of your optimism around the ability to continue to gain share versus sort of you talking about tougher comps. Simon Allen: Sure. And I think we are very confident about the takeaways that we've seen, our ability to continue to take share. So that we're unwavering around that. There is some nuances as you think about our billings versus our revenue. You have contract duration and some mix. All of those things sort of result in some of these different comps that you're seeing. That's why I think it's important when you reflect on the full year when we're sitting having this conversation in June, and you'll reflect on that and said, okay, it's double-digit growth both in the billing and in revenue, which will -- reflect more of a normalized basis, right? And I'll take some of that noise of the contract duration out of that equation. But again, we feel very confident in our ability to continue to take share and our ability to continue to grow regardless of enrollment. Robert Sallmann: I think -- Faiza, I think just to be clear, I think some of the confusion may be we look at all of our business on an annual perspective, as you know. And I think when you try and analyze quarter-by-quarter, it can be unhelpful, frankly. And I think Bob is saying we're not going to end the year at 24% up. I don't think that would surprise anybody. But we look at our annual performance, it's how we operate. The quarter is important for you to understand, and that's why we try and explain the way issues as Bob has in their reserve case in this situation right now. But in terms of our higher performance, we will continually outperform our competitors, and we will absolutely show growth far higher than any other competitor once again. Operator: There are no further questions at this time. I'll now pass it back to Simon Allen, Chair of the Board of Directors for closing remarks. Simon Allen: Thank you very much, and thank you all for dialing and I know it's very late for some of you. And I appreciate very much you so many kind comments. And retirement is going to be interesting for me. I've got 3 -- I just had my third grandchild a couple of months ago, I've got a fourth coming in May. I am swimming in grandchildren. So I need an escape path. And many of you that have young children know that, but any [indiscernible] grandchildren. And my escape part is going to be a joyful Chair of this wonderful company. I will look forward very much to working very closely to Philip ongoing. I've got so much invested in this company, and I'm looking forward very much to being -- having the honor, frankly, of being Chair of the Board. And I look forward to further interactions. But if I may, I'm going to pass over to Philip Moyer, our CEO, to close this out. Philip Moyer: Thank you, Simon. And before you're completely comfortable with that chair seat. I have to just say a very, very big thank you to you. you have impacted hundreds of millions of students and teachers lives over your career, and we're incredibly grateful for that. You've impacted tens of thousands of McGraw Hill employees, your friendship, your leadership is just simply stellar. And finally, on behalf of shareholders and the Board, I want to thank you for being such an incredible steward of the red cube and of this company and setting us up for the next generation. It can be more honored to be following you, and thank you for staying on as Chair. Simon Allen: Thank you, Moyer. Philip Moyer: And thank you, everyone. Back to you, moderator. Thank you. Operator: Thank you. That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.
Operator: Welcome to Cisco's Second Quarter Fiscal Year 2026 Financial Results Conference Call. At the request of Cisco, today's conference is being recorded. If you have any objections, you may disconnect. Now I would like to introduce Sami Badri, Head of Investor Relations. Sir, you may begin. Ahmed Sami Badri: Good afternoon, everyone. This is Sami Badri, Cisco's Head of Investor Relations. I'm joined by Chuck Robbins, our Chair and CEO; and Mark Patterson, our CFO. Cisco's earnings press release and supplemental information, including GAAP to non-GAAP reconciliations, are available on our Investor Relations website. Following this call, we will also make the recorded webcast and slides available on the website. Throughout today's call, we'll be referencing both GAAP and non-GAAP financial results. We will discuss product results in terms of revenue and geographic and customer results in terms of product orders unless stated otherwise. All comparisons will be made on a year-over-year basis. Please note that our discussion today will include forward-looking statements, including our guidance for the third quarter and fiscal year 2026. These statements are subject to risks and uncertainties detailed in our SEC filings, particularly our most recent 10-K and 10-Q reports, which identify important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements. With respect to guidance, please also see the slides and press release that accompany this call for further details. Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. Now I'll turn it over to Chuck. Charles Robbins: Thanks, Sami, and thank you all for joining us today. Q2 was a very strong quarter with revenue and earnings per share both growing double digits and coming in above the high end of our guidance ranges. We delivered record revenue in Q2, putting Cisco on track to deliver our strongest year yet as indicated in our guidance for the full year. In Q2, total revenue growth accelerated to 10% year-over-year with product revenue up 14%, driven by robust demand for AI infrastructure and Campus networking solutions. Our strong top line performance, combined with operating efficiencies and solid execution by our teams contributed to non-GAAP EPS growth of 11%, which continued to grow faster than revenue. This strong performance allowed us to return $3 billion in capital to shareholders in the quarter, bringing the total value returned year-to-date to $6.6 billion. Today, we also announced an increase to Cisco's dividend, demonstrating our commitment to returning value to shareholders through consistent capital returns. Our innovation engine is firing on all cylinders, and our commitment to customers has never been stronger. Last week, Cisco hosted its AI Summit, gathering AI visionaries and geopolitical experts to explore the economic, societal and business impacts of AI. While it was clear that expectations for adoption and execution are high, one major challenge still exists. Legacy infrastructure was not designed for the performance, speed and security needs of AI. Our strong first half of FY '26 demonstrates both the power of our portfolio and the fundamental role we play in this once-in-a-generation transition. With our industry-leading networking portfolio powered by Silicon One, AI native security solutions and operating systems, Cisco is well positioned to provide the critical infrastructure needed for the AI era. I'd also like to address the recent significant increases in memory prices across the market. Leveraging our industry-leading supply chain team, we are proactively implementing 3 key strategies: First, we have already announced price increases, and we'll continue to monitor market trends and make additional adjustments as necessary. Second, we are revising contractual terms with channel partners and customers to address evolving component prices. Third, Cisco's operating scale and industry-leading position help us negotiate favorable terms and secure supply to fulfill current and future demand. Overall, we feel confident in our ability to manage this industry-wide dynamic better than our peers. Now let me comment on the strong demand we saw in Q2. Overall, total product orders grew 18% year-over-year, even on top of double-digit growth in Q2 fiscal year '25. Excluding hyperscalers, product orders were up 10% year-over-year, demonstrating the broad-based demand we see for our technology globally. Enterprise product orders were up 8% year-over-year in Q2 with strength across our entire networking portfolio. Public sector orders were up 11% year-over-year with double-digit growth across all geographies. Product orders from service provider and cloud customers accelerated in Q2, growing 65%, driven by triple-digit order growth across hyperscalers. We also saw continued growth from telco and cable customers in Q2 with orders up almost 20% on a combined basis. Now some color on demand from a product perspective. Growth in networking product orders continued to accelerate, reaching more than 20% in Q2 and marking the sixth consecutive quarter of double-digit growth driven by service provider routing, data center switching, campus switching, wireless, servers and industrial IoT products. Within our Campus networking portfolio, we are seeing strong demand for our next-generation switching, routing and wireless products, which continue to ramp faster than prior product launches. We are delivering AI native capabilities across these products, including weaving security into the fabric of the network and modernizing the operational stack of Campus networks. These new capabilities, combined with an installed base representing tens of billions of dollars across early catalyst generations nearing end of support, underpin the multiyear, multibillion-dollar refresh opportunity for Cisco. We continue to see strong demand for our industrial IoT portfolio, which has now grown double digits for 7 consecutive quarters. This demand is driven by onshoring of manufacturing to the United States, the increase of AI workloads at the network edge and the emergence of physical AI. AI infrastructure orders taken from hyperscalers totaled $2.1 billion in Q2 compared to $1.3 billion just last quarter and equal to the total orders taken in all of fiscal year '25, marking another significant acceleration in growth across our silicon, systems and optics. We shipped our 1 millionth Silicon One chip in Q2 and plan to deploy our Silicon One architecture across our high-performance networking systems by fiscal year '29. Just this week at Cisco Live Amsterdam, we introduced our 102.4 terabit per second G300 chip, positioning Cisco in an exclusive group of silicon providers delivering over 100 terabits per second switching speeds. In addition, we launched 4 new systems powered by G300. The Cisco 8000 and Nexus 9000 102.4 terabit systems offer flexible air-cooled options for traditional data center architectures as well as liquid cooled option designed for the latest ground-up facilities. Silicon One's programmability puts Cisco silicon in a class of its own, capable of adapting to a wide range of use cases and network infrastructure designs. We also announced 2 new pluggable optics, a 1.6 terabit per second OSFP and an 800-gig LPO, both built with Cisco silicon photonics technology, delivering greater efficiency and reliability in high-performance AI infrastructure. Acacia reported its strongest quarter to date with triple-digit growth in bookings. All major hyperscalers are deploying its market-leading coherent pluggable optics for data center interconnect and scale across use cases. We see growth in both 400-gig and 800-gig coherent optics and transponder shipments with 800-gig pluggables ramping significantly. Given the strong demand for our Silicon One systems and optics, we now expect to take AI orders in excess of $5 billion and to recognize over $3 billion in AI infrastructure revenue from hyperscalers in FY '26. Beyond hyperscalers, we have a separate AI opportunity across neocloud, sovereign and enterprise customers. We took $350 million in AI orders from these customers in Q2 and have a growing pipeline in excess of $2.5 billion for our high-performance AI infrastructure portfolio. We continue to develop our strategic partnerships to capture this opportunity. In Q2, we announced plans to form a joint venture with AMD and HUMAIN to deliver up to 1 gigawatt of AI infrastructure by 2030. This joint venture expects to begin operations this calendar year with a plan to build out 100 megawatts in Saudi Arabia as Phase 1 of the project. We are seeing strong interest from European customers in our sovereign critical infrastructure portfolio designed to operate in air-gapped on-prem environments, giving organizations control over sensitive data and critical infrastructure. As AI adoption accelerates, concerns over privacy, data governance and regulatory compliance are top of mind for our customers, making sovereign solutions an essential foundation for building digital trust. Now shifting to Security. In Q2, we continued to see order growth across our new and refreshed products, which represent roughly 1/3 of our security portfolio and include Secure Access, XDR, Hypershield, AI Defense and refreshed firewalls. Excluding the refreshed firewalls, over 1,000 new customers purchased these products in Q2, representing more than 100% growth quarter-over-quarter and bringing the total of net new customers since launch to roughly 4,000. We have also seen 3 consecutive quarters of double-digit growth in the number of firewalls ordered. For Secure Access specifically, we booked over 2.5 million users in Q2 and more than 50% of added customers were new logos. As the adoption of AI tools grow and Agentic AI increases at the network edge, we expect to see continued momentum in our SASE business, including Secure Access and SD-WAN. As mentioned in prior quarters, growth in our new and refreshed portfolio continues to be offset by a decline in our prior generation portfolio. Turning to Splunk. We saw a similar trend in Q2 as seen in Q1 with continued acceleration to cloud subscriptions and fewer on-premise deals. While this shift is creating a drag on revenue growth, which we expect to continue in the second half of fiscal year '26, cloud subscriptions enable greater adoption, expansion and faster delivery of innovation to customers. So overall, we are pleased with this transition. Splunk also continued to win new customers in Q2, reaching 500 new logos for the first half of fiscal year '26 and is on track to add 1,000 new logos for the year. We are accelerating our innovation across our offerings, both for and with AI. At Cisco Live Amsterdam this week, we unveiled major AI defense and SASE advancements to help secure organizations as AI agents enter the workforce. AI Defense can now scan models and repositories for vulnerabilities and provide an AI bill of materials for centralized governance. In Cisco SASE, we launched a new semantic inspection engine that can evaluate the intent of Agentic interactions and block sophisticated context-dependent threats. We are also making AgenticOps the operating model for AI-driven IT to enable autonomous troubleshooting, continuous optimization and trusted validation. We are deploying AI agents to work hand-in-hand with human administrators within our product dashboards, AI assistant and AI Canvas. We continue to make AI advancements internally with expanded use cases in Q2 across nearly every organization. Today, the majority of our product developers are using AI coding assistant and working alongside agents, which help us innovate faster across our portfolio. Currently, over 90% of customer experience support cases are touched by AI and automation, enabling us to resolve a greater proportion of complex cases within 1 day and contributing to our highest ever customer satisfaction scores. Additional use cases across sales, security and trust, supply chain and corporate functions are also providing significant cost savings and efficiency gains. To summarize, we see strong demand for our solutions across all customer markets and geographies, solidifying Cisco's role in providing the critical infrastructure needed for this once-in-a-generation transition. The value of our innovation is exemplified by Silicon One, which positions Cisco for the broadest range of AI deployments, even the most technologically challenging. And with over 40 years of customer trust and global scale, Cisco is committed to leading in the AI era to drive breakthrough innovation, manage complexity and risk and deliver faster business outcomes to customers globally. Now I'll turn it over to Mark for more detail on the quarter and our outlook. Mark Patterson: Thanks, Chuck. We delivered another strong quarter with record revenue in Q2 and both operating margin and earnings per share coming in above the high end of our guidance. For the quarter, total revenue was $15.3 billion, up 10% year-over-year. Non-GAAP net income was $4.1 billion, up 10% and non-GAAP earnings per share was $1.04, up 11%, demonstrating continuing operating leverage with non-GAAP earnings per share growing faster than revenue. Looking at our Q2 revenue in more detail. Total product revenue was $11.6 billion, up 14% and services revenue was $3.7 billion, down 1% year-over-year. Networking was again the standout with growth of 21%, driven by AI infrastructure and campus refresh. We saw double-digit growth in campus switching, data center switching, wireless, service provider routing, enterprise routing and compute. Security was down 4%, reflecting similar dynamics discussed last quarter with declines in prior generation products and the transition in our Splunk business from an on-prem deal to cloud subscriptions, partially offset by growth in new and refreshed products. Collaboration posted solid growth of 6%, led by double-digit growth in devices as well as growth in CPaaS, Webex and Cloud Contact Center. Looking at our recurring metrics. Total RPO was $43.4 billion, up 5%. Product RPO grew 8%, of which the long-term portion was $11.8 billion, up 11%. Total ARR ended the quarter at $31 billion, an increase of 3% with product ARR growth of 6%. The subscription revenue -- total subscription revenue was $7.8 billion and represented 51% of Cisco's total revenue. Total software revenue was $5.7 billion, up 2%. Q2 product orders were up 18% year-over-year. Product orders were up double digits across all geographic segments with the Americas up 23%, EMEA up 11% and APJC up 15% Product orders were also up across all customer markets with service provider and cloud up 65%, public sector up 11% and enterprise up 8%. Total non-GAAP gross margin came in at 67.5%, down 120 basis points year-over-year. Non-GAAP product gross margin was 66.4%, down 130 basis points, primarily driven by negative impacts from mix and higher memory costs, partially offset by productivity improvements. Non-GAAP services gross margin was 70.9%, down 70 basis points. We continue our focus on enhancing profitability and driving financial discipline with non-GAAP operating margin at 34.6%, above the high end of our guidance range. Our non-GAAP tax rate was 19% for the quarter. Shifting to the balance sheet. We ended Q2 with total cash, cash equivalents and investments of $15.8 billion. Operating cash flow was $1.8 billion, down 19% due to the final transition tax payment of $2.3 billion from the 2017 Tax Cuts and Jobs Act and continued investments to meet growing overall demand as well as specifically for AI infrastructure. From a capital allocation perspective, we returned $3 billion to our shareholders during the quarter, comprised of $1.6 billion for our quarterly cash dividend and $1.4 billion of share repurchases with $10.8 billion remaining under our share repurchase program. Given the confidence we have in our business and the strength of our ongoing cash flows, today, we announced that we are raising our dividend by $0.01 to $0.42 per quarter. This dividend increase demonstrates our commitment to returning a minimum of 50% of free cash flow annually to our shareholders. To summarize, we had another quarter with top and bottom line performance exceeding our expectations, driven by strong order growth and robust margins, all demonstrating the power of our innovation engine to drive strong top line growth as well as operating leverage to fuel profitability. We remain focused on making strategic investments in innovation to capitalize on the significant growth opportunities that we see ahead. This will continue to be underpinned by our commitment to disciplined spend management and this powerful combination that continues to fuel strong cash flow and our ability to return significant value to our shareholders. Turning to guidance. Please note, our Q3 and fiscal year 2026 guide assumes current tariffs and exemptions remain in place through the end of fiscal 2026. These assumptions remain unchanged from prior guidance. Looking ahead, you can expect us to continue our focus on durable growth with financial discipline driving operating leverage and continued capital returns. For fiscal Q3, our guidance is as follows: we expect revenue to be in the range of $15.4 billion to $15.6 billion. We anticipate non-GAAP gross margin to be in the range of 65.5% to 66.5%. Non-GAAP operating margin is expected to be in the range of 33.5% to 34.5%. Non-GAAP earnings per share is expected to range from $1.02 to $1.04. We are assuming a non-GAAP effective tax rate of approximately 19%. Cisco is positioned for its strongest year ever as indicated in our guidance for fiscal year 2026, which is as follows: we expect revenue to be in the range of $61.2 billion to $61.7 billion. Non-GAAP earnings per share is expected to range from $4.13 to $4.17. Sami, let's now move into the Q&A. Ahmed Sami Badri: Thank you, Mark. [Operator Instructions]. Operator, can we move to the first analyst in the queue? Operator: Amit Daryanani with Evercore ISI. Amit Daryanani: I guess my 2 questions, maybe the first one, you folks obviously have very solid momentum on the AI side with a $5 billion AI target for fiscal '26. Can you just help us think about the mix between Silicon One versus Optics in the book? And then really, as you think about some of the newer products like the G300 and the P200 on the Silicon One side, do you see these opening up incremental markets or workloads for Cisco? Or is it more about deepening your existing relationship? I'd love to just kind of understand that side. And then maybe on a follow-up, Mark, you just touched on the gross margin decline in April. I assume it's all memory related, but would love to just understand what's happening there. And if you feel like that's a trough on the gross margin and memory issues or not. Charles Robbins: Amit, thank you very much for the question. So on the AI infrastructure side, the $5 billion that we now have raised our estimates to during fiscal 2026 does not include any of the recently announced P200 products, nor G300, also neither of the Optics solutions that we announced this week at Cisco Live EMEA. We talked about this past quarter, the mix was 60% systems, 40% optics. And I think that's been reasonably consistent over the last few quarters. Your final question about whether these open up new markets, I think these will allow us to continue to sell next-generation solutions across our existing customer base, and I think it will continue to help us gain traction with the neoclouds, the sovereign clouds, et cetera, help us get the scale across technologies out and continue to sell these solutions to existing customers as well as new customers. But just to reiterate, P200 and G300 are not in the $5 billion expected for fiscal '26. Mark? Mark Patterson: Yes. Thanks, Amit. And I'll take the gross margin question. So really, as you look at the Q3 guide, there's 2 primary things at work. One is mix and the other is memory prices, as you mentioned. First off, I just want to acknowledge the significant growth in hardware that we're seeing across our existing and new platforms that have been introduced and the fact that they're accelerating much faster than previous launches. Secondly, in terms of memory, we're going to control what we can control. And Chuck talked a little bit about the fact that we've already announced price increases. We're going to stay very close to that and adjust as needed going forward. Secondly, there's some Ts and Cs with partners and customers that we're going to adjust to really bolster our position there. Thirdly, it's really leaning into our financial strength and our world-class supply chain. If you look at it, it's evidenced by our advanced purchase commitments that just in the last 90 days are up $1.8 billion. If you look at it on a year-over-year basis, they're up about 73%. A big chunk of that is around memory. And then lastly, I think in terms of focusing on what we can control, we're focused on financial discipline and profitability. And we're focused on growing EPS faster than revenue. You saw that in Q1. You saw it in Q2. And it's also in our full year FY '26 guide. And if you -- we don't guide Q4, but if you go sort of back into the implied guide for Q4, you see it there as well. Operator: Tal Liani with Bank of America Securities. Tal Liani: I have 2 questions. The first one is, when I look at product revenue growth, the entire outperformance came from networking, which grew 21.1%. Can you drill down and tell us -- you spoke about orders in the prepared remarks. Can you speak about revenue growth? How did the various segments of networking grew? And where did the outperformance came from? The second one is I can back out your 4Q guidance. And when I look at the sequential growth from Q3 to Q4, it's only 1.4%. So normally, it's 5%, 6%. This is a seasonally strong quarter. So why is it so low? Is it just conservatism? Or is it -- is there a growth concentration in the next 2 quarters? Mark Patterson: Yes. So thanks, Tal. Really, across networking, we're seeing strength, frankly, across the entire portfolio from the Campus to the data center, to the manufacturing floor in terms of our IoT offerings as well. So you're seeing very strong growth. Again, we talked about data center switching being 6 out of the last 8 quarters, double-digit growth. It was double-digit growth this quarter. You're seeing strengthening again in the campus and a move to these new platforms that's faster than previous launches. And I think your second part of the question was really just around seasonality. Is that right? Tal Liani: Yes, sequential seasonality. Mark Patterson: Yes, sequential. So if you look at it, the product revenue typically is kind of down mid-single digits quarter-over-quarter, and we were up 5%. And as you look at Q3, really the typical seasonality is kind of low single digits. And that's right where we are despite the fact that we had a huge Q2 in terms of year-over-year growth, 14% and also seasonally a very strong quarter in Q2 as well. So we feel pretty good about the Q3. Charles Robbins: Yes. One other comment, Tal, I'd make on that is that I think with the nonlinear nature of the hyperscaler business, it creates a little bit of uncertainty relative to our historical numbers that you're so used to seeing. Operator: Ben Reitzes with Melius Research. Benjamin Reitzes: I want to ask the gross margin in a different way. Backing into the EPS guidance, it seems like EPS is a little higher than where the Street is in the fourth quarter, maybe a couple of pennies. And that would imply that the gross margin is expected to trough and get better? Or is that just due to operating margin? And then I was wondering if you could address that. I think the first question talked about the trough. But if I look at the guidance that way, something is getting a little better on the operating margin line. Is that from cost cutting or gross margin in the fourth quarter? And then I have a follow-up. Mark Patterson: Yes. Thanks, Ben. So on gross margin, certainly, a lot of what we talked about relative to what we can control and some of the memory price increases that we've seen, some of that is just timing. So we think that, that will improve as we move forward. And then certainly, we're not here to talk about FY '27. But as you get into FY '27, we think that software growth will improve as well, and that will certainly help us. Charles Robbins: You had a second question, I think, Ben. Okay. Ahmed Sami Badri: Ben, we can catch up with you afterward. Operator: Aaron Rakers with Wells Fargo. Aaron Rakers: I guess I want to go more into the architecture stuff, Chuck. As we think about the AI networking opportunity and the traction that you've been seeing, I'm curious of your updated thoughts on how you view scale up as an opportunity for Cisco. What have you been doing? When does that start to maybe materialize if you see that as a large opportunity? And as my second question, I'm curious, given the traction you're seeing in the neoclouds and the sovereign opportunities, just maybe an update of the relationship, the engagement you've had with NVIDIA and how much that started to become maybe a driver outside of the hyperscalers? Charles Robbins: Yes. Thanks, Aaron. So we haven't made any announcements on scale up. I think in the past, I've said we do plan to participate in it, and we expect in the future to have products and revenue from scale-up, but haven't announced anything. So I would say stay tuned on that front. On the enterprise, sovereign and neocloud space, the first thing I would say is that the sovereign side, there's really no real need nor expectation for meaningful impact in FY '26. And so we don't need that to actually accelerate for the guide that we've provided. It's purely upside. And then the neoclouds, I'd say, are generally the same. We expect the ramp to begin in the second half, but really be FY '27. As it relates to NVIDIA, I think we had a quarter where we really began to see the acceleration of the engagements. We track the number of engagements we have in the field with NVIDIA. And while it was not a massive number leading up, we increased it by 70% from -- sequentially. And so we see those engagements continue to increase. We had -- obviously, Jensen was recently with us at our AI Summit and talked about the power of their GPU and compute with our networking and security, which was emblematic of the relationship and why we're doing it. So we're starting to see some early, early success there, and I think it will only ramp from here. Operator: Meta Marshall with Morgan Stanley. Meta Marshall: Maybe building on that last question, just kind of the -- coming out of that AI Summit, clearly talking to a lot of customers. Just where are you seeing or how evolved is that enterprise appetite for investment? Or when do you think that, that kind of enterprise AI story takes off more? And then maybe just a second question, just in terms of the price increases, any demonstrable kind of change to demand or forward ordering that you saw as a result of that? Charles Robbins: I'll take the first. You take the second. Okay. So on the AI front, I think, first of all, on the AI Summit, I think if you looked at the lineup of representation that we have there, I think it speaks to the partnerships that we've built and the role that the entire ecosystem thinks that we're going to play across that ecosystem. So we were really excited about that and got a lot of positive feedback. On the enterprise side, what we're seeing is early use cases around things like quant, fraud detection, video analytics. We're seeing it across financials, manufacturing, pharmaceuticals. I also see examples in retail where you have -- they're leveraging agents on mobile devices in retail to help their staff do a better job engaging with their customers. And I think you can see the way this is playing out, we're seeing a combination of both investment in cloud-based architectures as well as on-prem. I think if you look at our data center switching business, which is enterprise focused, we've had double-digit order growth 6 out of the last 8 quarters, and we still had positive growth in the other 2. So we continue to see meaningful investment in private data centers to support these applications. Mark Patterson: Yes. Meta, on the second part of your question, around pull forwards, we really didn't see anything in the quarter that would point us to evidence that there were any significant pull forwards there at all. We looked at the typical things in terms of linearity in the quarter. We had -- frankly, we had good double-digit growth as we move through the entire quarter. We looked at whether we had any pipeline pull forwards from future quarters, didn't really see that, looked at software activations, as you'd expect, channel checks and whatnot. And we actually saw the pipeline begin to build really in the out quarters rather than being pulled forward. So feel good about that. And in terms of the price increase and whether or not it sort of lands with customers, I would say as you talk to customers, I think they understand it. They understand this is industry-wide. And I don't -- I haven't talked to any customers that are really willing to delay or defer any sort of strategic investments that they're making in technology. And I think there's no concern that we've seen there yet whatsoever. Charles Robbins: I would just add to that, Mark. Mark and I had lunch with one of our absolute biggest customers yesterday here on our campus, and we had a very detailed discussion about the different dynamics that are happening in this space and the pricing pressure. And they completely understood and are going to work with us to actually make sure that the entire partnership actually continues to work for both of us. So I think customers -- it's an industry-wide issue. Customers get it. And while they may not like it, they understand that it's a dynamic that we're all dealing with. Mark Patterson: I think, frankly, also a lot of them understand that we'll probably be able to manage this a lot better than some of our peers, too. So we'll get through this together. Operator: Our next caller is David Vogt with UBS. David Vogt: I have a 2-parter around the order numbers. So one, I appreciate the strength that you guys reported in AI orders. But it certainly sounds like the over $5 billion of order numbers sounds a bit conservative given the momentum that you're seeing in sort of the CapEx programs that have been announced over the last couple of weeks. So maybe if you could talk to why that number is only moving up to in excess of $5 billion. I think you said in the past it would double the prior year. And then along those lines, I think you also mentioned that you're only going to recognize over $3 billion in AI-related revenue this year. And I think previously, you had said about $3 billion. So does that suggest that the timing from a revenue recognition perspective shifts into fiscal '27 and gives you more visibility from an AI infrastructure revenue perspective next year on top of the growth that you're seeing here in '26? Charles Robbins: Mark, I'll take the orders and you take the revenue one. I think -- thanks, David, for the questions. On the AI orders and the $5 billion, I think the thing to really remember about these customers is they're nonlinear. So -- and you just have to -- it's quite lumpy. There's only -- there's less than a handful of these major customers that are placing these orders. So we're giving you that number based on the pipeline we see. Clearly, our teams will be working to make that number as big as they possibly can, but that's what we see today. And we just wanted to give you as close to a real number as we could see today. I didn't mention earlier, but I would also call out that during Q2, we actually won 3 new use cases. across these major players. So we won 1 Optics and 2 on the system side. And so we continue to see new opportunity. And hopefully, that will result in us giving you a better number at some point, David. Mark Patterson: Yes. And David, just on the revenue question, these customers plan well in advance, which has its advantages to it. You're seeing orders converting to revenue. I think that you're seeing a continued ramp as we move through the year. And you're spot on in terms of giving us better visibility on some of the revenue rec that we would look at into '27 that will continue to follow on. Operator: Samik Chatterjee with JPMorgan. Samik Chatterjee: Maybe one on AI Optics and one on non-AI. For the AI part, Chuck, you talked about the new products you're launching in Optics or the pluggable optics that you've launched recently. Particularly a big focus this year is CPO and sort of support for that in the infrastructure. So any thoughts or insights in terms of how Cisco plans around sort of addressing the CPO functionality, particularly, are you seeing customers sort of look at that as part of your road map? Are they looking for Cisco to have that as part of their road map in optics? And then for my non-AI part, just trying to get a sense of what you're seeing on the order front for campus in the sense that we see your networking orders did accelerate, but when we strip out AI from it, what are the trends you're seeing on that order front for ex AI in networking and whether the end of life of Cat4K and 6K just to put that in context in terms of how much of a tailwind that is to your campus orders? Charles Robbins: Thanks, Samik. I would say on the CPO, it's -- we absolutely believe it's going to happen. We don't believe it's actually imminent right now. If you recall, we actually demonstrated this technology, I think, 2 years ago or more. And so we have the technology to build it, and we will as customers want it. But today, they want choice. And I think in many cases, customers want the differentiation between Optics and silicon so they have choice and they don't get locked in. It reduces their multi-vendor choice. But we did announce the 800-gig LPO, which is -- gives customers huge power savings, greater efficiency for AI scale out, and we'll continue to innovate as well on that front. I'd say on the Campus, basically on the enterprise networking side, let me just give you some color. And then, Mark, you may want to expand on the order rates. But the first thing I'd say is that when you look at the enterprise switching, enterprise routing, the wireless and the industrial IoT platforms, all 4 of them, the transition is ramping faster in all 4 of those areas than the prior transitions that we've seen historically at Cisco. So they're all ramping faster. That being said, we're in the top of the first inning. So this thing is just getting started. So there's a lot of runway. We talked about the network products being up double digits now for 6 consecutive quarters. Data center switching was up double digits, 6 of the last 8 quarters. All these things are ramping faster. I think Wi-Fi 7 was up 80% sequentially. I think our campus switching business was up close to double digits on orders. So we're seeing a fair amount of momentum and a lot of energy around customers that want to actually move on these upgrades. Mark Patterson: Yes. And I would just -- maybe just to add to that, Chuck, I mean, to reiterate, if you look at that 18% bookings growth, excluding web scale, we were still at double digits, 10% year-over-year growth. So really, really strong quarter from an order standpoint. And when you look at the 3 geographies that we look at, all 3 grew in the double digits. All 3 accelerated their growth from Q1 just 90 days ago. So a really strong quarter overall. Operator: Our next caller is Karl Ackerman with BNP Paribas. Karl Ackerman: Yes, I have 2 as well, please. First, of the roughly -- or excuse me, I understand that security was weaker as Splunk transitioned from perpetual licenses to SaaS. However, could you speak to the order rates and new product demand traction of your security portfolio that could augur well for recovery in your security offerings for the balance of '26? And just as my follow-up, please, Chuck, I noticed you indicated that your $5 billion of AI orders does not include your G300 or the 100 terabit switch portfolio. But more broadly, can you talk about the order rates you are seeing for your 51 terabit and 100 terabit data center switch portfolio because demand seems to be accelerating there. Charles Robbins: Yes. Thanks, Karl. So on the security update, Here's what I would say. There's really 3 key points. Number one, we talked about the Splunk transition that has a short-term revenue headwind with the accounting treatment of on-prem versus cloud. The second thing is that we -- on the new products, and these are products that largely didn't exist 3 years ago. This is everything from Secure Access to XDR to AI Defense to Hypershield. We had 1,000 new customers of those products during the past quarter, and it was up 100% sequentially. So we're seeing the ramp now where customers are adopting these new products, which is a really good sign. And there's 4,000 customers who have bought one of those products since we built them. And these are -- again, these did not exist. So that's positive. We -- on the refreshed firewalls, we had our third consecutive quarter of double-digit unit growth, and we just launched our new high-end refresh firewalls in the last 120 days. So we expect that to continue. And where that would lead us is as we exit Q4 this year, the organic Cisco security portfolio will be growing revenue close to double digits as we exit. So the teams are a little -- they're a little behind where we -- not the teams, but this portfolio is a little behind where we thought we'd be exiting the year, but it's still performing relatively well. It's just masked right now with the Splunk situation on the accounting treatment. On the $5 billion and the 51.2 product, I think we're selling as much as we can build at this point. We see demand across a couple of major customers that are literally asking for as much as they can get. And we're seeing huge acceleration in the 800-gig optics. We're seeing huge acceleration, obviously, in the Acacia portfolio. So I think the demand is there, and we just need to continue to build capacity. Mark Patterson: Yes. I think -- and just to add to that, it's not only the demand, but also continuing to make inroads with each of these hyperscalers across the portfolio, but also additional design wins that we saw this quarter as well. Operator: Michael Ng with Goldman Sachs. Michael Ng: I have 2 as well. First, I was wondering if you could just talk a little bit about the EBIT margin outperformance in the quarter. Was that driven by cost savings? Is that a mix benefit as you do more with hyperscale customers? And then second, I wanted to just revisit the comments around the April quarter gross margins. And I know you talked a little bit about that just being timing. Is the implication that you'll just take more pricing over the coming quarters to kind of recover a lot of that commodity cost inflation? Or is that a timing comment around just the mix of AI revenue perhaps? Just would love your general thoughts on that. Mark Patterson: Yes. So thanks, Michael. So I'll take the first one just on the op inc percentage. As you pointed out, 34.6% for us is actually the highest in 4 quarters. So even though you saw a little bit of margin decline on a quarter-over-quarter basis and certainly year-over-year, we're just continuing to execute very well. And you're seeing us be very financially prudent in our expenditures and just really determined to drive profitability, and you saw that in the fact that EPS and top line both grew double digits, but the EPS line actually exceeded the top line. And then in terms of the timing, I think the measures that we talked about in terms of price increases and then some of the Ts and Cs that we're going to be modifying with our partners and customers, those just take a little bit of time to run through. So you'll start to see that over time. Operator: Our next caller is Pierre Ferragu with New Street. Ahmed Sami Badri: You might be on mute, Pierre. Pierre Ferragu: Apologies, I was on mute. Yes. So Chuck, can you give us a sense of how your commercial momentum is evolving on the cloud, like on the AI front? So you mentioned a couple of use cases you won with large customers on hyperscale. So I guess it's really like the kind of use case game. So what can you tell us about a typical use case where you make a difference where really you beat your main competition? So what's your -- how do you win there? And then as you're expanding into the new cloud opportunities, the broader market, what do the dynamics look there? Is that a similar like use case focused kind of competitive game? And are you like second source for your clients? Or do you see actually clients to go for like Cisco as a primary source for networking for AI? Charles Robbins: Thanks, Pierre. So on the first one, I would say, how do we win? First of all, our Optics portfolio is really just well received and is, I'd say, #1 in the world. I mean we have the best Optics portfolio that our customers want. And we just need -- we need to increase capacity to actually continue to deal with more and more demand there. I'd say on the system side and the silicon side, we've talked a lot over the years about their desire to have silicon diversity. So that's a starting point for why they're interested in us being successful. But then our systems when we build these, I think there's 2 big differentiators for us. There's programmability of the silicon and then there's just the power efficiency that we're building into it. And those generally -- and I think the way we do business and the commercial relationship that we have, the team -- the partnership that we have with them, I think they just -- they appreciate that. And I think it contributes to their desire for us to be able to do more with them. The second was neocloud, right? Mark Patterson: Enterprise. Charles Robbins: Enterprise. Yes, on the enterprise side, there's opportunity across AI factory with NVIDIA, so with GPUs. But what we really focus on and what we're most interested in is networking and security in addition to strategically where we need to position the GPUs. But by and large, we are the network standard, particularly when we're partnering with NVIDIA in the enterprise right now. So that's what we see happening. And again, we think bundling our security solutions like AI Defense and those sorts of technologies in these AI factory solutions is a good opportunity for us as we go forward. Operator: James Fish with Piper Sandler. James Fish: Just on the campus side, going back to a couple of questions here and trying to bridge it all together. You guys have talked about the refresh opportunity historically as more your fiscal '27, but now you're starting to say it's ongoing. I get it, Chuck, first inning of a Braves game for you, right? But what's changed? And then why wouldn't they start -- why wouldn't customers, especially in the enterprise, start pulling in their orders here given the pricing increases that they know are coming. These are smart buyers. And it kind of reminds a lot of enterprise out there of the supply chain issues a few years ago where we did start to see a pull-in of orders. Charles Robbins: Yes. Okay. Thanks, Jim. So first of all, I think we are seeing a ramp in an acceleration. I wasn't sure if this is what you asked, but I'll make a couple of comments just to be clear. Many of these customers learned from COVID and they recognize that in these major times of transition, they don't want to ever be stuck with technology that's not modern. And as they look at the architectures that are required for Agentic AI, the security architecture, the network architecture, the latency requirements, all of that is leading them to look at making sure that their infrastructure is modernized. So that, combined with the fact that there's been a lot of learnings over the last couple of years about equipment that's past last day of support and the cybersecurity risks that are associated with that. I think those are well documented. And that's another thing that's leading them to do so. I would say that on the core networking side, the memory content is not quite as high as what you'd see in compute platforms. And so the price increases are more nominal than they are in sort of the compute systems that you see some of our competitors talking about and the things that are a larger percentage of their portfolio. So do I think customers will try to buy ahead in some cases, perhaps, but I don't think it's going to be a big trend in the networking side of our business. And UCS for us is just -- it's not as big a percentage as it represents for some of our peers. Ahmed Sami Badri: All right. Thank you, Jim. I want to hand it over to Chuck for some closing remarks following the Q&A. Charles Robbins: First, I want to thank all of you for being with us today. And I also want to thank our team. I'm very proud of what they've done and the hard work that they put in. And this -- the results today are like -- they're coming together after multiple years of effort to get here. And we want to continue to deliver this innovation to our customers, and our teams are dedicated to do so. We're proud of the performance, especially in the core. I think it's important to really think about 2 big areas of momentum opportunity for us, and we're very early in all of these. First of all, with the hyperscalers and the AI build-outs, the Silicon One architecture, the new innovation that we announced this week, the new use cases that we won during the quarter. We obviously see a growing opportunity with enterprise sovereign and the neoclouds in AI. And then this beginning of this campus refresh, as I said, feels like the top of the first inning. It's a multiyear, multibillion-dollar opportunity for us. So I have a high degree of confidence that we're going to deliver our strongest fiscal year yet. And again, I want to thank our teams, and I want to thank all of you for joining us. And Sami, I'll hand it back to you. Ahmed Sami Badri: Thank you, Chuck. Cisco's next quarterly call, which will outline our third quarter fiscal year 2026 results will be on Wednesday, May 13, 2026, at 1:30 p.m. Pacific Time, 4:30 p.m. Eastern Time. This concludes today's call. If you have any further questions, please feel free to contact the Cisco Investor Relations department, and we thank you very much for joining the call today. Operator: Thank you for participating on today's conference call. If you would like to listen to the call in its entirety, you may call 1 (800) 839-2232. For participants dialing from outside the U.S., please dial (203) 369-3662. This concludes today's call. You may disconnect at this time.
Operator: Welcome to the Viking Therapeutics Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, February 11, 2026. I would now like to turn the call over to Viking's Manager of Investor Relations, Ms. Stephanie Diaz. Please go ahead, Stephanie. Stephanie Diaz: Hello, and thank you all for participating in today's call. Joining me today is Brian Lian, Viking's President and CEO; and Greg Zante, Viking's CFO. Before we begin, I'd like to caution that comments made during this conference call today, February 11, 2026, will contain forward-looking statements under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements about Viking's expectations regarding its development activities, time lines and milestones. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially and adversely, and reported results should not be considered as an indication of future performance. These forward-looking statements speak only as of today's date, and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters. I'll now turn the call over to Brian Lian for his initial comments. Brian Lian: Thanks, Stephanie, and good afternoon to everyone listening in by phone or on the webcast. Today, we'll review our financial results for the fourth quarter and full year ended December 31, 2025, and review recent progress with our development programs and operations. 2025 was another strong year for Viking, with the company achieving multiple important milestones with our expanding obesity pipeline. With the subcutaneous formulation of our lead molecule, VK2735, following the positive efficacy, safety and tolerability data generated from our Phase II VENTURE study, Viking initiated its Phase III VANQUISH clinical program in obesity. The Phase III VANQUISH program includes 2 studies. VANQUISH-1 is evaluating the treatment of adults with obesity, and VANQUISH-2 is evaluating the treatment of adults with obesity and type 2 diabetes. In the fourth quarter, we announced completion of enrollment ahead of schedule in VANQUISH-1. Enrollment in VANQUISH-2 is nearing completion. With respect to our oral VK2735 program, in the third quarter of last year, the company announced positive top line results from the Phase II VENTURE oral dosing study in patients with obesity. This trial successfully achieved its primary and secondary endpoints, with patients receiving VK2735 demonstrating statistically significant reductions in body weight compared with placebo. We recently completed an end of Phase II meeting with the FDA regarding next steps with the oral formulation and are excited to advance this program further into development. Other important milestones achieved during 2025 include the initiation of a maintenance dosing study with VK2735 to assess the effect of various maintenance regimens, including monthly subcutaneous dosing, daily oral dosing or weekly oral dosing. Earlier in the year, Viking also signed a comprehensive manufacturing and supply agreement with CordenPharma to support the potential commercialization of VK2735. Under the terms of the agreement, CordenPharma will provide large-scale supply of active pharmaceutical ingredients, as well as fill and finish capacities for both our subcutaneous and oral formulations. We believe this agreement provides supply potentially sufficient to support a multibillion-dollar revenue opportunity. Also during the year, the company continued to add key staff in clinical, supply chain and manufacturing roles, and we recently announced the appointment of Neil Aubuchon as the company's Chief Commercial Officer. In this role, Neil will oversee the development and execution of our commercial strategy. I will have additional comments on our operations and development activities following a review of our financial results for the fourth quarter and year ended December 31. With that, I'll turn the call over to Greg Zante, Viking's Chief Financial Officer. Gregory Zante: Thanks, Brian. In conjunction with my comments, I'd like to recommend that participants refer to Viking's Form 10-K filing with the Securities and Exchange Commission, which we expect to file shortly. I'll now go over our results for the fourth quarter and full year ended December 31, 2025, beginning with the quarter. Research and development expenses were $153.5 million for the 3 months ended December 31, 2025, compared to $31 million for the same period in 2024. The increase was primarily due to expenses related to running 2 Phase III clinical trials, stock-based compensation and salaries and benefits, partially offset by decreased expenses related to manufacturing for our drug candidates and preclinical studies. General and administrative expenses were $11.3 million for the 3 months ended December 31, 2025, compared to $15.3 million for the same period in 2024. The decrease was primarily due to decreased expenses related to legal and patent services, partially offset by increased expenses related to stock-based compensation. For the 3 months ended December 31, 2025, Viking reported a net loss of $157.7 million or $1.38 per share compared to a net loss of $35.4 million or $0.32 per share in the corresponding period in 2024. The increase in net loss for the 3 months ended December 31, 2025, was primarily due to increased research and development expenses, partially offset by decreased general and administrative expenses and increased interest income compared to the same period in 2024. I'll now go over the results for the full year ended December 31, 2025. Research and development expenses were $345 million for the year ended December 31, 2025, compared to $101.6 million for the same period in 2024. The increase was primarily due to increased expenses related to clinical studies, manufacturing for our drug candidates, stock-based compensation, salaries and benefits, regulatory services and consultants, partially offset by decreased expenses related to preclinical studies. General and administrative expenses were $48.4 million for the year ended December 31, 2025, compared to $49.3 million for the same period in 2024. The decrease was primarily due to decreased expenses related to legal and patent services, partially offset by increased expenses related to stock-based compensation, insurance and salaries and benefits. For the year ended December 31, 2025, Viking reported a net loss of $358.5 million or $3.19 per share compared to a net loss of $110 million or $1.01 per share in the corresponding period in 2024. The increase in net loss for the year ended December 31, 2025, was primarily due to increased research and development expenses, partially offset by decreased general and administrative expenses and increased interest income compared to the year ended December 31, 2024. Turning to the balance sheet. At December 31, 2025, Viking held cash, cash equivalents and short-term investments of $706 million compared to $903 million as of December 31, 2024. This concludes my financial review, and I'll now turn the call back over to Brian. Brian Lian: Thanks, Greg. In 2025, Viking made significant progress with our lead obesity program, VK2735. VK2735 is a dual agonist of the glucagon-like peptide 1, or GLP-1 receptor and the glucose-dependent insulin atrophic polypeptide, or GIP receptor that has demonstrated promising efficacy, safety and tolerability across multiple clinical trials. Viking is developing both an injectable and an oral formulation of VK2735 for the treatment of obesity. During 2025, we continued to advance both of these formulations further into development. We also initiated a novel study designed to explore maintenance dosing with this compound. With respect to the subcutaneous VK2735 program, the company's prior Phase I and Phase II studies both demonstrated impressive weight loss and encouraging safety, tolerability and pharmacokinetics following weekly dosing in subjects with obesity. In the Phase I study, participants receiving VK2735 demonstrated up to approximately 8% weight loss from baseline after 4 weekly doses with no signs of plateau. The company's subsequent Phase II VENTURE study demonstrated statistically significant reductions in mean body weight from baseline ranging up to 14.7% after 13 weekly doses with no signs of plateau. The VENTURE study also showed VK2735 to be safe and well tolerated through 13 weeks of dosing, with the majority of treatment-emergent adverse events characterized as mild or moderate. Adverse events generally occurred early in the course of treatment, resolved quickly and were primarily related to the expected gastrointestinal effects resulting from activation of the GLP-1 receptor. These results were highlighted in a presentation at the 2025 ObesityWeek Conference in November. The final results were also published last month in Obesity, the peer-reviewed Journal of the Obesity Society. Following the VENTURE study, the company completed a Type C meeting with the FDA as well as an end of Phase II meeting to discuss next steps with the subcutaneous formulation. Based on feedback from the agency, in June of 2025, the company initiated the VANQUISH Phase III registration program. The VANQUISH program consists of 2 clinical trials evaluating VK2735, 1 in adults with obesity and 1 in adults with obesity and type 2 diabetes. Each study is a randomized, double-blind, placebo-controlled multicenter trial designed to assess the efficacy and safety of VK2735 administered by subcutaneous injection once weekly for 78 weeks. The VANQUISH-1 study was designed to target enrollment of approximately 4,500 patients, and the VANQUISH-2 study is targeting enrollment of approximately 1,100 patients. Participants in each trial will be randomized to weekly doses of 7.5 milligrams, 12.5 milligrams, 17.5 milligrams or placebo. The primary endpoint of the VANQUISH trials is the percent change in body weight from baseline for participants receiving VK2735 as compared to placebo after 78 weeks of treatment. Secondary and exploratory endpoints will evaluate a range of additional safety and efficacy measures, including the percentage of patients who achieve at least 5%, 10%, 15% and 20% weight loss. Each study will include an extension portion, allowing participants the opportunity to continue receiving treatment following completion of the primary dosing period, including patients who were randomized to placebo for the initial 78-week treatment period. In November 2025, 5 months after initiation, we announced that the VANQUISH-1 study was fully enrolled and that enrollment had exceeded the planned 4,500 patient enrollment target. Enrollment in the VANQUISH-2 study is ongoing, and we expect to complete enrollment later this quarter. Both the VANQUISH-1 and VANQUISH-2 studies were initiated using a vial and syringe for administration of VK2735. In the fourth quarter of 2025, we initiated a bioequivalent study to allow for the introduction of an auto-injector device, which may represent a more convenient method of administration for some people. We are happy to report that this study was successfully completed, enabling the introduction of the auto-injector for all participants in the VANQUISH program. We expect this transition to occur later this quarter. I will now provide an update on Viking's oral tablet formulation of VK2735. We believe an oral tablet formulation may represent an attractive option for those who might prefer to initiate treatment with an oral therapy or for those seeking to maintain the weight loss they have already achieved. Preliminary data tracking the recent launch of another oral peptide for obesity has demonstrated promising initial uptake. We believe this indicates continued interest in new weight-loss therapies among both patients and clinicians and represents an expansion of the overall market opportunity. As with our subcutaneous program, prior Phase I and Phase II studies evaluating the oral formulation of VK2735 successfully achieved their objectives. In the Phase I study, cohorts receiving VK2735 demonstrated dose-dependent reductions in mean body weight from baseline ranging up to 8.2% after 28 daily doses. The Phase I study also demonstrated encouraging safety and tolerability, with the majority of observed treatment-emergent adverse events reported as mild or moderate, with most reported as mild. Following the Phase I study, we completed the Phase II study of VK2735 called the VENTURE-Oral dosing study. In the third quarter of 2025, the company announced positive top line results from this study, with participants receiving once daily doses of the tablet formulation demonstrating statistically significant reductions in mean body weight after 13 weeks, ranging up to 12.2% from baseline. Statistically significant differences compared to both baseline and placebo were observed for all doses greater than 15 milligrams starting at week 1 and continuing throughout the 13-week treatment period. Up to 80% of subjects in VK2735 treatment groups achieved at least 10% weight loss after 13 weeks compared with only 5% of placebo-treated subjects. The VENTURE-Oral dosing study also included an exploratory cohort designed to assess weight loss maintenance. In this cohort, participants were rapidly up titrated to a 90-milligram daily dose. After 4 weeks of daily dosing at 90 milligrams, participants were down titrated to 30-milligram daily doses and maintained at 30 milligrams daily for 7 weeks. Weight loss in this cohort was shown to be rapid and progressive through the 90-milligram treatment period, reaching a mean reduction of 8.1% from baseline at 6 weeks. Following down titration to 30-milligram daily doses for the remaining 7 weeks of the study, mean weight loss was further improved to 9.2% from baseline. These results support our belief that effective weight maintenance may be achieved with a low-dose oral treatment strategy following down titration from either higher oral doses or potentially from a subcutaneous dosing regimen. The progressive weight loss observed following transition to lower doses also suggests that effective weight maintenance might be achieved with doses lower than the 30-milligram level evaluated in this study. Importantly, the oral tablet formulation of VK2735 also demonstrated encouraging safety and tolerability through 13 weeks of once-daily dosing. Among VK2735 recipients, 98% of drug-related treatment emergent adverse events were characterized as mild or moderate in severity. In the dose range we plan to explore in future studies, we believe the data show no meaningful difference between GI-related adverse events in subjects treated with VK2735 compared with placebo. The tolerability data from the VENTURE-Oral dosing study also suggests that future titration regimens starting at lower doses and utilizing longer titration intervals are likely to further improve oral VK2735's tolerability profile. Following completion of the VENTURE-Oral dosing study, we held an end of Phase II meeting with the FDA to discuss potential next steps in the oral clinical development program. Based on feedback from the agency, the company plans to advance oral VK2735 into Phase III development for obesity. We currently expect to initiate this program in the third quarter of this year, and we'll provide more details on study design in the coming months. A unique and differentiating characteristic of VK2735 is its extended half-life and PK profile relative to other agents. We believe this provides an opportunity to introduce dosing regimens that potentially improve convenience and flexibility for some patients. An important factor in this differentiation is the ability to use the same dual-acting GLP-1 and GIP co-agonist molecule in both subcutaneous and oral formulations. This affords patients the ability to remain on the same active compound during their treatment with either the tablet or injection formulations and may lead to reduced side effects compared with options that require switching between different therapeutic agents. We believe this could improve adherence to treatment, which is a key element in realizing the long-term benefits of weight loss, such as improved cardiovascular health, enhanced physical function and increased quality of life. To further explore VK2735's potential for novel dosing, in the fourth quarter of 2025, we initiated the Phase I study to evaluate a range of maintenance dosing regimens. In this study, all subjects will receive initial weekly doses of VK2735 for 19 weeks. Subjects will subsequently transition to a range of maintenance regimens, including monthly, weekly and every other week subcutaneous doses, as well as weekly oral doses, daily oral doses or placebo. The objectives of the study are to evaluate the safety, tolerability and pharmacokinetic profile of VK2735 under these various dosing regimens. Exploratory endpoints will assess change in body weight from baseline, as well as change in body weight from week 19 to the end of the study at week 31. In January, we announced that enrollment in the maintenance study was complete, and we currently expect to report the results in the third quarter of this year. Beyond our VK2735 program, in 2025, we made significant progress advancing a series of novel agonists of the amylin receptor. Early data demonstrate that activation of the amylin receptor represents an important potential mechanism for the regulation of appetite and body weight. We have continued to make progress with our lead amylin agonist, and we expect to file an IND for this program later this quarter. As Viking's pipeline expands and matures, we continue to carefully manage other key corporate matters to support and optimize our programs. As part of this process, we have increased staffing across a range of scientific and operational roles, including supply chain management, manufacturing and quality. In addition, in January of this year, the company announced the appointment of Neil Aubuchon as the company's Chief Commercial Officer. Neil brings more than 20 years of industry experience, including nearly 17 years at Eli Lilly. He has held leadership roles across global commercial and marketing functions within the cardiometabolic space, making him uniquely qualified to lead our commercial strategy for VK2735, and we are excited to have him on board at this important time in the company's evolution. With respect to further commercial preparation, in 2025, Viking also signed a broad manufacturing agreement with CordenPharma, a global leader in peptide manufacturing, to supply large-scale active pharmaceutical ingredient as well as fill and finish capabilities for both our subcutaneous and oral formulations. This comprehensive and fully transferable agreement allows us to hit the ground running at the appropriate time and is a sufficient scale to enable meaningful revenue generation. Finally, we continue to carefully manage our balance sheet to ensure that we are financially positioned for success. As Greg reported a few minutes ago, the company held over $700 million in cash at the end of 2025, which allows us to reach important corporate milestones, including the completion of our ongoing Phase III obesity trials for VK2735 as well as pursuing development of our additional programs. In conclusion, 2025 was a year of important clinical achievements which position us to execute and increase the opportunities for our pipeline in the years ahead. We expect both our subcutaneous and oral VK2735 programs to be in Phase III trials this year, setting the stage to potentially introduce the industry's first oral and subcutaneous therapeutic options, utilizing the same dual GLP-1 and GIP coagonist molecule. In addition, our maintenance study results are expected later this year, providing an opportunity to further differentiate our programs with novel dosing regimens. Our amylin program is expected to advance into clinical development shortly, adding further depth to our weight loss portfolio. We have also established a foundation for commercial activities by entering into a comprehensive manufacturing agreement, appointing commercial leadership and maintaining a strong balance sheet to support us through key upcoming milestones. We look forward to providing further updates in the coming quarters. This concludes our prepared comments for today. Thanks for joining us, and we'll now open the call for questions. Operator? Operator: [Operator Instructions] Please note that we have a large number of participants in the queue. The company will do its best to answer as many questions as possible. Our first question will come from Steve Seedhouse with Cantor Fitzgerald. Unknown Analyst: This is [ Timur Vanica ] on for Steve. Congratulations on the oral program advancement to Phase III. So first, could you talk about whether you will also need to run a Phase III study in patients with diabetes? And then, did you receive any feedback from the FDA on improving nausea rates even in the placebo arm, perhaps to lower the nausea rates with extended titration regimen? Brian Lian: Thanks for the questions. We're probably not going to get into too many details with respect to the specifics of the communication from the FDA, but I think we feel pretty comfortable with the transition into Phase III. What was the first part of that question again? Gregory Zante: Phase III. Brian Lian: Oh, yes, yes. So we'll talk about all the design elements as we get closer to launch. But you might imagine that it would parallel the VANQUISH-1 and VANQUISH-2 overall design paradigm. Operator: The next question will come from Joon Lee with Truist Securities. Joon Lee: A lot's changed in the obesity space since you embarked on the Phase III program, including the growing influence of [ row and HIS ]. Does this change your go-to-market strategy? And would you consider partnering with either [ Row or HIMS ] or someone like them to help sell 2735? And also, we appreciate that you don't need an outcomes trial in obesity, but since the competition has, they have outcomes data, would you need to generate outcomes data to be reimbursed by payers? Or would your focus be more on the cash paying patients? And by the way, does the $700 million in cash cover the expense for developing oral 2735? Brian Lian: Thanks, Joon. A lot to unpack there. I'll go through the first part and then let Neil comment on the commercial strategy. What was the -- yes. Yes. As far as partnering, there are a lot of different options available to us. And I think those companies are -- they provide a pretty good avenue to access the market, but probably not something that we're going to disclose at this point. But a lot of different options available to us. Neil, do you want to add to that? Our new Chief Commercial Officer is here. Unknown Executive: Yes. Thanks, Joon. Look, I think there's -- what I always say on this is that there are some disadvantages with being a small company, but there's also some advantages. And as you point out, things are changing very, very rapidly. And we're starting here really from a blank slate. And so that we can take a look at the market with a blank slate mentality and think about where it's heading not just today, but where it's going to be a couple of years from now and optimize our commercial strategy accordingly. So as Brian said, we wouldn't disclose what that strategy is at this moment. But suffice to say that we're looking at all options and all channel possibilities and deciding what's going to be the right approach for us. But the fact that we have flexibility is something that is an advantage for us for sure. Brian Lian: And you're right to say, Joon, that the space is really evolving on a weekly basis. And so what might look attractive today might be different when we're getting set to launch. I mean I think 2 years ago, people probably wouldn't have given a lot of credence to the compounding avenue or some of these other partnering opportunities, where now, they're very important players in the space. So rapid evolution here, and we'll be able to, I think, adapt quickly to whatever the market dictates at that time. Gregory Zante: And Joon, on the cash front, yes, the short answer is we do have sufficient cash to get through 3 major catalysts, including the upcoming maintenance trial, data from our Phase III subcu trials. And also, yes, the oral Phase III trials get into top line data, we are sufficiently funded to get there. Operator: Your next question will come from Hardik Parikh with JPMorgan. Hardik Parikh: Congratulations on the update so far. I was just wondering on the Phase III, I understand you can't give much detail there. I was just wondering on the design of actual tablet itself. I remember in the Phase IIa program, you guys used tablets that were in 30-milligram increments. Would you consider anything different here for the design of the tablet itself for Phase III? Brian Lian: Yes. That's a good question, Hardik. Yes, and again, like you mentioned, we'll give all details at the appropriate time. But the tablet size and tablet count were a little high in that Phase II study. We learned a lot from that. So we'll be reducing both of those in the upcoming Phase III program, both the size and the count. Operator: Your next question will come from Andy Hsieh with William Blair. Tsan-Yu Hsieh: So maybe 2 parter, if you don't mind. For the maintenance study, I'm curious about your view on successes. I mean, there's a lot of different scientific questions you're asking. But just in light of ortho with the [ attainment can ] actually gaining 5 pounds, I'm just curious about your view on what success looks like? Second part, it has to do with the Phase III trial. I know you kind of frame it as an oral Phase III trial, but is it possible to include, let's say, like a subcu arm that basically titrate patients until the maximum weight loss is obtained and then transition to the oral, basically uncovering a longer-term maintenance dosing strategy? Brian Lian: Yes. Thanks, Andy. Really good questions. What does success look like? Well, we look at 3, I guess, major buckets there. Everybody titrates up to this high weekly level. And then you have some people transitioning to monthly injections, some transitioning to every other week injections, some transitioning to oral daily and some transitioning to oral weekly. So after that transition to the maintenance period, I think the best case scenario would be you see a continued progression of weight loss. That would indicate that you could continue on after the initial weekly dose and continue to lose weight with a less frequent dosing regimen. I think the base case is that you would stay flat and prevent weight regain once you've into the maintenance portion of the study. And then obviously, the least desirable -- although it will depend on the data -- the least desirable would be a rebound following the transition. I think we're favorably positioned there because of the extended half-life. So I think we should have good coverage at the doses we're exploring to activate the receptors through the course of the month, but we won't know. I think an important question also is when you reduce the frequency and you are still at that elevated dose, do you reintroduce any sort of GI signal. And what we've seen from other agents being dosed less frequently is that seems to be less of a risk than maybe we thought earlier on. As far as the -- sorry, the transition for what the maintenance or the extension window might look like in the VANQUISH studies, yes, we're not sure. We'd like to see these data and then let that drive what the extension window might look like. I mean right now, the extension in the VANQUISH studies allows people who are on placebo to continue on and be guaranteed access to therapy. But if we see something really intriguing in the maintenance study, we may have some options to introduce a less frequent dosing regimen or other regimen into that maintenance window for the VANQUISH study. So I think you were asking more about the oral Phase IIIs, but we may have an opportunity to do something creative in the extension for the VANQUISH studies. Operator: Your next question will come from William Wood with B. Riley Securities. William Wood: Congratulations on a very nice quarter and year for that matter. Just curious in terms of your Phase I maintenance, it looks like you've split your 15 mg once every month into a once every 2 weeks dosing. And so I'm just kind of curious on what the decision was behind that in terms of PK modeling and then also potentially just sort of GI, how that may actually lead to further insight on what you can do with maintenance? Brian Lian: Yes. Thanks, William. Yes, we originally planned to do the 15 mgs once monthly. Once we got the trial underway, we started receiving more and more of these comments from investigators and just from our own market research that people were going to less frequent regimens every 2 weeks, every 3 weeks. And we thought, well, since we've got the study up and running, we could split that 15 into [ 27.5 ] and get an answer at a lower every other week maintenance dose. And we didn't have an every other week regimen in there. So it seemed like an opportune time to make a slight adjustment there while retaining those higher dose -- higher strength of monthly doses. William Wood: And then also just maybe thinking about the end of Phase II outcome and sort of the Phase III trials coming up. When we say trials, should we expect 1? Or do you think we can probably get -- or do you think it will be more 2? And then in terms of size, do you think we can get a reduced size sort of based on what we are -- since it is the same molecule based on what we've seen in the VANQUISH trials? Brian Lian: Yes, great question. As I said earlier, probably it's going to look like the VANQUISH program. So I think you could do a single study and have diabetes patients in there as well, but it's likely cleaner to keep them separate and do 2 studies. And your point about same molecule, that's a really important point. And you might imagine that, yes, we would be able to leverage some of the data generated in the subcu program to reduce the overall size of the oral Phase III program, and that's very important to leverage some of those data. Operator: The next question will come from Roger Song with Jefferies. Jiale Song: Great. Congrats for the update. I understand that you will give us more detail around the Phase III oral design. Just curious about the thinking around the duration. Given you -- this is oral [ map ], do you think about [indiscernible] can test this a little bit shorter than the VANQUISH right now, maybe making this [ order ] and the subcu can get to the Phase III result relatively close and get those 2 into the label and approval in the relatively similar time fashion? And another question is anything you need to finish or generate before you start the Phase III oral in 3Q? Brian Lian: Yes. Thanks, Roger. Really good questions. I think good point. The trial duration we expect in the oral program will likely be not as long as the VANQUISH study. So you could see a reduction in the length, possibly. You could see a reduction in the size, and you might see a reduction in the intensity of clinic visits. And all of those might speak to a cheaper and more efficient execution on the Phase III program orally -- oral Phase III program. And that might compress that window from the availability of all of the subcu Phase III data and the oral Phase III data. Likely still be separate filings, but I wouldn't anticipate that as being a dramatic delay between the 2, given the efficiencies of the oral program. Jiale Song: Got it. Anything -- any data you need to generate before you start the Phase III oral in 3Q? Brian Lian: No, nothing that's really gating there. No. Operator: Your next question will come from Annabel Samimy with Stifel. Annabel Samimy: Just a question on the maintenance studies, I want to drill down a little bit more. Do you expect that we can get a good sense of oral tolerability from the maintenance study? Anything with the injectable to the oral arm that could give us an idea of GI effects? Or do you expect that given that these patients were already on the injectable GLP, GIP, they wouldn't really have those tolerability effects? So I guess, what are your expectations with the tolerability there? Brian Lian: Yes. Thanks, Annabel. I would expect the tolerability to be pretty good. You're coming off these higher subcu doses which give really high exposures to an oral dose that is a fairly low oral dose than the exposures are lower with the tablet anyway. So I would expect to see minimal GI side effects. But it's possible, but I guess it would be a surprise to see something significant there. Operator: Your question will come from Biren Amin with Piper Sandler. Biren Amin: Maybe just to start on the oral Phase III program. Have you gained agreement with the FDA on patient numbers and duration for the oral Phase III trial? So maybe that's the first question. And second question, on the supply of oral 2735 for the Phase III, is that readily available? Or are you going to need to make supply? Is that the gating item for starting the trial in Q3? Brian Lian: Yes. Thanks, Biren. We have a constant chain of supply moving through at different stages. So we wouldn't anticipate there to be a real challenge on the supply side. I mean, obviously, all these things are difficult, but we don't think supply is really going to be an issue there. It takes a little while to make it, but it's -- we shouldn't have any shortages or anything like that. As far as the sizes of the studies, I mean, we, of course, outlined our anticipated clinical development plan to the FDA, and we feel comfortable with the responses that we're okay to proceed at the design level that we presented. Biren Amin: Perfect. And then maybe if I could just have a couple of follow-ups. Can you talk about the status of the auto-injector and when you plan to introduce that into the VANQUISH studies? So that's first. And then on the amylin, when can we expect the Phase I to start given IND filing later this quarter? And could we expect Phase I data later this year? And what does that look like? Brian Lian: Yes. Thanks. The auto-injector, we did complete the bioequivalent study since our last quarterly update. It was a great study, turned out very positive for us, and we anticipate introducing the auto-injector this quarter. So that went according to schedule. As far as the amylin agonist, later in the quarter, we'll file the IND. And if we're able to proceed, and I would expect that we should be able to -- probably, the first dosing would occur in the second quarter. A little early to say just yet, but that's probably the likely timing. And it would parallel the VK2735 clinical program where we start with the SAD study, a single ascending dose study and then proceed to a multiple ascending dose study. So I would say if any data are available, likely be later in '26 for the stat portion. Operator: The next question will come from Mike Ulz with Morgan Stanley. Rohit Bhasin: This is Rohit on for Mike. Can you just talk about any read-throughs to oral VK2735 from the strong early uptake of Novo's oral Wegovy? And then secondly, in regards to R&D spend, should we consider the quarterly spend the new norm moving forward? Brian Lian: Yes. Thanks, Rohit. Good question. I think we've seen now with the oral peptide uptake, it's the fastest drug launch in history. So I think that bodes well for anybody developing an oral peptide. And for that compound, in particular, it sort of puts to bed -- we hope puts to bed this nonsense around how bad 30 minutes is to consume anything. And it's just kind of a joke that that's a big deal. Gregory Zante: And on the quarterly cash usage, I think -- you can think about it will range a bit as we move forward here between likely $60 million and $90 million per quarter. So that's about all I could say about that. So a range in that window there. Operator: The next question will come from Thomas Smith with Leerink Partners. Thomas Smith: Congrats on the progress. Now that you have the maintenance study fully enrolled, are there any notable differences you'd highlight here specifically on the baseline characteristics relative to the VENTURE subcu or the oral studies? And then maybe a follow-up on the amylin program. Is this going to be a similar design and execution out of Australia as what you did with the 2735 Phase I experience? And could you help frame expectations for what you'd be looking for out of the MAD portion of that study with respect to weight loss? Brian Lian: Yes. Thanks, Tom. No, I think we'd be targeting a U.S.-based for the amylin study, U.S.-based clinical sites. And hard to say it's SAD. The first part will be a SAD study. So always difficult to really interpret any efficacy data from a single dose. But in primates, it looks pretty potent, more potent than the VK2735 compounded under both single and multiple dose scenarios. So it looks pretty good, but haven't been in humans yet. On the demographics for the maintenance study, the main baseline is people had to be -- BMI greater than 30. They're pretty small cohorts. So I don't know -- I would anticipate -- and I don't have access to that, I don't know the answer right now, but I expect there to be more women than men. I expect it to be mostly white. And they're all normal glycemic, so no diabetics. But I wouldn't expect it to be dramatically different than the VENTURE Phase II demographics, but I don't have the demographics in front of me. Operator: The next question will come from Yale Jen with Laidlaw & Company. Yale Jen: Congrats on the quarters and the year. Two questions here. First one is that in terms of the maintenance study, although we are still seeking for -- looking for the data, do you -- depends on that, do you anticipate you will have -- you still need a larger scale so the maintenance study to be sort of finalized the alternate path forward as well as when you -- at the same time, you're conducting the Phase II study -- Phase III study for the oral? Brian Lian: Yes. Thanks, Yale. Unknown yet. As I mentioned earlier, it might be possible to introduce some maintenance arms into the extension in the VANQUISH studies, but we don't know yet. I would anticipate, though, a larger subsequent study, whether that's part of an extension or a stand-alone, that would likely be required to really understand longer-term maintenance and what the ideal dose is. Yale Jen: Okay. And maybe just a quick one on the auto injectors. I don't know whether that will be [ a year pain ] in terms of supply issue. And how do you see that going forward that -- once you transition everything into the -- all the subcu to the auto injectors? Brian Lian: Yes. We don't anticipate any supply issues there with the auto-injectors. The supplier is capable of producing a very high capacity. So no anticipated issues at this point with auto-injector supply. Operator: As we are nearing the conclusion of today's call, our final question will come from Ryan Deschner with Raymond James. Ryan Deschner: Was there any notable differences in the end of Phase II meeting minutes for oral VK2735 versus the meeting you had for the injectable version? And would any patients in the maintenance study be transitioned to auto-injector? Brian Lian: On the second part, no, it's a good question, but no, these are going to be a vial and syringe, and the study is well underway now. So no, we're not going to introduce the auto-injector in the maintenance study. As far as the oral end of Phase II and the subcu into Phase II, we're not getting into the details of the discussions. But I'd say the feedback was consistent with what we heard from the end of Phase II for the subcu formulation. Different INDs, but many of the same people participated. So I think that we're comfortable going forward and pretty consistent feedback between the two meetings. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Stephanie Diaz for any closing remarks. Please go ahead. Stephanie Diaz: Thank you again for your participation and continued support of Viking Therapeutics. We look forward to updating you again in the coming months. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
John Campbell: Good afternoon, everyone. Thank you for participating in Porch Group's Fourth Quarter 2025 conference call. Today, we issued our earnings release and filed our related Form 8-K with SEC. Press release can be found on our Investor Relations website at ir.porchgroup.com. I would like to take a moment to review the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements. Today's discussion, including responses to your questions, reflect management's views as of today, February 11, 2026. We do not undertake any obligations to update or revise this information. Additionally, we will make forward-looking statements about our future financial or business performance or conditions, business strategy and plans. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from these forward-looking statements. Please refer to the information on this slide and in our SEC filings for important disclaimers. We will reference both GAAP and non-GAAP financial measures on today's call. Please refer to today's press release and the slides, both available on our website for reconciliations for non-GAAP measures to the most directly comparable GAAP measures discussed during this call. As a reminder, this webcast will be available for replay along with the presentation after this call on the company's website at ir.porchgroup.com. So joining me here today are Matt Ehrlichman, Porch CEO, Chairman and Founder; Shawn Tabak, Porch CFO; and Matthew Neagle, Porch COO. With that, I will turn the call over to Matt for his key updates. Matt Ehrlichman: All right. Good afternoon, everybody. Thank you for joining us. Q4 capped a transformational year for Porch. Throughout 2025, we delivered results ahead of expectations and made meaningful progress toward building a simpler, higher-margin fee and commission-based business. Full year 2025 adjusted EBITDA ended at $77 million, an 11x increase over 2024. This translated into $65 million in Porch shareholder interest cash flow from operations for the year. . Profitability was a highlight, but 2025 was also about positioning the company for durable profitable growth. Statutory surplus at the reciprocal grew approximately $50 million. Incremental value creation on top of our adjusted EBITDA, and it ended 2025 almost 50% higher than 2024. We strengthened the top of the funnel more than doubling the number of active agencies and nearly tripling quote volumes year-over-year. With some actions we put in the market, we saw new policyholder conversion rates grow substantially at the tail end of 2025 and continue into 2026. With this foundation in place, we're confident in delivering against our 2026 plan, $600 million in organic reciprocal written premium and implied 25% growth rate and $100 million in adjusted EBITDA. We positioned the business for rapid premium growth through multiple levers, growing agency and quote volumes, pricing adjustments in agency incentives to increase conversion rates and the launch of Porch Insurance, which went live for all Texas agents at the start of 2026. So Q4 performance was strong with every metric better than expectation, consistent with the progress we've seen really all year. Reciprocal written premium or RWP, was $126 million, Revenue was $112 million. Q4 gross profit was $91 million, resulting in an 81% gross margin. Q4 adjusted EBITDA was $23 million, a 21% margin. Cash used in operations was negative $5.5 million due to the timing of our interest payments and working capital. For the full year, cash flow from operations was a positive $65.4 million reflecting the strong cash-generative nature of the model. We continue to deliver predictable, high-margin results for Porch shareholders. There are 3 components to growing our insurance premiums, statutory surplus, which dictates the capacity to scale, quote volume, which is our top of the funnel and sets the growth potential and then conversion rate, which dictates then the volume of new policies. In the second half of last year, we prioritized growing statutory surplus at the reciprocal faster than planned, and we're certainly pleased with the outcome. Statutory surplus grew again in Q4 despite the decline in the Porch stock price in the quarter. For the year, step surplus rose 47% and as a result, we have substantial capacity well in excess of what is needed to support our 2026 RWP target. We achieved meaningful gains in both capacity and top-of-funnel activity throughout 2025. Late in the year, we began realizing gains in conversion rates as well. Matthew will outline these actions in our go-forward plans later in the call, but let me just say, momentum is building. Premiums from new business in November increased 61% versus the January through October 2025 monthly average. December new business premiums accelerated further, rising 104% versus that same baseline. Next, Porch Insurance. Our new homeowners insurance product was fully rolled out in Texas at the start of January, giving agents a product they can sell alongside HOA, offering now a second product that is unique and higher end will further improve conversion rates. Porch Insurance is an important part of our long-term strategy as it's better for homeowners, better for agents, the reciprocal and therefore us. For policyholders, included in the offering is a full home warranty and other coverages as well as 4 hours of movers and other offerings for homebuyers. Agents make more money when they sell Porch Insurance. And for the reciprocal, more margin is created via surplus contribution that customers pay. Overall, we are not seeing any changes in competition that impacts our quote volumes or conversion rates, and we remain confident in our ability to deliver on our organic RWP target this year. Our strategy, which gives us a structural advantage in underwriting creates durable advantages for Porch. We spent years building the data, software and inspection ecosystem needed to understand homes better than anyone in the market. That shows up in how we select risk, how we price it and ultimately in the loss ratios we deliver. HOA and other reciprocal have routinely produced top-tier underwriting results with loss ratios improving even through inflation and weather pressure. It's not luck. As a result of advantaged risk assessment with our Home factors data, which provides insight into 90% of U.S. homes due to disciplined underwriting, winning low-risk customers and avoiding balance. 2025 proved this point. The reciprocal saw full year gross loss ratios of 27%, an attritional loss ratio of just 17%. While 2023 and 2024 were historically bad weather years, 2025 was more of a normal weather year in Texas. You can really see the gains we've created in the yellow line here on this chart, which highlights the attritional loss ratio, which includes all claims outside of catastrophic weather. These exceptional industry-leading results creates more margin in the system, part of which flows to surplus at the reciprocal to support future growth and part of which flows the Porch Group and our shareholders, it's a durable advantage, and it's only getting stronger. With that, let's take a look at how this margin advantage supports the surplus at the reciprocal. We've previously shared the reciprocals statutory surplus combined with nonadmitted assets, which ended the year at $289 million. This is the total capital base at the reciprocal and includes the full value of the 18.3 million Ports Group shares it owns. We think this is an important number as it highlights the amount of opportunity we have ahead to scale premium without the capital base growing further. In fact, even after a decline in the stock price after Q3 earnings, this capital could still support approximately $1.5 billion of premiums as we look at. A component of this number is the statutory surplus where there's a cap on the value of a single equity and is used on a quarter-to-quarter basis to ensure insurance companies are healthy, and appropriately capitalized to support its premium. As you can see from this chart in blue, because of the cap value of the shares, statutory surplus does not move up or down meaningfully based on the share price volatility. The reciprocal ended the year with $155 million of statutory surplus, up further from Q3 and again, up $49 million year-over-year. This value created across the system is incremental to the $77 million of adjusted EBITDA produced at Porch Group. So the takeaway, without the reciprocal growing its statutory surplus any further, it can support approximately $780 million of premium at our 5:1 or better premium to stat surplus rule of thumb. This is without the reciprocal selling any shares. And as you can see, short-term stock price volatility won't impede our plans. I'll now turn it over to Sean to cover our financial results. Shawn Tabak: Thank you, Matt, and good afternoon, everyone. Before we dive into the results, I'll summarize the key financial highlights for Q4 and the full year. One, we delivered a strong Q4, outperforming expectations across each metric. We ended the year with adjusted EBITDA of $76.6 million, an 11-fold increase over the prior year. We are quite pleased with this outcome. . Two, Insurance Services, RWP and revenue exceeded expectations, driven by growth in total customers, including strong performance with new customer additions. As discussed previously in Q4, we updated new customer pricing in agency incentives to accelerate premium. These actions increased the new customer conversion rate. Number three, Reciprocal surplus finished the year in a strong position with $289 million of Circa Plus combined with non-admitted assets and $155 million of statutory surplus. Statutory surplus grew again quarter-over-quarter and increased $49.4 million from the beginning of 2025. We're pleased with this performance because it positions us to the scale RWP effectively. And finally, number four, Looking ahead to 2026, we are accelerating toward our RWP target of $600 million. This was largely driven by an increase in new customer additions, driven by the quote and conversion rate increases we are already seeing. Similar to Matt's overview, my comments will address performance of the Porch shareholder interest, since generating cash for Porch shareholders remains our ultimate goal. Under GAAP, we consolidate the Reciprocal Exchange financials, which are available in the press release and our 10-K when it is filed. Now let's dive into Q4 results. Q4 2025 Porch shareholder interest revenue was $112.3 million, with insurance services generating 67% followed by software and data at 20% with the balance from consumer services. Associated gross profit was $91.4 million with an 81% gross margin, led by our Insurance Services segment, which had an 86% gross margin. Adjusted EBITDA of $23.5 million was ahead of expectations driven by insurance services which delivered a 38% adjusted EBITDA margin. Q4 adjusted EBITDA declined year-over-year and that was due to the seasonality of the legacy carrier model when we own HOA, which favored Q4. As a reminder, full year adjusted EBITDA increased 11-fold year-over-year. Now let's move a little deeper into the segment results, starting with Insurance Services. In the quarter, RWP was $125.7 million, ahead of expectations driven by new customer additions. As a reminder, RWP is typically higher in Q2 and Q3 as home buying activity drives new and renewal policies. Typically, the seasonal decline from Q3 to Q4 is much greater, but this year was offset by the acceleration in execution of stronger-than-expected customer additions, Matt mentioned previously. Insurance Services revenue was $75.7 million or 60% of RWP. Revenue comes from 4 sources: commissions based on RWP, policy fees based on policies written, the premium from the captive and lead fees from third-party agencies. Segment gross profit was $65.1 million with a gross margin of 86%. And Segment adjusted EBITDA was $29 million, a margin of 38%. Adjusted EBITDA as a percent of RWP, was 23%, 465 basis points higher than Q3 and primarily driven by the higher revenue. We held operating expenses flat quarter-over-quarter, producing strong incremental margins. Shifting now to software and data. As a reminder, weak housing conditions impact transaction volumes for companies we serve and therefore, our results. Most of our software businesses charge per transaction, so we are positioned to benefit from an increase in housing conditions. Segment revenue was $22.3 million, a 3% increase over the prior year, driven by price increases. Gross profit was $14.4 million, a 65% gross margin, which is a 580 basis point decline over the prior year driven by $2.1 million of incremental and nonrecurring cost of revenue related to software expense in Q4, which did not impact adjusted EBITDA. Adjusted EBITDA was $3.7 million. This includes the investments we've discussed around product innovation in our software businesses, which position us well to benefit from a housing market recovery and in our home factors go-to-market organization. Shifting to Consumer Services, which is also impacted by the weak housing conditions. Revenue was $16.6 million, a 2% increase over the prior year. Gross profit was $14.2 million, an 85% gross margin, which is a 450 basis point increase over the prior year. Adjusted EBITDA for this segment was $1 million. Now let's take a step back and review our financial results in our first year under the reciprocal operating model. I think we can all agree it's been a tremendous and breakout year for Porch. Full year 2025 Porch shareholder interest revenue was $418.9 million, with insurance services generating 64%, followed by software and data at 22% with the balance from consumer services. Associated gross profit was $343.9 million, an 82% gross margin and a 74% increase over GAAP gross profit in the prior year. 2025 corporate expenses of $46.8 million, decreased $0.5 million from the prior year. 2025 adjusted EBITDA was $76.6 million, an 11-fold increase over the prior year. Adjusted EBITDA margin was 18%. The adjusted EBITDA was high quality with an 85% conversion to cash provided by operating activities for Porch shareholders, which was 600 -- sorry, which was $65.4 million and includes $29 million in cash used for interest payments on debt. Moving on to the balance sheet. In 2025, we increased our cash position while also decreasing our debt. We closed the year with Porch Cash plus investments of $121.2 million, a $31.3 million increase from the beginning of the year driven by $65.4 million in Porch shareholder interest cash flow from operations and partially offset by $17.2 million, which was used to reduce our debt. Our 2026 notes have a remaining balance of $7.8 million, which we expect to settle at maturity on September 15, 2026, with cash from the balance sheet. In Q4, cash flow used in operations for Porch shareholders was $5.5 million as the adjusted EBITDA was offset primarily by the $17 million coupon on our convertible notes, which is paid twice per year in Q4 and Q2 and working capital changes. Additionally, our Board of Directors has authorized a $2.5 million share repurchase program, which is the maximum amount permitted under our 2028 indenture. Lastly, shifting to our 2026 guidance for Porch shareholder interest. Underpinning our annual financial guidance is the expectation that we deliver $600 million of organic RWP representing 25% year-over-year growth. For 2026 Porch shareholder interest guidance, we are starting the year with revenue growth expectations of 13% to 17%, resulting in a range of $475 million to $490 million. We assume associated gross margin of 81% to 82%, consistent with 2025, resulting in a gross profit range of $385 million to $400 million. Adjusted EBITDA is expected to be between $98 million to $105 million, representing a margin of approximately 21%. From a modeling standpoint, we expect insurance services revenue growth north of 20% year-over-year, with the software and data and Consumer Services segments expected to grow modestly, given our assumption that U.S. housing activity remains at trough-like levels in 2026. As a reminder of the framework we shared in our 2024 Investor Day, the MBA had initially projected a 20% rise in home purchases from 2024 to 2026. However, their latest forecast suggests only a modest 3% increase. While the soft U.S. housing conditions are persisting longer than expected, our Insurance Services division is more than offsetting that market headwind. One final modeling point relates to the cadence of adjusted EBITDA in 2026. While Q1 revenue and RWP are expected to be higher versus the prior year, we currently expect adjusted EBITDA to be modestly lower year-over-year due to a tough comparison with the legacy captive reinsurance terms. Beyond that, we expect adjusted EBITDA to sequentially improve throughout the remainder of the year in addition to an accelerating top line growth rate. And now I'll hand over to Matthew to provide a strategic update and KPI read. Matthew Neagle: Thank you, Shawn. I'll start by giving a brief business update and then dig into our KPIs. Our 2026 RWP target implies organic premium growth of 25%. In order to achieve that type of lift, we knew we'd need to scale agents and quotes, increase conversion rates and grow statutory surplus. This is what we got done in a major way in 2025. Last quarter, we spoke to the strong progress we made at the top of the insurance funnel, and we're excited to report that the momentum continued in Q4. The number of agencies we added in the quarter more than doubled year-over-year and grew more than 30% sequentially from an already strong Q3 base. This is fantastic, but still only a very small fraction of the total number of agencies in our existing states. Beyond the increase in agency count, the quality of our partnerships continues to improve. In Q4, we deepened our relationship with Ballan Group and prepared for a Q1 launch with SmartChoice, one of the nation's premier agent networks. More agencies mean more agents, more agents mean more quotes. This is reflected clearly in the right-hand chart. Relative to the prior year period, quote volumes were up nearly 3x and unlike typical seasonal declines, quotes increased 9% sequentially from Q3. In November, pricing adjustments for low-risk customers began to hit. We understand the elasticity of the conversion rate curve, given we have more margin in the system than other carriers, we were able to effectively control conversion rates and therefore, growth. We experienced triple-digit growth in Q4 new business premiums, but it's worth double-clicking on the monthly results given progress from our work really began to show up in November. The combination of higher quotes volumes and greater conversion drove November new business premiums up 61% from the January to October time frame. December was 27% higher than November and up 104% versus the January to October average. At the start of January 2026, we officially rolled out Porch insurance, making it available to all agents in Texas. This, combined with further actions on January 1, set us up well to achieve our premium growth goals. Let's move to the Q4 insurance KPIs. Reciprocal rate premium was $126 million, ahead of expectations. As you can see on the right-hand chart, the typical Q4 seasonal decline was much more muted this year. We delivered a $17 million improvement relative to the average Q3 to Q4 decline over the past 3 years. This is due to the impact from our initiatives to grow new business premium. Reciprocal policies written reflects the total number of new and renewal insurance policies written by the reciprocal during the period. We generated policy fee revenue directly from these policyholders. In the quarter, we wrote nearly 49,000 policies. RWP, per policy ring is calculated by dividing the reciprocal rate premium by the total number of reciprocal policies written. And this represents the amount the customer is expected to pay. For the fourth quarter, we posted RWP per policy written of $2,569. Lastly, our RWP to adjusted EBITDA conversion rates remain strong. Simply put, we are generating more profit in doing so without earnings volatility and direct weather exposure as compared to others across our industry. Moving to software and data, where we continue to invest and set these businesses up for robust growth when the housing market recovers. At ISN, we launched the AI image defect detector, which allows inspectors to upload images and have AI flagged potential defects for validation and 1 click report and chip insertion. At Rynoh, the team continued to execute well, delivering enhancements such as wire fraud protection that support ongoing pricing gains. Within our data business, we exceeded our internal goal for Home factors testing. Results from carrier testing continue to indicate strong implied ROI. Not a surprise to us, given we know from our own work that knowing more about property enables better prediction of risk and pricing. As we've said in the past, sales and implementation cycles are long, but the team is making great progress, and we remain optimistic about how this will impact our business as we look ahead. In terms of the software and data KPIs, in Q4, we served approximately 23,000 companies with annualized revenue per company of $3,833, a 7% decline from Q3 due to seasonality. One thing to note, as part of our strategy to focus on larger customers, we plan to sunset certain legacy software products that serve small contractors. This is expected to reduce segment revenue by a few million dollars but positively impact profitability. From a KPI standpoint, this will reduce the number of companies by a few thousand though we expect a favorable offset in the form of higher annualized revenue per company. In our Consumer Services segment, we have been busy extending our partnership efforts in preparing the organization to support Porch Insurance. Like software and data, we feel our targeted investments in lean cost structure positions well for when the housing cycle returns. As for the KPIs, in Q4, we had 77,000 monetized services with annualized revenue per monetized service of $215. We are excited about these businesses beginning to fulfill their purpose and drive meaningful strategic impact by providing all Porch Insurance customers with an included full on warranty, Four hours of moving service, a moving concierge assisting with TV, Internet and security, we not only differentiate in homeowners insurance with unique property and data from our software and data segment, but now we have a fundamentally better product for customers. Our Consumer Services business will deliver value by helping us create the best insurance product for home buyers in growing insurance services revenue faster. I'll now pass it back to Matt to wrap this up. Matt Ehrlichman: Thanks, Matthew. I'll wrap by just reinforcing the most important messages from today. So first, we beat expectations and raised guidance in every quarter in 2025. Q4 adjusted EBITDA of $23 million resulted in full year adjusted EBITDA of $77 million, again, 11x 2024 and well above our initial guidance of $50 million. Cash generation was strong at $65 million for the full year. Clearly, it's a great first year under our new operating model. Second, we successfully bolstered the Reciprocal's capital position, with Q4 statutory surplus of $155 million, again, rising $49 million or 47% versus the end of 2024. This positions us for years of profitable growth ahead. Third, we've demonstrated our ability to manage the growth of premium and are pleased with the quote and conversion rate improvements. The 2026 RWP target of $600 million represents, again, 25% year-over-year organic growth. This will steepen our growth trajectory in 2026 and in turn, puts us on a direct path to reach our medium-term target of $660 million of adjusted EBITDA from $3 billion of premium, which would make us a top 10 homeowners insurance company. We have a mousetrap that's uniquely profitable, where earnings isn't impacted by the volatility of weather and has long term differentiate. I've been transformative and our culture and values is the reason we're now positioned to build what I believe will be a truly great and enduring company. So thank you all for your time today. We do appreciate it. To my fellow shareholders, thanks for your support, and we look forward to continuing this journey with you. With that, John, please go ahead and open up the call for questions. John Campbell: Thank you. [Operator Instructions]Our first question comes from the line of Ryan Tomasello with KBW. Ryan Tomasello: Nice to see the top of funnel, a new customer momentum. I guess in terms of pricing, obviously, the elasticity curve is quite steep. But can you give us a sense of the magnitude of price actions you've taken to drive the acceleration so far and whether more is needed on the pricing side or agent distribution to hit that target of $600 million for the year. And just overall, how much more flexibility do you think you have to continue to lean into pricing to drive higher conversion if you see that opportunity just given where loss ratios are today? Matt Ehrlichman: Yes. I mean on the second point first. I mean, you can see based on where our loss ratios are that we have just tremendous amounts of margin in the system, right? And that is fundamentally a core advantage of what we're able to do and so if we wanted to tick down prices for low-risk new customers, right, the right particular segment of new customers that we want to win, we can do that. . But to your first question, Ryan, like you said it exactly right, which is the slope of the curve of that elasticity curve for new customers is quite steep in certain places. And so you can and we have been able to meaningfully increase conversion without dramatic changes without giving so much price. And you can see that really in some of the metrics that Matthew shared in the KPIs where you see not that big of changes in terms of reciprocal written premium per policy, as an example, so we're able to get the gains that we want with, I would say, very surgical and targeted moves there to the right segment of customers. Obviously, our unique data helps us identify who are those right customers that we want to win and who are the customers that we want to not win and where we're going to be a much higher priced than the rest of the market. And so yes, we feel like we're in control of being able to drive to the right outcomes while still making sure that the reciprocal is very healthy and continuing to perform really well. Ryan Tomasello: And then in terms of the RWP EBITDA conversion, that came in at 23% in the quarter, which was obviously really strong relative to high teens last quarter. How should we think about the operating leverage in that EBITDA conversion as you scale RWP from here? And then for the guidance specifically, can you give us any color on what you're baking in for that WPD EBITDA conversion for the outlook in 2026? Daniel Kurnos: Yes. Happy to take that. So to your point, Ryan, I think you hit the nail on the head, the RWP to adjusted EBITDA conversion again accelerated in the quarter. It improved quarter-over-quarter sequentially. It also improved Q3 versus Q2. And a lot of that is operating discipline. You could see that even we had higher revenue and we kept the operating expenses relatively fixed quarter-over-quarter sequentially. So we're quite pleased with that outcome. And as I mentioned, that comes from cost control being very diligent in how we're running that business and containing those costs. With respect to the guidance for next year, we don't break out guidance by segment. Overall, for the year, obviously, we guided to $102 million at the midpoint, which would be an increase in the overall adjusted EBITDA margin for the company by about just over 300 basis points. So we're excited to provide not only that top line growth, but also the acceleration, an improvement in the adjusted EBITDA margin. The last thing I'll just say on adjusted EBITDA, if I can also, the cash conversion is another thing that we're quite pleased with. Matt mentioned it, I think I mentioned that this year in 2025, rather, we had $65 million of cash flow from operations on $77 million of adjusted EBITDA. So again, quite pleased that it's a very high conversion rate. And I think it just shows the quality of the adjusted EBITDA that we're generating for shareholders. John Campbell: Our next question comes from the line of Jason Helfstein with Oppenheimer. Jason Helfstein: Two questions. The first on Porch Insurance and the second, just about the fourth quarter. So on the Porch Insurance, I guess you've already highlighted for us it's coming out as a more premium product, you get more call like a chub like, but you get more functionality with it. I guess just talk about how you're also able to make it a better deal for agents and then kind of perhaps how the relationship, I think, is with Goose that plays into that? And then secondly, just talk about like why you alluded to, but why was the fourth quarter insurance results kind of better than you guided. And if you recall, there was a pretty steep reaction last quarter. Just maybe talk about do you have improved visibility now as you kind of enter first quarter and just broadly how you think about visibility in the insurance business for the year. Matt Ehrlichman: Maybe I'll take the first. Matthew later on, if there's things you want to add, Shawn, you can take the second. We are excited about Porch insurance. We've been working on this for a long time. And if you look back in years from now, we do think it is going to be a cornerstone of building a household brand, which we fully intend to be able to do. We talked about how it's better for consumers. You're exactly right. Just on we're they get additional coverage, full home warranty. We want Porch insurance to be definitively known as the best insurance product for a home buyer because they get full moving service as well. So we've built these capabilities out in our company for this specific moment so that we are just dramatically differentiated for the consumer. Agents, obviously, therefore, want to sell it because it convert well for them. It's the right product for their customers. But to your question, because there's more margin in our system just overall, we can be able to deploy that. Yes, for more surplus, yes, for more profit at Porch Group, but we're also providing some of that to agents to make sure that they are compensated better than the market, better than their alternatives with bringing Porch insurance out to the market. And so that's obviously great for them. We want to be able to be a true partnership with these agents and help them to be able to prosper as our business also grows. Lastly consumers do pay a 10% surplus contribution, which again creates just more economics in the system. And so that allows us again to be able to share some of that with agents. You mentioned Goosehead specifically, a great partner, great relationship. Just to be clear, Porch insurance is a product we brought out to all Texas agencies just to make sure that, that point was clear. John, do you want to take Q4 results and versus kind of expectations? John Campbell: Yes, definitely happy to. And at the top level, on each metric we performed better than expected, really across from RWP all the way down to adjusted EBITDA. I think the question was specifically for insurance services results and RWP there and revenue. And I think over there, it's really new customer additions that's driving that. We talked about the acceleration there. that we saw in the quarter with the agency incentives and the pricing that we -- adjustments that we made due to the elasticity curve that drove new customer additions, new customers into the book of policies at the reciprocal. The thing I'll just highlight there, too, Matthew included in his remarks, and I think I talked about it a little bit too, typically, we would expect a seasonal decline in Q4 versus Q3 that was much steeper, like homeowners typically don't buy as many homes in Q4 and don't buy home insurance and therefore at the same clip in Q4 as they do in Q3 and Q2. And so we more than offset the typical seasonal decline with those new customer additions. So it's just another way to think about the progress that we made there. And I think as Matthew talked about, and Matt, like we continue to add even more agents that we work with. We're still really just scratching the surface there. And so that team that goes out and recruits new agents and brings them in the door to sell the products continues to exceed expectations, do a phenomenal job. And that just leads to more quotes. And then at our conversion rates, that leads to more new customers. Operator: Our next question comes from the line of Dan Kurnos with Stone. . Daniel Kurnos: Great. Matt, let me stick the landing in Q4, definitely better tone on the messaging, too. I guess a couple of things. If I go back to Ryan's initial question, I think what people are trying to get at effectively is understanding the confidence that you have that this scales, right? And clearly, you've got all the data. I mean you had a record take rate in the quarter, you had record RWP to EBITDA conversion. And just any comfort you can give us around sort of what the long tail looks like as you guys get towards your $3 billion in RWP over time, if those metrics are sustainable would be super helpful. That's number one. And number two, you mentioned several times on the call that you've got excess surplus. I think you -- I lost track after a certain point. We know your history, I think here's a pretty big optimism out there for you guys to put that to work maybe with some what we are calling cashless M&A. So just any thoughts you want to give on that front? And just to be clear, outside of the $600 million in organic RWP, that would be super helpful. Matt Ehrlichman: You got good questions. I'll take them. The first I mean candidly, and also, I don't know how 1 doesn't grow this business sequentially for a long period of time given we have this fundamental margin advantage in this massive industry where the industry is growing, where consumers need are required to have our products in order to have a mortgage the natural kind of characteristics of the market where you buy our product, and you usually have it for a long time, exists. It really is a beautiful market. And so for us, because we have more margin, we are able to drive conversion rate outcomes that we want. Now I do think we've proven a few key things, that we're obviously highlighting, which is, can we grow surplus? Well, clearly, we have grown surplus at the reciprocal dramatically this last year. Can we grow top of funnel? And clearly, we've dramatically grown the number of agencies, the number of quotes and so then it really is just what the conversion rate is. And when we talk about at the beginning of the journey and just scratching the surface, like we are just at the beginning of this journey. Like we are a small player in Texas, which is our largest state. But we'll continue to add more states. We'll continue to grow in existing states. We'll obviously add now the Porch insurance product on top of HOA to kind of hit different customer demographics. So yes, I mean to answer that first question, Dan, I would say we are sincerely, our team meetings fired up about what is ahead for these next 30 years. And when we talk about that midterm goal of that $3 billion target, it's not just this number that's off there, like we are building all the business to be able to go become a top 10 player in that medium term. And then guess what? We're there, we're going to have some other bigger, more ambitious goals. Like I'm looking to build this thing to become a real player, a very large business for a long period of time. It was a lot for answer number one. Number two, the -- there's a lot of ways to be able to grow premium faster with more surplus. We've talked about, obviously, being able to increase conversion rates. There could be other ways to be able to do certain deals to be able to bring more premium on top of our organic not only just M&A, which I know is what you're kind of asking about there, which is we've talked in the past about turning our M&A engine, building pipeline back on, but other things, book rolls or renewal rights deals like there's a variety of ways of things that we can do there. And so we're excited about that and on it, I would say, to be able to create optionality for ourselves Daniel Kurnos: Very comprehensive, Matt. . Operator: Our next question comes from the line of Jason Kreyer with Craig Hallum. Jason Kreyer: So just on the insurance side, we're going from a world of pretty rapid premium increases over the last couple of years. Now I think '26 will be a little bit more muted environment. So I'm curious on a 25% growth target for RWP, how are you balancing that between premium growth and policy growth? Matthew Neagle: Sure. I can take that. We certainly are not expecting the double-digit price increases that we've seen over the last few years. We are, as Matt has mentioned and I mentioned, looking at where we can strategically reduce price for low-risk customers, to increase our conversion rate. And so we aren't materially counting on price increases next year to hit that 25% organic growth number. Jason Kreyer: I wanted to also just ask on surplus a little bit because we've talked the last couple of quarters about Q4 being the best quarter for surplus growth. statutory surplus was up a few million quarter-over-quarter. I'm just wondering if we can break that down like how much of the change in equity impact that versus how much surplus gain came from operational? Unknown Executive: Yes. I'm glad you asked that question. I think that's an important 1 for folks to understand. I think we've articulated a message and you can really see it come through this quarter that the reciprocal owns these 18,300 million Porch shares. And the statutory surplus just is not that sensitive to that. And that's what we saw in the quarter. The stock price, I think at the end of Q3, it was like around $17 and in Q4 was around $9. So with that drop in the stock price, there is only about $10 million, a little bit more than that impact to statutory surplus quarter-over-quarter. So I think it just is the point around like, it's just not that sensitive to it. And it's in a great spot and healthy to support our growth goals. We also, I guess, the other things I'd mention the reciprocals generated a lot of income. So it basin taxes. So that offset some of the underwriting profit. And then all of those 2 things were offset by a really strong underwriting performance with the loss ratios, which just generates operating income after reciprocal. So those are the components. And I guess, what I would just reiterate what I said that from a statutory surplus perspective, I think we're really well positioned for 2026 and our growth goals ahead. Jason Kreyer: Just to clarify, Shawn. So like absent the change in stock price, statutory surplus would have been like $10 million-ish better in the quarter. Is that -- am I understanding that right? Shawn Tabak: Yes. The impact from the stock price movement was just over 10%. It was a little bit more than 10%, but it was around 10 Yes. . Operator: Our next question comes from the line of Timothy Austin from B. Riley Securities. Timothy D'Agostino: I'm looking at Slide 20 and I understand quote volume kind of outgrew that seasonality. But as I look at the active agencies growth quarter-over-quarter, per quote volume. There seems to be some lag. And I guess I was wondering, is that primarily due to seasonality? Or did a lot of agencies come on closer towards the end of the quarter and that quote volume could maybe see a little bit of a tailwind in the first quarter, given maybe a lag for our agencies on at the end of the quarter? Matthew Neagle: Yes, there is a lag. So it's just like any -- bringing on a new customer, there's onboarding and system setup and engagement process. And so the number of agencies is the biggest leading indicator and then it goes into quote volume. I will say we're doing a lot of things to engage and educate our distribution base. And the full rollout of Porch insurance is something that is exciting because it offers them a way to give their consumers a new different product that has these additional things that can be helpful to them. and our commission rates are very competitive with Porch Insurance. And so I'm excited about how all the work we did in Q4, building up our distribution and our number of agents is going to help push us into growth in 2026. Operator: Our next question comes from the line of Tim Greaves with Loop Capital. . Timothy Greaves: I guess my first question is around more, I guess, the competitive landscape and the dynamics there. Have you noticed like a shift in the way competition appears in your key markets? And if so, like how could that impact the business in the near and long term? And what I mean by a shift in the way competition appears is as in our focus from more in-house agents to independent agents from an optician. So that is the query, there would be great. Matt Ehrlichman: I mean there is just this slow but broad shift from in-house agents to independent agents. That obviously is a positive and helpful shift for us because we distribute and work with independent agents. And so we expect that trend to continue. -- overall, last metric we saw more than 60% of all owners insurance policies were purchased through agents. It's a complex product. We think that they're really an important part of the ecosystem, and we want to continue to partner with these agencies to be able to provide them really great products to provide to their customers. So no, it's a good question because, yes, we have seen that particular shift slowly happening. And again, that's a net good thing for us. Timothy Greaves: Okay. I guess my next question would be around the affordability and shopability conversations. What are your thoughts around the affordability conversation and its potential impact to Porch, especially what you guys operate in relatively high priced areas compared to the broader industry? And what have you noticed in those markets around policy shopping and some policy shopping what that could mean for retention rates and competitive wins versus more like, I guess, greenfield typical win? Matthew Neagle: Yes. I mean, certainly, affordability is currently a national conversation. As I had mentioned earlier, we are anticipating raising prices. on our policies to be able to do what we want to do next year. And we have ways to make sure the best customers get the best rate. And so I don't think it will change anything that we are going to do, but certainly, prices are on people's mind, and we're in a good position where we have that as a lever given the kind of the margin profile we currently have to be able to support our growth. Operator: Thank you. And at this time, we have no further questions. I will now turn the call back over to Matt Ehrlichman for closing remarks. Matt Ehrlichman: Thanks very much. Appreciate it. As always, we appreciate the questions. I appreciate the engagement. 2025 was obviously, it's fantastic, fun, exciting year for the company, transformational year for the company. We think 2026 is going to be another just fantastic year for us as we continue on this journey. So again, to our shareholders, we appreciate your support and partnership and we will talk with you all soon.
Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At time, I'd like to welcome Vanda Pharmaceuticals, Inc. Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Kevin Moran, Vanda's Chief Financial Officer. Please go ahead. Kevin Moran: Thank you, Jordan. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' Fourth Quarter and Full Year 2025 performance. Our fourth quarter and full year 2025 results were released this afternoon and are available on the SEC's EDGAR system and on our website, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today's call is Dr. Mihael Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board; and Tim Williams, our General Counsel. Following my introductory remarks, Mihael will update you on our ongoing activities. I will then comment on our financial results before we open the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, risk factors and Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and other filings with the SEC, which are available on the SEC's EDGAR system and on our website. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Dr. Mihael Polymeropoulos. Mihael Polymeropoulos: Thank you very much, Kevin. Good afternoon, everyone, and thank you for joining Vanda Pharmaceuticals Fourth Quarter and Full Year 2025 Financial Results Conference Call. 2025 was a year of strong commercial execution and significant regulatory and clinical advancements for Vanda. I will briefly address some of the key highlights. . Our lead product, Fanapt, drove impressive growth. Full year net product sales increased 24% to $117.3 million versus 2024, and supported by a 28% rise in total prescriptions and a remarkable 149% surge in new-to-brand prescriptions. This reflects accelerating momentum broader prescriber adoption and the impact of our target commercial investments, including direct-to-consumer campaigns that boosted brand awareness. Our full commercial franchise, Fanapt, HETLIOZ, HETLIO LQ and PONVORY generated total revenues of $216 million for the year, up 9% year-over-year, demonstrating solid performance across our marketed products. Clinical and regulatory milestone highlights, we achieved a major regulatory win with the FDA approval of [ Nereus ] tradipitant in late 2025, for the prevention of vomiting induced by motion. The first new oral pharmacologic option in this space in over 40 years. This approval offers a substantial market opportunity in motion signals. Most of sickness is a common condition with prevalence estimates indicating that approximately 25% to 30% of U.S. adults roughly 65 million to 78 million people experience symptoms during travel or motion in exposure. Tens of millions seek pharmacologic relief annually, yet current users are often limited by adverse events or inconsistent efficacy. [indiscernible] addresses this unmet need is well-tolerated, targeted neurokinineceptor antegrade and we're actively preparing for its commercial launch to bringing this common issue. Separately, we see strong adjunct potential for [ Nereus ] in the rapidly expanding GLP-1 agonist market. These therapies used for diabetes and obesity management have seen explosive growth with market projections in tens of millions annually and vomiting remains a frequent side effect, impacting up to 50% patients on agents like semaglutide. Nereus demonstrated positive clinical results in preventing vomiting induced by the GLP-1 analog semaglutide in our study. To capitalize on this, we plan to initiate a dedicated Phase III program in the first half of 2026, pursuing label expansion in this high potential area where better tolerability will significantly improve based on adherence and outcomes. The [indiscernible] NDA for bipolar 1 disorder in schizophrenia is under FDA review with a PDUFA target action date of February 21, 2026, a Approval would further strengthen our growing suite and franchise alongside Fanapt in the global and psychotic category. This category has a total addressable market estimated at approximately $20 billion in 2025. We submitted the imsidolimab BLA in the fourth quarter of 2025 for generalized pustular psoriasis, advancing us towards potential approval for this serious unmet need. Imsidolimab is a fully humanized ID4 monoclonal antibody that inhibits IL-36 receptor signaling and is being developed for GPP [indiscernible] indication. Regulatory and patent exclusivity for Imsidolimab is expected to extend into the late 2030s. Vanda hold an exclusive global license for the development and commercialization of imsidolimab from [ AnaptysBio. ] GPP flares involved painful [indiscernible] over large skin areas accompanied by redness, itching and systemic symptoms and can be life-threatening. Late-stage clinical development programs include a Phase III study of [ Visante ] as a once-a-day adjunct treatment for major depression which is ongoing and results expected by end of the year. Major depressive disorder is the most common psychiatric disorder in the United States, affecting more than 20 million American adults in any given year according to estimates from the usual into mental health and large-scale servers. It is characterized by persistent feelings of sadness, loss of interest or pleasure, fatigue, changes in appetite to sleep feelings of worthless and impaired concentration for decision-making, often leading to significant functional impairment in work, relationships and daily live. MTD exhibits highly variable clinical expression and natural course, ranging from single episodic events to recurrent or chronic forms with episodes varying the severity, duration and responsive triggers. Despite the availability of multiple evidence-based treatments, a substantial unmet medical need remains, approximately 30% to 50% of patients achieved only partial response or emission with first-line therapies, many experienced treatment resistant depression relapse rates are high even after initial improvement and side effects were delayed the onset of action, limit tolerability and appearance for a significant percent of individuals. This persistent gap underscores the need for novel, more effective and better-tolerated adjunctive or alternative treatments to address the full spectrum of MDD. The Phase III study of the long-acting injectable LAI formulation of [indiscernible] continues to enroll patients for schizophrenia in lapse prevention representing a key enhancement to Fanapt's long-term utility in psychiatric care. The long-acting injectable LAI and psychotics market represents a significant and growing opportunity within the broader antipsychotic and psychiatric treatment landscape driven by the need for improved adherence in chronic conditions like schizophrenia and bipolar 1 disorder, where nonadherence total meds contributes to high relapse rates, hospitalizations and costs. Estimates for the global LAI and psychotic specific market vary across reports, but consensus points to a 2025 size in the $6 billion to $7 billion range with strong growth projected. A Phase III study of VQW765 our alpha-7 nicotinic [indiscernible] parcel agonist in adults with social anxiety disorder has been initiated with results expected by end of 2026. Social anxiety disorder SAD affects approximately 30 million American adults according to the 2023, National Health and Wellness Survey with onset typically in the mid-teens or earlier and slightly higher diagnosis rates in females and males. It manifests as excessive fear of embarrassment, humiliation, scrutiny, evaluation or ejection social or performance situations leading to avoidance or intense distress a significantly bears daily routine portation functioning, social life and overall quality of life. Though individuals are generally asymptomatic, absent such triggers. Standard treatments include cognitive behavioral therapy, but many patients struggle to initiate or tolerate exposure due to the severity of anxiety. Off-label options like benzodiazepines offer rapid calming effects but carry risks of abuse, misuse, addiction and black box warnings for interactions and dependency. Beta blockers provide situational relief, but limited broader efficacy. This highlights the need for novel on-demand therapies like VQW765 to address acute episode more effectively. Our clinical development programs for PONVORY, ponesimod in psoriasis and ulcerative colitis are ongoing, building on its established profile as a selective S1 P1receptor modulator approved for relapsing multiple sclerosis. For psoriasis, PONVORY has already demonstrated strong efficacy in earlier studies, including a Phase II randomized double-blind placebo-controlled trial, so a significant [indiscernible] 75 responses, that is greater than 75% reduction in psoriasis area and severity index at week 16 across tested doses of 10, 20 and 40 milligrams with sustained improvements in symptoms of moderate to severe chronic plaque psoriasis in a favorable time course of response. [indiscernible] in updates indicate advancement toward Phase III evaluation positioning Poor as a potential oral option in this large inflammatory dermatology market. For ulcerative colitis, the S1P mechanism has been robustly validated by the successful commercialization and approvals of other modulators, symposia [indiscernible] have shown efficacy in Phase III trials for moderate-to-severe ulcerative colitis, achieving clinical remission and mucosal healing superior to placebo. PONVORY may be particularly well suited for this indication due to its pharmacological advantages of rapid onset of action faster lymphocyte sequestration compared to some [indiscernible] members and rapid lymphocyte recovery upon discontinuation. This profile offers greater flexibility for managing infections, vaccination, surgery [indiscernible] planning or therapy switches, key considerations in chronic IBD where treatment interruptions or adjustments are coming. This expansions which significantly broadened for PONVORY addressable patient population and leverage its differential-aided pharmacokinetics to address unmet need in autoimmune informatory diseases beyond multiple sclerosis. We look forward to progressing these programs and sharing updates as they advance. Looking forward, we expect 2026 total revenues of $230 million to $260 million from our current marketing products only that is FANAPT, HETLIOZ, HETLIO LQ and PONVORY establishing a strong baseline. We anticipate continued growth from this portfolio with further contributions from the Nereus launch and potential approvals of [indiscernible] and imsidolimab plus progress across our late sales programs. We believe that our growing psychiatry franchise is well positioned for expansion anchored by Fanapt on the market for schizophrenia and bipolar 1 disorder with is caped currently under FDA review for bipolar 1 in schizophrenia with a PDUFA February 21, and in 2026. And in ongoing Phase III clinical development as an adjunctive treatment for major depressive disorder. Long-acting injectable formulation of Alpert advanced in Phase III for schizophrenia relapse prevention and 765 in a Phase III study for social an disorder with results expected by the end of 2026, collectively strengthening our portfolio across key psychiatric indications. In summary, 2025 showcased our ability to drive revenue while building a diversified, high-potential pipeline. We remain committed to delivering innovative therapies and long-term value for patients and shareholders. With that, I'll turn it over to Kevin. Kevin? Kevin Moran: Thank you, Mihael. I'll begin by summarizing our financial results for the full year 2025 before turning to discuss the fourth quarter of 2025. Total revenues for the full year 2025 were $216.1 million, a 9% increase compared to $198.8 million for the full year 2024. The increase was primarily due to growth in Fanapt revenue as a result of the bipolar commercial launch, partially offset by decreased HETLIOZ revenue as a result of generic competition. Let me break this down now by product. Fanapt net product sales were $117.3 million for the 24% increase compared to $94.3 million for the full year 2024. This increase in net product sales relative to the full year 2024 was attributable to an increase in volume. Fanapt total prescriptions, or TRx, as reported by Equibia Exponent for the full year 2025 increased by 28% compared to the full year 2024. Fanapt new patient starts for the full year 2025, as reflected by new-to-brand prescriptions, or NBRx, increased by 149% compared to the full year 2024. Turning to HETLIOZ. HETLIOZ net product sales were $71.4 million for the full year 2025, a 7% decrease compared to $76.7 million in the out of continued generic competition in the U.S. The decrease to net product sales relative to the full year 2024 was attributable to a decrease in volume and price net of deductions. Of note, for the full year 2025, HETLIOZ continued to retain the majority of market share despite generic competition now for over 3 years. And finally, turning to PONVORY. PONVORY product sales were $27.4 million for the full year 2025, a 2% decrease compared to $27.8 million for the full year 2024. Of note, an amount of variable consideration related upon PONVORY net product sales is subject to dispute of which approximately $3 million was recognized for the 3 months ended December 31, 2024. For the full year 2025, Vanda recorded a net loss of $220.5 million compared to a net loss of $18.9 million for the full year 2024. The net loss for the full year 2025 included income tax expense of $81.8 million as compared to an income tax benefit of $4 million for the full year 2024, primarily driven by a onetime noncash income tax charge. The provision for income taxes for the full year 2025 includes the impact of the recording of a valuation allowance of $113.7 million against all of Vanda's deferred tax assets. To reiterate, the recording of this valuation allowance is onetime in nature and is a noncash charge. The company has its deferred tax asset each quarter through the review of all available positive and negative evidence. Deferred tax assets are reduced by a valuation allowance when in the opinion of management, it is more likely than not that some portion or all of those deferred tax assets will not be realized. This analysis is highly dependent upon historical and projected pretax income. Projected pretax income includes significant assumptions related to revenue, which could be affected by the trajectory of the commercial launches of Fanapt in bipolar disorder PONVORY multiple sclerosis and Nereus in the prevention of vomiting induced by motion, which was approved on December 30 of 2025 and HETLIOZ generic competition as well as commercial and research and development activities, including spend on our commercial launches and late-stage clinical activities and our ability to obtain regulatory approval from the FDA for products or new indications in development, among other factors. In the fourth quarter of 2025, after considering all available positive and negative evidence including, but not limited to, historical, current and future projected results, and significant risks and uncertainties related to forecast, the company concluded that it is more likely than not that substantially all of its deferred tax assets are realizable in future periods and recorded a valuation allowance against all net deferred tax assets. Resulting in a noncash income tax expense of $113.7 million for the year ended December 31, 2025. Operating expenses for the full year 2025 were $367.3 million compared to $239.4 million for the full year 2024. The $127.8 million increase was primarily driven by higher SG&A expenses related to spending on Vanda's commercial products as a result of the commercial launches of Fanapt in bipolar disorder and PONVORY in multiple sclerosis. Expenses associated with the preparation for future commercial launches and higher R&D expenses primarily related to the exclusive global license agreement with an Fanapt for the development and commercialization of imsidolimab, which was entered into during the first quarter of 2025 and our Fanapt long-acting injectable and [indiscernible] major depressive disorder clinical development programs. During 2024 and 2025, we commenced a host of activities as a result of the commercial launches of Fanapt by for disorder and PONVORY multiple sclerosis including an expansion of our sales force and the development of prescriber awareness and comprehensive marketing programs. Additionally, in the first quarter of 2025, we launched our direct-to-consumer campaign, which has driven meaningful gains in brand awareness for the company and our products in [indiscernible] We maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. Vanda's cash, cash equivalents and marketable securities referred to as cash as of December 31, 2025, was $263.8 million, representing a decrease of $110.8 million compared to December 31, 2024, and a decrease of $29.9 million compared to September 30, 2025. The changes in cash during the full year 2025 and the fourth quarter 2025 were driven by the net loss in those periods, excluding the impact of the onetime noncash charge related to the tax valuation allowance as well as timing of cash received from customers for revenue and related payments of rebates to payers and the timing of cash paid to third parties for services related to operating expenses. Turning now to our quarterly results. Total revenues were $57.2 million for the fourth quarter of 2025, an 8% increase compared to $53.2 million for the fourth quarter of 2024 and a 2% increase compared to $56.3 million in the third quarter of 2025. The increases as compared to the fourth quarter of 2024 and the third quarter of 2025 were primarily due to growth in Fanapt revenue as a result of the bipolar commercial launch. Let me break this down now by product. Fanapt net product sales were $33.2 million for the fourth quarter of 2025, a 25% increase compared to $26.6 million in the fourth quarter of 2024 and a 6% increase compared to $31.2 million in the third quarter of 2025. Fanapt total prescriptions, or TRx, as reported by Equibia Exponent in the fourth quarter of 2025, increased by 36% compared to the fourth quarter of 2024 and 8% compared to the third quarter of 2025. Fanapt new patient starts in the fourth quarter of 2025 as reflected by new-to-brand prescriptions, or NBRx, increased by 108% compared to the fourth quarter of 2024 and by 7% compared to the third quarter of 2025. The increase in Fanapt revenue between the fourth quarter of 2024 and the fourth quarter of 2025 was primarily attributable to an increase in volume. The increase in Fanapt revenue between the third quarter of 2025 and the fourth quarter of 2025 was also attributable to an increase in volume. These increases in volume were primarily driven by increased total prescription demand. Historically, Fanapt inventory at wholesalers has ranged between 3 and 4 weeks on hand as calculated based on trailing demand. As of the end of the fourth quarter of 2025, Fanapt inventory at wholesalers was slightly above 4 weeks on hand which was generally consistent with the level of inventory weeks on hand as of the fourth quarter of 2024 and the third quarter of 2025, but slightly above the historic range. Turning to HETLIOZ. HETLIOZ net product sales were $16.4 million for the fourth quarter of 2025, an 18% decrease compared to $20 million in the fourth quarter of 2024 and a 9% decrease compared to $18 million in the third quarter of 2025. The decrease in net product sales relative to the fourth quarter of 2024 was primarily attributable to a decrease in price net of deductions as well as a decrease in volumes sold. The decrease in net product sales relative to the third quarter of 2025 was primarily attributable to a decrease in price net deductions, partially offset by an increase in volume. HETLIOZ net product sales continue to be impacted by changes in inventory stocking at specialty pharmacy customers from period to period. Going forward, HETLIOZ net product sales may reflect lower unit sales as a result of the reduction of the elevated inventory levels at specialty pharmacy customers or maybe variable depending on when specialty pharmacy customers need to purchase again. Further, HETLIOZ net product sales may decline in future periods potentially significantly related to continued generic competition in the U.S. And finally, turning to PONVORY. PONVORY net product sales were $7.6 million for the fourth quarter of 2025, an increase of 17% compared to $6.5 million in the fourth quarter of 2024 and an increase of 8% compared to $7 million in the third quarter of 2025. The increase in net product sales as compared to the fourth quarter of 2024 was attributable to an increase in price net of deductions, partially offset by volume. The increase in net product sales as compared to the third quarter of 2025 was attributable to an increase in price net of deductions, partially offset by volume. The specialty distributor and specialty pharmacy inventory on hand levels during these periods were in line with normal ranges. Of note, underlying patient demand has increased, albeit modestly on a sequential quarter basis for the last 3 quarters. Additionally, as previously noted, an amount of variable consideration related PONVORY net product sales is subject to dispute of which approximately $3 million is recognized for the 3 months ended December 31, 2024. For the fourth quarter of 2025, Vanda recorded a net loss of $141.2 million compared to a net loss of $4.9 million for the fourth quarter of 2024. From an income tax perspective, the net loss for the fourth quarter of 2025 included an income tax expense of $103.2 million as compared to an income tax benefit of $1.6 million for the fourth quarter of 2024. Primarily driven again by the onetime noncash income tax charge of $113.7 million for the tax valuation allowance. Operating expenses in the fourth quarter of 2025 were $97.6 million compared to $63.5 million in the fourth quarter of 2024. The $34.1 million increase was primarily driven by higher SG&A expenses related to spending on Vanda's commercial products as a result of the commercial launches of Fanapt in bipolar disorder and or is associated with the preparation for future commercial launches and higher R&D expenses. During 2024 and 2025, we commenced the host of activities as a result of the commercial launches of Fanaptum bipolar 1 disorder and PONVORY multiple sclerosis, including expansions of our sales force and the development of prescriber awareness and comprehensive marketing programs. Additionally, in the first quarter of 2025, we launched our direct-to-consumer campaign, which has driven meaningful gains in brand awareness for the company and our products, Fanaptum PONVORY. We maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. With regards to the launches of fenaptin bipolar 1 disorder and PONVORY multiple sclerosis, as I mentioned, the launches were initiated in 2024, and we continue to enhance our commercial infrastructure in 2025, and with the impact of these commercial efforts contributing to revenue growth in 2025 and expected to continue to contribute to revenue growth in 2026 and beyond. We have already seen significant growth in our commercial activities. Several lead indicators suggest a strong market response to our commercial activities related to Fanapt. Total prescriptions increased by 36% in the fourth quarter of 2025 as compared to the fourth quarter of 2024, New patient starts or NBRx, increased by 108% in the fourth quarter of 2025 as compared to the fourth quarter of 2024. And of particular note, Fanapt was one of the fastest-growing atypical antipsychotics in the market throughout 2025 and based on numerous prescription metrics. Our Fanapt sales force numbered approximately 160 representatives at the end of 2024 and increased to approximately 300 representatives at the end of 2025. These sales force expansions have allowed us to significantly increase our reach and frequency with prescribers. To that end, the number of face-to-face calls in the fourth quarter of 2025 was more than twice the number of face calls in the fourth quarter of 2024. We've established a specialty sales force to market upon borates and neurology prescribers around the country. We've grown this sales force to approximately 50 representatives at the end of 2025. Fanapt performance remains the focus of our commercial initiatives and encourages us to content and, if approved, the franchise extending launch of Vasanti. Before turning to our financial guidance, I would like to remind folks that with Fanapt, HETLIOZ and PONVORY, already commercially available and with the nearest NDA recently approved for motion sickness, and the [indiscernible] NDA for biplan disorder and schizophrenia under review by the FDA and a biologics license application, BLA, for imsidolimab now submitted to the FDA, Vanda could have 6 products commercially available in 2026. Turning now to our financial guidance. Due to the recent and upcoming regulatory and commercial milestones, Vanda's 2026 financial guidance is limited to revenue guidance for currently commercialized products, which includes Fanapt, HETLIOZ and PONVORY. Vanda expects to achieve the following financial objectives in 2026. Total revenues from Fanapt HETLIOZ and PONVORY of between $230 million and $260 million. The midpoint of this revenue range would imply revenue growth in 2026 of approximately 13% as compared to full year 2025 revenue. Fanapt net product sales of between $150 million and $170 million. The midpoint of this revenue range would imply a revenue growth in 2026 of approximately 36% as compared to full year 2025 Fanapt revenue. Assuming consistent gross to net dynamics between 2025 and 2026, the bottom end of this range assumes mid- to high single-digit quarterly TRx growth for Fanapt in 2026. The top end of this range assumes low double-digit to mid-teen quarterly TRx growth for Fanapt in 2026. Other net product sales of between $80 million and $90 million. This range assumes a further decline of the HETLIOZ business due to the generic competition and modest growth in the PONVORY business, we are seeking to significantly improve market access to the product. Depending on our success in these efforts, we could see meaningful improvement in patients on therapy, prescriptions filled and prescriptions written by prescribers. It is worth commenting that the quarterization of revenue in 2026 will be impacted by several items, including insurance plan transitions as patients adjust to new insurance plans at the start of the year, there may be some disruptions in the first quarter. This is typical industry-wide occurrence and consistent with our own historical trends. As I previously mentioned, as of December 31, 2025, HETLIOZ inventory at specialty pharmacy customers was elevated, which may result in fewer specialty pharmacies customers ordering or specialty pharmacy customers ordering smaller amounts in the first quarter of 2026. Vanda is currently making conditional investments to facilitate future revenue growth. Both in the form of R&D investments, commercial inventory production and potentially outsized commercial investments, which could vary moving forward depending on the success of these commercial strategies. Vanda is not providing 2026 cash guidance at this time. However, it is likely that Vanda's 2026 cash burn will be greater than the cash burn in 2025. It is also worth noting that the quarterization of cash balances will be impacted by several items. The first quarter cash balance will be impacted by [indiscernible] in the first quarter of 2020 and for the approval of Nereus in the U.S., the $10 million was accrued in the fourth quarter of 2025 and capitalized as an intangible asset that was not paid as of year-end 2025. The impact of revenue quarterization previously noted, and the standard timing of certain items paid in the first quarter of each year. The full year cash balance will also be impacted by the potential of a $5 million milestone payment to [indiscernible] if the imsidolimab BLA is approved by the FDA and the timing of payments associated with commercial inventory production for our upcoming and potential commercial launches. With that, I'll now turn the call back to Mihael. Mihael Polymeropoulos: Thank you very much, Kevin. At this point, we'll be happy to address your questions. . Operator: [Operator Instructions] Your first question comes from the line of Madison El-Saadi from B. Riley Securities. Madison Wynne El-Saadi: Maybe I'll start with [indiscernible] pathway and the bioequivalent to Fanapt you've shown. I'm just curious if you could characterize any FDA communication on outstanding issues that came up during the review cycle, if there any requests related to CMC or labeling scope questions that you could discuss and then assuming approval, is there a day one commercial strategy you could walk us through? Just recognizing it's really about transition patients from Fanapt to [indiscernible] Mihael Polymeropoulos: Yes, sure. Thanks, Madison. So first of all, this is a NDA, and it is not a bioequivalents like a generic, while bioequivalence data are important. So think of it as a completely new drug application. In terms of the -- how the review is going -- of course, we don't give incrementals. But I would say, we remain optimistic for an on-time approval. Now your question on commercial plan. First of all, the commercialization, if approved later this month, will have to wait for some time in Q3 when commercial supplies will be ready. And between the sign and then we'll have more color we can give on the launch strategy of [indiscernible] and also the interplay with Fanapt. Operator: Your next question comes from the line of Raghuram Selvaraju Vera from HCW. Raghuram Selvaraju: I was wondering if you could comment on what you expect the commercial infrastructure size and scope to be for imsidolimab assuming timely approval? Mihael Polymeropoulos: Thank you very much. So as you know, GPP is quite rare that most likely would be addressed with a small sales force visiting dermatologists and any advocacy organizations around this disorder. And there is a better awareness than it used to be since the 2021 approval of specolimab from Berger Ingelheim. So we believe that a dedicated small specialty sales force will be the key commercial asset that is needed. Raghuram Selvaraju: Okay. Great. Is there any additional detail you can provide to us regarding promotional activities in support of Fanapt and [indiscernible] particularly as this pertains to any direct-to-consumer campaigns you may have planned over the course of 2026. Mihael Polymeropoulos: Yes. At this time, we don't have a Visante campaign plan, the direct to consumer campaigns that Kevin alluded to, is consisting of a brand awareness of Vanda overall through sponsorships and direct-to-consumer campaign on product that is Fanapt and PONVORY. We expect that to continue in similar cadence like the past year. And with the commercial launch of [indiscernible ] we expect to have a dedicated campaign for that, but no concrete plans at this time. . Unknown Analyst: And then with respect to Nereus and tradipitant as a whole, can you maybe offer us some additional contextual information on the following 3 aspects. Firstly, I'm not sure whether I may have missed this earlier. But can you just confirm to us when you expect Nereus to be commercially available the recently approved indication. Secondly, if you have any additional feedback or context to provide at this time regarding the regulatory outlook for tradipitant in [indiscernible] and then lastly, if you can give us a sense of what you expect the time line to be completion of enrollment in the envisaged Phase III trial assessing tradipitant and attenuation or prevention of nausea and vomiting associated with GLP-1 receptor agonist drugs. Mihael Polymeropoulos: Of course. On commercial availability, we're working in preparing now commercial materials. And we expect available commercial materials, either by late Q2 or beginning of Q3. In terms of the regulatory path in gastroparesis, we are now preparing for a hearing at the FDA. That was in the balance for a little while, but now we have resumed and we expect to hear from the FDA in the near future, whether or not they're going to grant a hearing, and we'll take it from there. In terms of the US study for GLP-1 analog, remind everyone, we had a very strong Phase II study in prevention of vomiting and we are now in the process of initiating a Phase III study, which we believe could produce results by late Q3, Q4 for this new Phase III study. Raghuram Selvaraju: And then very -- one last quick 1 for me. Regarding the iloperidone LAI. You mentioned, I think, in the prepared remarks and the press release. that the Phase III program for iloperidone LAI is currently enrolling patients. Do you anticipate completing enrollment in that Phase III program before the end of this year? Mihael Polymeropoulos: Yes, it is enrolling. However, we're not satisfied much with the speed. And that is primarily because of the delays in launching this study in Europe. And it's not delays the company can control it is more resistance in conducting placebo-controlled studies in Europe and other considerations. So that is definitely slowed down. the rate of recruitment we have now, it is encouraging that things are picking up and moving in the U.S. alone. But I would say I don't have good visibility where they will be able to reach the recruitment goals by year-end. Operator: Your next question comes from the line of Olivia Brayer from Cantor Fitzgerald. Unknown Analyst: This is Sam on for Olivia. A quick one from me. I may have missed this during the call, but could you provide some more color on the Fanapt GTN impacts given the increase in volume and the difference between that and the sales increase year-over-year? Kevin Moran: Yes. Thanks, Sam. Yes, so what we saw on a year-over-year basis, and I think what you're highlighting is that the script growth outpaced the overall revenue growth and wh1at we've seen on a year-over-year basis is a relatively small reduction in net price, and that's due to a couple of gross-to-net items, some of which we highlighted during last year's earnings call which was primarily related to the introduction of the Medicare benefit redesign as part of the IR -- so that began at the beginning of this year. So that was a gross to net differential between 2025 and 2024. And then additionally, in the Q3 call, we commented on that we've seen an increased gross to net item and unfavorable gross item related to commercial co-pay support which, to some extent, should be expected as with the bipolar indication, you would expect to see a higher proportion of commercial patients relative to port would then increases in terms of gross to net items. So that's the bridge kind of between the TRx growth and the revenue growth where there was a relatively small difference between the 2 percentage wise. Unknown Analyst: And is that expected to stabilize? Or is there a possibility that it could keep increasing moving forward? Kevin Moran: Well, so the Medicare piece has a phase in on there was a 1% fee in 2025 that increases to 2% this year. But in general, we would expect the gross to net to be consistent, absent there being some significant change in the underlying business or payer dynamics. The one thing that I would flag for you that we've highlighted previously, especially with the [indiscernible] PDUFA date right in front of us, is that the gross to net dynamics on [indiscernible] are significantly different and favorable relative to Fanapt. And that's because Vasanti will get a new Medicaid URA calculation, a reset there. And so as you might remember, 30% to 40% of our Fanapt business is Medicaid. And currently, that contributes negative revenue, meaning the gross to net adjustment exceeds the gross revenue for us. It's actually a negative revenue contribution. And with Vasanti, you'll get a complete reset on that so that you'll be subject to the statutory 23.1% discount, but none of the other adjustments that come with having a product on the market over time. . And so whereas our gross to net, we've previously communicated is in the neighborhood of 50% on Fanapt. We'd expect it to be more like in the mid-30s on Vasanti. Operator: Your final question comes from the line of Andrew Tsai from Jefferies. Lin Tsai: One more on the guidance [indiscernible] this year, $150 million to $170 million at the midpoint. Seems like that could be 35% to 40% year-over-year growth. And I believe you mentioned in the prepared remarks, maybe volume grows by 10%, give or take, at the midpoint. So is it -- do we imply that net price will be growing by 30%, if so, why? And then secondly, how much of that guidance range for 2026 seems cannibalization from the [indiscernible] launch in Q3 . Kevin Moran: Yes. So Andrew, first, on the first point there, so our revenue guidance range, the $150 million to $170 million, right? So midpoint of $160 million. I think what you're referencing is I, in the prepared remarks, commented that the lower end of the range would have mid- to high single-digit TRx growth and then the higher end of the range would have low double digit to mid-teens. Yes. So Andrew, first, on the first point there. engine a I think what you're referencing is in the prepared remarks commented that the lower end of the range would have mid- to high single-digit TRx growth and then the higher end of the range would have low double digit to mid-teens. That's sequential quarter growth, so quarterly growth of those numbers. So the revenue getting to $160 million would be almost entirely TRx driven, volume driven. With Medicaid and now the Medicare redesign as part of IRA, price increases are somewhat capped if your business is not significantly driven by commercial markets. And so yes, that revenue growth is almost entirely volume-driven. And then on your second question, on [indiscernible], again, we are very excited about the PDUFA date coming up very quickly here. But as Mihael mentioned, it will be in the back half of the year by the time that a launch would occur and there's $0 of revenue contribution in the revenue guidance that we've provided. Lin Tsai: Okay. And secondly, Nereus, how are you thinking about remind us list price, net price how fast can sales grow in the first 4 quarters when you launch also in Q3? Kevin Moran: Yes. Thanks, Andrew. So we haven't communicated a price on Nereus yet. But what we have noted is that in terms of some data points drawn in the market, the NK1 class, which you typically see there is that for a dose of one of the other NK1s that's approved in the market, those can range from between $200 to as high as $600 a dose. And what we also have commented on is that for the available treatments in the market for -- that are used for motion sickness, namely Dramamine or scopolamine patches, we expect our price to have a premium relative to those prices. . So hopefully, those are some data points that can kind of help frame the kind of pricing dynamic there. And then as Mihael mentioned, with the launch likely happening in late Q2 or early Q3, we didn't provide guidance at this time, but the numbers Mihael quoted in his prepared remarks around the prevalence of motion sickness and the proportion of those people seeking treatment. And so we're excited about the possibilities there, although we haven't provided specific guidance. . Lin Tsai: Very good. And then last one for me. study Phase III, where I think you said the data could be ready second half of this year. Is there going to be the same trial design in the Phase II? And are you expecting to see the same 50% relative reduction in vomiting? And then Secondly, my understanding is the trial is using a high upfront dose of WEGOVI. And so are there precedents of drugs that were approved the reference drug also use a relatively high upfront dose sale? Mihael Polymeropoulos: On the first question, Andrew. Yes, the design is going to be very similar to the prior study. And we will use, again, as the challenge a 1 milligram again we gave naive patient. I understood your second question, would you mind clarifying? Lin Tsai: Sure. Rather than titrating [indiscernible] over the course of weeks, your trial lines have been using a high 1 mg upfront dose. [indiscernible] is that have FDA buy in? Or is there some kind of precedent around that kind of unique trial design kind of thing. Mihael Polymeropoulos: Well, it is a logical design. If the drug works at a higher challenge than you expect it to work in the lower sales. And the selling patients are facing is usually with rapid titration in higher doses. You are correct if you are implying that we've got the guidance now on the label is to start low and go slow, you start with 0.25 milligrams, and you only reach the 1 milligram dose we're using at week 9. So while it is true that the titration is different. We don't expect that the drug will work. Operator: That concludes the question-and-answer session. I'd now like to turn the call back over to Vanda management for closing remarks. Mihael Polymeropoulos: Thank you very much all for joining us. We will see you at the next call. . Operator: That concludes today's meeting. You may now disconnect.
Operator: Hello, and welcome to McDonald's Fourth Quarter 2025 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin. Dexter Congbalay: Good afternoon, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski; Chief Financial Officer, Ian Borden; and Chief Restaurant Experience Officer, Jill McDonald. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay on our website. And now I'll turn it over to Chris. Christopher Kempczinski: Good afternoon, everyone, and thank you for joining us today. I want to start by recognizing the resilience and commitment of the McDonald's system. Our franchisees, suppliers and employees showed up for our customers and supported communities to close the year with strong momentum and a solid foundation heading into 2026. In 2025, McDonald's delivered system-wide sales of nearly $140 billion, up 5.5% in constant currency for the full year. This reflects solid comp sales growth of more than 3% for the full year and over 5.5% in the fourth quarter with strong growth across all segments. Our system-wide sales growth also reflects the benefit of our accelerating pace of new restaurant openings. In 2025, we opened 2,275 restaurants on top of the more than 2,000 restaurants we opened in each of the prior 2 years. all while we've continued to see attractive returns from these new restaurants. Our pace of new store openings will accelerate further as we target approximately 2,600 gross restaurant openings in 2026, which keeps us on track to achieve 50,000 restaurants by the end of 2027. Despite a challenging industry backdrop, our system stayed agile throughout 2025 by concentrating on what we can control. As we look to 2026, success will again depend on going 3 for 3, compelling value that brings customers in the door, breakthrough marketing that creates meaningful moments for our fans and menu innovation that provides great tasting food for our customers. We believe this disciplined focus enables McDonald's to outperform in any environment. Let's start with value. We've listened to customers and adjusted along the way with a relentless focus on delivering leadership in value and affordability. And our efforts are working. In the U.S., we launched McValue at the start of the year, which drove immediate incrementality and then we relaunched extra value meals in September. As we've said before, we'll measure success of our EVM program in 2 ways: through our ability to gain share of low-income traffic; and by improving value and affordability experience scores. I am pleased to say that our EVM performance in the fourth quarter is exactly where we had hoped to be at this point. Together with McValue and marketing, we gained share with low-income consumers in December, and we've seen a meaningful increase in our value and affordability scores. Predictably, as U.S. franchisees provided these stronger value offerings throughout the year, their cash flow grew versus the prior year. In our big 5 international operated markets, we've offered everyday affordable price options or EDAP and menu bundles since early 2025. As awareness for these programs has grown, we've seen value and affordability scores steadily improve throughout the year, which also tell us they're resonating with customers. As I've said before and I will say again, McDonald's is not going to get beat on value and affordability. It's in our DNA, and we will remain agile to respond as appropriate to a dynamic competitive landscape. That takes us to marketing. We once again activated in ways that reached far beyond our restaurants and into global culture in 2025. The Minecraft movie collaboration was our largest global campaign ever, bringing together 2 iconic fandoms across more than 100 markets and 37,000 restaurants. And most recently, The Grinch returned after first debuting in Canada in 2024. The campaign, which came to life in several markets in 2025, drove extraordinary excitement, sparking sellouts and becoming a true holiday moment for millions of families. With the inclusion of Grinch's themed collectible socks in many markets, we were the largest seller of socks in the world for nearly a week. We sold about 50 million pairs globally across the first few days of the campaign. Both record-setting programs show how uniquely positioned McDonald's is to tap into culture at massive scale, reinforcing the power of a One McDonald's way of marketing and our ability to share creative excellence across the system. The last element of our trifecta is menu innovation. We saw strong performance from the return of Snack Wraps in the U.S., the debut of McWings in Australia and the introduction of the Big Arch in several markets, each resonating with different customer segments and bringing excitement to our menu. As we build what's next, we're grounding our work in a sharper focus on taste and quality, creating dishes that feel unmistakably McDonald's and resonate with customers around the world. There is so much exciting work happening in this space. In a few minutes, Jill McDonald, our Chief Restaurant Experience Officer, which includes leading the global category management teams, will share more of what's coming this year. I was recently in Australia and saw firsthand how they're going 3 for 3 with value, marketing and menu to win. Our close partnership with franchisees is driving strong momentum in the market. It's proof of what happens when you hit the mark on all 3, driving strong business momentum and market share gains. With that, I'll turn it over to Ian to talk through our 2025 results in more detail. Ian Borden: Thanks, Chris, and good afternoon, everyone. As Chris mentioned, I'm proud of what the McDonald's system accomplished amid a challenging year for the industry. In the fourth quarter, we delivered strong comp sales, revenue and earnings growth while also driving improvements in overall customer satisfaction scores across our top 10 markets in aggregate. Specifically, in the fourth quarter, global comparable sales were up 5.7% with positive comparable guest counts. In the U.S., comp sales for the quarter were up 6.8%, which was above our expectations and was driven by positive check and guest count growth. While some of the performance is attributable to easier prior year comparisons, it largely reflects the success of value menu and marketing initiatives that supported steady improvement in our baseline momentum. Together, these drove the highest quarterly comparable guest count gap to near-end competitors in recent history and set a solid foundation for 2026. Two marketing initiatives contributed to our strong performance. First, we kicked off the fourth quarter with MONOPOLY, which resulted in one of our largest digital customer acquisition events ever. Today, we have about 46 million 90-day active users in our U.S. loyalty app. And during the MONOPOLY event, we saw nearly 500 million games played. Second, we closed out the quarter with the Grinch Meal, which set new sales records, including the highest single sales day in our history. Overall, for the entire campaign, we sold nearly as many Grinch meals as our highly successful 2025 Minecraft movie meal and 2024 collector cups promotions combined. The Grinch meal captured fans attention, a true testament to the power of the McDonald's brand with the right marketing execution. In addition to these marketing events, as Chris mentioned, in early September, we relaunched extra value meals to address customer value perceptions of our core menu offerings. In the fourth quarter, we increasingly saw evidence that this was working as intended. In addition to the improving trends in low-income share and value and affordability experience scores, the program drove improvements in units sold for our top EVMs, supported by the nationally price pointed $5 sausage egg and cheese McGriddles meal and $8 10-piece Chicken McNuggets meal in November. The momentum has continued in January behind the support of the nationally price pointed $5 Sausage McMuffin with egg meal and $8 2 Snack Wrap meal, and we remain on track to achieve our targets for incremental traffic associated with the EVM relaunch. Turning to our international operated markets. Comp sales were up 5.2% in the segment, marking a third consecutive quarter of comp growth above 4% despite the challenging industry backdrop. Strong execution in the U.K., Germany and Australia drove performance with each market delivering comp sales growth in the mid- to high single digits. Momentum behind McDonald's U.K.'s turnaround continued in the fourth quarter with market share gains for the first time in over a year behind the execution of several exciting promotions. As in the U.S., the Grinch campaign also exceeded expectations and featured McShaker Fries and special edition socks. The Menu Heist campaign, which is the U.K.'s version of our popular Taste of the World promotion in other markets, showcased the global strength of the brand by offering customers a curated selection of international menu favorites at their local McDonald's restaurant. This promotion delivered sustained strong performance through its 6-week run. And given the success we've seen in the U.K. and other markets, we plan to expand it to even more markets in 2026. Germany and Australia also went 3 for 3 on executing value, menu and marketing initiatives, resulting in share gains in each market in the fourth quarter. Both markets leveraged solid foundations and value offerings and capitalized on strong marketing campaigns. Germany's strong performance reflected the annual return of the Big R?sti, a large-format burger as well as a Friends TV show themed marketing campaign that was similar to a successful promotion in Spain just over a year ago and which we also plan to expand to more international markets in 2026. And in Australia, the breakfast daypart drove performance through menu innovations such as Matcha lattes, the Brekkie Wrap and McGriddles, while the highly successful Grinch promotion highlighted innovative menu offerings such as the Chicken Big Mac and McWings and a special hot cake syrup sauce. Finally, in our international developmental license markets, comp sales for the quarter were up 4.5%, led by Japan with all geographic regions reflecting comp sales growth. Japan's performance has been consistently strong all year. It was supported in the fourth quarter by the launch of the My McDonald's Rewards loyalty program, marking a significant milestone in our global digital strategy. In China, although the market continued to face macroeconomic pressures, we maintained share in the quarter. In addition, we opened more than 1,000 restaurants in 2025 and now have a presence in every province. Turning to the P&L. Adjusted earnings per share was $3.12 for the quarter, which includes a $0.10 benefit from foreign currency translation. Adjusted earnings per share on a constant currency basis increased 7% versus the prior year quarter, reflecting sales-driven margin contribution. Our total adjusted operating margin for the full year was 46.9%, in line with our expectations and reflecting the strength of our business model and the resilience of our system. Total restaurant margin dollars were more than $15 billion for the year. As we look back on the full year, our capital expenditure spend was $3.4 billion, slightly above the high end of the range that we provided for the year as we invested more toward our future year development pipeline, setting us up for success as we continue to increase our pace of openings in our wholly owned markets. I'm proud of what McDonald's has been able to deliver in a challenging environment, and we believe that we are well positioned to deliver solid results in 2026. And with that, let me hand it over to Jill. Jill McDonald: Thanks, Ian, and good afternoon, everyone. I'm pleased to be here today to share more about the work of our restaurant experience teams and preview what's coming in 2026. It's been 9 months since we established the global restaurant experience team. And when we announced this change, we noted that it would be significant for 2 reasons. First, our new integrated structure sets us up to execute with greater pace, which means ideas can start showing up in our restaurants even sooner. We can develop and scale product innovations faster than ever before with menu supply chain and operations all in one team. And second, our new category structure with dedicated leaders for beef, beverages and chicken would give us better accountability and a sharper line of sight into what it takes to win in each of these large and growing verticals. We know that while value remains important for customers, delivering great taste and quality are their top needs, and that's at the center of everything we're doing across the restaurant experience. With that context, let me share more on each of the 3 categories. Starting with beef. We've continued rolling out Best Burger, which is now in more than 85 markets and on track to deliver on our commitment to be in nearly all markets by the end of 2026. Best Burger is the key to hotter, juicier and even tastier burgers, which improve customer satisfaction scores and streamline operations for restaurant crew. We also began to pilot Big Arch about 1.5 years ago, and it's shown strong traction across several markets. Customers are responding to this delicious, more satisfying burger that meets their demand for something heartier while still feeling distinctly McDonald's. Its strong performance helped it most recently earn a permanent spot on the U.K. menu, and we see potential to continue scaling this platform as we strengthen our position within this tier of the beef category. Now let's turn to beverages. We are excited about the global beverage opportunity of more than $100 billion. You can expect to see new offerings in the U.S. as well as select international markets in 2026. Designed to capture share of this large and fast-growing category, we're exploring energy, indulgent iced coffees, fruity refreshers and crafted sodas. We're thrilled to launch our new U.S. beverage lineup later this year under the McCafe brand. It builds on a highly successful test that exceeded expectations in the fourth quarter across more than 500 U.S. restaurants. As we've said before, the new beverage offerings drove incremental occasions across different dayparts as well as higher average check, including strong results from our Red Bull collaboration, which we plan to continue building in both the U.S. and beyond. We're applying learnings from the U.S. test as we expand offerings across the system. Australia, for example, ran a small beverage test at the end of 2025 and adapted those insights by refining some of the recipes and tailoring some of the flavor profiles to meet local preferences. Lastly, chicken. Just as a reminder, this global category is 2x the size of beef and faster growing. We grew our chicken category share across our top 10 markets in 2025 and believe we're well on our way to increasing our share by at least 1 percentage point by the end of 2026 versus where we were in December 2023. At the foundational level, we achieved our target of deploying the McCrispy Sandwich equity to nearly all major markets by the end of 2025. And on the innovation front, many of you have spotted something cooking at a few restaurants in the Chicago land area. We're in the early stages of testing new flavor combinations and new ways of cooking as we continue to explore great tasting recipes for customers to enjoy. While I've shared how speed and scale show up across the 3 menu categories, innovation at McDonald's doesn't stop there. The same disciplined approach is guiding the technology advancements coming to life in our restaurants, rounding out what it truly means to deliver the full McDonald's restaurant experience. The restaurant experience team is using these tests to learn quickly and apply those learnings to capabilities like voice ordering, shift management tools and other AI-enabled tools and digital enhancements that help make running great restaurants easier and more enjoyable for both crew and customers. Taken together, these efforts reflect how we are continuously innovating and improving the full scope of the McDonald's experience, bringing forward even more delicious food, smarter operations, thoughtful design and technology that meets customers and our restaurant teams where they are. It's all part of how we're modernizing the way McDonald's shows up every day. And now I'll turn it back over to Ian. Ian Borden: Thanks, Jill. As we look ahead to 2026, we remain confident in our strategy and our ability to outperform our competitors in any operating environment by focusing on what we can control and by leveraging our global scale and financial strength. We believe the underlying assumptions for our 2026 outlook are prudent and reflect our expectations that the QSR industry environments in the U.S. and across many markets will remain challenging. Should the environment improve beyond our expectations, we believe McDonald's is well positioned to benefit disproportionately relative to our competitors. We expect that net restaurant expansion in 2026, along with restaurants we opened in 2025, will contribute approximately 2.5% to system-wide sales growth. We expect our operating margin to be in the mid- to high 40% range and to expand from our 46.9% adjusted operating margin in 2025. We're targeting G&A as a percentage of system-wide sales for the full year to be about 2.2%, reflecting our ongoing investments in our strategic growth drivers like technology and digital and Global Business Services or GBS. These investments are designed to unlock efficiencies in running the business and to support long-term growth for our people and stakeholders. Below the operating line, we expect interest expense to increase between 4% to 6% from the prior year, primarily due to higher average interest rates and expect our full year effective tax rate to be between 21% and 23% with some volatility quarter-to-quarter that may cause the quarterly rate to be outside the annual range. We expect foreign currency to be a full year tailwind to 2026 EPS, totaling in the range of $0.20 to $0.30 based on current exchange rates. As always, this is directional guidance only as rates will likely change as we move through the remainder of the year. Turning to capital allocation. We're committed to maintaining financial discipline and creating value for our shareholders over the longer term. Our priorities remain unchanged. First, we look to invest in the business to drive growth, including capital expenditures to primarily support new restaurant openings as well as investments in technology, digital and GBS. Second, we prioritize our dividend, which has increased in each of the last 49 years. And third, we repurchased shares with remaining free cash flow over time. With respect to restaurant development and capital expenditures, as Chris mentioned, we continue to accelerate our pace of new unit openings and remain on track to achieve our target of 50,000 restaurants by the end of 2027. In 2025, we exceeded our openings plan for the year with gross openings of about 2,275 restaurants and net openings of 1,880. And in 2026, we're targeting approximately 2,600 gross restaurant openings with about 750 of these in our U.S. and IOM segments. We expect to open more than 1,800 restaurants in our IDL segment, including about 1,000 in China. Overall, we anticipate about 4.5% unit growth from the approximately 2,100 net restaurant additions in 2026. We expect our capital expenditure spend to be between $3.7 billion and $3.9 billion this year, with the majority invested in new unit openings across our U.S. and IOM segments. This increase in CapEx versus the prior year of $3.4 billion is in line with the targeted increase of about $300 million to $500 million that we outlined at our December '23 Investor Day. Lastly, we're targeting our net income to free cash flow conversion rate in 2026 to be in the low to mid-80% range, which is in line with the 84% in 2025. And with that, let me hand it back over to Chris. Christopher Kempczinski: Thanks, Ian. As we close the books in 2025, it's only natural to reflect not just on the year that was, but on how far we've come since announcing Accelerating the Arches in November 2020 and expanding our ambitions in December 2023. We made bold commitments to grow our business. We've made great progress on our accelerator priorities, and we've become a fundamentally different company. You heard from Jill how that transformation is coming to life across the restaurant experience from food to operations, design and technology. When we started this journey, from a company standpoint, we didn't have a global business services function. Today, we do. We didn't have revenue growth management function. Now we do. We didn't have a standardized global tech stack. Today, we're close. The early benefits from these new capabilities gives us a clear line of sight into how they'll unlock growth and productivity moving forward. Loyalty is another great example. In November 2020, the McDonald's loyalty app was just beginning to launch in the U.S. In 2023, we had about $20 billion in system-wide sales to loyalty members across 50 markets. In 2025, we almost doubled those sales with nearly 210 million 90-day active users across 70 markets. And we're on track to reach our target of 250 million 90-day active users by the end of 2027. This matters because we know that loyalty increases visit frequency and opens the door to new ways to engage with our fans like multi-visit bonus games such as the Snack Wraps campaign in the U.S. or exclusive partnerships available only through the app. Another critical proof is the connection between the app and the deployment of Ready on Arrival in our top 6 markets. It's already driving faster service, reducing wait times and improving customer satisfaction, and we expect those benefits to compound as adoption grows across the system. These touch points simply didn't exist a few years ago. When we execute, we know we can outperform the competition in any environment. What's clear is that we've earned the right to look forward. We're excited to share what's next with our system at our worldwide convention in Las Vegas in June, and we expect to share more details with all of you during an investor update sometime this fall. Stay tuned. Before we turn to your questions, I want to again thank our franchisees, suppliers, restaurant teams and everyone across the McDonald's system for the commitment, the partnership and the passion that you bring to this business. Your dedication is the driving force behind our achievements and what enables us to pursue this next chapter with confidence as we transform our long-term ambitions into tangible results. And with the new year well underway, we'll continue to lead, innovate and deliver for our customers, our people and our shareholders. Together, we will make 2026 a year that defines the future of McDonald's. With that, we'll take your questions. Operator: [Operator Instructions] Dexter Congbalay: Our first question today is from Dennis Geiger of UBS. Dennis Geiger: Appreciate the insights. And Jill, very helpful to get an update from you as well. Chris and Ian, following a strong end to 2025, you both talked about a solid foundation into 2026. Could you talk a bit more on how you're thinking about the U.S. sales trajectory in 2026, given some of those sales drivers you identified and perhaps how you think about going 3 for 3 across value, marketing and innovation to drive U.S. sales growth this year? Christopher Kempczinski: Sure. I'll start and Ian, if you have any additional thoughts. But let's start with value. And as I mentioned in the call, the U.S. put in place the McValue program. That has performed well for us. We added to that the EVM toward the back half of the year. And as we go into 2026, McValue for us is going to continue to be the foundation for our value program. It's going to be something that always continues to evolve. Jill has talked about that in the past. And there's real conversations, live conversations going on right now in the system. But I feel really good about where McValue is headed in this year. And then I think also we've seen the power of great marketing. We've seen how something like a Minecraft or MONOPOLY or Grinch when you have strong value with that can really be an accelerant for the business. And I'm feeling good about the lineup that the U.S. team has there. And then, of course, we've talked about beverages. Jill also mentioned some of the other things that we're doing with burgers and chicken. And so I think we've got a strong slate of menu news lined up for the year as well. So now it comes down to what I talked about also in the comments, which is it looks great on paper. We've just got to go execute. But I think Joe and the team are working well with the franchisees. I know there's a lot of energy and excitement around this. And so I'm confident we're going to go out and execute with excellence. Ian Borden: And maybe, Dennis, just a couple of small builds to what Chris teed up. I mean I think value and affordability, as we've talked about pretty consistently are the greens fees. I mean you've got to have it. It's core to our DNA as a business and brand, and it's certainly core to what consumers are expecting. And I think we would say we've done a pretty good job of kind of strengthening our value and affordability with the things that Chris talked about us putting in place. And that is certainly what we believe is one of kind of the underpinnings to the momentum that we're seeing in our U.S. business. We talked about the fact that in Q4, the U.S. had positive guest count growth, which is always a really strong indication that you're kind of getting to that sustainable top line growth that is going to drive both sales and more volume into the restaurants. And I think just maybe something to note that I think is another important proof point is our U.S. business had its strongest comp guest count gap to the nearing competitive set in Q4 in recent history. So I think those are all signs of encouragement to us. The key, though, is you've got to get the 3 for 3. It's not just about value and affordability or about menu or about marketing individually. It's how you bring those together and leverage them to kind of get that holistic output that you saw us, I believe, deliver in Q4. Dexter Congbalay: Our next question is from Sara Senatore of Bank of America. Sara Senatore: I guess maybe I wanted to sort of dig in a little further on that value. I know you kind of approached it 2 ways. One was sort of streamlining or systematizing the approach to the meals, kind of that 15% discount to a la carte prices. Then you also pulled some very sharp price points, as you said, the 5 and 8. So as you think about the pricing architecture, I guess, which of those do you think was more powerful? Because I'm asking in the context of restaurant level margins that were sort of flattish year-over-year. And so assuming maybe there's some kind of pressure from that on franchisee margins. And maybe just tacking on to that, are any of the technology solutions that Jill mentioned, are those some of the ways to kind of maybe support this sharper value? Christopher Kempczinski: Sure. Well, I guess I'd say I don't think it's one or the other. I think what we've seen and certainly what we're trying to execute is the customer absolutely wants predictable value. And having an EVM is, I think, the way historically, we have always delivered for that customer that predictable everyday value. So you need to have that and certainly pleased with where the system in the U.S. was able to get to on that. As you well know, it's something that has been well established on our international business for years. And so we're in a good shape there as well. But then also the customer is looking for in this environment, some price pointed items that are offering particular value on top of that. And so I think you've got to be able to have the predictable value, but the customer also needs to be excited around price pointed items that come in and out of the menu, and that's what we executed against. Ian Borden: Maybe, Sara, just to kind of hook on to Chris because I know you highlighted kind of margin pressure. I just -- I think if you kind of go back to what we've talked pretty consistently about what it takes to grow margins, obviously, is strong top line sales growth. We saw that in Q4. We grew margins in Q4, including in the U.S. on the back of that. Obviously, if you look back to earlier quarters, we had less top line growth in the U.S. combined with obviously higher levels of inflation, I think that put more pressure on that. I think the other data point is a little bit to what Chris highlighted, which is you got to do both. I mean, at the end of the day, our owner-operator average cash flow in the U.S. was up year-over-year. And I think as we've talked about historically, the way you get to sustainable profitability and profitability growth is you drive more volume, more customers into restaurants. And I think if we get that 3 for 3 formula right as we've done in Q4, I think you've seen that we're clearly capable to do that and do that well. Dexter Congbalay: Next question is from Brian Harbour, Morgan Stanley. Brian Harbour: I wanted to ask about just the capital budget. I think it's generally run kind of at the higher end of, I think, where you thought it would a couple of years ago. It will probably end up being up by $1.5 billion versus '23. Is that exclusively because you want to move faster on constructing new stores? Or is there some other piece of that we don't see? And I think it's interesting just even in markets with not much population growth, you're pushing pretty hard on unit growth. Is that a function of you think because the industry is under stress, this is the time when you should really be taking market share and trying to secure new sites to -- because you think the share opportunities are greater today? Is that the main driver? Ian Borden: Yes. Brian, it's Ian. Let me take that one. Well, I'd start just kind of going back to what we outlined in our December '23 Investor Day event. And we said there we expected our capital budget to go up basically $300 million to $500 million every year consistently as we got to our run rate of 1,000 gross openings in our wholly owned markets in 2027. And we've basically been fully on track to that every year. We were slightly above that range in 2025 at $3.4 billion of capital for the year. But that was driven by 2 things, some kind of FX headwinds from a weaker U.S. dollar and us being a little bit ahead of our future opening pipeline, so more spend related to '26 and '27 openings. So it was a healthy, let's call it, adjustment, as you would have seen in our guidance, again, in '26, we expect the capital to go up another $300 million to $500 million. So again, consistently in that range. We did, as we've talked about before, a lot of work before we kind of committed to where we thought we wanted to be at 50,000 units by end of '27 in '23 to really get deep on where we felt the gaps in trading areas, where we felt the opportunities were. And as you know, we've used the U.S. as an example before, which is one of our more mature, fairly penetrated markets, but a market where we hadn't grown net units since 2014, I think until basically '22, '23, a market where there's been a lot of population migration over time where our openings have not kept up. And so I think the ultimate measure is, are we getting the first year sales in those new sites? Are we getting the returns that we expect? And the answer to both of those questions is yes, and that is confirmatory to the fact that we're getting the right sites in the right places and building the brand in a very healthy way. Dexter Congbalay: Next question is from Dave Palmer at Evercore. David Palmer: I'm just trying to think about how I want to ask this question about what feels like picking up in momentum, but also a picking up in your pipeline of ideas that you have going at the same time. Beverages is one example where you've tested something, you're coming out and you're confident that you have it and it will work. It sounds like you're testing stuff with chicken. It sounds like maybe earlier days there. I'm not sure there. even on value, it feels like that's something where you're continuing to refine as you're getting momentum. So like a lot of companies coming out of COVID, there was a little bit of just a disruption during that period and adjustment. And now you're kind of getting your footing in terms of the pipeline. So maybe I don't know if that's an open-ended question, if maybe you want to comment on that. And then maybe even stuff that are more foundational beyond just even the tech stack, if you're thinking about things in terms of kitchen and other that might be things that we can think about for the future. Christopher Kempczinski: Yes. Thanks for the question. I would say if you think about the company today and frankly, the world that we're operating in, it's just -- it's a very -- we're at a very different starting point. And I went through a number of the things that we've done from a company standpoint with Accelerating the Arches that I think put us in a very different place today. When you have what will be 250 million consumers, 90-day actives on your loyalty platform, that opens up a whole different way of engagement with your customers than what we had when we began that journey back in 2020. When you have the ability to get every market onto a common tech stack, our ability to move with speed and to deploy solutions gets increased by factors of significant numbers. And so we've been trying to spend some time to just think about with these new capabilities, how do we actually start to bring those to market in a way that makes a meaningful difference on both the top line, but also on the productivity side. And I think at the same point, if you go back to where we were in 2020 or even 2023, nobody was talking really about AI. Certainly, we weren't talking a whole lot about AI. There was not some of the commentary and thoughts around what does GLP-1 do in the industry, what are the impacts of that. We're certainly leaning into all of those things and thinking about all those things and making sure that we're ahead of the curve that we're seeing around corners and keeping this brand position at front. So what Jill is laying out, we're testing a ton of ideas. And I would say also in the restaurants that we've got, they're different in each restaurant. It's not the same thing in each restaurant. And we're excited about sharing more of what we're learning with our system, which we'll do in Las Vegas. And then you'll hear more from us, as I mentioned, in the fall where we bring to life what we think is what's next for McDonald's. Jill McDonald: Just perhaps to build on that, we've introduced, as I said upfront, the new category management structure, which we're pleased with the progress that we've made in the first 9 months. And that really is helping to focus the organization. We're bringing together operations, supply chain, menu, marketing around the table together to work in concert to move at greater pace. And we can certainly see consumers are reacting well to new news as evidenced by the beverage test that we ran earlier in 2025 in the U.S. So we're seeing early benefits from moving with pace. And I think one part, but an important part has been the introduction of category management. Dexter Congbalay: Next question is from John Ivankoe of JPMorgan. John Ivankoe: So it's certainly an admirable goal to have taste and quality as metrics that you want to improve or at least kind of pursue for the McDonald's brand. But my question was really what kind of changes that might have to happen within the kitchen itself to maybe achieve some of these goals, both in the near term and the medium and longer term? In other words, is there equipment technology layout that may have to really be changed in a fairly significant way to maybe achieve some of the taste and quality goals. And I do ask this question in my travel, seeing some stores in France, for example, that had very different equipment and a very different layout than the McDonald's that I'm used to seeing. And what I'm really asking is, is there something like -- and I don't know what to call it, an Experience of the Future version 2 that might be part of the plan in the next couple of years? Christopher Kempczinski: Thanks for the question, John. One of the benefits of being in 115 different countries is we've got innovation going all over the system. And I'd say when we think about moving the needle on taste and quality, we're going in without any kind of preconceived notions. We're not going in with any constraints. We're just -- the challenge of the team is how do we continue to make further improvements around taste and quality, recognizing that the competitive set is raising the bar on that. And so that's some of what Jill and the team are testing. As to how that impacts the restaurants, we don't have the answer right now. But I think as you all are aware, we're heading into a remodel cycle. EOTF is as hard as it is to believe, the EOTF process in the U.S. is now almost a decade ago that we began on that. It was even longer in some of our IOM markets. And so we're in a natural cadence where our system historically does do remodels around every 10 years or so. And so let's just make sure as we go into this remodel cycle that we're doing it mindful of how do we continue to come up with ideas that are going to drive the business. And we think taste and quality is certainly one of the biggest opportunities for us. Jill, I pass it over to you. Jill McDonald: Sure. So Chris has outlined some of the sort of the early thinking on where can we innovate going forward to make sure that our restaurants are set up to grow where we've identified growth opportunities, chicken. There's plenty of growth still in beef as well as the new areas of beverage. But we are also thinking about improving taste and quality around how we renovate today as well. So how do we help the restaurants execute to the gold standards that we have today as well. So we're kind of really thinking about this in a couple of different time frames, what we can do today and how do we get ready for the future. Dexter Congbalay: Next question is from David Tarantino with Baird. David Tarantino: I had a couple of questions back on the U.S. value strategy, Chris. And I was wondering if you could comment on how franchisees in the U.S. are embracing the strategy and really 2 parts to that. One, some of the strategies you've had have required McDonald's to support that financially. What's the current sentiment in the system on extending that without McDonald's support? And then the second question, perhaps more importantly is, I think you've rolled out some new brand standards. And I was hoping you could comment on what that might mean for the pricing strategy on the core menu going forward. It seems like keeping price points low and price increases perhaps at or below inflation is important. So just wondering if you can provide some insights on how the system is thinking about that equation. Christopher Kempczinski: Sure. Well, I'd say, certainly, in my travels, and I was just with some operators in Dallas earlier this week that there's good enthusiasm for where the business is at. Certainly, finishing the year as they did in the U.S. is great kind of heading into the new year. And so when cash flow is up, when there's business momentum, I think all of those things work toward having positive sentiment, particularly in an environment right now where our performance relative to what we see from some others, I think our franchisees are understanding or appreciative of -- it's not easy out there, and we're certainly pleased with our performance. As to how that continues to evolve, you're right, our support for EVMs rolls off. In many cases, it's already rolled off. in some places. But I think our system generally looks at business results. And I think the numbers are pretty clear that the EVM strategy for us is working. And I would expect that anybody who's looking at the data, it's a pretty easy conclusion as to what you would do with that. But ultimately, our support, as we've talked about a number of times, it's timely, targeted and temporary. We don't subsidize pricing on a permanent basis. And so I think with how we've worked together as a system over the last quarter, now heading into 2 quarters, I think the pathway forward is pretty clear. But ultimately, that's going to be up to franchisees on that. And then to your question around brand standards, I mean, just to reiterate or state the obvious, franchisees set pricing. But at the end of the day, we are the custodians of the McDonald's brand. That is what we're selling. And one of the things that's core to our brand is our value positioning. And so we don't prescribe exactly how the franchisees have to go deliver value, but the franchisees need to protect the brand. And part of that brand DNA is our value leadership that we have there. And so there's lots of different ways. We provide support to franchisees through RGM, this revenue growth management on different ways to go do it. And the expectation is that however franchisees decide to align against it, they're going to continue to live up to what Ray Croc started with this brand, which was one of the world's great brands that also continues to lead on value. Dexter Congbalay: Next question is Greg Francfort over at Guggenheim. Gregory Francfort: I guess I had 2 questions. One, you made a comment about customers increasing their frequency on the loyalty program. Do you have a sense for how much of a needle mover that is? And then just the second part of that is, I think you also made a comment about accelerating the global tech stack and being kind of almost where you want to be. What are the remaining hurdles to getting that done? Christopher Kempczinski: I'll let Ian take both of those. And if he clubs it, I'll jump in. Ian Borden: Greg, let me try and take those. So I think on the loyalty program, I just -- I'd go back again to just emphasize that when we laid out in Investor Day in December '23, loyalty membership, you'll remember, we laid out a metric of getting to 250 million 90-day active users by end of '27. We said in our upfront remarks, we're now at 210 million 90-day active users, well on our way and confident to get to that 27 goal. And we have said that loyalty -- active loyalty membership is our single most important digital metric because it -- when we get consumers into our loyalty program, they visit more often and they spend more over time. And they interact with us more frequently. So they get more value in their interaction with us, and we get more value by them interacting with us. And I think we have a lineup of -- a pipeline of ideas of how we're going to continue to build and add capability that will add further value to our loyalty customers as we look forward. To kind of get to your question more specifically, and we gave this data point, I think, a quarter or 2 ago, if you look at our U.S. business as an example, a customer in the 12 months -- an average customer in the 12 months before they joined our loyalty program visited us 10.5x. In the 12 months after they became a loyalty member, they visited us 26x. So we increased their frequency of visit by more than 2.5x, and they also spend more with us over time. That's why loyalty is important, and that's why we're excited to kind of continue creating value so that consumers will be compelled to join and compelled to continue to interact with us on a more frequent basis. I think on the tech stack, I think we've been pretty open over time. I mean it to go from a fragmented decentralized kind of tech organization to common platforms. And you'll remember, again, in our Investor Day in '23, we laid out we want to get to 3 common platforms in our business that are tech-enabled through a common tech backbone, so to speak, that's our consumer platform, our restaurant platform and our company platform. We're making progress. against each of those 3. We've got a little more work to do, as Chris alluded to, but we feel really confident in where we're at and the pace of what's left to go to kind of get us to that overall outcome. Dexter Congbalay: Next question is Andy Barish with Jefferies. Andrew Barish: Wondering if we go back to the beverage efforts in the U.S. and kind of interesting that you did not mention CosMc's that seems to be a shift. And any color you're willing to provide just in terms of the rollout as we look towards the rest of this year? Jill McDonald: Sure. I'll take that question. So we are -- obviously, we're really excited about the beverage launch in the U.S. later this year, and we are going to do it under the McCaf? brand. So we obviously learned a lot through the CosMc's test, and those learnings have been applied to how we've decided to set up this new beverage range. but we are going to be launching under the McCaf? brand. And just to give you a little bit more color. The results did exceed expectations for the entirety of the program. It did drive incremental occasions. These were mostly snack, dinner and evening. And we also saw higher average check. So the financials are really playing out well. We learned a lot about the recipes. We offered a range of recipes across indulgent coffees, refreshers, energy and soda -- crafted sodas. All did well, particularly the crafted sodas, refreshers and energy. And we're going to do what we do best at McDonald's. We are going to offer great tasting products, great prices, with the speed and convenience that our customers want and expect. So more to come on that. We're not going to reveal too many more specifics of the timing, but you can expect to see news in the U.S. and outside of the U.S., too. Dexter Congbalay: Next question is from Lauren Silberman at Deutsche Bank. Lauren Silberman: Very much Great quarter, strong acceleration across segments on a 2-year basis. As we look to '26, we still have a lot of dynamics in the consumer environment. It sounds like you have a really strong playbook. Can you give any color on how we should be thinking about, I guess, Q1, knowing there's some weather there, still have a little bit of the E. coli lap? And then thoughts on the same-store sales progression as we move through '26. Ian Borden: Lauren, it's Ian. Let me take a crack at that, and I'm sure Chris will add on here. Look, I think as we've talked about already, we feel really good about the underlying momentum and kind of the consistency of that across each of the 3 operating segments. I think we expect that momentum to kind of continue in '26. And obviously, what we're focused on and we've talked about a lot is really going 3 for 3, focusing on the things that are within our control. I think we expect probably that the first half will be likely a little stronger than the second half, and that's just largely a reflection of kind of the benefit of the favorable year-over-year comparisons that we're up against. Maybe just to give a little color by segment. I think for the U.S., we've had a solid start in January. We had good kind of underlying momentum, as you've heard us talk about today, supported by, I think, what we've done with extra value meals, obviously, McValue more broadly. I think we would say we expect Q1 comp sales growth to decelerate sequentially from the 6.8% in Q4 that you saw. I think there are 2 key reasons for that. One is Q4 growth was particularly strong, obviously driven by 2 really strong activations in MONOPOLY and Grinch. And then as is well known, you've heard from many others, obviously, we had severe weather impacts in the U.S. kind of beginning in late January that pressured the industry traffic, pressured our traffic, obviously, and caused quite a few restaurants to close or reduce hours for a number of days. We estimate that weather impact to be about 100 basis points for the full quarter just when you look at kind of the drag that we saw in January. I think on international, kind of a similar story. I mean, we had a solid start in IOM in January. Again, we believe we've got kind of strong and consistent underlying momentum. But we do expect Q1 to decelerate sequentially from the 5.2% that we had in IOM in Q4. Again, we've got some weather, I would say, impacts in a number of markets in Europe through January that have put a little bit of pressure kind of on the underlying momentum. And then IDL, again, expect a sequential decrease from the 4.5% that we had in Q4. Again, we feel pretty good about the underlying momentum. It's really just driven by, I would say, the kind of continued macro pressures in markets like China and parts of Latin America. So I think we're really confident about what's within our control, really confident about the underlying momentum of the business and certainly feel good about our ability to continue to kind of execute well even though the environment remains challenging. Dexter Congbalay: Next question is from Jon Tower of Citi. Jon Tower: Maybe, Jill, one for you. I was hoping you went through a lot of the menu ideas coming in 2026 across the globe in the U.S. Specifically in the U.S., though, I was hoping you could drill a little bit more into how you're thinking around the GLP-1 adoption likely picking up this year with orals being available and how you're thinking through the menu operators across your system actually asking you how McDonald's is going to potentially address this shift in consumption? Christopher Kempczinski: Sure. Well, let me start, and then I'll let Jill fill in. But as I mentioned in my comments earlier, we're certainly spending a lot of time and paying close attention to it. I can tell you right now, we've looked pretty hard, and we don't yet see evidence of it really having a material impact on our business. Now that said, as you noted, pill form has just become available. We know the pill form has had pretty strong adoption in the early weeks. Lilly will come out with a pill form of their own sometime in probably Q1, Q2. And so certainly, our view is that adoption is going to continue to grow. And as adoption grows, we know that consumers' behavior changes. We know that in general, they eat fewer calories in the day, but also what they eat, the mix of that changes. Fortunately, for us, protein is one of the areas that this consumer, the GLP-1 consumer is still very much interested in, and we've got a great protein offering on our menu. So I think that's an area of strength for us. But we're also seeing changes around maybe less snacking, changes in some of the beverages that they drink, less sugary drinks. And so all of those things are factoring into some of what we're out there experimenting with and testing with. And ultimately, as we learn more about that and get feedback from our customers, those things could make their way on to the menu. But Jill, I'll let you kind of pick it up from there. Jill McDonald: Sure. We do have a history of staying close to customers and innovating and adapting our menu as required. So we are already pretty protein forward, fish, chicken strips, Snack Wraps, sausage biscuit. We have a number of items on the menu that customers who are on GLP-1 are enjoying. I think we can call out and just help customers a little bit more, understand what is high protein on our menu because there are a number of options. But we're also going to continue to learn, see what's going to interest them. We have a couple of ideas that we are already looking at for the longer term. So we will be led by the customers and what they want from us, but there's plenty for them to enjoy in our menu currently. Dexter Congbalay: Our last question today is from Jeff Bernstein at Barclays. Jeffrey Bernstein: Just trying to get a sense for the barbell strategy. We talked a lot about value. So I was hoping, at least in the U.S., you could share some color on the scores you're seeing, the -- maybe the share of value or mix of sales? Just trying to get a sense for where value sits and your comfort level there. And on the flip side, obviously, a lot less talk these days about the premium offer positioning. But how do we think about the balance there? Obviously, franchisees would love to push as would you, I'm sure, the upper end of that barbell. So what do we have on tack? Or how do you feel about your ability to push more premium product offerings as we move through '26 to balance with that value? Christopher Kempczinski: Sure. Well, we've talked about on prior calls the fact that industry-wide, we've seen traffic hold up pretty well with upper income consumers and traffic has been pressured with lower income consumers. And of course, lower income consumers are more value and affordability sensitive. We were pleased to see that we gained share with that low-income consumer in December, which was very much one of the criteria that we set around our value program. And so obviously, we've got to continue that. But I think we're in a better position certainly with that part of the consumer cohort. And then on the premium side, we're going to have menu innovation that I think is going to continue to appeal to the upper income consumers. I think some of the beverage items could clearly go in that category. I think some of what we might be able to do in chicken and burgers as well could fit under that. So we're a business where 90% of the customers are coming into our restaurant in the U.S. at least once a year. And we need to make sure that we've got a broad offering that appeals to all of them and recognizes that they have different needs. So I feel think we've got a good strategy on that. But certainly, the expectation for the balance of '26 is that, that low-income consumer is going to continue to be under pressure, and there should be, call it, mid-single-digit growth available with the upper income consumer. And so how do we make sure we're winning with both of them. Dexter Congbalay: Thanks, everybody, for joining the call. If you want any types of follow-up, please send me an e-mail. We can get something scheduled. Other than that, have a good evening, and we'll talk to you later. Operator: This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.
Operator: Good afternoon, and welcome to the Redwood Trust, Inc. Fourth Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Mauritz, Redwood's Head of Investor Relations. Please go ahead, ma'am. Kaitlyn Mauritz: Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's Fourth Quarter 2025 and Full Year 2025 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contains time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded. It will be available on our website later today. And with that, I'll turn the call over to Chris for opening remarks. Christopher Abate: Thank you, Kate, and thanks to everyone for joining our fourth quarter earnings call today. Before I turn the call over to Dash and Brooke, I'll share some thoughts on our recent performance and our outlook for 2026. Fourth quarter 2025 capped a year of meaningful progress for Redwood, marked by record mortgage banking activity, improved capital efficiency and a more durable earnings profile. We closed out the final quarter of the year delivering positive GAAP consolidated earnings and very strong earnings available for distribution across our core segments. For the full year, our 3 operating platforms, Sequoia, CoreVest and Aspire generated $23 billion of volume, the highest in our company's history. In hitting a new gear with production, we've also ensured that earnings have kept pace. Brooke will cover a few operating metrics that demonstrate how more revenue is making it to the bottom line than we have seen in a very long time. Tracking the operations-focused metrics as opposed to more traditional REIT investment portfolio metrics is something we'll be emphasizing in the quarters ahead. This also coincides with our strategic shift towards increasing capital to our mortgage banking platforms with over 80% now invested in core operating and related activities at year-end 2025, up from 57% in 2024. On the back of recent new product rollouts, the runway to continue profitably growing volume supports additional capital deployment to these platforms, capital both sourced internally and in tandem with a growing cohort of external partners. This shift also reflects our decision in the second quarter to accelerate the wind down of our legacy investment portfolio. We saw further progress on this front in the fourth quarter with resolutions and dispositions and more thus far in the first quarter. As we work to fully wind down this portfolio, we'll continue freeing up investment capital to redeploy while also simplifying the balance sheet. Turning to the broader economy. Housing affordability has been a key focus in Washington with a $200 billion agency MBS buying initiative recently announced in tandem with other efforts to lower borrowing costs. The announcement tightened spreads and pushed mortgage rates lower initially, but rates have since stabilized, leaving markets still looking for a broader revival of the refinance mortgage market, which in more accommodative times has represented 50% or more of total originations. Case for lower jumbo mortgage rates was recently bolstered by the long-awaited nomination of a new Fed chair, who, as anticipated, favors additional rate cuts in 2026. Mortgage rates currently sit meaningfully off their highs with 30-year fixed-rate prime jumbo mortgages hovering just above 6% in coupon. At levels modestly below 6%, we estimate between $200 billion and $300 billion of jumbo mortgages could become refinanceable. An important distinction here for Redwood, unlike many mortgage businesses, is that we don't maintain large holdings of mortgage servicing rights, whose values are reliant upon significant levels of customer recapture volume. In other words, the prospect of a new refinance wave is entirely good news for us, particularly for our Sequoia business, where higher refinance volume could significantly expand our volume expectations and further scale our operations. Complementing our Sequoia business in the consumer mortgage space is our Aspire non-QM business. In leveraging Redwood's best-in-class originator network, Aspire has already become a top non-QM correspondent platform. On the back of strong non-QM growth, we are pleased to launch our third branded securitization issuance platform under the moniker Aspire, which will speak for a large amount of our non-QM production going forward. We expect our inaugural Aspire securitization to launch in the coming weeks. Turning back to affordability initiatives in Washington. Institutional participation in housing has also drawn a renewed focus with proposals intended to limit the ownership of single-family homes by large institutional investors. We remind listeners that large investors continue to only own a small share of the country's single-family housing stock and that with respect to CoreVest, our business-purpose lending platform, the vast majority of our lending footprint remains focused on smaller and midsized housing investors. In serving this segment of the market, CoreVest continues to thrive, having recently been named IMN's Lender of the Year for 2025. Our team is positioned to deliver additional growth in 2026, especially as our small balance products have scaled to complement CoreVest's flagship term and bridge offerings. I'll close with some context for the year ahead. Redwood's market and structural positioning is now meaningfully stronger across all channels in which we operate. We're supported by a broader base of third-party capital partners, more flexible, simpler balance sheet and an infrastructure built to profitably scale volume as housing activity expands under our renewed focus in Washington and an evolving rate regime under a new Fed chair. As we look to grow earnings and market share in 2026, we are leveraging AI to enhance risk management, accelerate capital deployment and extract further gains in operating leverage. Based on the progress we have made to date, we expect core operating performance to drive consolidated earnings above our common dividend in 2026, enabling earnings retention and reinvestment to help fund organic growth. And with that, I will turn the call over to Dash to discuss our operating businesses and investments. Dashiell Robinson: Thank you, Chris. We exited 2025 with record production and strong margins, driven by operational efficiencies, accretive capital reallocation and continued progress in deepening distribution channels. Mortgage banking activity for the quarter was once again headlined by our Sequoia platform, which delivered a second consecutive quarter of record volumes amidst housing activity levels that remain well below historical norms. In all, Sequoia locked $5.3 billion of loans, a 5% increase from the third quarter and up 130% from the fourth quarter of 2024. Bulk activity, much of it with banks and a continued competitive moat for our platform, represented close to 60% of volume and included a $500 million pool sourced from a regional bank, housed under a new Sequoia loan program that we expect to contribute meaningfully to 2026 volumes. Flow volume, which represented just over 40% of fourth quarter production, remained well diversified with a notable pickup in closed-end second and adjustable rate loan volumes. Sequoia's competitive position continues to strengthen. Our network now spans over 210 originators across banks and independent mortgage bankers, or IMBs, and we estimate our full year 2025 jumbo market share at approximately 7%, up materially from prior years. Importantly, these gains are driven by market trends we have now observed for some time. We continue to actively engage with banks that are increasingly choosing distribution over balance sheet retention, a dynamic that continues to expand our addressable opportunity. While IMBs represented roughly 2/3 of fourth quarter production, we expect the mix to evolve further in 2026 as additional large bank relationships come online. Distribution also remains a core differentiator, driving fourth quarter margins up nearly 40% sequentially from Q3. During the quarter, Sequoia distributed approximately $3 billion through securitizations and over $1 billion through whole loan sales, supporting strong capital turnover and attractive returns. By design, we are running the platform to turn capital faster and the breadth of our distribution options has become a durable operating advantage. In 2026, opportunities to profitably scale volume without a robust refinance market remain compelling on a stand-alone basis. As a reminder, in 2025, we generated more volume than in 2021 when overall mortgage market was roughly 3x larger, driven by growth in our purchase money loan volume. But as Chris noted, the refinance market is once again contributing to Sequoia's volumes, representing approximately 35% of second half 2025 locks, up from 25% for the first half of the year. With our network, products and distribution, we are well positioned to benefit from a broader refinance wave should mortgage rates fall below 6%. As importantly, any increase in observed prepayment speeds is mitigated by the nature of the premium we carry on balance sheet, whose value is used largely to hedge a growing pipeline and is not contingent on significant recapture economics. Growth prospects also remain promising within Aspire, our nonqualified mortgage or non-QM platform that commenced activities 1 year ago. Aspire locked a record $1.5 billion of loans during the fourth quarter, a 20% sequential increase with strong contributions from both flow and bulk channels, establishing a run rate we expect to build upon. Fourth quarter volume brought total 2025 lock volume to over $3 billion with close to 70% sourced through our flow channel and 65% from sellers with whom we do business in Sequoia, validating the differentiated model we envisioned when launching the platform. On the distribution side, Aspire sold $648 million of loans through bulk loan sales to several counterparties, including the platform's first ever sale to a bank, bringing full year distribution near $1 billion. For both Sequoia and Aspire, we are making strong progress on third-party capital partnerships to further broaden distribution. And as Chris noted, are close to launching the first securitization under the Aspire shelf. CoreVest, our business purpose lending platform, closed out 2025 on a strong note, with full year volumes up 13% versus 2024 as we further reposition production towards smaller balance products, including residential transition loans or RTL and DSCR loans. RTL represented nearly 40% of fourth quarter production, the first time the product has headlined our quarterly funding mix and hit another high watermark for production. DSDR volumes increased 43% versus the third quarter, highlighted by momentum in cross-collateralized portfolio loans, a critical complement to our traditional term loan product. This shift in origination mix is improving the platform's overall efficiency and aligns well with continued institutional demand for CoreVest originated assets. Away from our core operating activities, we continue to make progress winding down the legacy investment portfolio. During the fourth quarter, we reduced the legacy bridge portfolio's principal balance by nearly 40%, completing multiple asset sales and executing loan resolutions and modifications, including a number of complex legacy bridge workouts and positioning of REO assets for sale. As a result, 90-day plus delinquencies declined to $82 million at year-end, down over 65% from earlier in the year as our asset management team continues to reduce risk throughout the portfolio. With the loan book now concentrated in a small number of assets, 31 loans with an unpaid principal balance of $309 million, we continue to execute on our plans for dispositions and unlocking of accretive capital to redeploy into core activities. The final theme I'll touch on is technology enablement across our platform. Through RWT Horizons, we are increasingly focused on applying AI and automation directly into our core operating workflows, both organically and in partnership with certain Horizons portfolio companies, activities that support scale, consistency of execution and risk management. This quarter's Redwood review highlights some early benefits from this work, including the elimination of more than 3,000 manual hours and a reduction in document review times by approximately 75%, with certain quality control reviews now achievable in under a minute. These capabilities are now embedded in areas such as data validation, analysis of borrower organizational structures, covenant tracking and due diligence standardization. Importantly, this technology enablement is a meaningful contributor to the operating leverage Brooke will discuss, including our 44% year-over-year reduction in operating cost per loan. Rather than relying on incremental staffing to support higher volumes, we're using automation to increase throughput, shorten turn times and maintain underwriting discipline as production scales. As a result, Horizons is evolving into a fully integrated driver of efficient growth across Sequoia, Aspire and CoreVest, increasingly embedded in how we operate these platforms day-to-day as we support higher volume. I'll now turn the call over to Brooke to discuss our financial results. Brooke Carillo: Thank you, Dash. For the fourth quarter, we reported GAAP net income of $18.3 million or $0.13 per share compared to a GAAP loss of $9.5 million or $0.08 per share in the third quarter. Book value per common share was $7.36 at December 31, up slightly from $7.35 at September 30, and our economic return on book value was 2.6% for the quarter, inclusive of the $0.04 of accretion from our share repurchases and the $0.18 per share common dividend. On a non-GAAP basis, consolidated earnings available for distribution, or EAD, increased from $0.01 in Q3 to $0.20 in Q4 and exceeded our common dividend. This reflects both a reduction in the earnings drag associated with legacy assets, which improved by $0.08 relative to Q3 as well as the initial redeployment of freed-up capital into our higher-return mortgage banking platforms. Core segment's EAD was $0.33 per share for the fourth quarter, up from $0.20 per share in Q3, demonstrating the earnings power of our operating businesses as capital is reallocated away from under-earning legacy investments. Combined mortgage banking returns remained strong, resulting in total return on capital of 26% for the full year 2025. In the fourth quarter, the Sequoia Mortgage Banking segment, which includes Aspire activity, generated segment net income of $43.8 million and a 29% return on capital, supported by record quarterly lock volumes. Gain on sale margins expanded to 127 basis points, exceeding our historical target range, reflecting strong execution and continued operating leverage as volumes scaled. CoreVest Mortgage Banking generated $7.5 million of segment net income, delivering a 30% GAAP return on capital and a 36% non-GAAP EAD return on capital. Earnings improved sequentially despite modestly lower funded volumes, driven by accretive distribution activity, improved net interest income and continued efficiency gains across the platform. As we've scaled our mortgage banking platform, volume and revenue growth has materially outpaced operating expense growth, reinforcing the operating leverage embedded in our model. In 2025, mortgage banking volumes grew roughly 6x faster than our total operating expenses, reducing total operating expense to approximately 0.9% of production volume from 1.6% in the prior year. This improvement reflects both structural cost efficiencies and disciplined execution. And because the majority of our cost base is variable or tied to production, we are increasingly focused on how effectively incremental volume converts into earnings once fixed costs are covered, supporting margin expansion as the model continues to scale. This operating leverage reflects our transition to a capital efficient originate-to-distribute model, where earnings power is driven by margin and capital velocity rather than balance sheet size. As production scales, operating expenses naturally rise with volume even as returns improve, which can make traditional mortgage REIT efficiency metrics anchored to assets or equity appear less indicative of performance when production is growing faster than common equity. In practice, this reflects the efficiency of pushing more production through our equity base without increasing our balance sheet risk. We have industry-leading capital velocity as our loans typically are on our balance sheet for approximately 35 days, meaning that incremental production continues to translate directly into earnings. Furthermore, recent organizational streamlining actions are expected to reduce annualized back-office run rate costs by approximately $10 million to $15 million in 2026. Redwood Investments delivered segment net income of $21 million and a 17% annualized return on capital. Results improved quarter-over-quarter due to positive fair value changes from spread tightening and higher net interest income from assets that we've created from our mortgage banking businesses. With nearly $1 billion of financing or roughly 50% of our financing in this segment callable within the next year, we see further upside to earnings from this segment as we take advantage of the potential to refinance at a lower cost of funds as the front end of the curve is expected to continue to decline. With respect to the balance sheet, recourse leverage increased sequentially, 85% of which was driven by higher warehouse utilization supporting record mortgage banking activity. Approximately 62% of recourse debt resides in our mortgage banking platforms, where capital turns quickly and borrowings are repaid as loans are sold or securitized Liquidity remained strong with $256 million of unrestricted cash at quarter end, providing us meaningful flexibility. And with that, I'll turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Crispin Love with Piper Sandler. Crispin Love: First, just on the recent move in mortgage rates, the rally earlier in the year and support from the administration. Can you just discuss how that's been impacting your businesses into the early part of 2026 from a volume perspective compared to the fourth quarter? Have you seen momentum continue or an acceleration into the new year? Christopher Abate: Sure. Crispin, maybe the easiest way to answer that directly is just to provide our January numbers. We were at $3.6 billion of volume for January. So we were $7 billion and change total for Q4. So obviously, the run rate has just continued to accelerate. So from our standpoint, the rally has helped, although our business has largely been about taking market share across non-agencies. So we've got high expectations for volume this year. But the jumbo business has been somewhat insulated from some of the things we're observing in agency. There's indirect impacts, but the rally hasn't been as steep. Jumbo mortgage rates are still maybe 0.25 point behind conforming. And a lot of that rally has since kind of leveled off as well. So obviously, we had today's job sprint. So we'll see where we go from here. But I think overall, we're pretty bullish on our volume potential based on how we started the year. Crispin Love: Great. I appreciate that. And then you've been leaning into the Aspire non-QM platform, and that's definitely showing up in your growth. Can you just discuss some of the opportunities there? And then how that business could be impacted from GSE reform, if anything happens over the next couple of quarters or even years? Would you see that as an additional opportunity for that business? Dashiell Robinson: Crispin, this is Dash. I can take that. In terms of the near-term opportunity, I think a lot of it is continuing to execute on what we've been doing. Obviously, the business has shown fantastic momentum in the second half of the year with close to $3 billion of locks alone in just Q3 and Q4. And I think that's a function of a couple of things. First of all, a huge competitive advantage we have is that the existing Sequoia network, folks we've been buying jumbos from for years and have real operational intimacy with. Over the past couple of years, they've really started to lean into non-QM products. A lot of that was a function of rates having been persistently high, notwithstanding this recent rally and just the desire to expand their product suite. But also,, I think a recognition that the non-QM market continues to grow and has a lot of really high-quality borrowers that are underserved. And we think about -- we have a slide on this in the review this quarter. I think we estimated the non-QM market for 2025 to be $130 billion, which was up significantly from 2024. I think a lot of market observers expect another 10% to 15% increase this year. And so there's a lot for us to lean into in this space. As you know, depositories have a much, much smaller footprint, if any, in non-QM. We did sell a non-QM pool to a bank last quarter, which was a great achievement for the business. But beyond that, it's largely nonbank competitors where we can really lean in and win share, as Chris articulated, with our service level and with our relationships. So that's a really, really big deal. The ability to securitize will be an important element for this business. As Chris articulated, we expect that in the coming weeks. So I think it's all very much going according to plan and there's a very long runway for growth in the business. We estimate we probably have last year a 2% market share of the volumes I just articulated. It should be higher than that in 2026 as the business rounds out. On GSE reform, specific to Aspire, anything could potentially happen. Obviously, there's been a lot of evolution in messaging out of DC. But specific to these types of products, in our view, it's unlikely to be impacted. The types of consumers that are being served through non-QM bank statement, borrowers, things of that nature have been outside of the GSE purview, and there's technology capabilities there that they don't particularly have. And so we think there's some probably insulation there. The other big thing, and who knows how this evolves, but with the administration's recent mandate around GSEs not supporting single-family ownership by investors, these are probably smaller investors that would be impacted by that, but that's an element that you need to take into account to in terms of the probability that the GSEs entered the DSCR market as it's currently contemplated with the non-QM. So our expectation is that private capital thankfully, will continue to really speak for these products, and we expect to lean into the opportunity a lot more this year. Operator: Our next question comes from the line of Don Fandetti with Wells Fargo. Donald Fandetti: With volumes being so strong on the origination side, how do you -- how are you thinking about third-party capital providers going forward? Brooke Carillo: I'm happy to take that, Don. Dash, I think, in his prepared remarks included a comment about really across both Aspire and CoreVest, increasingly, all of our loans are being spoken for. We are gearing up for securitization in Aspire. But to date, we sold to multiple handfuls of insurance companies and asset managers. The demand is just really strong for our production. And increasingly so, on the Sequoia side, especially given some of our success with seizing these seasoned pools out of banks. We've seen multiple levels of oversubscription on some of our seasoned securitizations that we've done, just really giving investors a different convexity profile than we have historically through our Sequoia program. So we are catching the eye of several third-party capital providers. We are in evolved discussions for both a capital partner for Aspire and Sequoia, which will really help launch the growth that Chris was mentioning to continue to scale these platforms this year and doing it outside of our corporate balance sheet is helpful given where capital options lie today. So that's really the numbers that you're seeing in terms of our capital efficiency, the amount of production that we've been able to really put through the system this year is a byproduct of those capital partners, and we expect it to continue to fuel growth in '26. Operator: Our next question comes from the line of Bose George with KBW. Bose George: So what are the margins like in the non-QM channel, the gain on sale margins currently? And how does that compare to margins currently in the jumbo channel? Dashiell Robinson: Bose, it's Dash. I can take that. We're targeting pretty much in line with the Sequoia 75 to 100 basis points that we've traditionally targeted. Obviously, it's a similar business model. I think the fact that we will be rolling out a securitization platform will be very accretive to that in terms of optimizing execution versus whole loan sale. But we're targeting something contextual to what we've historically targeted for Sequoia. Bose George: Okay. Great. And then can you just talk about the competitive landscape in non-QM. So the market is growing quite a bit, but there's different companies entering the space as well. Can you just talk broadly about that? Dashiell Robinson: Sure. Yes. I think the space is definitely competitive. I mean I think that's largely driven by what continues to be an increasing demand from large capital allocators for the asset class. There's -- the securitization market is extremely strong right now. There's a very, very deep bid from whole loan buyers. We see loan spreads in that space right now sort of at or very close to the tightest we've seen in years, frankly. I think what that speaks to is that overall, the asset class has performed well. I think the convexity story that a lot of investors have signed up for has played out. Frankly, a lot of the sort of challenges in private credit away from mortgage, I think what we've sort of anecdotally heard from our partners is that there's increasing capital allocation to this space, maybe away from some of the other sectors in private credit that have been a bit more challenging. So I think those are all real tailwinds for the space. It does lead to increased competition. As you know, for years in Sequoia, we've seen entrants, folks come and go. I think there's similar operational hurdles to running a non-QM business well as there is in jumbo. So the market is definitely competitive, but we feel we have a lot to lean into, frankly, in terms of continuing to grow our share and things of that nature. So we're still very, very excited about the runway in front of us, like I said. Operator: Our next question comes from the line of Rick Shane with JPMorgan. Richard Shane: I'm looking at Slide 15, and it's really interesting. And 2 questions here. One is if we compare the Sequoia volume in '21 versus '25. Historically, you guys were a little bit more of a purchase shop versus the market, and now your mix is much, much more aligned with the market mix. I'm curious if as your distribution -- as your bank -- as you have increased the number of partners, if that's really what's happening that you're going to mirror the market a little bit more closely? Or is it some function of the refi market being so small right now? And then the other part of the question is, when we think about margins for you, both in terms of gain on sale, but also expenses, is there anything that we should think about as the market eventually shifts to more of a refi market or more balance between purchase and refi? Christopher Abate: I'll take that one, Rick. The '21 comparison that we did was really to highlight that as much progress as we made with volumes and actually exceeding 2021 levels, in 2025, was substantially without significant refi business. And in '21, thanks to the Fed, mortgage rates were into the 3s or even the 2s and refi was huge. And so the real goal of the slide is to basically say, for jumbo, for Redwood, it's been largely purchased business up until very recently. And if we add refi business, it won't be at the expense of purchase, it will be in addition to purchase. And from a margin standpoint, that should continue to leverage the platform. So as we push more business through the same amount of capital or thereabouts and a similar work structure, we should continue to see more of that revenue make it to the bottom line. And that's why we really rolled out some new operating metrics this quarter. I think we sometimes get mixed in with more traditional REIT business models, which look at expenses to capital and other metrics. And for us, it's really capital turnover and then how much can we grow revenue without growing expenses. And so some of the metrics there comparing those, I think, will be really valuable. So jumbo has not experienced the same amount of refi business as conforming. Rates didn't snap in as quickly. I don't think the fourth quarter experience was the same. And so that's still a business that's potentially ahead of us. I think we mentioned there's a couple of hundred billion dollars of jumbo that could become "in the money" if rates dip meaningfully below 6%. So there's a lot of that ahead of us, and we think that just scales the platform further. Richard Shane: Understood. And Chris, I think the takeaway from this is that as you sort of achieve that normalized volume as markets normalize in terms of purchase and refi, you are indifferent from -- on the margin between an incremental $1 million origination on the purchase side and on the refi? Or is there anything we should think about in terms of profitability that's a little bit different between the 2? Christopher Abate: Well, generally, refis are a little bit quicker. So from that standpoint, refi business, you're dealing with an existing borrower with a home that's been appraised. From that standpoint, you could see some efficiencies. But with our, model largely, it's not big enough where we're substantially rooting for one or the other. I think what we're really trying to do is continue to be a great partner to our network of originators. And Dash made the point earlier, one of the reasons why we're entering non-QM and growing quickly is not because we really had a different take on the products. It's because the very, very large originators, particularly the IMBs, top 5, top 10 originators in the country have entered the space. And it's much easier for them to do business with somebody like us that has been a capital partner for, in some cases, decades than to kind of introduce themselves to a new counterparty. So really, we're just going to continue to leverage our network. And I hope that the refi business picks up, it would be great for us and for the industry. But as we saw today, rates are kind of still pretty volatile and a 4.17% or 4.20% 10-year isn't giving us a lot of indication on which way things are going to go. Richard Shane: Fair enough. I mean, look, it's a timing issue. It's when, not if, in my mind, but I agree with you. Who knows how soon that will happen. But I appreciate the answer, guys. Operator: Our next question comes from the line of Eric Hagen with BTIG. Eric Hagen: All right. So how do you think the focus on affordability and this like overwhelming support for home ownership and lower mortgage rates has an impact on the resi transition lending business. And would you say like there's a catalyst which would get you to allocate more capital over the near term to the CoreVest side of the business? Christopher Abate: I'll pick that up high level, and then I'm sure Dash will have some comments specifically focused on RTL and some of the affordability initiatives. But CoreVest is where our deepest JV partnerships are. And the way we're thinking about that business is primarily in terms of profitability for shareholders. So it's going to be less about how much can we raise volumes in x amount of time and more about continuing to scale it and generate high margins for shareholders. And the reason why I say that is much of CoreVest volume is spoken for by CPP and others. And so what that does is it generates asset management fees for us. And obviously, we're co-investing. So -- but ultimately, the goal is to -- with CoreVest is to really dial in the products. We certainly expect to grow volume this year, but we're very focused on margins back to shareholders. Dash, do you want to take the other? Dashiell Robinson: Yes. Thanks, Eric. I think it's a great question, and I think it's nuanced, right, because there's so many shades of gray as to what an affordability initiative or initiatives may look like. As you know, one of the big challenges with the overall housing picture in this country is just the disconnect between, I think, what's desired at the federal level and some of the reality of getting through like the local or municipal hurdles to actually create accessible housing for people. And by that, I mean price point, but also turnkey housing. Like, as you all know, consumers, whether they're buying their third or fourth house or their first, there's just very, very little interest in putting a bunch of CapEx into the home themselves. The desire really is to buy a home that they can move right into, right, which is a big reason why the RTL business has expanded so much. There's obsolescence in housing. And there's just been an evolution in the consumer over the last couple of decades where there's just a desire to have someone else get the home ready to move into. And so to the extent that these funds that are already allocated can be more efficiently dispersed and can open up opportunities for builders or developers, whether it's with subsidies or whether it's just easier to get through the red tape of developing or redeveloping a lot, lot meaning a piece of property. I think that could be a huge tailwind because there is a lot of pent-up demand for refurbished homes. There's existing homes that need to be refurbished. There's lots that could be used in more effective ways. And to the extent that some of these affordability initiatives at the federal level, obviously, Congress is one of the very few issues that there's significant bipartisan support on. The issues that we see in large part are really at the local and municipal level in terms of actually allowing some of these developers to get to work. And so to the extent that actually loosens up a bit. It could be a huge opportunity for our client base to serve more ultimate homebuyers by cheapening the cost and the time it currently takes to get through some of these project approvals. So I mean there's some other potential knock-on effects, but I think greasing the skids on that would be a very big deal. Eric Hagen: Really good color there. I appreciate that. Really quickly, I think we heard you say there was $10 million to $15 million of expense savings that you mentioned in the opening remarks. Can you say what that was again? Are you offering any broader guidance for expenses this year for the full year? Brooke Carillo: Yes. No, I think we -- that's really concentrated, I would say, I mentioned back office, but really across corporate and CoreVest segments. Of our $200 million or so of OpEx for the year, about 45% of that was fixed. And so just in terms of broader guidance on OpEx, a lot of what Chris made in terms of remarks around our efficiency we've done both through our process technology, but also our scaling our volumes and grabbing market share. We are pointing to some of the marginal cost on loans that we've seen this year just because outside of our fixed cost, it will really be variable OpEx tied to increased volumes this year. So we did about -- just for some context, our OpEx was up about $30 million on the year. All of that nearly was tied to the growth in Sequoia and Aspire, where we had very profitable volume on the year. So we generated an incremental $12 billion of volume with that $30 million of expense. So call it like a marginal cost per loan of about 25 basis points. We think we can continue to drive that down through added efficiencies with initiatives that we're focused on today that have been mentioned, but that can help you model the incremental G&A that we would have tied to additional volume. Operator: Our next question comes from the line of Mikhail Goberman with Citizens JMP. Mikhail Goberman: Just to follow up a little bit on Eric's question in CoreVest. What kind of -- what do the originations there look like? And if there's any sort of color you can give us on first quarter volumes and how margins are holding up there? Christopher Abate: Again, I'll start and kick it over to Dash. Across our businesses, including CoreVest, we're projecting higher volumes in the first quarter sequentially and pretty consistent margins. Again, with CoreVest, it's a little bit different because much of our production goes to our JV partners or the capital partners that are focused on that segment. So the volume to profitability dynamics are a little bit different. The math is a little bit different. But overall, we have metrics in the review. CoreVest had a very profitable year. And one of the reasons is because of capital efficiency. And we did take some further expense out of the business, as Brooke mentioned. So that's going to improve. That should improve margins, all things equal, in 2026. So high level, I think we're expecting higher volume in the first quarter. But as far as the makeup of the products, which has evolved over the past year, I'll let Dash answer that. Dashiell Robinson: Yes, Chris, thank you. I would say, Mikhail, we're still really tracking and making great progress with focusing production on the smaller balance RTL and DSCR products. So as I mentioned in the prepared remarks, RTL is our largest product type in the fourth quarter for the first time. And so I think it reflects some significant strategic progress in that business, which we expect to continue. CoreVest has always been unique with its relatively broad set of products, but the smaller balance products are particularly well bid right now, both in securitization and whole loan buyers. And so we're going to continue to push in that direction. Chris articulated it correctly, obviously, with our joint venture with CPP, that's a great way to not only turn capital quickly, but there's very reliable economics there where we are earning a very certain amount of economics on loans going into the JV, and then we obviously participate in the upside and the outcomes as a 20% stakeholder in that JV. So I would say those are tracking very consistently for a few reasons, including that one. The other point I would make, and Eric touched on this a little bit, but with the affordability piece is a big potential tailwind for production for CoreVest and we talked about this in the prepared remarks, was just with rental products. We're doing more on the DSCR side on a portfolio basis, cross-collateralized loans, which are starting to look a little bit similar to our traditional term loan product, which we've securitized and sold for years. And a tailwind there, depending on how some of these housing initiatives at a DC play out, is that smaller investors and more sort of mid-cap investors, which are really the target audience for CoreVest, could be winners to the extent that larger players are moved a bit to the sidelines. Obviously, a lot remains to be seen there. But leaning in on these rental products and continuing to fill what the market wants is something we're going to continue to do. And as Chris articulated, the ability to turn capital quickly and reliably into these joint ventures is very important. Brooke Carillo: Just one last -- on mix, we continue to see our term and portfolio DSCR product as an increasing mix of originations for CoreVest. Those are our 2 higher-margin products as well. You saw in the fourth quarter that despite volume being down, our gain on sale activity for CoreVest was up. So those are contributions to that dynamic. Mikhail Goberman: Just one more, I think, for me. Just kind of looking out over the space. Are there any other sort of real estate loan products that might interest you going forward? Or are you guys kind of in a grow what you have kind of situation and execute throughout this year? And with that in mind, I know you guys have your history with the FHLB. Is there any -- could there possibly be any value to owning a bank in order to get back in that system for funding? Christopher Abate: Well, I never say never, but it's not in our current plan. Although banks -- we're obviously doing a lot of partnering with banks. And I think with the capital partnerships comes ancillary opportunities, warehouse partnerships and otherwise. So I think we're still sort of extracting value from a lot of the bank partnerships, particularly the regional banks more recently that we've kind of brought online and they brought us online. From a product perspective, I think we're largely going to stick to our knitting. There's obviously been a lot of conjecture in Washington about some alternative products, whether it's 50-year term or otherwise. And for a lot of reasons. I think those are going to be hard, not technically eligible for delivery and many other reasons. So I think for Redwood, we're going to largely lean in on non-QM, which we've talked a lot about today. We've already got a fantastic business in the BPL space with CoreVest. And with Sequoia, I think we're underpenetrated in second lien mortgages. Certainly, HEI, other sort of interesting ways to really leverage our seller base. So all of those will be in the mix this year, but I think the core products are going to really carry the flag. Operator: We have reached the end of the question-and-answer session. I would like to turn the floor back to Kaitlyn Mauritz for closing remarks. Kaitlyn Mauritz: Great. Thank you, operator, and thank you, everyone, for joining today. We appreciate the sponsorship and your time, and we look forward to continued engagement across 2026. Thank you. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.
Operator: Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Vern Essi, Investor Relations at Basle. Please go ahead. Vernon Essi: Thank you, and welcome, everyone, to our fourth quarter 2025 earnings conference call. We have Fastly's CEO, Kip Compton, and CFO, Rich Wong with us today. The webcast of this call can be accessed through our website, fastly.com will be archived for 1 year. Also, a replay will be available by dialing (800) 770-2030 and referencing conference ID number 754-3239 shortly after the conclusion of today's call. A copy of today's earnings press release, related financial tables and supplements, all of which are furnished in our 8-K filing today, can be found in the Investor Relations portion of Fastly's website along with the investor presentation. During this call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, product sales, strategy, long-term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. For further information regarding risk factors for our business, please refer to our filings with the SEC, including our most recent annual report filed on Form 10-K and quarterly reports filed on Form 10-Q filed with the SEC and our fourth quarter 2025 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer, in particular, to the sections entitled Risk Factors. We encourage you to read these documents. Also note that the forward-looking statements on this call are based on information available to us as of today. We undertake no obligation to update any forward-looking statements, except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non-GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release and supplement on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Before we begin our prepared comments, please note that during the first quarter, we will be attending the Raymond James 47th Annual Institutional Investors Conference in Orlando on March 2. Now I'll turn the call over to Kip. Kip Compton: Thanks, Ferd. Hi, everyone, and thank you for joining us. When I became CEO 7 months ago, I shared a vision to accelerate our growth and drive towards profitability through disciplined execution. Thanks to our team's strong performance that vision is becoming a reality. Our exceptional Q4 results reflect this reality as we exceeded expectations across the board. We delivered our fourth consecutive quarter of revenue acceleration closing out the year with record revenue of $173 million in the fourth quarter. This represented 23% annual growth, the highest in over 3 years and exceeded the top end of our guidance. Our stronger-than-expected top line results drove strong incremental flow-through. This resulted in record gross margins of 64%, demonstrating the operating leverage and efficiency in our business. This enabled our operating margin and operating income to both reach all-time highs in absolute dollars and as a percentage of revenue, leading to our fourth straight quarter of positive free cash flow. . Our stellar Q4 results also capped off a strong 2025, marking our first profitable fiscal year. Our teams drove this success with discipline, focus and execution and we are excited to carry this momentum into 2026. In the fourth quarter, Network Services grew 19% year-over-year, outpacing market growth. This is attributable to stronger-than-expected event performance and larger customers directing traffic to our platform due to their prioritization of network stability, performance and resilience. Our go-to-market motion is operating with increased rigor and clarity. At the same time, our new product launches, especially in security, have allowed us to deliver more business outcomes for our customers, enabling us to grow faster than the market. Security revenue growth accelerated to 32% year-over-year, up from 30% in the third quarter and notching another record high. As we discussed on previous calls, we are focused on building a more comprehensive ever-growing suite of security products aligned with customer requirements. This enables a stronger security-led sales motion supplementing our well-established differentiation and performance and better positing Fastly to engage with customers on their critical security needs, all while providing an additional entry point into high-value, long-term customer relationships. In Q4, we continued investment in our platform strategy to drive multiproduct adoption and build upon our cross-sell momentum. We're investing heavily in security and resilience with the latter becoming top of mind for customers in recent months. These efforts drove meaningful feature launch momentum highlighted by several fourth quarter releases, including API inventory, enabling customers to review catalog and manage APIs to identify ownership prioritize proactive optimization and accelerate incident response. API inventory builds upon API discovery launched in Q3 of 2025 to expand Fastly's API security and management offerings. We're proud of the remarkable progress in building out our API suite. And in the fourth quarter, Gartner Peer Insights recognized fastly with a 2025 Customer's Choice Award for cloud web application and API protection. We are the only company to have earned this recognition 7 straight years. Also now available are custom dashboards and alerts, all customers across the Firstly platform can tailor at-a-glance insights that they need for intelligent execution and access the actual alerts that they need to accelerate incident response. We also launched AI assistant in beta this context to where in console agentic feature accelerates faster platform adoption by enterprise software engineering teams with step-by-step guidance and personalized recommendations. Our go-to-market team has focused on customers and verticals best aligned to our platform strength, particularly performance and resiliency. These efforts were reflected in balanced revenue growth across product lines, geographic regions and customer segments in 2025, positioning us to drive continued growth in 2026. Given this momentum, our go-to-market teams are focused on accelerating customer acquisition to further support our future growth. Our go-to-market focus also enabled us to accelerate upsell and cross-sell engagement, maximizing value with our largest customers. This is evidenced by several recent expansions and new customers where the Fastly platform address mission-critical performance and security requirements for our customers. For example, a Fortune 500 restaurant chain recently selected the Fastly platform to secure and deliver their application traffic by displacing a legacy provider, they simplified their architecture and reduced management overhead. This is also a case where performance mattered. After switching to Fastly, the customer experienced their best Digital Day on record. A Fortune 500 home retailer expanded their use of the Fastly platform, displacing their security incumbent after a rigorous review of our next-gen WAF and managed security service. In addition to a stronger security posture, because were offloaded complex traffic control management to Fastly platform, freeing their teams to focus on innovation. -- a leading cloud observability and security provider expanded their use of the Fastly platform to include fast compute as well as fast security portfolio. Our platform enables them to execute complex workloads and rapid product iterations while maintaining granular data protection. A leading print on-demand marketplace recently expanded its use of the Fastly platform to include fastly bought management and fastly compute. They required the high granularity visibility and control that our platform provides to manage complex traffic and security requirements. As the Internet moves into the age of a agentic AI, it's clear that the edge will play a pivotal role. Our infrastructure is designed to power this edge intelligent layer optimizing authorized AI agents and blocking abuse. As one of the leading edge cloud providers, Fastly is well positioned to capitalize on this transition. We see AI increasingly as a tailwind for our business with increasing agentic AI traffic, AI bot management opportunities and AI workloads running on our platform. As we look to our 2026 guidance, we are leaning into our momentum and see continued upside in the business. Our first quarter and 2026 revenue growth guidance of 18% and 14%, respectively, reflect confidence that our business will outpace market growth while maintaining a prudent approach to longer-term visibility, especially amid greater macroeconomic and geopolitical uncertainty. Rich will now walk through our financial results and 2026 guidance in more detail. Rich, over to you. Richard Wong: Thank you, Kip, and thank you, everyone, for joining us today. Before diving into the financials, I want to say that I'm really excited to wrap up my second quarter fastly and I to build our results. We continue to accelerate our revenue growth momentum while demonstrating strong incremental revenue flow-through to drive profitability. This is driven by our strong focus on our go-to-market execution, our broader product portfolio, especially in security and our fiscal discipline. In addition, we recapitalized our balance sheet to specifically improve our liquidity and prepare us for our next phase of growth. Now on to our Q4 and year-end results. I'd like to remind you that unless otherwise stated, all financial results of my discussion are non-GAAP based. Revenue for the fourth quarter increased 23% year-over-year to $172.6 million, coming in above the high end of our guidance range of $159 million to $163 million. This result was a record high for fast and also represented the largest sequential dollar growth in the company's history. These results were driven by balanced performance across our customer mix and expanded product platform, along with continued success in our go-to-market upsell and cross-sell motions. These drivers also contributed to accelerated revenue performance throughout 2025 and we are now at an inflection point where we believe we are a strong share gainer in our markets and demonstrating consistent profit expansion of scale. Our annual revenue was $624 million, representing 15% growth over 2024. Coming in above our original guidance range of $575 million to $585 million provided 1 year ago. In the fourth quarter, Network Services revenue of $130.8 million grew 19% year-over-year. We saw healthy traffic levels in the fourth quarter due to stronger market conditions and the success of our upsell motion. Security revenue of $35.4 million grew 32% year-over-year, comprising 21% of our total revenue. This was due to the expansion of our security portfolio over the past year, coupled with the success of our cross-sell motion. Our other products revenue of $6.4 million grew 78% year-over-year, driven primarily by sales of our compute products. In the fourth quarter, our top 10 customers represented 34% of revenue, a modest increase from 32% in the prior quarter. Revenue from customers outside of 10 grew 20% year-over-year, an acceleration from 17% annual growth from our prior quarter. We were pleased to see that both cohorts accelerated their annual growth compared to the third quarter, providing balanced outperformance in the quarter. Also, no single customer accounted for more than 10% of revenue in the fourth quarter. Affiliated customers that are business units of a single company generated an aggregate of 11% in the company's revenue for the quarter. Our fourth quarter total customer count was 3,092 customers. Our enterprise customer count, which represents customers with more than $100,000 in annualized revenue in the quarter with customers. Given that typically over 90% of our revenue has historically been generated by our enterprise customers we believe it is a much more meaningful metric to track our customer acquisition. For this revamp, start next quarter when we begin reporting our Ban26 results, we will no longer disclose our total customer count metric on a go-forward basis. Our trailing 12-month net retention rate was 110%, up from 106% in the prior quarter and up from 102% in the year ago quarter. The quarter-over-quarter and year-over-year increases were primarily due to revenue increases from our larger customers in prior quarters. Our last 12-month NRR closely follows our overall revenue growth rate trend. Our annual revenue retention rate, which we reported at fiscal year-end was 98.7% for 2025, a slight decline from 99.0% in 2024. We believe this metric is not as meanful as an indicator to the health of our business as LTM NRR, and it's once a year disclosure limits its value. As such, we will no longer report this annual revenue retention rate metric on a go-forward basis. We exited the fourth quarter with record RPO $353.8 million, growing 55% year-over-year. The current portion of RPO was 70% of total RPO and and that balance grew 37% year-over-year. Our improved RPO is benefiting from improved go-to-market discipline with our customer onboarding, which resulted in larger upfront commitments. I will now turn to the rest of our financial results for the fourth quarter. Our gross margin was 64% in the fourth quarter, a record high for Fastly, gross margin was 250 basis points above our guidance midpoint of 61.5% and up 650 basis points from 57.5% in Q4 2024. This outperformance was primarily due to gross margin flow-through on higher revenue due to a stronger balanced traffic mix with customers in delivery and security. Underscoring this impact, our incremental gross margin on a trailing basis calculation increased to 76% in the fourth quarter, up from 58% in the third quarter. Our gross margin for the 2025 full year was 60.9%, up from 58.8% in 2024 and also coming in 210 basis points above our original 2025 implied gross margin guidance of flat to 2024. This increase was due to better cost discipline and strategy and our cost of revenue, coupled with gross margin flow-through on higher revenue levels. Operating expenses were $89.2 million in the fourth quarter, coming in line with our guidance expectations. We are continuing our sharp focus on managing our OpEx spend while balancing our growth investments. We had an operating income of $21.2 million in the fourth quarter, coming in better than the $10 million midpoint of our operating guidance range of $8 million to $12 million. We intend to continue to drive greater leverage in our operating results as we scale our revenue. This is demonstrated by our operating margin expanding 500 basis points sequentially from 7.3% in the third quarter to 12.3% in the fourth quarter. In the fourth quarter, we reported a net profit of $20.1 million or $0.12 per diluted share compared to a net loss of $2.4 million or $0.02 per diluted share in Q4 2024. For the full year 2025, we reported a net profit of $19.7 million or $0.13 per diluted share compared to a net loss of $12.1 million or $0.09 per basic and diluted share in 2024. Our adjusted EBITDA was $35 million in the fourth quarter compared to $11.1 million in the fourth quarter of 2024. For the full year 2025, adjusted EBITDA was $77.4 million compared to $32.6 million in 2024. Turning to the balance sheet. We ended the quarter with approximately $362 million in cash, cash equivalents, marketable securities and investments, including those classified as long term. A sequential increase of $19 million over Q3 2025. In the fourth quarter, we raised $180 million in 0% notes due in 2030 that carry a 32.5% conversion premium. We also privately negotiated cap call transactions totaling $18 million, which represent a 100% conversion premium or a share price of $23.4. We believe these capital strategy measure significantly improve our liquidity and offers greater flexibility to manage our growth and bolster companies in our customers and shareholders. Our cash flow from operations was positive $22.4 million in the fourth quarter compared to positive $5.2 million in Q4 2024. Our free cash flow for the fourth quarter was positive $8.6 million representing a $16.5 million increase from negative $7.9 million in the Q4 2024 quarter. For full year 2025, cash flow from operations was $94.4 million compared to $16.4 million in 2024. Our free cash flow in 2025 was positive $45.8 million compared to negative $35.7 million in 2024. Coming in materially higher than our original guidance midpoint of negative $15 million established 1 year ago. Also, this represents an $81.6 million increase in free cash flow in 2025 underscoring our revenue outperformance and cost discipline, expanding our bottom line. As 1 of the world's leading distributed edge platforms, we continue to scale our global network to support Fastly growth. We are closely monitoring supply chain dynamics particularly regarding memory components and have taken strategic actions to mitigate potential impact. Our software-defined infrastructure is continuously improving, typically with Golar capital requirements for expansion of legacy providers -- this structural efficiency underpins our expanding gross margins, positioning us to stay ahead of global traffic trends while maintaining strict capital discipline. Our cash capital expenditures were approximately 8% of revenue in the fourth quarter and 9% for full year 2025. This annual spend was below our 10% to 11% expectation due to the timing of approximately $10 million in CapEx anticipated in the fourth quarter, which will now incur in 2026. Let me take a moment to update you on our CapEx plans and strategy. For starters, 2 quick housekeeping points. First, in the fourth quarter, we did not deploy any prepaid capital equipment as we work down the remaining balance. Also, our repayment and financial leases for equipment have terminated we anticipate no further payments will occur for either these categories for the foreseeable future. As a result, we wrapped up 2025 with a cleaner simplified CapEx profile. Second, -- as a reminder, our cash capital expenditures include capitalized internal use software. To recap 2025, we spent 9% of revenue on cash CapEx, which represented approximately 3% in capitalized internally used software purchases of infrastructure capital equipment and 1% was in prepaid to plans. Going forward, we will post only on the infrastructure capital expenditures with investors and removed capitalized internal use software, which is not a meaningful indicator of our capital spend. We believe this change will more accurately represent the inherent capital costs in growing our business and more aligns reporting to our peers. Note that our infrastructure CapEx is reported in our free cash flow bridge in our press release and supplement as property and equipment. For 2026, we anticipate our infrastructure capital spend will be in the range of 10% to 12% of revenue compared to 5% in 2025. As I said a moment ago, approximately $10 million of infrastructure CapEx will now incur in 2026 instead of the fourth quarter 2025. And which equates to roughly 1.5% of annual revenue, impacting 2026 instead of 2025. Normalizing this timing impact, we anticipate our 2026 infrastructure CapEx will be increasing approximately 65% over 2025 as we run our capacity to meet our growth objectives and perform upgrades to our fleet. This spend will be friend voted to ensure we have adequate equipment given recent supply chain constraints. I will now discuss our outlook for the first quarter and full year 2026. I'd like to remind everyone again that the following statements are based on current expectations as of today and include forward-looking statements. Actual results may differ materially, and we undertake no obligation to update these forward-looking statements in the future, except as required by law. Our revenue model is primarily based on customer consumption, which can lead to variability in our quarterly results. Our revenue guidance reflects these dynamics in our business and is based on the visibility that we have today. Note that in January, finalized the deal to restructure its U.S. business, the platform can continue operating in the United States. Our guidance going forward will incorporate by Dam's revenue unless specified otherwise. As Kip discussed, we saw revenue strength from successful upsell motions and share gains broadly across our customer base. A portion of this business was also driven by traffic strength that came in stronger than anticipated, and we are not anticipating seasonal strength in the first quarter. As a result, we expect revenue in the range of $168 million to $174 million in the first quarter, representing 18% annual growth at the midpoint. We anticipate our gross margins for the first quarter will be 64%, plus or minus 50 basis points. As a reminder, our gross margin performance is dependent upon incremental revenue increases or declines as demonstrated by our improving gross margin through 2025 on accelerating revenue growth. For the first quarter, we expect a non-GAAP operating profit of $14 million to $18 million. We expect a non-GAAP net earnings per diluted share of $0.07 to $0.10. Note that for the first quarter, fully diluted share count for positive EPS and will be approximately 175 million shares. As Kip mentioned, our 2026 guidance reflects confidence that our business will outpace market growth while maintaining prudence on our longer-term visibility amid greater macroeconomic and geopolitical uncertainty. For calendar year 2026, we expect our revenue to be in the range of $700 million to $720 million reflecting annual growth of 14% at the midpoint. We anticipate our 2026 gross margins will be 63%, plus or minus 50 basis points. We expect our non-GAAP operating profit to be in the range of $50 million to $60 million, reflecting an operating margin of 8% at the midpoint, a doubling in our profitability compared to 2025's operating margin of 4%. We expect our non-GAAP net earnings per diluted share to be in the range of $0.23 to $0.29, and we expect free cash flow to be in the range of $40 million to $50 million. And finally, as I mentioned earlier, we anticipate our infrastructure CapEx to be in the range of 10% to 12% of revenue for the full year. Before we open the line for questions, we would like to thank you for your interest in this morning Fastly. Operator? Operator: [Operator Instructions] Your first question comes from the line of Jeffrey Van Rhee with Craig Hallum. Jeff Van Rhee: Congrats -- Great numbers. Just a couple of questions. First, -- maybe you talked about the. Can you just expand on that a bit? What are you seeing at the edge right now at agentic AI? I mean I don't know, put some numbers on it, but just what are you seeing so far? . Kip Compton: Thanks. We're seeing a lot with respect to AI on our platform, and it really breaks into a number of categories. First of all, just we're seeing an increase in traffic related to agents. I think in the past, the saving called machine to machine. And as you -- if you've used AI tools, I think you would appreciate that they often check a lot more websites, for instance, than you might. And that's more traffic and all of that traffic is processed through the Fastly network for our Fastly customers. So we're seeing decreased activity there. And a quarter or 2 ago, we actually published a report outlining the statistics on that and actually going into which models we're seeing the most traffic from an interesting report on our website with lots of numbers. . We're also seeing AI workloads on our platform, and that can take a number of different forms. We've talked in the past about a use case starting an extremely large training data set. We also have customers using our compute edge for inference and other AI-related tasks. And then maybe a third example of where we're seeing AI as a tailwind for our business is AI specific offers. So I'm thinking of our AI bot mitigation. As we're processing all of that traffic for our customers, it's creating opportunities for us to help manage crawlers and other AI bots to ensure that the right ones get through because our customers want to be relevant in the AI world, but block the ones that are harmful. So we're seeing across the board in a number of different ways. AI inflating the business in a very positive way, and we think the edge will be very important for AI going forward. Jeff Van Rhee: And on the traffic routing, I think you called out you saw some very strong traffic flows as customers optimized or are optimizing their traffic and selected you based on performance. Just what drove the widening of the gap in respect of performance between you and the peers to attract more traffic this quarter versus maybe in the past? Kip Compton: Yes, it's a great question. I mean, we've maintained a performance edge. It's the namesake of our company. It's something our teams take very seriously. I think recent events in the industry that is called more attention to the value of resiliency in an edge platform. And we're very serious about that and have taken a number of architectural steps that we think enable us to deliver a more resilient platform. And I think some customers have directed traffic our way because of that. Jeff Van Rhee: Last 1 for me, and I'll let somebody else jump on. The just obviously exclusive. I think last quarter, you called out an 8-figure customer. But I'm just curious, if I look at the 12-month RPOs, to what degree is that concentrated? So if I looked at the absolute dollars of 12-month ARPU increase, from Q3 to Q4, how much of that is driven by, say, maybe your 3 largest customers that were signed or expanded in the quarter? . Richard Wong: Yes. With RPO, it's kind of broad-based across a number of our customers. What we do, do is we do focus on the variety of customers, our largest enterprise, of course, historically, had not wanted to make some commitments on to us. And I think that what you're seeing here is a change in mentality and a change in shift. So now the RPO that you see is kind of broad-based across our entire customer is much kind of smaller. Kip Compton: Yes. I'll just add, it's been a very deliberate and intentional part of our market strategy and in the way that we framed negotiations with all of our customers and the way that we thought about pricing and discounting across our entire customer base to encourage more revenue commitments to us. To help manage or mitigate the volatility that comes from a purely utility-based pricing model. Of course, we also, in the security side, have a lot of subscription revenue, which helps with that as well. But the driving RPO growth and really just committed revenue overall is a major part of our strategy in terms of managing and mitigating volatility on the top line. Jeff Van Rhee: I mean, great, you can capture that increased commit. I appreciate it. . Operator: Your next question comes from the line of Frank Louthan with Raymond James. Frank Louthan: Can you give us an idea of what's giving you the confidence with the nice increase in the guidance there. Is it a combination of some new customers or just some better commitments from them? And what kind of gives you the confidence in the guide going into next year? Kip Compton: Sure. I mean, I'll comment and then Rich has obviously put a tremendous amount of detailed thought into the guidance. You may have some additional things. I mean I think if we look at the momentum that we've established in 2025, and the customer contracts and relationships that we've established and obviously, the RPO number that we just discussed as well as the overall market trends and what we're seeing coming into the new year. we're very confident in terms of how we're positioned. And so we were able to issue guidance that reflects growth substantially above the market growth. As we continue to take more share -- the caution, and I think Rich mentioned this, and I alluded to it, too, in my commentary was we are in an era of what I would consider elevated geopolitical and macroeconomic dynamics. And there could be, for example, situations with our international customers around the world where their purchasing patterns are affected by that. . And we're also very wary of supply chain dynamics, although as we believe we have a very capital-efficient infrastructure, it's too early to tell, but that could play out in our favor. So we try to take a balanced approach on that guidance, but we were able to get to those numbers, and Rich can provide more detail. Richard Wong: Yes, Frank. It's a really good question just because if you look at the midpoint of our guidance, That's a year-over-year increase of $86 million at the midpoint, and that would be the largest kind of year-over-year increase that we would ever have. The reason we feel more comfortable and confident in the guidance is because we -- as you know, we went through a go-to-market transformation over the past kind of 12 to 18 months. Part of that go-to-market transformation has been around getting to know our customers better, really aligning our sales team to the customer accounts and really being more diligent in watching kind of the traffic and what they're buying and what they're doing. So I think it's really the closeness of the -- with the customers and that go-to-market transformation that gives us that confidence. Frank Louthan: Is there anything about the mix of that traffic that's maybe shifted a bit maybe away from traditional media and towards AI type traffic or something like that? How should we think about that? . Kip Compton: I think 1 development that I would point to that we discussed at some length on our last quarter call is we have seen material cross-sell activity in our large accounts. And that cross-sell activity brings in portfolios like security and compute. And that starts to transform the relationship in many ways, we believe, with those customers to one that's more strategic for them and covering more use cases. And that does give us some confidence. So we see different mixes of growth and there's a seasonal factor there as well. I think you appreciate in terms of media versus non-media. But I think one bigger trend is an increasing consumption of multiple services from us by those large customers. . Operator: Your next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: Let me congratulate you on quite an impressive quarter. Just wanted to maybe just build on sort of the AI question again. Can you help us understand -- and just given how early we are in a agentic adoption, like what are some of the indications that you're getting from your customers in terms of that rate of growth and what that could look like in 2026. Kip Compton: Sure. Appreciate the question. We can see the rate of growth in the telemetry coming off of our infrastructure. And we can tell generally speaking, when it's in a agentic request versus a traditional user on a browser, for instance. So we can see that traffic growing each quarter. And that is driving volume on our platform. We can also see it in the conversations we have with our customers, particularly with our media customers. We have some of the most sophisticated media companies in the world as our customers. And this is a very top of mind topic for them. . And what I can share is that discussion has shifted from perhaps last summer, how do you block it to a much more nuanced and sophisticated conversation now about how do you optimize for it. We want to be relevant, but we want to manage how this works. We want to be able to enforce agreements with people that the media companies have agreed with -- so we've adapted our approach there, and we have, as I mentioned earlier, our AI bot mitigation technology, but we also have the -- we were the first in the industry to support a new protocol called RSL a really simple licensing that was an industry developed protocol to essentially enforce content rights agreements related to AI models. And so we're taking an industry-wide approach with our largest customers to manage this complex problem. And I appreciate your point that it's very early. We see it that way as well. And we're staying close to our customers and understanding how we can solve their problems in many cases, working with them as what we call as we call design partners for our new products in this area. Jonathan Ho: And then just in terms of the CapEx, I appreciate the additional disclosure and sort of the alignment with other industry players as well. when you talked a little bit about sort of higher cost and potentially shortages in terms of supply, can you help us understand how much of that increase in CapEx is maybe going to be eaten up by higher component costs as opposed to just pure capacity addition? . Richard Wong: Yes. I would say the increase in CapEx is going to be both of it, right? It's going to be -- we do need CapEx because of the growth that we're seeing. We saw this in Q4. And so at the last Q3 earnings call, we did talk about raising our CapEx spend to 10% to 11%. What you're seeing here is a function of both component prices going up. And so in some cases, especially with memory, we're seeing potentially 25% to 75% increases year-on-year on that pricing. But -- so you take the price increase and you take the additional upside in revenue that we're putting here, and it drives the CapEx increase year-on-year. Kip Compton: I would the 25% to 75%, Rich, you can correct me if I'm wrong, is on the memory component itself . Not the overall unit cost of infrastructure for us, for instance. Richard Wong: That's right. Operator: Your next question comes from the line of Fatima Boolani with Citi. Fatima Boolani: Super Rich, for both of you, actually. I wanted to zero in on the network services strength you called out that is quarter of acceleration in that business. You've identified a lot of quantity and volume level input. I wanted to understand and have you help us with what are some of the more durable inputs to traffic growth and then also relatedly, on the pricing front, I mean, all of this incremental growth is coming in very incrementally impressive margins and unit economics. So what is a little bit around the pricing side of the equation that allowing -- that is allowing you to deliver a lot more of this traffic a lot more profitable. . Richard Wong: Yes. So I think when we look at traffic trends and what we're seeing for the year, we are still -- for Q4, we're still seeing kind of in the mid-20s in terms of traffic growth. I think the traffic growth is kind of spread across the different types. And so it's not any 1 particular to call out. In terms of the price erosion, what we've seen is actually a very nice contraction on price erosion. We have historically talked about like mid-teens price erosion. For the quarter, I think we've been very focused on great discipline around maintain price, really selling where its performance really matters and where we really win. Our price erosion in kind of Q4 was in the mid-single digits this quarter. So definitely seeing less price erosion in the space. . Kip Compton: I'm sorry. I would note -- I would just add to Richard's comments. But in terms of the -- as you put it, very impressive profitability, we believe we have a very efficient infrastructure. And the #1 thing that drives our margins up is volume as we're able to get more economies of scale. So you're asking about things that are durable. We certainly think that's durable. . Richard Wong: Yes. And Tami, just for clarification, it's hard to hear the first part of your question. Did we answer both parts of your question, and we may limit . Fatima Boolani: Yes. So it was very clear. It was very clear -- and just a follow-up for you on the Surety business, nice to continue to see that acceleration there. And it does appear that these are the fruits of your own labor with respect to seeing the yield on the cross-sell motion and the rigor that you've introduced and matured into the organization. But I was hoping you could maybe opine on how much of that momentum in the security services franchise kind of riding on the coattails of the network services business having accelerated. So is there a little bit of a coupling happening whereby if we do see maybe a deceleration on the network services side, we should expect to see maybe a little bit more of a drop off on the security services side. I'd love to kind of understand the interplay and the coupling and the couple. Kip Compton: Sure. I mean we do -- we have a lot of customers who consume both Network Services and security from us. So at that level, there's probably some coupling. If those customers have less demand, we might see less demand across both. I will note though that I think the primary driver has been the expansion of our security portfolio over the last year and we are now landing customers who are essentially security first customers onto the platform and then expanding them into Network Services, in some cases, for instance. So I think there is some coupling as there is when you have a platform strategy and you have customers consuming multiple product lines, but we're seeing our security portfolio come into its own as a demand driver for us. Operator: Your next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Jackson Ader: The first 1 is on the outlook for 2026. Just curious about maybe the balance of given kind of the upside to consensus or just how you're feeling about momentum into this coming year? The balance between security strength versus network strength and understanding the team as questions about coupling. But just give us a sense of which one of those line items really is going to be the lion's share of the growth next year. Richard Wong: Yes. I think when we look at kind of the guidance that we provided, we do believe that in all of our businesses, we should be growing faster than the market. And so when we think about Network Services, I think the market that we see is about 6% to 7% year-over-year growth. We -- our expectation fully is that we would be north of that. I would say that it's going to -- from an increased perspective, you're going to see increases in both Network Services and Security. I wouldn't say that 1 drives it more than the other. I would say it's going to be broad-based across Security and Network Security. We say 12% to 13% year-over-year growth. I mean we're going to -- we will be growing north of that as well. Jackson Ader: Rich, given that this is kind of your first full year guide for -- on the Fastly platform. Do you mind just giving us a sense for your kind of process, maybe your philosophy? Are you looking at a pipeline coverage ratio as you kind of look out? Just any sense in terms of what your initial guidance philosophy might look like? Richard Wong: Yes. So I think we do a very robust kind of planning process when we kind of plan for 2026. And when we do do that, we're looking at multiple angles. We have byproduct views. We also have perspectives around the different pods that our sales teams sell under we look at on a customer-by-customer basis. And so we know from a customer-by-customer basis, what our contracts are like, and we do a lot of traffic and kind of pricing and when pricing is up for renewal. So we really build a robust model. We do look at it and say, okay, what kind of macro environment are we in? And what kind of commitments do we have from an RPO perspective -- and then we layer in that kind of existing customer base with our expectations around new customer lands to kind of really build our model. And then we kind of stress test it around the macro environment around like what are the risks and opportunities that we potentially have I think my goal on the kind of guide is to hit the numbers that we say we're going to hit, right? I don't -- the expectation is that for me, I'd like to just be fully transparent. This is what we think and what we will do. And so we really go for what do we think is going to be risk adjusted for the macro environment that we're in? Kip Compton: Look, I mean that's a great answer from Rich, but I'll tell you it's been great working with him on this guy 1 point, I think you had 18 different calibrations from his team, and we're lining them up. So I mean I'm extremely comfortable that Rich has taken a very thorough approach here. nobody has a crystal ball, but I'm very confident in the quality of work that went into our guide. . Jackson Ader: Was going to say go to customer by customer. It's -- you're getting into the weeds. . Kip Compton: We take it very seriously in terms of what we project into the financial community. But frankly, it's also something that helps us run the business, obviously. So it's for this audience and the investors, obviously, but frankly, we view it as core to how we plan and build the business into the future. So it's a core part of what Richard's team does. . Richard Wong: That's right. I mean, literally, as we build a plan, we're looking week-by-week also just on traffic patterns, and we just have updated views throughout the kind of process. And so I just think that being close to the customer is so important to Fastly. The work that they do is so important to us. And so for us, the best thing we can do for them is to actually do the right forecast, make sure the capacity is there and make sure that the quality of service that we provide is high. Operator: Your next question comes from the line of Param Singh with Oppenheimer. Unknown Analyst: I think I really wanted to focus on the security side. Obviously, you talked about good attach rates here. Maybe you could give me some color on the current penetration of the newer products in DDoS and bot management. And maybe also talk about your API capabilities here. I know you expanded that. What's the adoption rate of API? And what are some of the technical capabilities you'd like to add on the API side, especially as you talk about an evolving traffic landscape with agentic AI? Richard Wong: Sure. From a Security perspective, we're really proud because we do have kind of the 5 products. Our WAF product is kind of the 1 that we started with and that we had I would say that a large portion of our security revenues is still kind of WAF. We are very happy with the kind of traction that we are seeing with bot management and API security. We haven't broken it out yet in terms of like specifically between the security products where it is, but I would say that the majority of our security revenues are still our world-class lab product. . Kip Compton: Yes. I would just add that some of our largest new deals are on API use cases. So we've got -- in the security business, certainly, the core business is the WAF, which is a phenomenal product. It continues to grow well. But we're seeing strong interest and demand on the API side of the equation. And we're excited about that because we're still, as we mentioned, building out the portfolio there. And so there's more to come. Sanjit Singh: I mean I really wanted to maybe drive a little bit more. I know you talked about your API discovery that you expanded with. So from a technical standpoint, where do you feel you stand now as a larger API platform that could help as you cross board not just with security, but even on the delivery side? And I guess it should be more important in agentic world. And please correct me if I'm wrong. Kip Compton: Yes, absolutely. I mean our approach to our security portfolio has been 1 that has agentic in mind. The features that we're building generally work, for example, for regular APIs as well as APIs. And that's based on some of the work we've been doing with our customers in this area, where they don't want a separate AI capability. They want a single edge platform that addresses all of their API needs across agenetic AI and traditional workloads as well. And so I think AI bot management is an area where we made a distinction there. There are some other features. But our security portfolio is designed with AI workloads in mind, and we are seeing those workloads on the platform. In terms of where we are, I feel like we may be about halfway through the journey. We are covering a lot of use cases, and we're seeing traction that we're very pleased with on API security and API use cases more broadly on the platform. And we're actually excited about the momentum we're seeing because -- as I mentioned earlier, we're planning to bring additional capabilities in the portfolio into this space that we think will expand the addressable TAM for us further. . Unknown Analyst: And then maybe just 1 last one, if I could. Just looking at your CapEx, I understand the incremental $10 million, but really if you could help me parse through what is maintenance CapEx in that level or posted especially in this higher memory environment versus what were expanding new POPs or adding more compute capabilities around accelerated servers. If you could just big that out and help me understand how you are thinking about your CapEx longer term. I'd really appreciate it. . Richard Wong: Yes. So the infrastructure CapEx, we talked about, which was 10% to 12% of 2026 revenue, I would say the majority of that CapEx is going to be for growth CapEx and not for the maintenance and replacement side. I would say that we are continuing to invest. I think 1 of the areas that we are investing is going to be kind of in the APJ area. And so we are opening up additional tops out there to support the business. And so I would say the vast majority of that infrastructure CapEx is not necessarily for the maintenance side but more for the kind of growth those. Operator: Your next question comes from the line of Rudy Kitzinger with D.A. Davison. . Rudy Kessinger: Congrats on the Verizon results. As we look to the 2026 guidance, top 10 customer as a percentage of revenue where is that estimated to fall for the year within that revenue guide? . Richard Wong: Yes. Right now, just as a background for those who are on the call. Right now, our top 10 customers is 34% of revenues. It was up from 32%. And -- the good news here is that we have been investing in our top 10 as well as outside of our top 10. So the top 10 customers grew their revenues by 30% year-over-year with the non-top 10 grew 20%. Both of those were acceleration. And so we're still making big investments on both cores to make sure that we are looking at all of our customers in aggregate. I would say that as we go further, we are doing a few things on our go-to-market transformation. One is that we're focusing our efforts on customers that really get the value that we want from our platform. And some of that happens to be the top 10. And I could see top 10 staying at 34%. I can see it going up just because they are. But I would say that the non-top 10 growth is still going to be high and should be continuing to grow as well. So it's hard for me to say it's going to be 34% 323 -- but I would say that we are very happy with the performance and additional 2 percentage points in the top 10 just because those top 10 customers are still super valuable to us and very profitable to us. Kip Compton: Yes. I would just add 2 things. And I mean, Rich hit 1 at the very end there. But if you see that we grew last quarter, our top 10 faster than our non-top 10, you saw the behavior of the business in terms of profitability, gross margin, et cetera, you can see that those top 10 customers are profitable business for us. We recognize the revenue concentration risk that they represent, but they are profitable -- a significant part of our business. I think the second thing I'd add is we've historically talked about that percentage of top 10 being in the low 30s to mid-30s and thinking that, that was likely to remain the case for some period of time. we don't provide that formally as part of our guidance, but I don't think our view on that has changed at this time. And as I mentioned earlier, we're excited about the cross-sell opportunities as well as the contribution to RPO that those top 10 customers can make. So we continue to drive profitable, higher quality revenue in that cohort. Rudy Kessinger: And then on gross margins, obviously, a very impressive trend here over the last year, getting up to 64%. But 6% to 4% in Q1, you've got the guide at 63% for the year. I understand that with some of this CapEx coming online and some that pushed out from last year. But just how should that trend seasonally? I mean should we see like a big step down in Q2? And then recovery throughout the year? Or just how should that trend on a quarter-to-quarter basis? . Richard Wong: Yes, Rudy, actually, really good call out. I do think that we did give the guide for Q1 gross margins to be up about 6% we will see kind of a drop into Q2 and Q3 as we have additional cost POPs kind of coming online. And then we would again see a bump up again in Q4. And so kind of that's the trend where Q1 and Q4 will be a bit higher in Q2 and Q3 should be a little bit of a drop. Operator: That concludes our question-and-answer session. I will now turn the call back over to Chief Executive Officer, Kip Compton, for closing remarks. Kip Compton: Thank you. We believe this quarter demonstrates tangible progress in our ongoing transformation. We are committed to building the world's most powerful and flexible edge platform. We're pleased with the strong momentum we saw this quarter and are focused on building sustainable, profitable growth. I want to thank our Fastly employees for all their contributions, our customers for their trust and partnership and investors for their continued support. Thank you for your interest in Pasley, and thank you for joining us today. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to Biotricity's Third Quarter Fiscal 2026 Financial Results and Business Update Conference Call. Today's conference is being recorded. As a reminder, this is Biotricity's Third Quarter fiscal 2026 ended on December 31, 2025. So all figures presented for this period will reflect that end date. Earlier, Biotricity issued its earnings press release for the period, which highlighted financial and operational results. A copy of the press release is available on the Investor Relations section of the Biotricity's website, and the full financials have been filed with the SEC on Form 10-Q and posted on EDGAR at www.sec.gov. Before beginning the company's formal remarks, I'd like to remind listeners that today's discussion may contain forward-looking statements that reflect management's current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. Biotricity does not undertake to update any forward-looking statements, except as required. At this point, I'm pleased to turn the call over to Biotricity's Founder and CEO, Dr. Waqaas Al-Siddiq. Please go ahead, sir. Waqaas Al-Siddiq: I would like to first thank everybody for joining us today. This quarter marks another important step for Biotricity as we continue executing our proven strategy, evidenced by 3 consecutive quarters of positive net operating income and EBITDA. As we continue scaling revenue and improving margins, we are strengthening our leadership position in chronic care markets, starting with the #1 global cause of death, cardiovascular disease. This quarter continues our historic trend of expanding our trailing 12-month top line while setting up for another growth year as we have always done year after year. We are building a company designed for durable recurring growth, and our results this quarter reflect that discipline. Demand for remote patient management solutions continue to accelerate with the growing aging population and persistent resource and staffing shortages. Biotricity is uniquely positioned to lead the transition from reactive care to proactive management with clinically superior technology, favorable reimbursement economics, strategic partnerships and a highly scalable, efficient operating model, which has allowed us to make remarkable progress across multiple fronts. The cardiovascular and chronic disease management landscape is evolving rapidly, and long-term winners will be companies that combine clinical grade accuracy, reimbursement alignment and scalable infrastructure. Biotricity brings all 3 together. Unlike others that rely on high-cost service models or divert reimbursement away from providers, our platform is designed to expand patient access while simplifying clinical workflows. This allows providers to serve more patients using existing resources while increasing revenue for services physicians are already providing. That differentiated value proposition continues to drive strong customer retention and expansion within our existing and new accounts. One of our most significant achievements has been the expansion of our cardiac AI cloud platform. Our AI-driven platform is designed to enhance diagnostic accuracy, improve patient outcomes and increase clinical profitability. As we pursue FDA clearance for our groundbreaking AI clinical model, we are setting new standards in cardiac care, ensuring every patient receives the highest quality of care. We expect to see additional improvements in our operational expenses and margins with our next clearance. This quarter, we continue to pursue regulatory approvals internationally, preparing for future distribution. These approvals are in addition to the regulatory approvals we already have in the U.S., Canada, Saudi Arabia, Argentina and some other smaller markets. These approvals underpin our strategy to promote accessible high-quality care to improve patient outcomes. Our primary focus remains on the U.S. market expansion, but we are opportunistically expanding outside of the U.S. through distribution partnerships. We are also extending care beyond the clinic by putting clinical quality tools directly in the hands of consumers through Bioheart. Built with the same underlying technology trusted by providers, Bioheart enables users to identify meaningful changes earlier and make lifestyle adjustments sooner, supporting their long-term outcomes. Through a multichannel distribution approach through experienced partners to optimize these routes, we are making monitoring more continuous and integrated across the care journey. During the quarter, we continued to expand sales of Biocore Pro, our next-generation cardiac monitoring device, deepening penetration within current customers and extending our market footprint. Our momentum continues to build across the business. We launched multiple large-scale cardiac monitoring pilot programs within hospital networks and clinic groups, initiatives that are already contributing to improved utilization and accelerating our path towards breakeven. Based on the current demand and pipeline visibility, we expect continued strong adoption of Biocore Pro across existing and new customers. This expansion supports our broader commitment to deliver innovative health care technology solutions. In summary, our strategic initiatives, technological advancements and operational efficiencies have positioned Biotricity for sustained growth and profitability for calendar 2026. We expect to continue to increase top line revenue this year, shift to profitability and post another growth year. We remain focused on delivering innovative, high-quality cardiac care solutions and are confident in our ability to continue driving value for our shareholders and improving patient outcomes globally. With that, I will turn the call over to our CFO, John Ayanoglou, to provide more detailed financial insights. S. Ayanoglou: Thank you, Waqaas. Let's review the highlights of our third quarter fiscal 2026. Our recurring revenue reflects strong market adoption of our primary subscription model, which is a Technology-as-a-Service subscription model. Recurring revenues through our secondary usage-based subscription model also remain robust. Both are driven by the popularity of our FDA-cleared cardiac monitor devices, especially the next-generation Biocore Pro, which features cellular connectivity. Our rapidly expanding digital ecosystem reflects this growth with users of our digital health app growing from 4,500 to more than 44,000 in just 2 years and an expanding network of over 2,500 providers supporting 400,000 patients annually. Atrial fibrillation, a primary contributor to strokes, remains a significant focus of our business. Biotricity is providing early intervention opportunities and improving patient outcomes for patients with atrial fibrillation, providing them the opportunity for earlier medical intervention. This not only improves patient outcomes, it also has the propensity to deliver significant health care cost savings for both individuals and the broader health care system. For the third quarter of fiscal 2026 ended December 31, 2025, revenue increased by 10.2% compared to the corresponding prior year period to $4 million from $3.6 million in the prior year quarter. This growth is a testament to the efficacy of our strategic initiatives and our technological advancements. We anticipate further revenue growth in coming quarters as a result of the fact that our latest flagship device is a best-in-class device that is geared towards use in hospitals and large clinics, and we are continuing to penetrate effectively in that space. Technology fees accounted for 91.2% of the quarter's total revenue, reflecting our strong customer retention and the quality of our support services. Gross profit for the quarter totaled $3.3 million, up 17.6% from $2.8 million for the prior year period. Our gross profit percentage improved 516 basis points to 81.5% for this quarter, up from 76.4% in the corresponding prior year quarter. This increase is attributable to the expansion of our recurring technology fee revenue base as well as efficiencies gained through proprietary AI and improvements in our monitoring and cloud cost structures. As part of our sales initiatives, we continue to search for opportunities to expand our geographic footprint. We serve thousands of cardiologists across hundreds of centers. Our in-sourcing business model allows these cardiac medical professionals to have direct control over our services, thus enhancing efficiencies and enabling broader market penetration. Our business development initiatives include expansion into other verticals that are ancillary that fit naturally with our core business. Operating expenses for the third quarter were $2.8 million compared to $2.93 million in the same period last year, a 4.2% decrease. Our selling, general and admin expenses decreased by 8.2%, a comparative reduction in spending of over $195,000 for this quarter, but we added to our R&D expenses, increasing those by $72,000. As previously discussed, we have strategically transformed our sales force to increase efficiency. Our external sales team is focused on longer sales cycles on larger accounts, and these include independent hospitals and GPO networks. We continue to be contracted under 3 of the largest GPO networks, which give us coveted access to sell into more than 90% of hospitals in the U.S. All of these positive improvements in revenue growth and operating efficiencies through the use of AI and other automation as well as proactive cost management have allowed us to continue to achieve positive free cash flows, defined as the cash from operations that is available to pay interest and dividends for the last 6 consecutive quarters that has set us up on a path toward achieving profitability in the next quarter. In fact, we are pleased that this quarter, the third quarter of fiscal 2026 is the third consecutive quarter for Biotricity in which it has achieved a positive EBITDA. This is an important milestone and indicator that we're nearing full profitability. The company achieved EBITDA of $280,000 this quarter, which corresponds to $0.01 on a per share basis. A reconciliation of our EBITDA and adjusted EBITDA numbers is available in our 10-Q. We're pleased with the progress made in building our technology, obtaining FDA registrations and developing effective sales strategies as well as implementing cost-cutting measures. The result has been an improvement in operating results of nearly $1 million to achieve our third consecutive profitable quarter from operations, which was $441,000 for this quarter. Net loss attributable to common stockholders for the fiscal 3-month period ended December 31, 2025, was $1.1 million compared to $1.3 million during the corresponding prior year period. On a per share basis, we reported a loss per share of $0.042 compared to $0.054 for the corresponding prior year period. Looking ahead, we remain committed to advancing our business through the commercialization of our Biocore, Bioflux and Biocare products. Our tech is truly useful globally, and cardiac is the #1 chronic care condition in the entire world. The growing market interest and demand for our suite of products dedicated to chronic cardiac disease prevention and management reinforce our confidence in our market position. Importantly, our focus on innovation and development continues to yield significant advancements in remote monitoring solutions for both diagnostic and post-diagnostic products, bringing us ever closer to profitability. We are excited about the future and confident in our ability to deliver sustained growth and profitability for Biotricity. That concludes our prepared remarks for today. Operator, please open the line for questions. Operator: [Operator Instructions] There are no questions at this time. Gentlemen, we'll turn the conference back over to you for any additional or closing remarks. Waqaas Al-Siddiq: Thank you, and thank you, everybody, for joining us. We're very excited about this [indiscernible] about the prospects of 2026. We think that the top line of the company is going to continue to grow, and we expect to turn into net income positive this year. And we are looking forward to talking to all of you in our next quarterly call. Thank you. Operator: Thank you, sir. That does conclude today's teleconference. We thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to the Equinix, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All lines will be in a listen-only mode until we open for questions. Also, today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Phillip Konieczny, Senior Vice President of Finance. You may begin. Good afternoon, and welcome to our fourth quarter conference call. Before we get started, I would like to remind everyone that some of the Phillip Konieczny: statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release, as well as those identified in our filings with the SEC, including our most recent Form 10-Ks filed on February 11, 2026 and our most recent Form 10-Q. Equinix, Inc. assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is our policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. On today's conference call, we will provide non-GAAP measures. We provide a reconciliation of those measures to the most directly comparable GAAP measures in today's press release on the Equinix Investor page at www.equinix.com. We have made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. With us today are Adaire Fox-Martin, CEO and President, and Keith D. Taylor, Chief Financial Officer. At this time, I will turn the call over to Adaire. Adaire Fox-Martin: Thanks so much, Phillip. Hello, and a warm welcome to our call today. Adaire Fox-Martin: I will start by saying on a personal level how deeply pleased I am with our performance in 2025 and particularly in Q4. Demand for our solutions has never been higher, and our teams have stepped up exceptionally well to capitalize on it. To our employees around the world, I would like to say a huge thank you for all you are doing to achieve our goals. I also want to thank our customers and partners for the trust they have placed in Equinix, Inc. as we intensified our investment in growth—investment that is already paying off. Our bookings have accelerated dramatically. Our recurring revenue growth rate continues to climb, and we are managing our spend with great discipline. All of these factors are combining to fuel an expansion pipeline and growth in AFFO per share materially ahead of expectations. Given our momentum exiting 2025, our confidence in our 2026 plan has grown. This is reflected in both our revenue and our AFFO per share outlook. Our performance and our outlook demonstrate two things. The first is that Equinix, Inc. is connecting the fastest growing segments of technology infrastructure, and the value of our platform is increasing with every connection. The second is that our execution continues to improve. This winning combination delivers superior customer outcomes and stronger shareholder returns. Not only are we on the right track, we are moving far faster along it. Now our momentum is clear across several key metrics. Monthly recurring revenue, the most powerful driver of long-term value creation, grew 10% in Q4 and 8% for the full year on a normalized and constant currency basis. And for bookings, the leading indicator for revenue performance, the story is even stronger. We delivered annualized gross bookings of $1,600,000,000 in 2025, up 27% year over year. Our Q4 bookings were $474,000,000, up 42% year over year and 20% from Q3, well ahead of our plan. We delivered record capacity to meet growing demand, including 23,250 cabinets in our retail footprint and more than 19 megawatts in our xScale business in 2025. We delivered more than 30% of this retail capacity ahead of schedule, which we believe will accelerate our growth in 2026 and beyond. Now Keith will go deeper into our metrics shortly, including recommendations on how to model the Hampton transaction. As you saw in our release, the expected timing of this transaction shifted from Q4 to Q1, which, as we have shared in the past, simply reflects the fluid nature of xScale lease signings. Before I turn the call over to Keith, I would like to provide some additional perspective on why our business is performing so well. For starters, we are building on the strength of our fundamentally differentiated value proposition. Our decision to double down on the digital infrastructure and connectivity requirements of enterprise customers is fueling our success, particularly as they implement AI across their operations. In Q4, approximately 60% of our largest deals were driven by AI workloads. That is up from approximately 50% earlier this year, a trend line that we believe will continue, as we are really only at the beginning of this journey. Equinix, Inc. is the neutral ground Operator: where enterprise infrastructure converges, Adaire Fox-Martin: and we provide the essential layer of connectivity that make it all work at scale to unlock real business value. This is a long-term tailwind for our business, particularly as AI inferencing expands across industries. With market-leading native cloud on-ramps, the largest global footprint across the most critical markets, and the broadest enterprise customer base, we deliver what AI inference demands: network diversity, cloud proximity, AI-ready interconnection, and low latency. These are structural advantages we have built over decades and we believe will continue to set us apart. In 2025, we completed over 17,200 transactions, up 6% year over year with over 6,100 unique customers. Our Q4 transaction volume was the highest ever at over 4,500 deals with more than 3,400 unique customers. We saw an uptick in volumes for all workload sizes, from single cabinet requirements up to our largest cage configurations. And more than 60% of our existing customers added new services last year. Now let me share some recent customer wins and use cases that really showcase what is driving this demand. Salesforce chose Equinix, Inc. to create a private multi-cloud networking layer for the engine inside their data and AI foundation. This is our largest global Fabric Cloud Router sale to date. By deploying Equinix Fabric Cloud Router across 14 countries and 21 metros, we are enabling private network connectivity between Salesforce's presence in AWS, Azure, and other cloud service providers. Alimbic, an AI-powered marketing analytics platform, selected Equinix, Inc. for the scale and consistency of our global operations and the richness of our interconnection ecosystem. We are working with Alimbic as they deploy the NVIDIA DGX SuperPOD with NVIDIA Grace Blackwell Systems to expand their addressable market through distributed AI. BigMate, a leader in AI-powered workplace safety and operational intelligence, chose us because Equinix Fabric securely connects their edge devices, cloud providers, and customer networks. This enables them to deliver real-time AI-driven quality control for industries ranging from food processing to manufacturing. Leading quantitative trading firm Hudson River Trading selected Equinix, Inc. because our global footprint and our advanced cooling solution enable them to achieve the latency and the density requirements they need to power their next-gen AI trading workloads. And Fortune 500 multinational Honeywell Corporation expanded its relationship with Equinix, Inc. because of the secure, flexible solutions and global Fabric connectivity we provide, including for key metros such as Shanghai, Tokyo, and London. This is the first of many projects driving the integration of internal AI applications and the wider transformation at Honeywell. These are just some of the use cases underpinning our momentum. Our progress is a direct result of the changes we have made through our Start Better, Solve Smarter, and Build Bolder initiatives. Starting with Start Better, customers continued to secure both near-term and long-term capacity across our global platform. Our $474,000,000 in annualized gross bookings in Q4 were supported by an incremental pre-sales balance of $170,000,000, with more than $60,000,000 occurring in the quarter. Larger footprint requirements from enterprises and service providers contributed to this performance. Our pipeline is strong, and we have already booked approximately 45% of our Q1 2026 target, and signed an additional $100,000,000-plus of pre-sales as of today—already our largest pre-sales quarter ever. As we accelerate growth, we are committed to a disciplined pricing strategy that is commensurate with both the strong and durable demand patterns we see and the differentiated value our solutions provide. This translates into our strong cash and cash return profile and the premium yields we secure. We continue to underwrite our newest projects with these principles in mind. With Solve Smarter, we are helping customers connect and simplify their infrastructure. Interconnection revenue grew 9% year over year on a normalized and constant currency basis. We added 7,800 net interconnections in the quarter, including our adjustments. We also crossed an extraordinary milestone in Q4, surpassing 500,000 interconnections worldwide. To put this into context, that is more than double our nearest competitor. As AI amplifies the need for massive real-time data movement, Equinix, Inc. is delivering the connectivity infrastructure that enterprises depend on the most. As part of our Build Bolder initiative, the work we are doing across our global development portfolio is strengthening our competitive advantage. In Q4, we delivered more than 12,000 cabinets to our retail business across key metros. Our development engine remains exceptionally active with 52 major projects underway across 35 markets, including nine xScale projects. Since October, we have added 10 new expansion projects. We also closed on a number of strategic land acquisitions last year, adding approximately one gigawatt to our powered land under control balance. This positions us well to meet long-term demand from both enterprise and hyperscale customers. Our xScale business achieved a key milestone in recent weeks. In January, we contributed our Hampton asset to the Americas JV, an important first step towards deploying $15,000,000,000 of capital across major metros in the U.S. The Hampton facility will support approximately 240 megawatts of IT capacity when fully built out. The signing of the lease for half of this facility to a hyperscale customer is expected in Q1, and we expect the site to be fully leased later this year. In addition, we have established a healthy leasing pipeline, demonstrating the value of our xScale strategy. Of the approximate three gigawatts of capacity that can be developed, close to one gigawatt is currently earmarked for our xScale business. Further, our land acquisition pipeline continues to grow, as we maintain our focus on major metro expansion opportunities where we are confident of significant long-term demand. As such, we expect xScale will continue to contribute to NRR over the next several years as we execute our strategy. Overall, we are winning where it matters most by connecting the infrastructure that powers the AI build-out happening across industries. And we are laser-focused on extending our category leadership through disciplined execution that drives healthy revenue growth, margin expansion, and superior shareholder returns. I will now turn it over to Keith to take a closer look at the numbers behind the quarter and our outlook. Keith D. Taylor: Thanks, Adaire. And a very good afternoon to everyone. First and foremost, I will start by briefly building on Adaire's comments. Simply, it was an outstanding close to 2025. From my perspective, Equinix, Inc. delivered its best quarter ever by far, closing the last quarter of the year with over $470,000,000 of annualized gross bookings, and more than $60,000,000 of pre-sales activity—well ahead of our expectations and certainly any prior quarter. The magnitude of our quarterly activity, across the substantial number of diverse deals but also with over 3,400 customers, underscores that our strategy is working and meeting the opportunity in front of us. Keith D. Taylor: Also, Keith D. Taylor: I would say that it is our retail business that is the standout, delivering record bookings across each of our small, medium, and large size-of-deal categories. And alongside our strong sales execution, Keith D. Taylor: the teams continue to operate the business with great focus and discipline. And we are only getting started. This created better-than-expected margins. We raised our capital more efficiently than planned and invested or utilized the cash more effectively, creating better-than-planned cash flows. Suffice it to say, our performance is creating momentum in the business to drive attractive recurring revenue growth and the scaling of healthy AFFO per share performance. Now, I will cover some of the highlights for the quarter as depicted on Slide 7. Note, all growth rates in this section are on a normalized and constant currency basis. First, as we indicated last quarter, our Q4 guide assumed the execution of a large xScale lease for two of the four buildings on the Hampton campus. As Adaire noted, this transaction is now expected to close in the first quarter. We also had some one-time planned benefits which will not repeat themselves in Q1. That being said, our fundamental underlying performance was meaningfully better than our expectations from top to bottom. Please refer to Slide 15 that bridges our quarterly revenues from Q4 2025 to Q1 2026. Now let me move specifically to revenues. Q4 revenues were $2,400,000,000, up 7% over the same quarter last year, fueled by continued strength in our monthly recurring revenues, which was up 10% over last year, and, as you likely noted, a steady quarterly improvement throughout 2025. Q4 revenues, net of our hedges, included an $8,000,000 currency headwind when compared to our prior guidance rates. Global Q4 MRR churn was 2.2%, lower than planned, and for the full year, our average quarterly MRR churn was 2.4%. Looking forward, our teams remain highly focused on reducing MRR churn, which includes the development of AI predictive tools to help identify opportunities to eliminate or defer any MRR churn. Global Q4 adjusted EBITDA was $1,200,000,000, or approximately 49% of revenues, up 15% over the same quarter last year. Q4 adjusted EBITDA, net of our FX hedges, included a $4,000,000 FX headwind when compared to our prior guidance rates. Our 2025 margin improvements reflect our continued focus on delivering higher operating leverage across the business while also investing in growth. As it relates to 2026, we expect to continue to deliver improved adjusted EBITDA margins while also absorbing both accelerated and increased expansion drag, the byproduct from our growth investments. Keith D. Taylor: Global Q4 was $877,000,000 or up 13% over Keith D. Taylor: the same quarter last year, including the seasonally higher recurring CapEx spend. Q4 AFFO included a $2,000,000 FX headwind when compared to our prior guidance rates. Keith D. Taylor: And Keith D. Taylor: our non-financial metrics continue to demonstrate strong momentum across our core or key metrics of net interconnection additions, net new cabinets billing, and MRR per cabinet pricing. Our net interconnection additions increased by 7,800, including both physical and virtual connections and also include our adjustments. As Adaire highlighted, we have now surpassed the half-million interconnection milestone across our ecosystem—an unmatched competitive advantage, which has been curated over 25 years of history. Turning to our cabinets billing, we added 4,300 net cabinets billing in the quarter, including cabinets from our MainOne portfolio. Our underlying net cabinets billing increased by the highest level in three years, driven by strong bookings performance across each of our three regions. Our backlog of cabinets sold but not yet installed stands at a record, given the bookings performance, especially in 2025. And finally, we continue to drive attractive MRR per cabinet yields, stepping up $65 quarter over quarter on a normalized and constant currency basis, driven by very favorable pricing backdrops, increasing power densities, and strong interconnection attach rates. Turning to our capital structure, please refer to Slide 10. As of year-end, our balance sheet increased to approximately $40,000,000,000, including cash and short-term investment totaling about $3,200,000,000. Our net leverage was 3.8 times our annualized adjusted EBITDA. During the quarter, we issued $1,800,000,000 of senior notes at an effective rate of about 3.2%. Throughout 2025, our diversified capital raising program allowed us to raise debt at very attractive rates, which helped us optimize our 2025 net interest expense. Looking at 2026, we plan to continue to raise debt in lower-cost locations either directly or synthetically, including Canada, Singapore, and Europe. And now looking at our capital expenditures for the quarter, please refer to Slide 11. Capital expenditures were approximately $1,400,000,000, including our planned seasonally higher recurring CapEx of about $140,000,000. We have opened 16 major projects across 14 markets since our last earnings call, adding important retail capacity to several of our key undersupplied metros. And we announced 10 new projects, which will be added to our global portfolio over the next few years. Revenues from owned assets are 70% of our recurring revenues. Our capital investments delivered strong returns as shown on Slide 12. Related to our now 187 stabilized assets, revenues increased by 6% year over year on a constant currency basis. These stabilized assets are collectively 82% utilized and generated a 27% cash-on-cash return on the gross PP&E invested on a constant currency basis. Keith D. Taylor: Now Keith D. Taylor: given our strong underlying Q4 results, our 2026 outlook is expected to be meaningfully ahead of our expectations that we shared with you at our June 2025 Analyst Day. Our strong pricing discipline, coupled with our best-in-class capital allocation efforts, should allow us to generate industry-leading durable cash flows with attractive cash yields, thereby delivering revenue growth and long-term value for our shareholders. Please refer to Slides 13 through 17 for our summary of 2026 guidance and bridges. Do note all growth rates are on a normalized and constant currency basis. Starting with revenues for the full year 2026, we expect total revenues to grow between 9–10%, which includes a modest 40 bps attributed to the NRR from the xScale lease timing. We expect our monthly recurring revenues to grow between 8–10%, driven by strong 2025 bookings performance, including pre-sales momentum. MRR churn is anticipated to remain comfortably within our targeted range of 2% to 2.5% per quarter. We expect 2026 adjusted EBITDA margins to be approximately 51%, an expected 200 basis point improvement over 2025, reflecting anticipated revenue growth and focused expense management. 2026 AFFO is expected to grow between 9–11% compared to the previous year. AFFO per share is expected to grow between 8–10%, which, after adjusting for 100 basis points of xScale lease timing, is 300 basis points higher at midpoint relative to our prior expectations from past summer. 2026 CapEx is anticipated to range between $3,700,000,000 and $4,200,000,000, including about $280,000,000 of recurring CapEx spend. We have not included any on-balance sheet xScale spend, as we do expect to be reimbursed for these costs as we transfer these assets into the xScale JVs. And finally, we expect our quarterly cash dividend to increase by 10% over 2025 on a per-share basis. As a result, our total 2026 cash dividends paid will approximate $2,000,000,000. So let me stop here. I will turn the call back to Adaire. Adaire Fox-Martin: Thanks very much, Keith. As this is my first opportunity to address all of you since Keith's retirement announcement, I wanted to take a moment to acknowledge his tremendous impact on Equinix, Inc. over the past 27 years. His leadership has been integral to our success and has helped us lay the foundation for our future. I am particularly grateful for Keith's partnership since I joined the company, and I look forward to his continued support as a special adviser over the next year. Our process for selecting Keith's successor is well underway, and we look forward to updating you when we have news to share. Before we turn to questions, I want to leave you with a final thought. Equinix, Inc. is at the center of a historic multiyear infrastructure investment cycle. To deploy AI at scale, enterprises need to connect and manage increasingly complex and distributed technology ecosystems. Equinix, Inc. is the neutral connector that unlocks business value for our customers. It is what we do best. It is where we have continued to focus, and our focus is paying off. We were built for this moment. But execution is everything, and we will continue to prioritize doing the most important things exceptionally well so that we delight our customers whilst delivering structurally higher returns and AFFO per share growth for our shareholders. That is exactly what we did last quarter, and it is what you should expect from us going forward. So with that, we will open the line for questions. Operator: Thank you. We will now begin the Q&A session, and we would like to ask analysts to limit their questions and reenter the queue. Our first question comes from Eric Thomas Luebchow with Wells Fargo. You may go ahead. Eric Thomas Luebchow: Great. Thank you for taking the question. Adaire, maybe you could touch a little bit on kind of the bookings momentum that you talked about that came through in Q4 and it sounds like you are off to a really good start in Q1. I think you said 60% plus of the largest deal came from AI workloads. Are you seeing more of these, you know, kind of coming from traditional enterprise companies adopting AI? Is it coming more from the hyperscalers putting edge nodes in your facility? And as you kind of look out, do you think that 60% is going to continue to rise throughout the course of the year? Thank you. Adaire Fox-Martin: Thanks very much for the question, Eric. Let me perhaps unpack a little of that AI 60% stat for you. And I think the value that we provide is obviously something that is been amplified thanks to the continued investment in this sector overall and the excitement around it. I think for us, the breadth and scale of our product continuum, they are very, it is very uniquely aligned to meet this demand. As I mentioned in my prepared remarks and you just repeated there, 60% of our largest deals were driven by AI workloads. Now, over the course of the quarter, when I look at that 60% related to AI, interestingly enough, nearly half of them were deployed by non-cloud and IT companies, but they were deployed by companies in the retail, e-commerce, manufacturing, financial services, and content sectors. So I think this demonstrates increasing enterprise AI adoptions outside of the service provider community. We also had 11 liquid cool deployments in Q4, five of which were in our New York City facilities, underpinning the requirements of our FSI customers to support elements, use cases like algorithm training in that sector. I think this also demonstrates continuing strong diversity. And from an interconnection lens, we see a very healthy growth in the AI service provider ecosystem, although it is still early days given, you know, I think the breadth and depth of our established ecosystem density. So interesting to see that it was of the 60, 50% driven by non-cloud and IT providers, really demonstrating the growth in enterprise application of AI processes to business, and we see this as a continued positive tailwind for our company. Operator: Thank you. Our next question comes from Jonathan Atkin with RBC. You may go ahead. Jonathan Atkin: Thanks. I was interested if there was any update to your multiyear guidance provided at the Capital Markets Day last June. And are those targets still relevant? Or should we be thinking about 9% as being the new baseline for AFFO per share growth? Thanks. Keith D. Taylor: Jonathan, first and foremost, thank you very much for the question. I think what is most important is to understand just the underlying momentum of the business. As Adaire highlighted both in her prepared remarks and certainly in the commentary around our booking activity, the business is performing well. I sort of said it over the last two quarters, and we sort of will talk about it this quarter. It is the execution on the top line, it is the management of the cost, as well as efficiently raising capital and deploying it appropriately. So I think we are on the right trajectory. We are delighted with what we have delivered for 2026. I just feel it is a little premature to talk about 2027 and beyond, but as you can appreciate, the momentum is wind at our back. And I would add to that, I think currencies are to continue to be wind at our back as an organization. So the combination of really strong performance, the ability to maybe invest faster than we were anticipating as Ralph sort of brings forward as many of the assets as possible, I just think we are in a really good spot. And I think it is just a bit early to talk about 2027 and beyond, but I know you can do math very, very well. And so I am going to leave it to you to sort of interpret both how we are performing this quarter being Q1 2026 and what that really implies exiting 2026. So again, feel good about our position, but let us defer the 2027 discussion till later. Jonathan Atkin: Thank you. Operator: Our next caller is Aryeh Klein with BMO Capital Markets. You may go ahead. Aryeh Klein: Thanks. First, I guess, Keith, congrats on your career and wish you the best moving forward. I guess, Adaire, just going back to the previous question around AI and that 60%, do those deals look different than some of your more traditional deals, be it from a size or location standpoint? Then I guess from an underlying demand standpoint, it seems like things have meaningfully accelerated since the Investor Day back in June. Can you just unpack that? What specifically has, I guess, driven that acceleration momentum? Adaire Fox-Martin: Yes. So let me comment on that accelerated momentum first and then I will address the second part of your question, which is around the characteristics of some of those AI deals that we saw in the first quarter. I think when I look at the, you know, the gross booking outcome that we saw in Q4, in fact, was an acceleration from Q3 all the way through to Q4 very much across the second half of the year. And as we have mentioned, in Q1 we already see some early acceleration in the current quarter. So when I look at the characteristics of what is driving that, I think it is in large part two very specific, very different themes. The first is the external one, and I will speak to that in a moment, and the second is the internal one. So if I think about the external one, we are seeing robust demand right across all workload types. And what was extremely interesting about the demand profile more generally across our Q4 performance was that it was right across the different segments that we serve. We saw all segments and all verticals grow. So it was a very robust, broad-based demand across numerous different types of workloads. We, of course, saw, you know, specificity around AI Adaire Fox-Martin: opportunity. Adaire Fox-Martin: Where there was connectivity requirements for near-metro connectivity requirements to unlock the value in that process. So very robust demand across workloads, across all industries, across all regions, and across all of the segments that we serve. Then there is the internal piece, which is the execution of the team against this particular opportunity that we saw in the market. First of all, we did accelerate some capacity into the year, and that was a helpful element in terms of our output and our performance. But we also had a phenomenal pipeline conversion rate, so the team converted at around 49% in Q4, which speaks, I think, to the quality of the pipeline that we had coming into the quarter. And as I have mentioned previously, we have been putting a lot of focus on ensuring that we are forecasting the future pipeline with the same intensity that we are forecasting the current booking pipeline, and really building our footprint strongly as we enter each quarter so that we know that we are executing on very highly qualified opportunities. Interestingly, it was also great to see some very firm pricing right across all of those segments and across all of those regions in Q4. So great disciplined internal execution that kind of met the market moment the market was at. And as it relates to the characteristics of the transactions that sat in that 60% contingent, it was, of course, some of our larger transactions were related to our AI opportunity. And I think one characteristic of all of them—I have shared with you some of the use cases already across the different segments that we facilitated this functionality into—but one characteristic was that we saw a 33% increase in density compared to the non-AI deals, so an average of about 10 kVA per cab for these transactions. Our next question comes from Michael Ian Rollins with Citi. Operator: You may go ahead. Michael Ian Rollins: Thanks. Good afternoon. Keith, I also want to Michael Ian Rollins: extend my congratulations and best wishes on your upcoming retirement. Maybe going back to some of the comments from earlier in the call, I think you were discussing the opportunity to improve churn, Keith D. Taylor: and curious as you are preparing these new tools, Michael Ian Rollins: to help get that churn down, how much of this is in the company's control versus how much of it is just simply customer optimization of workloads that the churn will happen, you know, Equinix tries to get in front of it. And then just a secondary clarification on the 6% stabilized revenue growth. Can you unpack that a little bit in terms of delivering that incremental strength relative to the recent history? Thanks. Adaire Fox-Martin: Mike, this is Adaire. I might take the churn question and then Keith answer the question around the 6% stabilized growth for you. Let me unpack the churn commentary. So over the course of the past two quarters, we saw that our churn has sat more at the lower end of the range that we guide to than at the higher end. And this is a combination of access to data and unpacking the data, the tool that, you know, we are working on and have some early pilots in place that Keith alluded to in his prepared remarks, the fact that we identify much earlier in the process what we call ATR, or available to renew. So much earlier in the process, the cohort of customers that fit in that ATR category, and then being able to deploy our customer success team onto that ATR cohort of customers in order to make phone calls much earlier in the process than we have been doing in the past, and to facilitate not just a renewal but even potentially an upsell opportunity. One of the things that we saw in Q4 was that 60% of our existing customers added additional services from Equinix, Inc. to their portfolio, and every time you have a call with a customer, you have an opportunity to share what we are doing around new services. I think it is the combination of those elements—ATR, telemetry, and visibility into our data, the customer success team focused on this, and tools that help us predict more accurately. And there is, of course, as you quite rightly point out, a proportion of churn that is not addressable by us. And, you know, that is now something that we have visibility into, and it means we focus our resources, our efforts, on the proportion where we can actually address an outcome for the customer and for the business. Keith D. Taylor: And Michael, first, thank you for the nice comment. I appreciate it. To respond to the question on stabilized assets and the growth rate, the beauty of what we shared, number one, is that there is more and more volume going through basically the stabilized assets that is not necessarily cabinet-related because our utilization is 82%. So that is number one. Number two, you have higher density per average cabinet. And so that is working in our favor. Number three, which I think is really important and then also refers back to one of the comments I made in my prepared remarks, where we have sort of one-off benefits that do not necessarily repeat themselves, at least over quarter, and that is basically price increases—price increases relating to the fourth quarter. And so it is a combination of all those that really delivered a strong stabilized growth rate on an asset base that is really quite substantial. And so feel very good about what we delivered. I probably would say, though, and to try and give you some steer, if you will, as you look forward, we still generally feel good about the stabilized assets growing 3% to 5%. That is the typical range. We are going to have these periods where we are slightly higher, and sometimes we might be a bit lower just based on the timing. But overall, feel really good about the 3% to 5% growth rate attributed to stabilized assets. Michael Ian Rollins: Very helpful. Thank you. Our next Operator: caller is Frank Garrett Louthan with Raymond James. You may go ahead. Frank Garrett Louthan: Great. Thank you. So part of your footprint expansion was to be able to capture some of the increased power demands from enterprises. We have definitely seen the demand ramp up. So where are you today with regards to your ability to meet that customer demand for folks needing incrementally new levels of power from enterprises? Have you caught back up on that? Where are you in that process? Thanks. Adaire Fox-Martin: I will answer that for you. Thanks for the question, Frank. So, obviously, you know, power and the sourcing of power is, you know, a very significant factor for us as a data center operator. Having power means that we are able to secure the compute and energy future of our customers. As we indicated, you know, we currently have three gigawatts of developable land under control. And it is not developable land full stop. It is powered land, or land that we are close to securing the power on. And so, yes, we are not in the business of, you know, surreptitiously buying a block of land if we are not sure that we can power that asset. And so that means that as we look at our capacity and our build profile moving out, we are building against powered land portfolios, which therefore will enable us to continue to advance and evolve our footprints and our facilities to meet the density requirements of our customers. As I mentioned, we saw already in the AI workloads that we enjoyed in Q4, being 33% more dense than non-AI workloads, and we can certainly see that density increasing across our footprint. So we believe that we are very well positioned to address those requirements of our customers. Keith D. Taylor: And maybe just adding on to what Adaire said, because I think it is important, is we have 52 projects currently underway. They are energized projects, and I am talking about generally the retail space. And as we shared with you at Analyst Day, whether you look at a DC-17 or a new Dallas build, they are coming with scale and size, but they are not so big that maybe there is excess focus on it. So feel really good. We talked about the one with 67 megawatts, and so it gives you a sense of where we are building capacity—in markets Keith D. Taylor: where Keith D. Taylor: there is a sort of broad need for that capacity, and they are the important markets: the Chicago, the New York, the Dallas, the Washington, and you go around the world and think about all those critical markets and that we are trying as hard as we can to build on that capacity. And so with the 52 projects currently underway, it sort of just adds to what Adaire is saying, that we have the current and then we also are creating the future opportunity for ourselves as well. Frank Garrett Louthan: Great. Thank you very much. Operator: Our next caller is Michael J. Funk with Bank of America. You may go ahead. Michael J. Funk: Yes. Keith, first, congratulations and thank you again for all the help over Michael J. Funk: over the years. So in prepared remarks, mentioned a disciplined pricing Michael J. Funk: strategy. Keith, just curious, kind of the magnitude of how much higher you can take pricing. Then you mentioned a minute ago that 3% to 5% projected range for growth with some variance. Any more comments around what would cause the variance, whether seasonality, Michael J. Funk: timing? The final part of my question would be, are you seeing ability to change contract terms on renewal, whether increased escalators or other factors? Adaire Fox-Martin: Okay. Hi. I will take the question and Keith can add some components to it as needed. As I mentioned, we experienced very firm pricing throughout Q4 across all segments and for all regions, and we are very disciplined around the approvals and the approach that we take with our customers. We recognize that in the platform that is Equinix, Inc., there is a range of differentiated value that allows us to accelerate, you know, the pricing opportunity—our pricing commanding yields as a result of our interconnection density, a result of our cloud on-ramps, and, of course, the metro locations, which becomes even more important when we look in a low-latency world around certain applications of AI workloads. So, I think from a pricing perspective, we are very disciplined. We are very focused on that, and we know that we have opportunity to accelerate that in that regard. The vast majority of our contracts auto-renew, and they renew, you know, with a particular pricing increment applied to them. But this is also an opportunity for us to have a conversation with our customers. And that is why the ATR program is an extremely important one for us because it does allow us to look at customer usage, not just of the space and power within our footprint, but some of the additional and incremental services that Equinix, Inc. offers, and then allows us to enjoy the price points that those services represent in terms of value for our customers. Operator: Our next caller is David Guarino with Green Street. You may go ahead. David Guarino: Thanks. Your stabilized cash gross profit growth has been excellent all year, I guess, in 2025. And part of that, I know, is due to shrinking expenses. So wondering, do you think that trend of reducing costs will continue? Or at some point, are you going to have to increase staffing levels if this outsized pace of bookings continues? Keith D. Taylor: David, let me take that one. Adaire, jump in as needed. So one of the comments we made is that we are just getting started. I think when you step back and look at the organization, we are driving the top line. Ralph and his organization is doing a great job of managing the IBXs to the gross profit line. And then you have the rest of the organization, and today, you know, for round numbers, you are 18–19% SG&A as a percent of revenue, right? We have a stated goal that we really would like to get—we would like to improve that. And that is through bending the cost curve. It is not always about eliminating costs, it is bending the cost curve and becoming more efficient. Our goal is to get to 15% over some period of time. And so the combination of managing into the different markets and also managing the spend while also investing behind Harman and her efforts to, I guess, to create efficiency in our organization through processes, through systems, tooling—it is a combination of all these things that I think can make a difference over the years. And still early, but we are offering up this year a guide of roughly 200 basis points improvement. It is coming from the top line, it is coming certainly from Ralph's organization. And we are still investing in the business to develop future opportunity for us. So I am not necessarily sort of subscribing to what you said that we need to throw more bodies at it. We tend to be a little bit more headcount-dense than almost anybody else out in the marketplace, and I would argue that we get more leverage from that as we introduce more assets into our environment. If you build another—put up another building in Dallas, as an example, you do not need to necessarily go hire more SG&A to support that asset. And so I feel very comfortable that when you look out that we can become an increasingly more efficient business. And consistent with the comments we made at Analyst Day, that we are surely on a nice trajectory. We said 52% plus, and there is a very good reason why we put the plus at the end of the 52. So a journey that we are going to be on together, and I am excited— David Guarino: Helpful. Thanks. Operator: Our next caller is Michael Elias with TD Cowen. You may go ahead. Michael Elias: Great. Thanks for taking the question and congrats on the Michael Elias: results. Question for you regarding the bookings. Michael Elias: Obviously, great to see big bookings quarter in 4Q. What I would like to get a sense of is, you know, how would you rank order the contributions to the bookings from the cabinets that you have coming online in capacity-constrained markets, obviously brought on cabs in Northern Virginia as well as Frankfurt, both of which were capacity constrained, versus it being a structural acceleration in demand. And really what I am trying to get at is how sustainable is the 4Q bookings level because that obviously has implications for forward revenue growth. Thank you. Adaire Fox-Martin: Okay. Hi, Michael. I will have a go at the question and then Keith can jump in if we need additional clarification on a couple of points. I, you know, I guess, you know, over the course of the last year, we began to show our annualized gross bookings to you as a metric. And the reason for doing that was to give you, with the combination of the pre-sales number, to give you a sense of the momentum that we see inside the business in any given quarter. And since we have done that, we have seen our annualized gross bookings moving upwards every quarter. And certainly, you know, Q4 was no exception to that particular outcome. We have a very strong pipeline going into Q1. We have already closed 45% of our Q1 target, and we have had a meaningful pre-sales experience in Q1 to date that has given us our largest pre-sales quarter even though we are just halfway through. So I think looking forward, you know, our bookings growth will continue to be a very strong indicator of underlying health. I think the best line of best fit is up and to the right, but that is where we see the demand. Obviously, there will be some variability quarter to quarter as seasonality and other elements kick in. So that is something that we will manage as we look at it on a quarterly basis. But as it relates to the cabinets, Keith, do you want to— Keith D. Taylor: Right. Michael, I will just add a little bit to what Adaire said as well. I think our expansion tracking sheet gives all the people on the call a pretty good sense of where we are making our investments. We need more capacity and we are going to continue to invest in more capacity. And as Adaire alluded to, we have roughly three gigawatts that we are considering over a period of time while we are still building currently. I think the combination of continuing to make the current investments while thinking longer term, while at the same time demand-shaping to markets—and you have always heard us talk about the right customer with the right application going into the right data center—and that will continue to hold true. But particularly in markets where they are constrained, not just for us but for the industry, we feel that we can demand-shape that opportunity into other markets that are proximate or within the fiber route sort of environment that would make it suitable for our customer to consume. And so I will just say that there is a lot of things that are going into it. Different markets are going to have different sets of circumstances. But this is what we are focusing on as an organization—not only increasing the density but making sure that we demand-shape to the right markets in support of the customers' needs. And that also plays into that a little bit to the pricing as well. So hopefully that gives you a bit of a sense that, yeah, we understand that some markets are more constrained than others, but we are also going to build in adjacency such that we can maybe continue to enjoy the opportunity that is in the marketplace. Michael Elias: Great. Thank you both for the color. Operator: Our next caller is Nick Del Deo with MoffettNathanson. You may go ahead. Nick Del Deo: Hi, thanks for taking my question. And Keith, congratulations on your upcoming retirement and thanks for all your help over the years. Keith D. Taylor: Adaire, earlier in the call, you noted Nick Del Deo: the strength in the interconnection franchise. Some of the big cloud service providers that you work with have announced and are developing, you know, products to help customers go the multi-cloud, multi-cloud route. Was wondering if you could talk a bit about the puts and takes of those efforts as it relates to the interconnection franchise. Adaire Fox-Martin: Thank you for the question. I guess, at Equinix, Inc., we have always understood and always appreciated the importance of the network. And I think some of the announcements that we have seen around connectivity is a validation of connectivity and the importance of the network as part of the broader AI ecosystem and landscape. And, of course, we have continued to invest in our network products, in our interconnection product portfolio, and it is a significant part of our—and a significant part of our global revenue. You know, we recognize that, you know, many of the clouds have made a cloud-to-cloud connectivity announcement. But this is a very simple use case. Cloud to cloud is a simple connectivity use case. In reality, the reality of our customers is much more complex than this. We have always, always believed in a multi-cloud hybrid world, and that requires much more complex consideration around connectivity and networking strategies for our customers. And the interesting element for us, of course, is that many of these clouds, they are very valued partners of Equinix, Inc. And they use a large part of our infrastructure to help create their value proposition in terms of networking positions and network topologies. We are always evaluating our strategy here and always looking at, you know, what is emerging around the ecosystem. And that is why for us, you know, we recognize the inherent value of our interconnection franchise. And the role of Fabric continues to evolve within that franchise as we see provisioned VC capacity stepping up quarter over quarter. And we have a range of very exciting developments around our footprint here, our product footprint here—developments that will simplify the networking journey for our customers, developments that will support MCP as it relates to, you know, the augmentation of AI agents and AI workloads, and developments that will really enhance the observability—sorry, Martin, I am stumbling over that word—that our customers enjoy on our network. So a lot happening in this space for us, that we really see that many of the announcements really validate the role that the network plays in any AI ecosystem. And it is really, I think, a validation of the connective opportunity that we see ahead of us. It is one of the reasons why we have continued to invest in this space. Nick Del Deo: Right. Thank you, Adaire. Operator: And our last question comes from Cameron McVeigh with Morgan Stanley. Cameron McVeigh: Hi, thanks. Just wanted to echo my congratulations to Keith. And secondly, you have spoken in the past about the shift from Cameron McVeigh: AI training to AI inference workloads. And curious if you have any updated views on the timing you have seen. And then secondly, this may be a follow-up to the last question, but just how important interconnection offerings are to drawing AI inference workloads from enterprises? Thanks. Adaire Fox-Martin: The first part of your question, I think when you look at how our deal profile has moved through the course of 2025 into 2026, an uptick of 50% to 60%, we can see this tailwind of opportunities perhaps emerging earlier, you know, as an enterprise footprint than we originally thought when we presented in summer of last year. And so I think that is really good news because it is taking the promise of AI and putting it into the hands of consumers, of citizens, and customers all the way around the world. As it relates to the role of interconnection in AI workloads, I think there is a very significant element here for us to consider. And in some ways, the Salesforce example that I shared in prepared remarks is a really great example of where our connectivity capability was able to deliver a very unique service to Salesforce around creating private network connectivity. And so we are very excited about the opportunity to serve our customers' evolving needs in a complex hybrid multi-cloud world. We think it is a very fast-growing space. We think it is something that would be additive to our colo capabilities because it will broaden the range of customers and that it will continue to strengthen our platform and our ecosystem. So this is something, as I have mentioned before, that we are very excited about the opportunity and see that we have a very strong competitive differentiation when it relates to others in the segment with this interconnection footprint. Keith D. Taylor: Okay, great. Well, thanks everybody for joining our conference call today and have a great afternoon. Thank you all. Operator: Goodbye. Adaire Fox-Martin: And this concludes today's conference. Operator: Thank you for participating. You may disconnect at this time and have a great rest of your day.
David Hsiao: Welcome to AppLovin's earnings call for the fourth quarter and year ended December 31, 2025. I'm David Hsiao, Head of Investor Relations. Joining me today to discuss our results are Adam Foroughi, our Co-Founder, CEO and Chairperson; and Matt Stumpf, our CFO. Please note, our SEC filings to date as well as our financial update and press release discussing our fourth quarter and annual performance are available at investors.applovin.com. During today's call, we will be making forward-looking statements, including, but not limited to, the future development and reach of our platform, our expected growth opportunities, the expected future financial performance of the company and other future events. These statements are based on our current assumptions and beliefs, and we assume no obligation to update them, except as required by law. Our actual results may differ materially from the results predicted. We encourage you to review the risk factors in our most recently filed Form 10-Q for the third quarter ended September 30, 2025. Additional information may also be found in our annual report on Form 10-K for the fiscal year ended December 31, 2025, which will be filed later this month. We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to or a substitute for our GAAP results. Please be sure to review the GAAP results and the reconciliations of our GAAP and non-GAAP financial measures in our earnings release and financial update available on our Investor Relations site. This conference call is being recorded, and a replay will be available for a period of time on our IR website. Now I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q&A. Adam Foroughi: Thanks, everyone, for joining us today. I want to start by addressing what's clearly on many people's minds. While I prefer to ignore short-term fluctuations in the stock price and focus on maximizing value over the long term, the recent volatility warrants addressing. For the past few weeks, there's been a lot of discussion about how AI and competition will challenge our business. But when I look at our internal dashboards, we are delivering the strongest operating performance in our history. What's fueling that growth is our own AI models. And as research and AI, both internal and external, continues to improve, our business will grow with it. There is a real disconnect between market sentiment and the reality of our business. Before I talk about the opportunity ahead, let me explain how we think about competition in AI. First, on competition. Since day one, we've competed against many companies. We've never feared competition because it forces us to innovate to serve our gaming ecosystem even better. We operate a foundational piece of the ecosystem, the MAX auction. It's critical for the ecosystem that the MAX auction improves through more competition, which in turn helps publishers make more money, leading to more user acquisition. Now in a typical zero-sum auction-based market, if one improves another loses. In our case, as bid density goes up, the pie expands. And while our share of the auction may shrink, our economics actually grow. There are impressions our model understands extremely well and it values highly and others where we have less signal and value them less. When competition wins an impression, it's very likely to be the one that we value less. This leads to the publisher making more. And in many cases, we do as well because instead of winning a low-value impression, we get to charge the winning bidder 5%. When you hear about a start-up coming for our business, you should be asking how their value proposition can be stronger than ours. If our value proposition wasn't strong with our partners, we would have lost those relationships long ago. We have competed very well in mediation against giant companies. The network effects in this business are very real. We scaled our network by providing the best monetization and even more importantly, the best advertising tools to publishers. The combination is not something peers can overcome. Second, let's talk about AI and game creation. The bearish view assumes that if AI makes games easier to build, the value of our ecosystem declines. Well, we believe the exact opposite. AI will dramatically lower the cost of creation, which means content will explode. And when content becomes abundant, discovery becomes a scarce resource. Even in the past, as mobile games were built by human teams, the content was plentiful and in many cases, commoditized. That is actually what allowed us to deliver such a strong value proposition through our advertising solutions. In a world where anyone can create an app or a game, millions of experiences will compete for attention. The winners will be the platforms that can efficiently match the right user to the right content at the right moment. That is exactly what our models are designed to do. We are not tied to any specific genre or format, casual, mid-core or beyond. Our systems follow engagement and AI only increases the potential of that capability. Furthermore, we don't see any evidence of a declining mobile gaming. Casual gaming serves a different human need than console, PC gaming, AAA games or any other form of deeply immersive game experience. People will always look for entertainment that fits naturally into their day. What's changing is how well that attention can be monetized. Even today, we convert only a small portion of those impressions that we serve. We view that not as a limitation, but as a large long-term opportunity as our models continue to improve. Now that brings me to what we control, performance and culture. Our performance, our business is executing extremely well. We continue to grow very quickly despite the numbers getting much bigger. We delivered strong growth in Q4. And despite typical seasonality where Q1 should be softer than Q4, we are guiding to meaningful sequential growth. That reflects both continued strength in gaming and the scaling of our e-commerce and our self-service customers. On culture, we embrace being underestimated. A skeptical market sharpens our focus and pushes our teams to execute. Our revenue per employee remains among the highest in the world because we build the best and most scalable products in our category. If the market chooses to price our stock based on fear, while we continue to compound revenue, cash flow and product capability, we'll stay focused on execution and let our results speak over time. From where we sit, we are still in the early innings of what this platform can be. With that, I'll turn it over to Matt to walk through the financials. Matt Stumpf: Thanks, Adam. Q4 marked what was not just a strong quarter, but the most exceptional year we've ever delivered and one of the strongest performances in the public markets. At our scale, the combination of growth, profitability, free cash flow and capital returns we are delivering is extraordinarily rare. Revenue in the fourth quarter was $1.66 billion, up 66% year-over-year, driven by continued technology advancements to our core mobile gaming business, seasonal strength and the expanding impact of our e-commerce initiative. Adjusted EBITDA was $1.4 billion, up 82% year-over-year, representing an 84% margin. Margins expanded over 700 basis points from the same period last year and quarter-over-quarter flow-through to adjusted EBITDA was approximately 95%, again, demonstrating our relentless dedication to execution and how efficiently incremental revenue converts into earnings for our business. Investors often reference the Rule of 40 in software. On that basis, our 66% revenue growth and 84% adjusted EBITDA margins translate to a score of 150. That level of profitability at this growth rate is almost unheard of and reflects the fundamental operating leverage of our model. Free cash flow for the quarter was $1.31 billion, an 88% increase year-over-year, growing our cash balance to $2.5 billion and reinforcing the strength of our balance sheet. This was a truly remarkable year for AppLovin. Revenue reached $5.48 billion, growing 70% year-over-year. Adjusted EBITDA was $4.51 billion, up 87% year-over-year at an 82% adjusted EBITDA margin, a margin profile that very few companies ever achieve, let alone sustain at the scale. Free cash flow totaled $3.95 billion, up 91% year-over-year, underscoring not just growth, but the exceptional quality and durability of our earnings. Simply put, very few public companies are scaling faster, more profitably and with greater cash generation than we are today. That strength directly translates into shareholder returns. During the quarter, we repurchased and withheld approximately 800,000 shares for $482 million. For the full year, we repurchased and withheld approximately 6.4 million shares for a total of $2.58 billion, funded entirely by free cash flow. As of the end of the year, we had a remaining share repurchase authorization of approximately $3.28 billion. Over the last four quarters, we reduced our weighted average diluted shares outstanding from 346 million to approximately 340 million, while simultaneously investing in organic growth and maintaining substantial liquidity. Our share repurchase program reflects our conviction in the value and durability of the business. Turning to our outlook for the first quarter of 2026. We expect revenue between $1.745 billion and $1.775 billion, representing 5% to 7% sequential growth. Adjusted EBITDA is expected to be between $1.465 billion and $1.495 billion with an adjusted EBITDA margin of approximately 84%, maintaining best-in-class profitability as we continue to scale. To close, AppLovin represents a combination that is exceedingly rare, sustained hyper growth, exceptional margins, massive free cash flow generation and disciplined capital returns. We believe this puts us in a category of our own and positions us to continue delivering outsized value for shareholders over the long term. Now with that, let's move to Q&A. Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Benjamin Black with Deutsche Bank. Benjamin Black: So my first question is on the e-commerce opportunity. So could you perhaps sort of reflect on the self-service launch? What were some of the key learnings, what worked? What didn't? Where is there room for improvement? And to the extent possible, it would be great if you could sort of share or quantify the e-commerce contribution to revenue or gross ad spend this quarter and in the guide? And then I have a quick follow-up. Adam Foroughi: Yes. So the e-commerce business obviously has been live with us for 1.5 years. It's doing really well. In Q4, we opened up the self-service platform, referral only. So we're not at the point yet where we're sort of a GA type launch. We'll get there. We said first half of this year, that's still on track. What gets us excited are a couple of things. One is the current customers that had lapped Q4 2024 into Q4 2025 saw material increases in spend as our models just keep getting better. Now remember, this business and the model around this business that drives the value for the advertisers is really in its infancy. It takes us a while to continuously iterate to improve the model. In fact, just a few weeks ago, we had a pretty sizable uplift. So those same customers from the prior year cohort saw big growth. Then you ended up with new customers coming in from the referral program. I mentioned on the last earnings call, we were seeing substantial growth there. we're not going to see anything that's going to impact our overall numbers for a while, but we're seeing great trends. And I'll talk about advertising, leading advertisers into our platform later on the call, but we're just seeing numbers that get us excited. On the breaking out e-commerce, we're not going to do that because we think of our platform as a unified platform. Let's say, tomorrow, the engineering team improves the gaming model 50%. Well, e-commerce would go down, but the business would be ripping. That wouldn't mean that there's anything wrong with our platform. Fundamentally, we're one single auction, but getting more diversity will give the model more ways to serve the end consumer and should drive up our overall conversion rate. But we think if we start talking about verticals in a marketplace like ours, you start getting really misleading information that will throw investors off. Benjamin Black: Great. I guess. And then sort of my second question is sort of related to a feature set that you're rolling out. So I think in the past, you mentioned the conversion uplift your partners could see if they have the ability to not only optimize for the best performing creators, but also sort of really scale and automate the creation of these video assets. So, I guess, with that backdrop, how far along the automation curve are we now and where could be in the next, call it, 12 to 18 months? Adam Foroughi: Yes. Great question. We're still pretty early. I pulled some numbers earlier just to compare where e-commerce companies are when they upload ads and how many they upload to our platform versus the gaming companies that have really had a decade plus to optimize for our platform. Top gaming companies run tens of thousands of ads at any given time. The top e-commerce companies are in the hundreds. So you've got a huge discrepancy here. And if you throw more ads in our system, the model does much better. That's just a fact. It gets the chance to diversify what the end user sees and try to find something that's going to eventually convert that user. Now how do we bridge the gap? Is twofold. One is the customers have to get more accustomed to our platform to know what types of creatives work so that they can build up production around the things that work and multiply out the count. More importantly, though, generative AI tools to build creatives in a really low-cost way in an automated way is on the way. We already have in a pilot with over 100 customers, generative AI-based tools for one part of the ad unit. Our ads are a video plus then an interactive page and then follow-up of a shop preview dynamic product page. But that middle one, the interactive page is not something that these advertisers are accustomed to building because they don't need them on social or search. We're now generating those automatically for over 100 customers. We'll roll that out soon as it's showing good performance to the broader set of customers. And shortly, we're going to have the video model go live as well. We're going to run the same pilot process. We're going to make sure the video output looks good. But if we get to a place where the video model can help these customers create new video ads in bulk in cost of dollars versus cost of thousands of dollars, we expect the count of ads for these new customers on our platform is going to go up a lot, and that will make them more competitive against the gaming customers that are on our platform. Operator: Your next question will come from Jason Bazinet with Citi. Jason Bazinet: How are you guys doing? I think one of the things that investors have always struggled with a bit is just sort of what they would call the black box nature of the model, like they can't get comfortable sort of doing a P times Q and sort of extrapolating the model out there. And I know you're not going to break out, as you said, e-commerce from mobile. But as investors are sort of looking at these e-commerce accounts that have your pixel on it, what counsel would you provide to the buy side in terms of using those numbers and trying to do some math to get some sense of how well you're doing? Adam Foroughi: Yes. I mean, look, it's really, really hard because we're just getting started. Facebook's probably pixeled over 10 million sites. You've been publishing our pixels in the thousands. So it does correlate to the count of advertisers that we have on the platform, but we're just starting out. We can't build a P times Q model in a period of time that we expect to have really outsized growth. Once we open up the platform, start running marketing to the platform, start doing more sales, you're going to end up having a ton of advertisers coming in. We can't predict it. It's not going to be stable until we get to a much further into the future point. But what gets us excited, like I mentioned on the last answer is we're already testing in advertising to get customers on the platform. So what you're seeing right now is just referral-based advertiser count. But if we start actually being able to market our platform and get customers to convert through the funnel, that's going to help us really catalyze faster growth to go get advertisers in the absence of a sales team. And one stat that's really cool that I pulled earlier, we're testing in light volume on ads on social and search, and then we're doing referral programs. But right now, we're seeing somewhere around day 30 LTV to cost of user acquisition. So if you think about lead gen models and if you know lead gen models and also if you understand the life of value that we create for advertisers, which is in the many years, to be able to break even on the media buy in 30 days is exceptional. We've got arguably one of the best business models the world has ever seen, and we're seeing the ability to market our platform and small testing at that level. That gets us excited. Now we're not ready to go to GA yet, and you can ask why. And the why is because we still need to optimize our conversion funnel. We're no different than any social network that's going out and trying to get users. We want to get users into this advertising platform. Right now, we're seeing of qualified leads, 57% of advertisers go live. That's 43% breakage. We think we can get that number much closer to 100% before we open up. And despite that, we're seeing this 30-day breakeven roughly on LTV to CAC. So we're really excited about where we are. We think we're going to go through this hyper growth phase as we open up and really start pouring advertisers in. Once we get to a stable place where we could start predicting count of advertisers in quarters to come, then we'll give you the P times. Operator: Your next question will come from Omar Dessouky with Bank of America. Omar Dessouky: I wanted to ask a more general question because the market seems to be having an AI moment here. So let's just forward three to five years in the future to potentially a world where consumers interface with the Internet through natural language-based agents. LLMs are different than performance advertising neural networks. But how would your business be affected by potentially a change in how consumers interface with the Internet. So that's the first part of it. And then the second is, how do you expect -- again, over the long term, three to five years, how would you expect mobile game developers to casual mobile game developers to adapt their content to a world where they compete for time with these sophisticated chatbots? Adam Foroughi: Yes. So great question. The way I see the LLM is that it's going to enable anyone to be able to type out ideas for a game and get a game created. That doesn't mean you're going to get users to play your game, but that means you can create content in a very low-cost way, not being an engineer. That will accelerate content production for studios that are developed, that are sophisticated. It will also create a flood of content that's more personalized across people who could just become game developers with no engineering background. That's a good thing for us. In the talk track I mentioned, as you get more content, that content becomes commoditized, the discovery platforms, of which there are very few become the true value because those customers are going to have to come to MAX to monetize and they're going to have to come to our discovery platform to run advertising to get users to their space. Now if humans just want to talk to a chatbot, do nothing else. Of course, while there's nothing else that they're going to do, we would lose time spent in games. that seems far-fetched. The games that people play today in our domain are not very immersive games. They're quick-to-play relaxing games and people play things like a Solitaire, people play things like a Mahjong. This audience skews older, it skews female. This is an audience that's very unlikely to stop playing crosswords in 10 years because they're talking to a chatbot. So not only do we think that the base audience is going to keep playing games, you're going to need relaxing outlets. If LLMs increase productivity, people likely have more time to go to outlets like games. And if LLMs increase production quality and production capability of games, you're going to have more content, which leads right into a business model like ours. Operator: Your next question will come from Bernard McTernan with Needham. Bernard McTernan: I wanted to follow up on e-commerce. Given the self-service launch, are you seeing any changes in the type size of customers that are entering because of self-service versus the prior managed service? And then also as a follow-up, we've seen some examples in our own tracking of apps that aren't e-commerce with the pixel. Is this a one-off or a new growth vector that you're pursuing within this? Adam Foroughi: Yes. I mean, obviously, with opening up self-service, we're not gating to a minimum GMV anymore. So in the prior year, we had pretty high minimum standards for businesses. Now you're getting companies that have a few hundred thousand dollars of GMV, a couple of million dollars of GMV a year buying on our platform. What's nice about that is not only do we see the ability to track performance very clearly on a brand that's small, but they start spending money, the money translates to revenue. And it's really obvious in their numbers that their pre-existing revenue was a few hundred thousand dollars. I'll give you an example. We had, a year ago, this Israeli cookware company come live that did $4 million of revenue. And these types of stories make us really proud. Last year, they scaled on our platform. 65% of all their user acquisition spend was on our platform. They scaled to $16 million of revenue and are profitable in doing so. And we can see the results directly translated from the spend on our platform to their growth. This year, they're ramping so quickly, again, putting most of their UA spend on our platform. It's looking like they're projecting that $80 million of revenue. So you start seeing that kind of ramp-up in certain specific customers, and we know the product works and it works exceptionally well. That makes us proud. We think what we really like to do at this company is service the smaller businesses, help those smaller businesses become big businesses. That's how we built into gaming. We help the indices first. Now every gaming company in the world that's in mobile that's substantial is probably working with our platform in a major way. But in e-commerce and these other categories, we feel the same way, help the smaller businesses, help them scale their business, and then we'll get to all the brands over the coming years. In new categories, again, we're not gating anything. So if you end up in auto insurance and you sign up for our platform today, you can go live. We're still early in these other categories because for each one of these cases, we have to tune the model somewhat, and we're focused right now on anything that's transactional-based business versus a lead-based business. So think if you're a transactional-based business, you're not e-commerce, but you're fintech or something. That could work really well out of the box. That's another category of growth. But then there's a huge sector of lead gen businesses. You want to collect the user's information and sell them in a call center. That's going to come too for us in the coming months where we really focus on a category like that. It's our job to service every transactional category that buys on a performance basis and do it well so that the 1 billion-plus daily actives we see on our platform can get a diverse set of content that they can enjoy. Operator: Your next question will come from Matthew Cost with Morgan Stanley. Matthew Cost: I guess starting just to put a finer point on some of the comments from your prepared remarks. because the data points from the channel were a little unusual and thin, did you see a test from Meta doing more advertising in the in-game ad environment? And whether or not you did, how should the market think about what potential impact a scale player like Meta, for example, getting more aggressive in that market would mean? And then a second question just around MAX. You've been in the business of convincing people to switch mediation platforms for a long time. I guess in light of that experience, how would you characterize the moat around MAX? Adam Foroughi: Yes. So, two good questions. So the Meta thing, Meta was a launch partner of MAX. They're a good partner. They've been in the MAX platform for a long time. They are a bidder on anything that has an ID today, and they're not a bidder on anything that does not have an ID. So think IDFA off. That's about 2/3 of the full-screen ad units that they currently bid on. They started bidding more on that, as you saw on LinkedIn. They did not start bidding on no ID traffic, and they might very well bid on no ID traffic in the next couple of quarters. As you know from our business over the last couple of years that you've been following, there have been numerous times where we've added more competition in the MAX auction. Unity has grown with Vector, Liftoff rolled out Cortex and it's growing really quickly. Moloco has been growing and we turned them into a bidder in the last year. You had Google switch to bidding. Every time this has happened, there's been this confusion around, well, in an auction dynamic-based system, competition should decay AppLovin's edge. You've never seen that happen. And this is what I tried to cover in the talk track. The reason is that, one, we're really big and really good at what we do. But two, every impression is not worth the same thing. Our model is exceptionally good at valuing the impression for what it is. for our data and our customers. Sometimes it values it really high where we make a lot of money. Sometimes it values it low where we make less money or potentially lose a lot of money. And what happens when you get these bidders getting better is that they take some of those impressions that we value low where we might not have made any money or any material money and now we get a 5% amount that we can tax the bidder in our ecosystem. So growth in the ecosystem allows the MAX market economics to improve, and we've never seen growth in the ecosystem cause harm to our AppLovin bidding environment since we got so good. Now this is post AXON 2, where we became the market's dominant player. So I do think it's an important point that people are getting lost on. So I want to see if you have another question on that before I go on to the mediation discussion. Okay. So on mediation, look, we got in the market with MAX when we bought it and built that technology. We didn't buy technology. We just bought a way into the market. That was in 2018. The MAX platform before we bought MoPub, had already grown to become #1 in the space. When we bought MoPub, we put the two together. As everyone knows, we're very dominant in the sector. We took the MoPub technology in sub-90 days, threw it out, migrated everyone that we could over to our platform, rebuilt the best features of MoPub, put them on top of the best features of MAX and ended up with a very dominant position. At this point in mediation, there's been a few players that are sort of out of business, and then there's Google, Level Play and us. And then obviously, you have the start-up that people have been discussing. So in a world where Cloud X becomes a start-up that comes into the space, you have to talk about like what are they walking into? How is the world different today versus what it was? The moat around our mediation is not because of the mediation. We're very good. We've got the most bid density. In any mediation A/B test, if you talk to publishers, you'll hear MAX does better. But we don't blow it out of the water. We're a few percentage points better than other mediations. If someone wanted to pay a bonus to cover that, they could potentially pay a bonus to cover that. Where it gets really expensive for the publisher and where we're really locked in is that we have the best advertising solutions on the market. In fact, for a lot of these publishers, we're over 50% of all their user acquisition spend. They can't go get that anywhere else. If they go off MAX, that decays. And so they're left in a world where they have the best buying tools. They have the best monetization tools. It becomes a really strong 360 solution and their growth depends on it. And then the MAX ecosystem is not growing slow, as we've talked about in prior calls, this is a double-digit, very strong growing category where these publishers are seeing their businesses improve because of the improvement in our technology. When you've got that in the foundation and you've got a really strong moat with technologies that no one else can replicate or have, then you end up with a sticky solution, and we're very confident our solution is just that. Operator: Your next question will come from James Heaney with Jefferies. James Heaney: How are you thinking about the AXON marketing investment in 2026? I know you talked late last year about a goal of maybe $1 million of spend per day. Is that still the right way to think about it? And is ultimately GA kind of the biggest prohibiting factor to you guys doubling down on that investment? Adam Foroughi: Yes. I mean, look, right now, we're testing. So numbers aren't that big. You didn't see anything reflected in our EBITDA margins. In fact, you saw them go up to 84%. We think the growth in the business is so high and our LTV to CAC is going to look so juicy that you're not going to see much decay in our EBITDA margins from ramping up marketing. If you do, then that would be a great thing. It just means we're ripping on the marketing side, and we see a ton of customers that we can bring in to accelerate growth. But it's much more likely that we're going to go controlled on this because we do want to take our time to build out tools. When we start buying and go GA and bring customers in, if we don't have good content creation tools for them, create the video with generative AI tools, create the interactive pages with generative AI tools and do it in an exceptionally strong way, they won't have as much success on our platform. So that's a long way of saying we're in no rush. We're seeing 30-day LTV to CAC roughly. If we see that at scale, we're going to scale, but we're not in a rush because we want the tools to catch up to the opportunity. Operator: Your next question will come from Alec Brondolo with Wells Fargo. Alec Brondolo: I appreciate it. I want to double click on the Meta thing because I kind of think that's the most -- out of all the noise in the market, I think Meta is by far the most important. Right now, probabilistic targeting is the basis of competition between all the mobile game and app networks. I think there's no doubt that you can definitely compete effectively against Meta on a probabilistic basis. When I talk to investors, I think the concern in the market is that Meta could find a way to bid deterministically and opt out ATC traffic with their audience graph, which would give them an advantage over the vertical ad networks. Do you think that's possible from a tech perspective? And if it was, would you still be confident that market expansion can offset the loss of market share? Adam Foroughi: Yes. I mean, look, I think it's possible from a technology perspective. I think it's bluntly against Apple's terms. I don't think the space is big enough for Meta to say they want to violate the platform they depend on terms. So I'm skeptical what you said is going to happen. It makes no logical sense. in a world where they're bidding deterministically or probabilistically on no IDFA, they're still competing against the AXON 2 model. Five years ago, when Meta was really big in the space, and I think this is what's throwing people off. People recall a time Meta was half the space. They think it's going to be half the space again. Meta has been on IDFA-based and Google ad ID-based traffic since that no IDFA change. Nothing has changed for them. What's changed in the marketplace is that the other ad platforms that are built for this category, Unity, Liftoff, Moloco, et cetera, have gotten better. Now we've gotten the best. AXON 2 was the biggest breakthrough in a model in this category period, and we were able to end up becoming the #1 by a lot. AXON 2 didn't exist five years ago. So there's no world where Meta is going to end up becoming that kind of a dominant player in the face of this competition. In fact, I don't see a world anyone else can because they're going up against that dominance. And these models, as they build more data, it's a closed-loop model that's continuously reinforcing itself and getting smarter. Our model is so far into getting smart for this niche. The niche isn't that small, and we've got such a strong position. It's highly unlikely that someone else is going to come in and materially disrupt it. So a long way of saying, again, no, we don't see what people are so afraid of. We think psychologically, people just index on numbers from five years ago and think, oh, Meta is going to ramp to that. But just ask the customers you talk to, what's the share of wallet between us to them and to everyone else on IDFA-based traffic, and that will give you an indicator of how good we are. Alec Brondolo: Perfect. That's super helpful. And maybe just one additional question. On the marketing dollars that you're spending against AXON today, where you're earning the 30-day LTV to CAC breakeven, what are the most effective channels? Like I see the ads on Google Search, I see the ads on Facebook and Instagram. Where are you finding the most success? Which platforms are you finding the most success in leveraging to acquire customers today? Adam Foroughi: We're -- it's a great question. I mean we're too early in testing to really assess or give anything directional because we don't want to be misleading. But I'll say some of the coolest yields that we've seen and coolest partnerships are these partnerships with the measurement companies. So if you talk to triple, they've got a sponsorship from us, TBPN, the podcast branded their Gong with our brand, and that's driven a bunch of business. So stuff like that, we're at such an early point. Part of the direct response channel here is actually just building the brand. So when we get placements like that, people start hearing about this Axon Ads platform. Then they go to Google, and we don't have any SEO yet. Once we get history and it put more content out on our blog, which we're committed to do and get more link backs, we'll also have SEO. But today, in the absence of Google search words are also great. We're starting to get brand recognition. People know our platform is critical. They go search Google and we're the first ad word now. We're not the first organic link because we don't have that history. So all this stuff is going to improve over time. And we think our job is to combo brand advertising alongside this direct response to really unlock growth in this thing. Operator: Your next question will come from Clark Lampen with BTIG. William Lampen: At the risk of, I guess, just sort of overdoing it around this Meta point, I wanted to see if you guys can just -- that's lapping. So I think I am overdoing it right now. But just remind us, I guess, the sort of scale of bidding that you guys are doing right now. I think the $11 billion or over $11 billion number that you provided in the blog post is the most recent example. Is that something that really needs to be replicated in this segment of the market for probabilistic bidding to really drive signal or capture a signal that would allow somebody to replicate the same sort of degree of efficacy. I think it would just be helpful for people to understand maybe even if somebody wanted to move in this direction, what are the sort of capital constraints of doing something like that? Adam Foroughi: Yes. I mean, look, first of all, like at the base, there are different approaches to modeling these businesses. Meta has a model that's fantastic, super sophisticated. They're built for social. Most of their training data is on social. We've got a model that's cutting edge, very sophisticated, built for our ecosystem. Our training data is predicated on that ecosystem. Our customers are perfectly tuned for that ecosystem. We started in gaming, where the biggest there is in game UA dollars. So those dollars aren't just going to shift because someone else comes into the space. The dollars are already locked in on us, and our model is very smart. When there's a high-value user, sometimes our model bids thousands of dollars on a CPM basis. The model knows what works for these customers. So it's just not something that's conceivable in a marketplace where you have budgets that are already given to us. and we're on cutting-edge technologies for someone else to come in. Now if we stop innovating and we decay on the technology side and we stop providing the service to the customers where they start looking around, yes, those things could change. But that's not going to happen overnight. And the one thing we can say confidently 14 years into being an engineering product-led org is you've seen us move incredibly quick. We are innovators. Engineering team is top-notch, second to none in this field. And so we're very much focused on continuing to push our models forward, and we're doing it from a very strong leadership position. William Lampen: Okay. And if I may just ask sort of a very quick follow-up. prospecting campaigns. This was a product launch that sort of came about recently. There was a lot of very strong feedback in the channel throughout the quarter around the efficacy for some customers seeing full shift in sort of repeat versus new customer mix. Could you talk about the way that, that product -- I know you give sort of specifics around your non-gaming business versus the gaming one, but would it be possible to sort of contextualize the impact for us or maybe what you're seeing with advertiser behavior heading into 2026? Adam Foroughi: Yes. I mean you've probably talked to some of the advertisers, so you hear positive commentary on it, but it's really hard for advertisers to understand the incremental value of retargeting. It's really easy to understand the incremental value of a new customer. And so it wasn't lost on us for 1 year, 1.5 years when we got into the market that just a universal campaign that had a split of new customers in retargeting wasn't the final answer. We needed more targeting for these customers to map to their goals. So we rolled out this product in Q4. We let them upload their historical purchases. Using that data, our model can start tuning away from purchasers from the past and towards users that they've never seen before. Results were fantastic. It takes a while in advertising marketplace. for every new product to get adoption, but we've seen really quick adoption on this one because when they flip the switch, they instantly start seeing many more new customers. Operator: Your next question will come from Robert Coolbrith with Evercore. Robert Coolbrith: Adam, you mentioned a couple of times now the connection between ad ROAS and MAX. Just wondering if we could maybe put a finer point on it. If a publisher were to give another platform first look at inventories something like that, would that significantly degrade that connectivity between A ROAS and MAX from a UA perspective for that publisher. The I'll just have a quick follow-up. Adam Foroughi: Yes. I mean our terms are that they can't do that. So that's not part of the equation. Robert Coolbrith: Got it. Perfect. And then I think there's also a notion out there that demand partners might bid differently in a different environment or something along those lines. Do you have any thoughts on that just... Adam Foroughi: I mean, look, MAX is fully fair, transparent. We get audited by the bidding partners. It's the vast majority of the marketplace. Wouldn't it be a foolish business decision to bid differently in a very small platform versus the platform that owns most of the space doesn't make any sense. So if someone is going to be a competitive bidder, they're almost certainly going to want to be a competitive bidder in the marketplace leading market. Robert Coolbrith: Got it. And then just one last quick follow-up on the breakage that you mentioned in terms of the qualified leads to go live or launch. Just wondering if you could talk about maybe some of the inhibiting factors today and how you plan on solving some of those. Adam Foroughi: Yes. The biggest one is that they just don't have video ads for our platform made to the type of format that we need. So those generative AI tools should be able to raise that to a much higher percentage of customers going live. Operator: Your next question will come from Jim Callahan with Piper Sandler. James Callahan: Just a follow-up on the market growth. You've kind of talked about this double-digit framework through the back half of '25. Can we expect that through 2026? Is that like a step function change that we think can continue? Adam Foroughi: Look, MAX is growing really quickly. It's -- a lot of it's driven by the strength of our platform. So when we're growing 70% plus year-over-year, a lot of the dollars spent on our platform are the publishers buying customers. So it fuels growth in the ecosystem. so long as we're doing a good job and the other marketing platforms in gaming are doing a good job, the MAX market is likely to be growing really quickly. And this is now no longer a case where you just don't have other data points. Unity Vector is growing really quickly. You've got a company like Moloco that's private, but talking about going public that's growing quickly. Liftoff did testing the waters in a road show. So those numbers were out there that are growing really quickly. When you've got all these market players growing quickly, that MAX market is growing in a way that people I don't think understood or would have expected, and we're not seeing any slowdowns there. James Callahan: Got it. That's helpful. And then just you've talked about this reinforcement learning framework for gaming. Now that we're, I guess, like 1.5 years into e-commerce, how does e-commerce reinforcement learning kind of compare? Is it faster, slower? Does it take longer? Adam Foroughi: I mean what we've talked about is that the gaming model based on its own results can improve. So it creates its own memories, it gets smarter. The e-commerce model is the same thing, but I do just remind people that we're much earlier in e-commerce. We have very little data in the marketplace. So if you think about transactional volume that we have in gaming, we've got most of the market inside our system. So the model is pretty complete from a data perspective. And then also, we've had now, I think it's roughly three years to continuously improve that model. And as you've seen, we've continuously improved it many times over the last 12 to 14 quarters. E-commerce is newer. It's starting from an earlier place. We have much less data penetration. So we can't go and track like, okay, in a stable world, how much is the model improving because the model is going to be improving much more so from our team improving the model with changes and then just customers coming on. Every new customer that pixels their site passes data to us, both engagement data and transactional data. So as we get customer ramp up, our data penetration in the market is going to go from very little to much greater. And as that happens, that's going to be a big catalyst for improvement in that category. Operator: Your next question will come from Stephen Ju with UBS. Stephen Ju: I think you've previously talked about AppLovin being demand constrained versus supply constrained. But can you help clarify particularly, yes, there's yourself and the private company you just called out as well as Unity all out there getting better as well. And I think investors are so accustomed to thinking about all of this being zero sum. So can you help us think about how much more supply there can be with perhaps new publishers and what existing publishers who already accept that can think about doing? Adam Foroughi: Yes. I think we're a long way from needing new publishers. I mean we've talked about, one, I think at this point, people should believe it's not a zero-sum market. This isn't rideshare where one person takes a ride and another loses. So if that was the case, with our growth and our market position being this dominant, there'd be no conceivable way these smaller gaming ad networks could be growing the way that they are. So if we set aside the notion of zero sum, then you have to ask, well, how many transactions can we drive to this 1 billion-plus users. 1 billion users playing mobile games, casual games every single day, shopping users because they're adults, they skew female, are not done at this number of dollars. I mean if you just translate to Meta's users, it's 3x more users, a little bit more time spent. But the revenue that they're driving to advertisers over what we're driving and the whole space is driving to advertisers is probably 8x. So there's a lot of room to go on monetizing this audience. We've also given you historically that our conversion rates on 1,000 impressions were about 1%. They're obviously higher now. We talked about that a year or two ago. The conversion rate is higher, but we think that could go as high as 5%. That's what we see when we're serving an ad where the model is confident that the user is going to take an action. Now why isn't our whole business converting at 5%? Why aren't we doing $50 billion of revenue on the system? Well, we don't have enough advertisers yet to know what the user is going to be into at that moment. So we constantly serve them gaming ads, some users are into a new game, they're converting at 5%, 50 over 1,000. Other users aren't and the conversion rate is atrocious. It might be 2 over 1,000, and it dilutes you to 1%. E-commerce has given us a path to diversity, but we only have a few customers. Once we get deeply penetrated into the space and we've got really diverse content to show the customer, we think that conversion rate is going to keep rising, and it's going to keep rising really quickly. Stephen Ju: Got you. And secondarily, I think you've articulated a desire to go after advertisers of a certain size. So first, before targeting the advertisers with perhaps larger budgets, but maybe more upper funnel. So is that part of the market in addressable right now? Or is that something that might be in the road map in the future? Adam Foroughi: I think we're going to be going after anything that's not brand dollars. So, by brand, I mean, companies that aren't optimizing to point of transaction, whether they optimize point of transaction or something performance-based like a lead, we're going to go after them. Now we're not going to build out the sales force to go after the -- even in the performance space, advertisers then need you to go to their agency that need you to take a lot of time to go get a lead to go get an advertiser live. When I talk about this Israeli cookware company, it was a business that was probably spending a couple of thousand dollars a day ramped up to many tens of thousands, possibly hundreds of thousands of dollars a day on our platform. They ramped up really quickly. They scaled their business from near $0 to $16 million to now hoping for $80 million this year. That's an example of taking a customer that didn't have much of a business, plugging them into our tool set, letting our technology do the job and creating a huge business for them and a great relationship for us. That's the type of stuff that really cascades into much more value creation over time because it happens quickly, they become dependent on our platform. We love those stories because we're helping them build the business. If we help Coca-Cola place more dollars in advertising, we're not moving the needle of anything in the economy. Coca-Cola is sort of blindly putting dollars out there. But if we can help customers spend the dollars, see the direct correlation of that revenue, hire people, grow their business. It's a fantastic story for us because it shows that we're growing the world's economy, we're creating jobs, and we're really creating this dependency on our platform. So really, that's what we're focused on. And in games, that was indie game developers and brands that's going to be these performance D2C companies, much more of the Shopify merchants, much less of those big brands that people talk about that buy through Madison Avenue agencies. Operator: Your next question will come from Cory Carpenter with JPMorgan. Cory Carpenter: Matt, I got to give you a question before the call ends. So I'll ask about the 1Q guide, the 5% to 7% sequential growth. It's above what you typically guide to in 1Q. Of course, this year, you have the added headwind, if you will, from the e-commerce business seasonality. Could you just talk about some of the assumptions you're making in that outlook and the trends you're seeing so far in the year in e-commerce and gaming? Matt Stumpf: Yes. So, consistent with kind of our normal practice, Cory, we're guiding to the level where we have a very high level of confidence. For Q1, obviously, coming from Q4, we had a very strong exit rate. So given the factors that Adam was talking about before, the performance of the mobile gaming business, the e-commerce launch as well as the prospecting model, we had a lot of growth in Q4. So the exit rate was quite good. And then that's partially offset by just seasonality going from Q4 into Q1 normally being a weaker seasonal period. And then we also had a couple of days less in Q1 versus Q4. So it's partially offset against that. So that's how we kind of landed in that 5% to 7% sequential. Cory Carpenter: And then, Adam, you alluded to, I think, an unlock that you saw a couple of weeks ago in the e-commerce business. Anything you can elaborate on what that was would be helpful. Adam Foroughi: Yes. Look, the team is constantly improving the model. We do a lot of testing. We saw a material lift in the model. We rolled it out. Advertisers saw a huge improvement in return on ad spend. They started putting more budget into our system quickly. So those are the types of things that really catalyze growth for us. When we talk to advertisers and say, test the product in our system, it's test now, but be patient because understand performance today is not going to be indicative of performance in six months. Our system is constantly improving because our team is improving these models. They do internal research, they use external research published in the AI field. These techniques can apply to what we do. And when they apply well, these advertisers see gains. In gaming, they've seen gains very consistently since we launched AXON 2. In e-commerce, again, we're starting from a lower point because you need to get more data and you need to get more time to make the models more complex to use that data and create a better value for the customer. We're now doing our job. We're improving the model. They're seeing the result. They put more money into our platform. Operator: Your next question will come from Ralph Schackart with William Blair. Ralph Schackart: Adam, maybe just staying on that, the model unlock for a second. Maybe kind of frame it. Was it sort of like consistent with other unlocks that you've seen before? Was it different maybe in order of magnitude? And then I'm not sure if it's for you or Matt, but can you give us a sense once self-serve rolls out and rolls out to GA, how meaningful of an impact can this have on the business? Will this be a slow build? Could this be something that could potentially be additive to second half growth? Just any way you can kind of frame that for me, that would be great. Adam Foroughi: Yes. I mean on the second one, look, our growth rates are really fast right now. And our business is really big. So taking a self-service platform and opening it up, I wouldn't imagine day one or month one or month two is really going to move the needle on the overall numbers. it's going to build over time. Now certainly, if you're bringing in dollars that you just didn't have before, it's going to add something. So I guess it depends on what our overall growth rates are, but the scale of the business at the growth rate that we have is getting to very, very large numbers quickly. So I would expect that to build over time. I wouldn't expect it to be immediately impactful as a major growth catalyst. It will be noticeable in our numbers. When it comes to improving the models, we don't call it out anymore. We're constantly improving the gaming models. It happens every single quarter that we find something. And then the e-commerce side is starting from a worse place. It's just earlier stage, less data like we've talked about. So the model uplifts from the team improving the model can be much more substantial. However, the e-commerce business, as you know, even if you took disclosure from last Q1, last Q1, it was roughly 10% of our business. So if you improve 10% of your business, 40%, you're still only getting a 4% uplift on the whole, right? So it's a much smaller potential today. Now what we know about scaling a business is that we've got to compound these gains so that our performance is unquestionably the best in the market to these customers. If they see that, they're going to invest more and more into us. Most of these customers have scaled businesses. Most of these customers already buy on social and search. We're a new entrant. Most new entrants in the field over the last few years have had done a bad job improving performance. So we know that our performance has to be top notch. We're working towards that, and these types of lifts can compound to get us to that answer. Operator: Next, we'll go to Martin Yang with OpCo. Martin Yang: In the past, you referenced expanding supply sources. Where do you rank among the growth drivers? Where do you rank that among the growth drivers for your overall performance now? Adam Foroughi: I mean, look, our supply is growing very quickly because MAX is growing very quickly, right? So like I do like fix A B on the marketplace that we have. It's a really large marketplace. If we go get a big publisher tomorrow, it's not going to move the needle in the business because the percentage growth from that publisher to the whole of our market isn't all that much. I mean you're talking about a marketplace, if you know the scale of our business and the ad dollars that we gave you and then we're not the whole market, the MAX marketplace is well over $10 billion a year. There's not a lot of publishers that could put a dent in those overall numbers. We will eventually go out to new publishers. We get calls all the time. Every publisher wants a monetization platform like ours to help them monetize their business unless they're Facebook, Google or Amazon. And so there's a lot of opportunity out there for us to expand supply. But right now, we're focused on the demand side because that conversion rate can go up so much more than where it is today. We've got a lot of growth in front of us just by doing the demand generation well and improving our core models. Martin Yang: Got you. A follow-up on the creative side. Do you view AXON for e-commerce, the creative format and the overall flow with the end cars and elements as an area of differentiation? Adam Foroughi: Yes. I mean, look, our ads force attention. So it's a lot different than ads that people are used to. You'd say the closest to our ads is television because you get a 30-second clip. But as we know, most people are ADD and don't really watch the ad on TV these days. Our ads are over 30 seconds of engagement. The user can't do anything else. They're already on their phone. It's a full screen lockup, and it gives the advertiser somewhere between 30 to 60 seconds plus to engage the consumer with their content. They can't get an experience like that anywhere else. So I'd call like the starting point in our business in terms of ad quality, the best that an advertiser can access anywhere in the world. Operator: We'll take our next question from Vasily Karasyov with Cannonball. Vasily Karasyov: Just to follow up on what you said earlier, Adam, about e-commerce model being at a stage where it can't learn as fast now. And I think in the blog post you made recently, you mentioned that the e-commerce targeting is different because there are many more parameters and they're different, right? There is a different LTV calculation. There is no advertising component. So I guess it's unfair to ask you to compare where the e-commerce model is at this point in its existence compared to where AXON 2 was, right, because there isn't just enough data. But what gives you confidence that once you get enough data, it will work as well or competitive. Adam Foroughi: Yes. I mean, look, if you talk to the customer base, a lot of the customers are seeing equal performance on us to any other top-of-funnel discovery channel, including the largest social platforms today. So it's not like we're starting behind trying to catch up. We're starting in a competitive place trying to become the best in the world. Now we're starting with very little data penetration. This is an important point. If you think about the gaming model, I made this point earlier, all the transactions in the space, say, all the IP in the space, all the ad impressions in the space, our model sees the vast majority of everything in the world of mobile gaming today. That allows our engineers to take that data and translate it into exceptional predictions on the other side. In e-commerce, we're starting with -- I mean, the reports show thousands of sites, right? So we're starting with thousands of sites in a world where we can pixel 10 million plus. We have a long ways to go to get to the same data place in e-commerce as we are in gaming. Now the good news is these models are exceptionally smart, and our team that's putting them together are exceptionally smart. So we don't need to have 100% market penetration or anything close to gaming to really make an impact. We're already proving it works with very little market data penetration. Once that number starts growing quickly, you're going to start seeing this model just improving itself because it gets more data. And off of that incremental data, the same model is going to make better predictions, both for gaming and non, and that's really going to help catalyze growth in our business as we bring on advertisers. We think about every new advertiser as dollars, but just as importantly, data into the model. Vasily Karasyov: So I guess it's more fair to say that what you have now in terms of the e-commerce model is already competitive. It's not like you're behind and need more. Adam Foroughi: Yes. I mean like we're not an e-commerce brand, but if you talk to them, if you talk to 10, at least five are going to tell you our performance on our platform is really good. Operator: We'll take our last question from Tim Nollen with SSR. Timothy Nollen: Tail end of the discussion. So just a few tidying up questions actually. For Adam, first off, we're talking about e-commerce all this conversation, but there are other sectors beyond e-commerce that you're servicing. Can you just clarify, I guess, e-commerce is, by far, the largest nongaming sector, but what other sectors are you servicing? And how meaningful are they? Adam Foroughi: Yes. It's -- look, the other sectors are still early. We started calling it e-commerce, I call it web advertising now. Anyone with the website with a transactional business model should be able to work on our platform. However, we're much earlier in the model evolution for other businesses outside of e-com. Timothy Nollen: Yes. And then a couple of bits for Matt actually. You've done a great job bringing costs down quite a lot. A lot of that is SBC, I think. You had a slight step-up, I guess, sequentially in your R&D number in the cost lines in Q4. I guess the question is with such a high adjusted EBITDA margin, you seem very confident in maintaining that. What do we need to know in terms of other cost items that could rise? How much could they rise in the coming several periods, not just Q1? And then last question is regarding cash. You've got now $2.8 billion of cash with $3.5 billion of debt on your balance sheet. Just wondering what your capital structure thoughts and your use of cash priorities would be from here? Matt Stumpf: Yes. In terms of the margin, I mean, we feel very confident in the margin level that we're at today. The kind of X factors that could potentially change that in the near term or in the short term would be potentially performance marketing that we were talking about before. So to the extent that we see really great performance with some of the campaigns that we're running and we scale those up pretty significantly, we could see kind of a shorter-term impact in margin. Obviously, we're going to be doing that in the way that we spend, generally speaking, which is very disciplined and then obviously looking at the returns. So we'll run return-based campaigns. So we'll get the spend back in a relatively short period of time. Adam mentioned 30-day return from those. So, overall, that's why we can feel so confident in the overall margin level that it shouldn't change materially from here. And then in terms of use of cash, obviously, our first priority is spending on the organic growth initiatives. So that's ensuring that we're continuing to retain our talent, compensating people very well. hiring to continue to support our growth initiatives like e-commerce and our engineering team, et cetera. But that really hasn't moved the needle, obviously, in terms of the cash and the cash balance growing. So then it's really what do we do with the cash after that. And we've been very active with our repurchase program, and we continue to plan to be. David Hsiao: Okay. Thanks. I'm right at 60 minutes exactly. So good timing. Thanks. Adam Foroughi: Perfect. Thank you. Operator: And that concludes the question-and-answer session for this quarter. We thank you all for joining us today. Have a good afternoon. Adam Foroughi: Thanks, everyone. Matt Stumpf: Thanks, everyone.
Operator: Good afternoon. My name is Cameron and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Fourth Quarter and Year-end 2025 Financial Results Conference Call. [Operator Instructions] Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may begin. James Samford: Thank you, and welcome to Paycom's earnings conference call for the fourth quarter of 2025. The Certain statements made on this call that are not historical facts, including those related to our future plans, objectives and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable. Actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today. and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's CEO and President. Chad? Chad Richison: Thanks, James, and thank you to everyone joining our call today. I'll comment on our 2025 achievements and our areas of focus for 2020. We I'll then turn it over to Bob for a review of our fourth quarter and full year results along with our full year guidance. We will then take your questions. Let's get started. . We executed well against our 2025 plan exceeding our strategic and financial goals by focusing on full solution automation, client ROI achievement and providing world-class service. We delivered strong results, including double-digit recurring revenue growth and near-record adjusted EBITDA margins. We advanced our full solution automation strategy with the launch of many automated decisioning tools that complement our command-driven AI product [indiscernible] and other award-winning automation solutions, Betty and Gone. Our focus on client ROI achievement and world-class service strengthened revenue retention in 2025, which increased to 91%. This is a testament to the success that our clients are achieving through full solution automation as well as the world-class service we are providing across our client base. In addition, we experienced a record number of clients returning to the Paycom platform in 2025. We Automation is the future of our industry and Pecos leading the way with the most automated solution in the market. While I'm excited about the momentum in client retention, we still only have approximately 5% of the total addressable market and the opportunities ahead of us are robust. AECOM is a truly differentiated company. our single database architecture and employee first technology allow us to offer automated decisioning that is unmatched in our industry. This architecture enables us to deliver greater accuracy and efficiency eliminating the need for complex integrations while driving strong ROI and satisfaction for our clients and their employees. Our automation tools across our full solution are clear examples of our commitment to innovation. Beti is one of these and reduces payroll processing labor by up to 90%, while cutting the time spent correcting payroll errors by up to 85%. Another is GONE, which automates PTO, fully streamlining time-off request. These are just a few solutions that eliminate duplicative tasks reduce redundancies and contribute directly to unparalleled ROI for our clients. Our most advanced AI solution IWant is designed to accelerate the speed to value by allowing anyone to become an expert in the system without any training. Forrester's recent analysis of a composite organization with more than 500 employees found that organizations using IWant experienced an ROI of over 400% driven by productivity gains at every level. Managers save as many as 600 hours per year, executives up to 60 hours, HR teams up to 240 hours and employees across the organization collectively reclaimed 3,600 hours annually. Leaders describe IWant as a catalyst for deeper insight. And one CEO remarked, I get immediate without any training or knowledge of Paycom, I can go in and immediately understand more about my business. Since our founding, we have led the way in innovation and automation. With full solution automation and decision in logic, we are again transforming our industry. Payroll and HCM are critical solutions in the enterprise that require 100% accuracy and Paycom is delivering on that expectation every day. As we look to 2026 and beyond, we will continue to extend our technological lead and focus on delivering unparalleled value to our clients while continuing to attack the remaining 95% of the addressable market that is available to us. IWant to thank our employees who have been diligently focused on leading our clients, executing our goals and delivering strong results in 2025. With that, let me turn it over to Bob. Bob? Robert Foster: Thank you, Chad. We delivered strong fourth quarter results with total revenue of $544 million, up 10% over the comparable prior year period and recurring and other revenue of $517 million, up 11% year-over-year. Looking at 2025 full year results, we are very pleased with the execution throughout the year. Total revenue in 2025 came in at $2.05 billion, ahead of our initial outlook with recurring and other revenue growth of 10% year-over-year to $1.94 billion compared to our initial expectation of 9% growth. We delivered even stronger fourth quarter and full year profit metrics that were driven by stronger revenues and operational efficiencies gained from automation and cost discipline initiatives. Adjusted EBITDA margin remained strong in Q4 at 43.4% or $236 million. Full year 2025 adjusted EBITDA grew 14% year-over-year to $882 million, representing a 180 basis point year-over-year margin expansion to 43%. Turning to GAAP results. GAAP net income in the fourth quarter was $114 million or $2.07 per diluted share based on 55 million shares. Full year 2025 GAAP net income was $453 million or $8.08 per diluted share based on 56 million shares. Non-GAAP net income for the fourth quarter increased 4% year-over-year to $135 million or $2.45 per diluted share. Full year 2025 non-GAAP net income was $519 million or $0.24 per diluted share based on 56 million shares. Margin strength in the quarter and full year was broad-based, driven by our continued focus on automation. We continue to invest in sales and marketing to drive future growth, and we maintain our commitment to world-class service. With that said, we are also finding significant opportunities to streamline processes across our organization, while still expanding our sales capacity and maintaining a human approach to world-class service. Operating cash flow increased 27%. In 2025 presented approximately 13% of total revenues compared to $197 million or approximately 10% of total 180 basis points year-over-year to approximately 20%. In 2025, we repurchased over 1.7 million shares of common stock or approximately 3% of our shares outstanding for a total of $370 million, and we paid approximately $1.1 billion remaining under our buyback authorization as of December 31, 2025. And we continue to be opportunistic buyers of our stock. In addition, the Board has approved our next quarterly dividend of $0.375 per share payable in mid-March. Turning to the balance sheet. Even after returning capital to stockholders through buybacks and dividends paid in 2025, we ended the year with a very strong balance sheet, including cash and cash equivalents of $370 million and 0 debt. The average daily balance on funds held for clients was approximately $2.8 billion in the fourth quarter of 2025, up 11% over the prior year period. We grew our client count to approximately 39,200 clients as of the end of 2025, representing growth of 4% compared to 2024. On a parent company grouping basis, we ended the year with approximately 2,300 clients, up 5%. Revenue growth was broad-based as we added clients across the various target client sizes, but we continue to have success upmarket with revenue from clients over 1,000 employees, growing faster than total revenue. Total employee records stored in our system in 2025 was $7.4 million, up 5% year-over-year. Paycom's annual revenue retention rate in 2025 increased to 91% compared to 90% in 2024, and we believe our significant efforts and investments in automation and world-class service are contributing to the value and overall satisfaction that our clients are experiencing. Now let me turn to guidance for 2026. We have a highly predictable, profitable and resilient recurring revenue model. Similar to last year, we are providing our initial full year outlook, which represents our best estimate for certain key metrics based on what we can see today for revenues and budgeted expenses. For fiscal 2026, we expect total revenue to be between $2.175 billion and $2.195 billion or between 6% and 7% year-over-year growth. We expect full year recurring and other revenue to be up between 7% and 8% year-over-year. We expect full year adjusted EBITDA in the range of $950 million to $970 million, representing an adjusted EBITDA margin of approximately 44% at the midpoint of the range. Included in total revenue outlook is interest on funds held for clients of approximately $103 million and is based on the consensus assumption of 2 rate cuts in 2026. 2025 was a year of solid execution with very strong fundamentals. We will continue to focus on delivering the best product and service to our clients and enhance long-term stockholder value through attractive top line growth, operational discipline and opportunistic buybacks. We have less than 5% share of a large and growing total addressable market, and we believe our differentiated full solution automation strategy can drive long-term sustainable growth for years to come. With that, let's open the line for questions. Operator? Operator: Thank you. [Operator Instructions] The first question comes from the line of Raimo Lenschow with Barclays. Raimo Lenschow: The -- Chad, like there's a lot of positive things on the product side coming out of you with kind of IWant, et cetera. Customer retention gets better. your guidance growth looks a little bit like a slowdown for many people. Can you just kind of bring these 2 kind of sites together on the one hand, a lot of positivity, positive news on the other hand, it looks -- is that kind of macro? Or how should we think about that? Chad Richison: Yes. Well, first, I'd say we've continued to automate our product rapidly as we -- now the product begins to decision itself in many different areas. You don't have to log into it. It didn't use it as much as it will actually decision things. I feel good but not satisfied with our growth for last year. We have opportunities in sales, and that's an area of focus that we have right now as we talked about Raimo at your conference in December. The good thing is that our clients are happy and retention is improving, and we have the most automated product in the industry. So I do think when you look at it, I mean, bookings have been up every year. They were up 2025, continued that trend. And our expectation is no different from 2026. We'll have some inflection opportunities throughout the year and as those materialize, those will be reflected in our numbers. Raimo Lenschow: Okay. And then the follow-up that I had was like with the change in sales leadership at the beginning of the year. Should we think about like significant changes of go-to-market, et cetera? Or is that just fine-tuning? I know you have a very good sales organization in place anyway. But like -- how do we think about changing with the new leadership? Chad Richison: A lot of it -- a lot of this is the replacing of the value. Consumers and clients oftentimes have a more difficult time of digesting full solution automation. And -- so a lot of this is how we play them. And so we have been bringing in our sales people over the last 3 months to make sure that they're all trained on the new product enhancements that we've made just since November, which automates a lot of our system. As we've been talking about for the last couple of years, full solution automation has been a goal of ours, and we continue to move our product toward that goal. Operator: Your next question comes from the line of Samad Samana with Jefferies. Samad Samana: Maybe sticking on the guidance theme. Just as I think about the recurring revenue outlook and contextualize that last year, the initial guide was for 9 and you guys ended up doing about a point and change better than that. So as I think about this year's 7% to 8% outlook, is there any change to the guidance methodology. Should we think about it as a similar construct and then kind of similarly thinking about maybe -- what are the upside nodes maybe as the year progresses? And then I have one follow-up. Chad Richison: Yes. Samad, last year, we guided at 7% to 8% total revenue growth, and we just reported that we finished at 9%. This year, we're guiding to 6% to 7% and total revenue growth. So about a 1% difference this year versus last year. Again, last year, we focused very much on sales but also on the full value chain of our client, world-class service. We were able to see retention gains through that. Clients are happy. And as we focus on the new way to utilize our software, we've been focused on our go-to-market strategies here SP260265197 And Samad, I'll add that there has been no change. We're guiding to what we can see right now, and we'll continue to update throughout the year as we see that change. Samad Samana: Understood. And then maybe just understanding just kind of the growth algorithm. If I think about the client count growth in '25 being around 5% and use that kind of as a unit growth number. And if I think about the '26 to growth kind of that, again, 7% to 8% of recurring revenue, should we think about that kind of similar unit growth? And then any ARPU expansion opportunities? Just Help us understand what the different contributors are to that 7% to 8% growth and maybe where you see the room for either most conservatism or outperformance. Chad Richison: New logo ads is going to be our biggest opportunity for growth. We have other opportunities as well now with adjacencies that are available to us. But new logo ads, that's what we're focused on. Our sales primarily come from our outside sales organization. They only focus on new logo ads. And again, after a client has been with us for 30 days, that's when we move toward the CRR group. Operator: Your next question comes from the line of Mark Marcon with Baird. Mark Marcon: So you're coming off of a quarter where sequentially, your year-over-year growth rate ended up accelerating hit 11.3% on the recurring side against a tough comp, which was up 14.5% the year before. And the guide basically does imply a bit of a slowdown. I'm wondering what are you seeing in the field, and you did make a change with regards to sales leadership. So I'm wondering, what are you seeing in the field? Obviously, all of the stocks across all of SaaS have been hit. Are clients expressing any sort of hesitation or longer decision cycles anything that you're seeing that's different or that would suggest that things are going to slow down, perhaps its employment and just fewer seats, I don't know. Just wondering if you can give us any sense there. Chad Richison: No, we're not. We're not seeing any change in the desire to buy our product. Again, we did for the last 3 months, we have been going through bringing everybody into training and going through what our product does now. We've released a lot of automation just since November. And a lot of the product decisions itself, I mean you do not have to log in you do not have to move data. And so we're making decisions on things. And so we've been talking about that for a long time. It was important for us to make sure our salespeople are going to market with that message. But no, we have not seen any reluctance from people and prospects to make changes out there in the marketplace. Mark Marcon: That's great. And can you talk a little bit about the usage with regards to in at this point? I mean it looks really slick. So I'm just wondering what the usage patterns are there and what the customer feedback has been? Chad Richison: Yes. So I definitely think I want definitely contributed to help with our retention last year, as I mentioned in my prepared remarks, we're having a record number of clients returned to Paycom as they left for maybe something that they felt was a lower price but ended up being 10x our cost. And so specific to I-9, usage is up 80% in January alone just based -- and that's from fourth quarter. And so IWant continues to generate greater and greater usage. And I think, especially at the employee level, it's really becoming the predominant way to access data as well as for the C-suite level. I think that you still have user buyers and administrators that are used to certain parts of the system. And although they're gaining value through IWant, I also think that you have certain creatures of habits that are also continuing to get value by utilizing our system. The other way, which was also Yes. I would say shifted on quality, something that's been very important to us. I mean it's hard to say that we're in a sales environment that quality over quantity, but it is very, very important that we're out there doing things the right way because like I said, we lost some clients that we just shouldn't have lost because the value is there for them. And then as we brought those clients back on and as we look at going to market to sell new clients, we want to make sure that all the clients get the full solution automation available to them upfront, and they've purchased for the right reasons. And so as a sales organization, we've got to get -- gotten together over the last 3 months, gone through all of our training to come out the other side of this. And so we are excited about that. We're also excited about what we see in the pipeline. Our opportunity hasn't changed. We only have 5% of the total addressable market available to us. We do have the most automated product. And we are beginning to see people crave that in a way that they're willing to digest automation. Steven Enders: Okay. Great. And then I guess just in terms of the guide, just wondering what you're assuming from an underlying kind of employee level perspective? And maybe how does that compare versus what you saw in Q4? Chad Richison: Yes. Stabilization is what our expectation is, and that's what we saw in Q4, too. Without some dramatic change in unemployment, really what's going to impact us would be our execution of our strategy. Operator: Your next question comes from the line of Jason Celino with KeyBanc Capital Markets. Jason Celino: This was the biggest new customer adds here since, I think, 2022. How much of this is maybe due to those new sales offices that have been ramping or those new returning customers that you talked about? And then what are some new incremental initiatives that are targeted toward new customers for 2026, if you have anything to share? Chad Richison: Yes. I mean the new office is definitely spun up quicker than any offices in the past to say that they were the largest contributor to the gain, I think, would be faster. But we've done very well with our product throughout the year, and we continue to have strong go-to-market. I mean, in some areas, we have offices that do well over $9 million in sales. In some areas, we have offices to do much, much, much lower than that. In some areas, we have a sales rep that will sell $4 million as they did last year. And so all these are opportunities for this. And so we've had both buckets of success and pockets of opportunity. And as we've looked at our organization as a whole, we're very confident on the go forward of capturing all that opportunity and continue to maximize those pockets of success that we see across the board. . Jason Celino: Okay. And then retention, 91%, nice to see the improvement. I think with I want, part of that product was to improve retention. So it's nice to see. But maybe it was unrealistic for me to have wanted to see more improvement, no pun intended. And it sounds like you're doing some training, but you might have some more room to chop on getting kind of retention back to was in years past. But maybe talk about the strategy there and how to think about improvement in the years to come. Chad Richison: Sure. Well, providing world-class service to clients and making sure that they achieve the full value that's available to us -- to them, excuse me, has been our focus. And so I did expect retention would go up last year because of how hard we focused and how well the clients now are using and getting value for the product. Do I think retention still has room to raise? . Absolutely. And that not only do I think it has an opportunity. I mean, I think there's an expectation there across the board with all the work that we've done. And we have that momentum going in the right direction right now. So that's definitely a focus of ours. Operator: Your next question comes from the line of Patrick O'Neill with Wolf Research. Unknown Analyst: Can you just elaborate a little bit on how AI is improving internal productivity and efficiencies, maybe which areas you are specifically seeing improvement? And then how are you thinking about sort of balancing the benefits between bottom line expansion and reinvesting in the business. Chad Richison: I mean, AI is helping us across the board. I mean, while we can talk about specific products, we can talk about speed of processing and all the different types of things that we've been able to do on our back end to really speed things up. I think there's a little misjudgment about the AI thesis materializing as a threat weapon that will be used against us. I mean, AI is our friend at Paycom. And I've worked very hard to ensure that the misunderstanding of AI's impact on us is in our end. And I just believe, as you look into the future, we have opportunities now that we didn't have in the past, right, like the speed of development, increase the pace of the user buyer, being able to digest it might lag a little bit, that we can develop a lot more today than what we've been able to in the past. We're in this age of software development and in some instances, replacement of specific software. Paycom can get into every adjacent industry now within weeks or months. I'll remind everybody that I was the first Bob coder back in 1998. So there are several easy-to-displace that don't just sit ancillary to our industry, but they're dependent upon our industry of where the data starts. And so now that we can develop anything very quickly and use all these technologies to replace other industries in a matter of weeks or months, we're excited about how that -- what that looks like for our future as well. Operator: The next question comes from Daniel Jester from BMO. Daniel Jester: Yes. Great. I think maybe I'll just piggyback a little bit off the answer that you just gave there, Chad. I think, in your prepared remarks, you talked about building some tools maybe around IWant. And so if there's any examples you could share there, that would be great. And I know that part of the thesis, they're not the biggest one, was about the ability to cross-sell as customers use in and want access to all the data and functionality. So are you seeing any evidence of that? Chad Richison: Yes. The way I would look at I want is I want allows someone to access the value that's there. They do not have to be an expert in the system. They do not have to be trained in the system. And through the other automation that we've built throughout our system, with I want, it's just much, much easier to access that. And so we continue to build out the system. We continue to add more and more functionality to it. It continues to get stronger and stronger. And we're putting out more products. We're putting out more products now than we ever have. And we don't even -- we don't necessarily announce it to the market, but our clients are experiencing it every day as we call them and turn them on, on these products and this automation. And so that's going to be our focus. from this point forward. The goal of the Paycom software is truly full solution automation to where you buy it, you configure it, and it does everything else for you. And so we've been focused on that. It's something I've been talking about with the AI tools that we have right now and additional that we've become aware of and begun to start using also, there's faster opportunities for us there. I'm going to say that there's still things you have to do on the back end with these types of things, but we're excited about what's happening within our industry and definitely within our product and how this is all materializing for strong ROI for clients that utilize Paycom. Daniel Jester: That's great. And then maybe, Bob, to you. I know that there was a lot of onetime capital spending this past year. Any color you can share with us about how we should expect CapEx and free cash flow to look in 2026? Robert Foster: Yes. Sure. So we did have a onetime expenditure, like you mentioned. The way we look at that though, we do run this business with the long-term outlook. If we do see an opportunity again like that to invest and help our clients achieve even more we would take that. And the positive thing there is we do have the EBITDA margins and the cash to do that. Operator: Your next question comes from the line of Jared Levine with TD Cowen. Jared Levine: Can you give us a sense in terms of your January retention performance, just given the significance of that churn for the full year? And then as we kind of look at the 26% guidance here, what are you assuming in terms of retention versus are you assuming any improvement or relatively stable? Chad Richison: Yes. So we disclosed retention once a year. We did just disclose it for 2025. I'll let my prior comments kind of speak for themselves as far as how important usage is and value attained is for a client in order to increase tension and how well I thought we did last year with this initiative and how more and more usage should be accretive for us into the future. Jared Levine: Got it. And then can you give us your latest thoughts in terms of new sales office openings here? Is the kind of change in sales leadership could impact potentially the pace of additional sales office this year over the near term? Chad Richison: Yes. So as I disclosed in the Barclays Conference, we have expanded our sales teams to 10 from 8. So that puts an extra 100 salespeople in the field. All salespeople now are experiencing a different level of training through our program. That's happening right now, and we're hiring as many salespeople as we can. Right now, we would expect that those would give us an opportunity in the future to open up more offices. It is a goal of ours, and it is also a goal of ours to capture the opportunity available to us in the offices that we have opening -- have to opened. Operator: Your next question comes from the line of Kevin McVeigh with UBS. Kevin McVeigh: Chad, your comments on Gene were pretty helpful. I wonder, could you give us a sense of, have you seen client behavior patterns in terms of consumption across any modules change as a result of the Gen AI adoption? I mean, obviously, 1 of the questions we get a lot is the perpetual displacement risk, which we don't subscribe to. But is there anything you can help kind of the market understand that it helps alleviate some of that concern, whether it's clients that have these tools that are still using Paycom or leveraging different parts of your platform that they haven't in the past just to help dimensionalize and calibrate some of this concern. Chad Richison: Yes. I would say there are some clients that will run toward the full automation or what you might be calling a Gen AI consumption. But I will tell you, it's much more important that you meet them further than halfway there, if you want to get them fully utilized and actually getting the value out of it. You've got to make it easy for people to digest. . And that's what we've spent a lot of time doing. You release something great, you like, why aren't they using it? Well, it's not good enough for them to understand how to digest it or plug into it. And so those are the things that we've been working on, both with our software as well as our go-to-market to make sure that we're bridging all of those gas. Kevin McVeigh: That's helpful. And then just One quick question on the guidance. What retention numbers embedded in the 2016 guidance? And then how much buyback do you have in the 26 estimates as well? Chad Richison: We haven't disclosed what type of retention. I mean, obviously, we're happy with the retention and I would be very disappointed if retention reversed. And I think with all the work that we are doing and all the value and happiness that clients are achieving right now, I think we're in a pretty good position for that. We just finished up January and retentions of measurement throughout the year. And so we're going to continue to do our work this year to make sure that we finish strong at the end of 2026. Robert Foster: On the buyback side, those are opportunistic as we're going through and taking a look at where the stock is and what we think if there's a displacement so those are just opportunistic, and we don't put anything into the guide on that. Operator: Your next question comes from the line of Bhavin Shah with Deutsche Bank. Bhavin Shah: Great. Chad or Bob, there's clearly a lot of positives here with better client growth versus last year, along with an improvement in retention. I'm just trying to reconcile that with the recurring revenue guide for next year, that would imply the smaller dollar adds in several years. . Is there the change in sales training or an increase in pitonclient service impacting growth next year? Or is it maybe in slowing down decision-making processes? Any insights in terms of what could be impacting growth will be helpful, especially as industry dynamics seem to be somewhat stable. Chad Richison: Yes. I mean you guys kind of know what's going on in the fourth quarter there. You can kind of see the sequential change in you know kind of how revenue comes in week by week, day by day. You can see the sequential change as it goes into this year and look at kind of how that sequential change also normalizing for the things I just mentioned, what that looked like for last year. And I think when you come to that, you'll kind of see that our guide here is not incredibly dissimilar to last year's guide. It may be different than where we ended. But from where we started last year, we took the same approach, and we're comfortable with the guide as we go into this year. As I mentioned, we do have inflection opportunities throughout the year. And as those materialize, we will make sure we report those. Operator: Your next question comes from the line of Jacob Smith with Guggenheim. . Jacob Cody Smith: You talked about seeing momentum upmarket and winning larger deals, which is really encouraging to see. First, is this an area where you're expanding sales ops for 2026? Also, as you move upmarket, organizations that often have greater integration needs their road map to expand API access while also balancing your core single database advantages? And do you view monetization of APIs as a growth lever in the future? Chad Richison: I think helping upmarket digest the importance of full solution automation is critical for them, and it's critical for us. I mean most of your upmarkets, they're only used to ordering food from the buffet. And you go to the table and you're like, "Hey, I'd like to take your order." And they're like, well, where is the buffet, hand me my plate. And so there's a whole different world here in how you plate these items to the upmarket and how they can easily plug into it. We've made it easier for ourselves to do that. And through full solution automation and what we're doing right now, evaluating Paycom is very simple. It's very simple to evaluate it. I would say in the past, with certain strategies that we had, it may have been simple to evaluate, but we still kind of kept a little bit of it in the buffet line kind of as we've gone through this, and we're dealing with full solution automation and decisioning logic. The system is decisioning everything. So before -- just to give you an example, and I've talked about time off, but you could talk about emotions, promotions, hiring. I mean I can go through our entire system. But just with time off, you have an employee that request time off tonight, at 7:00 at night, they're trying to request next week off. A manager the next day is dealing with overlapping decisions, who's going to be at the office to actually work because for some of us paid time off about who gets off work, but for the shift manager time offs about who showed up to work. And we've all been there where you didn't have enough staff and now you're losing revenue. And these managers have to go through all types of decisions and they have decision fatigue. Does the person even have enough time to request off. Do I have coverage? Do I have any overlapping shift? Who asked first? Are any of these people on a write-up. Is anybody at this that I let off going to hit over time. If I have to pull somebody else, you got to connect it to their schedule. You got to connect it to their shift, you've got to connect it to time and attendance. The point is, is it's impossible to make good decisions on this on a regular basis, unless you've implemented the Paycom system and the Paycom system will decision all of that. So the employees who, by the way, already expects their time off as soon as they requested. The employee gets what they need. The manager does not have to go through all the decisioning of these policies. The policy administrator, who's the person that said all this stuff up in the beginning gets consistent behavior as well across the board. And so it is a way and that's just one item. I mean I can take you through all many different items where now will decision everything for a client and everything for an employee. The problem that oftentimes comes up is, they don't oftentimes clients and people they don't have full documentations of the decisions that would be made in those scenarios. And so those are the processes that before we were going through manually with them to discuss. And now we can go through even those in a more automated process to move them in toward full decision automation through decisioning logic, which gets them full solution automation. And so that's what we've been working on. We have the system, we're making sure that all of our current clients understand that and what's available to them. So they don't just get sold on something and then go through another conversion process to come back with us. And then also our go-to-market, it's very important that we're doing it correct now. We've made it easier. We've made it easier for a prospect to decide on Paycom's value and use it. It's very easy to evaluate Paycom these days. It's only 4 simple steps, and we look forward to walking through that with every prospect out there. Aleksandr Zukin: Great SP1 Your next question comes from the line of Joshua Reilly with Needham. Joshua Reilly: Most of my questions have been asked, but any update on how the CRR team performed in 2025 relative to 2024 sales productivity? And how much room do you see for improvement in 2026 cross-sell activity? Chad Richison: Yes. I mean I think CRRs have done a good job. They did exactly what we expected them to do last year. They're doing a good job this year. a big part of the play when we talk about full solution automation and helping clients understand that value that's available to them. And absolutely, in some cases, there's products that clients don't currently have which are needed to get to full solution automation. In addition to that, we're rapidly continuing to put out new products, and many of those have revenue opportunities associated with them. So CRRs are part of the play as we move forward through 2026 and beyond. Joshua Reilly: Got it. And then just on the overall competitive landscape, just curious, have you seen any impact on just your overall win rates or price competition from the marketplace as growth hasn't really decelerated significantly in the industry, but it's kind of, I would say, gone sideways. And just curious if that's leading to any changes in competitive dynamics. Chad Richison: We're ambitious with what our expectations are for win rates, both this year and going forward. When I look into last year, I would say, they were up to core to consistent with what they've kind of been in the past. But we have a new view on what close rates should look like these days just because of the major differentiation between our product and what we see out there. And we've made it again easier to sell and easier for a client to understand and achieve its full value. So we are bullish on those opportunities this year. Operator: Your next question comes from the line of Siti Panigrahi with Missou. Sitikantha Panigrahi: Chad, just a follow-up to the prior question. ADP also talked about improving their retention rate rightly. How is that -- are you seeing any kind of changes to your business from that? Chad Richison: No. Sitikantha Panigrahi: Okay. And then other question that investors says is the AI impact to overall employment. How do you see that impacting Paycom business? Are you well diversified? Do you expect it to be more in certain kind of industry? Any color would be helpful. Chad Richison: Well, one, I'd say we're not seeing it. I'm not going to dismiss potential impacts for us to the future. I would say that we are not overexposed to any one industry, any one client, client size. And again, we only have 5% of the market. And so you could do some calculations and we're the most automated product in the industry and the best product for the best value that someone is going to achieve throughout the industry. And so when you look at that, I think that you could do some adjustments in employment, which again, we have not seen. But I mean, even if you did, I still think our opportunity is intact for us. So I'll just leave it at that. Operator: The last question comes from the line of Allan Verkhovski with BTIG. Allan Verkhovski: Strong margins. Can you share what the size and scope of the lots you did the past month was as well as how you're thinking about the company's head count trajectory over the next year in the context of just realizing more and more AI efficiencies over time? Chad Richison: Sure. So we did announce a restructuring last year and ended the year with about 5,800 employees. We don't -- we aren't going to discuss internal employment trends or strategies associated with that. But that will be the number that you'll see in the K. Operator: This concludes the question-and-answer portion of today's call. I will now turn the call back over to Mr. Chad Richison for closing remarks. Chad Richison: Thanks, everyone, for joining the call today. I want to congratulate the 2025 Jim Thorpe Award winner, Caleb Downs from Ohio State University. This award recognizes the most outstanding defensive back in college football and also memorializes one of the greatest all around athletes in history in a fellow Oklahoma and Jim Thor. . I'd also like to thank our employees for their contribution to Paycom's success in 2025. We remain focused on world-class service, full solution automation and the client ROI achievement, which is resonating across our client base. With that, operator, you may disconnect. Thank you. Operator: And this concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AMC Networks fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will open for questions. To ask a question during the session, you need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would like to hand it over to your first speaker, Nicholas Seibert, Senior Vice President, Corporate Development and Investor Relations. Please go ahead. Thank you. Good afternoon, and welcome to the AMC Networks fourth quarter and full year 2025 earnings conference call. Nicholas Seibert: Joining us today are Kristin Dolan, Chief Executive Officer; Patrick O’Connell, Chief Financial Officer; Kimberly Kelleher, Chief Commercial Officer; and Dan McDermott, Chief Content Officer and President of AMC Studios. We will begin with prepared remarks, then we will open the call for questions. Today’s call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks’ SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements. On this call, we will discuss certain non-GAAP financial measures. Required definitions and reconciliations can be found in today’s press release available on our website at amcnetworks.com. And with that, I would like to turn the call over to Kristin. Kristin Dolan: Thanks, Nick, and thanks, everyone, for joining us. AMC Networks had a successful 2025. We used our unique strengths and advantages to drive the company forward in a time of change. This year, we strengthened our balance sheet and achieved a meaningful and inflection point in our business. Streaming is now our largest single source of domestic revenue. This is a validation of our strategy and an important milestone in our business transformation. We generated $272,000,000 in free cash flow, a key priority for us, well ahead of our previously increased forecast. We expect that 2026 will represent another solid year on this front and anticipate free cash flow of at least $200,000,000 for the full year. Our streaming strategy is simple and distinct. We offer fans of specific genres unmatched curation and depth through our targeted services. We window content efficiently, keep prices low, and deliver clear value to our subscribers and wholesale partners, through which we reach the vast majority of our viewers. We also operate all our services through unified technology that delivers an excellent viewing experience efficiently and with predictable costs. In November, we launched our newest targeted streaming service called AllReality, bringing viewers the best in unscripted content, including our most popular reality franchises. It is currently available through Amazon Prime Video and Roku, with more platforms coming soon. At last month’s Sundance Film Festival, we relaunched Sundance Now as the definitive streaming home for independent film. The service features more than a thousand hours of distinguished programming, sourced from our independent film company, RLJE Films, and Shudder. Building on decades of expertise and credibility, Sundance Now gives fans a window into the world’s most important film festivals and access to the most acclaimed titles. Our anime service, HIDIVE, has achieved strong growth since we acquired it four years ago, the result of the increasing popularity of the genre and our team’s expert curation. We will continue the momentum with returning favorites and new originals. Acorn TV had a very active and successful 2025, including You’re Killing Me, starring and executive produced by Brooke Shields. We will also bring fans second installments of two popular programming events, An Autumn to Die For and Murder Mystery May, which drove record viewership last year. We have significantly reoriented our advertising business, embracing viewership changes and opportunities that have come with streaming, FAST, and AVOD. In 2025, we saw growth in each of these areas. This is so important as the market shifts away from traditional reporting metrics and age-based demos to driving business outcomes. We will be showcasing our advanced advertising capabilities and the unique value we deliver at a series of partner events in the coming months. In the fourth quarter, we completed a transaction that gives us full ownership of RLJ Entertainment. This includes Acorn TV, ALLBLK, RLJE Films, and a substantial investment in Agatha Christie Limited, which manages and monetizes Agatha Christie’s valuable IP worldwide. Content remains at the center of everything we do, and we are excited to bring a dynamic slate of strong programming to AMC and AMC+ this year. Our critically acclaimed sports docuseries Rise of the 49ers was the most watched new AMC original since The Walking Dead: The Ones Who Lived. It also drove the biggest day of sign-ups to AMC+ direct-to-consumer since the season two premiere of The Walking Dead: Dead City last spring. Dark Winds returns for its fourth season next week, and was just renewed for season five. This remarkable series has established itself as one of the best noir crime dramas in the history of television. It is also one of the most watched shows on AMC+. It has all the elements of a classic AMC series: great story, unforgettable characters, a talented cast, and something to say. We are very excited about a new prestige drama set in the world of Silicon Valley called The Audacity. We cannot wait to preview it at South by Southwest next month and bring it to viewers on AMC and AMC+ on April 12. And we just kicked off a new partnership with TNA Wrestling, bringing a two-hour block of live TV to our schedule every week. We have significantly expanded TNA’s television audience. The Thursday night show is also attracting younger viewers to AMC, who have a clear affinity for our Walking Dead, Anne Rice, and Shudder content, a connection we will leverage in the months ahead. Industry consolidation is highlighting the value of studio assets and powerful IP. Our dynamic mix of content across a wide range of platforms underscores our strength as a studio-based programmer able to build franchises and engage fans. It is worth noting that the streaming rights to all 177 episodes of The Walking Dead, the biggest franchise in the history of cable television, return to AMC Networks in less than a year. Still beloved, the original series generated nearly half a billion hours of viewership on Netflix over the last six months of 2025. Over the course of 2025, we successfully renewed more than a third of our affiliate footprint in the U.S. and Canada on favorable terms, including long-term agreements with DIRECTV, NCTC, Philo, and Eastlink, among others. Many of these larger agreements include bringing video customers access to the ad-supported version of AMC+ at no additional cost. More than 1,100,000 Spectrum TV customers have activated the ad-supported version of AMC+ that is now bundled into their video service. Charter’s recent results included video subscriber growth for the first time in almost six years, which management directly connected to their strategy of bundling streaming value into their video product. We see this as a hopeful sign for the industry and the entire pay TV ecosystem. Three years into this role leading AMC Networks, I can say without reservation that I believe in our strategy, our people, and the opportunities we see for this company. Our independence is a source of strength in a changing time. Our studio engages viewers by populating our platforms with high-quality and efficiently produced IP that we own. We have the strongest and most mutually beneficial partner relationships in the industry, and advanced technology powers everything that we do. It is clear to me that we are only scratching the surface of what this company can achieve. I would like to take a moment to thank our CFO, Patrick O’Connell, who has been a great partner and colleague and will be stepping down next month to take on a new role outside our industry. We appreciate his contributions, and we will be cheering him on in his new endeavor. And now I would like to turn the call over to Patrick. Patrick O’Connell: Thank you for the kind words, Kristin. Patrick O’Connell: It has been a pleasure to work with you and the entire team at AMC Networks. We have accomplished a lot over the past few years, and I would like to thank the Dolan family and the Board of Directors for the opportunity. 2025 was a productive year for AMC Networks. We are proud of the progress we have made, including reconstituting our revenue mix towards streaming, investing in valuable IP, reorienting the business around free cash flow, and the actions we have taken to strengthen our balance sheet. We generated healthy free cash flow exceeding our increased outlook and we once again delivered on our financial guidance. We believe our strong free cash flow outperformance in 2025 sets the stage for another year of robust cash generation. And for 2026, we expect to generate free cash flow of at least $200,000,000. Moving on to our full year results. Consolidated revenue was $2,300,000,000. Consolidated adjusted operating income was $412,000,000 with a margin of 18%. We converted approximately two-thirds of our AOI to cash and delivered full year free cash flow of $272,000,000. Onto our segment results. Domestic Operations revenues decreased 5% to $2,000,000,000 for the full year and decreased 1% to $515,000,000 for the fourth quarter. Subscription revenue meaningfully stabilized in 2025, with a decrease of less than 1% for the full year and flat in the fourth quarter. In a first for AMC Networks, full year streaming revenue represented the largest single source of revenue in the segment, while affiliate revenue declined 13% for both the year and the fourth quarter. We are encouraged by the improvement in video results that we have seen so far from the major cable operators in this earnings cycle. For the full year, linear affiliate revenue headwinds were almost entirely offset by streaming growth of 12%, and in the fourth quarter, streaming growth of 14% more than fully offset linear declines. We ended the year with 10,400,000 streaming subs. Subscribers were flat as compared to the prior quarter and prior year period. In 2025, we repriced the entire subscriber base, and we are pleased with what we are seeing in terms of engagement and retention. 2025 represented the most watched year ever across our portfolio of streaming services, in terms of total viewing hours. And in the fourth quarter, we also saw sequential improvement in retention. Content licensing revenue was $272,000,000 for the full year and $75,000,000 for the fourth quarter. Licensing revenue reflected the availability of deliveries. Looking ahead, we see continued demand for our high-quality content. Domestic Operations advertising revenue decreased 15% for the year and 10% for the fourth quarter, primarily due to linear ratings declines and lower marketplace pricing. Domestic Operations AOI of $490,000,000 for the full year and $128,000,000 for the quarter reflected continued linear revenue headwinds. Moving to our International segment. Recall that in 2024, International revenue included advertising revenue related to retroactive adjustments reported by a third party of $21,000,000 for the full year and $7,000,000 for the fourth quarter. Excluding retroactive adjustments in the prior period, and favorable FX in the current period, on an apples-to-apples basis, International revenue decreased 4% for both the year and the quarter. Advertising revenues grew 6% for the full year and 4% for the fourth quarter, primarily driven by strong advertising performance in the UK and Ireland. Subscription revenues, excluding FX, declined 8% for the full year and 6% for the quarter. The decrease in subscription revenue was related to a non-renewal that occurred in the fourth quarter of last year. International AOI for the full year was $43,000,000 and fourth quarter AOI was $7,000,000. We remain focused on our balance sheet, and we are pleased with the results of our efforts over the last year. To recap, in 2025, we executed a series of transactions that reduced gross debt by almost $600,000,000, captured approximately $140,000,000 of discount, extended the majority of our revolving credit facility to 2030, and opened a 2032 maturity window through the issuance of new longer-dated senior secured notes. Overall, we have meaningfully extended our maturity profile, now with only $83,000,000 of remaining term loan due by April 2028, and no bond maturities until 2029. We ended 2025 with net debt of approximately $1,300,000,000 and a consolidated net leverage ratio of 3.1 times. Despite lower AOI in 2025, our net leverage ratio remained relatively stable, increasing by less than a third of a turn from the 2.8 times we reported at the end of 2024. As we look forward, our focus remains on further reducing gross debt and extending maturities. We have maintained a healthy cash position and ended the year with approximately $675,000,000 of total liquidity. This includes approximately $500,000,000 of cash on the balance sheet as well as our undrawn $175,000,000 revolver. As a reminder, we believe it is prudent to capitalize the business with a minimum cash balance of approximately $200,000,000 to $250,000,000. In the fourth quarter, we repurchased approximately 850,000 shares of our Class A common stock for approximately $7,500,000. As of December 31, we had $117,000,000 remaining on our share repurchase authorization. Additionally, as Kristin mentioned, in the fourth quarter, we acquired Bob Johnson’s 17% stake in RLJ Entertainment for $75,000,000 in cash. This transaction provides us with increased operating clarity and simplifies our business structure. Moving on to capital allocation. Our philosophy remains consistent. First, we look to support the business by creating and acquiring compelling programming that resonates with our audiences while maintaining healthy levels of free cash flow generation. Second, we remain focused on reducing gross debt and extending debt maturities. And lastly, acquisitions and share repurchases will be opportunistic and measured. Moving on to our outlook. We expect consolidated revenue for 2026 to be approximately $2,250,000,000. As it is still early in the year, the geography of certain items may shift as the year unfolds. Notwithstanding that, I will now unpack the current assumptions that underpin our revenue outlook. We anticipate that streaming revenue growth and linear subscription revenue headwinds will result in stable Domestic Operations subscription revenue as compared to 2025. We continue to be innovative, aggressive, and strategic with regard to content licensing, and anticipate approximately $260,000,000 of Domestic Operations content licensing revenue for 2026, reflecting our current rate of production and market dynamics. We continue to make great strides in the evolution of our advertising business. That said, we anticipate that linear revenue declines will outpace digital growth in 2026 and expect that Domestic advertising revenue would decrease in the low double-digit percent area as compared to 2025. We anticipate that the underlying dynamics in the many International markets that we operate in will remain relatively consistent year over year and expect total International segment revenue for 2026 to be between $290,000,000 and $300,000,000. Linear revenue headwinds continue to impact AOI. Therefore, for the full year 2026, we anticipate that consolidated AOI will be approximately $350,000,000. AOI will also be weighted towards the back half of the year through the cadence of series deliveries, streaming rate events, and the timing of expenses, including programming amortization. Moving on to our most important financial metric, free cash flow. We continue to convert the majority of our AOI to free cash flow, and for 2026, we expect to generate free cash flow of at least $200,000,000. In closing, as an independent, nimble, and innovative premium programmer, our commitment to creating high-quality content remains at the center of everything we do. We approach the marketplace a bit differently than others, including building out our library of powerful franchises and monetizing our content across an evolving distribution ecosystem. We will continue to preserve capital with a focus on cash flow generation and the health of our balance sheet, and we will balance appropriate levels of programming investment against the available monetization opportunities. With that, I hand the call back to Nick. Thanks, Patrick. Operator, let us open the session for Q&A, please. Thank you. Thank you. Operator: Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Steven Cahall from Wells Fargo. Steven Lee Cahall: Your line is open. Operator: Yes, thanks. Good evening. Steven Lee Cahall: Wanted to kick off with an advertising question. It was a little worse in 2025 than it was in 2024. It came in a little below your expectations. So can you just help us think a little more about what is within the low double-digit guidance for 2026, the puts and takes. I know you have done a lot of work on the dynamic side of things, so would love to frame your confidence in that outlook. And then The Walking Dead rights coming back is pretty exciting for the company. Just wondering when you start to think about having conversations in the market about what that could be worth and kind of what those bids look like. When we look at this, it could be a $150,000,000 opportunity. It could be two times that or even bigger. So just trying to sort of frame expectations for what can happen to those rights as we get towards the end of the year. Thank you. Kristin Dolan: Hi, Steven. It is Kristin. We will miss Patrick too. I am going to answer The Walking Dead, then I will let Kim speak to advertising. We have had a great relationship with Netflix for well over a decade since 2011 in carriage of The Walking Dead. The rights come back to us as we said. It is a consistent top performer on streaming. And as you noted, the rights are very valuable. I cannot say a lot right now, but we are in conversation now preparing for the rights coming back and for finding a home for them in the future. There is more to report. We are just not ready to speak about it now, but we are in conversations, and we are very optimistic about the value of the content and our opportunity to monetize it going forward. Kimberly Kelleher: Hi, Steve. On your advertising question, I think the whole industry saw what we saw at the top half of 2025. We saw a huge influx of digital inventory hit the marketplace driven by the shifting viewership. And I think that drove down pricing, and we saw a lot of impact across the board for that. We reacted as quickly as we could and went into the upfront with a very streaming-first approach that I think we started seeing the impact from with the tides turning for us in Q3 and then continued momentum into Q4 with improvements. It really reflected the team’s successful upfront strategy that we look to take into 2026. We are growing in all the most important areas: streaming, FAST, AVOD, and really looking to mitigate losses on the linear side. Nicholas Seibert: Thank you. Thanks for the question, Steve. Operator, we will go to the next question. Our next question will come from the line of David Carl Joyce from Seaport Research Partners. Your line is open. David Carl Joyce: Thank you. David Carl Joyce: Another kind of advertising question. Granted you still have the linear challenges there, but how should we think about the ad contribution from the streaming side and from FAST channels? Just wondering, are advertisers buying across all those platforms, or are they kind of picking and choosing? Patrick O’Connell: David, it is Patrick. I will take a first crack at it, and Kim can add some color commentary. Listen, digital advertising is a meaningful portion of our business. It was a big part of the strength in the fourth quarter. Obviously, we are subject to some of the vicissitudes in the marketplace, which we saw top half of 2025. But as Kim mentioned, tactically, we are able to move quickly. Scatter was pretty strong in Q4. We demonstrated that we could build brand sponsorships around certain events, including Best Christmas Ever, etcetera. Frankly, the industry broadly was challenged in 2025. So we are really nimble. We are really fast. The digital business has now reversed fields. That is a nice growth area for us. It is not a majority of the revenue, but it is a substantial portion of our revenue. And so we feel good about continuing to grow that to offset the obvious linear headwinds. Kimberly Kelleher: The only thing I would add, David, is our viewership across our digital distribution continues to grow, and we have activated DAI across all of that. So it is a very seamless transaction for the advertiser, and that has been well met in the marketplace. Operator: Thank you. One moment for our next question. And as a reminder, to ask a question, that is star 11. Our next question will come from the line of Thomas L. Yeh from Morgan Stanley. Your line is open. Thomas L. Yeh: Thanks so much. Patrick, you mentioned subscriber universe decline seeing an encouraging trend. I think there is also a slew of new skinny bundles that are getting launched that might possibly cause some fragmentation as well in terms of which networks get carried or not. Can you maybe just talk about your positioning there and how you see that shaking out relative to your view about the broader affiliate revenue outlook that you laid out? And then on cash spend on content, noticed it declined a decent amount this year, possibly due to timing. Within the framework of your guide for EBITDA and free cash flow for next year, can you maybe just help us think through what you are thinking there from a cash spend perspective? Thanks. Patrick O’Connell: Sure. Hey, Thomas. So on the first, in terms of affiliate revenue, obviously, we are encouraged by some of the green shoots that we see across the broader landscape. It plays very well into AMC’s partner-centric model, whereby we are cutting deals with Charter and, frankly, others on innovative ways to avail a broader universe of broadband subscribers to either pay TV on the traditional format or via apps of our ad-supported AMC+. And it is nice to see other large MSOs, MVPD providers, seemingly following in Charter’s footsteps. We think that is an encouraging sign. As it relates to skinny bundles and whatnot, we have been extraordinarily successful in continuing to renew our affiliate agreements with full carriage across all of our channels. We continue to represent an incredibly strong value proposition for those distributors and, by extension, their viewers as well. So I think in that regard, the proof is in the pudding, and obviously we are hopeful that these trends will continue. And so we feel very good about those affiliate relationships. Secondly, in terms of cash content spend, it was down slightly from 2024 levels. But we continue to invest extraordinarily heavily in premium programming. That is our signature. That is our focus. And that is the mandate that we have from the Board and our Chairman to continue to invest in that manner and at those levels, and at the same time produce healthy levels of free cash flow. So we think we are doing both of those things at the same time. As we roll forward into 2026, I would expect that from both a P&L perspective and a cash perspective, those levels are going to remain fairly constant, meaning we are going to continue to invest heavily in that programming. I do not know, Dan, if you want to comment any further. Dan McDermott: I think that is right. I think it is the most important and meaningful thing that we do. The one thing I would say is we have an extremely strong production team that takes advantage of tax incentives around the world, shooting in locations that get us the real bang for our buck, if you will. We are very savvy about how we deliver the tentpole series that we deliver on the cash that we have. That has been a real great situation in 2025, and we expect to continue that in 2026. Kristin Dolan: And I will just finish up by saying that the caliber of the slate in 2025 and what we have planned for 2026 continues to either meet or outperform our expectations. So series like the 49ers that we spoke about. We had a Dark Winds premiere here in LA last night. It was amazing. So we are putting a really good slate out on AMC, but also on our streaming service as well. We are not just being efficient. We are still producing the content that built the reputation that we have to this day. So we are excited about what we have. Thomas L. Yeh: Gotcha. Thanks so much for the color. Nicholas Seibert: Thank you. And with that, this concludes the question and answer session. I will now turn it back over to Nick for closing remarks. Nicholas Seibert: Thank you for joining us today. We look forward to having a dialogue, and thank you for your interest in AMC Networks Inc. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Greetings, and welcome to Kornit Digital's Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Andy Backman, Chief Capital Markets Officer for Kornit Digital. Mr. Backman, you may begin. Andrew Backman: Thank you, operator. Good day, everyone, and welcome to Kornit Digital's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today are Ronen Samuel, Kornit's Chief Executive Officer; and Assaf Zipori, our Chief Financial Officer. For today's call, Ronen will share his overall commentary on the fourth quarter and the full year, followed by Assaf, who will review our fourth quarter and full year 2025 results and provide guidance for the first quarter of 2026, before we open the call up for Q&A. Before we begin, I would like to remind you that forward-looking statements within the meaning of the U.S. securities laws will be made on this call. These forward-looking statements include, but are not limited to, statements relating to the company's plans, strategies, projected results of operations or financial condition and similar statements regarding the company's expectations for the future. The fulfillment of forward-looking statements is subject to known and unknown risks and uncertainties. I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 20-F filed with the SEC on March 28, 2025, which identifies specific risk factors that could cause actual results to differ materially. Any forward-looking statements are made currently and the company undertakes no obligation to publicly update them, except as required by law. Additionally, the company will be making reference to certain non-GAAP financial measurements on this call. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's earnings release published today, which is also posted on the company's Investor Relations website. At this time, I would like to now turn the call over to Ronen. Ronen? Ronen Samuel: Thank you, Andy. Good morning, everyone, and thank you for joining our Q4 and full year 2025 earnings call. Before I begin, I want to briefly welcome Assaf, who recently joined as the CFO and Andy, who returned to Kornit to lead our capital markets activities. Let me turn directly to our business performance. When we entered 2025, we set a clear and measurable targets for the year. We set up to move the company back to revenue growth while at the same time, transitioning the business towards a more recurring ARR model, a shift that naturally changes near-term revenue timing as we build stronger longer-term revenue foundation. We also committed to delivering positive EBITDA and generating positive cash flow from operations, all while capturing a meaningful share of bulk apparel production and driving impression growth across our installed base. I'm very pleased to share that we achieved all of these objectives. Q4 marked a solid finish to the year. Our customers had a successful peak season, reflected in a strong double-digit impression growth in Q4 year-over-year and 11% growth for the full year, reaching 243 million impressions. This growth was driven by higher utilization across our installed base and an increased adoption of digital production for the longer runs. We delivered Q4 revenues of $58.9 million and adjusted EBITDA of $5.5 million, both at the upper end of our guidance. We also generated approximately $11 million in operating cash flow in Q4 making our ninth consecutive quarter of positive operating cash generation. For the full year 2025, we moved back to growth, achieved positive adjusted EBITDA and generated strong operating cash flow of approximately $24 million. At the same time, we continued executing the transition towards a more recurring business model. We exited the year with approximately $25 million in ARR from AIC program. This ARR is typically supported by multiyear customer commitments usually around 5 years, providing strong revenue visibility and durability. In 2025, AIC contributed [ $15.2 ] million in revenues and continue to scale as adoption expands. Together, these results reflects disciplined execution and meaningful progress in building a more recurring, predictable business model. One of the most important drivers of this progress is the accelerating shift from screen production to digital. We clearly see a shift of impression into longer runs and incremental bulk apparel production moving to digital. Over 40% of our system deals in 2025, including Q4, came from net new customers, many of them traditional screen printers adopting digital production for the first time. For example, in Europe, top few in Poland, one of the leading screen printers in the region recently ordered an Apollo system for bulk apparel production under our AIC model. This represents a strategic move as they began transitioning part of their high-volume screen production to digital to improve flexibility, reduce labor dependency and respond faster to customer demand. In the U.S., midsized screen printers are adopting our Atlas MAX platform to replace screen production for the first time. Customers like Cedarstream, a U.S. apparel decoration company, focused on high-volume production and Real Thread, a U.S.-based custom apparel and merchandise producer serving brands, creators and e-commerce customers are moving bulk apparel impression to digital to gain speed, consistency and efficiency. At the same time, we are seeing clear expansion of bulk apparel impression from existing Kornit customers, reinforcing the strength of our value proposition and the business outcomes we deliver. For example, Zumiez, a specialty retailer of action sports-related apparel, added its second Apollo system in Q4 on top of an existing fleet of Atlas MAX PLUS systems to support higher volumes, faster replenishment and improve speed to market. 500 Level, a U.S. leader in licensed sports fan apparel and merchandise production, added an Apollo system on top of its Atlas MAX PLUS fleet under the AIC model to support licensed sport apparel production, improve automation and scale bulk and replenishment programs more efficiently. Basic Thinking, a leader U.K. screen apparel producer added a second Apollo system under the AIC program as its business continued to scale following its initial transition to digital. Together, these examples show a consistent pattern. Over 40% of our existing Apollo customers added a second system or more in 2025, reflecting strong ROI, meaningful improvements in availability, uptime and utilization across our Apollo installed base and growing confidence in digital for bulk and mid-run production. In parallel, our Atlas MAX family continues to gain traction among small and midsized screen printers taking the first step into digital production. We are also seeing encouraging momentum in our customized design segment with growth momentum returning across several of our key accounts. This momentum is driven by higher utilization of existing systems as well as customer adding capacity through upgrading to Atlas MAX PLUS and by deploying additional systems to support growing demand. A good example is MARUI in Japan, which expanded its production for adding a fleet of Atlas MAX PLUS systems to meet increasing demand for speed, quality and operational agility in one of the most advanced print on-demand markets globally. We are also pleased to share that our global strategic customer recently placed an order to continue upgrading its fleet to Atlas MAX platform, reinforcing the long-term confidence in our technology and partnership. This also reinforces the broader trend we are seeing across our customer base with continued investment in capacity as utilization and demand grow. Beyond apparel, we continue to see growth in impression and pipeline development in the sports and footwear market. We expect 2026 to be a stronger year for our roll-to-roll business, both in the footwear and technical and functional apparel segments, supported by new technologies and capabilities we plan to introduce later in the year that will further expand applications and drive future growth. We are entering 2026 with a growing pipeline of opportunities and much better visibility for the year. Today, more than 83% of our revenues are recurring or highly predictable. We expect low single-digit revenue growth in 2026, reflecting our deliberate decision to accelerate the transition towards the AIC model. Alongside this, we expect stronger profitability expansion and continued positive cash flow from operations, while ARR continues to grow through additional AIC system deployments. As more customers move to AIC, our recurring revenue base growth, enhancing visibility and strengthening the long-term scalability of our business. Our priorities remain clear. We will continue driving incremental impressions from the screen market, expanding the AIC program and delivering on our innovation road map to support growth beyond 2026. Before we close, I would like to personally invite you to join us at our connection event in Miami on April 12 to 14. This will be an opportunity to experience firsthand the progress we are making across screen, AIC, DTG and roll-to-roll. You will meet hundreds of customers from around the world and see live demonstrations of the latest technology shaping the future of our industry. During the event, we will unveil breakthrough innovations designed to expand our addressable market, accelerate digital adoption and enable our customers to capture new growth opportunities. Connection is where strategy meet execution and where the shift towards digital on-demand production becomes tangible. We look forward to seeing many of you there. I will now turn the call over to Assaf to further discuss our fourth quarter and full year results and our guidance for the first quarter. Assaf? Assaf Zipori: Thank you, Ronen, and good day, everyone. I am excited to be joining Kornit at such an important moment in the company's journey. Over the past few months, I've had the opportunity to engage closely with customers, investors and the leadership team, gathering direct feedback on our strategy and execution, which reinforces my conviction in the company's direction and opportunity ahead. Turning to our results. Total revenue for the fourth quarter were $58.9 million, well within our guidance. Our revenue mix reflects the strategic shift in our business. AIC revenue grew 104% year-over-year. We ended the quarter with $24.8 million in ARR. Impressions, a strong leading indicator of system utilization and consumption grew at a strong double-digit rate for the quarter. For the full year 2025, total revenue was $208.2 million, up 2% year-over-year, driven by continued expansion of our AIC program. AIC revenue increased to $15.2 (sic) [ $15.0 ] million from $3.3 million last year, strengthening the quality of our revenue through predictability, higher system utilization and deeper customer engagement. Moving to margins. Fourth quarter non-GAAP gross margin was 50.7% compared with 55.1% in Q4 '24, reflecting in part changes in product mix and the impact of tariffs. Similarly, for the full year '25, non-GAAP gross margin was 47.2% compared with 48.6% last year. Long term, we expect annual gross margins to expand as AIC continues to scale. Turning to operating expenses. Fourth quarter non-GAAP operating expenses were $27.1 million, down 3.1% year-over-year and included an unfavorable $1.1 million impact from FX. For the full year '25, non-GAAP operating expenses were $107.1 million, down 2.5% year-over-year, again, including an unfavorable $2.6 million impact from FX. Our OpEx improvement is a reflection of our commitment to remain disciplined with costs while continuing to invest in the company's growth initiatives. Adjusted EBITDA for the fourth quarter was $5.5 million, compared with $8.4 million in the same period last year. Adjusted EBITDA margin for the fourth quarter was [ 9.3% ] compared to 13.8% in 2024. For the full year 2025, adjusted EBITDA was $1.5 million compared with $0.3 million last year. On a constant currency basis, adjusted EBITDA margin was 11.5% and 1.9% for the fourth quarter and full year 2025, respectively. Turning to cash and the balance sheet. Our cash balance, including bank deposits and marketable securities at quarter end was approximately $491.2 million. Operating cash flow for the fourth quarter was $10.6 million and [ $24.4 ] million for the full year 2025, reflecting continued focus on improving working capital. During 2025, we repurchased $27 million under our share purchase program, including $2 million under the new $100 million program we announced in November '25. Since our first program was announced in 2023 and through the fourth quarter of 2025, we have repurchased a total of 6.9 million shares for a total gross amount of approximately $167 million. We enter 2026 with a solid balance sheet that has sufficient capacity to fund organic growth, including AIC deployments and new product innovations. We will also continue to evaluate inorganic opportunities that align with our strategy. Turning to guidance. For the first quarter of 2026, we expect revenue of $45 million to $49 million and an adjusted EBITDA margin between negative 10% and negative 4%. As a reminder, our business is seasonal with adjusted EBITDA margin typically negative in the first half of the year. As the year progresses, we anticipate improvement in both revenue and margins, supported by increased utilization in the later part of the year and continued operational efficiency gains. 2026 will be a year of focused execution as we translate our strategy, innovation and business model into tangible financial and operational results. We expect low single-digit revenue growth, improved profitability and a positive operating cash flow. With that, I will now turn the call back to Ronen to open it up for Q&A. Ronen Samuel: Thank you, Assaf. Operator, we are ready for the Q&A session. Operator: [Operator Instructions] The first question is from Greg Palm from Craig-Hallum. Greg Palm: I wanted to start with a little bit of color on peak season run. I think you talked -- you gave us impression growth double digits, but just can you give us a little bit more color on how it went and specifically performance of Apollo? Ronen Samuel: Yes. Thank you, Greg. So first of all, on the peak season, it indeed was a strong peak season for our customer. And the best indicator for a strong peak season is impression growth. And impression growth for Q4 was a very strong double digit. And specifically, it closed a year of -- when we're looking at 12 months for the full year is 11% growth of impression. Now when we are looking from where is it coming, those nice growth of impression, it's coming from 3 main areas. One, we see major growth coming from customers that actually on the AIC program. We see utilization on this program or those systems relative high versus machines that on CapEx. So major growth is coming from the AIC on impression. The second thing is the major growth is coming from the screen market. We start to see a shift of long run, bulk apparel coming into Kornit systems. And there, we see a really nice growth of impression. And the fourth growth is connected to your question is about the Apollo. And Apollo is really a machine or systems that are driving really high volume. We had a very strong peak season for our customers leveraging the Apollo. We worked very hard and what we found out that in Q4, when it was the peak, the uptime of the system more than 90% across the board. So very high utilization, very high stability of the system. Customer satisfaction is super, super high on the Apollo. Actually, in 2025, 40% of the existing customers that's using Apollo order a second machine or more on the Apollo. We can see many newcomers, new screen printers, big size screen printers are taking for the first time a Kornit and specifically the Apollo. And Apollo is where we see, as I mentioned before, the long run. So we see customers running on the Apollo 500 copies, but also 5,000 copies. So it's fantastic. And of course, there are customers that are also using the Apollo for very short for one-off, but we see more and more longer run coming for the Apollo. Other than that, what I recommend for all of you is to come to Connection. As I mentioned, in the Connection, we are going to demonstrate also the Apollo, and there will be some game changer applications and additional capabilities on Apollo that we will show for the first time at Connection. Apollo by itself is a game changer for the industry. Greg Palm: Okay. Look forward to that event. As you look back on 2025, and what do you view as the most major accomplishments? I know it's a pretty busy year on a lot of fronts, but talk to us about that? And how does that guide some of your priorities this year and beyond? Ronen Samuel: Well, so 2025 was very busy, as you mentioned. It was a transition year, but it's a year that when we're looking back, it's a year that we flip the page. We are a different company right now. When we started 2025, we set clear targets, very measurable targets, and we deliver on them. I will start saying a few of those targets and what we have achieved. First of all, we moved back to growth. So finally, we are growing. And this growth is coming in parallel in transition of the business model into more recurring model through the ARR and AIC, which is really gaining traction, which, as you know, moving to this model has some short-term impact but has a major positive long-term or midterm long-term impact to the business. We ended the year with significant ARR of approximately $25 million of ARR. For the full year, we recognized $15 million of AIC. This is a growth versus 2024 from $3 million to $15 million, more than 300% growth. And those ARR and AIC or ARR contracts, you need to remember that our multiyear contract with our customers. So traditionally most of those contracts are 5 years contract, which provides predictability, consistency and stability to our business. Also, we delivered positive EBITDA, which is super important. We generate very healthy cash from operations for the full year and also for Q4. And the main focus of which I also discussed on my prepared remarks is really penetrating the screen market. And I would say that we ended the year with really penetrating some key customers in the screen market. We start to see a real shift of major screen printer into digital, leveraging our technology. And today, we are in a position that we have lighthouse almost all around the world, and we are starting to [indiscernible] with biggest opportunity in front of Kornit is really in the screen market, and we feel that now we can start to scale on top of that. And the screen is really where the long run and the impression is being driven. I talked about the impression for the full year, we grew 11%, but we saw it from better utilization of the systems of our installed base, which is very important. We can see some of our key customers that now needs more capacity or they are upgrading into Atlas MAX PLUS or adding additional system, which is a very, very strong signal. In Apollo, as I mentioned before, this is a major milestone that we have achieved to see the stability to see that customers are buying the second and third and even more systems. This is really, really encouraging. 40% of the customers that we acquired in 2025 were net new customers, and each one of them has a potential to add additional capacity. So those are the main achievement, I would say, that we are entering 2026 with much better visibility, predictability, almost 83% of our revenue for 2026 is a recurring or reoccurring revenue. So we feel very confident getting into 2026. Greg Palm: Okay. That's great. And I guess last one before I hand it off. How should we think about the system placements this year versus last just in light of this continued, I think you said accelerated shift towards AIC. I mean I assume volumes -- unit volumes will be up probably quite a bit. So I'm not looking for specifics, but just a little bit of color on how we should think about that dynamic. Ronen Samuel: Yes. This is a very good question because what you see is the product and you compare products on CapEx and you don't see the products that we are shipping on AIC. Overall, the number of systems that we've delivered in 2025 was higher than 2024. So we are delivering more systems to the field. But even more importantly, that we are delivering more capacity because we are selling more high-end products to the market, which is system can generate more volume. So those are very strong indication for the future, more systems, more capacity, which will generate more revenue coming from in services and AIC. Operator: The next question is from Brian Drab from William Blair. Brian Drab: Congrats on a good quarter. And Andy and Assaf, nice to connect with you again. Can you talk, Ronen, a little bit about the low single-digit forecast? And you have -- in the past, you've given us a good bridge kind of breaking down the business into the components of the consumables, services and upgrades, et cetera. And can you help us bridge from 2025 revenue to 2026 forecast, also kind of incorporating what you're expecting from that Amazon upgrade order that you mentioned? Ronen Samuel: Yes. So first of all, we are very pleased with the decision of our global strategic customers to continue to grow with us. It shows the confidence in the technology in our partnerships moving forward. It's something that we anticipated, hope to get, and we received it definitely will have some impact on the 2026 in terms of growth of revenue. But we need to remember, we are in the beginning of the year. We would like to be very prudent about what we are saying to the market at this stage. While we have much better visibility and predictability for 2026, we are really continue to push more into the AIC ARR revenue. So whenever we can move customers and deals into this model, this is where we are motivating our team to go and the customer, to show the customers the value in the ARR, which means that there is some impact in the short term in order to build the long-term quality of the revenue and predictability. We are focusing on lot in 2026 on improvement of the profitability. So you will see expansion on the profitability. We will continue to focus on penetrating the screen market, growing the ARR drastically. This is the focus of 2026. And you will see a lot of innovation as well coming in 2026 that will start contributing for the second half of 2026. So I understand the question of guiding the market into low single digits. Remember, we would like to be prudent. We would like to be in a position that we are in a good size and not missing our numbers. Brian Drab: Okay. Can you talk at all about the significance of an order from your strategic customer for the upgrades? I mean how many machines roughly we're talking about? Is that substantial? And how will that progress throughout 2026? Is it all in 1 quarter? Is it throughout the year? Ronen Samuel: Yes. So I would start to say we have a very close relationship, very strategic relationship, and we are very proud of this partnership between us working very, very close together. As you can imagine, I cannot disclose any sensitive information of this strategic customer or any customer without getting that permission and I don't have the permission to share this information. What I can say is that after last year, we started the initial upgrade in part of the portfolio. It was very successful. They saw the benefit and they placed an order for continue upgrading it during 2026. These updates will take time. It's not one quarter, it's a few quarters because we're talking about a fleet of upgrades. Again, it shows the confidence in the solution. It shows that they need to grow the main benefit of the MAX really providing more capacity and they need more capacity to grow, which is a very good sign. And of course, we continue to evaluate together a new technology into the future. Operator: The next question is from Erik Woodring from Morgan Stanley. Erik Woodring: Congrats on the solid execution to end the year here. Ronen, I would love for you to maybe help us understand where the Apollo story stands today. It's taken a few turns -- it took a few turns in 2025. Obviously, starting the year, I think we learned about the longer sales cycles with new customers. As we sit here today, what have you learned about the time to onboard and ramp these new customers to make sure that you can kind of maintain momentum in this product into 2026? And are these new customers using Apollo any differently than existing customers? Like if you have any cohort observations, I'd love to better understand that. And then a quick follow-up for Assaf, please. Ronen Samuel: Okay. Excellent question. Look, remember that we started actually deploying the Apollo in 2024. 2024 was after the beta. And in the beginning, we actually deployed the Apollo mainly into existing customers, those that used to run digital, they have the ATLAS MAX and they have the digital workflow. And the deployment was quite easy. Of course, we had to continue to improve the stability and the productivity, but we grew quite quickly in 2024 with those customers. But the aim of the Apollo was to go after an incremental market, not only in the one-off customer design, but really going after the screen and replace the screen analog technologies. And this was the focus 2025. And what we have achieved in 2025, while 2024 was focused on a few customers with large fleet of Apollo, 2025 was focused on net new customers from the screen printers or penetrating for the first time with digital and taking the Apollo. And what we found out that the sales cycle is different. It's much easier to penetrate digital player because they have the workflow, they have the understanding, they already has the need with the screen market, you need to show them the need. You need to show them that the quality at least as good as screen market. You need to work with them on the workflow, you need to train them. It's a different mindset. Many of them are traditional. So we worked very hard in 2025 to start building lighthouses. And within 2025, we already saw few of them going with the second Apollo or taking a fleet of Apollo and ATLAS MAX together, and we started to see successes. And what we see right now in all kinds of open houses that we have in those customers that they're becoming a lighthouse and they are telling the story to other screen printers, how it changed their business and what benefit it provides them, and it wasn't too complex. So we've learned a lot. We've learned the type of quality that they expect, the type of productivity that they expect, the different garments that they would like to run. We're focusing a lot on the workflow, how do we automate their workflow versus digital players are coming already with workflows are designed for digital. So you will see some innovation on the workflow side as connection events, specifically addressing the screen market in order to make it easier for them and to shorten the sales cycle of penetrating and growing the screen market. Erik Woodring: Okay. Awesome. And then Assaf, nice to, I guess, reach over the phone here. But I'd love to get your insights just at a high level of how we see better profitability in 2026? Obviously, you gave us what you think about revenue growth, but how should we be thinking about gross margins given AIC mix improves, that's higher profitability, ink and consumables growth should seemingly follow impressions at least somewhat. And then what's the approach to expenses this year? I'd just love to understand the moving pieces there. Assaf Zipori: Yes. Erik, thanks for the question. So I would say that our biggest growth driver is AIC. AIC has accretive gross margin to the overall company. And as it scales further, you should expect to see expansion continues. With that, we have a very disciplined approach towards expenses and adjusting the expenses in line with our growth rates as we look into 2026. In '26, I would not expect to see significant deviation for our gross margins as AIC continues to scale. So you should expect reasonable levels as you're seeing now. In terms of OpEx, we are also not expecting any significant changes in OpEx for as long as we continue to grow as we expect. We remain very disciplined in our approach and in the way that we evaluate the impact of tariffs, the impact of foreign exchange and so on. Operator: Next question is from Troy Jensen from Lake Street Capital Markets. Troy Jensen: It's actually Cantor Fitzgerald now, but gentleman, congrats on the great quarter and Assaf and Andy, nice working with you guys again. Quick, maybe just, Ronen, for you. Just looking back to that '25, can you just talk about the overall market? Do you think the industry is stagnant, you guys maintained share? Or was there growth and you guys lost share because of the AIC conversion? Or kind of any thoughts there would be great. Ronen Samuel: Thanks for the question. Look, the market is shifting. Market is really changing. We are talking with many, many brands, retailers, demand generators. They're all talking about in any boardroom talking about how they can stay relevant. Product life cycle is getting shorter and shorter, changing by the minute. And the way that they were focusing in the past and producing in the past is not remit. And we see it in life. We see brands and retailers and demand generators moving production, nearshore and onshore, talking about how can they produced closer to the consumer without excess inventory, how they become more sustainable, how they can become more relevant by bringing new products to the market. And it's a clear change that we see. We see some leading brands. And I mentioned Zumiez that the way that they change the fully move to vertical production. And we see more and more retailers and brands starting to move to on-demand production. This has become a necessity. This is not any more a discussion like what was in the past. And of course, tariffs and the minimums really pushed even further the move to onshore production. We see it also within our customers, they are gaining volume, which reflect in the impression volume. So overall, the trend is very, very clear. It's being now accelerated. It's obvious that fashion industry, apparel industry is going to change. It's going to change dramatically. How fast is very difficult to forecast. But now with necessity, this world is moving to digital, like many, many other industries that we know that move to digital textile and fashion is not exceptional. Troy Jensen: All right, understood. Assaf, just for you, just to follow up on the cost question, too. Non-GAAP OpEx was $27 million. Would you assume that it's that number or higher going forward on a sequential basis? Assaf Zipori: I would say that you should not expect any significant changes as we move forward. Obviously, we have a certain exposure to FX. We also hedged. So the exposure is somewhat contained. We are also well positioned. And in our plans, we've assumed that FX would remain at reasonably similar levels to what it is today. So I would not expect any material changes. Troy Jensen: Okay. If you look at just in the model, too, on that FX, was that all kind of in the R&D? It looks like that had a big sequential growth. Assaf Zipori: It's mostly on the operational side. We have a significant team in Israel that is being paid in the local currency, not necessarily just R&D. Troy Jensen: All right. Understood. If I could get one last question. You guys kind of mentioned cash and use funds and inorganic opportunities. What types of like applications or technology, Ronen, do you think you guys would be interested for you guys to absorb? Ronen Samuel: Yes. So in general, we need to wait to see in Connection. I expect to see you at Connection because we are going to have a lot of unwilling new technologies. I'm going to say that it will be across the board. It will be on the direct-to-garment. It will be on the roll-to-roll. It will be on workflow. It will be on new application. Think about it. Kornit was always in the decoration area. We will continue to bring innovation on the decoration, but we are taking it to the technical area as well with new capability, with new chemistry, with new processes. We are taking it to the functional area after the technical, and you will see some tractional revolution that we are bringing with our technology and even to the smart area, smart apparel, but you will see some innovation at Connection. Overall, it will be a breakthrough capability that we are bringing. It will be unique. We are the only one what we are going to present in terms of technology and innovation. We will be unique in the market. We will approach new market segments. It will be a major differentiator versus other things that you can see in the market. Specifically, I'm going to say that there will be a lot of focus also on the sports market and sports innovation at the event. So other than that, again, I welcome all of you to join us. It will give you the opportunity not only to see the technology, but to interact with many of our customers, prospects brands and retailers that will be there and major brands that will be there and they tell the stories. So you're all welcome to join us. Operator: Next question is from Jim Ricchiuti from Needham & Co. James Ricchiuti: I was wondering if I can get an update on the direct-to-fabric market. I'm assuming that was probably a more challenging area of the business. In 2025, it sounds like you're looking to introduce some new products into that market. How do we think about that and the timing? Is that second half '26? Or can you give us some color on that? Ronen Samuel: Yes. So indeed, 2025 wasn't a great year for the roll-to-roll business. We had higher expectations. What I can say is that we are starting the year with much stronger pipeline, first of all, with a tangible pipeline that we can convert and we feel much more confidence. Now this confidence is not only about the pipeline. It's also about the new market that we invested in 2025, specifically in the footwear market with new players that are entering this market. Part of this innovation you will see in Connection, again, about the footwear is revolutionary what we brought to this market, and this will continue to expand. On the technical market, we are getting to new market segment on the technical, and you will see some innovative applications there and the functional in the sports market, which there's some big news that hopefully will come later this year, working with some the biggest brands of the world on functional apparel that it all relates also to the roll-to-roll business. We are going to unveil some new technology, both in terms of the systems but also in terms of the process chemistry, but also some features that will enable our customers to enter to new applications, very innovative applications that till today, traditionally, was done by analog and digital can do it much faster, much better with unleashing the flexibility and better economics. So we are much more confident that 2026 will be a year that we will start to see a very nice growth on the roll-to-roll business. And definitely, late second half of the year and getting into 2027, this is where we would expect to see acceleration in this market. James Ricchiuti: Can you talk about the -- there were some targeted price increases, I think, that the company called out in the last earnings call. Were those fully realized in Q4? Or will there be some benefit from that in the early part of 2026? Assaf Zipori: So this is a gradual process that the company is evaluating and executing. I think that we remain committed to the guidance that we've given and everything is reflected within that guidance. So yes, that's... Ronen Samuel: Yes, I would just say, as we mentioned in the last call, we implemented a small price increase to our installed base due to the tariffs. We already implemented it, and we are running it at the beginning of the year. Overall, the market received it with fully acceptance, and we are running and it's baked into the model. James Ricchiuti: Okay. And one last question, just a quick one. In '26, would you expect more activity with new customers or just greater multiunit deployments with existing given some of the traction you saw with new customers last year? Ronen Samuel: It is a mix. We -- as I mentioned, in 2025, 40% of dealers were with new customers. Almost every one of them, we expect to grow in 2026. So it will be repeated itself on top of some of our key customers that continue to grow if it's for upgrade, if it's for additional systems. But our focus is, of course, on penetrating the screen market and penetrating in the roll-to-roll into new markets. By definition, penetrating to the screen market and the roll-to-roll mostly will come from net new customers. So we expect many net new customers adding into 2026. And of course, later on, each one of them can take multiple systems. Operator: Next question is from Chris Moore from CJS Securities. Christopher Moore: So obviously, the shift to AIC slows the revenue growth near term, talking about low single digits today. Given where you sit and the pace of progression on ARR, likely 2 to 3 years before that annual revenue growth starts to pick up? Or just kind of any thoughts on how you're looking at that? Ronen Samuel: Yes. So first of all, look, the ARR by itself is $25 million ending this year is a major milestone. It's starting to be also significant in terms of revenue per quarter, and we ended the year with $50 million of revenue. This revenue has higher -- is accretive in terms of gross margin to the mix of the gross margin. And we expect that this growth margin will expand as the program will continue to grow. So it will have a major contribution both in revenue, gross margin, but the predictability is very important. Each one of those deals usually is being signed for 5 years commitment. So we have 5-year horizon of those deals. So with a clear commitment. And the ARR that we are reporting is the minimum commitment on the contract. Of course, customers can print more impression and deliver additional. So this is a significant milestone. Now we believe that we will start seeing a faster growth in the top line revenue once the AIC or the ARR will reach around $50 million. So now we are at $25 million. When we will reach to the $50 million of the ARR, the AIC revenue will be such so significant that we will start to see acceleration on the top line versus where we see today. Christopher Moore: Got it. That's helpful. What about -- from a geographic standpoint, geographic mix, do you expect your revenue to be much different 2 to 3 years from now? Ronen Samuel: No. We still see the fastest growth in the Americas, specifically North America. While it's the largest territories and work in revenue, it's also the fastest growing territories for us. We see that EMEA is catching up. And now with the new technologies that we are bringing both on the DTG and the roll-to-roll, we expect to see some acceleration in Asia, specifically around the footwear, specifically around the sports market and technical market. But in the next 2 to 3 years, Americas will continue to lead and probably will continue to be the fastest-growing region for us. Christopher Moore: Got it. Helpful. Last one for me is just are you hearing anything in terms of competitors looking to create similar AIC model? Ronen Samuel: We have some rumors. We have competitors saying that they can provide it as well. Tangibly, we don't see it. We think that it will be very difficult for them from a cash flow perspective to go forward with it. This is -- AIC is not just a financial model. It's a change of DNA. There's a ton of tools around it. There's a lot of AI to support it. There's a change of the entire mindset of the service organization and support and customer success. We are much stronger today as a team, as an organization, in terms of ways that we are supporting our customers. We're getting great feedback on the TCE reports for our customers about the way we're supporting them, that we are much more proactive. This model forced us to be in partnership with our customers only when a customer is being successful, we are successful. When they are printing more, we are earning more. So it's holding hand together. We don't see this capability from any other company in the market, and we don't see it as of today. We might see it in the future. Operator: The next question is from Tavy Rosner from Barclays. Tavy Rosner: I wanted to welcome Assaf and welcome back, Andy. It's great to have you back with the company. Two very quick ones. Most of them have been asked. I wanted to ask about footwear. How do you see the market as an opportunity? And what are the solutions that Kornit had to address the opportunity? Ronen Samuel: Tavy, great to hear from you again. And the footwear is a new market for Kornit. Kornit is the only company that's innovating in the footwear in the digital space. I can tell you that we had major meetings with some of the leading sports brand around the world, and they are super impressed with the capabilities that we are bringing to the market. We're actually enabling the footwear, specifically the sports footwear to become -- to unleash the creativity to produce any type of footwear in terms of design without the limitation of quantities. You will see it in Connection. You will see the type of design that we are creating and the things that being sold today, there are more than 1 million pairs of shoes that are already being sold today in the market. And in terms of market opportunity, we believe the opportunity in front of us is something like 2 billion impressions in this footwear that we can capture. We see consistent growth within my customer, both in terms of utilization of the system, the production, but adding more capacities and our funnel and pipeline is getting stronger and stronger. Operator: There are no further questions at this time. I would like to turn the floor back over to Mr. Ronen Samuel, CEO, for closing comments. Ronen Samuel: Okay. So thank you. And before we close the call, I really want to thank, first of all, the entire Kornit team, also, our customers, the partnership that we have with customers and all the partners that help us to make 2025 a year of many achievements. While there are certainly more work to ahead, we are very much focusing on the work ahead. I'm truly excited about what we have accomplished as a team together in 2025, and I'm really looking forward for 2026 into those areas that I mentioned in the call. I would like to thank for all your support and being on this call, and I would like to remind all of you that we are looking forward to see you at Connection in April. It will be a milestone event and there will be Kornit before and after. So looking forward to see all of you. Thank you very much. Andrew Backman: Great. Thank you, Ronen. Thank you, Assaf. And thank you all for joining us today. As always, please reach out to me directly should you have any follow-up questions. And as Ronen said, we are looking forward to seeing everybody at Connections in April. Sati, can you close the call, please? Thank you. Operator: Certainly. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.