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Operator: Good day, and welcome to Youdao's Fourth Quarter 2025 and Full Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead. Jeffrey Wang: Thank you, operator. Please note the discussion today will contain forward-looking statements related to the future performance of the company, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain company filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2025 fourth quarter and full year financial results news release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management are Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, our President; Mr. Peng Su, our Senior VP; and Mr. Wayne Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction. Feng Zhou: Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are denominated in renminbi, unless otherwise stated. In the fourth quarter, both net revenues and cash flow showed strong improvement. Net revenues reached RMB 1.6 billion, a 16.8% year-over-year increase. This growth was primarily driven by the Learning Services segment returning to a growth trajectory, combined with the sustained strong performance of our online marketing services. Net cash flow from operating activities for the quarter was RMB 184.2 million, up 16.4% year-over-year. Our operating profit for the fourth quarter was RMB 60.2 million, marking our sixth consecutive quarters of operating profitability, representing an increase of 113% quarter-over-quarter and a decrease of 28.5% year-over-year. For the full year 2025, our key financial performance demonstrated positive momentum across the board. Total net revenues for the year reached RMB 5.9 billion, an increase of 5% year-over-year. Operating profit grew to RMB 221.3 million, up 48.7% year-over-year. Notably, 2025 marked the first year we achieved full year net cash flow -- net cash inflow from operating activities totaling RMB 55.2 million. This compared with a net cash outflow of RMB 67.9 million in 2024. This milestone reflects continued improvements in our competitiveness and operating efficiency and fulfills the financial objectives we set at the beginning of the year. I will now walk through the performance of each business line during the fourth quarter. Starting with Learning Services. Fourth quarter net revenues reached RMB 727.2 million, representing a 17.7% year-over-year increase. This performance reflects a clear return to growth following the successful completion of our strategic restructuring. Within the segment, digital content services contributed RMB 436.1 million, up 12.2% year-over-year. Youdao Lingshi continued to perform well with revenue surging over 40% year-over-year. Retention rates exceeded 75%, representing an improvement of approximately 5 percentage points. These results demonstrate meaningful progress in both scale and user satisfaction. Technological innovation remains central to our product competitiveness. During the quarter, Youdao Lingshi was recognized by CNR as the "2025 Industry Benchmark Education Group." This recognition affirms our leadership position and reflects our continued investment in education technology. Building on the successful launch of our Chinese AI Essay grading feature, we plan to introduce an English AI Essay grading tool in the near future, powered by our proprietary large language model, Confucius and aligned with rigorous examination standards. This tool is designed to help students improve their writing proficiency and quality. Our programming course also delivered strong results. Continuous product upgrades drove a 50% year-over-year increase in gross billings for the fourth quarter, supported by retention rates above 75%. Importantly, student achievements remain a key measure of success. In 2025, hundreds of our students achieved top results in the NOIP and the CSP-J and -S finals, validating the quality and effectiveness of our programming curriculum. Within the Learning Services segment, AI-driven subscription services delivered particularly strong performance. Fourth quarter sales exceeded RMB 100 million, representing an over 80% year-over-year increase. For the full year 2025, total sales approached RMB 400 million, a record high with annual growth exceeding 50%. This growth reflects both the expansion of our product portfolio and sustained demand for high-quality AI-powered apps. We're driving this momentum through 2 primary avenues. First, we are expanding into new market segments through innovative applications. In 2025, we launched Scholar AI, an integrated AI-powered plagiarism detection and writing refinement application. In the fourth quarter, its sales doubled quarter-over-quarter. We have also recently entered into an official partnership with Turnitin, the global leader in academic and research integrity, which we expect to further accelerate adoption. Second, we continue to enhance our core applications. The AI simultaneous interpretation feature within Youdao Dictionary and Youdao Desktop Translation achieved over 100% year-over-year sales growth in the fourth quarter. These innovations were recognized with multiple industry awards, including QubitAI, "Outstanding AI Product" and "China AI Product of the Year." Turning to online marketing services. Fourth quarter net revenues reached RMB 660.9 million, up 37.2% year-over-year. Growth was driven by increased demand from the NetEase Group as well as overseas markets, supported by our continued investments in AI technology. This growth was broad-based across multiple verticals. In gaming, stronger collaboration with NetEase Group and expansion of third-party clients drove a 50% year-over-year increase in advertising revenue. At the same time, we are capitalizing on the AI boom. Rapid advances in large language models have fueled marketing demand for many high-growth AI apps. By positioning ourselves early as a preferred marketing partner in this trend, we achieved significant gains in client acquisition, resulting in revenue growth of over 50% for the quarter. International performance was also strong. Overseas KOL revenues increased by more than 50% year-over-year in the fourth quarter. In 2025, we successfully executed campaigns in over 50 countries. Our global capabilities were recognized by TikTok for Business, which named Youdao Ads as its "2025 Influencer Agency Game Industry Pioneer List", TikTok for Business 2025, further reinforcing our leadership in global digital marketing. Gross margin for the online marketing segment was 27.8% in the fourth quarter, representing a 2 percentage point sequential improvement despite a year-over-year decline. This reflects 2 deliberate strategic choices. First, we prioritized client acquisition with new clients accounting for approximately 30% of our advertisers this quarter. While margins are typically lower during onboarding, these partnerships provide a foundation for long-term value creation. Second, we are beginning to see margin expansion from technological upgrades. The launch of our second-generation AI Ad Placement Optimizer, which integrates automated creative production has begun to improve both advertising efficiency and profitability. In the Smart Devices segment, fourth quarter net revenues were RMB 176.5 million, down 26.6% year-over-year. We continue to focus on improving this segment's overall operational health and made significant progress in 2025. Our flagship Youdao Dictionary Pen remained the top-selling product on JD.com and Tmall during the November 11 shopping festival for the sixth consecutive year. Meanwhile, we continue to enhance the Youdao Tutoring Pen launched earlier in 2025, adding features such as intelligent knowledge cards and upgraded AI-powered video explanations. Since launch, the system has generated over 600,000 videos. User engagement has been encouraging with active users accessing tutoring features more than 10 times per day in the fourth quarter. In summary, 2025 has been a year of comprehensive progress driven by our AI-native strategy. From the strong performance of our advertising business enabled by the AI Ad Placement Optimizer to improve user retention and engagement across our learning services, we have demonstrated that technological innovation translates directly into user value and commercial results. Our expanding portfolio of AI subscription and device products, including Youdao simultaneous interpretation, Scholar AI, Anydub and the AI Tutoring Pen have broadened our reach to new user segments. Financially, we maintained strong discipline, delivered meaningful profitability growth and our first ever full year of net operating cash inflow. This milestone underscores the sustainability and resilience of our business model. Looking ahead, we remain firmly committed to our AI-native strategy with a clear focus on advancing our learning services and advertising businesses. We will continue developing high-performance vertical large language models tailored to user needs while actively capturing emerging opportunities such as AI Agents, which significantly expand the potential for application-layer innovations and data-driven value creation. Through these efforts, we aim to deliver differentiated user experiences while driving long-term sustainable growth. We're not just participating in the AI transformation. We are building the foundation for sustained intelligent growth. With that, I will turn the call over to Su Peng for a more detailed discussion of our financial results. Thank you. Peng Su: Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from the fourth quarter and the full year of 2025. We encourage you to read through our press release issued earlier today for further details. For the fourth quarter, total net revenue were RMB 1.6 billion or USD 223.7 million, representing a 16.8% increase from the same period of 2024. Net revenue from our learning services were RMB 727.2 million or USD 104 million, representing a 17.7% increase from the same period of 2024. This year-over-year increase was primarily driven by the strong sales performance of AI-driven subscription services compared with the same period of 2024. Net revenue from our smart devices were RMB 176.5 million or USD 25.2 million, down 26.6% from the same period of 2024, primarily due to the decline in demand of smart learning devices in the fourth quarter of 2025. Net revenue from our online marketing services were RMB 660.9 million or USD 94.5 million, representing a 37.2% increase from RMB 481.7 million for the same period of 2024. This year-over-year increase was mainly attributable to the increased demand from the NetEase Group and overseas markets, which was driven by our continued investment in AI technology. For the fourth quarter, our total gross profit was RMB 705.4 million or USD 100.9 million, representing a 10.1% increase from the fourth quarter of 2024. Gross margin for learning services was 62.5% for the fourth quarter of 2025 compared with 60% for the same period of 2024. Gross margin for smart devices was 38.1% for the fourth quarter of 2025 compared with 43.9% for the same period of 2024. Gross margin for online marketing services was 27.8% for the fourth quarter of 2025 compared with 34.2% for the same period of 2024. For the fourth quarter, our total operating expense was RMB 645.2 million or USD 92.3 million compared with RMB 556.6 million for the same period of last year. Looking at our expense in more detail. Sales and marketing expense for the fourth quarter of 2025 were RMB 437.1 million compared with RMB 381.8 million in the fourth quarter of 2024. Research and development expense for the fourth quarter of 2024 were RMB 142.6 million compared with RMB 120.7 million in the fourth quarter of 2024. Our operating income margin was 3.8% in the fourth quarter of 2025 compared with 6.3% for the same period of last year. For the fourth quarter of 2025, our net income attributable to ordinary shareholders was RMB 48.2 million or USD 6.9 million compared to RMB 83 million for the same period of last year. Non-GAAP net income attributable to ordinary shareholders for the fourth quarter was RMB 58.7 million or USD 8.4 million compared with RMB 99.8 million for the same period of last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the fourth quarter of 2025 were RMB 0.41 or USD 0.06 and RMB 0.4 or USD 0.06, respectively. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the fourth quarter were RMB 0.5 or USD 0.07 and RMB 0.49 or USD 0.07, respectively. Our net cash provided by operating activities were RMB 184.2 million or USD 26.3 million for the fourth quarter. Turning to our full year results. Our total revenue for 2025 increased by 5% to RMB 5.9 billion or USD 845 million. Net revenue from our learning services for 2025, down by 4.2% year-over-year to RMB 2.6 billion or USD 376.2 million. Net revenue from our smart devices for 2025, down by 18.2% year-over-year to RMB 739.6 million or USD 105.8 million. Net revenue from our online marketing services for 2025 were up 28.5% year-over-year to RMB 2.5 billion or USD 363 million. Total gross profit for 2025 were RMB 2.6 billion or USD 374.2 million compared with RMB 2.7 billion in 2024. Total operating expense for the 2025 decreased to RMB 2.4 billion or USD 342.6 million compared with RMB 2.6 billion in 2024. Net income attributable to ordinary shareholders for the 2025 were RMB 107.3 million or USD 15.4 million and basic and diluted net income per ADS attributable to ordinary shareholders for 2025 were RMB 0.91 or USD 0.13 and RMB 0.9 or USD 0.13, respectively. For 2025, net cash provided by operating activity was RMB 55.2 million or USD 7.9 million compared with net cash used in the operating activity of RMB 67.9 million, 2024. Looking at our balance sheet as of December 31, 2025, our contract liability, which mainly consists of the deferred revenue generated from our learning services were RMB 847.7 million or USD 121.2 million compared with RMB 961 million as of December 31, 2024. At the end of the period, our cash, cash equivalents, current and noncurrent restricted cash and short-term investments totaled RMB 743.2 million or USD 106.3 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Brian Gong with Citi. Brian Gong: Congratulations on decent results. So can management share your thoughts on 2026 outlook and across different business lines? Yes. Feng Zhou: Yes, I will take the question. So our overall goal for 2026 is to continue serving our users and customers with more innovative and competitive products while growing the business at a sustainable and healthy manner as always. So a key foundation supporting these objectives is our AI-native strategy while -- which enhances our ability to innovate and compete effectively across our learning services and advertising businesses. So let me provide additional details across our business lines. So first on the online marketing services. In 2025, online marketing revenue grew by 29% to RMB 2.5 billion. So in 2026, we plan to continue to focus on key growth areas by deploying more innovative solutions to capture favorable industry tailwinds. So we are seeing strong momentum in marketing demands across sectors such as AI applications, gaming and also areas like short-form drama content. To capture these opportunities, we will continue to leverage advanced AI capabilities, including our AI Ad Placement Optimizer, which we will release our version 2 shortly and iMagic Box alongside programmatic advertisement and [ KOR ] marketing solutions. So these initiatives, we believe, will help us further improve targeting precision and conversion efficiency for our customers. So our goal remains clear to deliver higher ROI for advertisers while providing a superior content experience for our users. Second, for learning services, we completed the restructuring of our online courses business by the end of 2025, as you already know. And we expect the Learning Services segment to return to around double-digit year-over-year growth in 2026. So encouragingly, the segment already achieved 18% year-over-year growth in the fourth quarter. So that's very good to see. So in terms of more details, Youdao Lingshi remains the centerpiece of our learning ecosystem. So in 2026, we will continue to leverage the stronger and stronger capabilities of our language model, Confucius, to drive product innovation and service enhancements in Youdao, using AI to unlock new opportunities to user acquisition and engagement. So the second pillar of our learning services is AI-driven subscription services, which have been growing very rapidly. So total sales reached approximately RMB 400 million, representing an increase of over 50% year-over-year in 2025. So the launches of new products, Youdao Anydub, Youdao [indiscernible] and Scholar AI [indiscernible]. These new products were well received, so driving a record high revenue in this segment. So looking ahead, we believe 2026 will be a very important year for AI agents, which are more advanced AI systems capable of actually completing complex tasks and delivering more value to users. So we believe this industry trend plays to Youdao's strength as we have a long track record of successfully developing user-centric applications. So we plan to continue introducing new AI applications and agents to expand our services and portfolios this year, enhancing user engagement and strengthening our business models, which we expect will support sustained revenue growth. Thirdly, on smart devices. For this segment, our priority is to continue improving the overall health of the business. This year, we remain focused on 2 core products, the dictionary Pen and the tutoring Pen, deepening our presence in STEM learning scenarios to address user's critical pain points. In summary, we see very meaningful opportunities across both the learning services and advertising segments, and we are well positioned to capture them. Our experienced teams and strong execution capabilities in applying AI technologies, they will enable us to continuously enhance our products and services. We will continue leveraging all our strengths in 2026 to better serve our users and customers while driving sustainable long-term growth. Yes. Operator: Your next question comes from the line of Brenda Xiao with CICC. Brenda Zhao: Congrats on achieving another solid quarter. I just have a quick follow-up on the Youdao Lingshi business because last year, Youdao Lingshi made positive progress. And what's the plan and outlook for 2026? Can the management give us more details? Peng Su: This is Su Peng. I will handle the questions. And yes, heading into the 2026, we are -- first, we are very confident about the future growth of Youdao Lingshi business. because of the outcome of the insurance customers in 2025 and also the upgrade features of Youdao Lingshi's AI functions and which pushed the retention rate to over 75%, just like Dr. Zhou shared with this information with you and in the previous comments. And I think for the 2026, our strategy is in 2 ways, product refinement and efficient customer acquisition. The first, the AI is core building differentiated competitive edge, we believe. We remain to commit our unique AI interactive class service model. We will continue to expand and polish our AI features, ensuring that the technology truly serve the learning outcomes. Leveraging the power of our large language model Confucius, we are making the teaching process more precise and scientific, we believe. And let's start with a little bit more details. The first is the precision diagnose and planning in our services. We will improve the accuracy of diagnosing the knowledge gaps to the generate scientific and personalized learning paths, essentially teaching students according to their attitude. Second, solving the core pain points. We are addressing the critical needs in the college entrance and prepare process with the practical features like the AI-based college admissions advisers and AI Essay grading, comprehensively elevating the users' experience and loyalty. And the next is about the dual approach we are exploring a more efficient path for the customer acquisition. First is definitely we need to highlight the organic traffic owned by Youdao. We will further activate the traffic value within our own ecosystem by deeply integrating with our apps like the Youdao Dictionary and Mr. P AI tutors as well as our smart devices like the Youdao Tutoring Pen. We can improve the acquisition perception while efficiently lowering the cost, leveraging the conversion from our existing broad user base. The new AI-driven channels, we are exploring the franchise customer acquisition channels powered by our AI features using our technology and advantage to pop up a new growth space and inject volatility into our business. In 2026, driven by the tech innovation and guided by our users' value, we expect to push the insurance business to a new height. We believe we will keep growing and keep investment in that business. I hope that answers your question. Operator: Our next question comes from Linda Huang with Macquarie. Linda Huang: So I just want to know that how does the management think about the outlook in 2026? So that's my question. Lei Jin: This is Lei Jin. In 2025, our advertising business achieved several key milestones, including the launch of Youdao iMagic Box and our AI Ad Placement Optimizer, alongside our official partnership with [indiscernible]. Those initiatives drove our online marketing revenues to a record RMB 2.1 billion, a robust 28.5% increase year-over-year. Looking ahead to 2026, we aim to drive high-quality growth by deepening our core resources and pushing our technological boundaries. First, we will double down on our international KOL business. We are capitalizing on wave of the Chinese enterprises going global, positioning ourselves as their strategic accelerator -- this remains our core stronghold. We have built a highly competitive global traffic ecosystem with 2 key pillars. First, our resource mode. We now reach over 30 million influencers and bidders globally with more than 1,000 top-tier influencers under exclusive contracts. This creates a significant barrier to entry. Second, our service track record. We have successfully helped over 1,000 companies go global, covering more than 50 countries. Our coverage is diverse as traditional stronghold like gaming, e-commerce, automotive and consumer electronics. We are also capturing emerging opportunities like short-form drama. In 2026, we will scale this further, using our resource advantage to serve more Chinese companies seeking global growth. Second, we are actively exploring overseas programmatic advertising to drive teched long-term growth. If the QR business is about human connection, programmatic advertising is an efficiency revolution based on technology. We will leverage our proprietary vertical [ AD ] model, combined with our experience and broad client base from domestic programmatic ADS to explore this market abroad. Empowered by our [ RM ], we are committed to achieve more precise traffic distribution and higher ROI. Our goal is to translate those technical capabilities into actual business increments, aiming to build a second growth curve for our overseas advertising business in the medium to long term. In summary, through the dual engines of our international KOL business and programmatic AD exploration, we expect to take our overseas advertising to the next level in 2026. Operator: Your next question comes from Bo Zhan with Huatai Securities. Unknown Analyst: I'm [indiscernible] from Hua. My question is Youdao achieved a full year positive net operating cash flow for the first year in 2025. Is the goal for 2026 to achieve a net inflow for the total cash flow. Yongwei Li: This is Wayne. I will take your question. As you know, the company's total cash flow is composed of 3 pillars: operating, investing and financing activities. Among this, operating cash flow stands as the most critical indicator of business healthy and long-term sustainably. Therefore, I would first like to address our performance and strategic objectives regarding operating cash flow. Enhancing profitability and secure positive operating cash flow were our core target for 2025. As mentioned by Dr. Zhou, we have successfully delivered on both of these goals last year. Looking ahead to 2026, our objective is to achieve faster growth in operating profit and propel our operating cash flow to a more meaningful and substantial level. Our confidence in this trajectory is rooted in 3 key drivers. First, AI-driven empowerment. The widespread integration of AI is profoundly transforming our product form and services models. In 2025, we successfully validated AI's immense potential for enhancing quality and efficiency across our business line. Second, the momentum of our core business units powered by [indiscernible] advertising and AI-driven subscription services are expected to maintain their strong momentum. This is expected to drive acceleration in the year-over-year growth of our total revenue and improvement in operating profit. Third, the continuous upgrade of refined management by optimizing credit management for our B2B operations and other key processes. We have significantly bolstered our financial resilience and risk mitigation capability. Regarding the goal of achieving a positive total cash flow, we maintain a balanced and rational stance. We will not blindly tighten expenditures [ import ]simply to reach a positive figure on paper. Instead, we will seek the optimal equilibrium between strategic investment opportunities and the cost discipline. Should strategic investment targets emerge in the market, we will move decisively to capture them. Furthermore, when cash reserves are sufficient, we will optimize our capital structure by investing in wealth management products or repaying principal on loans from our parent company. While these actions are recorded as investing or financing cash outflow, which may affect the total cash flow figure in the short term. However, they serves to increase interest income or reduce financing interest costs in the long run. Above all, we will prioritize the continuous improvement of our operating cash flow as it is the most valuable cash flow metric. Building upon this, we will also steadily advance the healthy development of our total cash flow to generate long-term value for our shareholders. Operator: Your next question comes from Xiangfei Shen with Nomura. Xiangfei Shen: Can you hear me now? Operator: Yes, we can hear you now. Xiangfei Shen: Dr. Zhou and Su, congratulations on a very solid quarter. I recall Dr. Zhou mentioned in the opening remarks, 2026 is a year of AI agent. So my question is, in what areas of Youdao business will you plan to deploy the AI agent and how significant the potential impact will be? Feng Zhou: Good to speak. So yes, so we think AI agents is an area of particular interest to us. One of the key reason is that -- so compared with the chat products, we [ refer ]the first-generation AI products. So AI agents, they operate longer. They have access to more customer and user data, and they can make deeper and more meaningful decisions regarding how to serve the customer or user better. So basically, they are more intelligent AI product that can create real value. So -- so we look at all our business to see if we have opportunity to apply this technology. So there are several we are already -- we have mentioned and we are working on. So one is the -- regarding our advertising business. So we already have the AI Ad Placement Optimizer product. So basically, there are a lot of opportunities to apply agents in ads because ads is an area where a lot of experience and a lot of data is needed to achieve good results. So before the people operating the ad systems, they contribute a lot of the value in having good results, ad results. Now we can have these agents to try different combinations to try more combinations and actually transfer more knowledge and experience between ad campaigns of the same customer or even across customer and segments to achieve better results. So this is -- this, I believe, is an area where a lot of value can be created because -- simply because the sheer volume and scale of advertising. So that's one area. So the other area, of course, is learning and productivity applications. So one example I can give is the AI simultaneous interpretation app. So it is -- so we think it is an agent application because compared with translation 5 years ago, it's very different. So it combines the voice technology together with large language model-driven translation technology. And it automatically summarizes the conversation and in the future, we will be able to take -- help users take further actions after -- either it's an online meeting or it's an online course that the user is experiencing. So basically, we think there are a lot of possibilities and combining these user scenarios with a subscription-based business model. So users are -- nowadays, the young users are very willing to pay for services on a monthly or quarterly basis over subscription. So we think if you look at the numbers, we already have RMB 400 million -- about RMB 400 million in subscription sales in 2025, we believe we still -- it's at the beginning. Yes, it's still very early. So we have a lot of room to grow this sales -- and one last thing. So today, we launched a new AI agent product, basically a little bit like open claw. So basically, 7 days 24-hour AI agent that runs on your computer and help you achieve tasks. So it's called Youdao Lobster AI. So yes, if you guys are interested I hope that answers your question. Operator: And that concludes the question-and-answer session. I would like to turn the conference over back to management for any additional closing comments. Jeffrey Wang: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly or reach out to Piacente Financial Communications in China or the U.S. Have a nice day.
Operator: Thank you for standing by, and welcome to the Healthcare Services Group, Inc.'s Fourth Quarter 2025 Earnings Conference Call. The matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group Inc. For Healthcare Services Group, Inc.'s most recent forward-looking statement notice, please refer to the press release issued this morning, which can be found on our website, www.hcsg.com. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of the annual report on Form 10-K and Healthcare Services Group, Inc.'s other SEC filings and as indicated in our most recent forward-looking statements notice. Additionally, management will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release. [Operator Instructions] I'd now like to turn the call over to Ted Wahl, President and CEO. You may begin. Theodore Wahl: Good morning, everyone, and welcome to HCSG's Fourth Quarter 2025 Earnings Call. With me today are Matt McKee, our Chief Communications Officer; and Vikas Singh, our Chief Financial Officer. Earlier this morning, we released our fourth quarter results and plan on filing our 10-K by the end of the week. Today, in my opening remarks, I'll discuss our 2025 highlights, share our perspective on the general business environment, discuss our strategic priorities for the year ahead and provide details on our new $75 million share repurchase plan. Matt will then provide a more detailed discussion on our Q4 results, and then Vikas will provide an update on our more recent contract enhancements, liquidity position and capital allocation progression. We will then open up the call for Q&A. So with that overview, I'd like to now discuss our 2025 highlights. I am extremely pleased with our fourth quarter performance, which capped a strong year for Healthcare Services Group. Against the backdrop of solid industry fundamentals, we exceeded our initial 2025 expectations for revenue, earnings and cash flow, driven by disciplined execution of our strategic priorities. Year-over-year revenue was up over 7% with our campus division reaching a significant milestone in its growth journey, achieving over $100 million in revenue. We successfully managed cost of services and SG&A within our targeted ranges, and we generated significant free cash flow. We also returned over $60 million of capital through our share repurchase program and ended the year with a strong balance sheet and ROIC profile, underscoring our focus on value-creating capital deployment. I'd like to now share our perspective on the general business environment. Industry fundamentals continue to gain strength, highlighted by the multi-decade demographic tailwind that is now beginning to work its way into the long-term and post-acute care system. In 2026, the first baby boomers will turn 80 years old. And by the year 2030, all 70 million-plus boomers will be over the age of 65, with the oldest being in their mid-80s, the primary age cohort for long-term and post-acute care utilization. We expect that the demand and opportunities for service providers in this space, especially for those with compelling value propositions, durable business models and market-leading positions to only increase in the months and years ahead. The most recent industry operating trends remain positive as well, highlighted by steady occupancy, increasing workforce availability and a stable reimbursement environment. We remain optimistic that the administration will continue to prioritize the rationalization of regulations and policy to better align with the changing and expanding needs of our nation's most vulnerable and the provider communities we service. Looking ahead to 2026, our top 3 strategic priorities remain: driving growth by developing management candidates, converting sales pipeline opportunities and retaining our existing facility business, managing cost through field-based operational execution and prudent spend management at the enterprise level and optimizing cash flow with increased customer payment frequency, enhanced contract terms and disciplined working capital management. We are optimistic about our trajectory and expect mid-single-digit revenue growth in the year ahead. We remain confident that continuing to execute on our strategic priorities, supported by our robust business fundamentals will enable us to drive growth, while delivering sustainable, profitable results. Finally, in conjunction with our earnings release, we announced the completion of our $50 million 12-month share repurchase plan, 5 months ahead of schedule. We also announced plans to further accelerate the pace of our share buybacks in 2026 and intend to repurchase $75 million of our common stock over the next 12 months. Over the past few years, we have continued to strengthen our balance sheet and expect strong cash flow generation over the next 12 months and beyond. We have demonstrated a prudent and balanced approach to capital allocation, including, first and foremost, investing in our growth initiatives. The current valuation of our shares relative to our long-term growth potential presents a compelling opportunity to return meaningful capital to shareholders through the buyback. So with those introductory comments, I'll turn the call over to Matt. Matthew McKee: Thanks, Ted, and good morning, everyone. Revenue was reported at $466.7 million, a 6.6% increase over the prior year. Segment revenues and margins for Environmental Services were reported at $210.8 million and 12.6%. Segment revenues and margins for Dietary Services were reported at $255.9 million and 7.2%. As far as the cadence of our 2026 growth, while we don't provide full year revenue guidance broken out by quarter, our 2026 growth plans are oriented as follows: Q1 revenue in the $460 million to $465 million range with a step-up in Q2 revenue and then sequential revenue growth in the second half of the year compared to the first half of the year, culminating in mid-single-digit revenue growth for the full year 2026. Cost of services was recorded at $394.6 million or 84.6%. Cost of services benefited from strong service execution, workers' comp and general liability efficiencies and lower bad debt expense. Our 2026 goal is to manage the cost of services in the 86% range. SG&A was reported at $46.2 million, but after adjusting for the $0.4 million increase in deferred compensation, SG&A was $45.8 million or 9.8%. Our 2026 goal is to manage SG&A in the 9.5% to 10.5% range based on investments that we've made and spoken about in previous quarters with the longer-term goal of managing those costs into the 8.5% to 9.5% range. The effective tax rate for the fourth quarter was reported as a 9.4% benefit and the effective tax rate for the year was reported as a 13% expense. The effective tax rates include an $8.3 million or $0.12 per share benefit related to the treatment of certain ERC receipts recognized in the third quarter. The company, in consultation with third-party experts has determined its tax position with respect to these receipts. We expect our 2026 effective tax rate to be approximately 25%. Net income and diluted earnings per share were reported at $31.2 million and $0.44 per share. Net income and diluted earnings per share included an $8.3 million or $0.12 per share benefit related to the tax treatment of certain ERC receipts as previously mentioned. Cash flow from operations was reported at $17.4 million. After adjusting for the $19 million decrease in the payroll accrual, cash flow from operations was $36.4 million. I'd now like to turn the call over to Vikas. Vikas Singh: Thank you, Matt, and good morning, everyone. Before reviewing our liquidity position and capital allocation priorities, I'll first highlight the favorable evolution of our contracts and the resulting impact on the business. Over the past few years, we have deliberately and systematically upgraded our contracts to improve both pricing mechanics and cash flow. These changes were designed to pass through cost increases with greater certainty and speed, increase payment frequency relative to monthly collections and shift from fixed monthly billings to billings based on the number of service days, the last being a particular area of focus over the past 12 months. As a result, we've seen several meaningful benefits, including improved margin visibility and stronger collection trends, which have contributed to lower days sales outstanding. One implication of the move to service day-based billing is that revenue is now more directly influenced by the number of days in a given quarter. While this has been largely beneficial, it has introduced a Q4 to Q1 dynamic that was not as pronounced historically. For example, Q4 2025 had 92 service days, while Q1 2026 has 90 days. Applied to our Q4 2025 revenue base, that difference would equate to more than $10 million. Our Q1 revenue range reflects performance above what the day count dynamic alone would imply. That's fueled by sustained momentum across the business. This outlook extends our pattern of consistent year-over-year quarterly growth and reinforces our conviction in delivering full year growth in the mid-single digits for 2026. The service day impact is not expected to be a factor in the remaining quarters of the year. Given the number of days per quarter are more evenly distributed, they're also balanced by offsetting events. So overall, while the Q4 to Q1 dynamic is a relatively recent result of contract changes that have been a strategic priority for us, we are very pleased with the overall impact these actions have had on the business and believe they position us well with a more durable and sustainable model going forward. Our primary sources of liquidity are cash flow from operating activities, cash and cash equivalents and our revolving credit facility. We wrapped up 2025 with cash and marketable securities of $203.9 million, and our credit facility of $300 million was undrawn with utilization limited to LCs only. This strong position was driven by top line growth combined with robust collections throughout the year that enabled us to reduce our receivable balance and bring down our DSOs. The increase in our cash position also reflects ERC receipts received during the year. However, we did not receive or recognize any ERC proceeds in the fourth quarter. Moreover, there can be no certainty regarding future receipts. On the capital allocation front, our 2026 priorities remain unchanged. We will continue to prioritize direct investments towards organic growth, strategic acquisitions and opportunistic share repurchases. As Ted referenced earlier, we completed our $50 million share repurchase program in January 2026, well ahead of the original 12-month time line. Those share repurchases included $19.6 million of buybacks during the fourth quarter, which contributed to our $61.6 million of share repurchases in 2025. Additionally, in February 2026, our Board of Directors authorized the repurchase of up to 10 million outstanding shares of common stock. Alongside that authorization, we announced plans to accelerate our share repurchase activity and expect to repurchase $75 million of our common stock over the next 12 months. With that, we will conclude our opening remarks and open up the call for Q&A. Operator: [Operator Instructions] Your first question today comes from the line of A.J. Rice from UBS. Unknown Analyst: This is James on for A.J. Maybe if I could just start with how you guys are potentially thinking about the revenue upside opportunity. I know mid-single digits you've been talking about for a while for this year. But just given the strong underlying fundamentals of the nursing home sector plus the cross-sell opportunities and also the growth opportunity in campus, just wanted to get your thoughts there. Theodore Wahl: Sure, James. Overall, we continued to successfully execute on our organic growth strategy, largely by developing management candidates, converting sales pipeline opportunities and retaining our existing facility business. That's really our growth algorithm. Since we operate in a largely untapped market, where the demand for the services is greater than what we're capable of managing, our growth out is largely execution based. So we do, in many respects, retain control of that growth. Our pipeline is robust and growing. We have a highly structured sales process from prospecting all the way through closing and the demand for the services is as strong as ever. So for us, as we look out over the next 12 to 18 months, James, the growth rate limiting factor is really our ability to successfully hire, develop and retain the next generation of management candidates. More than any other factor, that's going to be the catalyst for us in sustaining the new business momentum we've seen over the past year or 2 as well as related to any potential upside opportunity. Unknown Analyst: Got it. That's helpful. Maybe just one more, if I could. It looked like margins in both segments had some nice expansion. Maybe just what are your thoughts on where those could end up in 2026? Matthew McKee: Yes. James, you're right. Certainly, we saw a nice output in margins, and obviously, that was reflected in cost of services as well. And really, that comes down to what we've talked about consistently and previously, which is the primary driver being overall service execution and the recent positive service execution trends in customer experience, systems adherence, regulatory compliance, budget discipline, all of those are near-term margin drivers, and they carried into Q4, and the expectation is that they'll carry forward into 2026 as well. So that's why we're confident in our ability to continue managing cost of services in that 86% range. That said, there's always going to be month-to-month and quarter-to-quarter movement and the timing of certain items certainly had a positive impact on Q4 results in cost of services. And of course, that feeds through into the segment margins as well. You think about workers' comp and general liability efficiencies that continue to be driven by our focus and commitment to training and safety protocol that have been implemented out in the facilities, lower bad debt expense, which we've noted will likely be a bit inconsistent in the near term, but is favorably impacted by the strong cash collection efforts and the scarcity of customer bankruptcies and reorgs during the quarter. But ultimately, you bring it back and it's ultimately far outweighed by that operational execution and some of those other factors. So we've got a firm commitment to 86% as the right cost of service target. And as we mentioned, that will ultimately feed into the segment margins as well. Operator: Your next question comes from the line of Sean Dodge from BMO Capital Markets. Sean Dodge: Congratulations on the quarter and on the year. Ted, you mentioned campus Services reaching $100 million of revenue. How is that split between Environmental Services and the Meriwether Godsey side? And just how should we be thinking about -- you've been incubating this, you've gotten comfortable with it. Is there anything left to do there before you can really begin to accelerate and scale it? And I guess what's the time line around when we start to see campus services really become kind of a more meaningful factor in your growth? Theodore Wahl: It's split pretty evenly, Sean, between our CSG brand and the Meriwether Godsey brand you referenced. So we're pleased with that. It provides a strong platform for future growth. And the organic growth element is going to be critical for us. We continue to see accelerated organic growth in both of those brands. And with the concentration primarily in the Northeast, Southeast through the Mid-Atlantic and the beginning stages of a Midwest expansion, that will be, we anticipate, fueled over the next 12 to 18 months by very strategic, very intentional M&A to be able to land and expand. So to find those brands that we've talked about before that meet our criteria in a specific market, complement the growth strategy that we've laid out and then organically grow those brands with the support and the supplementation from the home office here. So we're very well positioned. That milestone is a critical milestone as we think about it, reinforces our conviction in the model and the niche we've carved out. So we're expecting continued accelerated growth in the year ahead. And then beyond, really the possibilities are very compelling and powerful. Sean Dodge: Okay. And then on cash from operations, you had a great performance in 2025, even after you strip out the ERC payments. How should we be thinking about cash from ops trajectory for 2026? You said mid-single revenue growth, you gave some margin targets. You've talked before about cash from ops approximating net income. Is that still kind of the message, the expectation for 2026? Vikas Singh: Yes, Sean, that's spot on. I think our expectation continues to be that net income is the best proxy for cash flow from operations, excluding the change in payroll accrual. And again, I think it goes back to the indication we are suggesting for the year to follow, which is mid-single-digit revenue growth, margins consistent with what we've said in the past, which is 86% cost of sales. 10% SG&A at the midpoint of our short-term target range and an effective tax rate of, give or take, 25%, which is what we've done historically and overall collections matching revenue. And that leads to an outcome, where net income will be the best proxy for what our cash flows will be going forward. Sean Dodge: Okay. And then just last on the buyback, the plan to purchase or repurchase $75 million of stock over the next 12 months. Maybe just balancing that against the M&A opportunity, buying back that amount of stock, how much does that or how much room does that give you to still do M&A? Vikas Singh: Yes. So Sean, what we've done over the last few quarters is prime our balance sheet for all our capital allocation priorities. So you would see in 2025, we've gone through the year without drawing on our line of credit. We've built up our cash balance, and now we are sitting at a balance of $200 million plus in terms of securities and cash, which is substantial. We have an undrawn line of credit. And as we think about all the priorities, focusing on organic growth, M&A, share buyback, we feel very comfortable with our liquidity position and feel confident and comfortable that we can go after all the 3 priorities without having to worry about liquidity. I think we've put our balance sheet in a spot where all those priorities can be moved forward without one compromising the other. Now that said, if we ever find ourselves in the happy spot of finding a substantial M&A, the line of credit gives us a lot of cushion. So long way of saying that we don't really see a conflict between the priorities and our liquidity. Operator: Your next question comes from the line of Ryan Daniels from William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan Daniels. And I know new business adds were a large part of the growth in 2025. But when thinking about the setup for this year, do you believe or maybe even anticipate an even larger amount of new businesses added throughout the year? And I know the timing of new businesses can vary between even months or quarters. But given the improvement in the industry and the potential of continuing, any color into how you are thinking about new business adds and the drivers of that throughout this year? Theodore Wahl: Sure, Matthew. We highlighted that in 2026, we're expecting mid-single-digit revenue growth along the lines of the cadence that Matt described in his opening remarks, and you referenced timing, but as always is the case, the timing of new business adds is a factor, and that can be fluid quarter-to-quarter, knowing there's always a subset of opportunities intra-quarter that could be pushed out or pulled forward. You think about the difference between starting a new opportunity on March 1 as opposed to April 1, maybe insignificant on a year-over-year basis, but that could be meaningful to a given quarter. Again, that's why our mid-single-digit guidance is really based off annual growth expectations, whereas our quarter-to-quarter estimates are ranges that are intended to provide that additional near-term visibility. So again, in terms of driving that organic growth, I referenced it earlier, but our growth algorithm is very straightforward. It's execution-based. And with the pipeline that we've built, which is robust and the retention trends that we're seeing in that 90% plus range, the key for us in driving organic growth is going to be executing on that management development strategy, hiring, developing, retaining and then making sure that there's balance throughout the organization. Each of those components I referenced is supported by best-in-class leadership, systems, procedures in each of the divisions as well as the service center providing administrative support here, but the execution is region by region, area by area. And we're more convinced than ever that the decentralized approach puts us in the best position to -- in a very bottoms-up type of way, deliver on that mid-single-digit growth expectation certainly over the next 12 months, but perhaps most importantly, over the next 3 to 5 years as we think about the longer-term outlook. Matthew Mardula: Got it. And then how have the services you have performed in the skilled nursing facilities compared to the other facilities you have performed at this year? Were just all types of facilities performing better than expectations? Or are there any certain ones performing better than others that need to call out from last year? And then also just kind of looking ahead to 2026, do you expect similar trends to persist or any changes in growth regarding facility types, especially with any color with the skilled nursing facilities? Matthew McKee: Yes. I would say, Matthew, from the previous comments that I made with respect to the strong performance in cost of services and the impact that, that's had on gross margin, our service execution across really all service segments and customer types, inclusive of facility types remained remarkably consistent throughout the course of 2025. That's absolutely our expectation going forward in 2026 as well. We certainly don't take that for granted. There's a heck of a lot of effort that goes into implementing our systems and most importantly, adhering to our systems at the facility level to not only deliver relative to budget and to deliver the margin and cost of services that we're anticipating. But more importantly, to do so within a framework that allows for a high degree of operational execution, client satisfaction and all of those other really important elements that are critical to our success at the facility level. So really strong performance across all verticals and segments, and the expectation is absolutely that, that continues throughout the course of 2026 and beyond as well. Operator: And we have reached the end of our question-and-answer session. I will now turn the call back over to Ted Wahl for closing remarks. Theodore Wahl: Okay. Great. Thank you, Rob. As we enter 2026, our 50th anniversary, the company's underlying fundamentals are more robust than ever. Our leadership and management team, our enhanced value proposition, our business model and the visibility we have into that model, our training and learning platforms, our KPIs and key business trends and our strong balance sheet. And with the industry at the beginning of a multi-decade demographic tailwind, we are incredibly well positioned to capitalize on the abundance of opportunities that lie ahead and deliver meaningful long-term shareholder value. So on behalf of Matt, Vikas and all of us at Healthcare Services Group, Rob, thank you for hosting the call today, and thank you again, everyone, for participating. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Eric Linn: Greetings. And welcome to the Mirion Technologies Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Eric Linn, Treasurer and Head of Investor Relations. Thank you, sir. You may begin. Okay. Thank you, Melissa. Eric Linn: Good morning, and welcome to Mirion Technologies' Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me this morning are Mirion Technologies' Founder, Chairman and CEO, Thomas Logan, and Mirion Technologies' CFO and Medical Group President, Brian Schopfer. Before we begin today's prepared remarks, allow me to remind you that comments made during this call will include forward-looking statements, and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in our annual reports on Form 10-K, quarterly reports on Form 10-Q, in Mirion Technologies' other SEC filings, under the caption Risk Factors. Quarterly references within today's discussion are related to the fourth quarter ended 12/31/2025, unless otherwise noted. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying today's call. All earnings materials can be found in the Investor Relations section of our website at www.mirion.com. With that, let me now turn the call over to Thomas Logan, who will begin on Panel three. Eric, thank you, and thanks to everyone for joining the call today. Thomas Logan: 2025 was a strong year for Mirion Technologies, and it would not have been possible without the hard work, the energy, and the dedication of the entire Mirion Technologies team. And I thank you all for your efforts and results. We booked record orders in 2025 totaling more than $1 billion. This was largely driven by the nuclear power market strength we've been highlighting throughout the year. This includes $150 million from our large opportunity pipeline. Favorable macro conditions in both nuclear power and nuclear medicines supported meaningful growth in 2025. Nuclear power organic revenue grew more than 11% in the year while nuclear medicine organic revenue grew more than 13%. Both of these end markets are expected to enable double-digit organic growth coming into 2026. As you may recall, in 2025, we articulated a strategic priority to increase our nuclear power exposure. To that end, we acquired CERTREC in July, and in December, we closed on the acquisition of Paragon Energy Solutions. Both of these acquisitions augment our North American nuclear power exposure and take our nuclear power revenue to roughly 40% of the total. Importantly, this revenue accrues from fuel cycle, new plant construction, plant operations, and decommissioning. Thus, we cover the breadth of the century-long cradle-to-grave lifespan of a modern large-scale reactor. Importantly, approximately 80% of our revenue comes from the installed base, which is being both pushed and economically incentivized to life extend, operate, and modernize. Driving an attendant increase in demand for the solutions Mirion Technologies provides. We believe this dynamic is robust and not dependent upon any particular view on new build or SMR dynamics given the profound shortage in generating capacity in most developed markets. New builds and SMRs should be thought of as attractive incremental opportunities on top of the flow from the operating fleet and we remain highly bullish on this sector. These key themes are expected to further evolve in 2026. Our large opportunity pipeline is growing and is expected to support favorable order dynamics in the year. We have a right to win on more than $400 million of large opportunity projects that are expected to be awarded in 2026 inclusive of $200 million of projects carrying over from the 2025 pipeline. Lastly, on this panel, I note our 2026 full-year guidance, which reflects the strong fundamentals underpinning our forecast, supporting growing revenues, expanding margins, and enhanced adjusted free cash flow. I'll detail a few of these points beginning on Panel four. As mentioned, we booked a record nearly $1.1 billion of orders in 2025. This represents a 26% increase versus 2024. 2025 order growth plus the addition of Paragon's backlog resulted in a 36% increase in our backlog versus last year. The nuclear power end market demonstrated the strongest growth supported by $150 million from our large opportunity pipeline. This was followed by $34 million of defense and diversified end market orders principally out of The US and with NATO. These two factors were partially offset by a decline in labs and research end market orders. As I mentioned in our last call, DOGE and the lengthy forty-three-day government shutdown negatively impacted DOE orders in Q4. Our Medical segment also faced some headwinds in 2025 largely due to tough comps from the prior year coupled with transitory macro headwinds. To elaborate, nuclear medicine orders increased 31% in 2024 making for a difficult comp in 2025. Despite this, nuclear medicine orders were down only 6% in 2025. The symmetry orders grew 19% last year due to a large hardware order booked in 2024, making for a tough comp. In 2025. RTQA full-year orders were lower versus 2024. Due to a sluggish Japanese market and negative capital spending dynamic in The US healthcare market. On panel five, we summarize our performance compared to 2025 guidance. Top-line performance was softer than guidance due to the RTQA and lab and research weakness. Despite the revenue miss, adjusted EBITDA was on target and demonstrated expanding margins. In addition, free cash flow was more than twice 2024's performance and beat guidance from both an absolute and conversion ratio standpoint. Adjusted EPS was $0.46 slightly below guidance between $0.48 and $0.52 largely due to tax dynamics. Panel six addresses key drivers for the labs and research and RTQA end markets. Believe that 2025 headwinds reflected demand deferral rather than a secular change in the market. More specifically in labs and research, DOGE and the government shutdown represent one-time impacts that are expected to equilibrate. In RTQA, the fundamental market growth drivers continue to apply. Notably an aging population demographic in developed economies, and an increased push for higher standards of care in developing economies are both expected to lead to overall demand growth. Our RTQA and nuclear medicine solutions benefit from this dynamic and comprise around 75% of the segment's revenue. Panel seven demonstrates our strong historical track record. We've delivered double-digit five-year revenue and adjusted EBITDA CAGRs of 11-12% respectively. Moreover, adjusted free cash flow strengthened dramatically in 2025 doubling last year's performance and achieving our 2026 conversion target a year early. We expect to make continued progress on all of these KPIs in 2026. 2026 performance will be augmented by the recent acquisition of Paragon CertRec discussed on panel eight. We are broadening our exposure to our most dynamic vertical with these two deals and are confident the integration campaign. Both acquisitions immediately broaden Mirion Technologies' presence in the North American nuclear power market, substantially enhanced customer intimacy, and represent a significant opportunity for us to take their capabilities global by leveraging our strong international presence. Similar to Mirion Technologies, most of Paragon and CertRec's revenue comes from the operating fleet. However, both acquisitions strengthen our position in the rapidly evolving SMR space. Both Paragon and CertRec are the tip of the arrow with SMR developers. Supporting licensing, regulatory guidance, and reactor instrumentation design. This has immediately improved the top-of-funnel opportunity set for Mirion Technologies as a whole and increases drag alarm traction. For legacy Mirion Technologies solutions. We now have contractual commitments in place with more than 20 SMR developers and our reach is expanding. We're working hard to run the tables to land and expand our position with all key players. Eric Linn: As you can see on this panel, we have quantified attractive synergy opportunities Thomas Logan: and are moving ahead rapidly. In 2026, we will move beyond foundational work such as finance, HR, and IT integration, and shift our focus to material synergy drivers like commercial integration, improved pricing heuristics, and supply chain optimization. In the case of the latter, we saw nearly 100 basis points of adjusted EBITDA margin improvement in 2025 alone, from procurement process improvement in legacy Mirion Technologies. We believe much of the work we're doing in this space will translate well to both the Paragon and CertRec business models. Looking further out, commercial leverage and AI-informed product evolution represent the tail of the integration opportunity set. And we are increasingly enthusiastic about the potential. Paragon also contributes to our large opportunity project pipeline. Panel nine illustrates that at this time, we see more than $400 million of large opportunities with the potential to transact in 2026. The chart identifies $200 million plus of new large projects on top of the $200 million of carryover. From 2025. Notably, nearly half of these new opportunities come from Paragon. While these projects are definitionally $10 million or higher, the broader nuclear power space continues to support growth opportunities for 10 shows headlines from just the past month or so. Whether it's an $80 billion deal for new nuclear power plants in The US, or new hyperscaler partnerships, the momentum in the market continues to build. It is abundantly clear that power availability is becoming increasingly critical to the global economy. Panel 11 illustrates that by 2035, nearly a third of all data centers are expected to exceed one gigawatt compared to only 10% of data centers today. For reference, each one-gigawatt data center campus uses about a fifth of New York City's entire electrical load. Power generation and grid are increasingly becoming the bottlenecks for data center growth and nuclear power is likely to remain a critical component of the long-term solution. Before I turn it over to Brian Schopfer to walk through the financials, allow me to detail our 2026 guidance on panel 12. The headlines here are growing revenues, expanding margins, and increasing adjusted free cash flow. 2026 total revenue is expected to grow between 22-24%. This includes tailwinds from FX and acquisition-related growth from CertRec and Paragon. Absent these tailwinds, you arrive at our 2020 organic revenue growth guidance of between 5-7%. Adjusted EBITDA guidance is between $285 million and $300 million. This equates to adjusted EBITDA margins between 25-26%. And this margin range represents approximately 90 basis points of margin expansion expected for the year, notwithstanding the dilutive margin impact from the Paragon deal. We expect to help Paragon become margin accretive within our planning horizon, again, as we capture clearly identified synergies. 2026 adjusted free cash flow should range from $155 million to $175 million. This expected growth is attributable mainly to the full-year impact of growing earnings and capital structure improvements, which will more than offset a modest increase in expected CapEx to fund AI and other critical strategic initiatives. Finally, 2026 adjusted earnings per share should range from $0.50 to $0.57. This includes an expected $275 million fully diluted shares reflecting a full year's impact from the related capital raise in September 2025. Also new this year, we are now including stock-based comp, within our adjusted EPS. If you were to exclude us similar to last year, our 2026 midpoint guidance would have been $0.61 or $0.07 higher. Brian Schopfer will share more details on this and the broader financials. Brian Schopfer: Thank you, Thomas Logan, and thank you all for joining our call. I'll review the detailed financial results beginning on slide 13. Fourth-quarter enterprise revenue grew 9% to $277.4 million. Compared to the prior year's fourth quarter of $254.3 million. Over half of the year-over-year improvement came from M&A. Both Paragon's December results and a full quarter of CertRec are reflected in the numbers. FX was a tailwind to total Q4 revenue. Contributing 3.4% of the 9% increase versus Q4 2024. As a reminder, about 36% of our 2025 revenue is euro-denominated. Fourth-quarter organic growth was 0.5%. Negatively impacted by tough comps within both segments as we highlighted on last year's fourth-quarter call. The nuclear and safety segment organic growth in 2024 was 13.9%, making for a tough comp. In medical, nuclear medicine was up 21% in Q4 2024, while dosimetry was up 14%. In Q4 2024. Adjusted EBITDA was $77.6 million, up 11.5% versus Q4 2024. Adjusted EBITDA margins expanded 60 basis points despite margin dilutive impact from Paragon being included for December 2025. Our largest month. Excluding Paragon, adjusted EBITDA margins would have been 28.6%, or 120 basis points higher than last year. Q4 adjusted EPS was $0.15 or $0.02 lower than Q4 2024. This reflects the addition of approximately 30 million shares to our diluted share count from the convertible notes and approximately 20 million from the weighted impact of the equity raise supporting the Paragon acquisition that we did at the end of Q3. We've included a slide in the appendix that illustrates how the converts work at different stock prices. Q4 adjusted free cash flow was $78 million contributing to a full year's $131 million adjusted free cash flow generation, and 57% conversion. Full-year performance outperformed the 2025 initial guide. Q4 orders increased 62%, reflecting $140 million large opportunity orders awarded in Q4 from the nuclear power end market. Even excluding these orders, our Q4 order book was strong at up 11%. Slide 14 showcases key nuclear power metrics for the year. Adjusted nuclear power orders grew 52% in 2025. This excludes any acquisition-related orders as well as the Turkey debooking last year. The grid power order growth was supported by all three verticals. New utility-scale reactors, the installed base, and SMRs. For instance, we booked $39 million of SMR-related orders in 2025 compared to $17 million in 2023 and 2024 combined. This momentum continued into 2026, where we've already seen approximately $10 million of SMR orders just in January. Nuclear power end market organic revenue grew 11% for the year. Compared to 4.4% for the collective nuclear and safety segment. The nuclear power end market organic revenue growth is expected to post double-digit growth again in 2026. Slide 15 has the Q4 order book details. As mentioned, we booked $140 million of large orders including the $55 million Asia installed base order disclosed on our October earnings call. Outside of nuclear power, our defense and diversified end markets saw a doubling of orders primarily in The US and with NATO. in Q4, Medical segment orders declined in the quarter. Recall, we had tough comps in both the nuclear medicine and dosimetry end markets. Slide 16 bridges our large opportunity pipeline. Thomas Logan covered much of this in his prepared remarks already. Here, you can see how we arrived at the $200 million of previously communicated large opportunities that make up a portion of the more than $400 million pipeline. Timing is always the wildcard here. And we believe our right to win is strong on all these projects. Let's get into the P&L on slide 17. We'll focus on full-year results since we detailed Q4 already. Full-year revenue totaled $925.4 million up 7.5% versus 2024. More than half of the growth is organic. The rest comes from equal parts M&A and FX. Nuclear power, nuclear medicine were meaningful contributors to organic revenue growth for the year. Full-year adjusted EBITDA totaled $227.9 million up 12% compared to 2024. Margins expanded 90 basis points for the full year, reflecting procurement initiatives and operating leverage, partially offset by tariff Eric Linn: and Brian Schopfer: the impact from the Paragon acquisition which closed in December 2025. Full-year adjusted EPS was $0.46, a 12% increase despite approximately 50 million share increase in 2025 from the convertible notes and the equity raise associated with the Paragon purchase. Eric Linn: Slide 18 provides a 30,000-foot view of the moving pieces impacting Brian Schopfer: 2025 revenue versus our initial guidance from December 2024. Overall, FX and acquisitions were both tailwinds to revenue. Recall, we initially baked in a $1.05 euro to USD rate while we ended the year at approximately $1.17. In addition, the acquisitions of CertRec and Paragon in 2025 contributed favorably to total revenue growth. Conversely, top-line performance was negatively impacted by organic headwinds of approximately 250 basis points. The US government shutdown and Doge initiatives primarily impacted our labs and research end market in the nuclear and safety segment. Additionally, as we've been discussing, our RTQA market was sluggish, mainly related to hardware headwinds in North America, China, and Japan. Partially offset by our performance in software and services. For example, our RTQA services business reported a two-year revenue CAGR 12%. Now let's turn to the segments beginning on slide 19. Nuclear and Safety segment Q4 revenue was $194.9 million up 15.5%. Organic revenue increased 3.1% as the segment was lapping a tough 13.9% comp from last year. Q4 2025 organic revenue growth was aided by over 12% nuclear power end market growth, partially offset by continued softness in labs and research. And, to a lesser extent, from the defense that diversified end market off a large 2024 comp. The labs business was definitely impacted by the forty-three-day government shutdown. We continue to believe this is a delay rather than a decline. We expect it to take some time to get back to a more normalized state, as you can see in our organic revenue growth guide in the back of the deck. Total year nuclear and safety segment revenue was $614.6 million, up 9.5% compared to 2024. Eric Linn: Full-year organic growth reflects 11% nuclear power growth Brian Schopfer: partially offset by an 8.5% decline from the global labs and research end market. More specifically, our US labs business connected mainly to the DOE was down approximately 15% for the year. Additionally, the defense component of our defense and diversified end market declined, while the industrials component grew. More importantly, how do we own Paragon in 2025? Their year-over-year growth is 20%. Going into 2026, it is expected to be approximately 25% plus. Nuclear and Safety segment Q4 adjusted EBITDA was $60 million or 13.6% higher than last year. Q4 margins declined 50 basis points. As we've discussed, closed the Paragon acquisition on December 1, which impacted Q4 margins. Excluding Paragon's December results, Q4 margins would have been instead expanded 50 basis points, reflecting operating leverage lower incentive compensation, and procurement initiatives. Full-year adjusted EBITDA for the nuclear and safety segment $177.7 million or 11.2% higher than last year. Full-year margins also increased up 40 basis points. Again, excluding Paragon's December results, full-year margin expansion would have been 70 basis points or a 30 basis point swing. Next, onto the medical segment on slide 20. Q4 medical segment revenue declined 3.5% to $82.5 million. On the October earnings call, we expected flattish Q4 revenue. Q4 RTQA organic revenue growth revenue declined 4%. The difference was RTQA the difference was the RTQA end was negatively impacted by Asia and Europe hardware headwinds. Additionally, as mentioned earlier, nuclear and Madison and dosimetry were bumping up against tough comps. Full-year medical segment revenue grew 3.7% to $310.8 million. Reflecting double-digit organic revenue growth from the nuclear medicine end market offset by lower RTQA organic revenue. We expect double-digit organic revenue growth in 2026 from the nuclear medicine end market as well as a rebound to mid-single-digit plus organic revenue growth from RTQA. RTQA should see a rebound in Europe hardware sales and continued adoption of our software platform globally, as well as a number of new product launches. Meanwhile, we expect flattish 2026 dosimetry organic revenue due to lower hardware sales. We are encouraged by our InstaView adoption particularly what we are hearing from the nuclear power end market. Medical segment adjusted EBITDA grew in Q4 despite softer revenue versus last year. Q4 grew 5.1% to $34.9 million and expanded margins 350 basis points, primarily due to procurement savings of approximately 100 basis points and 250 basis points mainly from OpEx in-year initiatives. Meanwhile, full-year adjusted EBITDA grew 11.2% to $116.3 million. Full-year adjusted EBITDA margins expanded two sixty basis points, procurement and similar OpEx in-year initiatives. It was a tough year for medical on the top line. But I am encouraged by the margin expansion and the team's focus on cost and productivity. Turning to slide 21. You can see the marked improvement in adjusted free cash flow this year. 2025 adjusted free cash flow totaled $131 million approximately double 2024's $65 million. 2025's performance represents a 57% conversion of adjusted EBITDA. 2025 step change performance reflected improved earnings, reduced net interest expense from capital structure improvements, and lower CapEx. Recall, we reduced our term loan B size from $695 million to $450 million and refinance down to SOFR plus 200. We also issued two convertible notes at 0.250% coupons in 2025. These actions reduced our 2025 pro forma total cost of debt to 2.9% versus 7.4% in 2024. In 2026, we expect to increase our adjusted free cash flow while maintaining a similar conversion rate consistent with our long-term guidance. Before we open the line for Q&A, let me share some additional detail for 2026. From a full-year 2026 percent, perspective, we expect Q1 to be the lightest quarter for both revenue and adjusted EBITDA. The rest of 2026 phasing, expect to be consistent with prior years. For Q1 2026, total organic revenue growth is expected to be low single digits. Medical organic revenue growth should be mid-single digits. While nuclear and safety will likely be flat. Within nuclear and safety organic growth, our sensing business volume within nuclear power will be lower from a tough comp in 2025 due to project timing. This impacts both revenue and margins. Total Q1 2026 enterprise EBITDA margins should contract compared to Q1 2025 despite expected margin expansion in the Medical segment. Remember, Q1 now includes the full impact of Paragon, which is dilutive to overall margins. We expect to return to margin expansion the back half of the year and for the full year. As Thomas Logan mentioned, 2026 adjusted EPS now includes stock-based compensation. We made the change to be more reflective of the true cost of doing business. In addition to the full-year guidance that Thomas Logan walked you through, are additional modeling assumptions in the appendix. With that, I'll ask the operator to open the line for questions. Eric Linn: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star key. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Andrew Kaplowitz with Citigroup. Please proceed with your question. Good morning, everyone. Brian Schopfer: Good morning, Andy. Andrew Kaplowitz: Tom, just thinking about your large opportunity pipeline. I know large project timing tends to be difficult. But if I go back to last year, at this time, was $300 million to $400 million and now greater than $400 million. It's up mid-teens. It's obviously noticeable that your backlog ex Paragon moved up nicely in Q4 2025. But can we take your pipeline and say that should translate the double-digit growth in backlog in '26 and with nuclear power now almost half of your sales, do you have confidence you know, to sort of say that Thomas Logan: Yeah. Andy, I think you hit the nail on the head that large project timing particularly when you're talking about new reactor builds and things where there's enormous complexity overall, you know, really gates the timing dynamics. And we try and surround that in terms of you know, how we place probability, ask estimates around timing and quantum of bid awards and the probability of success etcetera. But at the end of the day, it remains, you know, it remains a dynamic target overall. So I'm hesitant to say that, you know, to draw a tight correlation between, again, those large projects, which by definition are more than $10 million in revenue. And the expected timing. What I would say is that we like that dynamic a lot. We you know, we look at the quality, and as Brian noted, our right to win within that, you know, that grouping of large projects. Coupled with the underlying dynamics, particularly in the nuclear power vertical overall, we feel good about how that ultimately drives an accelerating rate of growth. Andrew Kaplowitz: It's helpful, Tom. And then this might be for Brian Schopfer or Thomas Logan. Like, I was intrigued by the Q1 guidance in the sense that you've got medical back up to mid-single digits. Obviously, you know, it's a little bit weaker to end the year. So like, maybe is that that comps is that you expect a relatively quick recovery in places like Europe and China. Maybe you can give us a little more color on how medical should pan out in '26 to sort of meet that mid-single-digit growth? Brian Schopfer: Yeah. I think I mean, obviously, as the year gets goes on, you know, we're a little bit stronger in '25. In the first half of the year in medical, specifically Q2, by the way, with the we we shipped a lot of stuff into China, Andy. So the back half obviously, has been easier than the front half. But you know, the team likes the dynamic they're seeing. In the even even here in the first quarter. And, you know, really across, you know, all three businesses. So you know, that's right now, that's what we're seeing. And, you know, we'll update you when we get through Q1. But I think the point here is that we've thought quite hard and, you know, we usually don't give quarterly too much quarterly guidance. And wanted to make sure we got it appropriately here. Andrew Kaplowitz: It's helpful color. Thanks, guys. Eric Linn: Thank you. Our next question comes from the line of Joseph Ritchie with Goldman Sachs. Joseph Ritchie: Hey. Good morning, guys. Hey, Joe. Hey, Joe. Hey, just maybe just touching on Q1 for a minute. Brian Schopfer: Just to make sure that we're dialed in because you have you have the accretion also from Paragon coming through don't know if there's any seasonality in the business, but I guess we're getting to a number, like, an EBITDA number kind of, like, in that mid to high fifties. I just wanna make sure that we're thinking about it directionally right. Brian Schopfer: Yeah. I mean, look. I'm not gonna give you the number But I, you know, I think by Eric Linn: you know, first off, Paragon's you know, the first quarter will be the Brian Schopfer: the lightest quarter as well. For Paragon. It's not true. So this yeah. The third and the first quarter will be the kind of it it it has similar seasonality to to Mirion Technologies. Where the third and the fur the first and the third quarter are lighter than the second and the fourth quarters. Obviously, the nuclear power business, that kinda matches the outer season. So that's how I would think about it. I think with the lighter first quarter in Mirion Technologies and dilutive nature of the of the margins on the Paragon side. You know, that I would just we just I would think pretty hard about how we're modeling And like I mentioned, our sensing business had a very strong Q1 last year. Margin expansion in Q1. And that that business levers tremendously. So with a little bit of a lighter volume there, you're probably you're definitely gonna see a little bit of a contraction. On the margin side. The legacy Mirion Technologies business on top of the dilution for Paragon. So that's kind of the color I'd probably give around Q1 without giving you a number. Joseph Ritchie: Okay. No. That's helpful. Appreciate that, Brian Schopfer. And then I guess, look, clearly, the orders were excellent this quarter, you know, better than what we even when you gave that funnel at the end of last quarter. Thomas Logan, maybe just kinda I know you touched on this $400 million pipeline the large project pipeline for 2026. Just help with your customer conversations with, you know, win rates that you should expect going forward? Do feel like your win rates are increasing? Is any other you know, color on that pipeline and how you guys are doing commercially? Thomas Logan: Yeah. So we Joe, we don't you know you know, historically, we don't talk about win rates, but I'll tell you what's really important here, and that is the impact that both CertRec and Paragon are having the way we engage with customers overall. And I'll focus mainly on Paragon, but the themes are broadly equivalent. So Paragon was founded and grown by its CEO, Doug Van Tassel, who's an absolute rock star. He's really highly, highly known and respected. Within the within the nuclear industry. And their commercial model historically has required a much higher degree of customer intimacy than Mirion Technologies' go-to-market model, in part because of, you know, fundamental differences in the solutions that they were selling versus what we've been selling. And as Doug and I have developed a strong partnership really focused on the roadmap for integrating the companies, one of the first early opportunities that we see and are obviously working hard to take advantage of is that commercial traction where, you know, the combination of the Paragon customer intimacy with a much broader solution set that is quite unique in many dimensions. We believe help us gain even more traction, not only from the operating fleet, which again is about 80% of our total nuclear power revenue, But more broadly, as we're engaging with the reactor designers, the so-called NSS firms, on new utility-scale projects, and we're engaging with literally all of the SMR players on their various campaigns overall. So that dynamic again, we think is gonna be a net positive We hope and expect that we're gonna see that begin to emerge. As we gain additional traction. And ultimately, you know, again, we were talking about absolute win rates, which we're not, I would expect those to improve. Joseph Ritchie: Great. Super helpful. If I could maybe squeeze one more Just Brian Schopfer on medical, you mentioned the OpEx initiatives. The margins this quarter were really strong. You know, as we as we kinda think off, like, like, the jumping-off point 2026 full year, is the expectation that your medical business should still see over a full-year period, you know, that, like, 50% type incremental margin. Just given the initiatives that and the interaction that you guys are getting? Brian Schopfer: Yeah. I look. I expect pretty good margin expansion again in '26. It won't be as high, though, as what we saw in '25 for sure. So that, you know, that's probably you know, how I'm thinking about it. You know, I Joseph Ritchie: I again, I think the 50% incremental is Brian Schopfer: is good. It maybe is a touch high. But you know, it's still gonna be very strong and robust. Eric Linn: Thank you. Our next question comes from the line of Tomohiko Sano with JPMorgan. Please proceed with your question. Tomohiko Sano: Good morning, everyone. Brian Schopfer: Hey, Tomo. Hey, Tomo. Tomohiko Sano: Thank you for taking my questions. So with 2026 guidance for adjusted EBITDA margins 25% to 26%. So it's the past 30% plus EBITDA margins by 2028 still intact? Should we expect about 200 bps of margin expansion in 2027 and 2028 to reach that target? Thomas Logan: Yeah, Tomo. I'm not I'm not go of that. I mean, the noting that the headwinds that impact us on that have been to some degree tariffs to some degree the near-term dilutive margin dilutive impact of the of the Paragon deal overall. But the countervailing or counterbalancing tailwinds are, firstly, it's growth. Absorption is our best friend here. And given the very high degree of operating leverage we have in the business as we continue to drive, you know, a more robust top-line dynamic. Absorption will be very important. Secondly, is the continuation of self-help. You know, we noted a 100 bps of margin improvements from procurement this year. We're not done in that area. There's much more to be done both with legacy Mirion Technologies as well as with the newly acquired companies. But, you know, beyond that, it's our entire business system as we think about continuous improvement and greater efficiency overall. But the third element which is becoming far more tangible, and I'm sure you're talking about on a lot of calls, is AI. AI is profoundly as we think about both customer-facing applications and the implication that has on both margin and profile and top-line growth As we harness this, it, we believe, will give us the ability to mix up to a degree, but it's also the internal productivity. Last year, we launched 17 internal AI bespoke applications that were focused on productivity enhancement with another, I believe, seven in development. And that cadence of changes is improving. You know, we are resourcing up in AI. We've hired our inaugural chief AI and digital who's got a very clear and compelling vision as to what we can do, what we must do, from both a customer-facing and an internal productivity standpoint. And we're pretty bullish about it overall. So to be clear, this is not this is not a gimme putt to get to 30 EBITDA We have a lot of wood to chop. But having said all that, I continue to see a pathway, and Brian Schopfer and I continue to encourage and motivate the organization to get after it. Tomohiko Sano: Thank you, Thomas Logan. And a follow-up on AI with the announcement of executive appointments, you just described in what other key KPIs ensured to midterm goals for your AI and digital strategies, please? Thomas Logan: Yeah. They're really under development right now. I understand. Understanding that Shamir has only been on board now for a few months. And so we're not yet in a position where we're going to put that out within the investor community overall. But what I will tell you is that we see very, very compelling opportunities to harness as we think about customer-facing applications. To harness our native position, recognizing that we are in almost every operating nuclear power plant in the world. You know, it's in the upper 90% range overall. And increasingly, I think there's a point of view and a defensible point of view that having that core sensor presence will be critically important as we think about things that ultimately in this space may impact the overall efficiency of a power plant. How hot it can be run, how do more effectively manage load balancing, how to accelerate startups in the wake of shutdowns, etcetera. So there's a huge body of work that we're doing not only in the nuclear vertical, but in medical in labs and research, we're very advanced in defense, etcetera. So it really is gonna impact and inform our agenda from a customer-facing applicate or standpoint in all key verticals. But internally as well. We've really developed considerable momentum in terms of incorporating both bespoke tools that our team has developed But beyond that, just leveraging the capabilities that are increasingly embedded within all the various third-party software applications that we use overall. So summary of all of that is that we're not yet ready to guide the key metrics in and around AI, but I think it is important to note that our effort here is significant and that our momentum is building, and, and we see great promise here. Eric Linn: Thank you. Our next question comes from the line of Robert Mason. With Baird. Please proceed with your question. Robert Mason: Yes. Good morning. Thomas Logan: Brian Schopfer, I think I heard you correctly when you were describing Paragon you're expecting 25% growth kind of pro forma for '26 in that business. And as I recall, when you acquired it, know, it'd be growing kinda low teens. A couple of questions. Just what accounts for kind of the acceleration there? And then to the extent that I know, Thomas Logan, you referenced this kind of tip of the spear, You know, that level of step up in growth, what kind of implications could that have on the broader Mirion Technologies nuclear power business over the next couple of years? Brian Schopfer: Maybe I'll take the first part and you'll take the second I mean, just quickly, first off, Paragon has good coverage. They actually have better coverage than Mirion Technologies does on the on for next year. As we think you know, on a forward basis. So I think one of the things that's driving is just the order growth they saw in '25. I think the other thing is they're definitely expanding a bit their markets in '26 into kind of the DOE landscape. Which is a vertical they didn't have as much revenue growth in last year. So I think you know, those two things kinda coupled together is what is what what gives us, you know, confidence in kinda hitting those numbers. But they've you know, they it's an exceptional team, and they continue to put good wins on the board. Thomas Logan: Yeah. Just in Robert Mason, in terms of talking about the strategic implications I think they're profound. Again, Paragon is an amazing company, amazing people. Very, very high cultural affinity goodness of fit with Mirion Technologies, also the strategic alignment is extraordinary. I mean, we've articulated what our you know, what are kinda the obvious and key areas of focus in terms of bringing the two companies together from a synergy standpoint. Particularly as it relates to commercial traction overall. Our ability to help them drive more international growth, their ability to help us again, create a stronger bond and connection, more customer intimacy, within North America overall. But the longer-term implications strategically basically, our number one, we think we can get more wallet share out of the installed base on a combined basis. We think one plus one will be two plus here. Secondly, with the SMR community, Paragon has been very assertive, very effective in prosecuting that marketplace overall. As have we. But the combination of the two companies in that particular field are really, really important, not only as it relates to the SMR players themselves, also as it relates to the broader industry. Both the operating fleet and the evolving utility-scale reactors. One of the classical innovation issues articulated in the innovator's dilemma, you know, classic Silicon Valley book. Is the issue that companies oftentimes will tend to focus on the immediate needs of their best customers today. And one of the interesting things about the SMRs is given the advanced technologies they're deploying, given the rapidity with which they are driving toward big audacious Brian Schopfer: outcomes. Thomas Logan: It is forcing a different level of innovation within the industry. And I like our position here. I like where we sit in terms of how this is evolving overall. And While it's a wildly difficult market to predict, you know, we do believe there will be, there will be success SMRs that are emerging probably faster than people expect. We think the innovation that we are participating in and to some degree is driving will then cascade more broadly into both the operating fleet and some of the utility-scale reactors. So, I mean, the implications here we think are significant. We're thrilled that we were able to close this deal. And know, feel pretty good about the art of the possible here overall. That's helpful, Thomas Logan. Just real quickly as a follow-up, maybe just to extend, the question to, you know, to the Joseph Ritchie: existing fleet on Thomas Logan: reactor side. Yeah. It's a pretty active year for the NRC on life extensions, in The US. Mhmm. Maybe not a surprise, but could see less friction in that happening. How does that, that level of activity, that level of life extension activity, how does that manifest for you in terms of orders? I mean, did we Eric Linn: we see that already in backlog, or is that you know, part of the Thomas Logan: the pipeline that you look ahead? Or just Joseph Ritchie: or does that Brian Schopfer: Yeah. I think it it it to some degree, yes. I mean, obviously, we posted Thomas Logan: 11% growth in nuclear power last year and certainly some of that was informed by those themes. But the key dynamics here, the one you cited, which is life extensions, but in addition, you have to contemplate up rates. So increasing the know, the licensed output of a nuclear power plant And then on top of that, a fundamental need for modernization. Particularly as it relates to instrumentation and control systems overall. All of those themes are critically important. For the global fleet, not just the North American fleet overall. And it continues to build, you know, the most stark examples would be the previously decommissioned power plants that are coming back online, which would include Palisades, 3 Mile Island, and Duane Arnold. There are content as significant in each of those. And you know, it's not fully traded. That continues to evolve. And so I think this dynamic is gonna continue to build. I think it's axiomatic, again, just given the critical shortage of global electrical generating capacity. It's hard to think of an edge case. Where, you know, that dynamic goes away overall, and I think that's fundamentally favorable for us and the solution sets that, you know, we provide to the marketplace. Eric Linn: Thank you. Our next question comes from the line of Jeffrey Grampp with Northland Capital Markets. Please proceed with your question. Jeffrey Grampp: Good morning, guys. Thanks for the time. Joseph Ritchie: Hey, I was curious, With respect to the '26 guide, is there much, if any if any, contribution from the $150 million of large orders that you booked in '25, or is most of that expected more to be in '27 and beyond? Brian Schopfer: Yeah. Great question. There's definitely some of the, of the large orders in '25 that we booked at the end of Q But I would tell you, and we've historically talked about this. I mean, that first year of these larger contracts tends to be the lightest year, then that tends to ramp kind of more in call it, after eighteen months or so into year, you know, two, three, four. So yes, there's a little bit, but I wouldn't say it is the biggest piece of those businesses from an annual perspective. Jeffrey Grampp: Understood. That's helpful. And my follow-up, I wanna reference slide 23, I believe it is. You guys call out SMR as being a bigger factor to the growth in 2026. Is there any way to contextualize that a bit more? And just, I guess, taking a step back, like, how material do you guys see SMRs becoming to Mirion Technologies' growth story over the coming years? Thomas Logan: Yeah. It's, Jeff. It's you know, it is difficult to contextualize recognizing the sheer volume of SMR projects globally where, you know, the depending on know, how you're screening it as well over a 100 discrete projects, overall. You know, we've indicated that we're we have awarded contractual relationships with more than 20 of these guys so far. Brian Schopfer: And Thomas Logan: you know, we as noted, we hope to continue to drive further. We want to cover everybody. We want to have a you know, a with every key SMR sponsor overall. You know, in terms of hard metrics, probably the leading metric is just the orders. That we've taken from an SMR standpoint. We highlighted in the presentation the extraordinary growth that we saw in 2025 in terms of order intake overall. Beyond that, again, it's very, very hard to quantify, you know, specific KPIs in terms of this marketplace beyond orders beyond engagement overall. Brian Schopfer: Yeah. I would say on a total basis, it's sub 3% of our total revenue as we look forward for '26. Jeffrey Grampp: And it was you know, Brian Schopfer: some 2% last year. Maybe even sub one and a half percent in '25. So, yeah, there's growth for sure, but it's not it's not meaningful in the grand scheme of things. But it's absolutely something that we continue to see be excited about in the something that continues to clearly propel orders. So, you know, maybe that's some additional color as we think about '26. Eric Linn: Thank you. Our next question comes from the line of Christopher Paul Moore with CJS Securities. Please proceed with your question. Christopher Paul Moore: Hey. Good morning, guys. Yeah. Just Joseph Ritchie: obviously, from an M&A standpoint, Paragon's gotten most of the headlines. Maybe you could just talk a little bit about the CertRec acquisition. You owned it for a little more than six months. Just, you know, kind of Robert Mason: what you what you've seen to this point in time, anything that perhaps investors don't fully appreciate? It's obviously much smaller than Paragon, but it also broadens your nuclear power portfolio and, you know, access as we were just talking about SMRs, etcetera. Just maybe a little bit more there. Thomas Logan: Yeah. The Chris, the fundamentally, CertRec does is outsource regulatory compliance. So about half of their business is supported by a SaaS platform that they've developed, which is really the industry standard in North America. Very strong dominant position, not only in nuclear power but more broadly as we think about the bulk electrical grid. And that is supported by an incredible treasure trove of data. They have over 15 terabytes of licensing and regulatory data supporting their customers. So literally every permit design drawings, every regulatory action impacting the industries they support, It gives the engineers and the operators at customer sites the ability to quickly discern what kind of regulatory issues they may have, if they have a component failure, they have the ability to see how others have handled that. If they have a routine regulatory filing, that can be automated And we love this company. Again, it's an amazing platform, amazing people. And the focus that we have here has multiple dimensions, but there are two that I'll call out. One is that in particular, with the data-rich environment that they have here, we've been hyper-focused on the AI leveraging of that data set. 15 terabytes is an ocean of data in our industry and there's a lot that we can do to improve the of that data, improve the quality of the information, the feedback, the toolset that we are providing to our customers And then secondly, the ability to drive it more expansively as we look again at Mirion Technologies' strength globally overall. So it's a jewel of a business We're thrilled to have that as part of the Mirion Technologies DNA, and I think it's gonna be an important AI story for us prospectively. Joseph Ritchie: Alright. Perfect. I think we're at the witching hour. I'll leave it there. Thanks, guys. Eric Linn: Thank you. Our final question this morning comes from the line of Yuan Zhi with B. Riley Securities. Please proceed with your question. Yuan Zhi: Good morning. Maybe we can change gear to a nuclear medicine. Novartis is building their fourth radio pharmaceutical site in The US, in Florida, as part of their US investment. I'm wondering what kind of economic is there for Mirion Technologies when such a large-scale manufacturing side is built. Or, Brian Schopfer, if you could also comment on your high-level plans for nuclear medicine in 2026. Thomas Logan: Yeah. Nuclear medicine, again, is an exciting vertical. You saw that we press released today, Yuan Zhi, that we've taken one of our best and brightest executives, Sheila Webb, who heretofore has been our Chief Digital Officer, And we have moved her over to run the entirety of our nuclear medicine business. So both the software component EC2, as well as the legacy hardware business which is the dose calibration instruments, the clinical instruments like thyroid uptake systems, the whole ecosystem within that overall. We see a powerful and compelling opportunity to continue to drive a higher degree of integration to continue to rapidly evolve the capabilities of our software platform overall and do so in a way that Eric Linn: it creates more traction, more at that Thomas Logan: for the hardware overall. But Sheila is also, you know, working more broadly with the team, been very proactive in forging strategic relationships with major players in the nuclear medical infrastructure. So as we think about all the key players the drug makers, the isotope producers, the CDMOs, the radio pharmacies, the clinicians, and IDNs. She has been leaning into that overall. Our focus has really been on building out the you know, the strategic traction with major players here to try and drive again just higher velocity of the opportunity set on both the hardware and software side of in total, And I like the direction that's heading. Again, we continue to see this as a very exciting market. We think this modality and cancer care is relevant and a real game changer and we like where we sit Brian Schopfer: I think the other thing on Novartis that we're super focused on on the nuclear medicine side is that pull through. Of the technology, nuclear safety product lines in. Sheila brings us that advantage because she knows both businesses. And I think as you you know, asked specifically about Novartis, I think that's really where we're gonna get be able to kind of move the needle here. Thomas Logan: Yeah. As you think about that, just tagging on what Brian Schopfer said, you know, they have three major production facilities in the US Yuan Zhi, they're building two more. These facilities require a lot of equipment that is relevant to us relating to laboratory and QC equipment like gamma spec instrumentation. Instrumentation, radiation monitoring for area monitors and effluent you know, classical health physics instrumentation like survey instruments and dosimeters. Dose of record for legal dosimetry dose calibration instruments, etcetera. So it's you know, they're obviously a significant player. You know, we hope to support them, and they, most comprehensive way possible. Brian Schopfer: Yeah. Got it. Thanks for the additional color. Eric Linn: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Thomas Logan for any final comments. Thomas Logan: Ladies and gentlemen, thank you for listening in today. Again, we're excited about the ending what has been a really important year for Mirion Technologies overall. In terms of our continued strategic evolution as a business. In terms of key operational and financial milestones that we've articulated. But more fundamentally, we continue to be very constructive about vertical market dynamics about our capabilities overall. And so we'll look forward to sharing the journey with you over the upcoming quarters and wish you all well. Thank you very much. Eric Linn: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to the SoundPoint Meridian Capital Inc. Third Fiscal Quarter ended on December 31, 2025. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, February 11, 2026. I would now like to turn the conference over to Julie Smith, Head of Investor Relations. Please go ahead. Julie Smith: Ladies and gentlemen, thank you for standing by. SoundPoint Meridian Capital refers participants on this call to the investor webpage at www.soundpointmeridiancap.com for the press release, investor information, and filings with the Securities and Exchange Commission, and for a discussion of the risks that can affect the business. SoundPoint Meridian Capital specifically refers participants to the presentation furnished today on the Form 8-Ks with the SEC and to remind listeners that some of the comments today may contain forward-looking statements. And as such, will be subject to risks and uncertainties, which if they materialize, could materially affect results. Reference is made to the section titled Forward-Looking Statements in the company's earnings press release for the period ended December 31, 2025, which is incorporated herein by reference. We note forward-looking statements, whether written or oral, include, but are not limited to, SoundPoint Meridian Capital's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and assumptions, if they materialize, could materially affect results. And such forward-looking statements do not guarantee performance. And SoundPoint Meridian Capital gives no such assurances. SoundPoint Meridian Capital is under no obligation and disclaims any obligation to update, alter, or otherwise revise any forward-looking statements. Whether as a result of new information, future events, or otherwise, except as required by law. In addition, historical data pertaining to the operating results and other performance indicators applicable to SoundPoint Meridian Capital are not necessarily indicative of results to be achieved in succeeding periods. I will now turn the call over to Ujjaval Desai, Chief Executive Officer of SoundPoint Meridian Capital. Ujjaval Desai: Thank you to everyone joining us today, and welcome to the SoundPoint Meridian Capital earnings call for the third fiscal quarter ended December 31, 2025. We'd like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer, Dan Fabian, and after our prepared remarks, we will open up the call to your questions. For the third fiscal quarter ended December 31, 2025, we generated net investment income (NII) of $9 million or 44¢ per share and recorded a net realized loss of 5¢ per share on exited investments. We paid distributions of 75¢ per share during the quarter. The shortfall in NII relative to common distributions reflects the impact of persistent loan spread compression, elevated CLO liability costs, and reduced excess credit available to equity investors during the quarter. Net asset value (NAV) per share ended the quarter at $14.02, down from $16.91 as of September 30, 2025. NAV declined primarily due to mark-to-market pressure in CLO equity valuations, as buyers stepped back late in the year despite generally stable underlying credit performance. During the quarter, we deployed approximately $6.8 million in two warehouse investments, purchased three new issue equity positions with an amortized cost of $11.29 million and a weighted average cap yield of 9.31%, and purchased one new equity investment in the secondary market with an amortized cost of $5.23 million and a yield of 15.6%. We also sold two equity investments with an amortized cost of $8.1 million and an average yield of 15.6% and refinanced the liabilities of 10 equity investments. We deployed an additional $4.48 million related to these refinancing activities. As of quarter-end, our CLO equity portfolio's weighted average gap yield was 11% versus 12% in the prior quarter, driven in large part by seven basis points of weighted average spread loss in our underlying portfolios. The decline in portfolio yield underscores the unprecedented scale of repricing activity across the leveraged loan market over the past two years, which has meaningfully reduced asset spreads available to CLO equity. Subsequent to quarter-end, we announced monthly distributions for calendar Q2 2026 of 20¢ per share, down from our previously announced Q1 2026 monthly distribution of 25¢ per share. In setting the revised distribution level, the board considered a range of factors, including current and expected portfolio yield, the importance of maintaining balance sheet flexibility, and our objective of supporting net asset value over time. While we believe our CLO equity investments have significant refinancing optionality in 2026, which may offset the effect of loan yield compression, the sheer pace of loan repricing activity throughout the quarter and, frankly, over the past two years ultimately led to the decrease in our monthly distributions. We remain committed to our obligations as a regulated investment company and will continue to distribute at least the required portion of taxable income while evaluating distribution levels as earnings, market conditions, and portfolio positioning evolve. Our portfolio continues to be highly diversified with 97 CLOs across 30 managers, providing exposure to over 1,500 loan issuers spanning over 30 industries on a look-through basis. In an environment characterized by increasing dispersion across sectors, credits, and managers, this diversification remains an important risk management tool. I'll now turn the call over to Dan for a more detailed review of our financial highlights for the quarter. Dan Fabian: Thanks, Ujjaval, and hello, everyone. As Ujjaval mentioned, for the quarter ended December 31, 2025, we delivered net investment income of $9 million or 44¢ per share. For the quarter ended December 31, 2025, we recorded a net realized loss of $1.1 million and an unrealized loss on investments of $51.8 million. Total expenses during the quarter were $9 million. The GAAP net loss for the quarter was $43.9 million or a loss of $2.14 per share. Moving to our balance sheet, as of December 31, 2025, total assets were $474.7 million. Net assets were $287.9 million and our net asset value stood at $14.02 per share. The fair value of our investment portfolio stood at $473.5 million while available liquidity consisting of cash was approximately $525,000 at the end of the quarter. As of December 31, 2025, the company had outstanding debt that totaled 39% of total assets. During the quarter, we declared monthly cash distributions of $0.25 per share payable in January and March. Based on our share price as of December 31, 2025, this represents an annualized dividend yield of 21.8%. Subsequent to quarter-end, and as Ujjaval previously mentioned, we announced our calendar Q2 2026 distributions this morning. As of January 31, 2026, our estimated net asset value per common share was $13.40. I will now turn it back to Ujjaval, our CEO, to provide an update on the CLO market. Ujjaval Desai: Thanks, Dan. Before we move on to the Q&A, I would like to provide a brief update on the market environment for corporate loans and CLO equity. The US leveraged loan market remained highly active in 2025, with primary broadly syndicated loan activity exceeding $1 trillion, resulting in one of the strongest years of growth by volume in the last decade. Notably, roughly half of that volume came from repricing amendments, which do not represent new supply for investors. Supply levels were further constrained by below-average LBO and M&A activity, which failed to rebound over the year amid policy volatility and heightened macro uncertainty. The result of limited loan supply coupled with robust investor demand resulted in relentless loan spread compression in 2025. The de-weighted average spread of the Morningstar leveraged loan index dropped 21 basis points over the year to SOFR plus 3.2%, the lowest level since 2012. For the single B subset, the compression was even more pronounced, falling 29 basis points in 2025 and 52 basis points over the past two years. Simultaneously, volatility failed to provide relief as loans rebounded quickly from the post-liberation day tariff shock. CLO liabilities remained range-bound. This resulted in the CLO weighted average cost of capital remaining nearly unchanged from the start of 2025 despite loan spread compression weakening the overall CLO equity arbitrage. Despite tight spreads and limited supply, US managers priced $55 billion in new issue CLOs in the fourth quarter, setting a new annual issuance record for the second consecutive year. This new issuance was predominantly driven by manager-controlled captive funds. While broader credit fundamentals remain generally stable, 2025 was marked by increasing dispersion across the loan market. Sector-specific headwinds, issuer-level challenges, and elevated liability management activity contributed to a more bifurcated environment with stronger credits continuing to refinance while weaker credits faced mounting pressure. A small number of highly visible idiosyncratic credit events added to investor caution and reinforced sensitivity to downside risk even as headline default rates remained near historical averages. Taken together, these dynamics increase differentiation across CLO portfolios and underscore the importance of manager selection, structural protections, and active portfolio oversight as we enter 2026. Looking ahead, in 2026, the loan market is expected to transition away from the repricing-dominated environment of 2024 and 2025 towards modest growth in true new money issuance. Importantly, the composition of supply is expected to improve with LBO and M&A volume projected to increase, supported by lower borrowing costs, improved policy visibility, deregulation tailwinds, and an improving sponsor exit backdrop. On the other side of the coin, CLO liabilities do not need to materially tighten from here for equity use to improve. Rather, a period of relative stability in liability spreads would allow refinancing and reset activity to proceed on an accretive basis, lowering overall funding costs and partially offsetting the impact of loan spread compression. In this environment, execution, market access, and timing will be critical. And we believe a reduction in debt cost may significantly offset loan spread tightening seen throughout 2025 and increase the equity arbitrage throughout 2026, which we view as a welcome development after a technically challenged year. With that, we thank you for your time, and would like to open up the call for any questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Mickey Schiff Schleien from Clear Street. Please go ahead. Mickey Schiff Schleien: Yes. Good morning, everyone. Ujjaval, I think you mentioned CLO captive funds. And there's been increasing discussion about them accepting, you know, lower equity returns because they can obviously capture management fees and incentive fees. Could you help us understand how meaningful that group has been in 2025 and, you know, how do you think that group is going to behave going forward? Ujjaval Desai: Sure. Hi, Mickey. How are you doing? So that's a very interesting question. I think captive funds as a whole, right, have certainly been driving the new loan market, new issue CLO market, rather, for 2025. I think, currently, you know, I would say 95% of CLO equity CLOs being issued are driven by captive funds. For the reasons you mentioned, I think they, you know, there is a need to have the money that has been raised by these funds, and there's a need to invest that capital. And so they can be more long-term focused rather than just looking at the returns that exist today. And, unfortunately, given that the loan market, you know, didn't grow as much last year, but new issue CLO supply continued to grow, that resulted in this supply-demand imbalance. Which meant loan spreads continued to tighten because there was, you know, demand for loans from CLOs. While CLO liability papers stayed wide because a lot of CLOs were being issued. And so, you know, that sort of imbalance was not healthy. Now, looking ahead, you know, we're seeing, as I said in my remarks, we're seeing a lot more new issue loan activity. So hopefully, that will offset the somewhat offset the demand from captive funds, and hopefully bring the arbitrage sort of back towards where, you know, it would make sense for other investors to also start investing in new issue equity. Mickey Schiff Schleien: If I could just follow-up then, sort of back of the envelope, I understand what you're saying in terms of their ability to capture fees, which third-party investors like yourselves may not be able to do, but there's got to be a point where even taking those fees into account, you know, we sort of reach a trough. Do you think we're anywhere near that trough from their perspective? Ujjaval Desai: Well, again, I don't want to sort of talk or dispatch any particular group of participants in the market. But the reality is that, you know, if you have a fund raised already, you know, you have to put that money to work. And so there isn't any, I mean, the manager decides, you know, which investment they want to do and when they want to do a CLO. So the return that they get on that deal, you know, depends on how you model it. And so, you know, you can use a lot of different assumptions to make the numbers look good, unfortunately. So I don't know if there is a particular threshold beyond which they will stop investing in their own CLOs. Because, you know, you can assume that, you know, defaults will be lower in the future, you know, spreads will be wider, and you can kind of justify whatever returns you like. So I don't know. It depends on how each person behaves. I think, ultimately, you know, these captive funds, the returns that the investors get is sort of, you know, long-term returns. They're not mark-to-market. So, ultimately, when those funds, you know, reach the end of their life, that's when investors will see what the returns really have been. So until then, you know, it's all up to the managers themselves to be disciplined. And I think we have seen some managers are very disciplined and some are not. So that's, unfortunately, it's very hard to predict exactly how they're going to react given the challenging spread environment they have now. Mickey Schiff Schleien: I understand. I think in your prepared remarks, you discussed loan spreads, which are, you know, the tightest they've been since the financial crisis. And that's obviously weighed on, you know, spread availability or the arbitrage for CLO equity. With that in mind, you know, how much more refinancing risk or repricing risk do you see embedded in your portfolio? Ujjaval Desai: Yeah. So that's a great question. I think it sort of depends on sort of day by day where loans are trading. You know, I think right now, you know, the percentage of loans trading above par, which is basically a metric that we can use to estimate or project, you know, what percent of loans would get repriced. That percentage is, you know, fairly low. It's around, you know, 15-20% of the market. It used to be about 60% a couple of weeks ago, so there has been some volatility in the market as we've all seen through, you know, due to AI and software names. And so that has reduced the percentage of loans trading above par. So as of now, I think the repricing activity is going to be fairly subdued. And if the new issue pipeline of loans materializes, which we are hearing, there's a big pipeline and certain deals are coming to the market now, some large ones. So that, I think, will certainly put, you know, should put more pressure on secondary prices in the loan market to stay, you know, at or below par, and that certainly would restrict repricing activity further. So we're, I mean, based on, again, all indications as of now, it feels that the repricing activity has probably reached, you know, a low point, and hopefully spreads in these loan portfolios, you know, will increase going forward if the new issue pipeline materializes. Mickey Schiff Schleien: And lastly, at least from my perspective, you just mentioned AI. When you talk to your managers, you know, how are they approaching management of that risk? And, you know, what's their thesis of their potential impact on AI on their portfolios? Ujjaval Desai: Yeah. So I think it's that's obviously a very topical issue right now. It's, I feel it's name by name. You have to look at each credit and analyze the risk of, you know, being impacted negatively by AI. I think where we are today is that the market, the loan market, as well as, you know, equity and other markets, kind of had a knee-jerk reaction and, you know, every name in that subsector got, you know, got sold off. Despite so regardless of the credit quality of that particular company. So I think what we are seeing now is, you know, you know, the better managers are doing a lot of detailed analysis of the portfolio. They've been doing it for a while, obviously, but I think we are hopeful that, you know, this sort of sell-off of the entire sector creates some interesting investment opportunities where certain loans may have sold off too much, and managers can finally trade their portfolio and build par by buying cheaper sort of low-priced assets that have sold off in sympathy with sort of the sector news. So I think it's going to come down to name by name analysis. And I don't think we can just say the entire sector is bad. There will be some names for sure that will get materially impacted. And the work we're doing, the work our managers are doing is sort of looking at those names and identifying which ones are going to be the winners here. And I think that is a welcome despite for CLO equity. Because last year, what we saw was, you know, the names that were struggling, those loans, the prices went down. Everything else kind of stayed at par or above par. That environment, it was extremely difficult for people to build par or trade their portfolio. Because you couldn't if you sold something, you couldn't buy something else to replace that lost par. Now with more kind of broad-based selling in certain sectors, I think that gives you this opportunity to risk manage the book better. And I think that's certainly, I feel it's much better for CLO equity than the other way around. So that's all I would say. I think, again, the whole AI story is still in sort of early stages today. And the impact is going to be more long-term than short-term. So we'll have to see how that plays out. Mickey Schiff Schleien: I understand. That's really interesting. I appreciate you taking my questions, and I look forward to talking to you soon. Thank you. Ujjaval Desai: Of course. Thanks, Mickey. Operator: Your next question comes from Eric Zwick from Lucid Capital Markets. Please go ahead. Eric Zwick: Wanted to start with a question looking at slide 10 of your deck. You quantify the potential estimated savings from your investments that are either already out of their non-call period or coming to their out of their non-call period in the next five quarters is 28 basis points. And if I compare that to last quarter's slide, the amount was 41 basis points. Curious, one, is that change from 41 to 28 purely a reflection of the, you know, resets or refinances that you completed during the last period, or is there something else that has impacted that number as well? Ujjaval Desai: Yes. Good question. Yes. That is exactly correct that we completed 10 refinancings last year. Sorry, last quarter, rather. And so those were the highest, you know, cost of liability deals. So if you think about the portfolio, the deals that are callable, you know, that were callable last quarter, were the ones that were done two years prior. And at that time, liability levels were even higher than the subsequent quarter. So there has been a roll down in liabilities costs over time. So we tackled, obviously, the ones that were last quarter ones, the ones that had the highest cost of capital. And so those savings have been achieved. And then now we're going down to the next lot, which as you can see from here, you know, it reaches about 200 basis points and then drops down from there. So it's just a sort of roll down of that kind of the breakdown of the liability cost. So it's solely because of that. There's nothing else really that's contributing to that change in number. Eric Zwick: I appreciate the confirmation there. And then just thinking about, you know, kind of the action you took with the dividend and, you know, it's clear to see that, you know, the yield effective yield has come down in the portfolio, that the gap NII has come down. However, when I look at the cash flows on a quarterly basis, they've continued to trend higher over the last few quarters. So is there something that has not been reflected in the actual cash flows yet that they're lagging kind of some of the larger portfolio dynamics as well, or how should I interpret that? Ujjaval Desai: Yeah. So I think the first part of the question, let's take a look at both of them separately. The first one is, yes, so the portfolio yields have come down, and we have talked about why. That's just because of the spread compression in the loan market. And so our portfolio yield, which stands at 11% now, down from 12%. So certainly, there is less income because of that GAAP income, and so we have adjusted our dividend to reflect that. In terms of your question on higher cash flow, that's just because when we refinance those deals, there is extra, you know, additional sort of cash generated through the refinancing activity. And so that's really the reason why the cash flow is higher. We can certainly provide additional details to you separately, but that's not because of the yield. The yield has compressed, there's cash flow because we've been refinancing these transactions. Eric Zwick: Gotcha. Okay. So I'm trying to, you know, reach the end of your repricings and or, you know, spreads widen that opportunity, lessened potentially, you know, that portion of the cash flows would go down and then, you know, so I guess maybe what wasn't clear there to me was the amount of those cash flows coming from the refinancing has made that figure look even more robust than maybe the, kind of longer-term or maybe the regular run rate of the cash flows? Ujjaval Desai: Yeah. I think that's the right interpretation. But it depends on the deal. I mean, if we do a refinancing of a deal, sometimes there is, you know, excess cash flow that gets flushed out to the equity. So that's but that's all part of, you know, it's included in the price of the equity, but there is additional cash flow that gets released when a deal gets refinanced. And sometimes, obviously, when you refinance a deal, the go-forward cash flows increase from the refinancing. So that's kind of what we've been saying, that the go-forward yields will increase slowly. But on those deals that get refinanced, that cash flow goes up because you're paying less of a liability. So there's a combination of those factors. Eric Zwick: Okay. Thank you. And then just thinking a little bit about the NAV from here, maybe trying to look at it from a couple of different perspectives. One, you seem, you know, hopeful, if not optimistic, that the pace of, you know, asset repricing has been reduced at this point, which should alleviate some pressure there. You know, still have the opportunity that we've discussed to, you know, restore some of the arbitrage opportunity by refinancing some of the liabilities and then also, I think, you know, last quarter, you discussed, you know, if in periods of market volatility, you're able to become more active in the secondary market and make some attractive purchases. You know, kind of putting that together, do you feel like, you know, the near-term pressure on the NAV has been lessened at this point, and there's potentially opportunities to see that stabilize, if not even, you know, improve at some point, or is that still, you know, hard to tell at this juncture? Ujjaval Desai: Yeah. I think the so the two components here. Right? There is the cash flow component, which is dependent on the spread compression and what happens there, and we talked about that. The second component is the NAV itself. The NAV is the, you know, is, you know, is the price of the underlying equity positions we have in our portfolio. And that is dependent on, you know, not just fundamentals, but there are also technical factors there. In particular, kind of how much demand there is for CLO equity in the market. What we saw kind of towards the end of last quarter was that liquidity dried up. So if you as you headed towards year-end, there were fewer buyers of CLO equity. You know, if you look at sort of dealer desks, they were also not buying, so there's just less, you know, less of a buyer base for CLO equity towards the end of last year, and that's continued in January as well. And so that sort of, you know, technical vacuum, if you will, resulted in NAVs continuing to decrease. I think for that to change, obviously, the cash flow increased through, you know, spread increase in loans certainly will help, but you also need just more buyers and people to be just more comfortable stepping back into the CLO equity space. And that is, you know, we'll have to wait and see how that sort of changes. We're hopeful that that would be the case at some point. I think people will think that CLO equity is quite cheap. We believe it's cheap, but if everyone agrees with that, then more buyers step in, and that certainly would help improve the NAV. So but that's much more of a technical analysis, and hard to obviously control that. But I think what we're focused here is just making sure that the portfolio continues to do well. We continue to sort of refinance the deals that we can, you know, risk manage the portfolio, and over time, try to improve the cash flows inside these deals. And then the NAV and then the technical for that will be dependent on the market. But we think CLO equity is fairly attractively priced in the secondary market today. Eric Zwick: Thank you for taking my questions today. That was very helpful. Ujjaval Desai: Of course. Thanks. Operator: Thank you. Your next question comes from Tim D'Agostino from B. Riley Securities. Please go ahead. Tim D'Agostino: Yeah. Hi. Thank you, good morning. Some great commentary before. I guess the one question on my end and don't know if you've provided in the past or if you can provide it. But you just tell us a little bit, and provide some color on how the portfolio yield and spread has trended quarter to date or year to date? Obviously, compressing in '25, but it would be great to maybe just get a directional idea of what you're seeing so far in 2026. Thank you. Ujjaval Desai: So, I mean, we can talk about the, I mean, we talked about the loan spreads, how they've compressed. In terms of the portfolio yield, the gap yield of our portfolio, that reached, of course, almost 12% the previous quarter, up to 11%. And if you look at our January numbers, it's 11.4% right now. So it ticked up a little bit in January. 11.4 A lot of that is to do with sort of the refinancing activity that we are undertaking in the portfolio. So I don't know if that was your question, but that's in the slide deck we released this morning. Tim D'Agostino: Okay. Great. Yeah. No. Thank you so much. I must have missed that. I appreciate taking the question today. Ujjaval Desai: Of course. Thanks. Operator: Okay. There are no further questions at this time. As a reminder, if you wish to ask a question, please press star followed by number one. The next question comes from Gaurav Mehta from Alliance Global Partners. Please go ahead. Gaurav Mehta: Yeah. Thank you. Good morning. I wanted to ask you on the three CLO investments that you made in the primary new issue market. Specifically on the 9.3% yield, which seems like it's lower than the last few quarters. Can you provide some details on that yield and what kind of yields you're seeing in the primary market? Ujjaval Desai: Yes, Gaurav. Great question there. So the three investments we made last quarter, you know, there were two components to the yield. There is the warehouse income, and then there is the actual yield on the equity portion itself. So, you know, for us, at the end of the day, we look at the overall combined yield that we can earn on those investments. And so it's a combination of the warehouse income as well as the running yield. So when you combine those two things together, the yields that we're buying those equity positions at were pretty strong, sort of mid-teens type of yield. So that's why there's a, you know, there's a bifurcation. There's warehouse income under the 9.8% yield on the investments themselves. So we look at it as a package. And so those look pretty attractive. In terms of the overall new issue kind of activity, you know, it's an interesting dynamic there. I think we've been saying it that new issue equity hasn't looked that interesting all of last year and continues to look, you know, less attractive compared to secondary today. And you can see that in our stats. You can look at our stats in terms of how many new issued deals we're buying. In 2024, you know, our investments were split more 80% new issue, 20% secondary. Last year, that split went to around fifty-fifty, and a lot of that was driven in the first half of last year. And then sort of as we reached the second half of last year and now this year, the new issue activity has been very, very subdued. So to the extent we find the new issue deal that looks attractive on an overall package basis, we will certainly evaluate it, and we are doing a lot of that right now. But I think right now, we still find secondary equity to be, you know, very, very attractive relative to new issue. Gaurav Mehta: Alright. Thanks for that color. Also wanted to follow-up on the 11.4% yield that you reported in January. I think you mentioned part of that is driven by the refinancing in your portfolio. And does that reflect the 52 basis points that you reported in the slide deck, like complete 52 basis points or is there more refinancing to come that could help the yields? Ujjaval Desai: Sorry. Let me just see. 52 basis points. Which 52 basis points are you referring to? Gaurav Mehta: I think on the slide deck, number 10, it says 52 basis point savings expected in Q1 2026. I think in your remarks, you said that 11.4% was partly due to refinancing. So I guess my question is that 11.4%, does that reflect the complete 52 basis points or that partial and there could be more improvement in the yield because of refinancing in this quarter? Ujjaval Desai: Yeah. So that's right. So I think the way the yield works is that, you know, you will get some credit for deals that are, you know, callable immediately. And to the extent, you know, as you roll forward, you start to get credit for the next few months of deals. And then you, you know, but you don't get credit for the deals in the subsequent quarters. So some of that is reflected in the 11.4%. There will be some more increase from that. But then the second quarter deals are going to get closer to the non-call period, and then you start to get benefit from those deals as well as long as we can complete those refinancings. As long as the liability market stays where it is right now, then those will also get, you know, pulled up into our yield, and that should help the yield as well. So since we can't refinance all these at the time, we are doing obviously quarter by quarter. So the most immediate quarter some of that gets reflected in the yield. As we start doing them. But then the rest of them, you know, will get reflected over time. Gaurav Mehta: Okay. Thanks. My next question is on the dividend, $0.20 monthly rate. I was wondering if you could maybe provide some more color on how you got to that number and do you expect that dividend to be covered by NII at some point? Ujjaval Desai: Yes. So the as we said earlier, the Board decided to set the dividend level at 20¢ per month based on kind of our current yield of the portfolio, but the expectation for where the yields are going to go. Right? That depends on sort of how much refinancing activity we can do, what's happening in the loan market, the loan spreads going forward. It also depends on sort of what sort of, you know, repositioning we can do in the portfolio to improve our yield. So we feel that based on that, 20¢ is a prudent number to have. And yes, you know, the goal here is to be able to cover that over time. And, obviously, right now, you know, with the yield at 11.4%, you know, we're not covered today, but that's the goal based on the expectation based on portfolio rotation, the market changes, you know, the expectation is for us to be able to cover that. Gaurav Mehta: Alright. My last question on the leverage, your debt to assets, at 39%. Is that close to where you want the leverage to be or how should we expect about your leverage in '26? Ujjaval Desai: Yeah. So I think the leverage ratio of 39% is, you know, it's fine right now. We're going to evaluate that and see, again, depending on our view on where, you know, where our NAV is going to go, our view on what's happening into the cash flows. We're constantly monitoring that leverage ratio. We feel comfortable with it right now. Gaurav Mehta: Alright. Thank you. That's all I have. Ujjaval Desai: Excellent. Thanks. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect. Thank you, everyone.
Operator: Good morning, everyone, and welcome to the Evolution Petroleum Second Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Also note, today's event is being recorded. At this time, I'd like to turn the call over to Brandi Hudson, the company's Investor Relations Manager. Ma'am? Please go ahead. Thank you. Welcome to Evolution Petroleum's fiscal Q2 2026 earnings call. Brandi Hudson: I'm joined by Kelly Loyd, President and Chief Executive Officer, Mark Bunch, Chief Operating Officer, and Ryan Stash, Senior Vice President, Chief Financial Officer, and Treasurer. We released our fiscal second quarter 2026 financial results after the market closed yesterday. Please refer to our earnings press release for additional information containing these results. You can access our earnings release in the Investors section of our website. Please note that any statements and information provided today speak only as of today's date, 02/11/2026. Our discussion contains forward-looking statements of management's beliefs and assumptions based on currently available information and is subject to the risks, assumptions, and uncertainties described in our SEC filings. Actual results may differ materially from those expected, and we undertake no obligation to update any forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income. Reconciliations to the most directly comparable GAAP measures are included in our earnings release. Kelly will begin with opening remarks, followed by Mark with an operational update, and then Ryan will review the financial results. After our prepared comments, the management team will open the call for questions. As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available on the Investors section of our website. With that, I will turn the call over to Kelly. Kelly Loyd: Thank you, Brandi, and good morning, everyone. This quarter demonstrated the resiliency of our portfolio and the benefits of the strategic steps we have taken over the past several years. Despite a mixed commodity price environment, we delivered improved profitability and stronger cash flow, reflecting the diversification of our asset base, increased exposure to natural gas, and continued cost discipline. Importantly, these results were achieved without meaningfully increasing capital intensity, underscoring the durability of our underlying assets and the consistency of our strategy. Stepping back, what stands out this quarter is the operating leverage embedded in Evolution's portfolio. Improved natural gas pricing, incremental contributions from our mineral and royalty investments, and lower operating costs across several assets combined to meaningfully drive higher earnings and cash flow compared to the prior year. While commodity prices will always fluctuate, our goal has been to build a portfolio that can perform across cycles, and we believe this quarter is another example of that approach in action. From a financial standpoint, that operating leverage clearly showed in our results. In fiscal second quarter 2026, adjusted EBITDA increased by 41% year over year, despite revenue increasing only 2%. From a portfolio perspective, we continue to benefit from a balanced mix of oil and natural gas assets with a low base decline and modest capital requirements. Our assets are diversified not only by commodity but also by basin and operating partner, which helps reduce concentration risk and smooth performance over time. This approach has been intentional and remains a core pillar of how we think about capital allocation and risk management. A newer component of that diversification is our growing minerals and royalty platform. Over the past several months, we've been building a new network funnel and increasing our exposure to capital-light assets that generate high-margin production and long-lived inventory without imposing an incremental operating burden or requiring development capital from Evolution. Recent activity across our SCOOPSTACK minerals demonstrates this strategy in action, with several wells turning to sales or entering drilling and completion operations even ahead of schedule. This activity is already driving incremental cash flow and accelerating returns while reinforcing our emphasis on assets that combine current production, near-term zero-cost drilling exposure, and long-term upside. As we move forward into quarter three and beyond, we anticipate meaningful contributions from our newly acquired Haynesville-Bossier shale mineral and royalty assets. While we will always remain opportunistic with our A&D activities, we are confident that this new network will provide us with repeatable, highly accretive, tailored opportunities to enhance our portfolio. We believe this strategy enhances the durability of our cash flow profile and provides meaningful flexibility in how we deploy capital over time. Operationally, we made progress during the quarter on cost control and efficiency initiatives across the portfolio. Several assets delivered meaningful improvements in operating margins driven by lower costs and better uptime. While certain fields experienced temporary downtime during the quarter, these issues were largely mechanical or timing-related rather than structural in nature. Importantly, field-level profitability remains solid. Our operating philosophy continues to emphasize flexibility. We work closely with our operating partners to adjust activity levels based on commodity prices, market conditions, and expected returns. This approach allows us to protect capital during periods of volatility while remaining positioned to benefit when conditions improve. We believe this flexibility is especially important in today's environment, where price signals can change quickly and disciplined capital management is critical. As always, we will continue to evaluate the most effective ways to deploy capital for long-term shareholder value. Looking ahead, our strategy is consistent. We will continue to prioritize assets with durable cash flow characteristics, modest capital requirements, and attractive risk-adjusted returns. We will also continue to evaluate opportunities to expand our portfolio through acquisitions, particularly in areas where we can leverage our experience, relationships, and disciplined underwriting approach. Our goal is not growth for growth's sake, but rather growth that enhances per-share value and supports sustainable shareholder returns. Our recent mineral and royalty acquisitions fit those parameters very well. The combination of low decline assets, capital-light exposure, and disciplined reinvestment gives confidence in our ability to navigate commodity cycles while continuing to reward shareholders. With that, I'll turn the call over to Mark for more details on our operations. Mark Bunch: Thanks, Kelly, and good morning, everyone. I will focus my remarks on key operational highlights from the quarter and encourage listeners to review our earnings and press release filings for additional details across our asset base. Overall, our operations performed largely as expected during the quarter, with steady base performance across most assets and continued progress on optimization issues. Starting with SCOOPSTACK, activity on our legacy working interest remained steady with three additional wells in progress during the quarter. On the mineral and royalty side, activity continues to ramp. Three wells are converted to producing status during the quarter with 16 additional wells in progress, supporting incremental high-margin production. We expect to continue to benefit from these improved margins since royalty have inherently higher margins. At Chavaroo, production increased year over year, reflecting wells brought online over the past twelve months. While no new drilling occurred during the quarter given low oil prices, we continue to advance permitting and planning activities to ensure we are well-positioned when market conditions improve. We transitioned all but two of the wells from electric submersible pumps to rod pumps across the Chabro field. This significantly improved lifting efficiency, reduced downtime, and stabilized production, resulting in field performance trending about 5% above initial expectations, thereby boosting capital efficiency and long-term asset value. At TexMix, we focus on optimization initiatives across the assets. Progress was made through targeted workover activities and facility upgrades aimed at improving reliability and performance. While these efforts took time to implement during the transition, we believe the bulk of that work is now behind us. As additional workovers are completed and recently resolved downtime normalizes, we expect production and lifting costs to continue to improve and better reflect the underlying potential of the asset moving forward. At Delhi, production was impacted during the quarter by equipment-related downtime, primarily related to CO2 compressor issues that limited injection volumes for much of the period. Importantly, field-level profitability remained strong, aided by materially lower operating costs following cessation of CO2 purchases. On a per BOE basis, operating costs at Delhi declined meaningfully year over year, and we expect sales volumes to improve moving forward as operational issues are resolved. At Jonah and Barnett, production volumes were relatively stable on a sequential basis, consistent with the low decline nature of both assets. Realized natural gas pricing improved compared to the prior year. The results during the quarter were partially impacted by wider regional differentials driven by mild winter conditions in the Western U.S. in calendar Q4. Across the portfolio, we remain focused on maintaining operational flexibility, managing costs, and deploying capital where returns are most compelling. Over to you, Ryan. Ryan Stash: Thanks, Mark, and good morning, everyone. As Brandi mentioned earlier, we released our earnings yesterday, which contains more information on our results. For today, I'd like to go through our fiscal second quarter financial highlights. In fiscal Q2, we had total revenues of $20.7 million, up 2% year over year. The increase in revenues was primarily due to a 6% increase in production and higher realized natural gas prices, which were offset by lower oil and NGL pricing. The increase in production volumes was largely attributable to contributions from our mineral and royalty acquisitions in the SCOOPSTACK, as well as steady base production across the majority of our portfolio. Net income for the quarter was $1.1 million or $0.03 per diluted share compared to a net loss of $1.8 million or $0.06 per share in the year-ago period. Adjusted EBITDA increased 41% year over year to $8 million, reflecting stronger natural gas revenues, realized gains on derivative contracts, and lower lease operating costs. Lease operating expenses improved to $11.5 million or $16.96 per BOE compared to $20.05 per BOE in the prior year quarter, reflecting both underlying cost improvements due to our mineral and royalty acquisitions and the cessation of CO2 purchases at Delhi, and the benefit of certain one-time items recognized during the quarter. On the hedging front, our ongoing goal is to reduce downside commodity price risk while preserving the maximum potential upside. We have continued to add hedges and will continue to use a mix of swaps and collars for both oil and gas, and we'll monitor the market for any additional hedge opportunities if market conditions present themselves. Turning to the balance sheet. As of 12/31/2025, cash on hand totaled $3.8 million and borrowings under our credit facility stood at $54.5 million. Total liquidity, cash, and available borrowing capacity increased to approximately $13.5 million versus $11.9 million last quarter. During the quarter, we paid dividends totaling $4.2 million. As previously announced, the Board declared a quarterly cash dividend of $0.12 per share. Overall, our strong asset base and financial position continue to support returning capital to shareholders and pursuing accretive opportunities that enhance long-term shareholder value. I'll now hand it back over to Kelly for closing comments. Kelly Loyd: Thanks, Ryan. To sum it up, we're very pleased with our performance this quarter and encouraged by the tangible results we're seeing from our strategy, particularly the growing contribution from our minerals and royalty platform that we've built out and the momentum we continue to see in our acquisition pipeline. Our diversified asset base, growing minerals and royalty platform, and disciplined approach to capital allocation continue to support strong cash flow generation and consistent shareholder returns. With that, I'll turn it over to the operator to begin the Q&A session. Thank you very much. Operator: Ladies and gentlemen, we'll now begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. At any time your question has been addressed, you would like to withdraw your question. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Jeffrey Robertson from Water Tower Research. Please go ahead with your question. Jeffrey Robertson: Thank you. Good morning. Kelly, you talked about the diversity in Evolution's asset base. Can you talk about or can you provide an update or some color on how the minerals acquisitions that you have completed have affected the company's natural decline rate? Kelly Loyd: Yes, Jeff. Thanks for the question. The beauty of this is over time, there are a lot of locations associated with these minerals, which we don't have to pay for. So as these locations get built out, it will add incremental production that doesn't have any cost. Now on an individual basis, every well is different, right? Some of them are newer, some of them are older, and they're going to decline at different rates. But the fact that there's a bunch of inventory that's going to get added without any incremental cost to Evolution is one of the reasons we think it's so attractive. Jeffrey Robertson: Can you share any color on what kind of production levels that the Haynesville-Bossier acquisitions will add? And given the late December and January closings, that impact, I assume, will be felt in the first or the, I'm sorry, your third fiscal quarter and the fourth? Kelly Loyd: Yes, that's correct. They essentially had zero impact on the previous quarter that just ended. As we go forward, we expect to see the production there both come on as well as a lot of these wells that are being completed right now. Eyes on the ground seeing completion rigs on there. So we expect to see it ramp up relatively quickly over the next few quarters. So, anyway, excited about the prospects there and, again, the PDP will start to hit, but we also have DUCs that are being converted as we speak. Ryan Stash: Yeah. Hey, Jeff. This is Ryan. The other thing too, obviously, as you know, on the royalty side, the production impact is going to be less impressive than the cash flow, right, because of the margins. So obviously, we think we're excited about the absolute free cash flow impact. But the production impact will be there, but it won't be as impactful as the cash flow impact. Jeffrey Robertson: One more if I may. Kelly, can you share your thoughts on valuation comparisons that you see in today's market versus non-operating working interest opportunities and royalty opportunities? Kelly Loyd: So, yes, as Ryan just mentioned on a production sort of level metric, obviously the royalties are going to look like they're more expensive. But from a cash flow level perspective, we are finding the opportunities to be very competitive relative to non-op working interest. Matter of fact, most of these ones we're looking at now, the reason we went with them is because they were more attractive than what we've been seeing out there. The other thing I'd like to point out, most of our acquisitions over time have either been led by us doing a bunch of research and finding an opportunity out there or having an opportunity come to us. We think with this sort of network that we've built out and the partners we have that we can go be more proactive and go make offers and lots and lots of offers that are tailored to the kind of reserve categories that we want to see in our purchases. Like I said, we've seen some early success and we're excited about where it's going forward from there. Jeffrey Robertson: Thank you. I'll give somebody else a chance. Operator: To withdraw your questions, you may press 2. Our next question comes from Nicholas Pope from Roth Capital. Please go ahead with your question. Nicholas Pope: Hey, good morning, Kelly, Ryan, Mark. How are you doing? Kelly Loyd: Great, Nick. Thanks for joining. Nicholas Pope: Question I had, I'm kind of curious with the Delhi field. You mentioned the expectation of things kind of ramping back up after some downtime. But I'm more curious after the kind of cessation of the third-party CO2 volumes going on just recycle only. How, I guess, the field has performed and how do you kind of view the performance of that asset without that additional CO2 volume getting put into the reservoir? Mark Bunch: Well, I mean, this is Mark and I'll answer the question. With all of the facilities issues that we've had with compressors and stuff going down, and also coming out of the summertime where we have limited injectivity because of the heat, it's been kind of difficult really to quantify everything, what's going on. So, we still think that, you know, from a standpoint of how the field's operated, it's very profitable because we don't inject CO2 even if we have a reduction in rate. We are much more profitable because we're spending a lot less money on operating costs every month. So we're actually happy with the way it's performing right now. And we expect that it'll level out here after we, you know, in the next few quarters after we get past this downtime at the plant and also get past the summer season. Then we'll have a much better idea about what it's doing. Nicholas Pope: So I guess with the expectation that you could see kind of return to production, I mean, you all expecting production volumes to kind of return to that 600 barrels a day kind of rate in the field on the net to you guys? Mark Bunch: Well, that's I think right now the difficulty with what we've had with the amount of downtime we've had at the plant, it's honestly, it's really hard to quantify. Nicholas Pope: Okay. Ryan Stash: Yeah. I mean and so, Nick, I mean, their stated plan on the field, right, is that they're still injecting what is it? Like, 84% of the injection were recycled anyway. Right? And so that difference with increased water injection to make a voidage, we have yet to see really the full results of how that that'll play out. So as Mark said, it's kind of early because you have a compressor go down for basically the whole quarter. You know, it makes things rough. Nicholas Pope: Yeah. I'll drop the topic and move on. One other item just kind of to clarify with this Haynesville minerals. Looked like there was some movement in and out just with the cash flow statement. From the previous transactions. I was curious how much of that of 4.5 million spent is Fiscal 2Q versus what's gonna show up in fiscal 3Q. Ryan Stash: Yes. It's a very hey, this is Ryan. I'll take real quick. So the majority of kind of the $4 million is going to be in our fiscal Q3. We ended up spending call it, less than $1 million in actually at the very end of our fiscal quarter. So the majority of that CapEx is going to be kind of in the beginning of this fiscal Q3. Nicholas Pope: Alright. I appreciate the time for the question. Thank you. Operator: Yes. Thanks, Nick. And our next question comes from Poe Fratt from Alliance Global Partners. Please go ahead with your question. Ampo, is it possible that your line is on mute? Poe Fratt: It is on mute. Pardon me. Good morning. Just a quick question on OpEx or LOE. Had good gains on an absolute basis in Barnett, Delhi, and Tex Mex. Can you just talk about forward-looking into the third, the March quarter? I think you said that Mark may have said that he expected an additional improvement in LOE. Can you just sort of quantify that? And then also where might we see additional improvement? Mark Bunch: Yes. This is Mark. And I'd say like on I think you're talking about Tex Mex. And at Tex Mex, we had a transition that was slower than we expected from the old operator to the new operator. That's kind of passed. And we had a bunch of catch-up work, workovers to do, so that came in. You know, I think we told you last time, you know, we look at this as, at least getting down to a dollar per BOE level of what the Williston runs. And I think that's actually kind of what we're aiming for because we feel like that the cost will stay either flat or maybe go down slightly, but the BOE per day should probably be ramping up. So, anyway, that kind of probably should help you answer your question about how to look at it. Ryan Stash: Yeah. I would just oh, I'll just add. This is Ryan. Just add, you know, I think some of it is going to remain to be seen as far as kind of how much the royalties will lower overall LOE per barrel, right? You've seen a big improvement in SCOOPSTACK. Obviously, you're not really seeing that yet in the Haynesville-Bossier. And some of that is just based on data. Right? On the royalty side, we get data much more slowly than we do on some of the other assets. So a little bit of that remains to be seen. So we do think that's going to help over time overall our look overall lower our LOE per barrel. Yeah. And one other quick deal, like, we did 14 workovers at Tex Mex and spent a couple $100,000 net to us. And it netted back about 80 barrels of net barrels of oil per day. Now that wasn't all at once, obviously, was spread out over the quarter. So, you know, that kind of step is, you know, when you make the denominator a little bit bigger, it'll it's gonna drop the dollar per BOE. Kelly Loyd: A lot of those were sort of this is Kelly. A lot of those were catch-up workovers that we've overcome. We're obviously still going to have it in an old field. You're always going to have some workover activity, but that was a pretty high number, not 14. Poe Fratt: Oh, excuse me. Yeah. No. No. I mean, there should be 14 every quarter. Forward. Correct. Mark Bunch: And we do have a few additional workovers that we know we're gonna be doing. And they're high impact, but they're it's, you know, it's from a standpoint of production, but it's not a hope it's only four it's only four additional workovers that we have identified right now. Poe Fratt: Yeah. I guess I was looking at thanks for the color and the text OpEx or I was looking more at the big number, big downdraft in Barnett Shale production costs sequentially and then year over year. Can you just highlight what's going on there? And is that durable into the second half of the fiscal year? Ryan Stash: So I think as we disclosed, there was some benefit from Advo in that in the So in the Advo, especially for all of them, we get a bill once a year, and so we make an accrual. And so it's an estimate for most of the year, and we get the bill at the end of the year, we make an adjustment. Now obviously, the bill came in less than we had accrued, we do think some of that's going to be sustainable going forward at the Barnett. So we do think Advel will go down, going forward. Is it going to be as low as this quarter? Probably not as low as it was this quarter, but we will see an improvement we think, going forward from what we've seen historically. But as we kind of mentioned to you, any increase we might see from this core in the Barnett, we will have offsets and obviously SCOOPSTACK and, you know, as Mark mentioned, TexMech. So there are gonna be offsets for the kind of that. If the Barnett goes back up a little bit, we'll have some other offsets there. Poe Fratt: Great. Apologize for missing that comment about Edville. Thank you. Operator: Yes. Thanks, Poe. And our next question comes from John Baer from Ascend Wealth Advisors, LLC. Please go ahead with your question. John Baer: Thanks. The last name is Baer, Noel in there. Good morning. In looking at your asset base, one very large basin is not represented, and that's the Northeast in the Utica and Marcellus. And I'm just wondering if that's an area that you're looking at, been approached with any ideas there, what your outlook is on that, any interest in that area? Kelly Loyd: Yes. Thanks, John. I think we've as we've spoken in the past, think those are some tremendous wells. On just a pure amount you get out, amount you put in, it's a tremendous basin. The problem is it has takeaway capacity. I think it's as opposed to the Haynesville where we focused on here recently, which is sort of first to go to LNG. You could argue any incremental production up in the Northeast would be last to go to LNG. So we, again, like I said, tremendous asset. It's got takeaway constraints that what I understand, as soon as they put more on, frankly, the back of the existing wells fill it up, even have to drill anymore. So again, you'd we'd have to find the right deal, with the right sort of firm takeaway, and I'm sure we'd looked, and we just hadn't had anything that meets our return expectations there. John Baer: Okay. Well, given that it's a very old area of production, there's probably a lot of properties that could conceivably fit into your business plan there. Another question I have is there's seeing more interest in the data center build-out around production areas. I'm wondering if any of your assets might lend themselves to that idea of putting a data center in where they can directly tap a resource rather than having to go through distribution lines. Kelly Loyd: So again, this is Kelly. We have talked to a couple of our operators where we thought this might make sense. And so far, we've kind of gotten they've explored it and, you know, they're aware and like to do something if the opportunity arose, but nothing has sort of presented itself. But, yeah, for sure, that's something, again, we're thinking along the same lines. If we can do direct to consumer and lock in long-term prices, that would be something they are fully aware that we'd be interested if the right opportunity came along. John Baer: Very good. And last question is, what is your outlook or focus on trying to reduce overall debt levels? Ryan Stash: Yeah. Hi. This is Ryan, John. As far as overall debt levels, I would say, we've sort of said that our long-term target is one times net debt. Now we're a little bit higher than that. So yes, there is a plan to sort of reduce over time around to that level. But on an absolute debt basis, we certainly don't feel uncomfortable with the absolute debt level without given the leverage and given kind of the outlook of the asset base. And frankly, given actually have quite a bit of production and cash flow hedged at attractive prices. So we feel very comfortable on the debt level. But to answer your question, yes. Over time, our goal is to get the leverage down close to that one time. Kelly Loyd: And the other thing I'll just throw in there, this is Kelly, that look. If we have opportunities that we can invest the money in that earn significantly higher than what we're paying on our debt. It just makes a lot more sense to buy something at a 20% discount rate to use the capital to do that versus using capital to pay down whatever 6.8% interest on our debt. So yes. John Baer: Okay. Very good. Thanks for taking my questions. Operator: Absolutely. Thank you, John. Our next question is a follow-up from Jeffrey Robertson from Water Tower Research. Jeffrey Robertson: Thank you. Ryan, one question to follow on the LOE discussion. Gathering and transportation costs were much lower in the quarter versus where they had been in the second quarter and a year ago. Is that part of the LOE reduction sustainable? Ryan Stash: Overall, which area are you looking at, Jeff? Sorry. I'm just looking at the table in the press release on in the detail where you have cost per unit broken out. Jeffrey Robertson: It's right the regional production table. Yep. Ryan Stash: So on the gathering side, so that's lumping in obviously a bunch of different areas. I would say area by area, there hasn't been a huge amount of movement. Now some of it is tied a little bit to commodity prices. There are some contracts that go into commodity prices. So, you know, that does move around a bit, especially in the Barnett. Right? So the largest gathering kind of costs we have are in Barnett. There's some in, obviously, some in Jonah. You know, where the gas processing is. So, I would say some of that, it you know, at a lower price, is. A little bit more sustainable. But you know, there's nothing fundamentally different. Other than you know, the one point I will add, sorry, is is the gathering I think we mentioned this, right? So the gathering contract of Barnett did get restructured. So there, you know, there is gonna be some benefit there going forward, but it's prices go up, I will expect to see the cost gathering costs go up slightly, if that makes sense. Jeffrey Robertson: Thanks. And then lastly, Ryan, given you've got two more quarters in this fiscal year, can you share any color on what you think CapEx might be between now and June 30? Ryan Stash: I mean, I think the full range we put out, we still feel good about, which is that $4 million to $6 million range. So at this point, it would just be any sort of capital projects we get from operators or could be some still and we are still seeing some activity in AFEs and SCOOPSTACK. You know, so that we did actually put that in our budget. So I still think that's a good range. I mean, some of it's subject to if we get an AFE, right, but we're not talking huge AFEs, as you know, in the skip stack. And excuse me, the ones we've seen have been very attractive. So we're generally consenting to the ones we see in the SCOOPSTACK. Jeffrey Robertson: Okay. Thank you. Operator: And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Kelly Loyd for any closing remarks. Kelly Loyd: Thank you very much. We just want to say thank you to everyone for participating and look forward to moving forward with you guys. Thank you. Operator: And with that everyone, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Hello thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2025 NiSource earnings conference call. All lines have been placed on mute to prevent any background noise. Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. I would now like to turn the call over to Durgesh Chopra, Vice President of Investor Relations. Durgesh, please go ahead. Durgesh Chopra: Thank you, Tiffany. Good morning, and welcome to NiSource's fourth quarter 2025 investor call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Technology, Customer, and Chief Commercial Officer, Michael Luhrs; and Executive Vice President and Group President of NiSource Utilities, Melody Birmingham. Today, we will review NiSource's financial performance for the fourth quarter and share updates on operations, strategy, and growth drivers. Then we will open the call for your questions. Slides for today's call are available in the Investor Relations section of our website. Some statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the risk factors and NDA sections of our periodic SEC filings. Additionally, some statements made on this call relate to non-GAAP financial measures. Please refer to the supplemental slides segment information and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures. With that, I will turn the call over to Lloyd. Lloyd Yates: Thank you, Durgesh. And good morning, everyone. We appreciate you joining us today. I will begin on slide three. At NiSource, we exist to deliver safe, reliable, and competitive energy that drives value to our customers. Creating that value depends on disciplined capital deployment, operational excellence, and constructive regulatory frameworks that enable timely recovery of investment. These core principles generate competitive returns, strengthen our balance sheet, and form the foundation of our business strategy. Before we cover our standard business updates, I would like to highlight the successful year for NiSource. In 2025, we effectively executed an agreement with Amazon and, as detailed in our special contract filing with the IURC, we are anticipating $1 billion to flow back to NIPSCO customers, equating to an estimated $7 to $9 per customer per month upon Amazon's full ramp. Our base business continues to deliver for our shareholders, achieving a full-year adjusted EPS of $1.90 per share and FFO to debt of 16.1%, both results surpassing our guidance range. Today, NiSource's value proposition is driven by our regulated utility operations across six highly constructed jurisdictions, providing diversification in both asset type and regulatory environment. As we continue to invest in modernizing our electric and gas infrastructure, remain focused on supporting economic growth, advancing innovative solutions like our Genco model, and maintaining a strong commitment to customer affordability and stakeholder value. On slide four, we highlight our key priorities. Delivering value for our customers has always been and continues to be one of our highest priorities. We have proactively deployed proven regulatory and rate design tools to mitigate bill impacts and protect customers from external cost pressures. In Pennsylvania, customers benefit from the weather normalization mechanism, which prevents bill spikes during colder months, and from a higher fixed charge that helps stabilize the impact of changing usage. These protections were negotiated during our last rate case and have already prevented heightened bill increases since implementation in January. Similarly, in Ohio, our fixed variable rate design smooths the bill impact associated with necessary investments to maintain system safety and reliability and can cut total bill increases in half relative to higher volumetric rate design structures. Our landmark agreement with Amazon further demonstrates our commitment to affordability. This agreement will return approximately $1 billion in value to our Indiana customers, translating into meaningful bill reductions over a fifteen-year period. Customers also benefit from NiSource's scale and disciplined planning. During the recent severe winter storm, we leveraged low-cost gas from our storage assets, which serve roughly 75% of our total load at below-market prices, which help limit customer bill impact. In addition, our flat O&M objective across the platform constrains cost growth and reduces the pass-through of investment-related expenses to customer bills. Together, these proactive measures enable us to invest approximately $28 billion over the next five years to modernize and maintain our infrastructure, continuing to prioritize safety and reliability and targeting average annual bill increases of less than 5%. We have advanced our gas system support by securing a final order in Pennsylvania and adding supportive legislation in Ohio, which will improve rate-making and reduce regulatory lag. In Indiana, our contract with Amazon is pending before the IURC, with a decision expected in the first half of this year. Today, we reported fourth quarter adjusted EPS of $0.51, bringing our year-to-date total to $1.90, and we are reaffirming 2026 consolidated adjusted EPS guidance of $2.02 to $2.07. Despite these strong financial commitments, we believe significant upside remains across the outlook of our plan from developing projects supporting data center growth, oil shoring of manufacturing, and robust economic development across our territories. Now let's turn to slide five. At NiSource, safety is our top priority and the foundation of operational excellence. In 2025, we maintained ISO 55001 and API 1173 certification, underscoring our commitment to a strong safety management system. Our investments in system resilience and emergency preparedness proved invaluable this winter. During one of the most significant storms in the last decade, while many communities across the country experienced widespread outages, our customers remained safe and warm with limited service disruption across our footprint. Over the past year, we accelerated critical safety initiatives, including installing over 545,000 smart meters and surveying more than 41,000 miles of pipelines with advanced mobile leak detection technology, both exceeding targets and enhancing system reliability. Operational performance was further strengthened by leveraging AI analytics and our work management intelligence system, which improve productivity and is being expanded into supply chain and reliability functions. Project Apollo continues to drive cost savings and process improvements, enhancing service quality, and we remain focused on customer affordability, targeting annual bill increases below 5% across our territories over the plan horizon. Regarding our regulatory agenda on slide six, we secured important outcomes in the fourth quarter, including approval of our Pennsylvania rate case in December and continued progress across our tracker platforms. We expect to benefit from improved regulatory support in Ohio following recently enacted utility legislation. Together, these developments reduce regulatory lag, align cost recovery with investment timing, and reinforce our constructive jurisdictional framework. In Indiana, we continue active engagement with the IURC as we advance filings tied to generation transition, fuel recovery, and our economic development initiatives. In 2025, the Indiana economic development team managed one of the strongest pipelines in recent years, supporting over 140 active projects across the service territory. In Virginia, which remains a data center capital of the world, our team has filled more than 40 data center inquiries in 2025. We are currently engaged in approximately two dozen active data center projects, advancing gas infrastructure opportunities to support customer needs. As we look forward to our regulatory agenda in 2026, we currently do not have any pending rate cases, but as typical for our business, some level of regulatory activity will likely occur. We are committed to working collaboratively with stakeholders to make investments that maintain safe, reliable service for our communities. We also continue to engage actively with policymakers at both the federal and state level. In December, NIPSCO received a federal order directing continued operation of our Shaker coal plant beyond its planned retirement. We will comply with this and any future orders we might receive. Our capital strategy remains adaptable to meet regulatory requirements and to maintain financial stability. We filed a proposed new schedule for cost recovery with FERC in line with the DOE-mandated coal plant extension. Our commitment to providing safe and dependable energy remains steadfast. We are monitoring developments related to EPA reliability regulations, MISO accreditation changes, and state-level customer initiatives. Our diversified footprint and integrated electric and gas operations position us well to adapt to evolving policy. We have a well-defined plan for executing our data center initiative, marked by key milestones as noted on slide seven. Right now, we are advancing the Amazon project, and we are on track. On February 2, our zoning application for five parcels was approved by the Jasper County commissioners, a key step for our data center strategy. This approval reflects our commitment to transparency, stakeholder collaboration, as well as Indiana's support for economic growth. Our next major milestone includes IURC approval of the special contract and commencing civil site work. We will update you as we reach and progress towards key milestones over the next several quarters. We are focused on disciplined construction execution, leveraging our proven track record of delivering large-scale generation projects on time and on budget. And with that, I will turn the call over to Shawn. Shawn Anderson: Thank you, Lloyd, and good morning, everyone. I will begin on slides eight and nine with our financial results for the fourth quarter and full year. 2025 continued NiSource's track record of disciplined capital allocation and cost management to deliver on our financial commitments. The outperformance across 2025 was driven by strong financial management of capital, better-than-expected financing costs, outperformance from retail sales, and sound cost management and constructive regulatory execution across all of our states. For 2025, we reported adjusted earnings of $0.51 per share compared to $0.49 for the same period last year. For the full year 2025, adjusted earnings were $1.90 per share compared to $1.70 in 2024. Results reflect regulatory execution in Indiana, Pennsylvania, and Ohio, partially offset by increased operating and interest expenses. Significant weather effects also impacted the fourth quarter, contributing about 70 basis points in FFO to debt for the full year. The impact was mainly due to the timing of weather events and a portion is expected to be passed back to customers in 2026 through regulatory mechanisms. Our capital plan on slide 10 includes $21 billion of base utility investment over the next five years focused on grid modernization, gas infrastructure replacement, safety, and reliability. The Amazon project at Genco represents $6 to $7 billion of capital investment through 2032, with the majority falling within the five-year planning window. The contract is designed to align cash inflows with customer ramp rate and incorporates protections that support both credit quality and financial flexibility. In addition to these guided CapEx plans, we maintain approximately $2 billion of upside capital investments which support our base business utility operations. Key investments include electric generation investment to comply with MISO's reliability standard and planning projects related to system hardening. Beyond the base and upside plans, our teams continue to advance the incremental investment opportunities shared on slide 11, including MISO's long-range transmission planning process and the development of tranche two projects, PHMSA compliance, and advanced metering infrastructure. We are evaluating these opportunities and will incorporate these projects into our base capital expenditure plan once we have completed the scope and estimation work necessary to launch those projects. Our data center pipeline is shown on slide 12 and remains robust, reflecting our ability to actively develop and serve a growing roster of new customers. We continue to engage in strategic negotiations for one to three gigawatts of new capacity, underscoring the strength and scale of demand in our markets. In addition to these advanced negotiations, we have identified up to three gigawatts of further developing opportunities, positioning NiSource as a key energy partner for data center expansion and broader economic development objectives across our service territories. On slide 13, you will notice that since 2021, we have nearly doubled the generation capacity of the NIPSCO system and built a robust pipeline of projects to meet rising customer demand and support the energy transition. These additions enhance grid reliability and diversification while demonstrating NiSource's proven ability to execute large-scale construction projects. They also position us to serve an expanding customer base, support data center growth, and deliver on our long-term objectives. Slide 14 captures a summary of our financial commitments. We are reaffirming NiSource's consolidated adjusted EPS guidance range for 2026 of $2.02 to $2.07 per share, which represents approximately 8% year-over-year growth compared to 2025. This is fueled by the base business guidance of $2.01 to $2.05, which is expected to grow 6% to 8% off of the $1.90 adjusted EPS achieved in 2025. In addition, in 2026, we expect Genco to contribute 1 to 2¢ as it begins to ramp up its earnings contribution to NiSource. This drives a compound annual growth rate of 8% to 9% through 2033, supported by a 9% to 11% consolidated rate base CAGR through 2033. We are committed to keeping O&M costs flat over the planned horizon to support sustainable operations and reduce future risks. In 2025, we proactively funded incremental initiatives focused on cybersecurity improvements, expanded leak repair activity, and better leak detection, initiatives that lower system risk and protect our infrastructure. Our plan assumes modest customer growth of less than 1% across all customer classes and conservative financing assumptions through 2030. Our regulatory execution in 2025 has increased visibility into 2026 results, with the regulated revenue increases necessary to achieve our guidance range either already reflected in rates or pending approval. Our forecasts incorporate continued use of long-established capital trackers in nearly all our jurisdictions and are based on what we believe are realistic regulatory outcomes. And I am pleased to announce another successful year of dividend growth for our shareholders. In January, the board approved a 7.1% increase in the dividend for 2026 compared to 2025, reflecting our commitment to aligning dividend growth with earnings growth and maintaining our target payout ratio of 55% to 65% as outlined in our strategic plan. The strength of our balance sheet is highlighted on slide 15. We remain committed to maintaining FFO to debt between 14% and 16% throughout the planned horizon. In 2025, we achieved 16.1%, an increase of 150 basis points, exceeding our targeted guidance range. This was aided by strong internally generated cash flows from capital execution, increased equity issuances via the at-the-market program, junior subordinated note issuances, and higher-than-typical cash flow receipts from the above-normal weather we experienced in 2025. This positions us well as we look to execute on our financial plan through 2033. We expect to fund our capital needs through a combination of operating cash flow, long-term debt, and $300 million to $500 million per year of maintenance ATM equity at the parent. At the Genco level, we retain the flexibility to leverage minority equity and project-level debt to minimize financing friction and maximize long-term shareholder value. Turning to slide 16. Genco remains poised to deliver incremental value beginning in 2026 with guidance of 1 to 2¢ per share. We are confident in our strategic direction and look forward to sharing additional updates as we progress through the year as we monitor the IURC's decision on the special contract filing. The year also extended outperformance as shown on slide 17, by consistently following our business plan and rigorous capital allocation principles, we have shown ongoing growth and solid financial outcomes which compound over time. NiSource has met or exceeded the upper end of its guidance range each of the last five years. Each time this target is achieved, we adjust our future adjusted EPS guidance upwards to reflect these accomplishments. This approach has set us apart by creating real value for our shareholders. The effect of our outperformance in annual rebasing compounds, amplifying our achievements, and sets the stage for even greater financial momentum in the years ahead. For example, 2026's implied midpoint is now 8.8% higher than originally forecasted in 2022. That exceeds the upper range of one full fiscal year of earnings power since our strategic business review in 2022. Our track record of exceeding expectations has set a new benchmark for NiSource's performance, delivering 8.5% adjusted EPS since 2021 compared to the industry median growth of 6.4%. This growth in earnings power for NiSource, coupled with a greater than 7% increase in dividend to our shareholders for 2026, will enable us to achieve double-digit annual total shareholder return which endures and grows over the business plan horizon. 2025's 9% year-over-year adjusted EPS growth rate continues a trend of over 8% growth already achieved annually in our business since 2022. And we expect this to continue as we look further out to our long-term guidance. Rate. We can test the consults of data through 20? This consideration of structure and grow further reflect the need. Extend our long profile. Averted discipline, a major new growth opportunity on agreement, Our team is active discipline. 2026 in our strategy. Financial commitment, our ability to sustainable value customers and share. Opposition NICE is to offer that is diverse regulated utility with the ask to invest in oil and gas and per and the long transition story, both fully integrated element of a story. Opportunities, economic development, non-shoring center development, Please differentiate opposition. To many alternative day. That operator, open the line for questions. At this, I would like to ask a press PIN number one on phone keypad. To withdraw in simply the one again. We will calm it to comply roster. Your first comes from the line Campanella Lave Hey. Good morning. Thanks. Good morning. The strategic negotiator for GenscoA and talk about what investors should be looking for to know you are making kind of further progress? As it relates to that figure? Shawn Anderson: And, you know, maybe just kind of confirm you stand in the supply chain, if you do think you can kind of deliver another gas solution this year. Or if it would be more you know, renewable than batteries? Just any forward-looking thoughts there. Thanks. Lloyd Yates: Oh, thanks. So I will start, and I will ask Michael Luhrs to weigh in here. Now if you think about the JENCO order that we received last September, you know, NiSource is in a position to offer what we said is a unique solution to potential large low low customers. When you combine the order with our excess transmission capacity and our supportive policy in Indiana, feel like we are in a really strong position to grow our data center load business. We have also created, well, I will say, an organ but we have created an organization under Michael Luhrs. It is led by Dan Douglas. You probably do not know, but sole purpose of that organization now is to execute on this opportunity. So with that being said, I mean, Mike, those guys wake up every day to on the data center opportunity. So I do not think future transactions will take as long as Amazon. You know, when we did the Amazon deal, we had a bunch of people working part-time to accomplish that. So I think what we are having now is better focus and better processes which should lead to faster execution. Now I will turn it over to Michael to talk about the discussions with the counterparties and then the queue and backlog. Michael Luhrs: Sure. Thank you, Lloyd. The discussion with the counterparties are progressing well. We have multiple counterparties that are in that pipeline that we continue to develop. We feel very positive relative to those negotiations. And I do believe that the Genco solution that we have designed and put forward has been advantageous to those discussions. Relative to the supply chain and the pipeline, as we have discussed before and as we continue to do, we are facilitating that pipeline through investment in long lead time equipment, turbine reservations, breakers, transformers, etcetera. To help make sure that we can meet counterparty demand in a very timely way. Speed to market is one of our core tenants, and we are investing in that speed to market. Shawn Anderson: Okay. Thanks. And, appreciate that. Maybe just the commentary, in the prepared around no pending rate cases outstanding. Can you just give us an idea of how you are thinking through your Pennsylvania strategy and what the considerations there? Lloyd Yates: Are? So right now, not planning a rate case in Pennsylvania. I know there has been a lot of commentary about Pennsylvania. We just had a rate case. We finished a rate case last December. In that rate case, we increased revenue $55 million by 10% ROE. We had great conversation with the commissioners. What one was to continue to con invest and replace plastic pipe first first generation plastic pipe in Pennsylvania and continue along with that investment. That is same time, it would do not come in for rate cases so frequently. So we are in the midst of trying to solve that conundrum with some some kind of regulatory solution that we are working through right now, but we do not have anything new to tell you about that. Okay. Thank you. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead. Julien Dumoulin-Smith: Good morning, team. This is Park on for Julian. And Good morning. Appreciate the color. Yeah. Thank you. On the supply chain. And maybe just a quick follow-up on timing. Should we think about announcement of the next Genco deal as contingent on receiving the first IURC approval for the special contract filing? Or, you know, could the second project be announced ahead of that milestone? Lloyd Yates: So as we as we mentioned earlier, let me say we are executing on our strategy. We have a specific team working on that strategy. We have more focus and better processes. We do not have a date. I think that we are dealing with a port I know that we are dealing with a portfolio of customers, These are complicated transactions. They take a lot time. And with that portfolio of customers, we do not have specific time to lay out to you right now. When we know something, you know, we will communicate it appropriately. Michael, you want to add anything to that? Michael Luhrs: Only thing I would add to that is is the another opportunity is not dependent upon the IURC approval of the first opportunity with Amazon. That is not a a condition precedence in what we are doing with additional development of the pipeline. Julien Dumoulin-Smith: Okay. Appreciate the color, and thank you. And maybe if I can quickly, pivot to regulatory front and appreciate the color on Pennsylvania rate case filing. Maybe just how should we think about the timing, you know, for the Nipsco gas rate case filing this year? Are you on track, or do you plan to file for that rate case this year? Just based on case historical cadence? Lloyd Yates: No. They You can do that. Operator: Yep. At this time, we have not made the determination to file, you know, for a rate case. We are taking everything into consideration but at this time, no. Lloyd Yates: Okay. Thank you. Operator: Your next question comes from the line of Bill Apicelli with UBS Securities. Please go ahead. Bill Apicelli: Hi. Good morning. Just following up on the same theme here. I As far as those, conversations, are going, you know, can you speak to maybe the the scale of the opportunities? I mean, obviously, the the initial announcement was quite large. I mean, should the expectation be you know, smaller contract sizes moving forward, or any thoughts there of how you guys are are framing out the the size and scale of the incremental opportunity? Lloyd Yates: So we have not disclosed the size and scale. What we have said is we are in strategic negotiations with one to three gigawatts and that entails a portfolio of customers and could be multiple sizes and shapes. Michael, anything to add to Michael Luhrs: The the only thing I would add to it is if you remember our criteria around making sure for stakeholders that we are maintaining the balance sheet, the speed to market, providing a benefit to customers, we really look at those criteria for the determination of what deals we pull through. If customers meet those opportunities, those deals, then we can serve them and execute on those, then, you know, we we will continue to do that. So it is more about the capabilities and the contract agreements than it is about the specific size of the counterparts. Bill Apicelli: Okay. And has the the the pace of those conversations picked up at all just in the last few months as we have seen some you know, slowdowns in other regions? I am just curious on that front. I would say the pace of the conversations, discussions, has picked up Our organization's speed has picked up. We have a lot confidence in our ability to execute on the strategy. Okay. Great. And then just one other topic here. Can you maybe explain a little bit around the significance of of senate bill one three and what that could mean for large load customer opportunities in Ohio. And or I guess, any of those contemplated within the base capital the $2 billion of upside base CapEx? Shawn Anderson: Yeah. Thanks, Bill. Appreciate the question. We have not inquired incorporated any upside from economic development or the procurement of large load customers into the Columbia Gas Ohio forecast yet. We are currently working on optimization based on the outcome that we received in December and the new law signed, to help us optimize both the regulatory strategy as well as minimizing regulatory lag potential, get get tighter and more certain capital recovery timelines, and then certainly how we can action alongside Michael's team, the upside that come from economic development and data center opportunities in Ohio. But none of that is in reflected in the the COH plan at this point. Bill Apicelli: Okay. That is something you could fold in later this year? Shawn Anderson: Yep. Absolutely. Throughout the year, even at that point, we we would not need to wait till a typical full plan refresh for us to provide guidance, whether it is, on individual projects or the upside CapEx, as we have shown in the past, we will flow those potential upsides. Into our plan all along the way. Lloyd Yates: Alright. Great. Thank you very much. Operator: Your next question comes from the line of Elias Jossen with JPMorgan. Please go ahead. Elias Jossen: Hey, everyone. Just wanted to start on some of the recent developments across Indiana as it pertains to the base business. Can you remind us where we are on House Bill 10 o two and, you know, frame potential impact of that legislation. Maybe just speak more broadly to some of the IUR appointment changes and their know, overall view of of your business and you know, the affordability backdrop. Thanks. Lloyd Yates: So let me start with we are supportive of how Bill 10 o two. It Today, it is in, I think, senate appropriations in this in the state of Indiana. The session ends March 15, so I am not sure whether it it will get out of it in it will get out of appropriations in time. For the approval process. But over overall, think it will be good for us. I mean, the bill has kind of four big components, multiyear rate plans, and perform some performance-based components. It has a mandatory budget billing with an opt-out. Then it has a a low-income plan, funding funding for a low-income plan, which we already have, in the state of Indiana. So we think the bill is ultimately good We support the bill. We I I I think we have had good input into the bill. And we we like where it is. I think with respect to the commissioners, the three new IURC appointments, I think they will be balanced We we are very familiar with all three of the new commissioners. And, again, I think Indiana will continue to be a very constructive regulatory jurisdiction. Elias Jossen: Awesome. And then jeez. But can you remind us if the high end of the Genco range reflects the full upper bound of Amazon's ramp? Or is that a more conservative scenario? Just trying to understand sort of the the total possibility there on the Genco contributions. Shawn Anderson: Yeah. So this is Shawn. There is a range of scenarios which have the potential to impact the positioning of where we are at with the within the range. The most notable are related to financing costs and construction timelines, faster than anticipated leads to lower financing costs, thus positioning us like like higher in the range. Slower construction timelines could lead to more financing costs, and thus a lower position within the guided range. In addition, you know, we have got some opportunity to optimize that financing cost overall. We are evaluating those scenarios, and we could see some outperformance of where we are within our point estimate, which would ultimately strengthen the earnings contribution to NiSource. So we have a range of scenarios reflected in the guidance that we provided for all years. Certainly, incremental customers or changes to the current timelines could represent upsides and strengthen where we are at. But those are further out as we look at the 2033 guidance range. Elias Jossen: Got it. Appreciate the color. Operator: Your next question comes from the line of Travis Miller with Morningstar. Please go ahead. Travis Miller: Good morning, everyone. Thank you. Lloyd Yates: Good morning. Quick one on Schafer. I will save you from all the data center. Questions here. So two unrelated ones. Schaeffer, economics run time, plans to retire, what is beside what you said in the opening comments? What is a more detailed plan for Schafer do you think right now? Lloyd Yates: So as you know, we received a two zero two order on Schaefer. I think it was December 23. We were on retire that plant December 31. We filed with FERC and going down a path for cost recovery. Right now, in terms of our capital plan, we have enough flexibility in our capital plan where it is running Schafer as as an alternative is not going to have a big impact on our capital plan. I think run time will be determined by myself. In terms of demand and availability, but it will we are putting ourselves in a position to be able to operate Schafer, operate it reliably and effectively. I think longer term, there are some environmental constraints that will prevent it from operating at a really long term, but those are subject to change with some of the EPA regulations that are being changed right now. So you know, would you know, we expect to receive maybe another order every ninety days until the federal government changes the way that you know, that process works. You know, we are going to operate safer and comply with all the orders that we receive. Travis Miller: Okay. Makes sense. And then higher level question. What are you seeing across your jurisdictions in terms of electric and gas coordination? So either timing or supply coordination. Now it is an issue that has been coming up here recently. What is the status do you think in in your jurisdiction as you got these had more gas generation and have have that gas supply side. Lloyd Yates: I will talk about this. Not as an NiSource, but as the former chair of the AGA. We have been intimately involved. We are Movica, who is our senior vice president of operations has led the GEAR task force, which is really the point on the spear from the AGA perspective and with on the electric side of the business of figuring out how to more effectively coordinate gas and a ledger across the entire United States. So I would say this is a US thing from it is The United States thing, not just our region issue. It is an important issue. I think it is getting better. I think the process processes are being developed. To be much more effective and have much tighter coordination than we have in the past, which I think will really be important for reliability and resilience. Travis Miller: Okay. Great. That is all I had. Thanks so much. Operator: Your next question comes from the line of Paul Fremont with Ladenburg. Please go ahead. Paul Fremont: Thank you very much. Congratulations on a on a great year. I guess my question has to do with what should we expect with respect to reporting for the Genco? Right now, you have got Columbia operations, NIPSCO, corporate and other. Should we be looking, you know, for a fourth segment for the Genco or or how how do you plan on on on showing that in terms of the financials? Shawn? Shawn Anderson: Yeah. Hey. Good morning, Paul. We we do anticipate as Genco becomes more material to NiSource's operations to break Coat as its own segment. Obviously, we have not done that yet for 2025 reporting, but as we step into 2026's results, we would anticipate growing to to provide incremental disclosure around that. Paul Fremont: So, I mean, should we begin to see something, like, in the first quarter? It will be will it be more towards the end of the year? Or or several years out when the EPS contribution goes higher? Shawn Anderson: I would expect it in 2026. Fiscal results. So I would start to build that out in your models. We have not disclosed the exact timing of when we will do that. We are underway to to make sure we can get that disclosure, out there. Paul Fremont: Okay. And then last sort of question will be when you do it out, will it be a full income statement or or just partial? Shawn Anderson: We will be sure to get that information out to you, Paul. We have not exactly, disclosed those plans yet, but we will we will get that updated for you and and help you if you need any side side conversations on what to start to build out. Paul Fremont: Great. Operator: Thank you very much. That concludes our question and answer session. I will now turn the call back over to Chief Executive Officer, Lloyd Yates, for closing remarks. Lloyd Yates: First of all, thank you for your questions and your interest in NiSource. I do want to take this opportunity because I know they are listening, to thank all of the NiSource employees and contractors for winter storm Fern. You know, our performance was exceptional. We had very few customers interrupted. Our customer states safe and warm. And we recognize the hard work that went into that. So thank you to the team. Have a great day. Tiffany: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, everyone, and thank you for joining today's Highwoods Properties, Inc. Q4 2025 earnings call. My name is Reagan, and I'll be your moderator for today's call. I would now like to pass the conference over to Brendan Maiorana, Executive Vice President and Chief Financial Officer. Please proceed. Brendan Maiorana: Thank you, operator. And good morning, everyone. Joining me on the call this morning are Theodore J. Klinck, our Chief Executive Officer, and Brian M. Leary, our Chief Operating Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com. On today's call, our review will include non-GAAP measures, such as FFO, NOI, and EBITDAre. The release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Forward-looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. With that, I'll turn the call over to Ted. Theodore J. Klinck: Thanks, Brendan, and good morning, everyone. Before I talk about our fourth quarter and outlook for 2026, I'd like to begin by highlighting some of the reasons why we're upbeat about the next few years for Highwoods Properties, Inc. First, the fundamental backdrop across our core Sunbelt BBDs is as strong as it's been in many years. There's limited to no new supply across our markets, and dwindling blocks of available high-quality space. New users continue to migrate to the Sunbelt. And even with mixed signals about the health of the overall economy, many existing companies in our footprint continue to grow their businesses. This dynamic has created rental rate growth not just in face rates, but growth in net effective rents, including rent spikes in our best BBDs. Given limited development starts forecasted for the foreseeable future, well-capitalized landlords with high-quality office in BBD locations in the Sunbelt are positioned to drive meaningful growth in rents. Second, the convergence of occupancy gains, rental rate growth, and stabilization of our development pipeline should enable Highwoods to deliver outsized NOI and earnings growth in the next few years. We expect to drive occupancy higher by roughly 200 basis points from 2025 to 2026. Plus, our development properties are projected to deliver year-over-year growth in each of the next three years. For the last few quarters, we've been emphasizing approximately $50 million to $60 million of NOI growth potential across eight buildings: four existing operating properties and four developments. We will realize some of this growth in 2026, but most will benefit our NOI trajectory in 2027 and beyond. Third and finally, we are positioned to invest at attractive risk-adjusted returns. Future investments are also likely to drive additional growth. We've invested approximately $800 million or nearly $600 million at our share over the past twelve months. These acquisitions, which were in the strongest BBDs of Charlotte, Raleigh, and Dallas, have a weighted average vintage of four years, an initial lease rate of 93.5%, waltz of nine years, rents approximately 15% below market, and projected stabilized cash yields of roughly 8%. The combination of strong fundamentals for high-quality BBD office and limited buyer pools creates an excellent opportunity for us to deploy capital at attractive risk-adjusted returns. These items combined with our proven track record and strong balance sheet give us confidence that we're well-positioned to grow for the foreseeable future. Our initial 2026 FFO outlook is 5.7% higher at the midpoint than our initial 2025 outlook. Now turning to our fourth quarter. We had solid financial performance with FFO of $0.90 per share, including $0.06 of land sale gains, resulting in full-year 2025 FFO of $3.48 per share. Excluding land sale gains, full-year FFO was $0.7 per share or 2% higher than the midpoint of our original outlook provided at the beginning of 2025. We leased 526,000 square feet of second-gen space during the fourth quarter, including 221,000 square feet of new leases. In addition, we signed 95,000 square feet of first-gen leases in our development pipeline. Signings on second-gen space were a bit lower in the fourth quarter compared to earlier in the year. We believe that was largely just timing, as already in 2026, signings have accelerated and the long-term trend continues to be positive. Leasing economics continue to be healthy in the fourth quarter. Cash rent spreads were positive, with GAAP rent spreads in the mid-teens. As we've long stated, we're most focused on net effective rents, which were strong again in the fourth quarter and helped make full-year 2025 our high watermark. For the year, net effective rents were 20% higher than in 2024 and 19% higher in 2022, our prior peak year. This performance underscores the improving fundamentals we're seeing across our markets and BBDs. Our $474 million development pipeline is now 78% pre-leased, up from 72% last quarter and 56% one year ago. Glenlake 3, our 218,000 square foot office, and amenity retail development in Raleigh, is 84% leased, with strong prospects to bring the property to the mid-nineties. At Granite Park 6, our 422,000 square foot building in the legacy BBD of Dallas, we signed 44,000 square feet since our last earnings call and are now nearly 80% leased. We signed 51,000 square feet at 23 Springs, our 642,000 square foot mixed-use development in Uptown Dallas, bringing the property to nearly 75% leased, up from 67% last quarter. At 23 Springs, current rents are 40% above our pro forma underwriting. Lastly, Midtown East in Tampa, our 143,000 square foot development, is 76% leased, and we have strong prospects for the remaining office space. Given the strong demand we've experienced with our current developments and demand from sizable users across many of our markets, we're starting to have conversations with prospective build-to-suit and anchor customers for new projects. We've included the potential for up to $200 million of development announcements in our 2026 outlook. We've been active on the investment front, especially late in 2025 and early in 2026. We acquired $472 million in 2025, including our $223 million acquisition of 600 at Legacy Union in the fourth quarter. 600 is a 411,000 square foot class double-A office tower in Uptown Charlotte. This property was completed in 2025 and is currently 89% leased, up from 84% when we acquired the building in November. We have strong prospects to bring the building into the mid-nineties. Because the property is just delivered and is currently only mid-forties percent occupied, NOI will be temporarily lower in 2026. We expect to reach stabilized yields of around 8% on both a cash and GAAP basis, with projected stabilization occurring on a GAAP basis in 2027 and cash in 2028. In January, we acquired two buildings in the BBDs of Raleigh and Dallas, for a total expected investment of $318 million, of which our share was $108 million plus $13 million of preferred equity. First, we acquired the Terraces in Dallas for $109 million in a JV with our longtime local partner Granite Properties, in which we have an 80% interest. The Terraces is a 173,000 square foot best-in-class property that was built in 2017 and is located in Preston Center, a new BBD for Highwoods. We believe Preston Center is the most supply-constrained BBD in Dallas, where rents have grown substantially over the past few years, giving us more than 30% mark-to-market upside on in-place leases. After signing a lease following our acquisition, we are now 100% leased at the Terraces. Second, we acquired Block 83 in Raleigh, a 492,000 square foot mixed-use asset that includes two ten-story best-in-class office buildings, with 27,000 square feet of ground floor amenity retail located in CBD Raleigh. We initially own a 10% interest in the joint venture that was formed to acquire Block 83. The North Carolina Investment Authority, a new investment partner for Highwoods, owns the remaining 90%. We have the option to increase our ownership in Block 83 to 50%. On a combined basis, we expect the initial GAAP yield on Block 83 and Terraces to be in the low to mid-8% range during 2026, while our initial cash yield will be around 7%, which is temporarily low due to free rent at Terraces that will burn off during 2026 and result in stabilized cash yields in the mid to upper sevens on a combined basis, prior to achieving rent roll-ups at the Terraces. We expect to fund our recent acquisition activity on a leverage-neutral basis, primarily through the sale of non-core assets or properties where value has been maximized. We sold $66 million of non-core buildings and land across various markets in the fourth quarter and an additional $42 million of non-core properties in Richmond subsequent to year-end. Our 2026 FFO outlook assumes we close $190 million to $210 million of additional dispositions by midyear. Upon stabilization of 600, we expect this leverage-neutral rotation of capital to be modestly accretive to our unaffected FFO run rate, while improving our long-term growth rate, strengthening our cash flows, and increasing our portfolio quality. To wrap up, we're excited about the outlook for Highwoods. First, given strong fundamentals across our markets, pricing power is shifting towards well-capitalized landlords who own high-quality buildings. Second, organic growth potential embedded in the Highwoods portfolio will be realized primarily through occupancy gains in our operating portfolio and stabilization of our development pipeline. Third, given our proven track record, we expect to continue to deploy capital at attractive risk-adjusted returns that enhance our long-term growth outlook, increase our portfolio quality, and strengthen our cash flows. These factors combined with our strong balance sheet and strong platform provide the foundation for sizable momentum over the next few years. I'm also confident in our outlook because of our engaged, hardworking, and talented teammates, who have long driven our consistent success. I thank the entire Highwoods team for their commitment and tireless dedication. Brian? Brian M. Leary: Thank you, Ted. Our Sunbelt markets delivered a strong finish to 2025, validating our BBD strategy and setting us up for another year of occupancy and rent growth in 2026. These cities are net winners with regard to inbound talent, corporate relocations, and job growth. All are in the top 15 of the Urban Land Institute and PwC's top markets to watch and widely finished the year posting positive net absorption. With office development pipelines at record lows, a best-in-class commute-worthy portfolio, and a strong balance sheet, we're the beneficiaries of a market in full flight to quality mode, which is driving healthy lease economics across our BBD portfolio. The year's body of work included 3.2 million square feet signed with strong GAAP rent spreads of 16.4%, all-time high net effective rents, significant leasing across the development pipeline, and the meaningful backfill of long-communicated vacancies. In the fourth quarter, we signed 88 deals with cash rent spreads of a positive 1.2% and weighted average lease terms of almost six years. Expansions outpaced contractions two and a half to one for the quarter, over three to one for the year, and we ended 2025 over 89% leased. With competitive supply decreasing, construction pipelines at record lows, and with our customers' conviction on having their best and brightest in the office resolute, 2025's positive leasing environment is continuing into the new year. Across our Sunbelt BBDs, market fundamentals continue to outperform the nation. New supply is almost nonexistent, and inbound corporate relocations and growth marches on. Starting in Charlotte, the Queen City has not only kept its post-pandemic momentum, it found another gear according to the Bureau of Labor Statistics, finishing 2025 having generated more nominal jobs than any other metro area except New York City, which is seven times the size of Charlotte. The city's economic development office reinforced this highlight, naming 2025 the best year for business recruitment in a decade, with 15 announcements totaling 4,000 jobs and with no sign of a slowdown in 2026. This included major corporate relocations or new regional hubs for the likes of global logistics giants Maersk, Daimler Truck, Pac Life, SoFi, American Express, our new customer joining the recently acquired 600 at Legacy Union, and Scout Motors' 1,200 job global headquarters in the uptown adjacent neighborhood of Plaza Midwood. CBRE noted leasing activity in 2025 echoed the region's job productivity, reaching its highest level in more than six years. Roughly 5.2 million square feet of deals were signed, with 75% of the volume related to leases that were either new or expansions. Trophy and top-tier class A space in uptown, South Park, and South End are effectively full. Development under construction is largely preleased, and there is virtually no new speculative product in the pipeline. Against this backdrop, our 2.4 million square foot Charlotte portfolio, already in the mid-nineties leased, is positioned to capture further rate growth as leases roll. This is evident in our portfolio by the pace and healthy economics of any reletting, as well as the activity Ted mentioned at 600 since our acquisition. Heading west to Yall Street, Dallas is the number one market to watch according to ULI and PwC for the second straight year. In Big D, CBRE noted 2025 net absorption near its post-pandemic high. Class A office posted its fifth consecutive quarter of positive absorption, and with the recent acquisition of the Terraces in Preston Center, we now own 1.8 million square feet with our partners at Granite across Uptown, Legacy, and Preston Center, the three BBDs we initially targeted for investment when we entered Dallas four years ago and where the market strength is largely concentrated. To the Volunteer State, where Cushman highlighted that Nashville's 2025 net absorption was twelfth nationally overall, with 900,000 square feet for the year, and asking rents reaching all-time highs. Alvis and Young noted that after absorbing a wave of new construction, the pipeline has dropped to historical lows. Trophy office availability declined at a nationally leading rate, and up to 2 million square feet or 13% of downtown office stock is being converted to announced hotel and residential uses. Our portfolio concentrated in downtown Franklin and Brentwood is benefiting from this environment with steady leasing velocity and prospects that should allow us to both fill remaining vacancy and mark rents to market. To that end, Symphony Place in Downtown, Park Place West in Franklin, and our Westwood South building in Brentwood all have strong pipelines of prospects to bring these buildings to stabilized levels. Stepping back, 2025 confirmed that our Sunbelt and BBD-focused portfolio is aligned with where tenants want to be. We are overweighted in the submarkets with the greatest absorption, tightest supply, and rising class A rents. This combination gives us line of sight to further occupancy gains and mark-to-market economics in 2026. This underscores our confidence in our ability to unlock the durable growth that is embedded within the Highwoods platform. Brendan? Brendan Maiorana: Thanks, Brian. In the fourth quarter, we reported net income of $28.7 million or $0.26 per share. Our FFO was at $100.8 million or $0.90 per share, which includes $0.06 per share of land sale gains. During the quarter, we issued $350 million of unsecured bonds and acquired 600 at Legacy Union, which, as Ted described, is a just-completed trophy office building with low initial NOI as several signed leases have not yet commenced. The impact of the bond issuance and the acquisition of 600 reduced FFO by 1¢ per share. Excluding these two items and the land sale gains, our fourth-quarter results were in line with the midpoint of our upwardly revised 2025 outlook provided in October. Since our last earnings call, we've invested over $330 million to acquire best-in-class office and amenity retail properties across the strongest BBDs in Charlotte, Dallas, and Raleigh. We plan to fund these acquisitions on a leverage-neutral basis, primarily through the sale of non-core assets or other properties where value has been maximized. We closed $66 million of dispositions in the fourth quarter and another $42 million so far this year. Our early fourth-quarter 2025 ATM issuances provided about $20 million of leverage-neutral purchasing capacity, leaving us roughly $200 million of additional dispositions required to complete our asset rotation on a leverage-neutral basis. We plan to complete these additional dispositions by midyear. Before I review the impact of the recent investment activities on our 2026 outlook, I want to first highlight our asset recycling over the past twelve months. We've invested $580 million to acquire high-quality office buildings in the strongest BBD locations in the Sunbelt and sold $270 million of non-core properties. Upon stabilization of 600 and after we sell another $200 million of assets, this leverage-neutral rotation will be modestly accretive to our near-term FFO, strengthen our cash flow, increase our long-term growth rate, and improve our market mix and portfolio quality. This rotation has resulted in a reduction to our portfolio age by over two years to a weighted average vintage of 2007. That's not easy on a roughly 27 million square foot portfolio. Now to our 2026 outlook. We're introducing an initial FFO range of $3.40 to $3.68 per share, which equates to $3.54 at the midpoint. Since our last call in late October, we've completed a number of investment and financing transactions that will temporarily impact 2026, but not impact 2027 and thereafter. First, the acquisition of 600 at Legacy Union will have a dilutive impact on 2026 by approximately 7¢ per share given the building is 89% leased, but currently only 44% occupied as several large leases won't commence until late in the year. GAAP NOI at 600 is projected to be approximately $10 million in 2026, and more than $18 million in 2027 upon stabilization. Second, we opportunistically accelerated a bond issuance into late 2025 that we had originally planned for late 2026 or early 2027. We made this decision given the strong backdrop in the bond market and to provide us temporary liquidity to fund the acquisitions of 600, the Terraces, and Block 83 prior to completing the leverage-neutral rotation of capital I described earlier. This will leave us with excess cash on the balance sheet and no borrowings on our credit facility for much of 2026 but eliminates the need for a bond issuance later this year and will enable us to repay our $300 million March 2027 bond maturity with cash on hand and borrowings on the credit facility. This short-term excess liquidity is expected to reduce 2026 FFO by $0.03 per share but should not have any impact on our previously unaffected run rate for FFO for 2027 and beyond. Third, because we have another $200 million of dispositions to go to complete our leverage-neutral rotation of capital, our leverage is temporarily elevated, which increases our projected 2026 FFO by 1¢ per share. Said differently, if we had completed the planned additional $200 million of dispositions in January instead of the first half of the year, our FFO outlook would be $0.01 lower. Adding all these items together results in 9¢ per share of temporarily lower FFO in 2026 at the midpoint of our outlook but doesn't have any impact on our 2027 FFO or subsequent years. Finally, we've included up to 16¢ per share of land sale gains or 8¢ at the midpoint of the range. The potential land sale gains all relate to parcels that are under contract and scheduled to close later in 2026. Taken together, these items, none of which were known when we reported third-quarter 2025 results in October, have reduced the midpoint of our otherwise unaffected 2026 FFO outlook by $0.01 per share. Just a couple of other items to note. First, we provided our projected year-end occupancy outlook rather than average occupancy primarily due to the outsized impact of 600 at Legacy Union. At the midpoint, our year-end occupancy projection of 87.5% appears consistent with what we discussed on our last call, but it's actually a little stronger as our planned asset recycling activities are projected to reduce our year-end 2026 occupancy by 25 basis points compared to our portfolio at the end of the third quarter of 2025. Second, same property cash NOI is expected to be roughly flat in 2026, but GAAP NOI is estimated to be 150 basis points higher than cash NOI. As you know, when GAAP same property NOI is higher than the corresponding cash metric, it's typically a strong indicator for future same property cash NOI growth. Finally, we expect our debt to EBITDA ratio to start the year but steadily decline after Q1 as planned disposition proceeds are used to reduce debt and EBITDA steadily grows as we migrate throughout the year. Lastly, as you may have noticed, we made some routine SEC filings yesterday and this morning. Under SEC rules, S-3 shelf registration statements sunset every three years. It has been three years since our last shelf filing. As a result, last evening, we filed a new S-3 with the SEC. This was a joint shelf filing by the REIT and the operating partnership that registers an indeterminate number of debt securities, preferred stock, and common stock for future capital markets transactions. With this new shelf in place, we also need to refresh our long-standing ATM program, which we filed via form 424B this morning. As you know, keeping an ATM program in place is one of the many arrows we like to keep in our capital-raising quiver. To be clear, the FFO per share outlook that we provided in last night's release assumes no ATM issuances during 2026. Operator, we are now ready for questions. Theodore J. Klinck: Thank you. Operator: We'll now begin our Q&A session. So if you would like to ask a question, you may do so by pressing star 1. Once again, to ask a question, please press star 1. We'll briefly pause here as questions are registered. Our first question comes from the line of Seth Eugene Bergey of Citi. Your line is open. Seth Eugene Bergey: Hey, thanks for taking my question. I guess just to start off with, kind of on the capital recycling, you talked a little bit in the opening comments around kind of, you know, enhancing your long-term growth rate. You know, just kind of in the context of the 2026 guidance, like, when do you kind of expect to realize that elevated growth rate? Is that kind of like a 2027 story? Or something further beyond that? Brendan Maiorana: Hey, Seth. It's Brendan. Maybe I'll try to answer that. So I think there's a couple of different things going on with the recycling activity. Obviously, the impact on 2026 numbers is one-time in nature that we tried to lay out. So that's that kind of 1¢ 9¢ one-time impact that's there. That goes away in 2027. So I think if you thought about stabilized growth and you reverted back to what your estimates were in October for 2027, nothing that we've done since October should have any impact on your 2027 outlook. The asset recycling is neutral to modestly accretive to FFO in 2027. And the outlook on occupancy for year-end '26 is right in line with what we mentioned in October. If anything, it's probably up 25 basis points kind of on a same-store basis, so that feels a little bit better. So I guess if you looked at the '26 numbers and backed out the land sale gains, you'd get a lower growth in '26 but then a very significant amount of growth in 2027. But I think the way that we think about it from a long-term perspective is if the internal growth of the portfolio is just a 3% NOI over time, we continue to kind of grind that number higher by recycling into higher growth assets and recycling out of lower growth assets. Seth Eugene Bergey: Thanks. That's helpful. And then, you know, just going back to kind of the development pipeline, you know, and hitting kind of that 78% pre-leased number, how is kind of demand for the balance of that leasing on the development pipeline? Theodore J. Klinck: Hey, Seth. It's Ted. Look. I think demand we're still seeing really good demand. Think if you think about the progress we made throughout 'twenty five, you know, a year ago, we were 56% leased, and then last quarter, '72. So we've just continued to grind higher throughout 2025, and the demand remains good. As I mentioned, I think, on our prepared remarks, two of our developments, Glenlake 3 here in Raleigh, and Midtown East in Tampa, we have what we classify as strong prospects for the remaining space effectively. For Midtown East, it's all the remaining office space. And for Glenlake 3, it gets us to mid-nineties, I think, percent. And then you go over to Dallas, the 23 Springs we're currently around 75%. We've got prospects to move higher there as well. And then on Granite Park 6, it's a little quieter. We've got a couple of smaller prospects. I think it's just gonna be a long slog, and there aren't any big users out there to get us from we're just shy of 80 today. So I think we're just gonna hit some singles, and we'll continue to march that higher as well over time. But feel overall really, really good about our prospects. Seth Eugene Bergey: Thanks. Operator: Thank you. Our next question comes from the line of Blaine Heck of Wells Fargo. Your line is open. Blaine Heck: Great, thanks. I guess just digging in a little bit more to your tenant conversations. There's a narrative out there that, you know, the Sunbelt is more prone to AI displacement. I was hoping you could comment on whether you've seen any impact to your investor or tenant base, I should say, from AI-related layoffs. And do you see any of your markets as having elevated exposure to potential displacement of jobs driven by AI kind of efficiency? Theodore J. Klinck: Hey, Blaine. It's Ted. I'll start, and if Brendan or Brian want to jump in. Look. We really haven't. I mean, obviously, what we try and tell you on the call is what we're seeing with boots on the ground. And, you know, we all see the narrative on AI, whether it be soft companies a week or so ago, financials the other day. It's just not what we're seeing from our customers and on the demand. I mean, we continue to see in-migration coming to our markets. Companies are taking more space, not less space. Our own operating portfolio, expansions continue to outpace contractions. So look. You know, who knows what the ultimate outcome's gonna be? I do think back-office jobs are probably more susceptible to AI versus client-facing jobs, and that's most of our portfolio is client-facing jobs. So it's yet to be seen, but, look, we're not hearing any of that out of our client base yet. Brian M. Leary: Hey, Blaine. Brian here. Just to clip on, and Ted's mentioned this in the past. Our bread and butter are smaller customers in general. So that has a sort of insulator effect on the AI, at least right now. I think folks are seeing it as a productivity tool as opposed to a job elimination tool at the moment. But we know we're not ignorant to the impacts it will have on the overall job market. Blaine Heck: Okay. That's great to hear. Brendan, sorry for the broken record question, but we're getting a lot of questions on cash flow. We've touched on the elevated CapEx before with all the leasing you're doing, but it does look like straight-line will also be much higher this year. So I guess again, can you give us an update on how long you see these elevated impacting cash flow? And related to that, you know, just touch on the payout ratio and your comfort of riding through some period of depressed cash flow as it pertains to the dividend. Brendan Maiorana: Yeah, Blaine. Thanks. So what I would say, I guess, if we look at 2025 levels, and I think we were, you know, call it, on overall cash flow, we might have been $13 or $14 million kind of shy of coverage on the dividend. But that included $145 million of spend on leasing capital in 2025. And a normal year for us is about $100 million. And we committed $115 million during 2025. So anytime there's more spend than what is committed, that's typically a pretty good indicator that your spend on future periods is gonna go down. So I think it's likely that 2026 spend is probably gonna be a little bit lower than '25. I don't know if we'll be $30 million lower, but we think it's going to be lower. And then when you think about the amount of straight-line rent that's kind of in those numbers, that is future cash flow that's gonna come online. And so we feel very good about kind of the long-term outlook of cash flow going forward from a combination of increased cash NOI that will come online over the next several quarters and a return to normalized leasing CapEx over time. That's gonna create a significant amount of increased cash flow, and we're comparing that to, you know, last year's numbers where we were a little bit shy. But I think if you kind of normalize for all those things, that gets you back into that context of where we were a few years ago, which keep in mind from 2021 through 2024, I think we've retained a cumulative $150 million of cash flow above the dividend. So I think we feel very good about our ability to kind of get back there. Blaine Heck: Very helpful. Thank you. Operator: Thank you. Our next question is from the line of Nicholas Patrick Thillman of Baird. Your line is open. Nicholas Patrick Thillman: Hey. Good. Maybe touching on the $200 million of non-core sales and the $0 to $17 million of land sale gains embedded in the guidance here. I guess, overall, as we're reviewing that non-core sales, what percentage of that, if you could put a number around, is related to land sales versus core asset sales? And the type of property, maybe touching on the type of buildings you're also looking to dispose of within that pool. Theodore J. Klinck: Hey, Nick. It's Ted. Yeah. Of that 200 or so, none of that land is not any part of that. The land sales we have will probably be later in the year, we would anticipate. So, look, as you know, we're regular sellers of non-core assets every year. And I think this year is gonna be really no different if either as non-core assets or assets where we've maximized, think we've maximized the value. So it's, you know, it's gonna be a variety of markets as well. I think last year, we sold assets in Richmond, Atlanta, Raleigh, Tampa, Orlando. We sold land in Orlando. So just gonna be a mix of older assets or assets where we maximize the value as well. So it's gonna look a lot like, you know, prior years probably. Nicholas Patrick Thillman: That's helpful. And then, Brendan, maybe just a little bit on the occupancy bridge throughout the year. I know you removed the average occupancy within the press release, but in the K, you did mention it's gonna be average occupancy of 85 to 87% throughout the year. I know there's a little bit of a drag related to some developments coming online. But maybe just touch on how you expect that occupancy to progress throughout the year. Brendan Maiorana: Yeah, Nick. Good question. Yeah. It is so we ended the year at 85.3. That obviously included kind of a 70 basis point drag associated with the acquisition of 600. And then as you correctly point out, we've got developments, Glenlake 3 and Granite Park 6 that'll move into the operating pool in the first quarter. Those are low in terms of occupancy, will not be low in occupancy by end of year because the lease rate on those is relatively high. But that's gonna depress kind of first-quarter numbers a little bit. And also keep in mind, we just sold roughly a little over 500,000 square feet of very highly occupied assets that are gonna come out of that number. And then what we're planning on selling for the remaining roughly $200 million also is fairly occupied. So that's gonna kind of bring the number down a little bit early in the year and then steadily improve kind of as we migrate second quarter, third quarter, fourth quarter. Nicholas Patrick Thillman: Helpful. Thank you. Operator: Thank you. Our next question is from the line of Dylan Brzezinski of Green Street. Your line is open. Dylan Brzezinski: Hi, guys. Thanks for taking the question. You guys talked a lot about sort of how you're expecting to sort of complete the current capital recycling program within the first half of this year. I think in your guys' press release, you guys mentioned also potentially up to another $150 million of dispositions. Just sort of curious, you know, as you guys look at the portfolio today, I mean, do you guys get the sense that you're sort of nearing the final innings of paring down some of the what you guys might call quote, unquote, non-core assets? And as you sort of think about uses of that capital, you also mentioned $250 million of potential acquisitions. Just sort of curious how you guys are looking at things now that the stock has sold off quite a bit now. Are share repurchases a potential use of that capital? Thanks. Theodore J. Klinck: Hey, Dylan. It's Ted. I'll start. Look. I think as you know, you know us pretty well. I think if you've looked at our strategy throughout the years, we're consistent capital recyclers, always selling the bottom assets and recycling into newer higher growth assets. So I think that's something we're gonna continue, and there are still obviously, we still have Pittsburgh, that we do want to get out of and some other older assets on top of that. So there's still some work to do, but we've been, again, as we've said, we've been incredibly successful to do this capital rotation time and time again on a leverage-neutral and FFO neutral to slightly accretive basis. So and we feel comfortable with our ability to do that as well. And as that dilutions. So, anyway, we feel comfortable about our long-term capital rotation plan. In terms of the buybacks, look. I think, you know, we talk about it with our board quarterly. It's obviously a capital allocation decision as you alluded to. We're always looking to, you know, what's the best use of our capital. We look at all of our alternatives, whether it's buybacks, acquisitions, development, I think is becoming more interesting these days, highwetizing, which we constantly get very attractive yields on our highwetizing projects. Think you're familiar with. So, again, we look at what we're gonna do over the long term. I'd never say never, but, right now, I wouldn't say we're gonna deviate from our standard operating procedure. Dylan Brzezinski: That's helpful. And then maybe just one last one. You mentioned potential development opportunities. I guess, what sort of yield requirement would you guys need in today's investment environment to start any sort of either build-to-suit or spec development project? Theodore J. Klinck: Yeah. Look. I think you've seen what we're buying. One of the nice things about Highwoods is we're both a developer and an acquirer, so we can sort of toggle back and forth throughout the cycle. And, just given the dearth of new development, we're starting to feel more incoming calls in both developments and whether it be a build-to-suit or substantially preleased development start. So there's gotta be a premium, right, over on acquisitions to new development. But we don't really discuss our development yields primarily from a competitive standpoint. I mean, there's a lot of things that go into a development yield, whether it be the market, a submarket, what we think the exit cap rate is, the term, the credit of the lease, what annual bumps are. So just a lot of factors that come into it. So we really don't get into those yields. But suffice it to say, the premium over what acquisition cap rates are today. Dylan Brzezinski: Great, Ted. Appreciate the color. Thanks. Operator: Thank you. Our next question comes from the line of Ronald Kamdem of Morgan Stanley. Your line is open. Ronald Kamdem: Yeah. Oh, great. Just two quick ones. Just going back to sort of the guidance, if you sort of back out the land sale gain and so forth, just trying to think is the you think about 25 versus 26, was there anything else sort of going into the number other than the dilution from the sales and the financing? Just wondering if there was anything else sort of fundamental driving that number. Thanks. Brendan Maiorana: Yeah, Ron. It's Brendan. The only other thing that, you know, that we've talked about is there's probably, on a year-over-year basis, kind of call it, 5¢ of headwind on that other income line item that's there, which I think we talked about maybe on one of the last calls that if 25 was sort of elevated, 26 is not, you know, it's not a zero, but it's probably more in line with a normalized year compared to kind of an elevated outlook. So I think if you adjust for the one-time items associated with the acquisition and the financing in 2026, and you know, and you normalize kind of that other income line item, you get to, you know, a pretty healthy kind of growth rate at the core, which I think gives us confidence as we think about kind of the company going forward where we've got good growth levers that are in there. So I think that's probably a fair way to think about kind of at the core how much we're growing and how we think about that over an extended period of time. Ronald Kamdem: Great. And then my second question was just on the leasing. You just remind us what sort of the new leasing bogey should be thinking about to grow occupancy? It looked like it maybe was a little bit lighter during the quarter. Then picked up post-quarter. Is that right? Just any color there would be helpful. Brendan Maiorana: Quarter meters. Is low. As you mentioned, it certainly picked up here in the early part of the year. Just to kind of lay out context in terms of where we need to get to to be at that 87.5 number by end of year. We've got about 2.1 million square feet of remaining expirations in 2026. So there's probably we expect about 1.3 of that is likely to kind of move out. We currently have 1.2 million square feet of leases that are signed that are not yet in occupancy that will be in occupancy during 2026. So that leaves kind of compared to where we are at the 2025, we're down about 100,000 square feet, maybe a little bit less than that. So what we need to do from a new leasing standpoint is do about 750,000 square feet of new, seven to 750,000 square feet of new. And, generally, we probably need to get those signed to have them in occupancy by kind of middle of the third quarter. So that's about 300,000 square feet of new per quarter. And that creates about 250 basis points of net absorption. Our occupancy guide is 220. So we're gonna lose about 25 basis points or so from the asset recycling that we talked about, just selling some of the things that we did early in this year and then what we expect to do. So, hopefully, that all makes sense, but we feel like all of that is very attainable, relative to kind of what the business plan is. Ronald Kamdem: Thank you. Operator: Our next question comes from the line of Vikram Malhotra of Mizuho. Your line is open. Vikram Malhotra: Good morning. Thanks for taking the question. I guess, Brendan, I just wanted to go back to be clear on your comments around sort of the unaffected rate, I mean, the FFO run rate not being affected as we go into 2027. Just thinking about the positive benefits from the land sales, that's one-time versus the dilution or the run rate occupancy from the acquisition trending up? Do you mind just sort of going over that math again just so we understand as we go from 4Q 2026 into 1Q 2027, kind of that step up that you're alluding to, versus maybe what we have modeled for 2027 FFO? Brendan Maiorana: Yeah, Vikram. So I guess what the NOI that we have for I'll break it down into kind of the three items. The NOI that we have at 600 we disclosed when we acquired the building. Our expectation for GAAP NOI in 2026 is $10 million. That number, we think, will be greater than $18 million in 2027, and there's really not a lot of leases that we need to do at this point to achieve that NOI projection for 2027. NOI there will be low throughout the majority of 2025. But it will build a little bit as we progress throughout the year. So it's not gonna be 2.5 million a quarter. It's gonna start a little bit lower than that. But the largest lease that is not currently in occupancy is American Express, which Brian mentioned. That comes in occupancy on 12/01/2026. So we really don't get a lot of benefit from that. So most of that $8 million annual increase will kind of show up early in 2027 relative to 2026. So you're gonna get most of that kind of in '27. And then we're gonna be fairly inefficient from a capital standpoint based on our projections as the disposition proceeds come in the door, and we'll have cash on hand for much of 2026, at least based on our current expectations. We will use that cash and then likely borrowing on the credit facility to repay the March 2027 bond. So whereas that probably in your outlook for 2027, three to four months ago, you probably had some refi headwind in that number. Now in all likelihood, that's not gonna be much of a headwind because kind of between cash and borrowing rate on the line, that's roughly in line with kind of where the interest rate is on that. So those items kind of give you sort of built-in growth in '27. And then we're obviously moving occupancy up throughout the year. The development properties are gonna build in terms of the NOI contribution that they have throughout the year. So the combination of kind of all of those things drives a lot of build as we migrate throughout 2026 and then into 2027. Vikram Malhotra: That's helpful. And just on that occupancy build, do you mind just walking through any large expirations or new known move-outs either this year or next year that could, you know, potentially cause that occupancy to take a step back just relative to the last few years when you've had bigger move-outs? I'm just trying to get a sense of what the next two years look like. Thanks. Theodore J. Klinck: Hey, Vikram. It's Ted. The nice thing is our forward, I'd say, three-year outlook on expirations doesn't look anything like what it did in the last three years. So we feel really good about where we are. I mean, we don't have any expiration or known move-out greater than 100,000 square feet. Any expiration greater than 100,000 square feet until mid-2027, there's only one that's greater than 100,000. That one we have is the only one we have throughout all of '27. And we think there's a decent chance of renewing that one. So again, we feel really good with we have a few known move-outs that are in that fifty to sixty thousand feet, but we've already backfilled half to two-thirds, even all of it on some of those. So I think it's, we feel really good about where we stand today about our forward expirations. Vikram Malhotra: Thank you. Operator: Our next question comes from the line of Peter Dylan Abramowitz of Deutsche Bank. Your line is open. Peter Dylan Abramowitz: Yes. Thank you for taking the question. Just wondering if you could talk about the expected pricing on asset sales, not only what you closed so far in the fourth quarter and subsequent to year-end, but also the $200 million or so that you're gonna close over the next six months. Just from a modeling perspective, kind of what's the NOI impact or cap rate on that? Theodore J. Klinck: Maybe I'll start, then Brendan can jump in with any details. But look, as you alluded to, we've sold $270 million in 2025 in the first month or so this year. And the blended cap rate there was sub-8%. It was a mix of assets. You know, we sold really, we sold eight assets to users last year, so we feel good about getting user pricing. We sold one to a triple net lease buyer. Sold one to a 1031 guy. So it's been a variety of assets and a variety of buyers. So, sub-8% cap rate on that $270 million, and I think it's gonna be similar or maybe a little bit better than that on the remaining couple hundred million. Peter Dylan Abramowitz: Right. Thanks, Ted. And then maybe one for Brian. Just wondering if you could kind of go around the horn to some of the major markets and talk about concessions to bring tenants into occupancy there. Are they generally stable or still increasing or even declining? Just any color you can provide there would be helpful. Brian M. Leary: Sure, Peter. Thanks for the question. I would say in general, they are stabilized. What we are seeing is that customers want the best space, and that costs, you know, it costs more than it did before. So they're willing to kind of commit to term to do that. So that's sort of how Brendan mentioned the amount of CapEx that's associated with leasing over the last year. So I think we're seeing that, and we're happy to trade that. Just going through the market, I'll tell you, Charlotte, Dallas, Nashville, and Tampa, very competitive. Any space we might have available in Charlotte, we're getting looks well in advance of folks sort of jockeying for it. You heard in my prepared remarks the amount of job growth in Charlotte. There's really no space left for prime and top-tier class A in Uptown, South End, or South Park. So that does help moderate that kind of pressure on concessions. Dallas, we're very fortunate in Dallas, obviously, being Uptown. Have the top of the market building that's delivered and available now at 23 Springs. Preston Center with our new addition at the Terraces is full 100%, as Ted mentioned. Recently signed, and that's the lowest vacant BBD in the entire market. We will continue to lean in on the Granite Park 6 lease-up there. We underwrote it from a development standpoint to do that. So maybe that BBD legacy has gotten bigger kind of spaces and typical bigger users. And we've been very, very happy with the development delivery of Midtown East in Tampa. We're looking at triple net rents now into the fifties. So now I'll tell you, it's competitive out there. We are still committed to occupancy. But we are able to move rate and obviously moderate concessions across the board and reduce them where we're most competitive. Peter Dylan Abramowitz: Alright. Thanks for the time. Appreciate it. Operator: Thank you. There are currently no questions waiting at this time. So as another reminder, it is star 1 to ask your question. There seem to be no questions waiting at this time. So I'll pass it back over to management for any closing or further remarks. Theodore J. Klinck: Well, thank you, everybody, for joining the call today. We appreciate your time and your questions. If you have any follow-up questions, please feel free to reach out to us. Have a great day. Operator: Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your line.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Charter Hall Long WALE REIT 2026 Half Year Results Briefing. [Operator Instructions] Please note that this conference is being recorded today, Thursday, the 12th February 2026. I would now like to hand the conference over to your host today, Mr. Avi Anger, Diversified's CEO. Thank you, sir. Please go ahead. Avi Anger: Good morning, everyone, and welcome to the Charter Hall Long WALE REIT Results Presentation for the 2026 half year. Presenting with me today is Erin Kent, Head of Long WALE REIT Finance. I would like to commence today's presentation with an acknowledgment of country. Charter Hall acknowledges the traditional custodians of the lands on which we work and gather. We pay our respects to elders, past and present and recognize their continued care and contribution to country. The format for today's presentation is that I will start with an overview of CLW and key highlights for the FY '26 half year. You will then hear from Erin, who will provide an overview of the financial performance of the REIT. I will then return to provide an operational update and portfolio overview and provide guidance for FY '26. We will then offer the opportunity for questions. Turning now to Slide 4 and key highlights for the half year. I'm pleased to report that we have delivered operating earnings of $0.1275 per security, representing 2% growth on the prior corresponding period. Our NTA at 31 December is $4.68 per security, an increase of 2% from June 2025. The portfolio delivered 3% growth in like-for-like net property income with 52% of income of the REIT being CPI linked and the balance being fixed reviews. 86% of the portfolio was independently valued during the half year with $139 million net valuation uplift achieved, representing an increase of 2.8% for the properties independently valued. The portfolio is sitting at a very high occupancy level of 99.9%. CLW has a long WALE of 9.2 years, providing security and continuity of income to our investors. We completed $1.1 billion of new interest rate hedging with average forecast hedging of 80% for the balance of this financial year. We remain focused on prudent capital management. Balance sheet gearing is 29.8% within the target range of 25% to 35%. In December 2025, Moody's reaffirmed CLW's Baa1 investment-grade credit rating. We are pleased to reaffirm FY '26 guidance of operating earnings and distribution per security of $0.255, reflecting 2% growth over FY '25. Turning to Slide 5. Today, CLW has a best-in-class $6 billion diversified real estate portfolio secured by long leases to blue-chip tenants with a weighted average lease term or WALE of 9.2 years. Our portfolio has an occupancy level of 99.9% and continues to be diversified by tenant, industry, geography and property type, which contributes to the stability of our cash flow. Our portfolio has delivered strong like-for-like net property income growth of 3%. CLW has 49% of its income derived from triple net lease properties. This is an important feature of our portfolio given that under a triple net lease structure, the tenant is responsible for all outgoings, maintenance and capital expenditure. The security of income of the REIT is also reinforced by the high-quality income stream generated from blue-chip tenants with 99% of the tenants of the REIT consisting of government, ASX, multinational or national businesses. Our largest tenants are federal and state governments, Endeavour Group, Telstra and BP. All leases in the portfolio have annual rent increases with 52% of annual rent reviews linked to CPI with the balance being fixed reviews. Turning to Slide 6. In the following slides, I'd like to provide an overview of the net lease real estate sector, its unique and distinguishing features and why we believe it's an attractive investment proposition. The net lease real estate sector is a sleep well at night investment class, providing investors with stable and resilient income. Long-term leases provide resilient and predictable cash flows. Tenants are blue-chip best-in-class operators, which reduces default risk. Properties are mission-critical to tenants, which reduces vacancy risk and portfolios are diversified by tenant, industry and property type. Turning to Slide 7. On this slide, we outline the features that make CLW Australia's largest and most diversified net lease REIT. CLW has predictable long-term rental cash flow as a result of its long 9.2-year WALE and 30-year WALE plus. The CLW portfolio has average annual rent increases of 3.1% with 52% of lease rent reviews being CPI-linked. CLW's portfolio has relatively minimal landlord expenses as a result of the net, double net and triple net leases in the portfolio. CLW features blue-chip tenant covenants with portfolio occupancy consistently near 100%. 99% of leases are to secure government and leading ASX-listed multinational and national tenants operating in non-discretionary essential industries. CLW's portfolio is diversified across core property sectors and 79% of the portfolio is located on the Eastern Seaboard in prime locations. Turning to Slide 8. CLW provides an attractive distribution yield relative to domestic and global investment options. Based on yesterday's closing price of CLW securities, CLW is forecast to deliver a 6.8% distribution yield in FY '26. This distribution yield is considerably higher than what are often considered alternative investment options such as Australian government bonds, big 4 banks, term deposits, the AREIT index and the ASX 200 Index. I would now like to hand over to Erin, who will provide an overview of the financial performance of the REIT. Erin Kent: Thank you, Avi, and good morning to everyone on the call. Commencing on Slide 10, which provides a summary of CLW's earnings for the first half of FY '26. The REIT achieved like-for-like net property income growth of 3%, which has been further supported by net transaction activity adding incremental income to the portfolio in the current period. Finance costs have increased by 13.6% due to the higher average debt drawn in the first half of FY '26 to fund transaction activity, combined with a higher weighted average cost of debt in the current reporting period. Both operating earnings per security and distribution per security for the first half of FY '26 were $0.1275, representing growth of 2% on the prior corresponding period and in line with our guidance provided to the market. Turning to Slide 11 and CLW's balance sheet position. During the current reporting period, the REIT completed $376 million of net property acquisitions, including the on-completion value of the new Coles distribution center in Truganina, which Avi will talk through shortly. 86% of CLW's portfolio was independently valued throughout the last 6 months, resulting in a total portfolio valuation uplift of $139 million. The REIT's NTA per security is $4.68, as at 31 December 2025, reflecting an increase of $0.09 since 30 June 2025, driven by the positive revaluations achieved during the half, which was partly offset by the fair value movement of debt and derivatives. Turning to Slide 12, which provides a summary of the REIT's capital management initiatives. During the first half of FY '26, CLW completed approximately $700 million of earnings accretive debt refinancing initiatives. $270 million of new facilities were established on CLW's balance sheet to fund the acquisitions completed in the half. These facilities were 5-year terms and reflected 5 to 10 basis points lower all-in margins versus CLW's current bank facilities. New and refinanced secured debt facilities of $430 million were successfully completed within CLW's joint venture investments. This includes the establishment of a new $375 million secured debt facility within CLW's ALE joint venture partnership, which was previously an unlevered investment. This refinance generates an equivalent capital return to CLW's balance sheet. Financing within the joint venture structure, which owns a high-quality, diverse portfolio of 80 properties resulted in a superior pricing outcome of over 20 basis points lower weighted average credit margin. An additional $55 million of existing joint venture facilities were also refinanced during the period, resulting in an enhanced covenant package and reduced margins of 20 to 45 basis points. As at 31 December 2025, balance sheet gearing was 29.8%, calculated on a pro forma basis, including the return of capital to CLW from the refinance of the ALE partnership. Look-through gearing sits at 41%. The REIT has total facilities calculated on a look-through basis of $3 billion with a weighted average debt maturity of 3.4 years and a smooth expiry profile from FY '27 through to FY '32. Moody's has also reaffirmed its Baa1 investment-grade credit rating for CLW. As at 31 December 2025, CLW's weighted average cost of debt was 4.4% based upon look-through debt drawn of $2.5 billion and look-through hedging of $1.8 billion at an average fixed rate of 2.6%. During the period, the REIT progressively established $1.1 billion of new hedges across its balance sheet and joint venture investments. This has resulted in materially higher hedging coverage of 80% across the second half of FY '26 and 71% on average during FY '27. I will now hand back to Avi to provide an operational update and portfolio overview. Avi Anger: Thank you, Erin. In the following slides, I would like to provide an operational update, overview of our portfolio and some key attributes of the portfolio. Turning to Slide 14. During the half year, we settled $376 million of net transactions, consisting of $455 million of acquisitions and $79 million of divestments. The acquisitions settled consists of acquisitions announced at CLW's 2025 full year results in August last year, together with the investments announced today in the Coles Core West Distribution Center and the Charter Hall Long WALE office partnership. The divestments consisted of the sale of CLW's interest in the Coles distribution center in Truganina and non-core divestments from our BP Australia and LWIP pub portfolios. The decision was made to sell our interest in the existing Coles distribution center in Truganina and reinvest these proceeds into the new Coles distribution center in Truganina. This is an attractive WALE-enhancing transaction for CLW, converting a 6.6-year WALE to a 20-year WALE from completion. Further details are included on the following slide. In our BP portfolio, which is co-owned alongside BP, BP identified 2 properties over the past 6 months that were considered non-core and recommended these for sale. As previously reported, in our LWIP portfolio, we sold the Brunswick Hotel after receiving an unsolicited offer. The property was sold at a 75% premium to our purchase price and 10% premium to our December book value, demonstrating the embedded value of our long WALE portfolios. Turning to Slide 15. We are pleased to announce that CLW has acquired a 49.9% interest in a super prime automated distribution center currently under construction in the core industrial market of Truganina in Melbourne's West. The facility is 100% pre-leased to Coles for an initial 20-year term. On completion, the facility will be a 68,100 square meter state-of-the-art distribution center and is expected to service all stores in Victoria and Tasmania and will integrate into Coles existing supply chain in South Australia and Western Australia with significant investment by Coles in the automation capabilities of the facility. Construction is expected to complete in 2027 with a forecast on completion value of $440 million with CLW share being $219.6 million. Turning to Slide 16. CLW has acquired a $17.6 million equity interest in a new Charter Hall Long WALE office partnership alongside Charter Hall Group and an institutional capital partner. The partnership owns a portfolio comprising interests in 5 modern prime office buildings in core CBD markets. The portfolio is 98% occupied and leased to Commonwealth and state government and blue-chip multinational tenants with an 18-year portfolio WALE at the time of acquisition and average fixed annual rent reviews of 3.8%. Slide 17 is our portfolio overview. At 31 December, the REIT consisted of a portfolio of 515 properties valued at approximately $6 billion. The portfolio average cap rate is 5.4%. The portfolio is virtually fully occupied with an occupancy of 99.9% and a long-dated WALE of 9.2 years. At December, CLW had 49% of its income derived from triple net lease properties. This is an important feature of our portfolio given that under a triple net lease structure, the tenant is responsible for all outgoings, maintenance and capital expenditure. The properties in the portfolio feature a blend of annual lease review structures, both fixed and CPI-linked. The mix of annual rent reviews resulted in a weighted average rent review of 3.1%. Turning now to Slide 18 and an outline of our tenant customers and the tenant diversification of the REIT. Our portfolio of long WALE properties is leased to high-quality tenants, including government, Endeavour Group, Telstra, BP, Metcash and Coles. The REIT's largest tenant exposures are to government tenants and best-in-class pub and bottle shop operator, the $6.5 billion Endeavour Group. In the data center and telecommunications sector, we have a partnership with another best-in-class operator, the $55 billion Telstra Corporation, which includes our portfolio of 37 exchange properties on long triple net leases. Our BP Australia and New Zealand portfolio of 285 properties on long triple net leases provides us with exposure to the resilient fuel and convenience retail sector. We also have a high proportion of tenants operating in the non-discretionary grocery and food sectors such as Woolworths, Coles, Metcash and Arnott's. Turning to Slide 19 and the industry diversification of our tenant customers. Within our overall portfolio, approximately 99% of tenants are ASX-listed, government or multinational or national corporations, with the vast majority of these tenants operating in non-discretionary defensive industries. The REIT's major sector exposures are to convenience retail, government, data centers and telecommunications, grocery and food manufacturing. Turning to Slide 20 and geographic and sector diversification of the REIT. Our portfolio is diversified by geography and sector type. 79% of the portfolio is located on the Eastern Seaboard in prime locations, whilst the REIT's largest sector exposures are to the convenience, net lease retail and industrial and logistics sectors. Turning to Slide 21. As can be seen from the chart on this slide, the REIT's portfolio has a long-dated lease expiry profile and reflects a low-risk position relative to our peers in the sector. Our portfolio WALE is a long-dated 9.2 years. We have minimal leases expiring in the near term, and we are in discussions with a number of tenants with expiries in FY '26 and beyond regarding lease renewals and extensions. We continue to work to push out our expiry profile as far as possible to the right of this chart, both through portfolio curation and negotiating lease extensions with our valued tenant customers. On Slide 22, we would like to outline that a significant portion of CLW's portfolio is comprised of properties that are of critical importance to the business operations of our tenant customers with the tenants likely to be in occupation well beyond the current lease term. 49% of CLW's portfolio consists of triple net leases. And if these tenants were to remain in occupation for all option periods under their leases, this would increase the WALE of the portfolio to 30 years today. This is particularly relevant in the context of our Endeavour leased ALE portfolio. This represents approximately 11% of CLW's portfolio by income with an expiry and market review in November 2028, less than 3 years away. This is dragging down the average WALE of our portfolio. These properties are very important to Endeavour's business with the tenant likely to remain in occupation of these properties at expiry of the current lease term. This also represents a significant positive market rent reversion opportunity for the REIT. Turning now to Slide 23 and environmental, social and corporate governance. We remain focused on implementing sustainability initiatives across our portfolio and consider ESG as a driver of long-term value for investor and tenant customers. As a business, we've taken accelerated climate action. CLW has maintained net zero Scope 1 and 2 emissions for assets that fall under the operational control of Charter Hall. Additionally, CLW has been focused on clean energy transition with 9.4 megawatts of solar installed across its portfolio, an increase of 500 kilowatts over the past 6 months. CLW's predominantly modern office portfolio features high environmental credentials, with 5.4 star NABERS Energy and 4.9 star NABERS Water ratings, an uplift of 0.2 stars over the past 6 months. CLW remains committed to aligning with best practice frameworks to support transparency and disclosure. The fund achieved a score of 82 in the 2025 GRESB assessment, a 4-point increase from last year. These preceding slides demonstrate the resilience and strength of our portfolio. Our portfolio WALE, quality of tenants and proportion of triple net leases provides better downside protection and more resilient income streams for our investors. Turning now to Slide 25. CLW's strategy is to provide investors with stable and secure income and target both income and capital growth through an exposure to a diversified portfolio leased to corporate and government tenants. The portfolio maintains a long 9.2-year WALE and occupancy remains near 100% with leases to secure blue-chip tenants underpinning stable rental cash flow, which continues to grow with annual rent increases. Active curation and asset recycling continues to enhance portfolio and tenant quality with recent transaction activity included in the FY '26 guidance. Based on information currently available and barring any unforeseen events, CLW reaffirms its FY '26 operating earnings per security of $0.255 and distribution per security of $0.255, which reflects 2% growth over FY '25. This is a distribution yield of 6.8% based on yesterday's closing price of CLW securities. Finally, I would like to acknowledge and thank the teams of people across the Charter Hall platform that contribute to the performance of CLW and the results delivered today. The Charter Hall Group provides the REIT with access to a high-caliber team of experts across all areas of the REIT's management and provides CLW with access to a best-in-class management platform. That concludes the presentation, and I would now like to invite questions. Operator: [Operator Instructions] Our first question comes from the line of Richard Jones with JPMorgan. Richard Jones: Just wondering if you can talk me through your thoughts around balance sheet gearing versus look-through gearing, which measure you focus on? And I guess, why do you see that being more relevant? Avi Anger: Richard, thanks for the question. Look, we have a balance sheet target, as you're aware of 25% to 35%, and we sit comfortably within that range. Look, we provide look-through gearing measure as well given that our covenant is pegged to that. So we give that measure as well. But bearing in mind that we have sufficient buffers to those covenants and also in our underlying JVs, we've got plenty of headroom to covenants as well. So they're both relevant at present, but the balance sheet one is the one that we have the target towards and probably the more relevant one going forward. Richard Jones: Okay. And can you clarify how much capital was released from the ALE debt facility being put in place? Erin Kent: Yes, sure. Richard, there was about $340 million representing CLW's 50% share released back to balance sheet. Richard Jones: And just on the Coles DC acquisition, what was the yield on cost on that? And what are the fixed escalators? Avi Anger: Yes. Look, Richard, we're limited in the information we can provide on that given it is commercial in confidence between us and Coles. So we could only provide at this point the information that we've given in the presentation. Richard Jones: Okay. And then -- Avi Anger: Suffice to say, I can say though, what I can say, Richard, is that it is accretive to us. So the yield at which we sold our existing Coles facility is lower than the yield on which the yield on cost will achieve through this development. So it's accretive in that sense. And the rent reviews are also better than what we've got. Operator: Our next question comes from the line of Simon Chan with Morgan Stanley. Simon Chan: A couple of simple ones. So what's your average debt margin across your portfolio now that you've done all this debt restructuring, jamming stuff into the ALE level, et cetera? Erin Kent: Simon, our all-in margin across the entire platform has come down closer to 140 basis points. Simon Chan: And what's the quantum of savings there relative to before all these activities? Erin Kent: We're sitting at around 145 before the restructuring to the JVs. Avi Anger: It's been coming down [indiscernible]. It's -- we were at 150, then 145, now 140. And I think we are seeing competitive margins from the banks. Our treasury team has done a great job at being able to secure and refinance our facilities at attractive margins. So at the moment, based on other discussions that are going on, I wouldn't be surprised to see that coming down. So yes, we've got some headwinds with rates, but I think we've got a little bit of tailwinds as well with those margins. So yes, that's sort of the way we're seeing things at the moment. Simon Chan: If you reckon it could head towards like 120 like as low as some of your other stable banks or because the asset class is different, we should hold you to the same benchmark? Avi Anger: Well, I don't want to be held to numbers at this point, but I think we can -- as I mentioned, I think I'd like to see that number coming down going forward, but we'll keep working with our treasury team and hopefully can deliver some positive news in future results periods. Simon Chan: Look forward to that one. Can we -- can you give me a bit of a color on this long WALE office partnership? Like what's the rationale there? I mean $17 million is not exactly a huge number. Like is there a strategic reason for owning the stake? And also, what is this fund? Because from memory, 275 George and 10 Franklin were assets that were in CHOT2 right? So is this partnership more of a fund-of-fund style investment? Avi Anger: No. Look, I'll give you the background to this. So there's a few questions in your -- in that sort of what you've just said, so I'll try and sort of separate them out. So the rationale is that we believe that long lease, modern, high-quality core CBD office is going to perform very well going forward. We've seen cap rates expand and unlike other sectors haven't started contracting yet. We see very strong tenant demand for that type of office, which is different to, say, other less desirable types of office product. So we're very -- we see a lot of upside going forward in sort of modern core CBD, long WALE office. The WALE of this portfolio fits what we're about, given it's sort of an 18-year portfolio WALE with some of the properties -- the 2 largest investments in that portfolio having close to 30-year WALE. So that ticks the WALE box for us. We would have liked to make a larger investment in that partnership. We're somewhat limited at present, but it's something we can look at in the future, and we're able to secure a position that we can build on given that some of it is owned still by Charter Hall Group. And that's sort of the thesis behind it. Is it -- do I miss -- I may have missed part of the question, but I think that covers most of it. Simon Chan: Yes, that covers most. The other part is just in relation to 275 George and 10 Franklin. I thought they were actually CHOT2 assets. Avi Anger: No. So this is one -- that's part of it and then part of it is owned in this vehicle. But I might just say that it is -- those 2 assets are the smallest interests in the portfolio, and they probably represent not even -- not about 15% of the overall. So they're pretty small. The largest 2 assets in the portfolio -- sort of 60% of the portfolio is made up of an interest in 52 Martin Place, which is a 30-year WALE to New South Wales government and 140 Lonsdale in Melbourne, which is a 20 -- 27-year WALE remaining to Australian Federal Police. So that gives you a bit more color around the portfolio. The -- by far, the largest weightings to those -- that flavor of asset as opposed to the 2 you've mentioned. Simon Chan: And just one more for me. Telstra Canberra, what's the latest there? Avi Anger: Well, as we mentioned previously, they're vacating. We secured a 6-month extension with them over part of the building. So they'll start vacating part of the building in the next month or 2 and then the balance at the end of the year, and we've been active in the market talking to potential tenants. And we had -- we're having good dialogue with tenants on that building, and we've had good interest. What's good about that property is that it's a good size for Canberra being about 14,000-odd square meters in the heart of the Canberra CBD. It's a very prominent corner location right next to the Canberra center, which is the largest sort of best quality regional mall in the ACT. And it's probably -- that area is probably considered the CBD of Canberra. So we've got interest from both private and government type tenants. And I'm hopeful that we can provide some more updates on progress on leasing at our next results. But I'm encouraged by the interest we're seeing. Operator: Please standby for our next question. Our next question comes from the line of Daniel Lees with Jarden. Daniel Lees: I just got a question on the ALE portfolio. Can you just give us a sense of how under-rented that portfolio is today and perhaps if you've got any potential to bring the negotiation forward? Avi Anger: Yes. Sure, Daniel. Look, as we've mentioned previously, at the time of acquisition, the LEP trust that we acquired had come out to the market and said that their view was the portfolio was about 30% under-rented. We haven't come out with a number. We -- although we can -- we're very strongly of the view that it's improved from when we acquired the portfolio. So that's probably increased. But we're not going to give our number because that's going to be a negotiation that we're going to have to enter into with the Endeavour Group when the market review comes up in November 2028. So we are -- it's significantly under-rented, and we'll work towards that market review in November '28. Bringing it forward, there's no active dialogue in relation to that, but we're open to discussions if they were to eventuate. Daniel Lees: And just on the Department of Defense in Canberra, any news in your strategy there? Any approach for the shorter WALE lease assets there and what you're doing about it? Avi Anger: Yes. I mean the approach there was always to work with that tenant. We're a long lease REIT, so to work with the tenant to keep them in occupation and extend the lease. So that's the strategy, and that's what we'll be working towards. Operator: Our next question comes from the line of Solomon Zhang with UBS. Solomon Zhang: [indiscernible]. Maybe a question for Erin. It's good to see the lift in hedging and it looks like you're sort of swapped or hedged at the mid-3 range. Just wanted to confirm, did you pay any capital for the swaps in the period? The reason I ask, I can see a reference to payment in the derivative financial instruments in the cash flow statement, but it hasn't been separately split out. Erin Kent: Solomon, yes, there were some usual swap execution costs, although these are minimal. And I think as you've noticed, our hedge rates have increased to delay -- due to us layering in close to market-based swap rates. So it's very immaterial in the period. Avi Anger: Yes, you'll see in our -- if you compare the swap charts from last period to this period, you see the rates gone up. So that reflects the market, right? Solomon Zhang: Yes. So it was pretty immaterial in terms of the size of the amounts paid. Could you quantify it? Avi Anger: Yes, they were just the amounts we would need to pay in terms of upfront and execution costs that we would ordinarily incur. Solomon Zhang: Yes. And maybe just phasing of the new Coles DC CapEx. Could you just talk to that? Avi Anger: Sorry, what was it -- can you repeat the question? Solomon Zhang: The phasing of the new distribution center, CoreWest. So could you just talk to how the phasing of the CapEx? Avi Anger: Yes, yes. Solomon Zhang: Looks like in the next few years. Avi Anger: Sure, sure. So that's going to complete in 2027. So over the next 1.5 years, we -- it's about half -- we're about halfway there. So we've contributed about half of the $220 million to date. And then over the next 18 to 24 months, we'll fund the balance. Operator: Please standby for our next question. Our next question comes from the line of Suraj Nebhani of Citi. Suraj Nebhani: Maybe one question for Erin first. Just on this ALE facility. Is it fair to say that essentially that puts the gearing out of the balance sheet into the joint venture? Is that the way to think of it? And then what happens with the capital that comes back? Are you paying down debt at the balance sheet level? Erin Kent: Yes. Suraj, this facility was within that joint venture structure. So it did result in a reduction in our balance sheet debt drawn number and it also reduces our investments in JVs line within total assets as this is now a share of a net JV investment number rather than a gross. Suraj Nebhani: That makes sense. And I guess just one question, Avi, for you on the development asset with Coles. Obviously, you acquired on a non-completion basis over here. Are you looking at more such deals in the future? And how do you think about the appetite that you guys have and the capacity from a balance sheet perspective? Avi Anger: Yes. I mean, as you know, Suraj, we're always looking for sale and leaseback or long WALE deals like this. It's been a large part of what we've done since we listed almost 10 years ago. So it's very much on our radar. How we fund those deals going forward is going to be a combination, as you've seen, [ of ] recycling as we've done in this instance, where we've taken an asset that's sort of an older one with a shorter WALE, and we're able to recycle the proceeds of that into this. We'll look at opportunities like that. And we'll also -- as time passes and the market inevitably moves in cycles, we'll hopefully get back to a point in the not-too-distant future, where we can grow through actively raising capital. But we'll -- both those sources of funding new deals are available to us. So yes, look, it's -- and we're very fortunate that as part of the Charter Hall Group, we get access to those type of deals. That's not a deal that was available on market. That was something that Charter Hall was able to negotiate and secure given our relationships with the likes of Coles. So we'll continue to look at deals like that, and we're fortunate to have the opportunity to do those. Suraj Nebhani: And one final one, Avi. There were some comments -- I mean, there's obviously a chart in the presentation around the attractive distribution yield. I agree, 7%, almost 7% is a very good yield. I guess, if you look at it on a price to NTA basis as well, the stock is obviously pricing a big discount to NTA, which is going into the yield number. But do you -- as a management team, I guess, from your perspective, how are you thinking about being able to close that discount? I know in the past, you resort to a $50 million buyback as well. Is that on the cards or some other measures that you can take? Avi Anger: Yes. Look, I think at the moment, we're in a volatile market. A few -- not that long ago, only a few months ago, we were $4.70 and now with circa $3.75 or $3.80. The price is jumping around a lot. It's volatile interest rate environment is impacting that. I'm hopeful it's short term, as you say, it's a very attractive distribution yield. It's a large discount to NTA. And I think performance and delivering on earnings, delivering on earnings growth, that's the way we're going to keep delivering value for investors and close that gap. But that's -- and that's what we're focused on. We don't -- there's no intention at this point for -- to do a buyback. Operator: Standby for our next question. Our next question comes from the line of Ben Brayshaw with Barrenjoey. Benjamin Brayshaw: Av, just on the DC you acquired in Truganina, I just want to, I guess, clarify, will Coles be relocating out of the building that you previously owned? Or is it a new requirement that will support the lease for the fund through? Avi Anger: Yes. I'm not aware of what their intentions are for the building that we've divested. They still have close to 7 years on that lease and it's a growing business. They may well -- I don't know, but they may well retain that and use the new one. But I'm not privy to that information. Benjamin Brayshaw: No problem. And just on the pricing achieved for the sale, are you able to clarify how that compared with the book value at 30 June prior to the transaction? Avi Anger: It was at -- at book value. Operator: Please standby for our next question. Our next question comes from the line of David Pobucky with Macquarie Group. David Pobucky: Just one follow-up on look-through gearing, which is now at 41%. Are you able to provide where covenants sit? And does that level and the fact that rates have moved higher constrain your ability to acquire for growth without continuing to divest lower-yielding assets? Avi Anger: So David, in terms of where our covenant sits, the current target -- sorry, the current covenant is 50%, and there's sufficient headroom there, particularly what we're seeing with valuations increase, and we expect notwithstanding movements in interest rates, I think cap rates have stabilized, and we have rental growth year-on-year coming through the portfolio that should continue to drive valuation growth. We're very comfortable with where we sit on that front. But in terms of new acquisitions, we need to, as I mentioned earlier, recycle or look at points in the market and the cycle, where we can continue to grow through equity raisings or something like that. But there's no intention at this stage to do more debt-funded acquisitions if that's the -- that's the question. David Pobucky: And just a follow-up on the Coles DC as well. What's the development risk? Is there a construction or income guarantee, builders coupon, anything of the like? Avi Anger: It's just a straight construction of a facility that's 100% precommitted to Coles. We have a builder delivering the facility. The vast majority of risk has been absorbed by the builder. So that's how we would usually structure those type of deals. David Pobucky: And just one final one around guidance. Are you able to provide what weighted average cost of debt is in guidance? And has that changed since the start of the year given the debt initiatives you completed? Avi Anger: The weighted average cost of debt remained -- the guidance hasn't changed. So we've reaffirmed guidance today. So the weighted average cost of debt is as per pack. Yes. Erin Kent: Yes. So we expect over FY '26, we'll be at around that 4.4%, and that doesn't move much from 31 December, given we've just rolled our March quarter debt at 3.8% floating, and we've assumed market floating rates over that last quarter. And the hedge percentage is obviously outlined in the pack as well. Operator: [Operator Instructions] Please standby for our next question. Our next question comes from the line of Winky Tan with Morningstar. Yingqi Tan: Just a very quick one for me. Would you be able to share your interest coverage ratio as of December 31? Erin Kent: Yes, sure. Winky, our ICR was sitting at about 2.9x at 31 December. Operator: Please standby for our next question. Our next question comes from the line of Peter Davidson with Pendal. Peter Davidson: Just a quick question on this CoreWest at Truganina. Is that an Ocado facility or the previous one was Ocado? What's the purpose of that Coles DC? Is it to home or is it to shops? Avi Anger: Yes. No, it's not Ocado. This one is to shop, so it services their network, their main Victorian distribution center, but it will be fully automated, that type of structure like the current breed of DCs. Peter Davidson: The second one, Avi, I just noticed your comments about BP nominating a couple of service station sites that they were quite happy to sell. The question is, do you go through them yourselves as well with a sort of fine-tooth comb just to find whether you can -- there's a few assets you could sell perhaps well above book and just incrementally increase returns to shareholders. Avi Anger: So -- yes, the way it works, Pete, and you may have noticed in our results, there's usually every results period, there's a couple of small surveys that we announced that we've sold. And the way that works is BP, given if we're in a joint venture with them, they'll come to us and identify assets that they believe are non-core to the portfolio that the joint venture wants to sell, and we do that and we have made whole. So we don't -- we're not left with -- but we're very happy with the portfolio, and we're happy with the WALE. And so long as BP is happy with those -- the sites, then we continue to own them long term and the ones that they want to curate, we're happy to participate along with them. And as part of the deal, we're no worse off. Peter Davidson: Same question again for the Endeavour relationship, the old LEP portfolio. I mean, do you go through that portfolio and identify sites because a lot of that's supported by bottle shop sales, but bottle shop sales are more difficult now than they used to be. It's a weaker market than it used to be. So do you go through and identify potential sites there, which you might be able to perhaps realize, make the portfolio a bit smaller, increase the returns, sell above book value. Avi Anger: Yes. I mean, we have done. And as just reported today, there was one asset, where we received an offer well above book and decided to sell, and that happens from time to time. We're more than happy to look at that. And yes, we're happy to -- but otherwise, longer term, we think there's a lot of value in the portfolio. Unless we get an offer well above book that's -- then we want to own these assets and continue to benefit and enjoy the strong rental growth and the growth in underlying land value. And particularly in the case of the ALE portfolio, we've got a big rent reversion coming. So we're not really inclined to want to give that away. So we just keep working towards that. Peter Davidson: Okay. And then just last one for Erin. Just is there any opportunity for margins to come down Erin, in this portfolio? I know that rates are going up in the background, and we've probably got a couple of rate hikes coming. But what about the margin, the margin outlook? Erin Kent: Yes, sure. Peter, so credit spreads are at cyclical lows and the bank and loan markets do remain highly constructive with strong support received for assets like CLW's portfolio. The Charter Hall team, I think, as Avi mentioned earlier, very active in driving these refinancing opportunities to try and capture some of the favorable margins in the current environment. So yes, that's definitely a priority. Peter Davidson: And what sort of savings might you capture? So you captured 20 points would -- what impact -- so 20 points lower margin. How would that sort of play out in terms of borrowing costs? Is it all in 1 year? Or is it going to be staggered over time? Or how do people factor that in? Avi Anger: Well, if we were able to renegotiate debt facilities that typically -- that would become applicable straight away. So yes, I mean, if we did the whole $2.5 billion of debt and renegotiated it all in the next few months, then yes, you could realize that the way you're looking, it's correct. But it just depends how quickly we can work through the book and renegotiate facilities. Peter Davidson: Yes. So I mean that's really the question, Avi, it's just like how would it actually play out within the portfolio, you might do it piece by piece as each fund matures. Avi Anger: Correct. I mean we've just done ALE, and that was a favorable outcome. And we'll continue to work with our treasury team to look across the portfolio and identify opportunities for further savings. Operator: Please standby for our next question. We have a follow-up question from the line of Ben Brayshaw with Barrenjoey. Benjamin Brayshaw: Avi, thanks for taking my follow-up question. Just wanted to go back to our discussion earlier on the Coles DC in Truganina. The book value in the presentation, just gone back and checked that June was $75.9 million versus the transaction price in the accounts of $71.4 million. So I just wanted to clarify, I think you indicated that the transaction went through at book. But just by way of that comparison, it would appear to be about 6% below. Avi Anger: Below June book, not December book. Benjamin Brayshaw: That's right, below June book. Avi Anger: Yes. But I'm saying that there was a valuation at the time the transaction was undertaken. So we -- that was -- that valuation stale being almost 8 months old. So the most recent valuation that was done on the property was the price at which the transaction occurred. Benjamin Brayshaw: So you marked it down. Avi Anger: [indiscernible] the value down. Yes. Because as the WALE comes down on that asset, the valuation was impacted and there was a bit of cap rate movement as well. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Avi for closing remarks. Avi Anger: Thanks, everyone. Appreciate your time today and for joining the call, and we look forward to catching up with you in one-on-one meetings in the coming days and weeks. Thank you.
Barbara Amaya: Good morning, everyone. Welcome to Alpek's Fourth Quarter 2025 Earnings Webcast. I am Barbara Amaya, Alpek's IRO, and I am pleased to be here today with Jorge Young, our CEO; and Jose Carlos Pons, our CFO, who will be presenting today's material. Today, we'll be covering the following topics. First, Jorge will walk us through the key highlights for 2025. Second, Jose Carlos will cover the financial results for the quarter. Third, Jorge will discuss our outlook for 2026, followed by Jose Carlos, who will delve into our guidance figures. Then Jorge will outline our strategic priorities for 2026. And finally, we will conclude with a Q&A session. Please note that the information discussed today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to certain risks and uncertainties. Actual results may differ materially, and the company cautions the market not to rely unduly on these forward-looking statements. Alpek undertakes no obligation to publicly update or revise any forward-looking statements, whether it is as a result of new information, future events or otherwise. We express our financial results in U.S. dollars unless otherwise specified. For your convenience, this webcast is being recorded and will be available on our website. Jorge, I'll turn the call over to you. Jorge P. Young Cerecedo: Good morning, everyone. Thank you for joining us today. Throughout 2025, amid the continuation of a challenging environment for the chemical industry, our teams worked diligently on actions within our control to strengthen our financial position and solidify our global operations. Alpek's financial and operating results were largely impacted by global overcapacity, resulting in a difficult year, particularly for our Polyester business. We also executed several planned but longer-than-expected maintenance outages. By contrast, our Plastics & Chemicals businesses delivered a more stable performance. As a result, our full year comparable EBITDA totaled $489 million, down 30% from last year. I would like to emphasize that our focus on strengthening our financial position has led to a sequential improvement in our operating free cash flow, which was $163 million, a considerable improvement of 57% from previous year, demonstrating the company's resilience and financial discipline. We continue to execute our previously outlined 4 strategic pillars, which play a key role in reinforcing the company's competitiveness. First, strengthen our core business. We advanced on our targeted footprint optimization by ceasing PET operations at the Cedar Creek facility and relocating that capacity to more competitive larger assets. As a result of this initiative, we expect to realize a benefit of approximately $20 million in 2026, which will partially offset broader macroeconomic headwinds. Second, financial flexibility. We maintained disciplined capital allocation, optimized our net working capital and executed debt refinancing. These actions strengthened our liquidity and extended our maturity profile. Additionally, we also suspended the dividend and made progress in the monetization of nonstrategic assets, which are expected to materialize in 2026. Third, boosting growth. We advanced the development of high-margin solutions in our PET thermoform and EPS businesses and continued expanding our specialty products in our polypropylene businesses. This supports portfolio differentiation while providing incremental EBITDA over time. And fourth, capitalizing on opportunities. Beyond the developments already discussed, we have been selectively expanding outside the petrochemical industry, mainly through our energy commercialization business, particularly by expanding recently to the power sector, which we expect will support growth over the coming years. Finally, a major milestone in 2025 was the successful spin-off and merger with Controladora Alpek, fully establishing Alpek as an independent entity with a streamlined corporate structure. Now I will turn the call over to Jose Carlos to provide our financial performance in greater detail. José Pons: Good morning, everyone. Let me walk you through our quarterly results. Starting with our Polyester segment, volume was 836,000 tons, down 10% both sequentially and year-over-year, reflecting softer demand and longer-than-expected planned maintenance outages at several of our sites. These operational factors weighed in on production in the short term. However, we have since resumed most of our operations. On an annual basis, seasonal effects were stronger alongside the strategic decision to exit low-margin PTA and PET exports. Polyester comparable EBITDA totaled $41 million, a 53% decrease versus the third quarter, pressured by lower volumes, weaker margins and historically low ocean freights. On a year-over-year basis, oversupply, trade-related dynamics and global freight costs impacted performance. By contrast, the Plastics & Chemicals segment continued to deliver stable results. Volume was 184,000 tons, decreasing 6% quarter-over-quarter and 7% year-over-year, reflecting softer demand in both periods. Plastics & Chemicals comparable EBITDA totaled $55 million, up 17% sequentially and 50% lower year-over-year as steady margins helped offset softer volumes and typical seasonal effects. Together, our segment resulted in a volume of 1.02 million tons, decreasing 9% versus the previous quarter and year-over-year. Our reported EBITDA totaled $70 million, a 40% decrease quarter-on-quarter as a reduction in commodity prices and feedstocks resulted in a $29 million inventory adjustment, primarily in the Polyester segment as paraxylene saw a 7% sequential decrease. Relevant reference margins for our Polyester segment saw more stability compared to last quarter, yet remained pressure. For our Plastics & Chemicals segments, reference margins were steady. Finally, comparable EBITDA was $100 million, a 27% decline versus the previous quarter. Looking at our full year free cash flow and capital allocation, we saw a net working capital recovery of $50 million, supported by optimizations and lower volatility in raw material prices. These efforts are aligned with our cash generation goals. CapEx for the quarter totaled $51 million, consisting of $41 million in maintenance and $10 million in strategic CapEx, aligned with our priority and planned maintenance across multiple sites. This resulted in an annual CapEx of $170 million. Full year operational free cash flow totaled $163 million, a significant improvement of 57% on an annual basis, demonstrating solid cash generation and Alpek resilience amidst a challenging environment. Moving to our balance sheet and financial position. Leverage ended at 4.4x net debt to EBITDA, reflecting lower last 12 months reported EBITDA amid sustained low margin levels. The company is implementing additional measures to strengthen its balance sheet as a prolonged cycle recovery is expected and deleveraging continues to be a top priority. Notably, pro forma leverage would have resulted in 3.9x, adjusting for footprint optimization and restructuring costs. Net debt was $1.8 billion, flat versus the previous quarter, yet we were able to decrease it by $44 million versus 2024, a solid accomplishment in the current market context. We remain financially flexible entering 2026, given the successful debt refinancing, solid cash generation, available committed credit lines and disciplined CapEx management. I'll turn the call back to Jorge to discuss our 2026 outlook. Jorge P. Young Cerecedo: We approach 2026 with a cautious outlook as we expect macroeconomic conditions from last year to persist. Global oversupply continues to weigh on the industry. Although recent years have seen the initial progress towards capacity rationalization, further actions will be needed to improve the market balance. In parallel, we expect demand to remain soft. We also anticipate ocean freight costs to remain at relatively low levels, consistent with the significant reductions observed towards the end of 2025. Notably, we expect greater operational and financial stability in our polyester business in 2026, forecasting a modest improvement and relative stability in reference margins. Turning to our Plastics & Chemicals businesses. We expect profitability in this segment to be somewhat constrained in 2026. This is primarily due to capacity additions in North America, particularly tied to polypropylene, coupled with continued softness in EPS demand as construction markets have yet to show meaningful signs of recovery. Lastly, we expect our emerging business to remain on a growth trajectory with continued expansion and additional contribution to EBITDA in 2026. We remain confident in this segment's potential and we're targeting a doubling of its size over the next 3 years. With that in context, Jose Carlos will walk you through the detailed assumptions and guidance ranges for 2026. José Pons: Our base case projects comparable EBITDA in the range of $450 million to $500 million based on the following assumptions: PET reference margins averaged $145 per ton, a 2% increase over last year's average. Ocean freight costs for South America at $75 per ton, a 40% reduction from 2025. Polypropylene reference margins at $0.13 per pound, a 7% margin compression and an exchange rate of MXN 18 per dollar, a 6% appreciation and minimal benefits from U.S. PET reciprocal tariffs. It is also worth noting that our base case assumes minimal contribution from nonstrategic asset monetization. The acceleration of successful closing of any of these transactions will represent offset to our expectations. Moving to the rest of the metrics. CapEx is set at $130 million, following our disciplined approach and commitment to operational efficiency. For the first time ever, we are now introducing a guidance figure for operating free cash flow, which is expected to be between $100 million and $150 million. This figure is further supported by our continuous efforts in cost control, capital allocation and net working capital optimization. And volume is expected to reach around 4.5 million tons. Given the prolonged industry low cycle, we expect our leverage ratio to stabilize around 3.5x over the next 12 to 18 months, subject to market conditions. Our long-term target remains at 2.5x, and we will continue executing our deleveraging strategy to reach it. Now in addition to the base case, there are potential drivers that could improve performance if they materialize. This include PET reference margins stabilizing at $155 per ton. I'd like to highlight that in January, the spreads averaged $171 per ton, recently reaching up to $190 per ton. While we view the current price discipline in China as a supportive factor, it is still early to assess whether it will hold. We will continue to track market dynamics and provide updates as appropriate. Ocean freight costs at or above $85 per ton for South America and exchange rate closer to MXN 19 per dollar, the successful monetization of nonstrategic asset sales and greater capitalization from U.S. pet reciprocal tariffs. Together, this represents a potential estimated upside of approximately $50 million to comparable EBITDA. It is important to highlight that these factors are not meant to be additive, and they will not occur simultaneously. Instead, they represent key variables that we recommend you track and they could contribute incremental value if conditions evolve in our favor. We will continue monitoring these elements throughout the year, and we'll update our expectations accordingly as visibility. Now Jorge will continue with our priorities for 2026. Jorge P. Young Cerecedo: With our 2026 guidance now established, I'd like to wrap up by sharing how we will plan to execute. We're building on the same strategic foundations that serve us well in 2025 and remain firmly aligned with our long-term strategy. In our polyester business we're taking a differentiated approach across the portfolio. In the commodity segment, which includes PTA and PET resins, our focus is on integrated scalable assets serving attractive domestic markets, primarily in the United States, Brazil and Mexico. As such, we will continue to work on footprint optimization. A clear example this year is our decision to suspend operations and the Reading recycling facility. Following the shift in demand towards virgin materials, we are allocating capacity to our Richmond facility, which offers a more cost-competitive network. The higher other value polyester, which includes PET sheet and thermoform, we're advancing targeted low CapEx investment to the bottleneck operations in the Middle East and strengthening our product development capabilities. Second we're scaling our position in a fast-growing segment and increasing our exposure to higher margin application. Turning to our Plastics & Chemicals segment. Our strategy is to fully leverage our most competitive regional assets while expanding into higher performance and specialty solutions. We will start ramping up investments made last year, particularly for EPS specialties. And we will also start a multiyear growth project focused on differentiated polypropylene. We believe this opportunity will become key EBITDA contributors moving forward. Emerging business continues to improve, particularly in energy commercialization. We view this as a promising path to diversify our portfolio and reduce exposure to the petrochemical cycle. Financial flexibility remains the core enabler of our strategy. We remain committed to disciplined capital allocation, rigorous working capital management and the monetization of nonstrategic assets. Over the past year, we made meaningful progress on this front, and we expect to finalize the first phase of sales during the first half of 2026. We have identified additional properties in our region for potential sales. We will share further updates as we advance. In summary, 2026 will be a year of focused execution, delivering on near-term priorities while continuing to invest in long-term value creation. I would like to conclude by mentioning that Alpek has experienced difficult cycles over the past 50 years, and we have been successful at adapting and evolving the business as required. A good example of this is how we were able to exit the fiber businesses while moving into PET sheet business, which reflects a more attractive margin profile and value creation potential. We are confident that we will emerge from this low cycle successfully and that our focus on higher value-added products and specialty products will bring greater opportunities and growth over the following years. Barbara, I'll turn the call back to you. Barbara Amaya: Before we start the Q&A, a brief reminder, materials and the webcast recording will be available on our website. [Operator Instructions] Our first question comes from Leonardo Marcondes. Leonardo Marcondes: I have 2 from my side. The first one is regarding your guidance. Correct if I'm wrong, but I believe there was extraordinary OpEx spend in 2025 to improve operational efficiency that we should not see in 2026, right? So if you could walk us through your expectations in terms of OpEx for this year and if the lower expectation for freight rates have fully offset these lower OpEx that we were -- that we here we're expecting for this year. Also, there is a discussion regarding the [ hake ] benefit in Brazil that is going on right now, right? So if you could also help us to understand a bit better of how much it could impact your guidance for this year, this potential improvement in [ hake]. My second question is regarding the supply and demand balance in China. I think it was in November when the Chinese government organized a meeting with PET and PTA companies to understand the issues of the market, right? So my question is what have you heard from the Chinese market and companies regarding this meeting? And if there was any change of the government's approach toward the segment -- I mean, the Chinese government, right? Jorge P. Young Cerecedo: Thank you, Leonardo. Thank you for your questions. Yes, regarding guidance in 2026, we're factoring some improvement in our operations. As we explained in 2025, we have some extended maintenance and some operational issues earlier in the year in 2025. But as you mentioned, some of that recovery is partially offset by our assumption of much lower freight costs that are very important to set the import parity prices. So that's the -- that, in general, would answer your first question. Part B of your first question regarding the rake benefits in Brazil. I think that's an important development. First and foremost, recently, those incentives for the chemical industry, especially for those companies consuming basic petrochemicals and which in our case, our polyester business applies. Those benefits were confirmed for the period 2027 and through 2031. So that's a significant accomplishment. Our support and participation in the ABIQUIM, the Chemical Industry Association was very meaningful. And we are very happy to that those were confirmed and those are important and meaningful. 2026 was not initially included in the package of benefits. But right now, there is an effort that might result in 2026 also receiving benefits for the chemical industry. We don't have those incorporated in the guidance. And as you know, these programs of [ rate and persist ] have a combination of support on the acquisition of raw materials through reduced taxation and also support on selected capital investments. And the second question on China and yes, the efforts from the Chinese government and in general to adapt from this, what we call [ cutthroat ] competition that are driving margins to unsustainable levels. I think the positive thing that we get at this moment is that there is more acknowledgment of the issue. And as Jose Carlos explained, some actions are already happening to begin 2026. We're not counting on those yet to be sustained. And that's where we are. So on the positive there is acknowledgment actions on the overcapacity needs to be taken. And again, this is not only in our industry, right, in the industries that we participate like polyester and plastics & chemicals of Alpek. This is in general a petrochemical and polymer situation that applies to many products. Leonardo Marcondes: Yes. Just one follow-up regarding the [ hake]. Do you have any estimate on how much your EBITDA could improve for this year in case they approve the benefit of $5.8 million to the PIS/COFINS payment? José Pons: We are still working on those calculations because I mean, it could be perhaps I'm not rounding maybe another $10 million to that guidance for 2026. And hopefully, it's a little bit more than that. We're just working on the calculations to make sure the final percentages are defined. And then if you know the details, there is also an overriding cap on how much of the benefit applies for the whole industry. So once all of the things settle, we will have more details. But I would say order of magnitude for us, maybe around 10. Leonardo Marcondes: That's clear. That's clear. José Pons: And that's for 2026, right? And again, we would expect potentially similar or even slightly higher benefits for the period of 2027 through 2031. I think this was a major accomplishment for a portion of the petrochemical industry in Brazil, especially the one that consumes very basic petrochemical feedstocks like it is the case for us on paraxylene. Barbara Amaya: Our next question comes from Thiago Casqueiro from Morgan Stanley. Thiago Casqueiro: I have 2 questions here from my side. The first one, I mean, I know it has been a very challenging environment for the petrochemical industry and that the key goal of the company is to reduce leverage towards the 2.5x in the long term. But I would like to understand when would the company start like discussing the possibility of paying dividends this year if this opportunity appears in the future, obviously. Would it be only when leverage target is reached or it could be discussed before that? Because despite all this the pressured environment we see right now, we also see that the free cash flow profile for the year looks quite healthy. And the second question is related to protection measures. So kind of a follow-up on Leo's question. Well, we have seen in Brazil some government actions aimed at protecting domestic industry and preserving competitiveness recently, also with [ hake ]. So beyond the potential upside from the US PET tariffs that you mentioned in the release and today in the webcast, are there any other items on the government agenda, either in the U.S. or in Mexico that could represent additional upside to the guidance you provided? José Pons: Thiago, thank you for your question. Regarding your first question in terms of leverage, I would say that we would like to devote the free cash flow that we will have this year to deleveraging the company. That will be our top priority. We want to get closer for the 2.5x that it's our target. And therefore, we are not expecting to have a dividend this year. I mean you know this industry, this situation and the circumstances could change all of a sudden. If we get closer to our leverage target and improved performance in the company. Well, certainly, that could be on the table, but we will devote the majority of our efforts to deleveraging now. Jorge P. Young Cerecedo: I will comment on your second question that pertains to, what you've mentioned, you define protection measures. And well, I think the efforts -- I mean, that's a very important area of focus for us, and we have efforts pretty much in all the countries where we participate. And again, it's not only something that we do as Alpek only, right? I mean this is something we do in conjunction with relevant industry on each country. And you see significant activity happening across other petrochemicals as well. Just to comment on the one on US [ PET ] tariffs because there's still some uncertainty, I think as Jose Carlos mentioned, we are yet to see more benefits. That is something that we were able to capture going into 2026. Somewhat is masked by your assumptions on margins remaining at relatively low levels or ocean freight still coming down. But even with that uncertainty, I think we see interest on the current administration in the United States to protect local manufacturing. And I think even if the Supreme Court comes with a ruling that doesn't confirm the tariffs, I think there will be parallel mechanisms. Again, we as an industry and as Alpek continue to work in evaluating other paths in parallel in pretty much all the countries where we are participating. So some of these details, we will share as information becomes public. But as I mentioned, this is a very important area of focus across all our key relevant markets. Barbara Amaya: Our next question comes from Ben Isaacson from Scotia. Ben Isaacson: You hear me okay? Jorge P. Young Cerecedo: Very well. Ben Isaacson: I just have one question only. And the question is, is there a strategic or financial rationale for having both the Polyester and the P&C segments together? Do you think that your stock suffers from a discount that could be improved if those businesses were separate? What are the reasons to keep them together? José Pons: Thank you, Ben. Thank you for your question. This is Jose Carlos. Very good question. Certainly, we believe that as of today, we see benefits in having a larger company merging or having the both divisions together. We have efficiencies in SG&A and other operational metrics. So clear, at this moment, the rationale and the benefits are better than having 2 split companies. But certainly, we're doing work in 2026 to review our portfolio and see if there are opportunities for us to divest, which implies that your question, certain portions of our portfolio, certainly with the key objective of deleveraging the company. Barbara Amaya: Our next question comes from Andres Cardona from Citi. Andres Cardona: I have a quick question on the guidance. If you could help me to understand on the Polyester segment, how much of the volume has been contracted [indiscernible] for 2026? If I remember correctly, in an average year, it is around 60%. So just trying to understand how [indiscernible] the guidance is. Jorge P. Young Cerecedo: Yes, Normally, I would say 70% to 80%, especially in North America. And perhaps also in South America is a little bit less and the Middle East a little bit less in those percentages. So maybe all in all, it's about 60%. But coming back to North America, in that range of 70% to 80%, probably we're still more towards the lower end of the range, again because of the some level of uncertainty on what will happen, the visibility that what will happen with tariffs. So yes, I mean, potentially in a more favorable environment on tariffs, there could be still some upside. And we did capture that in the -- together with other variables in the additional range that Jose Carlos described. As you know, we provided the guidance in a base case and we see this year more upsides than downsides on the guidance, and we encompass all of them together in the second [ quarter]. Andres Cardona: Thank you for the scenarios that you present. It's something that I find very helpful. Jorge P. Young Cerecedo: You're welcome. Barbara Amaya: Our next question comes from Tasso Vasconcellos from UBS. Tasso Vasconcellos: I have 2 here. One, Jorge, moving back to the asset sales. Can you remind us exactly what assets would you be willing to divest the most? And if you have any expected amount that you would be targeting to raise considering all of these divestments? And the second question is on that sensitivity that you released for the guidance for the year, the incremental EBITDA. In your view, what would need to happen in the industry, so those assumptions become a reality for the year? I have these 2 questions here. Jorge P. Young Cerecedo: Sure. And so here on the first question about the asset sales. Right now, we have 4 pieces of property in the United States that are all of them in different degrees of negotiations or document preparation to complete the sale. I mean these are -- again, 4 assets where we had operations in the past. We have been working on those throughout last year. And I would say pretty much the 4 of them are converging right now into the, let's call it, the stretch time to finish the process. I think we have interested or counterparts that are concluding their due diligence. All those 4 property combines could potentially represent $50 million. And again, we feel very confident those will materialize in the first half. Maybe some of those in Q1, but I would say more likely most of them by the end of the first half of the year. And it's a meaningful $50 million contribution to our cash flow. So that's more or less what we have. On top of that, this is taking longer, perhaps more than 12 to 18 months. It's our largest site in Monterrey, where we used to produce fiber because that potentially has more value. But that is going to require -- is requiring more time as we need to -- that was an industrial site that needs to be prep for other potential uses. So we continue to make progress on that one, but we don't see that yet within the 2026 time line. I mean we will push for that, but that will likely spill over into the future. And right now, we are focused on these 4 assets in the United States. And on top of that, we have another propylene that are coming in Mexico and Brazil. And so there will be perhaps not as large, but another bucket for the second half. José Pons: And just to complement, Jorge, we're planning to use all the proceeds of these sales to deleverage the company. That's our top priority. And everything that we get on those sales, we will use it to come back to our 2.5x target. Jorge P. Young Cerecedo: Yes. I think on the other part of the question, I mean, we laid out the key variables, right? What needs to happen? I mean, for example, in margins, global margins the industries in general are under significant pressure. Again, as we mentioned in the previous question, it's a positive signal that in China, even in China, there is acknowledgment that the margins went to unsustainably low levels. We see a small rebound to begin the year. So if that stays, that obviously that support for the guidance. And the other one important one if the uncertainty on tariffs it's removed and there is more certainty on tariffs, that will eventually drive more volume and margin opportunities that we will capitalize that process again is taking longer, right, given the lower visibility on tariffs, but that's potentially the other one. We just mentioned the rate benefit in Brazil. We didn't capture that in our range, but that's going through the chambers now. So that's the other one. But more importantly for us is to focus on operating our assets very well. I mean, for us operating our facilities very safely and with pristine reliability is how we can best help ourselves. So that's [indiscernible]. Just to give you a flavor, right? So many variables combining into one range, but that's more or less what we see today. Barbara Amaya: Our next question comes from Alejandra Andrade from JPMorgan. Alejandra Andrade Carrillo: I just wanted to understand from you guys, what do you think the time line could be to realistically get back to your target leverage? And also, I'm just curious if you've had discussions with the rating agencies given your current outlook on how patient they'll be in terms of your delivery to get leverage down to your target? José Pons: Thank you, Alejandro. Thank you for your question. To be completely clear, we don't expect to get to the level of 2.5x this year. It's something that can happen in 2027. So we're working towards that. Of course, if we get some of the upsides that Jorge already pointed out. If we are successful in selling those nonstrategic assets that I already mentioned, and there might be a second wave of other divestitures. Well, that could speed up the process and maybe by year-end this year. But at this moment, our base case is that this could happen in 2027. In terms of our rating agencies, we've had a close conversation with all of them. We have updated them on the performance of the company and our perspective for 2026. Well, the conversation is fluid, and we're working with them to see not only this year's performance, but all the things that we're doing to improve our leverage and the commitment that we're doing. So no decision from them, and we will continue to work together with them to keep us updated. Barbara Amaya: Our next question comes from Milene Carvalho from JPMorgan. Milene Carvalho: So I have 2 matters that I want to approach here. So first one is the diversification to power that you mentioned in the presentation. So what do you see as the benefit in this segment? How can you operate this? And is there any strategic CapEx forecasted for 2026 in the segment? And the second question is regarding severe weather conditions that we saw early this year. Is this somehow impacting your production? What should we expect in the first Q specifically into this situation? Jorge P. Young Cerecedo: On diversification to power I think for us, this is a very significant opportunity. We have amassed over the last decades significant know-how in energy markets, especially in Mexico by expanding into others like Brazil. But our focus has been mostly on being a very reliable supplier. But more than a producer, we commercialize energy, both in more historically as natural gas and more recently we're incurring in electricity. For the most part, this does not require CapEx. Again, I think over the years, it's a matter of developing know-how and having the right permits and certified experience because there are barriers of entry. And again, I think it's capitalizing on a strength that we have and it's becoming a very interesting area of focus for us. Would you mind framing again the second question? Milene Carvalho: Sure. So the second question was regarding the severe weather conditions that we saw earlier in 2026. So there was a lot of activities across U.S. that was just shut down. I wanted to understand if somehow this has compromised your production or first quarter expectations. Jorge P. Young Cerecedo: Did not disrupt our operations. I think there were 2 waves of very cold weather. In one, we took short proactive shutdowns in the United States, but are not going to be very material for our financial purposes. We will see though some impact on higher natural gas prices because the -- although natural gas prices have already come down again to where they were before the cold weather waves. In the meantime, the February contract prices of natural gas in North America ended up on the high side. I think we will see that impacting our energy cost in February. But not -- I would say no -- I mean we weather the storm fairly, fairly well. Barbara Amaya: Our next question comes from Federico Galassi from Rohatyn Group. Federico Galassi: Two quick questions. The first one is in your guidance and potential drivers you are using the FX at MXN 19 per U.S. dollar. The question is how is the sensitivity to the Mexican peso or U.S. dollar depreciation? This is the first one. And the second one, in the guidance, are you including all the positive impact for the increase in tariff in Mexico last year? That's both questions. José Pons: Thank you for your question. Quick answer on the exchange, MXN 1 more or less it's equivalent to $15 million of benefit or cost depending on how you see it. And the impact, yes, we're including a portion of what we saw in Mexico on the protection against Chinese and other imports. So yes, that's included already in our forecast. Barbara Amaya: Our next question comes from Chelsea Colon from Aegon Asset Management. Chelsea Colón: I just have a few quick ones. Firstly, to clarify, you mentioned around 3.5x net leverage by the end of this year. Does that consider that $50 million-ish in asset sales? And also, is that calculated based on your comparable EBITDA guidance? José Pons: No. The short answer is yes. The 3.5x would require us to sell the nonstrategic assets, and it's based on reported EBITDA because that's the way our banks measure our covenant compliance. Chelsea Colón: Okay. Great. And then with regard to the emerging businesses that you mentioned, you're trying to double in size over the next 3 years. Can you provide some context as to how relevant those businesses are right now from an EBITDA perspective? And so what does like a doubling mean? Like how relevant is it? Jorge P. Young Cerecedo: On that question on emerging business, when you look at our numbers, we have our 2 key segments and then we have the line others. So it's commingled there with a few other corporate -- smaller corporate adjustments that we have. And it's our goal that maybe over the next 4 to 5 years, that line reaches closer to 50. So that will give you a good idea. I think we expect to be perhaps in the 20s this year of 2026 and again, doubling for that. That will be our goal towards the 4 to 5 years from now. And obviously, we will be more ambitious than that. This is to give you a flavor of what we are seeing and flavor of the magnitude, but that doesn't prevent us for pursuing that goal faster or at a higher level. José Pons: And maybe a portion of those emerging businesses are within the -- already the polyester and the polypropylene, those -- because it was presented by Jorge that we're also entering into high value-added products within our core businesses, and that's not included in the others. So it's really just the power and some other things that we're doing in the others. Chelsea Colón: Okay. Got it. And then lastly, I'm just curious, with the closing of the Reading facility, you mentioned that there's more demand for virgin resin versus recycled. Can you just elaborate on like the reason for that? Is it just a cost issue for clients? Jorge P. Young Cerecedo: Recycling continues to be a very important priority for us and for our customers. It's very important for the sustainability of PET packaging. But yes, recently, I mean, there are some issues that we observed the prices of virgin PET are low. And again, some of the -- there is a growing path towards increasing recycling content. But sometimes that comes with some success. And I think we see at least in the medium term, the opportunity for us to -- at least for our key customers to supply that recycling content through our other facilities, which include, as we mentioned, our Richmond facility in Indiana. And also we have recently increased our capability to add recycling content through a technology we call Single Pellet Technology, where we add recycling feedstock into a virgin PET plant and the final product is a PET with, let's say, 25% recycling [ content ]. So we're using those 2 tools or assets to continue this growth path. But to your question, there is also some shift -- small shift back to virgin given the economic pressures that the industry is facing and that reflects also the decision of some of our customers. Chelsea Colón: Okay. And at this stage, the idea to potentially open the running facility at some point? Or is that likely to be permanently closed? And then also, can you tell us how much you expect in cost savings from that? And also on the flip side, like any extraordinary costs related to the suspension like severance and whatnot? Jorge P. Young Cerecedo: Yes. I mean this -- I mean just to give you orders of magnitude, in the short term, it might represent maybe between 5% and 10%, maybe closer to 5%, mid-single digits, mid- to high single digits in terms of savings. We remain with the possibility to restart the asset. But in not very significant shutdown costs, some, but not very significant. This is not a petrochemical plant and doesn't have the same complexities. But it will also -- our decision will come later, it will also depend on whether we can extract some value from those assets, right? So we will assess our options. So what we chose right now is to suspend the operation, take on the savings to keep supplying our customers from the rest of the assets that include the other recycling plant, other avenues we have to deliver recycling content to the customers, including what we call our Single Pellet Technology. So we took the savings and we'll wrap up for more strategic decision later in the year. Barbara Amaya: Our next question comes from [ Andres Ortiz ] from BTG. Unknown Analyst: I would like to have a follow-up on Federico's question on the incremental EBITDA. I understand your disclaimer, but I just want to understand, you mentioned that $1 is equivalent -- MXN 1 appreciation or depreciation is equivalent to $50 million impact. And you said that you see $50 million incremental EBITDA from for several reasons, and one of them was MXN 1. So I don't understand if you are seeing more incremental EBITDA from all this happening together or if every single one of them is $50 million, just to understand. José Pons: Thank you, Andres. I'm sorry if I did not make the right number. MXN 1 is equivalent to $15 million of impact or benefit depending on where we see it. And maybe just a clarification, we presented there several opportunities to improve our results. What you see here is an assessment probability weighted that they could materialize around $50 million. In a perfect world with every single line item would materialize, certainly, they will be more than 5-0, $50 million. Barbara Amaya: We received a couple of questions through the Q&A. I will proceed. First question was from [ Rodrigo Salazar ] from AM Advisors. Could you tell us where the spot metrics used in the guidance stand today? Jorge P. Young Cerecedo: Yes. In our guidance, we said reference margins, which represent China PET margins at $145 per ton. Year-to-date, they are approximately $170 and the last data point is in the mid-$180. Barbara Amaya: The next question that came to the Q&A comes from Pallavi Nagia from HSBC. Could you please provide an update on refinancing plans, particularly for the debt due in 2028 and 2029. José Pons: Thank you for your question. Yes, certainly, we're exploring opportunities to refinance what we have in '28. We have a couple of proposals at this moment that we're exploring. There will be facilities that would take the maturities even further than 2032 or '33. And that will, again, take out pressure on any maturity coming due in the short term. We remain one of the key pillars of our financial strength is to have strong liquidity, which we have, a strong amount of committed credit lines, which we have and also not having any maturity due in the short term. So that's certainly one of the priorities. We are targeting to have that refinanced in the first half of this year. We'll keep you updated. Barbara Amaya: And the next question Historically, increases in the oil price have led to improvement in margins and increasing international shipping costs. My question is, do you still see a correlation with the recent increase in oil price? Do you expect to have a positive in the EBITDA? José Pons: It's a good observation. Yes, typically, oil prices will lead into higher raw materials, not necessarily shipping cost. Shipping cost, yes, oil is a variable that influences shipping cost. The shipping cost freight rates are mostly supply demand in that market. But oil prices will generally push raw materials a little higher. I think this is the first quarter in a while where we didn't have a significant inventory adjustment. We have been last year going through an environment of falling oil prices and falling raw materials. So this year, they stabilized. And if this rebound in oil continues, we should see, again, some support on higher raw material prices that will provide some -- potentially some improvement to our reported EBITDA on inventory restatements. However, our guidance excludes those effects, positive or negative, we are talking about comparable. But yes, definitely, it will be an influence of oil prices influence higher raw materials. Barbara Amaya: Thanks, everyone, for your interest. That is all the time we have available for today. The IR team remains also available if there are any follow-up questions. Thank you for joining our webcast. We look forward to seeing you soon at our shareholders' meeting. Have a great day.
Operator: Hello, and thank you for standing by. Welcome to Generac Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Kris Rosemann. You may begin. Kris Rosemann: Good morning, and welcome to our fourth quarter and full year 2025 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation as well as other information provided from time to time by Generac or its employees may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or our SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Aaron. Aaron P. Jagdfeld: Thanks, Chris. Good morning, everyone, and thank you for joining us today. Our fourth quarter results reflect a 10% increase in global C&I product sales year-over-year, led by higher revenue from products sold to data center customers. However, this was more than offset by continued soft power outage environment, that impacted home standby and portable generator shipments during the quarter. As a result, fourth quarter overall net sales decreased 12% versus the prior year to $1.1 billion. Fourth quarter adjusted EBITDA margins of 17% were in line, however, with our expectations despite the weaker outage environment and unfavorable mix shift. We made significant progress with our efforts in the data center market as momentum accelerated during the fourth quarter and into early 2026. We further developed partnerships in the quarter with multiple hyperscalers, including progressing to the pilot phases of our relationships with 2 specific customers as we prepare for potential significant volumes in 2027 and 2028. These developments provide incremental visibility and support for our continued investments in ramping our manufacturing capacity for large megawatt generators as we position ourselves to be a key supplier for this rapidly growing end market. Additionally, we are making progress with other data center co-locators and developers as our existing backlog has increased to approximately $400 million as a result of additional orders from these customers. We expect our order intake will accelerate over the next several quarters as we continue to progress through the qualification and contract stages with various data center customers, providing a path to doubling our C&I product sales in the years ahead. To ensure that we can serve this accelerating growth in demand, we have made significant investments that further improve our positioning as an important supplier to the data center market, including the purchase of an additional manufacturing facility in Wisconsin in December, as well as ongoing investments in our existing C&I facilities globally. As a result of these investments, we expect that our domestic manufacturing capacity for large megawatt generators will surpass $1 billion by the fourth quarter of this year. and we will continue to evaluate additional capacity across our entire global C&I production footprint. 2025 was an important year of innovation for Generac as we introduced a number of significant new products across our portfolio. In addition to launching our new large megawatt generators, our next-generation home standby generators began shipping in the second half of the year, including the market's first 28-kilowatt air-cooled unit and other important feature upgrades. We also introduced our updated energy storage system, PWEcell 2 as well as our first Generac-branded microinverter PowerMicro that allows us to better serve the residential solar market. We also continue to develop our enhanced home energy management capabilities through our ecobee Smart Thermostat platform, helping to strengthen our home energy ecosystem through deep integrations with all of our residential products. These solutions are specifically designed to help our end customers solve the energy challenges presented by the mega trends of lower power quality and higher power prices. In addition to the well-established impact on power quality from severe and volatile weather, significant load growth is expected to further drive grid instability and raise power prices well into the future as power demand accelerates as a result of massive CapEx investments being made for the build-out of data centers. According to the North American Electric Reliability Corporation's 2025 long-term reliability assessment, nearly half of the U.S. population lives in a region that is at a high risk of seeing its power supplies fall short of established reliability criteria in the next 5 years. NERC contributes this expected instability to the combination of escalating demand growth with the peak demand growth rate nearly doubling as compared to the prior year's projection, increase in intermittent generation sources, which carry lower reliability factors and the uncertain pace of grid infrastructure development. Most regions within NERC's high-risk category are expected to see -- also see a substantial increase in data center investment in the coming years. Significant load growth is contributing to power demand shortfalls with third-party estimates suggesting that supply and transmission capacity investment growth rates would need to increase sixfold as compared to the rates seen over the last 5 years to match the anticipated higher demand. The investments required are likely to further increase the prices for electricity, adding to the affordability challenges that U.S. residential electricity customers already are experiencing as average power prices have increased nearly 40% over the last 5 years. And expectations for power prices are to double again in the next decade, and these continued increases underpin the need for energy technology solutions as home and business owners look for ways to reduce their increasingly higher energy costs. At the same time, the continuing trends around lower power quality highlight the long runway of growth that we anticipate will exist for our core backup power products and solutions, given that the home standby category is only 6.75% penetrated at the end of 2025. With each incremental 1% of penetration, representing an approximately $4.5 billion market opportunity. As a result of our continued innovation and investments in product development, we believe Generac is uniquely positioned to help our customers solve the energy challenges they are facing with increasing power outages and rising energy costs. At the same time, we believe we are well positioned to capitalize on the massive growth opportunity presented by the supply shortage of mission-critical backup power generators for the data center market. Now discussing our fourth quarter results in more detail. Global C&I product sales grew 10% year-over-year in the quarter, primarily due to revenue from products sold to data center customers, including continued shipments internationally and our initial large megawatt generator sales in the domestic market as well as an increase in global shipments for our controls products and solutions. Project quoting activity and orders in our domestic industrial distributor channel continued to grow during the quarter as end market activity remained robust. However, as expected, shipments to this channel declined in the quarter from a strong prior year comparison resulting from the reduction of lead times in the prior year fourth quarter. Throughout 2025, as we further increased production rates across our existing facilities and with our new plant in [indiscernible], Wisconsin coming online in the second quarter of 2025, we continue to bring down lead times for products sold to this channel down to more historically normal levels. Shipments to our national telecom customers improved dramatically for the full year 2025, increasing approximately 27%. And However, shipments declined modestly in the current quarter from the prior year as increased production rates also allowed us to bring lead times for these products down to more historically normal levels. We expect sales growth to this important end market to continue in 2026 as our customers further invest in hardening their networks. The growing dependence on wireless communication and increasing global tower and network hub count continues to provide a solid backdrop for future growth in sales of C&I products to our telecom customers. Shipments to our national and independent rental customers grew in the fourth quarter compared to the prior year, which we view as the start of a cyclical recovery in this market. As a result, we anticipate further organic growth throughout 2026 and believe that we are well positioned for long-term success given the secular need for global infrastructure-related investments that require the use of our broad portfolio of mobile products and solutions. In addition, on January 5, we further strengthened our position in the market for mobile products with the acquisition of [indiscernible], a market-leading mobile power equipment manufacturer located in Nebraska. In addition to broadening our customer base and increasing our exposure to the growing market for these products, this acquisition provides additional capacity and flexibility within our domestic manufacturing footprint as we continue to invest in doubling our C&I product sales in the years ahead. International core total sales, which excludes the benefit from foreign currency, increased 5% during the fourth quarter, primarily due to revenue from products sold to data center customers and higher global shipments of our controls products and solutions. Favorable sales mix and improved price cost realization resulted in significant adjusted EBITDA margin expansion to 16.1% total sales, an all-time record level for our International segment adjusted EBITDA margin. As previously discussed, we have made important investments that further strengthen our position as a key global supplier of backup power for the data center market. And our current backlog for these products has now grown to $400 million. giving us improved visibility for the current year as the majority of this backlog is expected to ship in 2026. We expect 2026 will be an inflection point for Generac in this end market as we anticipate the addition of significant volumes to our backlog over the next several quarters from a number of hyperscaler and co-locator customers. We believe that our strong reputation as an engineering-driven organization, with a unique focus on backup power, a customer-centric market customer-centric approach and global production capabilities will allow us to become an important supplier to the data center market. Additionally, these large megawatt solutions will help expand our reach into our traditional end markets as they have significantly expanded our served addressable market to include applications that have higher backup power requirements. Now I want to switch gears and discuss our residential product category in more detail. Fourth quarter home standby shipments decreased 25% compared to a strong prior year period, which benefited from multiple major landed hurricanes. Home consultations also declined year-over-year as power outages in the second half of 2025 marked the lowest level of total outage hours in a decade. Activations or installations during the quarter also decreased from the elevated prior year period. While key market indicators such as home consultations, activations and [indiscernible] remained resilient despite the continued softness in outage activity, channel partner sentiment was negatively impacted by the weak second half activity and the transition to our next-generation home standby platform, which resulted in lower-than-expected shipments during the quarter. However, we believe the home standby category is well positioned for healthy growth in 2026 and as outages return to more normal levels and as the market fully transitions to our next-generation product line. Our residential dealer network grew modestly during the fourth quarter and now includes over 9,400 dealers, an increase of nearly 300 dealers from the prior year. Our aligned contractor program, which leverages our strong positioning with wholesale distributors to provide tighter relationships with contractors that purchase our products through this channel has continued to grow as well providing important additional capacity and territorial coverage for sales, installation and service of home standby generators. In January, although not a major event for the industry, the impact of Winter Storm Fern resulted in elevated and extended power outage activity across a number of regions in the U.S. As a result, we saw increased demand for portable generators and we experienced year-over-year growth in home consultations across every region, excluding the West. Importantly, the storm afforded us our first opportunity to assess our new lead distribution system in an elevated demand environment and generated promising returns promising results as a wider base of dealers were able to more quickly connect with a greater number of potential customers than in previous periods of increased category awareness. As a reminder, this new approach allows for a broader base of dealers and align contractors with higher close rates to select the sales leads from a pool of home consultations they believe they have the capacity to address. The remaining leads are then distributed to other dealers to ensure customers are contacted more quickly after requesting a home consultation. We believe data-driven process enhancements such as this will continue to support improvements in dealer close rates and customer acquisition costs over time. Given the improved home consultation performance in January, and assumed return to more normal outage levels for the second half of the year, together with higher price realization for the category year-over-year, we expect full year 2026 home standby generator sales to increase at a mid-teens rate over 2025. Helping to offset the softness in the fourth quarter for our home standby and portable generator products, we saw strong sales of our energy storage products year-over-year alongside continued robust shipments of our ecobee products and solutions in the quarter. Net sales for ecobee grew at a mid-teens rate and hit a new all-time record for the full year with significant gross margin expansion driving continued improvement in profitability as we finished 2025 with positive EBITDA contribution from ecobee's products and solutions. We expect profitability of these solutions to further improve in the future alongside continued strong sales growth. Ecobee's connected home count grew to approximately 5 million residences in the quarter, with increased energy services and subscription sales supporting a growing high-margin recurring revenue stream. Ecobee solutions remains central to our developing residential energy ecosystem with our PWRcell 2, PowerMicro and next-generation home standby products all deeply integrated into the ecobee platform, thereby creating a differentiated feature set and user experience focused on resiliency and the improved efficiency of power use in the home. Additionally, our teams continue to execute extremely well alongside our partners in Puerto Rico to drive shipments of energy storage systems over the last several quarters as part of the Department of Energy program that supported this strong performance throughout 2025. As the DOE program winds down in early 2026, we expect shipments of energy storage systems to decrease for the year while strong growth in ecobee and the initial sales ramp of PowerMicro are expected to contribute to overall residential product sales growth for the full year. As we've previously discussed, we remain focused on continuing to improve profitability for our Residential Energy Technology Products and Solutions as we continue to recalibrate the level of investment in this part of our business, given the expected challenging near-term market conditions, resulting from reduced federal incentives for the residential solar and energy storage market. In closing this morning, as we look to the full year 2026. We believe that a return to more normalized power outage levels and higher price realization will present strong growth opportunities for our residential products, particularly in the back half of the year. Additionally, we are growing ever more confident in the progress we've made in the data center market. and we expect 2026 to be an important inflection point on our path to doubling our C&I product sales in the coming years as we work to capitalize on the generational growth opportunity presented by the massive data center CapEx investment cycle. I'll now turn the call over to York to provide further details on the fourth quarter as well as full year 2025 results and our outlook for 2026. York? York Ragen: Thanks, Aaron. Looking at fourth quarter 2025 results in more detail. Net sales during the quarter decreased 12% to $1.1 billion as compared to $1.2 billion in the prior year fourth quarter. The net effect of acquisitions in foreign currency had an approximate 1% favorable impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the fourth quarter by product class. Residential product sales decreased 23% to $572 million as compared to $743 million in the prior year. As previously discussed, continued weakness in power outage activity resulted in lower shipments of home standby and portable generators as compared to a much stronger outage environment in the prior year period. Residential energy technology sales increased year-over-year, driven by shipments of energy storage systems to Puerto Rico as we completed the Department of Energy resiliency program during the quarter. Commercial and industrial product sales for the fourth quarter increased 10% and to $400 million as compared to $363 million in the prior year. The combination of contributions from acquisitions and the impact of foreign currency had a 3% favorable impact on sales growth during the quarter. The core sales growth was primarily due to revenue from products sold to data center customers, both domestically and internationally. Net sales for the other products and services category decreased approximately 6% to $120 million as compared to $128 million in the fourth quarter of 2024. The core sales decline of 7% was primarily driven by a decline in aftermarket service parts related to the residential products due to a strong prior year comparison that included multiple major power outages, partially offset by continued growth in ecobee Services. Gross profit margin was 36.3% compared to 0.406 in the prior year fourth quarter. This decrease was primarily due to unfavorable sales mix, together with a $15.6 million net inventory provision recorded in the current year quarter related to the settlement of a contract dispute with a supplier for a discontinued product. as disclosed in the accompanying reconciliation schedules to the earnings release. In addition, higher input costs and lower manufacturing absorption were mostly offset by increased price realization. Operating expenses increased to $405 million or up 34% compared to the fourth quarter of 2024. The increase was primarily driven by a $104.5 million provision recorded in the current year quarter for the settlement of a portable generator product liability matter as disclosed in the accompanying reconciliation schedules to the earnings release. Additionally, lower incentive compensation was offset by higher marketing spend to drive incremental awareness for our products. Adjusted EBITDA, before deducting for noncontrolling interest, as defined in our earnings release, was $185 million or 17% of net sales in the fourth quarter as compared to $265 million or 21.5% of net sales in the prior year. For the full year 2025, adjusted EBITDA before deducting for noncontrolling interest was $716 million or 17% of net sales as compared to $789 million or 18.4% in the prior year. I will now briefly discuss financial results for our 2 reporting segments. Domestic segment total sales, including intersegment sales, decreased 17% to $889 million in the quarter as compared to $1.07 billion in the prior year, which included a slight favorable impact from acquisitions. Adjusted EBITDA for the segment was $151 million or 17% of total sales. as compared to $243 million in the prior year or 22.7%. For the full year 2025, domestic segment total sales decreased 4% over the prior year to $3.49 billion, which included a slight favorable impact from acquisitions. Adjusted EBITDA margins for the segment for the full year 2025 were 17.1% compared to 19.1% in the prior year. International segment total sales, including intersegment sales, increased 12% to $209 million in the quarter as compared to $187 million in the prior year quarter. including an approximate 6% sales growth contribution from foreign currency. Adjusted EBITDA for the segment before deducting for noncontrolling interest was $33.7 million or 16.1% of total sales as compared to $22.5 million or 12% in the prior year. For the full year 2025, International segment total sales increased 7% over the prior year to $777 million, including an approximate 1% sales growth contribution from foreign currency. Adjusted EBITDA margins for the segment for the full year 2025 and before deducting for noncontrolling interests were 15.1% of total sales during 2025 as compared to 13.2% in the prior year. Now switching back to our financial performance for the fourth quarter of 2025 on a consolidated basis. As disclosed in our earnings release, the GAAP net loss for the company in the quarter was $24 million as compared to net income of $117 million for the fourth quarter of 2024. As previously discussed, the current year quarter includes the impact of the aforementioned product liability and supplier contract settlements, which drove our net loss for the quarter. GAAP income taxes during the current year fourth quarter were a benefit of $3.7 million or an effective tax rate of 13.4% as compared to an expense of $27.3 million or an effective tax rate of 18.9% for the prior year. The lower effective tax rate was driven primarily by the impact of certain favorable discrete tax items and their impact on a lower pretax income in the current year. The net loss per share for the company on a GAAP basis was $0.42 in the fourth quarter of 2025 compared to net income per share of $2.15 in the prior year. Adjusted net income for the company, as defined in our earnings release was $95 million in the current year quarter or $1.61 per share. This compares to adjusted net income of $168 million in the prior year or $2.80 per share. Cash flow from operations was $189 million in the current year quarter as compared to $339 million in the prior year fourth quarter. And free cash flow, as defined in our earnings release, was $130 million as compared to $286 million in the same quarter last year. The change in free cash flow was primarily driven by a significant reduction in net working capital in the prior year, which did not repeat and lower operating income in the current year, partially offset by lower cash payments for taxes. Total debt outstanding at the end of the quarter was $1.33 billion resulting in a gross debt leverage ratio at the end of the fourth quarter of 1.9x on an as-reported basis, which is within our target gross debt leverage range of 1 to 2x adjusted EBITDA. For the full year, Cash flow from operations was $438 million as compared to $741 million in the prior year. Free cash flow, again, as defined in our earnings release, was $268 million, as compared to $605 million in full year 2024. Capital expenditures during the full year totaled $170 million or 4% of net sales as we invested in additional production capacity and other capabilities to support future C&I growth. In addition, we opportunistically repurchased approximately 1.11 million shares of our common stock during the full year for $148 million at an average price of $133 per share. Additionally, on February 9, Generac's Board of Directors approved a new share repurchase authorization that allows for the repurchase of up to $500 million of the company's shares over the next 24 months, replacing the remaining balance of the previous program. We will continue to operate within our disciplined and balanced capital allocation framework as we evaluate future shareholder value-enhancing opportunities. With that, I will now provide further comments on our new outlook for 2026. As disclosed in our press release this morning, we are initiating 2026 net sales guidance that projects strong year-over-year growth for the full year period. We expect consolidated net sales for the full year to increase at a mid-teens rate as compared to the prior year, which includes a favorable impact of approximately 1% from the net combination of foreign currency and completed acquisitions and divestitures. Consistent with our historical approach, our guidance assumes a level of power outage activity in line with the longer-term baseline average for the remainder of the year and does not assume the benefit of a major power outage event during the year. Breaking this down by product class, we expect overall residential net sales to increase in the plus 10% range as compared to 2025, primarily driven by growth in shipments of home standby and portable generators, given the assumption of a return to a baseline average power outage environment in 2026 as compared to an easier comp in the second half of 2025. In addition, we expect higher price realization for home standby generators, the launch of PowerMicro and continued growth at ecobee to contribute to the strong residential product sales growth. The residential growth will be partially offset by lower energy storage sales due to the end of the Department of Energy Program in Puerto Rico. As Aaron discussed, we expect robust C&I product sales growth in the plus 30% range during 2026, primarily driven by products sold to data center customers. In addition, the acquisition of Allmand is expected to contribute approximately 1/4 of this year-over-year growth, with the remainder coming from modest organic growth in our traditional C&I products and channels. Additionally, in January, we completed the divestiture of certain noncore assets that will impact sales for our other products and services category, resulting in an approximate 10% year-over-year decline for this product class in 2026. From a seasonality perspective, we expect 2026 consolidated net sales to be approximately in line with normal seasonality, resulting in overall net sales in the first half, being approximately 46% weighted and sales in the second half being approximately 54% weighted. Specifically for the first quarter, we expect overall net sales to increase in the plus 11% to 13% range compared to the prior year primarily driven by strong growth in portable generator shipments related to winter storm fern and significantly higher revenue from products sold to data center customers. Looking at our gross margin expectations for the full year 2026. We expect the full year realization of price increases to be fully offset by higher input costs and unfavorable mix, resulting in approximately flat gross margins compared to the prior year in the 38% to 39% range. From a seasonality perspective, we expect first quarter gross margins to mark the low point for the year, with a slight sequential decline from the fourth quarter of 2025 in the 36% range. In line with normal seasonality, gross margins are expected to improve sequentially into the second half of the year given the increasing mix of higher margin home standby product sales, resulting in second half gross margins in the 39% range. Looking at our adjusted EBITDA margin expectations for full year '26. Adjusted EBITDA margins before deducting for noncontrolling interests are expected to be approximately 18% to 19% for the full year 2026 compared to 17% in 2025. At the midpoint of the sales growth and margin ranges, this would result in an approximate 25% increase in EBITDA dollars in 2026 and compared to 2025. We also expect adjusted EBITDA margins to follow normal seasonality and improved significantly as we move throughout the year. Specifically, regarding the first quarter, adjusted EBITDA margins are expected to land in the 15% range and then improved sequentially throughout the year, reaching approximately 20% for the second half of the year. This sequential improvement is expected to be driven by the previously discussed gross margin mix improvements, together with significant operating expense leverage on the seasonally higher sales volumes. As is our normal practice, we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2026. Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add back items should be reflected net of tax using our expected effective tax rate. For 2026, our GAAP effective tax rate is expected to be between 24% to 25% as compared to the 18.9% full year GAAP tax rate for 2025. We expect interest expense to be approximately $65 million to $69 million for full year '26, assuming no additional term loan principal prepayments during the year. This is a decline from '25 levels of $71 million due to the full year impact of lower sulfur interest rates. Our capital expenditures are projected to be approximately 3.5% of our forecasted net sales for the year as we continue to invest in incremental capacity and execute other projects to support future growth expectations, particularly for C&I products. Depreciation expense is forecast to be approximately $104 million to $108 million in '26, given our assumed CapEx guidance. We have intangible amortization expense in '26 is expected to be approximately $18 million, $112 million during the year. Stock compensation expense is expected to be between $54 million to $58 million for the year. Operating and free cash flow generation is expected to be weighted towards the second half of the year in '26, resulting in projected free cash flow generation of approximately $350 million for the full year 2026. Our full year weighted average diluted share count is expected to increase modestly and be between 59.5 million to 60 million shares as compared to 59.3 million shares in 2025. Finally, this 2026 outlook does not reflect potential additional acquisitions, divestitures or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Tommy Moll with Stephens. Thomas Moll: Aaron, I wanted to ask about your progress with the hyperscalers. Just to level set, I think what I hear you saying is no orders in backlog yet, but the advance to the pilot phase is new versus last quarter. So maybe if you could just confirm if that's correct. And just give us a little more insight about what you're expecting in the go forward. You talked about orders to come? Just walk us through what the phases of that might look like. Aaron P. Jagdfeld: Yes. Thanks, Tommy. So yes, that's largely correct. The backlog, there's a couple of units in there for the pilot program, but that's it. So the $400 million. And remember, the $400 million is after we began shipping product in Q4 and here also started Q1. So good order flow again over the last 90 days to get the backlog to 400, and that's without any material hyperscale business at this point. So that's the answer to that question. And the second part of the question in terms of the progression there. The pilot programs are in flight. We are in deep negotiations with the -- with 2 hyperscale customers in particular, and that's what the pilot programs are related to. And we would anticipate with successful completion of those pilot programs here in the call it, the end of the first quarter, beginning of the second quarter, we would be in a position then with each of those customers to sign a longer-term supply agreement, a master supply agreement. And then that's when we would start to see purchase order flow, and that would then feed into the backlog. They've been holding off on that, although I will say all of our conversations with those 2 hyperscalers have been about how much can we supply for 2027 and 2028, what's our capacity. And then also, do we have potential to supply product in 2026. And so that is not in our guide at all, obviously. So that could be upside. Again, as I said on the call, with the purchase of the new facility here in Sussex, Wisconsin. We'll have that facility online in the second half of the year, and we could respond to potential or potential for additional orders from those hyperscale customers in '26 should we be able to work through the successful completion of the contract negotiations in the pilot phases. But we feel very good about where we're at. They need additional supply desperately. And we believe we're going to be in a really good position certainly for '27 and '28, but also potentially here for 2026. The addition of that facility and some of the tweaks we've made, just to our domestic capacity, we believe we're now over $1 billion here domestically for capacity. So -- and we're looking at ways we could go higher because the volumes we're talking about in '27 and '28 could take us easily above those numbers. Operator: Our next question comes from the line of George Gianarikas with Canaccord. George Gianarikas: So as it relates to the data center opportunity, can you just maybe talk a little bit about the competitive environment, how that may be changing or if it's the same and whether or not this enormous opportunity is inviting any new entrants into it? Aaron P. Jagdfeld: Yes. Thanks, George. So as it relates specifically to diesel generators, large megawatt diesel generator backup, the market is has not changed in terms of participants at this point other than our entry into it. I think that the reason for that largely is the limitation around the number of diesel engine manufacturers in those high horsepower diesel engine ranges. That's a pretty static number because of the investment required, not only in R&D, but also just the the production investment needed to -- for tooling and the manufacturer of those types of products. So we think we have a great partner there that has invested very heavily in capacity. So we don't believe we're going to see capacity limitations in the near term or in building out the rest of our supply chain, obviously, it's not just engine. There are alternators, there are cooling packages, there are structural elements of the generator in terms of the steel base frames and the diesel tanks themselves. And then obviously, the packaging structures that go around these machines that typically is handled by third-party companies. We are evaluating and deepening our relationships in the supply chain. It's not just the investments we're making in our own production environment, right? We can go out and buy a plant and we can buy the equipment and hire the people, [indiscernible] the plant, but we need to make sure the supply chain is ready for those higher volumes. Fortunately, this is something we do really well, right, we're taking a page out of our residential side of our business where we've been very agile over the years and reacting to surges in demand and the ability to get our supply chain at the levels that we need them at to be successful and to handle increased demand. So we're kind of built that way. So I guess, just -- it's part of our DNA, and I think it's going to serve us quite well in this new market. Operator: Our next question comes from the line of Mike Halloran with Baird. Michael Halloran: Maybe just a thought about how you're thinking about directionally the TAM or the growth profile over the -- for the data center markets over the next 3, 5 years, whatever kind of time horizon you're talking to. Just to put it in context of the growth from an industry perspective? And then secondarily, the types of share that you envision is realistic within the context of that overall market opportunity. Aaron P. Jagdfeld: Yes. Thanks, Mike. It's a great question. And obviously, the numbers around the size of the price, right, in terms of how how much market -- what is the TAM for just specifically the day center element there in this market for diesel, a large megawatt diesel backup generators, it keeps changing because a lot of that is tight, obviously, as you would imagine, to the amount of construction. But we think that, that's something -- that market could be as much as $15 billion a year alone. For us, I think when we look at what's reasonable for us for share position, we look at our share here in North America, depending on the segments of the markets you look at, we're a 10% to 15% share player in the C&I market. So we think that is that a reasonable target for us? We believe so. Maybe on the low end of that, it's 10%. I mean, again, we believe that the opportunity here is great enough that we can take what effectively was a $1.5 billion business last year in C&I, and we can double that in the next 3 to 5 years. So that would be the addition of another $1.5 billion. So just a 10% share. So now if the market is bigger, maybe that number grows. If the number is smaller because of the potential cycle, cyclical nature of like all markets, there are cycles, we're going to be measured about that. I will say this, in addition to just -- obviously, the discussion this morning is heavily focused and waited on data centers. But we basically are starting from 0 with our traditional market, which already existed that traditional market, obviously not a $15 billion a year market in that range, but it's half the dollars in our traditional market. So it's another, call it, $3 billion to $4 billion. And so just getting a portion of that, we believe, is going to be supportive of the growth that we're seeing. And for the record, the $400 million backlog that we keep talking about, we don't have any of our traditional large megawatt products in that backlog at this point. So that's a recent product launch. We launched with the data center-focused sets first, and we started quoting now in the traditional market. So that's an opportunity for us on a go-forward basis that will, I think, be able to talk more about as we go throughout 2026 here. Operator: Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe shifting gears to residential. I wanted to just better understand what you think the hole is for the Puerto Rico wrap and then how you're thinking about power micro demand and feedback. And then within the home standby, I think you said mid-teens growth, how much of that is price mix and volumes. And then just an update on kind of the cost structure in energy technology '26 versus '25 bringing that loss down towards your target? Aaron P. Jagdfeld: Yes. Thanks, Jeff. All great questions, and I appreciate, by the way, the question on residential. Good to talk about that. That market, obviously, the second half of last year was just incredibly softer outages. So when we think about the opportunities for residential next year, and we're calling out a mid-teens growth rate overall. But when you kind of pick apart the pieces, which I think is what the gist of your question is, Jeff, the DOE headwind, that program ended here early '26. About $100 million of energy storage, that's a hole that we've got to make up. Now we do have our next-generation power cell products in market. And then as we noted on the call in our prepared remarks, PowerMicro, which is an exciting -- the microinverter market is an established market for residential solar. And even though the incentives and support at the federal level for residential solar and maybe even storage, you can make the argument is going is gone for intents and purposes at least at the homeowner level can it still exists for third-party operators, DPOs. But we do think that, that market, while it will compress in the short term, a year or 2, all the forecasts are that as energy costs continue to rise, the need for these types of products is there's going to be a demand for them at the residential level for sure and certainly at the light commercial level, which we'll focus on eventually long term as well. So there's a hole there. That's going to be offset by PowerMicro, not fully. It will also be offset by ecobee growth, not fully. So when you look at just those products, storage, microinverters and our ecobee products, that's going to be down but then obviously, good growth on our core residential products with home standby and port generators. In terms of like where that's coming from next year, we see about half of the growth in the home standby category coming from price. So it's the realization of price, not only from the new product line, which has a higher ASP, a bit higher ASP, but also full year realization for some of the tariff price increases that we put in last year. That's about half the growth. And then the other half would be unit volume that would accelerate based on a return to a more normal. The assumption that we return to more normal outage in [indiscernible] more in the second half of the year, of course. So that's kind of how if you unpack it, but still kind of exciting that even in spite of kind of having a challenging second half of the year last year, the category -- the metrics in the category actually hung in there. I mean we were surprised to see home consultations, activations, dealer counts, you still got our dealer counts, all the things that we watch very closely and then you look at winter storm firm, we kind of got off the year on the right foot finally with the category. So we were able to see some nice volume on portable generators. It's going to give us -- it's going to put us in a much better position starting out the year then had we continued the power outage kind of drought that we've been in here in the second half of the year. So we feel pretty good about where we're kind of where we're leaning here as we start the year for the residential products. Operator: Our next question comes from the line of Brian Drab with William Blair. Brian Drab: I'm just wondering if you can update us on what kind of margin are you expecting from the data center products? And I know you're not going to give maybe specifics to like relative to home standby. And then also, how does that progress over time? Obviously, you're at a moment where you're ramping capacity dramatically and the costs associated with that. Are there -- and just the inefficiencies that often come with new product launch where margin is going to be this year and longer term? York Ragen: Yes, Brian, this is York. Yes. Good question. The way we're seeing it play out in terms of these projects is -- and to your point, as we ramp up capacity, there will be some start-up costs. We're seeing around mid-teens EBITDA margins or contribution margins for these projects in 2026. And then as we ramp up and get more scale, we're seeing more high teens margins in the 27%, 28% range in the data center space. So basically in line with pretty close to corporate average EBITDA margins which is [indiscernible] Aaron P. Jagdfeld: Yes. And I would say the upside there potential, Brian, would be as we look to bring in-house more elements, more vertical integration in the entire package, there's an opportunity there for us should we find the right way to do that either through M&A or organic investment to do more of the content. Obviously, we're not going to do diesel engines, but we have the opportunity to add to the content, which then would have the potential to improve the the margin profile even further. So yes. Operator: Our next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: Just I was wondering about the home standby generator business. Just as you sort of observed the trends in that business over the last couple of years, how do you think about just the penetration rates you're seeing and kind of just sort of the growth rate you would expect over kind of a multiyear period in kind of a sort of smooth outage normalized outage activity market? Aaron P. Jagdfeld: Yes, Stephen, great question. I think the challenge in answering the question, of course, we haven't really had much of a "normal" outage environment. We talked about that on the averages, of course, and that helps smooth things out. And I guess to answer your question, today, we're only 6.75% penetrated. And every 1% of penetration is a $4.5 billion market opportunity. Our share is is outsized in that market because we created it, we own it, we drive it. There isn't a single other player in the home standby category that puts the kind of muscle we put behind. And we do that because it's only 6.75% penetrated, and we think that there's huge upside there. I mean when you look at where could penetration go, which maybe is your question, in terms of terminal penetration rate, for the category. I mean we have states and mind you, some of these states are our fastest-growing states where we're in the 20% range, right? We're 23%, 24% in states like West Virginia and may not huge states, right? But you look at other states like Michigan. Michigan for us is a 17% pen rate. So can we get the 17% pen across the U.S. I mean, there's -- California is low. So there's opportunities there. Texas, which is a massive market, is only really right at the median now. Florida is really kind of right at the median. So I think the opportunity here, if you look historically, the growth rate in the category over the last 25 years has been roughly 15%. It's been pretty consistent over that period. And I would say, we're saying residential products in total are going to grow in the mid-teens. Home standby is a component of that obviously a driver, a major driver of that. So 10% of that. So in terms of where we think we can go with this category, we just think there's a lot of runway here. I mean, you look at just all the data around outages and the trends over the last 20 to 30 years are all up and to the right. And as Americans, we deal with outages more than any other kind of developed nation in the world. It's amazing, really. The state of our grid and the reality of it is, and it's complex. There's a lot of reasons for it. And we've always said Mother Nature has always been kind of driving 70% of those outages. We are seeing a change we're seeing a change in basic kind of math around supply and demand and shortfalls in supply. You may have heard in my comments, the National Electric Reliability Corporation calling out that half of all Americans are at risk for significant outages over the next 5 years because of energy shortfalls, not because of mother nature. So you look at that and you look at the structural things that are driving that right? We've brought a lot of supply on the grid that's renewable. So in terms of how you plan for that in terms of capacity planning factors, they're much lower than thermal assets like coal or gas plants or nuclear, right? You can't plan them as high. So that's a problem when it comes to -- you've got periods of peak demand. Very hot days, very cold days are going to present significant challenges to grid operators and keeping the lights on. You're going to see more rolling brownouts, more rolling blackouts as a result. This is fact. Without a question, we are going to see this. It's been called out over and over again by a ton of prognosticators and others who follow these markets much more closely than we do. And so we think the opportunity for home standby backup power. And then, of course, in our C&I business, our core business, backup power, the requirements there are going to be significant in the years ahead. Operator: Our next question comes from the line of [indiscernible] with Bank of America. Unknown Analyst: Just to clarify here, when you say you've progressed to the pilot phase with hyperscalers. What's the pilot mean in practice? Is that based on performance validation? And then the second question I had here, we're talking about potential significant volumes in '27 and '28, right? Is that based on customer provided demand forecasts that are tied to specific cycles or more to a general capacity reservation for future expansion, right? I'm just -- I'm trying to confirm here what we can anticipate in just in the C&I profile. I think last quarter, you maybe spoke about C&I doubling in the next few years. And -- was that kind of based on just 1 hyperscaler award here because now we're talking about 2. So trying to get more clarity around this in general. Aaron P. Jagdfeld: Those are great questions. I mean, first, on the pilot programs, they're different. Based on the different hyperscalers, they both have different requirements, but effectively, there are test scripts but then we run the products through in some of those in our laboratories. Some of those are as parts of actual real sites so in the wild, so to speak. So those are underway today. And some of those are observed directly here again, and some of those are are in the wild. So we are progressing well there, and we don't see any problems with meeting those requirements. We know these products quite well. As far as your question about the capacity that we've been talking about in the future here, '27, '28 with these hyperscalers, it's a mix of both. We actually -- in one instance, we have hyperscale,a potential hyperscale customer that is telling a specific site build-outs for their sites. And we wanted to overlay our manufacturing capacity kind of globally to see where that could fit in. And so in that instance, with that conversation, it's a lot more pointed around the specifics of what is needed by site and what we could potentially provide because obviously, logistics costs are a big part of the overall bill here, not only in cost but also in time. So trying to match the builds, the build-outs of these data center of the construction activity with our manufacturing production capacity by region is one work stream. With another hyperscaler, it's all about, hey, how many slots can reserve for us. And we're talking about a lot of product. It's -- in fact, it's almost -- it's just difficult for me to get my head around in terms of the size of what we're talking about here in the potential. And in fact, the $1 billion of capacity that I've said we've kind of put ourselves in a position to be in by the end of the year here domestically would not be enough to handle the potential capacity that would be required if we are able to successfully land purchase orders for these hyperscale customers? Because remember, we also have co-locators. We're a preferred supplier to 2 co-locators already. in our backlog and that continues to grow. So just the requirements here are enormous. To answer the last part of your question about our completion of doubling the C&I business over the next 3 to 5 years, if we had to be very honest, that was really a landing on hyperscaler is if we landed one hyperscaler, that would get us to a point of doubling. Is there an opportunity to go higher than that? Of course, -- that would be somewhat obviously gated by our ability to expand capacity and then, of course, supply chain as well. So those are things that we've got to work on yet, so we're not ready to commit higher than that. But I do believe if we can get -- if we can have success with our own capacity and if we can continue to work with our supply chain partners, there is a possibility that we could go higher than that in the future. Operator: Our next question comes from the line of Christopher Glynn with Oppenheimer. Christopher Glynn: A couple on residential. Just curious about how you're thinking about ASP in the short term related to burn. And I didn't hear any comments on that. And then he could be us new grid resiliency service where you had a nice contribution to the grid operating capacity. How do we think about the revenue and monetization implications for that? Aaron P. Jagdfeld: Yes. Thanks, Chris. Good questions. In grid services, it's -- we obviously have invested in that. It's a small piece, though, but it is interesting. We want to keep a toe in that because it's recurring revenue, but also the possibility of the grid to be very frank, grid services programs have been slow to develop slower than we thought, right? Like we acquired Ambala a number of years ago. We've got -- obviously, ecobee with that business came the grid services opportunities there. And that's really where most of the revenue is coming from today is on the ecobee side. Utilities have been just slow to adopt grid resiliency programs. I do think as the grid becomes more constrained and as pressure builds on utilities and grid operators, they will have to turn to nonconventional solutions like virtual power plants and other grid services types of programs. So we definitely want to stay close to it. That's something that we're it's just small, right? But it's recurring and it's a nice piece of growth there, and we're going to continue to stay in bulk. Your question on home standby Fern gave us a nice bump on portables also gave us a nice bump in IHCs, our in-home consultations, and we saw those basically double from where we were expecting them to be for the month. So and up considerably from the prior year, obviously, as you would expect in a period of time that's generally kind of off season, if you will. So what are the prospects for that? I mentioned our new lead distribution system, which we have seen nice results from already. We've seen a nice improvement in close rates coming out of those systems when we do get surges in demand. So we'll let these IHCs mature, and we'll provide a more fulsome update on that but they were high. They were -- there's no dying it [indiscernible]. Yes. And we put something into the guide for it, but do we make enough. We want to see what the close rate looks like. Now we want to see how the rest of the season develops here. We want to see what kind of as we get a better read on the consumer maybe overall, big ticket purchases tied to residential investment, where is that going? So I think we're maybe taking a bit of a more conservative tone there, but we're off to a good start for the year. So that's helpful. Operator: Our next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: So the decision to expand to $1 billion per year of diesel genset capacity, you did this before getting signed contracts from hyperscalers. But it makes sense given the amount of demand you're seeing and the industry capacity constraints. But I guess my question is when we look beyond that, beyond that $1 billion I guess 2 questions. One, is it possible at this point to increase capacity above $1 billion in -- and then two, how do you think about expanding for that next tranche with -- in the context of peers that are also expanding capacity for that '27, '28 time frame for that next leg of expansion, would you kind of wait for contracts to be in hand before expanding? Or would you still do it again if you saw enough demand signals? Aaron P. Jagdfeld: You're spot on. I mean, we felt good enough about where we were headed here with our discussions with the customers that I've mentioned here that we took -- we're running on a better risk there by going out and buying an existing facility. We bought an existing facility, so we could get it up and running quickly, right? I mean to build something greenfield takes more time frankly, [indiscernible] capital. This, I think, was a much more efficient way to to accelerate our capacity adds. And again, that $1 billion that I mentioned is just the domestic capacity. So we actually have greater than that globally. So we had mentioned $500 million, I think, on a previous call, and that was really our global capacity. So we maybe have a couple of hundred million of additional capacity outside the U.S., and we're looking at ways to expand that as well, by the way. So where does that put us? I think we'll give a more fulsome update. We do have an Investor Day coming up on March 25. So we'll be able to provide, I think, a lot more context there around where we're going from a capacity standpoint for sure. But your question, if we saw opportunities, let's say we wanted to go to $2 billion, right? Like we saw handwriting the wall. I guess it would depend on how strong those signals, those buy signals are. Obviously, we took -- we undertook this first step without having orders in hand. I would tell you it will be I would take greater comfort in trying to double it again if we had hard orders in hand. So it's not that we wouldn't do it. for the right circumstances or if we saw and had the right kind of conversations at the right levels of these customers as well. But we did take that. We took that initial kind of flyer here. and because we feel very good about it. I think that's going to pay off well. That will position us very well, we think, in the context of the other part of your question about the rest of the market and where we are competitively. We think that our lead times are going to remain shorter than the rest of the market, at least for the near term and probably all of 2027, our competitors today are out kind of 2 years on deliveries. And of course, they are investing in capacity adds as well. But the constraints largely for our competitors are in the engines and the engine supply. Our engine partner, we believe, can allow us to continue to keep shorter lead times because of their overall investment in their capacity, which gives us access to to what is the arguably the most critical component in the gen set in terms of long lead time. Operator: Our next question comes from the line of Joseph Osha with Guggenheim Partners. Joseph Osha: Just 2 quick ones. First, we've talked a lot about hyperscalers. I'm wondering if you could help us perhaps size the colo opportunity, Aaron, you mentioned it briefly because there's a lot there. And then the second question, we were [indiscernible]. We've talked a lot about diesel today, but we also heard a lot about some of the smaller sparked natural gas machines being used as a time to power solution in some cases. And so I'm wondering if you could comment on whether you're seeing any of that demand. Aaron P. Jagdfeld: Yes. Thanks, Joe. Great question. No, I think from from a diesel perspective, that the -- that market continues to grow. Obviously, the co-locator portion of that today is our focus because we haven't gotten to final contract signings with the hyperscalers. And at $400 million of backlog, could you argue that is that 30% of the market. Is that 1/3 of the market? Possibly [indiscernible] Yes, there's a lot -- I'll tell you this, it's a longer tail on -- in terms of just the number of customers to talk to there and the number of parties involved, we have been making very good progress though there. I mean that is where we've gotten our first point of traction. And we've been working with those customers to establish ourselves, I think I mentioned just a second ago with another question was we actually are listed as the preferred supplier with 2 co-locators. So where they do sites around the world, we are one of the primary suppliers that they look to for backup power. So those are great opportunities for us and will help us kind of balance out, if you will, reliance on any one customer, but there's no denying that the hyperscalers are. They just have they have -- they carry a lot of cloud, obviously, in terms of the capital they're deploying for data center construction. So they're going to have an outsized impact. Your question [indiscernible] product is a good one. We are seeing certain spark-ignited engines being used in applications kind of behind the meter to power data centers who -- where grid interconnect is not available and where the lead times to wait for maybe a traditional gas turbine or a different solution is just not not possible, right? You want to bring the center -- data center online, so you're seeing [indiscernible] engines, reciprocating gas engines being used. What typically -- what you'll see with those reciprocating gas engines, though, is there they are operating -- not to get too technical here, but they're operated in what's known as a lean combustion cycle mode, which allows them to operate more efficiently to produce power on a continuous basis. The engines themselves are robust off. You could use them in backup -- but the problem you into with lean burn gas engines as configured as lean burn is their response times to outages are poor. Generally, you've got to get those machines. It takes time for them to spool up and get to full power. And we're talking about minutes, which is an incredible amount of downtime data center, if you were to lose power, then we'd have to [indiscernible] -- you'd have to infill that with a lot of batteries, either UPSs, [indiscernible] supplies or raw batteries to be able to cover that gap. So they're not great pure backup assets. In fact, what we're seeing is where you do see [indiscernible] engines and lean burn being used in a prime power configuration, you're still seeing diesel backup generators on the sites because the theory that we've been hearing anyway from customers is that they'll just -- once the site gets connected to the grid, they'll -- they need the backup generators and cat there's a failure with the lean burn machines as they're providing primary power. But then once grid is connected, those gas machines can be picked up and moved to a new site, right? They can be moved to another site that's forward in advance of interconnect and redeployed there. So we believe there's going to still be a market and an opportunity that, that doesn't shrink the TAM at all for backup diesel generators, that you need both effectively is kind of what my point is. Operator: Our next question comes from the line of Vikram Bagri with Citi. Unknown Analyst: It's Ted on for Vik. I wanted to talk about energy technology. Are you able to share whether revenues where they shook out relative to the $300 million to $400 million range that you previously talked about? And then for this year, is it fair to assume that those revenues would be below the end of that range, if you include the Puerto Rico impact? And then just lastly, could you just confirm whether the focus is still on achieving breakeven EBITDA margins within that business in 2027? Aaron P. Jagdfeld: Thanks. Appreciate the question. So last year, 2025, those products ended at the high end of the range, closer to 400, they were about 375. And going forward, they're going to pull back a little bit because of the loss of the DOE program, but actually, they're going to be kind of in between that 300 to 400 range again. PowerMicro launching and ecobee continues to just rip for us. It's a great company, to be honest, great products, great support, and they are becoming much more deeply integrated into this ecosystem we've been building. So in terms of like when you look at the products individually, we are still very fixated on getting to breakeven profitability by 2027 on the products -- in the product set collectively. But what the problem we're going to run into here as we go forward as we build out this ecosystem is that more and more of the operating expense, if you will, the layer that is at ecobee and is that some of the other businesses there that make that group up, they're getting pulled into this -- the build-out of this energy ecosystem. The focus on building out the ecobee thermostat, smart thermostat, turning that into more of an energy hub and deploying and bringing and unifying basically the customer experience on to the single app that [indiscernible] so do you say that that's related to energy technology? Or do you say that that's related to residential. So we'll -- as I said, we've got an Investor Day coming up in late March, and we'll provide some, I think, more detailed color about how we're thinking about talking to this going forward because it is going to get a little bit messy as we integrate more deeply all of these products for this ecosystem concept. But that said, if you were to just peel those products out on their own, we are still highly focused on those getting to breakeven profitability in '27. We're going to make very good progress on that here in 2026. That's our plan. Operator: Next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: Going back to the residential part again here. Aaron, perhaps any thoughts you have in terms of the battery storage market, understanding there's been a lot of products coming out of the past year and potentially the cannibalization of the HSV business, how do you kind of guarantee that does not happen going forward? Aaron P. Jagdfeld: Yes. Thanks, Keith. It's a great question, right? I mean it's one of the reasons why we're investing so heavily in battery technology because obviously, battery performance has continued to improve, costs are coming down. The reality is though, we're still a long way off from where a battery could stand in for long-duration outage coverage -- I mean, you can go out, you can buy 5 PWRcell 2s, if you want. But in terms of just the cost per kilowatt hour of coverage, it's really expensive, right? So it's just not equitable today. I think we're batteries in the residential market short duration outage protection, of course, but really as part of an overall strategy for a homeowner who wants to self-generate, right, either on the rooftop with solar or geothermal, some other production method and then having the ability to store some of that power so that they can arbitrage the value of that power back to the grid operator at a time when it makes most sense, either consume it, self-consume, right, when grid rates are high, or to sell it back to the grid at a time when they don't need it and maybe the rates are more appropriate and they can get a return on that. All indications -- again, the market for solar plus storage is going to contract here in the short term. There's no question about it. There was definitely some pull forward into 2025 as a result of the end of the tax incentive for homeowners directly. But as we look forward, all projections are that is energy costs keep going up, energy costs are up on average across the U.S. in the last 5 years, they're up even more dramatically in certain parts of the country like California and they're projected to double. The utility bill for most homeowners today is second only to the rent or your mortgage and it's going to go up. It's going to double again. So homeowners and honestly, like if you're a homeowner, you're frustrated with your power cost rising and you feel like your only way to combat that is to go around the house and turn off turn off lights and turn down the thermostat or turn it up depending on what time of the year it is. If that's the only way you can manage that, I mean that's not a great situation to be in. Homeowners and businesses are going to be looking for ways to cut their power costs. They're going to be looking for ways to save. We think this is the next big leg of residential long term for us. There's always going to be a market for resiliency, and we think that home standby is going to lead that market for a long time just on a raw cost basis, right, in terms of the value proposition of that product line. But over time, as batteries become more -- better from performance and costs continue to come down and utility rates continue to rise, the ability to self-generate and have some amount of storage, again, to play that arbitrage, to get the payback on the system and then have some resiliency. But again, the ecosystem concept where maybe even at a generator to that system. We have customers who are doing that today. bottom was battery. Instead of buying 5 power walls. They buy one power wall or PWRcell 2 and they had a generator. That's a much more cost-effective way to get basically bottomless coverage. And we think that's a great kind of hybridization of backup power in the space. So we see the market being a huge opportunity for us Long term, we're very convicted about obviously, and that's why we've been investing the way we're investing, and we're going to be a significant player in the space as the market grows out. Operator: Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Kris Rosemann for closing remarks. Kris Rosemann: We want to thank everyone for joining us this morning. We look forward to providing a longer-term strategic update at our upcoming Investor Day on March 25 and discussing our first quarter earnings results in late April. Thank you again, and goodbye. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Fourth Quarter Results Video Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] Vicente Ferreira: Hello, everyone. I'm Vicente Ferreira, Investor Relations Officer of TIM Brazil. Welcome to our earnings conference for the fourth quarter of 2025. Today, joining me to discuss the highlights of our results, I have the CEO, Alberto Griselli and the CFO, Andrea Viegas. As usual, we close our call with a live Q&A session. So let's get started. Alberto, great to have you here. What can you tell us about the main highlights of the 2025 results? Alberto Griselli: Thank you, Vicente. Hello, everybody. It's a pleasure to share results that represent more than another solid quarter. They depict a consistent execution of our strategy and full delivery of our promises confirming the track record of TIM Brazil in meeting its target. From a financial standpoint, service revenue grew above inflation with a year-on-year expansion of 5.2%, check. EBITDA margin expansion, reaching 51% as EBITDA increased 7.5%, check, as well. CapEx was essentially flat versus 2024, check. Operating cash flow grew at double digit, closing the year expanding at 16%, check. And with the dividend anticipation, we closed the shareholder remuneration at BRL 4 billion in cash, plus BRL 750 million in share buyback, check. In all, guidance was delivered with a combination of strong cash generation and disciplined capital allocation. Vicente Ferreira: Really impressive financial performance of Alberto. But beyond the numbers, what can you tell us in terms of operational results and other achievements that the company made during 2025? Alberto Griselli: Sure, Vicente. You're right. We had many deliveries that go beyond financials. In 2025, we continue to reinforce our strategic position. TIM remains the leader in 5G in Brazil with coverage of more than 1,000 cities, 52% more cities than our second player. And we, once again, the most awarded operator in Opensignal latest report, winning in key categories such as consistent quality and reliability. In B2B, we surpassed BRL 1 billion in total contracted value across all verticals and for the third consecutive year, TIM was featured on the CDP A list, confirming our leadership in climate and ESG practices. On top of that, we continue to capture productivity gains, applying digitalization, artificial intelligence and strict discipline in capital allocation. Vicente Ferreira: Great list of achievements. But Alberto, what can you tell us in terms of the contribution of each area of the company and the support that those different areas were able to deliver for our results as a whole. Alberto Griselli: Okay, Vicente. When we look inside the business line, 2025 tells a coherent story. In mobile, we strengthened the pillars that have been driving our performance in recent years. Net service revenues grew at a solid pace, supported mainly by mobile services, which increased 5.4% in the year. Postpaid was again the central engine. Postpaid revenues grew 9.5% in the fourth quarter, and our base expanded by 8.4% with another year of positive net additions. ARPU in postpaid, excluding machine-to-machine, reached almost BRL 55, growing 3.1% year-on-year, which reflects our ability to combine volume and value strengthening value capture across our customers, migrating them to higher value offers while keeping churn under control. At the same time, the prepaid segment began to show more encouraging signs. The revenue decline has accelerated for the third consecutive quarter, indicating that our actions to stabilize this space through more targeted offer, better segmentation and improved customer experience are starting to gain traction. The combination of robust postpaid expansion and more stable dynamic in prepaid, supports a healthier, more balanced growth profile of our mobile business. None of these achievements would have been possible without the strength of our network. Throughout 2025, we further consolidated what has become a structural advantage for TIM, our leadership in coverage and technical quality. We maintain the broadest 4G and 5G footprint in Brazil and delivered tangible benefits for our customers. TIM's excellence was recognized in the latest Opensignal report, where we took home 6 national awards demonstrated that our investments are not just expanding coverage, but actively enhancing customer experience. One of the year's more significant milestones was the completion of our network modernization project in Sao Paulo, which has transformed the experience in the country's largest market by modernizing every site in the state, we expanded 5G and 4G coverage, increase capacity and improve overall quality performance. We are now extending this modernization to other cities with a plan that includes around 6,500 sites to be swapped in major capitals until 2027, establishing new standards of holiday and experience of our customers across Brazil. In fixed services, 2025 was a turning point for our broadband operations team, Ultrafibra. After a period of adjustment and portfolio optimization, broadband revenues returned to growth in the fourth quarter, supported by an improvement in net additions and nearly complete migration from FTTC to fiber. By the end of the year, we reached 850,000 customers and FTTH ARPU of roughly BRL 95. TIM Ultrafibra revenues grew 6.2% year-on-year in the fourth quarter. This shows that our strategy of focusing on quality, rationality and operating efficiency is working. And we are building a more sustainable broadband business for the future. Another significant milestone in 2025 is our progress in B2B our solution have achieved meaningful impact across key industries. In Agribusiness, TIM coverage surpassed 26 million hectares enabling precision agriculture, automation and greater productivity across vast rural areas. In logistics, we expanded to more than 10,000 kilometers of highways connecting major corridors and enabling monitoring, safety and operational intelligence. In Utilities, we sold nearly 470,000 smart lighting points, helping cities modernize infrastructure at scale with efficiency and control. And in mining, our advanced connectivity spanning 4G, 5G and IoT support safer and more automated operators. These verticals combined allow us to surpass our important milestones of BRL 1 billion in total contracted revenues since the beginning of this journey, confirming B2B as a structural growth engine for TIM, not a future possibility. It is already real, scaled and part of our core. Vicente, in sum, we saw relevant contribution and strong support from every single line at TIM Brazil. Vicente Ferreira: Thank you, Alberto. We'll come back to you for your final remarks later on. Now our CFO, Andrea will walk us through the details of our financial performance. Andrea, thank you for joining us. Andrea Palma Marques: Thank you, Vicente. Hello, everyone. We closed the year with another strong set of financial results reflecting the disciplined execution of our strategy in 2025. This quarter reinforced a story that has been present all year long, cost optimization, expanding profitability and a clear focus on sustainable value creation. Over the last 12 months, our efficiency program has continued to reshape our cost structure. Operation costs again grew well below inflation with OpEx rising just 1.8% year-on-year in 2025. This reflects the structural initiatives underway across the company, showing that this approach is not a temporary effort for a core part of how we operate. This strongest execution contributes to another year of high level improvement in productivity with EBITDA increasing by 7.5% and our margin achieved 51%, making an important milestone. We also advanced a lease-related efficiency initiatives already contribution to a strong result in 2025. EBITDA after lease grew 8.3% year-on-year, supported by continued optimization of our industrial cost structure and margin sustainability. This operation year-on-year. In total, we delivered what we committed, BRL 4 billion in dividends and IoC plus BRL 750 million in buybacks reaching 139% payout ratio. This demonstrated not only our strong financial performance, but also delivered another quarter of double-digit expansion in operation cash flow, grew 15.7% year-on-year in 2025 and lifting the margin to 22.7%. Throughout the entire year, we maintained a solid cash conversion, supported by margin expansion and well management CapEx. Finally, our balance sheet remains a source of stability and resilience. Our leverage remains highly comfortable giving us the flexibility to continue investing with discipline while sustaining attractive shareholder returns. These results give us confidence as we enter 2026. We've seen well positioned to continue creating value for all stakeholders. Back to you, Alberto. Alberto Griselli: Thank you, Andrea. So as we step back and look at 2025, the conclusion is clear. It was a year of execution, consistency and evolution. We delivered exactly what we promised and build the foundation for advancing our strategy in 2026. Our direction is that we will drive value creation through mobile, B2B and broadband, supported by 3 key enablers that run across the entire company. Artificial intelligence, efficiency and ESG. In mobile, our focus remains on strengthening profitability through a customer-first approach, continuously improving the experience and reinforcing the values of our offerings. In B2B, we are ready to capture a new wave of opportunities with a wider and more scalable portfolio that integrates connectivity, infrastructure and digital services. The acquisition of V8 was an important step to enhance our capabilities. And in broadband, we entered 2026 with a more efficient operation, a more reliable service and portfolio aligned with sustainable expansion. Supporting all this, artificial intelligence becomes a transformational layer in our operating model helping us automate, simplify and accelerate decisions across every area. Our efficiency agenda remains a hallmark of execution ensuring discipline in capital allocation and allow us to explore new growth avenues while protecting margins. And ESG continues to be a structural component of who we are shaping our culture and guiding long-term value creation. Confirming this long-term deal in 2025 after many years, we finally reached an important milestone for our shareholders and the financial community. Our return on capital is higher than the consensus cost of capital. Now let's move to the live Q&A session, Vicente. Vicente Ferreira: Thank you, Alberto. See you a bit, guys. Operator: Before proceeding to the Q&A session, I will pass the floor to Alberto Griselli. Please, Mr. Alberto, the floor is yours. Alberto Griselli: Introductory note, -- good morning, everybody. Today, we took an important step in our broadband strategy by acquiring full control of I-Systems. This will allow us to improve the efficiency of our broadband operation to deliver a better end-to-end customer experience and position ourselves for future movements. Now we can actually proceed to the live Q&A session. Operator: [Operator Instructions] Our first question comes from Bernardo Guttmann from XP. Bernardo Guttmann: Congrats on the solid results. again. Actually, I have 2 questions here. The first one on margins and efficiency. You delivered strong margin expansion this quarter with EBITDA growing much faster than revenues. How much of this efficiency is structural and how much was more temporary or specific to this quarter. And if I may, the second one on I-Systems. With the consolidation of the company, how should we read this strategic move? Does this suggest a stronger long-term commitment to the asset and a lower probability of a potential sale of the fiber business. And looking ahead, what would be natural next step? Does it make sense to revisit M&A opportunities, maybe looking at regional fiber players? Or is the focus now fully on organic growth? Alberto Griselli: Bernardo, let me go with the second one, and then I will pass to Andrea for the margin expansion. So the -- when you look at our broadband operation, I think that this quarter has been marked by a positive news on the industrial performance because after the fine-tuning, we managed to get to a revenue growth. So we are back on track on something that has been underperforming in the previous quarters for last year. So in the last quarter, we managed to return to a growth pattern and consolidate and optimize our model. At the same time, we need to recognize that the neutral model that we wanted to implement face a number of challenges. And so the benefits of scale that were supposed to happen as a matter of fact, that didn't happen. So the acquisition of control of a system provides us a number of benefits. The first one is that we get control of the end-to-end operation of our customers that support one key indicator that is churn management and customer level of service. The second one is that we will be able to increase our efficiency of operations. So this measure is going to be accretive on the margin expansion and a bit dilutive on CapEx, but overall, it's going to be to be neutral on free cash flow generation. And the third and most strategic one is that we position ourselves for our next step. So the question is what is our next step is and we addressed this in previous calls, whereby we said that we are looking at a number of different options. And as a matter of fact, the sale of our -- the sale of our broadband operation has never been actually on the table, right? So we say that we have extreme opportunities. We are assessing them but all of these opportunities have the intention to increase the value generation of our business. Sale was not there as an option since you mentioned, we just want to clarify this. Andrea Palma Marques: Bernardo. Refer to the margin efficiency. This is the consequence of the cost optimization that we are working for the past years. This year, we mentioned several times. We have an efficiency program that's in place and the result is the structure, the major parts. This quarter, we have some effects that first one is the visitor, the interconnection cost for visitors. This is effect in this quarter. If you look in the first quarter, we have increase in the visitor interconnection. And in this quarter, we have a decrease. Remembering that the cost of interconnection refers to the full year. So we have this balance between quarters. Another effect in this quarter was in the reduction of our taxation in the overtime pay. But again, these 2 effects affect this quarter, specifically the fourth quarter, but the results is the efficiency that we have in the structural way and as a consequence, we are delivering what our commitment to expand the margin. Operator: Our next question comes from Gustavo Farias from UBS. Gustavo Farias: First of all, congrats on the results. So my first question regarding margins. We saw a decrease in the network and interconnection expense, which was really a highlight to us. If you could comment on the main drivers behind that. You mentioned in the release a cost optimization of digital content providers? And how to think about this line going forward? My second question is on mobile competition. We've been seeing some less positive figures on mobile portability in Q4 based on data from the regulator compared to past periods for TIM. How do you see this competition, especially given this mobile portability numbers we have been seeing lately? And if this -- you think this comes from any new cell impacts? Alberto Griselli: Okay, Gustavo. So let me take, again, the second, and then I will pass the word to Andrea for the first one. So when it comes to the dynamics of portability, the -- when you look at our report, you see that our churn level is almost stable over the quarters. And therefore, the increase of portability means as a matter of fact, that the share of portability within our churn is increasing. And this depends on a number of things. One of them being the commercial practices of our competitors. But our churn level is fairly stable during the quarters of last year. When we are looking for order, you will see that in the first quarter, we are executing our price adjustments, and this tends to pressure a bit the churn level as normal. So we are executing it as a matter of -- we started with messaging and informing our customers in December. And as a consequence, churn is going to be a bit higher in the first quarter, resulting in softer net additions. When you go to the new cell impact in market dynamics. I would say that if you look from a general perspective, I believe that the market is pretty rational and keep on being rational. And that our ability to attract customers remain as it was as a matter of fact. Unfortunately, Anatel stopped sharing the number of new cell subscribers. And therefore, we cannot rely on an independent source to measure the growth of the numbers. So what we see, it's our internal view and our internal view is based on a number of KPIs that we use and the impact is not material at this stage. Andrea Palma Marques: Gustavo. Related to the network and interconnection. We have some items that are increasing and others that are decreasing. Once that is decreasing is the visitors that I just mentioned. What is increasing -- for example, the content provides that is related to the offers that we launched last year where we put a stream for our customers. So we have an increase in this item and we also have an increase in the network related to the expansion of the 5G. Operator: Our next question comes from Marcelo Santos from JPMorgan. Marcelo Santos: I just wanted to zoom in a bit more on the personnel expense, the tax the overtime hours. Was there any retroactive recognition of this gain? I just wanted to understand better this understanding, like, is this something that's going to change going forward? And did the fourth quarter include changes that were, let's say, retroactive to previous periods. Just to understand the sustainability of these gains over time or how enough is they are. I think that's the first question we have. The second question is there was an improvement in broadband ARPU. Does this sign away more rational market in your view? Or is it more like TIM-specific effect? Alberto Griselli: So I'll start, Marcelo with the second one. The ARPU dynamics. I think this is as a matter of fact, in our numbers a bit more our doing in terms of ARPU expansion. So we optimize throughout 2025, a number of things in order to serve better our customers and increase the efficiency of our operations. As we discussed in previous quarters, one of the things that we did was to evolve our commercial distribution in a way that is today more pull and less push. And the results of this is beneficial in a number of ways because at the end of the day, but at the end of the day, the quality of the customer that we are getting in is better. So it is one driver. Then there is a second benefit that the pull channels tend to be less expensive than the push channels. So this is one driver. The other driver is more related to the, what we call below the marketing activities, whereby we manage our customer base and move it as mobile from one plant to another plan or when they call to renegotiate. So it's a number of commercial activities related to customer management and we have been tweaking things in the right direction. And this result, it's a positive effect on the ARPU. So it's more how we're doing than the overall market dynamics that remains competitive. Andrea Palma Marques: Marcelo, the impact of the overtime pay is affect the past and the future. But in the fourth quarter, the impact is higher because concentrate the past -- of the past few years. So in the future, we will continue with this impact, but will be a small amount considered the fourth quarter. But bear in mind, these gains are not that sizable in our overall OpEx. Operator: [Operator Instructions] Our next question comes from Rog�rio Ara�jo from Bank of America. Rogério Araújo: I have a couple here. First, on tower leases, if you could mention how the negotiations are evolving with lessors? And are you renegotiating terms ahead of maturities or mailing upon renewals? Also, incentives stepped up in the 4Q. What has driven that? And how should we think about incentive trajectory in the upcoming quarters? And last on tower leases, what is our latest view on lease expenses as a percentage of revenue over the next 2, 3 years? And can ongoing renegotiations offset incremental 5G and tower needs? This is the first one. And the second on Brazil's tax reform. Do you have any early estimates to share with us about the impact of the effective sales tax from 2027 onwards. And also, if an increase is expected, how much of that do you believe is passed through to consumers versus absorbed by the company? Andrea Palma Marques: Rog�rio, let's talk about -- first about the tower lease. The tower lease is at the end, reflects is what the results reflect what we are doing in the past years. We are working very hard in several efficiency levels in the lease. We -- this year was a challenge because we have the impact in the increased towers and also impact inflation and saying that we delivered an expansion of margin in EBITDA after lease. So moving -- this continues -- this efficiency continues. We have a lot of agreements doing with the TowerCo. We announced one of them a few weeks ago. What we expect about the ratio between the lease and revenues is main things with a slight decreasing considering that we are continuously expanding our network related to 5G. Moving to the tax. Alberto Griselli: Andrea, just a few complement, Rog�rio, on the tower. So when you look at our lease costs, there are a number of things inside. So you have -- the big chunk is clearly is the network cost. But there are other elements. Complementing Andrea, we finalized the negotiation with American Tower in the last year. When we look forward, and so challenges and objectives for this year. We have another ongoing negotiation that is in our -- on the table that is quite important. And there is -- this is part of our plan. And there is -- as you know, the network sharing discussion that are proceeding where I see that there is opportunity in the future to do more. So this initiative is a part of the overall portfolio besides the buy initiatives that we put together. So when you look at our guidance and what we shared with the market is that besides the network deployment that is a pressure on our cost besides the inflation, there is a pressure on our cost, we're going to manage to keep these leases growing a maximum with inflation and so slower than revenues. So when it comes to the share of this cost versus revenues, this is the answer, looking forward. That's what we have been sharing and implementing over the last years, and we plan to do this in 2026 as well. For the tax, I will hand it back to Andrea again. Andrea Palma Marques: Regarding the tax reform, what we can say now is 2026 has no impact and 2027, that's the year that we already put in our guidance is neutral on free cash flow. Rogério Araújo: Okay. And can you share maybe after all the transition period by 2033, if there is any early estimates on the impact? Andrea Palma Marques: Rog�rio, we didn't announce yet our guidance. So we are talking only about the numbers -- the years that we already announced and that's '25 to '27. Operator: Our next question comes from Daniel Federle from Bradesco BBI. Daniel Federle: Congrats for the strong results. The first one is just if you could provide more color on the price increases in the first Q. If it's front book, back book and the magnitude, if possible. The second question regarding CapEx. CapEx end up a little bit closer to the top of the range. So any update in terms of CapEx demands, requirement pressure from FX, I think it's helpful. Alberto Griselli: Okay. Daniel, let me go to the price increase first, and then we'll hand it over to Andrea for the CapEx one. So when you look at the more for more strategy, just recapping generally what we do, we upgrade our back book prices and front book prices. The back book prices for postpaid is happening as we speak. So it's the -- it's the one that I mentioned in the previous answer. So it's underway as it was last year, so we're executing it. And the magnitude is fairly similar to the one that we had last year. The -- of course, it's not 100% of the customer base we discussed we -- it happens in a couple of phases throughout the year. But the mechanics in the first is fairly similar to the amount that we executed last year. We are also discussing the -- internally, the front book prices adjustment in control, we executed this June last year. So we are planning to follow a similar pattern this year. And we are pretty confident that we can do something on postpaid as well this year. For the CapEx, Andrea. Andrea Palma Marques: Daniel, we are on track in CapEx. We maintain the CapEx that we announced in the guidance. The point here is when we see an opportunity to anticipate CapEx, we have -- if we generate some efficiency and we have an opportunity to anticipate CapEx, we are going to. But again, 2025 was exactly what we expect in the investments. I don't know if I answer your question. And we also -- we are always controlling CapEx. We focus on the free cash flow. I don't know if I answer your... Operator: [Operator Instructions] Since there are no further questions, I will now turn the floor back to Mr. Alberto Griselli for any final remarks. Please, Mr. Alberto, the floor is yours. Alberto Griselli: Thank you all for joining today's video call. I would like to share a big thank to the effort to our entire team for the great results that we achieved together 2025... Operator: This does conclude the fourth quarter of 2025 conference call of TIM S.A. For further information and details of the company, please access our website at tim.com.br/ir. You can disconnect from now on. Thank you once again and have a wonderful day.
Operator: Good morning or good afternoon all, and welcome to the PZ Cussons Half Year Results Call. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand the floor to CEO, Jonathan Myers, to begin. So Jonathan, please go ahead when you're ready. Jonathan Myers: Thanks, Adam, and good morning, everyone, and thank you for dialing in to our first half results presentation of PZ Cussons financial year 2026. I'll start off with an overview of our performance and provide color on some of the drivers behind it and how we are moving to be a more focused and more resilient business. I'll then hand over to Sarah to take us through a review of the financials before we finish with some time for your questions. As many of you will be aware and hopefully are joining, we are hosting a capital markets event this afternoon in London, which is intended to address many of the questions that may be on your mind about the future of PZ Cussons. So this morning, we'd like to focus on questions relating to today's results and this financial year, leaving the topics of strategy and future plans to this afternoon. So let's get going with the results we announced this morning then. Overall, we delivered a strong financial performance in the first half of the year with broad-based growth and a healthy balance of price/mix and volume. I'll come on to more on this in just a moment. In December, we announced the conclusion of the strategic review of our Africa operation following our announcements earlier in the year regarding the renewed strategy for St.Tropez as part of our portfolio for the future. I'll provide an update on St.Tropez in the coming minutes. But the consequent sale of our share in the PZ Wilmar joint venture to Wilmar, along with the ongoing disposal of other noncore assets in Africa and Asia, has resulted in a significantly strengthened balance sheet and in PZ becoming a more focused and more resilient business. While all of this was in play, we have also worked hard to reduce our cost base and expect to deliver GBP 5 million to GBP 10 million of savings in FY '26, in line with previous guidance. Combined with the overall business performance to date and our outlook for the remainder of FY '26, we are increasing our operating profit guidance for the full year. Let me say a little bit more now about our overall business performance. We have delivered broad-based growth across our 3 reporting regions, each of our 4 lead markets of the U.K., Australia, Indonesia and Nigeria, and each of our top 10 brands in those markets. Obviously, we're pleased with this momentum, but we know we still have much more to do, especially translating our increasingly exciting multiyear growth plans into sustained in-market performance year in, year out. Coming back to our first half performance though, it's worth calling out that our revenue growth of 9.5% is balanced between price and volume, including in Nigeria where volume has returned to growth after several rounds of pricing that has initially knocked volume into decline. You'll hear a lot more about our African business later today. So let me give you a couple of examples outside Africa of what has been driving the momentum elsewhere. In the U.K., Sanctuary Spa grew double digits through the half, driven by a record Christmas gifting period, during which revenue was up more than 30%. We've been learning and optimizing our plans each year. This year, we shipped 98% of our Christmas packs before December and have more than doubled Christmas gifting as a revenue building block in our annual plan versus just 2 years ago. For example, it was one of the leading gifting brands in the Golden Gifting Quarter in Sainsbury's this year, beating Lynx, Nivea and Dove, and nearly doubling sales versus last year. We've gone beyond with just Sanctuary Spa this year and successfully expanded gifting to Original Source, Imperial Leather and Cussons Creations as well, playing at more price points, pushing higher and lower, and driving more displays in store. As you can imagine, we're already well on with finalizing plans with retailers for Christmas 2026. And all I'll say is look out for the GBP 100 Sanctuary Spa gift pack. Moving to Australia now, whether it's the new and improved auto dish format for Morning Fresh or a new flavor for Rafferty's Garden, innovation has played an important part in driving revenue growth on our top 3 brands, with each brand growing market share over the last 12 months. And the good news is we're growing share in categories that are also finally back in value growth in the latest quarter after a prolonged period of the Aussie shopper feeling the pinch. Beyond our top 3 brands, we have also used pack format and variant innovation on Original Source to launch a 1-liter pump pack onto shelves. In Australia, the U.K.'s market-leading 250 ml size that is common in our bathrooms is regarded as a travel size or something thrown into the gym bag. Instead, the market is in larger packs often with pumps. So rather than shipping sizes shoppers don't always want halfway around the world from our U.K. factory, we're now manufacturing a consumer-preferred pack size in a format with a pump from our Indonesian factory alongside Morning Fresh for the Australian market. Add all of this progress together, the ANZ business delivered its third consecutive quarter of revenue growth. Let me come back to action to strengthen our balance sheet and focus our business. We've made good progress over the past 5 years in reshaping the portfolio with the exit from noncore businesses along with the sale of surplus nonoperating assets. Most notably in this reporting period, we announced the sale of our 50% stake in PZ Wilmar, our noncore Nigerian joint venture. To date, we've received GBP 48.5 million of cash proceeds with a small additional amount from ancillary land assets expected shortly. This has delivered a material improvement in our credit metrics. Sarah will talk you through. In June, we confirmed our decision to retain St.Tropez and set a new strategic direction for the business. You didn't see St.Tropez amongst the top 10 brands on the chart just now. And that's because the seasonality of the sunless tanning category dragged the absolute revenue down and St.Tropez falls just outside our top 10 when looking at our first half in isolation. It didn't grow overall revenue in the half, very much highlighting the work in progress to turn the brand around. But we did grow plus 12% in the U.S. as the transition to The Emerson Group went smoothly, and we started to see some renewed traction with our retail partners. We clearly have more to do elsewhere where revenue is down over 30%. This was in part due to high levels of inventory coming into the year. We're already reducing that inventory as we move through this year, and then the need was to win back retail support for the brand. Still too early to call the season yet, but we're seeing strong support plans agreed for the new innovation this summer and the special packs and activation plans to support the 30th anniversary of the brand. For example, the latest shelf reset of merchandising material in boots has seen a return to retail sales growth since the change was made just a few weeks ago. Suffice to say, there will be much more to come on St.Tropez as we move through the season. And with that, I'll hand over to Sarah to take us through the financials. Sarah Pollard: Thanks, Jonathan, and good morning, everyone. I'm going to take you through the PZ financial performance for the first half of FY '26, starting with a summary of the key group metrics, then moving on to the detail in each geographic region before covering cash flow and net debt and finally, our guidance for the full year. Unless otherwise stated, the numbers I will refer to are on an adjusted basis. So turning first to the headlines. Group revenue increased to GBP 269 million, up from GBP 249 million in the prior year period. On a like-for-like basis, revenue grew 9.5%, reflecting broad-based growth across each of our 3 reporting segments, each of our 4 lead markets and each of our top 10 brands. Adjusted operating profit increased to GBP 36 million, up from GBP 27 million last year, a 240 basis point improvement in margin. There is no profit contribution from the disposed PZ Wilmar edible oils joint venture in this half numbers. So if we also exclude it from the comparative period, operating profit increased from GBP 22 million to GBP 36 million. Of this GBP 14 million improvement, around GBP 6 million is the result of FX revaluation gains on U.S. dollar-denominated balance sheet liabilities in Nigeria, resulting from the appreciation of the naira in this first half as compared to the currency's sharp decline in the first 6 months of FY '25. On a statutory basis, operating profit was GBP 40 million as well as gains recognized on surplus nonoperating asset sales and a book loss in half one on the Wilmar proceeds received in that period. This figure also includes FX gains on the group's historical equity-like capital loans to its Nigerian subsidiaries, previously accounted for in the balance sheet. Consistent with the change in accounting treatment for FY '25, during the strategic review of our African businesses when the naira was depreciating in value, they are now shown on the face of the income statement, but to date adjusted out by virtue of them being deemed to be short term in nature. Adjusted profit before tax increased to GBP 30 million, up from GBP 20 million last year due to a reduction in the interest charge as well as the improvement in operating profit. Adjusted earnings per share was 4.37p compared to [Audio Gap] percent lower than the growth in profit before tax due to a higher group tax charge and minority interest leakage in Nigeria. The higher tax is due to 2 factors and is now more representative of the rates going forward. Firstly, the geographic mix of profits with more coming from Nigeria where the tax rate has normalized now that we have moved past the statutory losses experienced since the 2023 currency devaluation when only a nominal amount of tax was payable. It's also explained by the disposal of PZ Wilmar, which has always been equity accounted, meaning we reported our 50% share of the joint venture's post-tax profit into operating profit rather than the associated tax charge being recorded separately in the group's tax line. A dividend per share of 1.5p is unchanged from last year. Free cash flow was GBP 23 million, which when combined with cash proceeds from disposals during the period, resulted in a significant reduction in net debt down to GBP 84 million. The group revenue bridge shows an adverse foreign exchange impact of GBP 4 million relating to the depreciation of the Australian dollar and the Indonesian rupiah. The Nigerian naira appreciated in the period. As usual, these FX movements and the corresponding impact on revenue are shown in the appendix to this presentation. We delivered like-for-like revenue growth in each of the 3 reporting segments, which I will come on to in a moment. On a continuing operations basis, excluding PZ Wilmar from the base period, adjusted operating profit margin increased 430 basis points. Gross margin declined due to geographic mix as Nigeria with a structurally lower margin grew revenue faster than other parts of the group. The majority of the overall operating margin improvement was from a reduction in overhead. This was a combination of the FX revaluation gains on balance sheet liabilities in Africa plus group-wide cost savings. And in addition, marketing investment was, as we had planned, lower as a percentage of revenue, but this will reverse in the second half of the year. So turning now to the regions. Revenue in Europe and Americas increased to GBP 102.5 million with like-for-like growth of 1.7%. We saw growth across most of our brands, including 30% growth in Sanctuary Spa from a successful Christmas gifting range. This was despite challenging trading generally as the U.K. market remains highly competitive, something showing no immediate signs of impact. St.Tropez revenue declined 11% overall. And excluding this brand, overall growth in the region would have been 3%. Adjusted operating profit increased by GBP 2 million, reflecting the integration of the Childs Farm business as well as marketing investments weighted to half 2. In APAC, revenue was GBP 88 million, a growth of 5.2% on a like-for-like basis, but flat in reported currency with the Australian dollar and Indonesian rupiah depreciating against sterling. As Jonathan mentioned, we're encouraged by the Australian share gains in categories which are back in growth and with the 9% like-for-like revenue growth in Indonesia. Adjusted operating profit, however, declined GBP 1 million, including some legacy VAT charges in our smaller Asian businesses. African revenues increased to GBP 79 million. Like-for-like growth was 28% from both the annualization of pricing taken in FY '25 and the return to volume growth. We saw growth of 30% in reported currency as the naira has moved from a period of stability to now appreciating in value. This afternoon, Awie will take you through the team's plans to grow the business over and above the passing on of inflation, which in Nigeria continues to moderate to now around 15%. Removing the PZ Wilmar JV contribution from the FY '25 base, operating profit grew by GBP 7.6 million. Of this, as I mentioned, GBP 6 million was due to FX revaluation gains on balance sheet liabilities denominated in U.S. dollars as a result of the naira strength versus its depreciation in the prior year period. And whilst the first half margin of 14% does also include the carryover benefits of prior year pricing whereas half 2 will not, assuming the naira rates remains unchanged from current levels and assuming no change in underlying business performance, low to mid-teen margins should be sustainable going forward. Our current treatment of these FX revaluation impact is consistent with prior periods when the naira was depreciating. You'll recall we took a significant exceptional charge in FY '24 due to Forex losses related to legacy liabilities built up over many, many years prior to the devaluation when it was not possible for U.K. corporates to legitimately access the U.S. dollars required to settle such liabilities and repatriate the cash. The headline gains I'm describing today relate to liabilities incurred as part of recent trading, exactly as we got the FX losses from in-year operational liabilities in the prior FY '24 and FY '25 financial years where we executed multiple rounds of price increases to protect local profitability. Finally, turning to what we call the central reporting segment, essentially an internal cost center. The first half of FY '26 has seen a GBP 4.6 million reduction in the adjusted loss we report here, partly due to favorable intercompany FX movements from the naira and partly due to people cost savings and process efficiencies, reducing the external audit fees. We plan to review our presentation of these central costs in future reporting periods to better isolate the true corporate overhead from costs directly attributable to other parts of the business. The higher statutory loss represents the disposal of the PZ Wilmar JV, reflecting the receipt of only some of the total cash proceeds in the first half of the year. Turning now to the balance sheet. Leverage has reduced further from both free cash flow generation and disposal proceeds. Free cash flow was GBP 23 million after the seasonal working capital cash outflow from our half 1 reporting date falling immediately before peak trading periods in both Nigeria and the U.K. Christmas gifting. Both the high inventory and debtor positions typically unwind during our third quarter. CapEx was low at GBP 1 million due to the phasing of a number of projects, but we anticipate full year investments to be more in line with normal levels. The half 1 cash flow includes GBP 3.6 million of cash adjusting items, primarily relating to costs associated with the concluded strategic review. Beyond these drivers was a GBP 2.6 million cash add-back representing share-based executive compensation schemes and noncash pension charges. We received a total of GBP 27.6 million of cash proceeds from asset sales in the period. This comprised GBP 15.8 million gross proceeds from the sale of surplus nonoperating assets in Africa and Asia, and GBP 11.8 million from the initial completion steps of the PZ Wilmar disposal. This resulted in reported net debt down GBP 84 million with net leverage of 1.1x. As one of our new guardrails to better protect the business from future adverse currency impacts, the capital allocation policy we are announcing today now defines our leverage metric as net debt, excluding any cash balances held in Nigeria. And on this more conservative basis, would have been 1.4x at the end of the first half. The timing of the receipt of the Wilmar cash proceeds has been split across a number of individual components with consideration received for our equity holding, the repayment of loans and also some additional assets in the transaction perimeter. Since the end of November 2025, we have since received a further GBP 37 million from Wilmar, giving a pro forma half 1 net debt position of GBP 48 million and leverage below 1x. As we noted in this morning's release, trading to the end of January has continued in line with our expectations. And this slide provides updated guidance on some key items, including an overall increase in full year operating profit up to a range of between GBP 53 million and GBP 57 million compared to GBP 50 million to GBP 55 million previously. This guidance does imply a year-on-year decline in profit in half 2, a phasing profile that we signaled in our AGM trading update in November, largely attributable to the timing of marketing investments with a significant step-up in spend in the second half. We've also provided firm full year guidance on leverage given the progress to date, and we expect to end the year at the lower end of our new capital allocation policy range. Today will be the last time I present the PZ Cussons results. And so I would like to thank colleagues for their unwavering support, our advisers for their wise counsel and during some challenging times, and to wish external stakeholders all the very best for the future. I'm pleased and proud to be leaving the business in better financial shape and with a more encouraging outlook. And with that, I'll hand back to Jonathan. Jonathan Myers: Thanks, Sarah. So we can turn the microphone over to you now. And as I mentioned at the beginning, ideally, let's keep the questions focused to this set of results, and we'll happily answer questions on the broader strategy and future plans at our event this afternoon. So Adam, I think it's over to you. Operator: [Operator Instructions] And our first question comes from Matthew Webb from Investec. Matthew Webb: I've got a few questions. Maybe I'll do them one by one. The first is on Indonesia where I see there's been both some social unrest and economic instability. And I think Moody's has downgraded the outlook for the country recently. I just wondered whether you're seeing any impact of that on trading and also whether that's changing how you think about how you run that business, how you invest in that country? That's my first question. Sarah Pollard: Matthew, it's a good question. Maybe if I talk to some of the financial aspects, and then I'll hand over to Jonathan on some of the commercial trading points. So Matthew, you're referring, of course, to the Moody's downgrade in terms of the nation's overall outlook. Indonesia, of course, is an emerging market, markets which bring some inherent volatility. I think what I would do though in terms of financial perspective is to maybe talk a little bit about Indonesia and our business there, which is, first and foremost, to say, for us, it's a structurally advantaged business. We are in the baby toiletries business where there are still 4 million to 5 million newborn babies born every year. It's a high-margin business for us, and Jonathan will elaborate on some of the characteristics of our business there. But the reason I say that is it's highly cash generative for us. We don't have local borrowings. Whilst the currency is coming under some pressure, the ForEx markets work relatively rational so we can both better hedge against any local exposures, but also repatriate cash in an efficient way. So I think as distinct from some of the challenges we've had in Nigeria, we would describe it as a lower risk profile for PZ Cussons. We are ever vigilant to make sure we can generate the hard currency returns that our shareholders demand. Jonathan, do you want to talk a little bit more about that one. Jonathan Myers: Let me take that a couple of things. So the first is just in terms of social unrest, Matthew, we have not seen disruption as a result of that. We have seen a little bit of disruption in Indonesia in the recent months, but actually much more of it related to flooding, particularly in the north of the country where some of our distributors, some of our retail partners, in fact, 1 or 2 of our employees were impacted. But we haven't seen anything impacting our business as a result of social unrest. Now if I come a little bit to where you were poking in the latter part of the question about how do we think about our risk appetite in the business, well actually, one of the first things that we are working on is how do we reduce our reliance on one brand. We're very exposed to Cussons Baby. We're very pleased with the progress of Cussons Baby. But we're working hard in the background on which will be the #2 or #3 brand, and in the coming months, we will update you on that. But actually, the risk mitigation and appetite assessment goes a bit beyond that because as we'll talk this afternoon, we have a significant manufacturing facility in Tangerang, which is the suburb of Jakarta, not only manufactures all our products for Indonesia and Southeast Asia, but it also produces all of our Morning Fresh for Australia. So in a sense, the good news that we'll talk about this afternoon is that we refer to a blended supply chain where we intentionally invest for scale in our own facilities, but we also have a good network of third-party manufacturers who give us not only agility, but in this case, also give us alternatives for business continuity such that if we were to encounter challenges, we would have alternative routes. And really, I know you hear a bit more about this afternoon about how we're thinking about our risk appetite in Nigeria and how we're putting in place together with the team in Lagos some guardrails to help us manage and mitigate that risk. We're going to be adopting that kind of framework to our business in Indonesia as well, which is we regard as a very positive and healthy way to address and manage our risk appetite as it translates into future projects and future investments. So it's on our radar screens. We are not overly concerned, but we are far from complacent. So happily, we'll talk more maybe late this afternoon about that as well. Matthew Webb: Excellent. Thank you. And my second question is sort of slightly technical one. The GBP 6 million FX benefit in Nigeria, am I right in thinking that that's sort of a swing rather than a GBP 6 million benefit all in this year as it were? And if so, whether it's possible to sort of break out to what extent that's a credit this year versus a debit last year, if I've understood that correctly. Sarah Pollard: Matthew, let me try on obviously one of my favorite topics. So is the GBP 6 million, if you like, what does it relate to? And what can we expect going forward? So it's real to the extent any income statement is a change between 2 balance sheet dates, and the accounting is entirely consistent with that, which we followed previously. It does, as you say, reflect a base year impact in terms of the steep naira depreciation of the first half of last year versus the relative stability of this half year. So that GBP 6 million year-on-year swing is a GBP 2 million credit this year versus a GBP 4 million debit last year. I think what I would have you think about is 2 things. One is it's a proxy for the overall economic environment, i.e., the naira stabilizing signifies an environment in which our brands can generate meaningful and sustainable value for us. But what you probably shouldn't do is expect another GBP 2 million or GBP 6 million necessarily in the second half of the year because, of course, those liabilities on the balance sheet are something that we have already and are looking to continue to extinguish because it's volatility either on the up or the down, but it's not helping. So we are going through a very determined program to recapitalize our local Nigerian subsidiaries and extinguish those liabilities. Matthew, if that helps. Operator: Our next question comes from Damian McNeela from Deutsche Bank. Damian McNeela: Just on the guidance, sort of following up from Matthew's question. What is -- or what is included in terms of FX gains, if any, in the second half to get to your increased guidance, is the first question. Sarah Pollard: Good question. Let me try and characterize the guidance more broadly and then laser in on the specific question. So we sit here with a little over 3 months of the financial year left to go. So I would say we have a good line of sight into the year-end. But of course, still some things left to navigate, most notably some volatility in the naira, but also, as Jonathan talked to in terms of St.Tropez, we have our first big U.S. season since deciding to keep the brand, which, of course, has a range of outcomes. We're expecting positive outcomes, but there is a range of outcomes on what is a relatively very profitable brand for us. The overall guidance includes FX as we see it today, is how I'd answer the question in the broadest terms, that it doesn't include another GBP 2 million credit relating to those first half balance sheet liabilities, mainly because I can't be certain the rates will hold, but actually because we are going through the process of extinguishing those balance sheet liabilities, which have in the past been a hurt, have in the first half been a help, neither of which is particularly helpful. So we are going with our local Nigerian Board colleagues through a series of steps to extinguish those liabilities, be they write-offs, be they debt to equity, be they rights issues, various capitalization steps to effectively reduce the sensitivity in our P&L to movement in the naira, which if you remember maybe 18 months ago was something like every 100 moves between the naira and the U.S. dollar was giving us something like GBP 8 million of P&L sensitivity. That number today is closer to only GBP 4 million. So in any 1-year period, probably about GBP 2 million of a translation impact and GBP 2 million from that balance sheet effect. The latter, we are trying to extinguish for us all. So it doesn't assume another GBP 2 million help in the second half of the year. Damian McNeela: Okay. That's pretty clear, I think. And just carrying on with the Africa theme, I don't know whether you will touch on it later this afternoon, but is there an updated position on how you view the minorities of PZ's Nigeria? Jonathan Myers: We'll talk a lot about Africa this afternoon, Damian. We are not spending a lot of time on the -- if you like, the ownership structure of our operations in Nigeria. We're talking a little bit more about the resilience and underlying performance of the business. We have what we have, which is a listed entity of which we are very clearly the majority shareholder. We have an awful lot of retail minority shareholders, and at the moment, we are making that work for us. Sarah Pollard: And Damian, you might be referring to 2, 2.5 years ago where we contemplated buying out our minorities and delisting. We may contemplate something similar again and consider it as we would any allocation of surplus capital to any acquisition of an earnings stream. We consider, as we do, that Nigeria brings with it a bright future. We may choose to put some capital down to acquire 100% of those future earnings because as you rightly, I think, are pointing out, our operating profit down to earnings per share experiences some leakage as a result. Damian McNeela: Yes. Yes. Okay. That's very clear. And then if I may, one last one. U.K. performance in core washing and bathing looks to be pretty solid. Can you give an update or sort of some background color on the competitive environment and what your market share gains have been across the period, please? Jonathan Myers: Yes. So let me do that, Damian. I think the word you use there is the perfect articulation. We have a solid performance. We're really pleased with the financial delivery of our U.K. business, at least as we have benefited from some real structural P&L improvements as we -- you remember, we combined it with our previous beauty business. We have integrated it with our European setup. And we have also integrated into it more fully our Childs Farm business, which for the first 2 or 3 years of our ownership, we kind of kept at arm's length. So we now have a very strong financial structure, which will give us the ability to invest sufficient marketing money to ensure that we are nourishing and nurturing our brand for the future, which is a good thing because we're going to need it, right, because the market is not getting any less competitive. In general, without overdoing the hackneyed phrase, we continue to see the bifurcation of the U.K. shopper. We have an awful lot of people hunting for value and looking for cheap lookalikes or private label or going down to the discounters. Equally, we have people who are willing to splurge on small luxuries. You only have to look at some of our Christmas gift sets from the price points that were considered just on our business but alone more broadly. And you continue to see that very, you like, dynamic but value-focused shopper environment. Within washing and bathing, we see 2 things. We continue to see scale players, most notably Unilever, really fighting to try and make their brands justify the price they're asking. So they do have a higher value share than us and they charge a higher price per mill. So that's something we need to make sure if we want to, our brands can do. And I'm sure you would have seen the Unilever-Dove sponsorship of Bridgerton recently as an example of we can never rest on our laurels the big multinationals. But actually, as recently as our Board meeting just yesterday, we were reviewing exactly the competitive nature of the U.K. modern bathing market. And the real change in the last 12 to 24 months has been the growth and acceleration of the explosion of Gen Z or Gen Alpha start-up brands, which are getting on to the shelf maybe 3, 6, 12 months disrupting and either surviving or dying quickly or being replaced. So it is really competitive. We have grown share in some subcategories of washing and bathing. We have not yet really nailed shower, which is why this afternoon you will hear a little bit more about what we're doing on the shower category, in particular to try and make sure that both Imperial Leather and Original Source are firing on all cylinders. So we are not complacent. Operator: The next question comes from Sahill Shan from Singer Capital Markets. Sahill Shan: Good set of numbers, good share price reaction. Three questions from me. Can I just start with the dividend? So optically improved balance sheet, EBIT guidance raised. Just help me understand the rationale for holding the dividend flat. And does that sort of reflect some prudence ahead of investment in H2? Or does it signal a more cautious stance on cash generation? Sarah Pollard: Sahill, let me take that question. Thank you for your interest in PZ Cussons. So you may also have seen this morning, we put out a short RNS ahead of our Capital Markets Day this afternoon where we set out a new capital allocation policy, essentially inking in what we consider to be a prudent leverage range. We're then going on to say use of surplus capital will first and foremost be focused on a progressive ordinary dividend policy, then with any bolt-on M&A opportunities and more one-off returns to shareholders being considered alongside each other. So in the first half of this year, we have reported 12% increase in earnings -- as we look ahead to the full year, a little bit as I touched on in terms of the structural dynamics of our Nigerian growth that acts as a slight tether to our overall earnings per share outlook for the full year. And therefore, we felt it was prudent to not increase the dividend on the first half of the year. But through the cycle, you will hear us talking about this afternoon a very clear and confident commitment to a progressive dividend policy by which we define it as an absolute increase over time. So I think more to come, Sahill, is how I would answer your question. Sahill Shan: Good answer. Clear. Second question, Africa earnings. So I think I heard this correctly, but strip out the GBP 6 million FX, how should I be thinking about the underlying run rate margin in Nigeria? Are we looking at around mid-teens sustainable on a normalized basis, absent currency headwinds going forward over the short to medium term? Sarah Pollard: Sahill, another good question. Let me see if I can give another good answer. So I think you should be thinking about the 14% as being coming together of a number of positive factors, some beyond our control, many, many within our control. So we are very, very proud of having over the last 5 years, moved that business from a position of local currency loss to local currency profitability. So we are benefiting from the carryover of pricing that was necessary and successful through the significant inflation that we saw during the devaluation whilst also continuing to invest behind their brands so they remain relevant to consumers and therefore, a very pleasing return to volume growth in the first half of this year. So I think the 14.7% is a little on the upside of what I would suggest is a sustainable range going forward. Low to mid-teens through the cycle is probably a better proxy. Sahill Shan: Got it. Clear. Final one for me. So a central piece. So in the U.S., you saw, I think I read 12% growth under The Emerson partnership. Rest of the world remains weak. Looking forward then, what does success look like over the next 12, 18 months? Is it revenue stabilization, margin improvement or both? Jonathan Myers: Great question. So you're absolutely right. So as part of the U.S. transition where we changed our operating model, partly the simplification of our business, which was part of what we set out at a very macro level of the company to do, so we closed up our own shop and we moved to a really credible go-to-market operator called The Emerson Group. And thanks to a lot of hard internal work, we managed a smooth transition from setup A to setup B. But more importantly, Emerson has fantastic access to retailers in the U.S. from ULTA and Sephora towards the top end of beauty right through to Target, Walmart, CVS and Walgreens. So we have not only seen a -- we haven't dropped the ball in the transition, we have also begun to see good traction as we have reengaged with some of the retailers that I mentioned just now. So in effect, the double-digit declines that we saw in the previous year in the U.S., we have now reverted to double-digit gains. The issues more broadly in the short term, and I'll come to your question on what does the success look like. The short-term issues elsewhere has been more a question of burning through some quite high inventories, most notably actually with Amazon in the U.K. where we saw at their behest some very strong demand as we ended last year. And the good news is our revenue performance is worse than their EPOS or retail sales performance, which is a clear indication that we are burning through the inventory. In fact, we're seeing quarterly sequential improvements in our numbers outside the U.S. So when it comes to what is successful, the first thing is we want to see progress in the coming season. It's a really seasonal business, right? After 7 months of our financial year, we would normally only expect to have shipped 1/3 of our St.Tropez revenue. So it's a little bit like an ice cream company waiting for the good weather, right? So we are very confident that we've got good plans for this year. We have new product innovation. We have special packs to celebrate 30th anniversary of St.Tropez. And we're also seeing some good traction, as I mentioned, with some of the retailers where we are re-engaging with more positive intent, most notably goods in the U.K. where we've seen a return to their retail sales or EPOS growth. So we will have an indication of this year of have we seen good revenue and are we tracking through the year on a quarterly basis back to the revenue growth. More broadly though, we want to see next season, which will be the season when a lot of the work on this year's innovation behind the scenes will then hit the ground that we've been working very collaboratively with retailers so that we then see really what is the first full year of both Emerson in action, our innovation in action and our activation in action. And we will constantly be looking forward to absolutely revenue growth and over time, also profitability improvement as we step up our investments to ensure we get a good return on the marketing required in a brand at that time. So we have some very clear internal milestones that as a Board we are holding ourselves to, and we are working very hard to deliver them. Operator: Our final question today is a follow-up from Matthew Webb at Investec. Matthew Webb: I've just got 2 more, please. First, just going back to Nigeria. Obviously, price/mix was a big driver in the first half, although obviously volume is strong as well. But you've cautioned that price/mix is going to be less of a factor in the second half, but inflation is still quite high in Nigeria. I just wondered, first, whether there is still some annualization of previous price increases that will help you in H2? And also probably more importantly, what your -- what sort of price increases you're going to be taking going forward? Presumably, you will still be taking some price. That's my first question. And then the second is just on the guidance you've given on marketing being H2 weighted. Can I just be clear on that? Is that in more H2 weighted than normal? And if you could put any rough numbers on that, that would be helpful, just in terms of how we think about that very strong H1 performance and the full year guidance on operating profit. Jonathan Myers: Yes. So let me pick that, Matthew. I'm so interested you came back for more. I thought we were off the hook, but there's no relaxing here yet, right. Let me now demonstrate we're absolutely ready for it, right? So in terms of Nigeria, so just a little bit on last year. So we took a lot of pricing. We've talked before about 20-plus rounds of pricing through the year where we saw some volume impact in the initial phases for sure we're getting elasticity when you take that much pricing. But over time, the consumer gets used to it, they're seeing a lot of inflationary pricing in the stores, right? And therefore, we have now seen in the last 2 quarters, our volume come back. As we annualize that degree of pricing, obviously, the rollover begins to work through and wear out. Our very clear intent is always to be driving revenue in line with or slightly ahead of inflation. Now how much will depend on how much we want to push pricing versus volume. But if our ambition is to drive and our intent is to drive real growth, we need to be able to demonstrate that using all levers of revenue growth management that we are nudging up not only our pricing such that we're getting in line with or ahead of inflation, but ideally also mitigating any gross margin challenges. The one thing that is important for us to stay really close to is as more benign exchange rates, particularly when it comes to sort of raw commodities, affect the ability of our competition to drop prices, what do we do. So we are working very hard on where is it right for us to spend more on marketing money in Nigeria to justify the hard won price increases that we have landed. And we're very judiciously, we're seeing our improving volume trends then coming under pressure because obviously brands are underpricing us, what would we do smartly to make sure that we're not ceding ground in terms of volume and household penetration. But we are clear that even though the pricing machine momentum will run out a little bit in terms of cycling through that historic base, our goal is to make sure that we're pricing one way or another in line with or slightly ahead of inflation. In terms of your marketing question, right? So we are very -- we've been very explicit that we will be H2 weighted, not just today, but previously. And a lot of that has to do with exactly how we expected our brand plans to fall and some of our innovations to fall. I will give you an example. Last year, we invested some St.Tropez money off season in the pursuit of trying to improve momentum. We didn't see a good return on it. So we didn't repeat it and we have intentionally back weighted our St.Tropez money, a little bit like the ice cream analogy, to make sure we're investing in the run-up to enduring the season. So that's one big driver of the H1, H2. But actually, we have also been looking at how do we step up our investment so that we are investing at competitive levels where we can be confident either of a really good rate of return because it's activity that we've invested behind before or actually where are we putting some seed money out there so that we can test and learn. And if we see something work, we can then reinvest more aggressively. Or if we see something fail, not having spent too much money on it, we can then move on to the next thing that we want to invest behind. So actually, in our second half, you'll be seeing not only more investments in our base business and here in the U.K., you'll be seeing in Imperial Leather, you'll be seeing Original Source, you'll be St.Tropez, but we are also stepping up. So for example, for the first time in many years, we'll be investing above the lines in New Zealand, not just in Australia where we've had a change of distributor, and we have seen real traction with retailers where we're building new distribution points. So we want to invest behind our brands in New Zealand. But equally, we'll be doing some of that tests and learn that I mentioned. So look out, for example, the St.Tropez on TikTok Shop in the U.K., trying to re-apply some of the phenomenal success we've seen with online marketplaces such as TikTok Shop in Indonesia, which I would say in the first half, they were -- revenues with TikTok Shop were up 60%. So what can we do in the U.K. with that? So actually, what you're going to see in the second half is our highest level of M&C in the last 4 or 5 years because we are absolutely trying to walk the talk on we're building brands and we're ready to invest behind them. Matthew Webb: Look forward to seeing you all this afternoon. Jonathan Myers: Great. Well, you stole my [indiscernible] actually, Matthew. I'm looking forward to seeing everyone who is coming this afternoon. So thanks to all of you for dialing in this morning. Listen, we are obviously feeling upbeat about the performance we have reported, but we're not getting carried away. Our feet are firmly on the ground. We can never give up and there's always more to do. And there are -- a little bit as we discussed with Damian, there are always new competitors coming to take our share. So there is a very healthy degree of paranoia in the business. But we are confident in our ability to drive performance and to deliver over the long term. So for those of you joining us this afternoon, we look forward to seeing you. We will be setting out a renewed strategy. We'll be updating you on our innovations and brand building, and we'll be giving you a very deep dive into our African business. So I look forward to seeing you all there. Thank you very much. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Operator: Good morning. Today is Wednesday, February 11, 2026. Welcome to the Toromont Industries Limited 2025 Fourth Quarter and Full Year Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle. John Doolittle: Thank you very much, [ Ludy. ] Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the fourth quarter and full year of 2025. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. And to start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions. So let's get started and move to Slide 3. Over to you, Mike. Michael Stanley McMillan: Great. Thanks very much, John. Good morning, everyone, and thanks for joining us this morning. Our team delivered solid results in the fourth quarter, closing out the year on a positive note despite persistent macroeconomic and trade uncertainty. We remain focused on long-term performance, continue to invest in our people and capabilities to support our customers and drive sustainable growth over the long-term cycle. Earnings improved over the course of the year, although full year earnings showed a modest decline due to factors such as investment in growth-related initiatives, lower net interest income and short-term noncash costs from the AVL acquisition, which John will expand upon shortly. The Equipment Group executed well with solid activity in rentals, product support and new equipment deliveries. However, activity levels still reflect the economic environment, which continues to impact end customer demand. As expected, mining deliveries were lower due to the segment's inherent variability. However, we saw good order intake in Q4. Revenue increased with the inclusion of the acquired business, along with higher rental, product support revenue and higher total equipment sales. Rental revenue rose supported by a larger fleet and product support revenue also increased due to higher parts and service volumes. Operating income was 3% higher in the fourth quarter as the higher revenue and gross profit margins were partly offset by the higher expense levels. CIMCO posted higher revenue and earnings, driven by good demand and disciplined execution in both Canada and the U.S. Growth in package revenue was supported by a stronger order backlog, while product support activity continued to improve, aided by our growing technician workforce. Operating income increased largely reflecting the higher revenue and solid execution, which more than offset higher expenses to support activity and growth. We continue to work closely with our new partners at AVL, focusing on this promising market. Production at AVL has been expanding since the date of acquisition and continues to build their healthy order backlog and new order demand. Hiring and development of production capacity continues. As noted in Q2, we acquired a facility in Charlotte, North Carolina to expand production capacity and better serve the Eastern U.S. market. This facility commenced the first phase of production during the third quarter of 2025 and will ramp up throughout 2026. Revenue for the fourth quarter and full year of 2025 were $97.7 million and $254.7 million, respectively. As part of the accounting for the acquisition, the company recognized intangible assets related to order backlog and customer relationships, both of which are amortized over time. Certain other noncash expenses are recorded as a result of the acquisition accounting related to the commitment for purchase of the remaining shares of AVL. Noncash expenses recognized for these items amounted to $33.4 million and $90.4 million, respectively, on a pretax basis for the fourth quarter and full year. Net income for AVL after consideration of amortization of intangibles recognized at acquisition was approximately negative $0.01 per share and a contribution of $0.01 per share for the fourth quarter and full year of 2025, respectively. Investment in noncash -- let's turn to Slide 4, and we'll highlight some of our key financial metrics. Investment in noncash working capital decreased 11% year-over-year, a net effect of lower inventory levels, higher accounts receivable balances and lower accounts payable balances due to equipment delivery timing. Accounts receivable increased primarily reflecting higher trailing revenues and receivables from AVL, offset by good collection activity. DSO decreased by 1 day to 39 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined primarily due to executed deliveries against order backlog, inventory management initiatives, slightly offset by CIMCO's higher work-in-process inventory levels, which reflects the timing of project construction and product support schedules. We ended the year with ample liquidity, including $1.3 billion in cash and an additional $453 million available under our existing credit facilities. Our net debt to total capitalization ratio was negative 19%. Overall, our balance sheet is well positioned to support operations and navigate evolving economic and business conditions. We will continue to apply our operational and financial discipline as we support customer needs and evaluate future investment opportunities. We purchased and canceled 337,500 common shares for $40.1 million in the year under our NCIB program. Our purchases are intended to practice good capital hygiene and to mitigate option exercise dilution. Toromont targets a return on equity of 18% over the business cycle. ROE was below this at 16.9%, reflecting slightly lower earnings and higher shareholders' equity. Return on capital employed was 23.4%, also lower year-over-year, reflecting our increased capital investment. It is worth noting that noncash charges related to the AVL's backlog amortization, which will be effectively completed during the first half of 2026 impact these important metrics. Finally, as announced yesterday, the Board of Directors approved the increase of the quarterly dividend by $0.04 per share or 7.7% to $0.56 per share or $2.24 per share annual. Toromont has paid dividends every year since 1968, and this is the 37th consecutive year of dividend increases. We continue to be proud of this track record and our disciplined approach to capital allocation. The next dividend will be payable on April 2, 2026, to shareholders of record at the close of business March 6, 2026. John, I'll turn it back over to you for more detailed commentary on the results. John Doolittle: Okay. Thank you, Mike. Let's turn to Slide 5 for a few additional comments. On a consolidated basis, higher revenue was generated with both the Equipment Group and CIMCO. Equipment Group revenue increased with new equipment deliveries and execution against order backlog and project schedules coupled with the revenue of the newly acquired business AVL. Rental revenue improved during the latter half of the year, although utilization levels remained lower than prior year. Product support revenue increased in both parts and service on improving customer activity and focused execution. CIMCO revenue increased on continuing strong demand for its product and services. Gross profit margins improved compared to the prior year on improved efficiency and better sales mix. Operating income was up 2% compared to last year, reflecting the higher revenue, improved gross profit margins, partially offset by the higher expense levels. Excluding the property disposition pretax capital gain of $13.7 million in Q3, operating income was relatively flat compared to prior year. Expense levels reflect continued support for key operational focus areas. Net interest income was significantly lower for the year, reflecting both higher interest expense as a result of higher borrowings as well as lower interest income earned due to lower interest rates. Bookings for the fourth quarter increased 47% compared to the fourth quarter of 2024 with higher bookings in the Equipment Group, including a significant contribution from the acquired business and strong mining activity, offset by lower bookings at CIMCO. Backlog is strong at $1.5 billion, up 46% year-over-year with an increase in the Equipment Group of 68%, while CIMCO was comparable to 2024. On a consolidated basis, revenue increased 9% in the fourth quarter with an increase in the Equipment Group of 9% due to revenue from the acquired business along with higher product support revenue and an increase of 10% at CIMCO on higher package and product support revenue in both Canada and the U.S. For the year, revenue increased 4% with the Equipment Group up 3% and CIMCO up 14% compared to 2024. Excluding the property disposition gain in the acquired business, SG&A expenses increased 10% in the quarter and 5% in the year. Higher expenses reflect the continued investment in key strategic areas. Higher DSU mark-to-market adjustments increased expenses in both periods due to the higher share price. Compensation costs were largely unchanged from the prior year as regular salary increases and higher staffing levels were largely offset by lower profit sharing accruals. Sales-related expenses increased year-over-year, reflecting continued investment in resources. All other expenses such as travel, training, occupancy and information technology costs have increased slightly on continued investment for future growth and inflationary effects. For the year, expenses increased to 12.3% of revenue compared to 11.8% last year. Operating income increased 3% in the quarter, reflecting the higher revenue, partially offset by the higher expense levels given higher activity. On a year-to-date basis, operating income increased 2% as higher revenue and improved gross profit margins were partially offset by the higher expenses. As a percentage of revenue, operating income was 13.1% on a year-to-date basis compared to 13.3% last year. Net interest income increased $1 million in the quarter due to higher interest earned on the higher excess cash balance. For the year, net interest expense increased $17 million, reflecting interest expense on higher borrowings with the new senior debentures issued in March 2025. In connection with the acquisition of AVL in early 2025, the company made a commitment to purchase the remaining 40% of the shares at various dates through 2031. Revaluation of this purchase commitment liability resulted in a $7.9 million expense for the year, and you will see that as a separate line item on our P&L. Net earnings increased 1% or $0.9 million in the quarter compared to last year and decreased 2% or $9.9 million for the year. Basic earnings per share was $1.93 in the quarter and $6.11 for the year. Turning to the Equipment Group on Slide 6. Revenue increased 9% in the quarter and 3% for the year as higher construction and power systems markets, including the acquired business, along with higher rental and product support revenue were largely offset by lower mining revenue against a strong comparable. Equipment sales, including both new and used equipment were up in both quarter and full year by 9% and 1%, respectively. New equipment sales increased 10% in the quarter and 1% for the year with decreases in mining against a strong comparable, partially offset by higher power systems markets, which include revenue of the acquired business. Used equipment sales increased 4% in the quarter, mainly on improved dispositions in the construction market and decreased 4% year-to-date in most markets, the decrease prominently led by a lower construction market, slightly offset by improved mining market activity. Looking at the market segments for the quarter. Total equipment revenue decreased 39% in mining, while Power Systems increased 131%, Construction increased 1% and material handling increased 12%. Rental revenue was up 5% in the quarter and was up 9% year-to-date. While market conditions remain somewhat challenging, revenue increased compared to the prior year, reflecting a larger fleet and improved activity levels in certain areas. Revenue improved in most areas for the quarter as follows: Heavy equipment rentals were up 15%, light equipment up 5%, material handling up 7%, partially offset by a decrease in power rentals down 11%. The RPO fleet was $92.5 million versus $97.9 million a year ago, and rental revenue was up 5% for the quarter and 40% for the year compared to the similar periods last year. Product support revenue increased 9% in the quarter and 4% year-to-date, with an increase in both parts and service. Activity was higher across most markets and regions, reflecting end-user demand and activity levels. Gross profit margins increased 10 basis points in the quarter compared to the fourth quarter of 2024 and increased 30 basis points on a full year basis. Equipment margins were up 50 basis points in the quarter, up 50 basis points for the year, reflecting market dynamics and the nature of equipment sold. Rental margins were down 10 basis points in the quarter, down 20 basis points for the year on higher recent fleet acquisitions and higher maintenance and repair costs. Product support margins decreased 30 basis points in the quarter and 10 for the year. Sales mix was favorable, up 10 basis points in the year, reflecting a higher proportion of product support revenue to total revenue. Excluding the gain on property disposition and the acquired business in 2025, selling and administrative expenses increased $11.3 million or 9% in the quarter and $21.5 million or 4% for the year. Higher expenses reflected continuing investment in key strategic areas. Higher DSU mark-to-market adjustments increased expenses in both periods. Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases, more than offset by lower profit sharing accruals on the lower income. Other expenses such as training, travel and occupancy costs have increased in light of sales levels, planned investment and inflation. As a percentage of revenue, selling and administrative expenses increased to 12.1% versus 11.5% last year. Operating income increased 3% for the quarter and was relatively unchanged for the year. Excluding the property disposition gain, operating income decreased 2% for the year, reflecting the higher revenue and improved gross profit margins more than offset by the higher expenses. Acquired business continues to increase production, however, did not contribute meaningfully to operating income given expenses arising from purchase price accounting, including items such as amortization of intangibles and the setup of a new U.S. facility. Bookings increased 71% in the quarter, led by strong order intake in Power Systems and the mining sector. For the quarter, construction markets were up 9%, reflecting more normalized customer demand. Power Systems, which includes the acquired business saw strong order activity, up 195% on good demand for our products. Mining markets are lumpy or cyclical due to the nature of the business and improved up 324% on good orders in the quarter. Material handling orders were down 14% versus a strong comparable last year. Backlog sits at $1.2 billion, remains at healthy levels. Backlog includes approximately $428 million at AVL. And excluding this backlog -- excluding this, the backlog was up 7% compared to the same time last year, reflecting good new order intake throughout the year. Approximately 90% of the backlog is expected to be delivered over the next 12 months. But of course, this is subject to timing differences depending upon vendor supply, customer activity and delivery schedules. When you consider the impact of AVL on our results, please keep in mind that the bulk of the purchase price amortization is related to acquired backlog. A substantial portion of this backlog was shipped in 2025 with a small remainder expected to be delivered in the first quarter of 2026. And you refer to Note 11 in the financial statements for a breakout of this. As well, it is important to recognize that we own 60% of the business and any dividends paid to minority shareholders will be treated as expenses when paid. We expect dividends to begin in 2026 with amounts reflective of both trailing earnings, excluding the impact of amortization and the cash flow needs of a rapidly expanding business. Turning now to CIMCO on Slide 7. Revenue was up 10% in the quarter and 14% for the year. Package revenue increased 4% in the quarter and 18% year-to-date, led by strong recreational market activity, reflecting good execution on equipment delivery and progress on customer schedules, slightly offset by a decrease in the industrial market. Recreational activity increased 51% in the year with higher revenue in both Canada and the U.S. in both periods. Industrial market revenue decreased 3% in the year with lower activity in Canada against a strong comparable and higher activity in the U.S. in both periods. Product support revenue increased 17% in the quarter and 9% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was down 11% in the quarter and down 1% year-to-date with a stronger start to the year. Activity levels continue to improve on good customer demand and the increased technician base. Gross margins were unchanged in the quarter and increased 10 basis points in the year versus similar periods last year. Package margins reflect good execution in the nature of the projects in process for both periods, driving a 20 basis point increase for the quarter and 50 basis point increase for the year. Product support margins decreased 50 basis points in the quarter and 20 basis points for the year. Improving execution and efficiency continues to be a focus. A favorable sales mix with a higher proportion of product support revenue to total increased margin 30 basis points in the quarter and an unfavorable sales mix of 20 basis points reduced gross profit for the year. Selling and administrative expenses increased $2 million or 12% in the quarter and $7 million or 10% for the year. Compensation costs increased, reflecting staffing levels, annual salary increases and higher profit sharing accruals on the higher earnings. Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses improved to 14.3% in 2025 versus 14.8% in 2024. Operating income was up $2 million or 9% for the quarter and $11 million or 20% for the year, largely reflecting the higher revenue and improved gross margins, partially offset by higher expense levels supporting growth. Operating income as a percentage of revenue increased 60 basis points to 12.2% on a year-to-date basis compared to the similar period last year. Bookings decreased 45% or $56 million in the quarter and were 11% lower against a strong comparator. For the year, industrial orders were down 9% and recreational orders down 14%. Generally, activity is continuing with good strategic capital investment levels. However, the current economic uncertainty has delayed some customer buying decisions. Backlog of $343 million was relatively unchanged versus last year as higher backlog in the industrial markets up 2% were offset by lower recreational markets down 2%. Approximately 75% of this backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules. And with that, we can move to Slide 8. turn again to Mike to highlight some key takeaways as we look forward to the year ahead. Michael Stanley McMillan: Great. Thanks again, John. As we look forward to the first quarter of 2026, our focus remains firmly on executing our strategic priorities, namely maintaining safe and efficient operations, delivering exceptional customer service and applying disciplined financial and operational rigor to support long-term growth. With that in mind, we continue to monitor several external factors that may influence the business environment. Trade negotiations between U.S. and Canada remain fluid. We have implemented a proactive mitigation plan and continue to refine such plans as the situation evolves in order to manage potential impacts. Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed primarily through our hedging program. While this helps to protect our bottom line, broader economic effects may still be present. Macroeconomic conditions, including inflation and interest rates are being closely tracked. Our backlog of $1.5 billion in the equipment supply chain is well positioned to support our customer requirements as well. The AVL acquisition continues to track to our production plan. Though near-term earnings contributions remain modest due to noncash purchase accounting adjustments and the dividends, as John noted earlier. We continue to invest in our technician workforce, a key enabler of our aftermarket growth strategy. This critical initiative strengthens our aftermarket services capability and enhances the value we deliver to our customers through our product and service offerings. From both an operational and financial standpoint, we have a focused operating model, talented leadership team, disciplined culture and ample liquidity, which helps equip us to navigate near-term uncertainty while pursuing strategic growth opportunities. Our long-term commitment to shareholder value remains anchored in cost discipline, strategic investment and operational excellence. We thank our team for their continued dedication and our stakeholders for their trust and support. That concludes our prepared remarks. We'd now be pleased to take your questions. Ludy, back over to you, please, to set up the first call. Operator: [Operator Instructions] With that, our first question comes from the line of Devin Dodge with BMO Capital Markets. Devin Dodge: I wanted to start with a question on -- I guess it's on the AVL business. But look, we've seen CAD is increasingly seeing opportunities for really large data centers. That's both for prime and backup power. I mean they saw multiple orders for gensets for sites more than a gigawatt of power. Just are these opportunities for AVL? Or are these gensets likely to be deployed in larger enclosure buildings versus the typical AVL offering? Michael Stanley McMillan: Yes. Thanks, Devin, for the question. Let me just start with that, and John can provide some color as well. I would say, at this stage, our focus is really on the standby power and ramping up production to support the data centers in motion today. Not to say that we aren't looking at the gas. Like I think from your perspective, what you're talking about is the shortage in energy in the segment, right? And so as we've heard, certainly, there's a shortage of energy to support data centers, and they're looking at different opportunities to bridge until they get into the grid and also just operating as a prime power solution while they continue to build out and address the demand in the data center side of things. And so I would say, broadly speaking, we certainly can provide enclosures. Some of these power plants, certainly, the gas solutions are larger, a little heavier, but many of them do require a similar type enclosure and so forth. And so at this stage, I would just say it's a bit early in that regard. That's something that we'll probably evaluate as we get further down the path of executing our plan and ramping up production in Charlotte. Devin Dodge: Okay. Makes sense. And then maybe just sticking with AVL. I was just wondering if you could provide an update on the ramp-up at the Charlotte facility and how quickly that could get to full production. And just wondering if there's any plans to expand the AVL network beyond Charlotte, either at existing facilities or just expanding the overall network? John Doolittle: Yes. Just on Charlotte, Devin, I think Mike called that out in his remarks. We're making good progress in Charlotte. The building is basically kitted out. We're hiring folks. There is some limited production going on right now, and we would expect that to continue to grow throughout 2026. And I commented last quarter, I think, on margins following that growth in production. Mike, did you want to talk about. Michael Stanley McMillan: Yes. Just let me -- your second part of your question there, Devin, on further expansion. I mean I think the first thing we want to do is ramp up production, both Hamilton and here. Hamilton is at a pretty good state at the moment. I think there is also some opportunity when you think about operating efficiently in, say, the Charlotte facility, shift scheduling, adding a little bit more assembly and manufacturing space, that type of thing. So we'll evaluate that first before we would go further with another opportunity in another location. Operator: And the next question comes from the line of Maxim Sytchev with National Bank Financial. Maxim Sytchev: If we switch gears, if we can, to the kind of the core Equipment group, can you maybe talk about the inflection in the backlog year-on-year? And what's driving that specifically in terms of end markets, et cetera? Michael Stanley McMillan: Yes. Just so I'm clear, Max, just you're focused on more traditional equipment group as far as the backlog? Maxim Sytchev: Yes. Yes, please. Michael Stanley McMillan: Yes. I think as we've talked about probably over the course of the last year or so, availability of equipment has improved quite significantly in the industry and bundle that with a little bit softer demand and activity levels in Canada with some of the other factors at play. I would just say that what we are seeing, again, strong levels of bookings, strong -- our backlog continues to be at a relatively high level, even if you back out the power and energy side of things relative to -- we always look back at, say, 2019 and where we would normally be with strong availability. And so I'd say it's an interesting dynamic. I'd say we're still trying to help our customers with solutions, whether it's new equipment, which has strong availability, but also as we look at inflationary effects over the last several years, the right solutions for them in terms of used rebuilds, rentals and so forth. And so you tend to see that. But right now, I would say, given the demand strength, customers do have the opportunity to make their purchase decisions in line with what they're seeing in the project pipeline and some of the infrastructure we anticipate will materialize over time. So it's a little more patient than it has been, say, for the last little while. Maxim Sytchev: Okay. No, that's fair enough. And then in terms of the margins on AVL, I know that John sort of alluded to this in the previous question, but how much of a drag was Charlotte ramp-up in the margin performance for AVL in Q4 from your perspective? John Doolittle: It wasn't a significant drag in the fourth quarter, Max. And all I was saying is we -- the expectation as we build out production is that, of course, costs kind of upfront before you get revenues. And so we would expect margins to build as revenue grows in Charlotte over the course of the year. But it wasn't much of a drag on the Q4 performance. Operator: And your next question comes from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: I wanted to key off a comment in regards to the bookings in the Equipment Group in the fourth quarter. You mentioned that construction orders were up 9%, reflecting more normalized customer demand. Can you sort of elaborate on that comment? Is that confidence driven, project driven? Any detail you can give there would be helpful. Michael Stanley McMillan: Yes. I think, Cherilyn, it's a number of factors when you break it down. I think it's, like I mentioned earlier, availability and so forth. I think also, it's not unusual for us to see in Q4, depending on how customers -- their financial positions are and what they see for year-end buys and they can time it. This year, we certainly have better availability, so they can -- you'll see the booking activity was pretty strong in Q4, for example, right? And our execution on new sales was strong in the same period. And so there's certainly an element of that. I'd say I'd be careful on confidence in the market at the moment. I mean we are seeing a little bit of activity. But we're -- I think it's -- we're still waiting to see improved activity levels in infrastructure, sewer water, all the things that tend to drive a lot of the initial construction activity. And I think it really relates to the economic uncertainty in the marketplace and the work environment, right? So... Cherilyn Radbourne: Okay. That's helpful. And in terms of the narrative around the potential for nation building infrastructure projects, how are you tracking that internally? And what are your thoughts at this point as to when that could start to positively impact the business? Michael Stanley McMillan: Yes, it's a great question. I think a couple of things there that we certainly are keeping an eye on. Like I would say the tailwinds or the backdrop and you hear about it almost on a daily basis on the news is resource development. We often hear about Northern Ontario development opportunities. I think, of course, commodity pricing and everything is in a good position, including even iron ore and things like that at the moment. And so I'd say that definitely provides us with cautiously optimistic long-term outlook. I would say, in terms of timing, that's the big question. Like we're watching carefully to see where mine developments are, but also infrastructure when you think of roadworks. And there's certainly like in our core markets like Ontario, you often hear about some of the road building and other things that are planned. I would say yet to be seen, though, in terms of material movement and some initial stage stuff is happening. But it'd be difficult to predict where we're going to be in '26. I think as we look longer term, '27 forward, I would say we'd be cautiously optimistic that we're going to start to see some good development in both of those areas. John, anything you want to? John Doolittle: It's good Mike. Operator: And your next question comes from the line of Sabahat Khan with RBC Capital Markets. Arthur Nagorny: This is Arthur on for Sabahat. I want to start with the Equipment Group bookings. I know you called out mining orders as being reflective of normal lumpiness. But can you just give us a little more color on where the orders are coming from? And would you expect an increase in order activity over the coming quarters given where commodity prices are? And as a follow-up, can you also dig into the Power Systems growth between both AVL and the rest of the Equipment Group business? Michael Stanley McMillan: Thanks Arthur. Maybe just to start out. On the bookings in the mining side, I think, as John mentioned, it is -- and I think I commented, it is lumpy here. It is a little bit more cyclical. And so we tend to see, as you know, lower frequency of orders, but usually larger in nature, unless it's replacements or supplementary ancillary equipment. So we are seeing -- I think given the commodity backdrop, we are seeing some good interest in mine development, and that would be in the gold sector, of course, but also in areas of nickel and other base metals and things like that. And so our goal, again, is to -- it's a very competitive space. There are some very capable players in the equipment space. Our goal is to compete and win and earn our way into those projects. I mean we certainly are prepared to invest in terms of infrastructure, technician workforce and support throughout the cycle for our customers. And so that's one of the areas we try to add value, if you will. And so it's very difficult to predict the order flow, but I think we do see a reasonable pipeline of opportunities over the next several years, and these are long-duration projects, right? So just to give you a bit of color, I mean, it's hard to pin that stuff down, but I think the Canadian marketplace commodity backdrop provides good investment, which generally results in mine development and opportunity for our team to execute. Yes. You mentioned -- sorry, Arthur, you mentioned also the Power Systems side and that sort of thing. I think certainly, you get some good color out of the AVL disclosure that John and I provide in the order backlog and so forth to give you a sense of where that's headed. Maybe John can talk a little bit about the timing on that backlog and so forth. But I'd say it's been driven by some of the Eastern U.S. market activity out of the AVL side. The Power and Energy Group here in Canada is doing a nice job in the number of projects. But I'd say the data center forecast in Canada is certainly lagging the U.S. activity. Like I think there is certainly some interest starting to develop. But I would say it's still early days here in the Canadian marketplace for that particular activity. John Doolittle: Yes. I'd just say on AVL, the backlog is about -- just over $425 million. And as I said, we would expect that to roll out over the course of 2025. And that accounts for the largest chunk of the growth in the Power System order bookings. Arthur Nagorny: Got it. Maybe just a follow-up on that AVL backlog. So it sounds like duration is kind of normal course. But the growth in the backlog, is that largely reflective of the ramp-up in the Charlotte facility? Or is a lot of that also coming from the Hamilton facility as well? John Doolittle: It's a combination of both. It's a combination of both, just strong orders on both. And we decide based on capacity, where we're going to fulfill those orders. So they kind of come in centrally and then we decide where to place them. Arthur Nagorny: Got it. And at this point in time, is that, I guess, backlog and kind of the revenue that you're seeing, is that largely reflective of kind of volume across the business? Or is there some element of pricing in there as well that we should be keeping in mind? John Doolittle: That's largely reflective of volume at this point. Arthur Nagorny: And then last one for me on the revaluation of the commitment liability. Can you just remind us which KPIs this might be based on? And is there anything to keep in mind as it relates to potential future revaluations? John Doolittle: Yes. I mean as we talked about when we acquired AVL, we acquired 60% of the business and then the other 40% we're going to acquire over time through 2031. And that is -- that 40% is structured so that to the extent the business does better than we anticipated in the business case, then there'll be a higher multiple on a payout. And so the business is doing very well. So we took a look at the liability at the end of the year and revalue it upwards from $42 million to $50 million. And that's why that $7 million expense was booked in 2025, and you'll see that as a separate line item in the P&L. And we'll evaluate that on a regular basis as we move forward, track how the business is doing and estimate that liability, and you'll see that recognized, and we'll talk about it on the calls. Operator: And your next question comes from the line of Krista Friesen with CIBC. Krista Friesen: I was just wondering if you could speak to kind of where you're at in the mining cycle right now as we think about product support coming in relative to the orders delivered over the last couple of years and also acknowledging that I believe you called out decent bookings in the quarter for your mining business, too. Michael Stanley McMillan: Yes. I would say we're sort of midway, like you mentioned, some of the larger fleets we've talked about over the last several quarters. And it does take 2 to 3 years to really get the equipment and the hours and utilization up to a point where we do more than just preventative maintenance and routine things. And so I'd say we're about, let's say, on average, halfway through that type of cycle before we start to see component replacement opportunities and so forth. The activity levels in the mining sector are pretty strong and the hours continue to build, but it does take some time. I think -- and again, as we mentioned earlier, when you look at the order book and how we're seeing things develop over time, we continue to be cautiously optimistic, but we're very mindful of the fact that every deal is unique, and we have to earn our way into those opportunities. I think the one area I would I would notice, as we look at the sector over the long cycle, one of the areas we're also looking at is similar to one of our customers today is running autonomous solutions. And I think when it comes to technology and the evaluation of those offers, I think that's also another factor that may play into opportunities down the road. But again, these are -- these types of projects take time and the customer needs to get comfortable with the technology adoption and the benefits. Krista Friesen: That's great color. And maybe just on the AVL acquisition, obviously, been quite successful and a lot of growth there. Are there other sort of adjacent areas like this that you're looking at in terms of M&A kind of in the near to medium term here? Michael Stanley McMillan: I would say at this stage, Krista, we -- one of the reasons we really like the AVL acquisition, as we often talk about when it comes to M&A is complementary scope, if you will, that really fits well with, like, say, the engine business, the Power and Energy business. And so from that perspective, I would say we're very mindful of the space, the level of investment required, the capital going into the market, but also the supply chain. So when we look at that, I would say anything that we'd look at today would be around traditional parts of our business that would be complementary and broaden the service and product offer to our customer. I think from an AVL perspective, again, it's helping to support the execution and delivery of the units that we need to provide and the supply chain. There's -- within these units, we have a number of components like plenums, exhaust SERs for scrubbing emissions and paneling and switchgear and so forth, which a lot of that we can do ourselves today through our Power and Energy group. And so that's where our focus would be, would be just to make sure that whatever we're looking at is a complementary part of the business that we have a much better understanding. Operator: And your next question comes from the line of Steve Hansen with Raymond James. Steven Hansen: John, I think you referenced the new dividend structure for AVL that's going to be coming up here. How do we think about modeling that? I understand your ownership stake, but I think you referenced it would be based on trailing earnings. Is there a catch-up to be had in the front quarters as we think about the trailing '25? Or how should we think about that sort of cadence of expense? John Doolittle: Yes. So Steve, the way I laid it out was that there will be dividends paid in 2026. I would expect it to be a dividend paid in the first quarter. And the way you should think about that is there are a couple of components. One is 2025 earnings before amortization as one input. Then the other input is, of course, we operate businesses on a call it stand-alone basis. And so AVL is in growth mode. And there are certain cash requirements that accompany that growth mode. And so we've got to take into account historical earnings plus cash needs going forward, and those things will factor into any dividend that we pay on AVL in the first quarter and as we move forward. Steven Hansen: Okay. But it will be a quarterly regular rated dividend, I understand. John Doolittle: TBD, we're looking at 2025 results right now and focusing on that, and then we'll be evaluating it as we move through 2026. Steven Hansen: Okay. Helpful. Just switching over to the core Equipment Group. I know, Mike, you referenced good availability out there in the market, but the margins do look to be continuing to soften here on, again, the ex-AVL business. Is that a pattern that we can expect to start stabilizing here as we look at sort of that core underlying? Or how do you think about the margin profile going forward? Michael Stanley McMillan: Yes. I think, Steve, I think a couple of things to think about. We always talk about the factors affecting our margin. I think availability has been pretty strong over the last several quarters. And certainly, that plays in. But I think an important part for us is how you think about mix. And so when you think of, say, John's comments, we talked a little bit about decent new equipment deliveries. However, we didn't see a lot of mining deliveries. And again, usually mining is higher value, tighter margin just given the nature of the product. And so even within the New Equipment segment, I would say, think about the mix and what we're talking about there, used was not bad in the quarter. Like if you look at our used revenues was up 4% versus last year, I think, roughly. And so that can give us a little bit to consider there and rental was improved, up 5%. And so those things, when you think of the overall balance and then the margins within those segments, that's really the right way to think about how we go forward. Availability, I think, is strong. And so you would expect the market to be competitive in terms of pricing and value. And so we don't -- I think the wildcard there would be continued tension between the trade dynamics here that we're talking about and if there are more tariffs that come into play, and that can affect commodities like steel and aluminum pricing and things like that. And that's one thing that we're very cognizant of and monitoring carefully. Steven Hansen: Okay. Great. And just the last one for me. I know it's a bit nichey, but just is there anything to think about with the weather pattern we're expecting here, higher rental demand on snow removal? Is there anything that really plays from this sort of atypical weather event we're seeing through first quarter here? Michael Stanley McMillan: Yes, it's a good question. So we have just come through a bit of a blast here in January. I would generally step back and say, look, we live in Canada, and we deal with the weather conditions, and we've had warm winters and cooler winters. And definitely, we see more snow removal activity, maybe a little bit more on the heating and things like that. But there's also a point where depending on temperature, we're not -- our customers are not using heaters, for example, the soaking ground when it's very cold, but they are using it in the intermediate sort of temperatures. And so all that to say, there's a subtle effect there, but I wouldn't say it's overly material. But certainly, you see the activity out there in the snow banks around our market anyway out here in Eastern Canada, which has been positive for us. Operator: And your next question comes from the line of Yuri Lynk with Canaccord Genuity. Yuri Lynk: A question for John. I just want to make sure I'm modeling the noncash AVL expenses going forward, I'm referring to the $33 million in the quarter. You mentioned that the amortization portion of that to the backlog is pretty much will be exhausted in Q1. But just so I'm clear, that doesn't mean that, that $33 million goes to zero, right? There's another component in there related to the commitment to buy the remaining shares of AVL that's going to continue? And if so, can you help us kind of quantify what that might be? John Doolittle: Yes. A couple of things to think about there. So if you go to Page 33 of the financials, you'll see the way the intangibles were broken out for the AVL acquisition, and most of it was allocated to customer order backlog. So we bought backlog in January of 2025. And most of that has been sold has rolled through revenue. So you look at it, there was $76 million that was acquired, $75 million of that was amortized through the year. So there's a small piece that's left to be amortized in Q1. Customer relationships is the other piece of intangibles, and that amortizes over 5 years. So the first year was taken in 2025, and the rest of it will be amortized over the next 4 years. And then your last part of the question is related to the 40% that we don't own. and we have an obligation to buy those shares over the course of the next number of years. And so we set up a liability when we bought that 40% based on everything we knew at the time. And we've got to have a look at that on a regular basis to say, are we tracking to that business plan? Is AVL doing better than we thought? And because it's based on an earnings multiple, it could go up and it could go down. So we have to revalue it. In this case, it went up a little bit, and that's why we booked the expense. So we'll track that, like I said, going forward. If you see any changes in that valuation number, we'll explain it. Michael Stanley McMillan: Yes. And just on that purchase piece, too, Yuri, I think one of the things we mentioned in prior calls is we're looking to buy out that 40%. We actually have a schedule, like John says, the last 10% so it's in 10% blocks year-over-year and the last piece is expected to be purchased out in early 2031. John Doolittle: Does that help, Yuri? Yuri Lynk: Yes, that's helpful. Operator: Thank you. And I'm showing no further questions at this time. I would like to turn it back to Mr. John Doolittle for closing remarks. John Doolittle: Okay, Ludy. Thanks a lot for hosting us today. Thank you, everyone, for joining for your questions. That concludes our call. Please be safe. Have a great day, everybody. Thank you. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Martin Marietta's Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants are in a listen-only mode. A question and answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Jacklyn Rooker, Martin Marietta's Vice President of Investor Relations. Jacklyn, you may begin. Jacklyn Rooker: Good morning. It's my pleasure to welcome you to Martin Marietta's Fourth Quarter and Full Year 2025 Earnings Call. With me today are Ward Nye, Chair, President and Chief Executive Officer, and Michael Petro, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion may include forward-looking statements as defined by United States securities laws. These statements relate to future events, operating results, or financial performance and are subject to risks and uncertainties that could cause actual results to differ materially. Martin Marietta undertakes no obligation to publicly update or revise any forward-looking statements except as legally required, whether due to new information, future developments, or otherwise. For additional details, please refer to the legal disclaimers contained in today's earnings release and other public filings which are available on both our own and the Securities and Exchange Commission's websites. Supplemental information is available both during this webcast and in the Investors section of our website. It includes a summary of our financial results and trends, with full year and fourth quarter bridges from continuing operations to consolidated results on slides five and six, respectively. As a reminder, the company's Midlothian cement plant, related cement terminals, and Texas ready-mixed concrete operations are classified as assets held for sale as of December 31, 2025. Their associated financial results are reported as discontinued operations for all periods presented. Our full year 2026 guidance summary on slide seven reflects continuing operations unless otherwise noted. Definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measure are provided in the Appendix to the supplemental information in our SEC filings and on our website. Ward and I will begin today's earnings call with a discussion of our fourth quarter operating performance, 2026 outlook, and supporting market trends. Michael Petro will then review our full year financial results, capital allocation, and 2026 guidance details, after which Ward will provide closing remarks. Please note that all comparisons are to the prior year's corresponding period. A question and answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward. Ward Nye: Thank you, Jacklyn. Good morning, and thank you for attending today's teleconference. 2025 was an outstanding year for Martin Marietta, marked by record financial, operational, and safety performance. Our aggregates business delivered record profitability and meaningful margin expansion, while our highly complementary specialties business achieved record revenues and gross profit, highlighting the strength and breadth of our portfolio. We delivered these results even as the private construction environment remained challenging, with single-family housing and nonresidential square footage starts still well below their most recent post-COVID peaks. These outcomes underscore the durability of our aggregates-led business model, reinforced by intentional portfolio shaping and our team's disciplined execution. In short, this is our strategic operating analysis and review, or SOAR plan, in action. Thoughtful strategy, rigorous execution led by a high-performing team, and a product portfolio engineered to outperform through macroeconomic cycles. With that context, I'll briefly summarize the principal achievements of SOAR 2025. Over the five-year period ended 12/31/2025, we delivered a 208 basis point price-cost spread, exceeding our 200 basis point SOAR 2025 target, and achieved a compound annual growth rate of more than 13% in aggregates gross profit per ton. From a capital allocation standpoint, we announced or executed approximately $16 billion of portfolio-enhancing transactions. We invested $3.2 billion in sustaining and growth CapEx and returned $2.1 billion to shareholders through dividends and share repurchases. Of vital importance to our investors, over the same time period, we delivered total shareholder returns of 126%, approximately 30 percentage points above the S&P 500 Index, over the 12/31/2020 through 12/31/2025 period. We also paid special attention to maintaining our strong balance sheet. More specifically, we concluded the SOAR 2025 period with our leverage ratio within our target range of 2 to 2.5 times and strong free cash flow. Accordingly, we began SOAR 2030 in an enviable position, with the ability to responsibly invest in our business and the flexibility and desire to make timely and prudent acquisitions. Indeed, by thoughtfully redeploying capital from cement and downstream asset divestitures into pure aggregates positions, we expanded our footprint coast to coast, increased the aggregates contribution percentage to consolidated gross profit, and enhanced our margin profile. All nicely positioning Martin Marietta for durable and sustainable growth. Before discussing our 2025 performance and 2026 outlook, I'll highlight some fourth-quarter achievements, beginning with our core aggregates business, which delivered record results across nearly every key metric. Year over year, aggregates revenues increased 8% to $1.2 billion. Gross profit rose 11% to $420 million. Gross profit per ton improved 9% to $8.59, and gross margin expanded 93 basis points to 34%. Our specialties business also delivered record fourth-quarter results, driven by solid organic momentum and contributions from Premier Magnesia. Our full-year results were a testament to the resilience of our portfolio and the opportunities ahead. Aggregates delivered another year of outstanding performance, delivering records across nearly every financial measure, including gross profit per ton of $8.45, representing a year-over-year increase of 12%. Notably, our specialties business also posted exceptional results, reinforcing the value of this highly complementary segment, achieving record full-year revenues and gross profit. I'm especially pleased to share that our strong financial performance was accompanied by record safety performance in our heritage business, as measured by total reportable incidents, reflecting the depth of our world-class safety culture and operational discipline. Looking ahead, our 2026 shipment guidance of 2% growth at the midpoint reflects a balanced macro environment in which we expect sustained infrastructure investment and accelerating momentum in data centers and energy to offset continued softness in private, nonresidential, and residential construction. In line with these assumptions, we're guiding to 2026 consolidated adjusted EBITDA of approximately $2.49 billion, inclusive of contributions from discontinued operations. Upon closing of the previously announced asset exchange with Quickrete, we'll provide updated adjusted EBITDA guidance for 2026. With that outlook, we'll now turn to the end markets shaping these expectations. Infrastructure demand remains solid, driven by the bipartisan Infrastructure Investment and Jobs Act, or IIJA, and robust DOT budgets in Martin Marietta states, underpinning a multiyear pipeline of projects. As of 11/30/2025, the American Road and Transportation Builders Association, or ARTBA, reports that 71% of IIJA highway and bridge funds have been obligated. However, only 48% has been dispersed. The gap between obligations and disbursements reflects significant remaining reimbursements and an extended construction runway beyond this year, with IIJA reimbursements expected to peak in 2026. As enacted, the IIJA is scheduled to expire in September 2026. However, both congressional chambers have already begun shaping the next surface transportation bill. The House Committee on Transportation and Infrastructure's fiscal year 2026 views and estimates affirm bipartisan reauthorization intent ahead of the deadline, while federal leadership's focus on accelerated project delivery and funding stability reinforces the nation's commitment to sustained infrastructure investment. Equally important, state and local governments continue to strengthen their transportation funding frameworks by adopting new revenue measures designed to address long-term infrastructure needs, undertakings that continue to garner broad bipartisan support. A notable example in our company's home state of North Carolina is in Mecklenburg County, where voters this past November approved a 1% local sales tax referendum. That referendum alone is expected to generate approximately $19.4 billion over the coming decades to fund transformative improvements to roadway infrastructure and public transit across the Charlotte Metropolitan Area. Given broad bipartisan support within Congress, as well as the administration favoring our nation's infrastructure, we remain confident in the timely passage of a new long-term surface transportation bill. Heavy nonresidential demand continues to be driven by accelerating growth in data centers and the corresponding need for power generation. Spending on data center construction remains exceptionally healthy and continues trending upward, with Goldman Sachs Research estimating hyperscalers potentially deploying over $500 billion in capital in 2026, significantly increasing power demand and requiring new generation supported by an all-of-the-above strategy. Whether the solution is natural gas, onshore wind, grid-scale storage, or nuclear, nearly all pathways require the essential aggregates we provide, positioning Martin Marietta at the center of this long-term power generation growth opportunity. In addition, we see meaningful acceleration in Gulf liquefied natural gas, or LNG, development driven by strong export fundamentals and advancing project pipelines. As momentum builds in 2026, Martin Marietta's unmatched rail distribution network positions us to supply these large-scale projects with efficiency and reliability. Turning to residential construction, affordability remains the primary near-term constraint. There's no question regarding the need for more housing, as demand continues to outpace supply, particularly in key Martin Marietta states. Freddie Mac estimates the US requires approximately 4 million additional homes just to restore balance, underscoring a multiyear need for increased new single-family construction. Given our purpose-built business footprint in many of the nation's most dynamic and fastest-growing regions, we're well-positioned to capture a disproportionate share of the housing recovery and light nonresidential construction that will follow. Moreover, the president's recent nomination of Kevin Walsh to succeed Jay Powell as chair of the Federal Reserve is likely to be a positive development for lowering interest rates. I'll now turn the call over to Michael Petro to discuss our full-year financial results, capital allocation, and our 2026 guidance. Michael? Michael Petro: Thank you, Ward, and good morning, everyone. Starting first with the full-year 2025 results. The continuing operations Building Materials business posted revenues of $5.7 billion, a 7% increase, and generated gross profit of $1.8 billion, an increase of 13% year over year. Gross margin expanded 173 basis points to 31%, driven by strong aggregates performance that more than offset softness in our downstream businesses. As Ward noted, our core aggregates business delivered record performance in 2025. Revenues increased 11% to $5 billion, driven by 6.9% pricing growth and volume growth of 3.8%. Gross profit increased 16% to $1.7 billion, and gross margin expanded 143 basis points to 34%, as strong pricing and shipment growth more than offset higher freight, depreciation, and general inflationary impacts, resulting in a price-cost spread of 239 basis points. Other building materials revenues decreased 8% to $992 million, and gross profit decreased 18% to $98 million, primarily driven by the Minnesota asphalt business and the impact of the April 2025 California paving divestiture. Our specialties business delivered all-time records for revenues and gross profit of $441 million and $137 million, respectively. These outstanding results reflect strong organic performance driven by pricing growth, increased shipments across all product lines, effective cost management, and five months of contributions from Premier Magnesia following its July 25 closing. Full-year cash flow from operations increased 22% to a record of $1.8 billion, which we appropriately allocated across our longstanding priorities of targeted M&A, organic investments, and returning cash to shareholders. Consistent with that framework, in 2025, we deployed $812 million on business and land acquisitions, reinvested $680 million into our plants and equipment, and returned $647 million to shareholders, representing a total cash yield of approximately 1.7%. As a result, we ended the year with a consolidated net debt to adjusted EBITDA ratio of 2.3 times and total liquidity of $1.2 billion, providing meaningful capacity to execute our M&A-first growth strategy. Turning now to 2026 guidance. For Aggregates, we expect low double-digit gross profit growth at the midpoint, supported by low single-digit shipment growth, mid-single-digit pricing improvement, and cost per ton generally in line with inflation. Importantly, we are comprehensively reviewing our quarry and terminal networks to better align production with prevailing demand that remains approximately 14% below 2022 levels. While we expect these efforts to provide meaningful rationalization opportunities and operational efficiencies, our guidance reflects only the benefits from the pilot regions that were realized in 2025's fourth quarter and that will flow through the balance of 2026. Turning now to other product lines. We expect high teens gross profit growth in specialties, inclusive of acquisition contributions, while gross profit from other building materials is expected to remain relatively flat. Taken together, these assumptions support our midpoint expectations of high single-digit growth in both revenues and adjusted EBITDA from continuing operations. As Ward noted, upon closing the asset exchange with Quickrete, we will provide updated 2026 guidance reflecting the difference between the $250 million of adjusted EBITDA from discontinued operations and the expected adjusted EBITDA contribution from the acquired assets. As we've indicated previously, planned capital spending of $575 million represents a 29% year-over-year reduction. This investment level is aligned with the business' ongoing needs and significantly increases free cash flow available for M&A and share repurchases. With that, I will turn the call back over to Ward. Ward Nye: Thank you, Michael. 2025 capped another remarkable five-year chapter for Martin Marietta, delivering exceptional safety, operational, and financial results while achieving all the SOAR 2025 goals we outlined during our February 2021 Investor Day. We took decisive steps to streamline the portfolio, enhancing strategic focus on our core aggregates platform, strengthened by differentiated specialties business. Building on this success, we launched SOAR 2030, our Capital Markets Day, charting a clear path for continued growth and shareholder value creation. If the operator now provides the required instructions, we'll turn our attention to addressing your questions. Operator: Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is 1 if you would like to join the queue. And our first question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open. Kathryn Thompson: Good morning, and thank you for taking my question today. For you guys, I had just a broad policy question that's a two-part. The first is obvious on IIJA. It expires in September. And having recently spoken with TxDOT, we understand that they've modeled in multiple different scenarios addressing the new highway bill from funding increases to funding declines. The first part of my question is, can you share your latest intelligence on where Congress is on the new highway bill and what funding levels are most likely? The second part is how critical is federal funding now with states and local municipalities? You have markets like Charlotte County, Mecklenburg County, just passed significant incremental funding over the past several years. Is the highway bill as important as it used to be for state DOTs? And for Martin Marietta? Thanks very much. Ward Nye: Kathryn, good morning. It's nice to hear your voice, and thanks for the question. So I would say several things. One, the highway bill continues to be important. It doesn't have the same overarching importance that it did, let's call it, fifteen or twenty years ago because, as you said, municipalities and states have clearly picked up their game, and I think they intend to continue doing that. That said, recognizing it is important, I would say several things. One, if we're looking at the bill structure today, I would say both the House and the Senate are intent on pursuing a five-year reauthorization of highway public transportation programs. Number two, I think they're both pretty committed to not having some of the broader components that were in the last bill structure. And what I mean by that, Kathryn, is in a $1.2 trillion bill, $350 billion went to highways, bridges, roads, and streets. So I think we can anticipate a larger portion of that is going to highways, bridges, roads, and streets this time. From my understanding, and I've spoken to members of the Senate committee and the House committee, they're targeting spring for a release of the text, and what that means is I think that schedule gives us ample time to complete the action by September 30. So at this point, at least from what I'm hearing, all the discussion is relative to an on-time multiyear reauthorization. You know, I think one thing that's worth noting is even if they didn't get it done exactly on September 30, and we can look at the past practices. And what that makes it clear is that we're either going to get a multiyear highway bill or an interim measure. And even the interim measure would have to continue funding at the record that I think is modestly over $72 billion for right now. So I think that would be hugely attractive. But, again, everything that I'm seeing is it's going to be on time. And at least what I've been told is, and I'm quoting, I won't be disappointed in what I see come out of that. So I'm going to take them at their word on that. Now to your point, though, on what's going on at the local level, I did call out in my comments what had happened, as you noted, in Mecklenburg County, which Charlotte is the county seat. That's North Carolina's largest city. It's the largest city between Washington DC and Atlanta. And, you know, what that meant, Kathryn, is they put $19 billion out there over a couple of decades so they can continue to grow their infrastructure needs in and around Charlotte. Because Charlotte has the high-class problem that Raleigh-Durham has and that Atlanta has and that Dallas-Fort Worth has and Denver has and that Tampa has and that so many Martin Marietta markets do, and that is population inflows are so significant. And states have to pick up their game, which they've done, municipalities have to pick up their game, which they've done. And notably, when those ballot measures are put out there, they pass in the high 80% of the time. So, again, I think that underscores why at the national level, we see this getting done on time because it does have broad bipartisan support. So thank you for the question, Kathryn. I hope that helped. Kathryn Thompson: It does. Thanks very much. I'll hop back in the queue. Operator: And our next question comes from the line of Adam Thalhimer with Thompson Davis Company. Your line is open. Adam Thalhimer: Hey. Hey. Good morning, guys. Ward Nye: Hey, Adam. Adam Thalhimer: Ward, can you provide some clarification on the guidance? What's in and what's out? I'm specifically curious about Minnesota, the acquisition there. And then finally, should we assume a slow start to the year given challenging weather? Ward Nye: Adam, thanks for the question. I'll do my best to clarify things. I hope it's out there, but I know it's a lot to read. So I would say several things. One, if we start with consolidated adjusted EBITDA in the midpoint of really $2.49 billion. That is truly an all-in number relative to, in many respects, how we finished the year last year. So does it have our heritage aggregates and organic aggregates business in it? You bet. Does it have disc ops? In other words, the cement in North Texas and the concrete that goes with it. You bet. So that's how I would capture what's in the consolidated adjusted EBITDA. Now if we go to adjusted EBITDA from continuing operations, this is when it's got a little bit of shimmy to it, and here's what I mean by that. It's got the organic business in that, and really, that's what it has solely and uniquely. So take out cement, take out the ready mix that goes with cement, and, frankly, take out the Minnesota. So I think that comes back and answers your question. Part of what we intend to do when we close Quickrete is come back and reset the table. And the resetting of the table will have the Quickrete assets in it, you will also have the Minnesota business in it, and then we will give you a nice clean picture of what we believe the balance of 2026 will look like. But, again, I hope that answers your question directly, Adam. Adam Thalhimer: Oh, great. And then just maybe on the slow start to the year potential. Ward Nye: Well, you know what? Potentially is a good word because, actually, I'll talk more about Q1 when we report. I'll tell you this, I was not disappointed in what I saw in January. And it would have been easy looking from the outside in and seeing a lot of cold weather and seeing places like Texas having a deep freeze and the Southeast having a deep freeze. Thinking, boy, that's got to be a slow start. Actually, I saw really resilient performance in January, which I was heartened by. And part of what that led me to think, Adam, is I'm reflecting really on last year. And the way that we gave you a guide to last year. As you recall, the words I think I used almost twelve months ago today is think we're giving you a nice measured guide, very thoughtful guide for the year. And you recall how the year played out last year. And I would like to see it play out that way again this year. And so far, I haven't seen anything in the early days that dissuade me of that view. Adam Thalhimer: Thanks, Ward. Ward Nye: Thank you, Adam. Operator: And our next question comes from the line of Trey Grooms with Stephens. Hey. Good morning, Ward and Michael. Trey Grooms: Hey, Trey. Ward Nye: Hey, Trey. Trey Grooms: Just kind of sticking with the guidance here. You know, given what we've seen with contract awards in your markets and maybe what you're seeing from the field and hearing from your contractor customers maybe on, you know, both the public and private side. Could you give us a little more color on how your end market assumptions and the mix there kind of build into your outlook for 1% to 3% volume growth this year? And then within that 1% to 3%, maybe where you see the likely kind of swing factors within the range there? Ward Nye: Will do. Trey, thanks for the question. I think that's a good one. Let me go through the big buckets and give you a snapshot of what I think that's going to look like. So if we start with infrastructure, then if we look at it for last year, it was about 37% of our business. Look, see that up mid-single digits. I think that's going to be a good steady story this year. I think that story can actually be better this year than we're guiding right now. You know, keep in mind, we've said 2026 should see those peak IIJA funds come in. So, again, if that peaks the way that we think, that's gonna be important. But keep in mind, you still got 50% of the funds that have yet to flow. So '26 should be an attractive year. But, frankly, so should '27. So, you know, I think that's really a big piece of it. You know, I think the other piece that we spoke of before, you know, if we're looking at our top 10 states, and I think this is an important thing to keep in mind, you know, we're looking at their overall DOT budgets up about 7% from the prior year. So, again, we're looking broadly across Martin Marietta, you know those top 10 states, tend to matter disproportionately. Again, their budgets look very, very good. I've spoken in one of the earlier questions about what we've seen at the local level relative to referendums. You know, a lot of those got passed last November. Obviously, the one that we spoke of in Mecklenburg County, which basically is Charlotte, is an important one for us because that's a vital market to Martin Marietta. I mean, that kind of takes me through at least the infrastructure piece of it, and I do think there's probably some modest upside there. Nonres, you know, if we back away from it, again, 35% of our business last year, it's interesting to me to look at it because if we're looking at total square footage starts, yeah, they're still 20% below the prior peak. Even with the holy trinity of data centers, energy, and warehousing all moving in the right direction. But the thing that I'm taken by is, you know, what I'm seeing right now in demand for data centers simply remains really strong. I mean, we talked about what's going on with Stargate and Abilene. We talked about Google and their investments in South Carolina. You know, Meta has recently reaffirmed their $65 billion CapEx investments in Louisiana. I mean, these are big numbers. But then what I like are stories like this. I mean, Project Jade, which is a large data center that's really just got underway in Laramie County, Wyoming in December. That's gonna be an enormous project, and we've got the closest proximate quarry of size to that. So I think all that's gonna be impressive for a while. But what we're seeing is what you would have imagined, and I think this may supply more upside as well. And what we're seeing in energy and its needs are pretty significant. So the US power demand is expected to rise 25% by 2030. And, again, these are all compared with 2023 levels. If we're saying from 2023 to 2050, gonna have to go up by 80%. So, again, if you're looking at something that can be a lever in this, that's certainly one of them. As we're thinking about data centers and we're thinking about energy. Texas, which is an important state for us where we're the largest aggregates producer, is clearly a leader in that. But importantly, and, Trey, you'll remember when we were talking about VC Summer. Fifteen and, you know, ten and fifteen years ago as far as the nuclear plant in South Carolina. Now you've got Brookfield Asset Management who's come in there basically in a public-private partnership with Westinghouse. And they're basically looking to build large-scale nuclear reactors to support the growing demand in that state and beyond. The other thing that we're seeing, and, frankly, this is overdue, from my perspective, is we're seeing LNG projects coming back as well. So, you know, you're getting closer to the Gulf, Port Arthur LNG, is starting to move. So, again, do I think there's upside on data centers? Yeah. I do. I think there's upside on energy? I do. But here's the other piece of it that's very different than I would have spoken to you about last year at the same time, and that is what's going on with distribution and warehousing. So, again, we continue to see in a number of our markets Amazon is growing. We've seen good examples of Walmart distribution centers coming in, Ross distribution centers, Delhaize, which is the owner of Food Lion in our part of the world, is building a nice distribution center as well. And we're seeing big pharma making nice moves. Novo Nordisk, J&J, Eli Lilly. So, again, as I'm looking at public, I see nice momentum and potential upside. As I'm looking at heavy nonres, I'm seeing nice momentum and I'm seeing upside. If I'm seeing places that, frankly, will be relatively flat, I mean, that's where residential comes to the top of the pole. Right? Look. You heard me say that I think we're likely to see declining interest rates. I think that's gonna be helpful on res. I think that's gonna be helpful most importantly on single-family res. At the same time, you saw the latest starts. They're really not very heady at all. But the need is acute. And I think one thing to watch is what's gonna happen with adjustable mortgage rates and how popular do those become again even ahead of watching interest rates decline? So do I think there's upside in public? Yeah. Do I think there's upside in data? Yeah. And do I think housing's likely to be relatively flattish with likely upside moving into next year? Yeah. I do. And I think as we think longer term, when you see that last turn really come to rest, I think that really puts some accelerant to pricing as well. So, Trey, I tried to take you through the three big end uses and tried to give you the ups and downs and some of the whys. Trey Grooms: Yep. Well, thank you for all the color, Ward. Super helpful, and I'll pass it on. Best of luck. Ward Nye: Thanks, Trey. Operator: And our next question comes from the line of Anthony Pettinari with Citi. Your line is open. Asher Sonan: Hi. This is Asher Sonan on for Anthony. Thanks for taking my question. Just based on the guide you put out, it looks like the 250 basis points price-cost spread guide is kind of still intact. I just was hoping you could walk us through what you expect for your key cost buckets in 2026, like labor, raw materials, energy, maintenance, or etcetera? But I guess, also, really, what gives you confidence that you can kind of keep down? Is it that you're seeing, you know, lower inflation or maybe there's some other levers you're pulling? Ward Nye: Thanks for the question. I would say several things. One, look, we're seeing inflation running, let's call it 3.5%-ish. I mean, if we think about the things that will be involved in clearly, labor is gonna be a piece of that. We actually feel like supplies and some of those things will continue to move a bit. But at the same time, we don't see a lot of significant tariff activity in our space because so much of what we're buying in our markets tend to be uniquely the United States all by themselves. If we're looking at the quarter itself, I would say several things were moving around in the quarter. One, we just had a degree of higher external freight costs. And what I mean by that is we had increased yard activity, and so if we're just looking at the transfer activity to yard locations themselves, that actually took up costs in ways that in many respects are more optical than real. And the other issue that we had in the quarter all by itself, we did have, as we're going out to California and some parts in the West, and restructuring some of our business, we had some one-time inventory write-offs that will not recur. And so if we're looking at the overall cost environment, I think it's actually in a pretty good place. That said, as Michael commented in his remarks, we want to make sure that we're looking at all of our divisions and all of our through a really clear-eyed fashion to make sure that we're lining up costs with what the market demands are today. So keep in mind, since 2022, you know, volumes have been flattish to certainly not up in any notable way since 2022. He mentioned that we had a pilot project that we had gone through one division late last year. The results of that were really very significant and helpful, and we're looking at that more broadly across the portfolio. So, again, I hope that answered your question. Asher Sonan: Thanks. I'll turn it over. Operator: And our next question comes from the line of Philip Ng with Jefferies. Your line is open. Jesse: Hey, guys. It's Jesse on for Phil. Just on the specialty side, it looks like, obviously, Premier's having a bit of a mix impact. Can you just talk about some of the initiatives you can kind of do to get the profitability back to kind of legacy levels there and kind of a timeline associated with that? Thanks. Ward Nye: Yeah. No. What I would say on Premier or just specialties as a whole, Premier is a margin dilutive acquisition to the specialties organic business. But what you're seeing in the guide for next year, the $160 million of gross profit, that's the organic business that has run so well and so hard over the last three years. Again, we're taking a measured guide there. We're assuming that consolidates a bit. A lot of the contribution and gross profit growth coming into the specialty segment is coming from the seven months of contribution from the Premier acquisition that wasn't in 2025. And just in terms of cadence on specialties, there's really not a whole lot of seasonality in that business. So you can assume each quarter is roughly the same split for that $160 million of gross profit. But I think that margin level that's implied is a consistent margin level now for a full year with the pro forma business, including Premier. Jesse: Great. Thanks. I'll turn it over. Operator: And our next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open. Angel Castillo: Hi, good morning, and thanks for taking my question. Just wanted to ask, I guess, two-part question. First, could you just comment on the kind of, I guess, quote-to-order conversion rates and how that has been evolving? As you think about the fourth quarter and really in the first couple of months here of the year, whether you're seeing any shifts of projects or according to the conversion to order improving in any material way? And then Ward, you gave very good helpful color across all the kind of key end markets and the, you know, pockets where we might be seeing some potential for improvement. So I was just curious, could you size how much data centers is of your backlog or your orders today? And then also maybe comment on manufacturing in particular. I think that's one area where we've been seeing on your slide it's listed as more of a yellow or I guess orange. And then I think in the U.S. Census data, it's one of the buckets that seems to be actually seeing accelerating declines. I'm just curious what you're seeing on your side. Ward Nye: Angel, thanks for the question. I would say several things. One, obviously part of what we're doing right now is using Precise IQ large in the East. You'll see that rolled out across the company and pretty much in place by half year. We think that's important because part of what we've seen is we've used Precise IQ is it does several things. One, it clearly gives our sales team the ability to respond in a very quick, very agile, but very accurate way to our customers. The other thing that we've seen is our win rate utilizing that has amped up pretty nicely. So I think answering your question directly, is the quoting and the yield looking attractive from where we sit right now? Yes. And do I think it's going to be more attractive as Precise IQ rolls out across the enterprise? So I think you can get a double yes on that. As we go to data centers and look at that tonnage, look. That tonnage is right now, frankly, a few million tons a year. I mean, and we're talking about a business that's gonna be at least if we're going on last year's numbers, let's call it close to 200 million. Obviously, notably larger than that, when we come back with Quickrete. That said, it's growing at a very fast rate. I mean, so it's growing at a multi-double-digit rate right now. And we anticipate that that's likely to persist. Equally, if we go to some of the other nonres areas that I spoke to, we continue to see, at least in our markets, manufacturing moving in the right direction. I mean, that's not gonna be an immediate switch that's gonna go. If we're looking at it overall, I think that's the trend that we're seeing. And, Michael, anything you want to add to any of that? Michael Petro: Yeah. I think just to give you some color on Q4, the categories that we call the threes, they all represent about 3% of our overall shipments, our data centers now, distribution centers and warehouses, which is down from a peak of closer to 7% or 8%, and manufacturing, and power gen. Of those categories, data centers were growing at about a 60% clip. Warehouses themselves coming off the inflection point were growing at about 40%. So that just gives you a sense for those two categories that are 3% of our overall shipments to growth rates. And manufacturing, given some of what we're seeing in pharma, that's taking over for some of the decline in large semiconductor and battery facilities, the rate of decline in Q4 was the lowest rate of decline for the year. So we're hopeful that manufacturing starts to inflect here in 2026 similar to what we saw in warehouses in 2025. Hope that helps, Angel. Angel Castillo: Thank you. Operator: And our next question comes from the line of Tyler Brown with Raymond James. Your line is open. Tyler Brown: Hey. Good morning, guys. Ward Nye: Hey, Tyler. Tyler Brown: Hey, Ward. You know, there's been a lot of chatter out in the market about pricing. You talked a little bit about it, but can you just kind of give your thoughts about the state of pricing as you see it? Are you seeing anything geographically dispersion-wise? Just any bigger picture thoughts about hitting that five and a half percent ASP growth through 2030, which I think is what you laid out at the Analyst Day? Thanks. Ward Nye: Tyler, thanks for the question. And I would say several things. One, no surprises from where I'm sitting. I mean, I think everything that we talked about at the Capital Markets Day is pretty consistent with what we put in our documents today. You know, if I look just at the quarter just ended, I mean, all divisions posted mid-single-digit price increases. It was interesting in Q4 because actually we had a few project delays in and around, for example, Charlotte and Greensboro. And those are actually, from a pricing perspective, pretty attractive markets. So we actually saw volume growth in the East in Q4, modestly below the rest of the company. So that actually gives us an optical headwind if you think about what that means. And if you think about the guide, I mean, look at it in these terms. We're basically talking to five-ish on price. We're talking to two-ish on volume. And that's exactly what Q4 looked like. And Q4 was just a record. So as I think about taking that and really casting that forward, I don't see anything in that that gives me degrees of pause. So, again, I think we've got a nice rhythm and cadence on where we're going. And the other piece that strikes me relative to your question on pricing in particular, Tyler, if we go back to the conversation that I had relative to end users. I said, look. Input's looking good and may look a little better. Nonres is looking good and may look a little better, at least on the heavy side. And we said, housing, you know, not so much, at least this year. Once that housing starts coming through, Tyler, and I think you and I know that it will. And I think when it does, it's gonna particularly shine in Martin Marietta markets simply because of the way we built this business. Again, I think pricing, looking at the way that we talked about it last September and today, relative to 2026, looks very steady. And I think if we see private start to move the way that I think private's going to move, I think that's actually very helpful to pricing even going forward. So, again, I hope that responded to your question, Tyler. Tyler Brown: Yep. That's very helpful. Thanks, guys. Appreciate it. Ward Nye: Take care. Operator: And our next question comes from the line of Garik Shmois with Loop Capital. Your line is open. Garik Shmois: Just wanted to piggyback on the last question, but ask it from a gross profit per ton perspective. I think you're guiding to 8% growth at the midpoint of guidance this year, I think, relative to SOAR 2030. I think that was closer to go double digits. So just wondering if the variance there on the volume side. Is it related to housing coming back? And any thoughts on gross profit per ton and the level of conservatism in the guidance this year? Michael Petro: Yeah. Hey. Happy to take that question. I think you're saying the implied gross profit per ton is around the 9% versus double digits. What I would say is ag gross profit dollars are at the midpoint of 11%. And what Ward said is we were taking a measured approach to the guide. In terms of not only probably volume, but the other place where we're feeling a bit measured is on the cost side. So underlying inflation, as Ward mentioned, is running at about 3.5%. Our implied COGS per tonne guide is 3%. But that's only given about 50 bps of operating leverage to the 2% volume. So we would expect to have more operating leverage than that. And to put it in perspective with some sensitivities, each 1% reduction in COGS per ton inflation holding everything else constant in our guide is about another $35 million to ag gross profit. So if there's upside, it's likely on the COGS side as we continue to take some of the lessons learned from our pilot regions network optimization efforts and roll that out across the company. But that is not contemplated in our guide here in February. Garik Shmois: Okay. Perfect. Thank you very much. Ward Nye: Thank you, Garik. Operator: And our next question comes from the line of Ivan Yi with Wolfe Research. Your line is open. Ivan Yi: Thanks. Good morning, guys. Just wanna go back to the price-cost spread you were talking about. Can you just comment on that trajectory going forward? Your price is expected to be close to plus 5% in 2026. If the price-cost spread didn't narrow this year, when can it reaccelerate? Ward Nye: Thank you for the question. Look, as Michael and I both, I think we've taken a very measured view of what that's going to look like this year. I think what we're seeing, what we talked about was seeing it more than that as we went through the SOAR 2030 period. So we didn't necessarily think we're gonna come out of the gate at that level. We think it's gonna continue to build, and we believe given the cost profile that we have and where I think we'll actually drive that, and what I believe is likely to happen to volumes over the coming years as private construction has a degree of recovery. We don't look at that price-cost spread that we discussed in September and have any concerns about that. We feel very confident in our ability to hit that. And I think if we're doing what we're doing in this year, and it builds into next year in the way that we think, I have a high degree of confidence that it will. I mean, I'm not losing any sleep over what that's going to look like. Ivan Yi: Thank you. Ward Nye: You're welcome. Operator: And our next question comes from the line of Keith Hughes with Truist Securities. Your line is open. Keith Hughes: Thank you. I just want to switch back to the IIJA. You had talked about temporary measures. I'm thinking maybe continuing resolutions. We've seen a lot of those. On these highway bills expiring. If we go down that path and we don't get a new plan, what does the continuing resolution do to your business either positive or negative? Ward Nye: You know what, Keith, that's a good question. I don't think it does anything negative to the business at all, because again, if we ended up with a CR, it's going to continue funding at the record level of $72.1 billion. So it would continue basically at a record level. And, again, as we discussed, as important as the highway bill is, so is the state DOT posture. So if we're looking at a very healthy state DOT posture, so set up 7% on average on our states as we head into the New Year, and in a worst-case scenario, again, that I don't believe we're gonna be confronted with, that we end up with a CR, just end up at the same level that we are. So if you go back to the notion that I said, look. I think there's upside in what we're gonna see in public this year. I think you're gonna see another really strong year in public next year simply because you still got 50% of the funds that need to work their way through. So, again, I'm not looking at September 30 with any form of foreboding. That's gonna be something that's gonna be significant pretty bad at all to our business. I think we'll have a new bill. I think the new bill will have more highways, bridges, roads, and streets. I think it'll be on time. If we don't, I think the beat goes on. Keith Hughes: I hear you. One of the big investors think, the ones that have really studied this to get fearful of is not so much the spending falls off dramatically in '27, but you know, the ARTBA projection shows falling infrastructure spending in '27. If you get a CR, would the market not be flat to up in '27 in that scenario? Ward Nye: I think if you got a CR, it would probably be relatively flat to modestly up again because you'd have the same degree of funding. And you're gonna have state DOTs picking up. Again. So I think the biggest piece of our business, as I said, that was not quite 40% of our business this year would continue to be ballast in the boat. Keith Hughes: Okay. Great. Thanks a lot, Ward. Ward Nye: Thank you, Keith. Operator: And our next question comes from the line of Brian Brophy with Stifel. Your line is open. Brian Brophy: Thanks. Good morning, everybody. Appreciate you taking the question. You referenced the network optimization initiative a few times. I guess, any color on the pilot that you referenced and how that unfolded and any feedback on what this could mean for the cost profile or margin profile for the total business as it's fully rolled out through the enterprise? And how can we need to get about the timing of some of the benefits? Thanks. Ward Nye: Let me talk to you broadly about what it was, and Michael can come back and add some color on what it might mean. I think that's probably a good way to do it. So if we think about what it was, what it means is if we've got a network of quarries that are servicing our customers, but in some instances, because volume is not running at particularly peaky levels today, we can look and idle or not run a site as hard and run another site much harder, getting leverage on the volume that's going through there and taking a look at which ones may be the most efficient in any given market. That's what we're talking about doing. And, of course, when we do that, we do it with the customer top of mind. Because we have to make sure we're in a position to take care of their business needs and make sure we're in a position to do that without creating degrees of supply disruption or additional cost in their world from more transportation. So what we found, and we looked at this in the West, in particular, is where we had degrees of market presence that allowed us to do that. And we could temporarily do something with the site and make sure we're using other sites more productively. It helped in multiple different ways. So with that, I'll ask Michael to speak to what it could potentially mean. And, obviously, we're gonna talk to you more about this as the year goes on. Michael Petro: Yeah. No. I think starting with the pilot is important. So like we said, we saw that flow through in Q4. So measures implemented in Q3 of last year. And that meant COGS per ton declining year over year in that pilot market. So we had the benefit of that. That was overcoming the restructuring charges that are in our adjusted EBITDA. Not the full amount, but some of that was hitting ag gross profit in that pilot region where they still had declining COGS per ton, to put it in perspective, pulling that out. So the opportunity set is rather large. We want to complete our assessment across the entire footprint before we come back and quantify it. And we expect to have that quantification done by midyear, and that's when we will revisit the guide and update our COGS per ton assumption accordingly. But I think it's important to note we're guiding to 3% COGS per ton in the implied guide. If you exclude the external freight, which is just pass-through freight to the customer, so not gross profit impacting, and if you exclude those restructuring charges that hit ag gross profit, our underlying COGS per ton fully loaded with depreciation and otherwise, was growing at a 2.7% rate in Q4. So we're guiding modestly above that. But that'll give you a sense of some of the conservatism that we feel we've included in this early guide. Brian Brophy: Really appreciate it. Thank you. Operator: And our next question comes from the line of Timna Tanners with Wells Fargo. Timna Tanners: Yeah. Hey. Good morning. Thanks for getting us in. Wanted to just ask if you could share anything with us about the timing of the Quickrete transfer closing, and any updated thoughts on the pipeline would be great. Thank you. Ward Nye: So thank you, Timna. Nice to hear your voice. I would say several things. One, we had put out a release at the end of the year saying we anticipated closing in Q1. We still do. The long pole in the tent is real estate. And it was interesting, Timna, because we went through the regulatory piece of it probably quicker than we or anybody else would have anticipated. So right now and, of course, the agreement itself is publicly filed, so you have an opportunity to read that. And what you'll see in the agreement is there are a series of closing conditions and many of them evolve around the real estate. Because if you think about what a big 1031 exchange is, to get the tax-deferred treatment, you know, you're having to line up assets. And, of course, on the Quickrete side and on our side, there are certain sites that would simply be more material than others. So we're going through the process of land use and surveying and getting title insurance. And that simply takes some time. But, again, our anticipation continues to be that we will get that closed here in the first quarter. I think the other part of your question was relative was Timna, was it relative to pricing? Timna Tanners: No. It's about anything updated on your pipeline or how you're seeing the opportunities and acquisitions. Ward Nye: Oh, just on that outlook. Look. The short answer is that's gonna continue to be a nice attractive driver for Martin Marietta. We have been and continue to be engaged in a number of significant conversations. As I think I indicated at our Investor Day or Capital Markets Day, you know, people should expect us to be in the world of doing about a billion dollars worth of transactions a year, and that's never going to be linear, Timna. So look. Is it gonna be a billion one year? Yeah. Could it be four the next? The answer is it could be. Depending opportunistically on what comes along, but the pipeline continues to be very attractive, and it's obviously something that I think we're good at. And we've added a lot of value with, and we'll continue to pursue. Timna Tanners: Thank you. Ward Nye: Thank you. Operator: And our next question comes from the line of Michael Dudas with Vertical. Your line is open. Michael Dudas: Morning, gentlemen. Jacklyn. Ward Nye: Hey, Mike. Michael Dudas: Yeah. Hey, Ward. You give great insight. Outlook for the business and the industry, but is it a macro? Is it regulatory? Is there sentiment concerns? Because there are some people who are thinking macro is not as you know, right as others. What's the thing, what one or things that you are concerned about that would maybe impact how the year flows out? Anything top of mind or anything specific? Ward Nye: Mike, thanks for the question. Look. I'll tell you what, if you could put me on mute, that would help. I'm hearing an echo. Look. I think of the year through several different lenses. When I think of it through end uses, which we've spoken through, and, again, I think we've taken a really measured view on the end users. I look at it through the lens of commercial. And, again, I think commercially where this business is performing, is right in line with what we had indicated at the Capital Markets Day. I look at it through the lens of cost and through the lens of inflation, and as Michael just took you through, when we really go through and look at it from a granular basis how that performed, and look at Q4, and what we think can happen actually with that. As we go through degrees of really looking at where we're operating, why. I don't see anything on the cost side that causes me concern. Regulatorily, I think actually the nation and the industry is in one of the better places that I've seen in my career, so I don't see something there that causes me any concern. Look. I know there's a lot out there that people look at from a macro perspective that they can become cautious about. The thing that I'm taken by is this is a business even in the worst of times, and we're not in the worst of times. I don't anticipate them. We've always been profitable. We've never cut or suspended the dividend. And, you know, we're in a place that we're producing and selling this past year about 200 million tons of stone. And that's about where we were in 2005 and 2006, except we've added, let's call it, 50, 55 million tons of business. So what we have ahead of us from a capacity perspective is impressive, and what we're doing with free cash flow right now is impressive. And I think if we're doing that in a relatively muted volume environment, what that tells me is if we're right on what's coming ahead of us, it can be really impressive. So I'm not seeing a lot right now that's causing me any degree of angst. Operator: And our next question comes from the line of David MacGregor with Longbow Research. Your line is open. David MacGregor: Yeah. Good morning, everyone, and thanks for squeezing me in. Ward, I just wanted to ask you about your value over volume strategy. And just, I guess, the extent to which that may be put to a test this year. There's been a lot of weakness downstream ready-mixed business. It's, you know, it's a pretty difficult business these days. And I'm just wondering about the risk of price pressure from below just due to weak profitability in that segment of your market and consolidation amongst those players. Just how that could potentially manifest into your business. Ward Nye: Yes, thanks for the question, David. Look, the way it's working right now, if you think about it, asphalt and most of those businesses are getting January 1 price increases, degrees of concrete businesses are getting January 1 price increases, and some of them are getting April 1 increases. So if you think about what that means, it's pretty similar to last year. And, of course, the conversations have already been had. People know where we are going into the New Year. We have not baked mid-years into what we've done. If I'm right on what could happen relative to public and degrees of heavy nonres, you know, there may be some opportunities for mid-years. You know, keep in mind too, David, you know, after we've closed, well, after we've closed Quickrete and then give you the forecast on Minnesota, you know, both those businesses tend to have lower ASPs than Martin Marietta. So that's gonna give you an optical headwind when we put those into our forecast going forward. But, again, you know, my view, we go back to the Capital Markets Day, is we're not gonna stay chronically at double digits. We're not going to go back, in my view, to where we were, you know, a decade ago from a percentage perspective. We're gonna land somewhere in the middle. And the swing factor on that is gonna be what happens with volume. So I think what we're guiding to is very consistent with that. And, again, I think there's probably upside risk to it relative to what could happen with mid-years. And what can happen as volume returns to it. So, I hope that answers your question. We're pretty resilient around assuring that we're getting appropriate value for our products. It's hard to buy these businesses. It's hard to permit these businesses. It's hard to put a spec product on the ground. We want to make sure we're getting appropriate value when we do. David MacGregor: Got it. Thanks very much. Ward Nye: Thank you, David. Operator: And our next question comes from the line of Brent Thielman with D.A. Davidson. Your line is open. Brent Thielman: Yep. Thanks. Ward, it seems to me housing could be one of the more dynamic markets for you in the next year or two. So do you sort of think back on the business over time, how should we think about sort of this lag from permits and starts to having some noticeable sort of impact to your business? Ward Nye: You know, I've always looked at that historically as having probably a three or four-month lag. I'm not sure it's gonna be that long this time, Brent. So, again, part of what you're not seeing is what the square footage looks like in those numbers. And, again, as we continue to see big square footage in nonres, rollout at pretty big numbers, I think that's gonna be a big consumer of stone. And, again, I think the public side of this is gonna be healthy, and it's gonna be healthy for a while yet. So I'm not seeing, I wouldn't let those numbers and any purported delays drive my model in either particular direction, Brent. Brent Thielman: Okay. Thank you. Operator: And our final question comes from the line of Judah Aronovitz with UBS. Your line is open. Judah Aronovitz: Hi. Good morning. Thanks for taking my question. Could you just talk about your confidence level in the 5% pricing for '26? You know, is that based on pricing already in place, or is there maybe some more work to do to achieve that, you know, maybe based on bid work? And then if you could comment on if there's any mixed headwind from base or any other, puts and takes? Thank you. Ward Nye: Thanks for the question. That's largely for what's in place. I mean, we've had the conversations with our customers that started last year. I think we've got a pretty good feel for what that is. As I indicated before, this is more of an optical issue than a real issue, but, obviously, if we do M&A, and they come in at a lower average selling price than our heritage selling price, you know, that can cause an optical issue. You know, the other thing that you just never have a sense for, and it's almost a quarter-by-quarter issue, and you saw it in Q4. You know, I indicated that the East Region in Q4 actually because of what had happened, with a couple of project delays in weather, actually saw less tonnage go in Q4 than our other divisions. And that obviously gave us a mix headwind from a geographic mix perspective. It's certainly possible that we could continue having degrees of a mix headwind as well. Because if you're thinking about some of these big data centers, and the fact that they're gonna need oftentimes an enormous amount of base stone as they're going in and building facilities, base is gonna go out typically, let's call it a 30% ASP lower than clean stone. The thing is when you put down base stone, at some point, you're gonna put clean stone on top of it. So it's nothing that's dislocating in any respect. I think it's gonna be incumbent on us to make sure we're talking with you very carefully each quarter about what geographic mix looks like and what product mix looks like. Because if you don't understand those two stories, and they are two different ones, it does not give you an accurate view of how well the business is performing in all instances. So yes, we believe the pricing is there. We think there can always be some mix issues. We think that's more optical than real. Operator: And that concludes our question and answer session. I will now turn the conference back to Mr. Ward Nye for closing remarks. Ward Nye: Abby, thank you for that, and thank you all for attending today's earnings conference call. Over the past five years, deliberate portfolio shaping strengthened our presence in key markets, optimized our product mix, and enhanced our earnings profile. As we transition from the achievements of SOAR 2025 to the disciplined execution of SOAR 2030, which is already underway, we see a well-defined platform for advancing our growth ambitions and delivering enduring shareholder value. Our aggregates-led foundation, complemented by our high-performing specialties business, provides a durable platform uniquely suited to achieve the objectives of our next strategic plan. With this resilient foundation and a culture built on safety and commercial and operational excellence, we enter the next chapter of SOAR with confidence and clarity of purpose focused on compounding returns and delivering superior sustainable results for our shareholders in 2026 and beyond. We look forward to sharing our first quarter 2026 results in the coming months. As always, we're available for any follow-up questions. Thank you for your time, and continued support of Martin Marietta. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Carrie Gillard: We will now open for questions. Colin Sebastian: Thank you for taking the question. I wanted to ask about the pace of AI integration going forward. How do you see Shopify balancing between innovation and ensuring that existing infrastructures are not disrupted as you introduce more AI capabilities? Harley Finkelstein: Thanks for the question, Colin. As we integrate AI into more of our processes, our primary focus is on ensuring a seamless transition that supports our merchants without disrupting existing operations. We are leveraging our decades of experience to ensure that AI is carefully implemented, allowing us to enhance functionality while maintaining the reliable services that our merchants expect. Our efforts are centered around ensuring that our merchants consistently benefit from both the stability of our platform and the dynamism of AI-driven enhancements. Craig Maurer: Hi, thanks for taking my question. As you continue expanding in international markets, how does Shopify plan to tackle the challenges specific to different regions, especially concerning regulations and payment systems? Jeff Hoffmeister: Great question, Craig. Our approach to international expansion is built on understanding and adapting to regional specificities systematically. We're committed to working closely with regulatory bodies, ensuring compliance with local laws, and continuously expanding our payment systems to accommodate various preferences and regulations. Additionally, with Shopify Payments now available in 60 countries, our expansion strategy focuses on supporting the specific needs of merchants in each region while maintaining global standards. As we advance, we’ll continue prioritizing localized solutions to support our diverse merchant base effectively.
Operator: Thank you for standing by, and welcome to the GlobalFoundries Inc.'s Fourth Quarter of Fiscal Year 2025 Financial Results. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Chow, Investor Relations. Eric Chow: Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries fourth quarter and full year 2025 earnings call. On the call with me today are Tim Breen, CEO; and Neils Anderskouv, President and Chief Operating Officer; and Sam Franklin, CFO. A short while ago, we released GF's fourth quarter and full year 2025 financial results, which are available on our website at investors.gf.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations web page. During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings, including in sections under the caption Risk Factors in our annual report on Form 20-F and in any current reports on Form 6-K furnished with the SEC. In terms of upcoming events, we will be participating in fireside chats at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco on March 4; and the Cantor Global Technology and Industrial Growth Conference in New York City on March 11. In addition, we are looking forward to hosting a publicly webcast investor webinar at 4:30 p.m. Eastern Time on March 10. At this event, we will provide a business, technical and strategy update on how GF is at the forefront of the silicon photonics and advanced packaging revolution. We will begin today's call with Tim providing a summary update on the current business environment, technologies and end markets, followed by Sam, who will provide details on our fourth quarter and full year results and also provide first quarter 2026 guidance. We will then open the call for questions with Tim, Neils and Sam. We request that you please limit your questions to one with one follow-up. I'll now turn the call over to Tim. Timothy Breen: Thank you, Eric, and welcome, everyone, to our fourth quarter and full year 2025 earnings call. I am pleased to announce that GF delivered strong results in the fourth quarter with revenue, gross margin and EPS at or above the high end of the guidance ranges. For the fifth consecutive quarter, the communications infrastructure and data center end market demonstrated double-digit percentage year-over-year growth, driven by strong momentum in areas such as SATCOM and optical networking. As a result of the team's consistent execution, disciplined cost management and relentless focus on profitability, we grew gross margin by nearly 400 basis points year-over-year in the fourth quarter. These achievements show that with our unique differentiated portfolio aligned to key long-term secular trends, GF is well positioned to seize emerging opportunities and deliver durable profitable growth. We made significant progress towards our strategic objectives in 2025, focusing on the three core pillars of our customer value proposition, namely, technology differentiation, deep customer and ecosystem partnerships and leveraging our uniquely diversified geographical footprint. Let me summarize some of our key business milestones and highlights in the year. In 2025, GF made extraordinary strides strengthening our technology differentiation across multiple vectors. In the exciting growth area of silicon photonics, we acquired AMF and InfiniLink, which together brings valuable state-of-the-art IP and synergetic customer bases. We expect both of these acquisitions to accelerate our technology roadmap, broaden our portfolio of optical networking solutions and drive greater customer value. As evidenced by our recently announced collaboration with Corning for detachable fiber attach, we are building a unique and differentiated ecosystem of partners for silicon photonics. In the burgeoning realm of physical AI, our acquisition of MIPS enables GF to become a diversified and holistic technology solutions provider with an expansive portfolio of offerings and a larger-than-ever serviceable addressable market. Lastly, we accelerated our gallium nitride technology road map with a licensing agreement signed with TSMC. The addition of this proven GaN technology will accelerate the development of our next-generation GaN platform and enable us to deliver even more differentiated power solutions for high-growth areas, such as the data center from our U.S. footprints. The second key strategic pillar where GF made significant strides was to deepen customer partnerships and accelerate design win momentum. In 2025, we secured over 500 design wins, a company record and a leading indicator of future production revenue. These wins were across the broadest set of applications and widest range of customers in our history. With over 95% of these design wins secured on a sole-source basis to GF, it is a testament to the significant value offered by our differentiated technology and global footprint. 2025 saw us broaden our customer base and engage with nearly all of the leading industry players across the major end markets. As highlighted in our physical AI investor webinar in December, this includes active engagements with all 4 U.S. hyperscalers, all 5 top automotive OEMs, all 6 mobile fabless and OEM and 7 of the top 8 industrial IDMs. Of our many significant customer announcements in 2025, I would like to highlight three specific areas. We meaningfully expanded our long-standing partnership with Apple to build and deliver wireless connectivity and power management chips in our U.S.-based fabs. We deepened our collaboration with Cirrus Logic to advance the development and commercialization of next-generation BCD and GaN power technologies in the U.S. And most recently, our collaborations with Navitas and onsemi are set to accelerate the development and scaling of 650-volt and 100-volt GaN technology for AI data centers and other critical power applications. And finally, in 2025, we advanced our third key strategic pillar, leveraging our diversified geographical footprint. In June 2025, we increased our commitment to invest $16 billion in the U.S., with plans to expand manufacturing and advanced packaging capabilities in our New York and Vermont facilities. Furthermore, we announced plans to invest EUR 1.1 billion to expand our Dresden facility, increasing the fabs wafer production capacity to over 1 million wafers per year by the end of 2028 and making it the largest of its kind in Europe. We also made significant progress in making our technologies available on all continents, creating valuable optionality for all of our customers. In summary, we are very pleased with the progress made towards our strategic objectives in 2025, which sets the foundation for us to capture opportunities in 2026 and beyond. For GF, we expect these opportunities to be driven by the three most significant megatrends defining our industry today. The rapid scaling of AI data centers, the proliferation of AI into the physical world and the critical need for resilient diversified global semiconductor supply. The rapid expansion of compute for AI data centers is reshaping demands on infrastructure and creating two critical bottlenecks, networking and power. Addressing these bottlenecks will be paramount for the continued scaling of AI, and these requirements are driving rapid shifts in semiconductor demand. With years of focused R&D and capacity investments as well as close collaboration with leading customers, GF is at the center of this transformation and is well positioned to capitalize on both key opportunities. In data center power, we have already seen encouraging momentum in the fourth quarter, with two first-of-their-kind design wins secured on our GaN and BCD platforms. We expect to start volume production this year, and we believe the data center power opportunity is still in its very early stages. As we continue to leverage our winning technology to develop, ramp and scale in data center power, we look forward to securing additional customer partnerships in this exciting growth area for GF. Meanwhile, optical networking has clearly emerged as a strong acceleration opportunity for our business at GF. We delivered on our objective to roughly double our silicon photonics revenue within our communication infrastructure and data center end market to over $200 million in 2025. Even on this higher base, we expect to nearly double the contribution from silicon photonics again in 2026, driven by strong customer demand for our differentiated technology, a robust ramp in supply capacity and the integration of our recent acquisition of Advanced Micro Foundry. Closed in November last year, the addition of AMF will accelerate our silicon photonics road map, broaden our customer base and drive opportunities for scale and geographic synergies in Singapore. This highly complementary acquisition is expected to deliver consistent accretive growth to our corporate gross margin targets in 2026. As we continue to ramp opportunities for silicon photonics across pluggable applications, and we begin to scale opportunities in the field of co-packaged optics, we now believe that we are on a path to reach a $1 billion run rate revenue level for silicon photonics by the end of 2028, a substantial acceleration from our prior objective. Moving on to the second major megatrend, physical AI. The emerging technical requirements of physical AI mapped directly to GF's core strengths, building highly integrated, low-power, secure and cost-efficient connected ICs. The addition of MIPS last August is enabling an acceleration of our physical AI capabilities combining our world-class manufacturing capabilities and customer relationships with a full suite of risk 5 processor IP, subsystems and software. Along with the recently signed acquisition of Synopsys Processor IP solutions business, and its team of highly skilled engineers, we expect yet another paradigm shift forward. Integrating Synopsys ARC technology portfolio of high-performance, ultra-low power compute and AI cores positions us to deliver processing solutions across a broad spectrum of physical AI applications from software-defined vehicles to medical devices, defense applications, industrial robotics and beyond. The processor IP portfolio is a highly complementary addition to our MIPS Risk 5 IP portfolio. Together, we expect to be at the forefront of supporting our customers in powering next-generation edge processing workloads, multimodal sensors, real-time control and actuation, all enabling distributed intelligence and action within physical AI devices. The Synopsys ARC acquisition is expected to significantly accelerate our physical AI road map, given ARC's proven leadership in AI-focused IP and software, along with the infusion of its world-class engineering talent. By adding the ARC portfolio to MIPS, we expect GF to become a full spectrum risk 5 processor IP provider, serving a global base of over 300 active customers, now equipped with an expanded range of solutions, including [indiscernible] ultra-low power neuroprocessor course, and it's widely used ASIP designer and MetaWare software tool chain as part of our offering. The final megatrend defining our industry is the critical importance of geographically diversified semiconductor supply in a fragmented deglobalizing world. Geopolitical tensions, tariffs and export controls are actively driving firms to reshore or onshore their semiconductor supply. Companies now routinely mandate non-China, non-Taiwan sourcing, while others have publicly announced the U.S. as central to their long-term supply chain strategy. GS is ready to meet these requirements in a way no other company can. GF flexible and scaled footprint spans the U.S., Europe and Asia, making us uniquely suited to satisfy customer requirements and capture meaningful share from this secular shift. Strong customer engagements are turning into meaningful new design wins, tapeouts and preparations for high-volume ramps. Over the course of 2025, new design wins that were specifically driven by a manufacturing footprint were worth well over $3 billion of combined expected lifetime revenue. As more and more customers choose us for our three continent footprint, we expect to build on this momentum in 2026 and beyond. Accelerated revenue growth and profitability tailwinds to GF are only starting to take shape, but we are setting the foundation with customer partnerships today. We expected fully leverage our unique geographic advantage placing us at the forefront of semiconductor onshoring in the years to come. Let me now discuss our recent design wins, customer engagements and business highlights across each of our end markets. In automotive, we made significant progress in 2025 in growing our content in the car beyond our traditional leadership in automotive MCUs. For example, automotive smart sensors and networking revenue more than tripled in 2025 compared to 2024, driven by robust ramps in radar, cameras and other sensors critical for next-generation ADAS. In 2025, we secured over 50% more design wins in automotive compared to the year prior, which builds on years of increasing design win momentum. Automotive design wins typically take several years to fully ramp, yet we have outperformed the automotive semis market every year in our existence as a public company. In smart mobile devices, we continue our focus on the most differentiated applications for high-end handsets. We secured several new design wins in the fourth quarter across camera controllers, RF front end and power management, including a few notable highlights. We secured a design win on our 22 UX platform targeting next-gen imaging in mobile phones and action cameras with an estimated lifetime revenue of over $500 million. With best-in-class analog performance, low noise optimization and compelling cost competitiveness, we expect further UX wins in areas such as IoT, automotive and industrial. We won a camera controller program for premium tier Android with Cambridge Mechatronics on our FinFET platform an opportunity for meaningful share gain in a relatively new area for GF. Thanks to its superior RF noise performance, our newly launched CBIC platform was selected by Broadcom for a low-noise amplifier, the second major customer to adopt this technology. In home and industrial IoT, we deepened our long-term collaboration with a leading MCU supplier with a fourth quarter design win for its next-gen AI-enabled MCUs used in a variety of physical AI applications. We are also seeing notable opportunities for connectivity solutions on our FinFET platform, including SoCs for next-generation WiFi 8 and other IoT applications, such as point-of-sale retail. In aerospace and defense, we secured new design wins across secure connectivity and RF applications that will begin ramping in our Multi New York fab. As physical AI proliferates in the coming years and manifests across many different new applications and form factors, we expect our home and industrial IoT business to be a key beneficiary. In 2026, we expect a stronger second half for this end market compared to the first half, driven by the ramp of new products in areas such as AI-enabled MCUs, WiFi connectivity and power management. In communications, infrastructure and data center, we secured an important co-packaged optics design win for scale-up networks on our CLO silicon photonics platform. These photonic IC design wins at both endpoints at the scale-up network marked an important step in the industry's rollout of CPO. As AI clusters grow, the capabilities of our silicon photonics portfolio position GF at the center of the shift towards high bandwidth, lower latency interconnects that underpins scale-up AI networking. Beyond silicon photonics, our leading portfolio of high-performance SiGe using applications such as TIAs and driver ICs serve critical needs across optical networking. GF is not just participating in these critical optical networking opportunities. Our products and innovation are actively driving informed. In satellite communications, we continue to expand our leadership by winning additional content on the satellite, enabling direct to cellular phone services. GF technology enables ubiquitous global connectivity by eliminating traditional mobile dead zones through satellite to mobile technology. Our most recent design win in the fourth quarter further broadens our content across the full SATCOM ecosystem, from terminals on the ground to satellites in orbit. For all of these reasons, we are enthusiastic about further growth and acceleration in our communications infrastructure and data center end market, where we expect to outperform peers and achieve over 30% year-on-year revenue growth in 2026. In conclusion, GF is at an exciting inflection point. Our acquisitions are expanding GF's capabilities as a holistic technology solutions provider and our differentiated technology and footprint are proving an excellent fit in the confluence of major AI and onshoring megatrends. In addition, I'm encouraged by our record design win momentum, breadth of customer engagements and clear path towards a richer mix of business. I have never been more optimistic about our long-term potential than I am now. I'll now pass the call over to Sam for a deeper dive on fourth quarter and full year 2025 financials. Sam Franklin: Thank you, Tim. For the remainder of the call, including guidance, other than revenue, cash flow and net interest income, I will reference non-IFRS metrics. As Tim noted, our fourth quarter results were at or above the high end of the guidance ranges we provided in our last quarterly update. We delivered fourth quarter revenue of $1.83 billion, up 8% sequentially and flat year-over-year. We shipped approximately 619,300-millimeter equivalent wafers in the quarter, up 3% sequentially and 4% from the prior year period. Wafer revenue from our end markets accounted for approximately 88% of total revenue, non-wafer revenue, which includes revenue from reticles, nonrecurring engineering expedite fees and other items accounted for approximately 12% of total revenue in the fourth quarter. For the full year, we delivered revenue of approximately $6.791 billion, up 1% year-over-year. We shipped approximately 2.3 million 300-millimeter equivalent wafers, a 10% increase from 2024, which equated to utilization levels of approximately 85% for 2025. Let me now provide an update on our revenue by end markets. Smart mobile devices represented approximately 36% of fourth quarter total revenue and 39% of full year revenue. Fourth quarter revenue declined approximately 13% sequentially and 11% from the prior year period. Full year 2025 revenue decreased 12% year-over-year, principally driven by GF initiated onetime pricing adjustments made in 2025 with a small number of mobile customers where GF was dual sourced. We expect to gain greater share of wallet with these customers in 2026, and we also believe that pricing has stabilized in this end market. In 2026, we expect our smart mobile devices business to largely track the overall smartphone market. Moreover, as we continue our multiyear journey to diversify our products and end market portfolios, 2025 was the first full year where more than 60% of GF's total revenue came from markets other than smart mobile devices. While revenue from smart mobile devices remains a key component of our end market mix, we do expect this trend to continue as growth from IoT, automotive, and communications infrastructure and data center benefit from faster growing SAM opportunities, where GF is demonstrating strong design win momentum. Automotive represented approximately 23% of fourth quarter total revenue and 21% of full year 2025 revenue, which is up from just 2% 5 years ago and is a testament to the design wins, content growth and customer partnerships that GF has developed over the last decade. Fourth quarter revenue increased approximately 40% sequentially and 3% year-over-year, partly driven by the timing of customer shipments as indicated on our prior earnings call. Full year Automotive revenue grew approximately 17% year-over-year to a record $1.4 billion. And with continued share gains and content expansion, we expect to sustain this momentum in 2026. Home and Industrial IoT represented approximately 17% of the quarter's total revenue and 18% of full year revenue. Fourth quarter revenue increase in this end market approximately 17% sequentially and decreased 15% year-over-year. Full year home and industrial IoT revenue declined 6% year-over-year, driven by the end of life of certain aerospace and defense products. With new Aerospace and Defense and other IoT applications, forecast to ramp into production in the second half of 2026, we expect a return to full year revenue growth for our IoT end market this year, albeit with a skew towards the second half. Finally, communications infrastructure and data center represented approximately 12% of the quarter's total revenue and 11% of full year revenue, marking a notable return to revenue growth for this end market. Fourth quarter revenue, which includes revenue from silicon photonics, increased approximately 29% sequentially and 32% year-over-year. For the full year 2025, communications infrastructure and data center revenue grew 29% year-over-year, well above our prior expectation for low 20s percentage year-over-year growth, driven by strong momentum in optical networking, silicon photonics and satellite communications. We delivered on both of the key growth objectives we set out earlier in the year. Specifically, we grew satellite communications to over $100 million in revenue, and we approximately doubled our silicon photonics revenue in 2025. As evidenced by our results, we continue to focus our strategy on shifting the mix of our business towards margin accretive, high-value secular growth markets, where our differentiated product portfolio is very well suited to support the required content expansion and evolution. In 2025, revenue from our automotive and communications infrastructure and data center end markets, together comprised a record 1/3 of our total revenue, up from approximately 27% the year prior and signals a consistent step forward towards our ongoing mix shift. As we focus on growing differentiated technology solutions for our customers in areas that are accretive towards our corporate gross margin targets, we expect this mix shift between and within end markets to provide a robust platform to continue growing GF's profitability. In the fourth quarter, we delivered gross profit of $530 million, which translates into approximately 29% gross margin, up 300 basis points sequentially and 360 basis points year-over-year. For the full year, we delivered gross profit of $1.773 billion and gross margin of 26.1%, equating to an 80 basis point increase year-over-year. R&D for the quarter was $115 million, and SG&A was $80 million. Total operating expenses of $195 million were up 9% quarter-over-quarter and represented approximately 11% of total revenue. We delivered operating profit of $335 million for the quarter, as an operating margin of 18.3%, above the high end of our guided range and up 270 basis points from the year prior period. For the full year, GF delivered operating profit of $1.066 billion at a 15.7% operating margin, an increase of 210 basis points year-over-year. Fourth quarter net interest income, net of other expenses, was $16 million, and we incurred tax expense of $41 million in the quarter. We delivered fourth quarter net income of approximately $310 million, an increase of approximately $54 million from the prior year period. As a result, we reported diluted earnings of $0.55 per share for the fourth quarter on a fully diluted share count of approximately 560 million shares. On a full year basis, GF delivered net income of approximately $965 million and diluted earnings per share of $1.72, up 10% year-over-year. Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations for the fourth quarter was $374 million. For the full year, cash flow from operations was $1.731 billion. Fourth quarter CapEx, net of proceeds from government grants was $110 million or roughly 6% of revenue. Full year net CapEx for 2025 was approximately $574 million or 8% of revenue. Adjusted free cash flow for the quarter was $264 million, which represented an adjusted free cash flow margin of approximately 14% in the quarter. Adjusted free cash flow for the full year 2025 was $1.2 billion at a free cash flow margin of approximately 17%, building on our objectives set out at the start of the year and demonstrating a new record for GF. This is thanks to the multiyear investments we have made in our diversified capacity footprint as well as our continuous drive to improve our productivity and cost structure. At the end of the fourth quarter, our combined total of cash, cash equivalents and marketable securities stood at approximately $4 billion. Our total debt was $1.2 billion, and we also have a $1 billion revolving credit facility, which remains undrawn. In light of our consistent free cash flow generation and balance sheet metrics, I would like to share an update regarding our capital allocation strategy. Our top priority continues to center on disciplined reinvestment into GF and focusing on high ROI opportunities. As demonstrated by our recent acquisitions and the continued remixing of our business, our strong balance sheet has been a key enabler of our strategy to pursue value-accretive investments. Taking these factors into account, we believe our robust cash position enables us to further enhance shareholder returns through the implementation of a share repurchase authorization. Today, I am pleased to announce that our Board of Directors has authorized a share repurchase of up to $500 million, supported by our solid balance sheet, margin expansion and the implementation of our long-term strategic pillars that Tim outlined, we believe share repurchases represent a compelling and accretive use of capital as well as helping offset the impact of share-based compensation. We intend to begin repurchasing shares this quarter and look forward to keeping you updated as we execute on this important step in our capital allocation road map. Now let me provide you with our outlook for the first quarter of 2026. We expect total GF revenue to be $1.625 billion, plus or minus $25 million. Given our consistent customer momentum and recent IP-related acquisitions, we expect non-wafer revenue to be in the 10% to 12% range of total revenue, up from 8% to 12% in prior years. We expect gross margin to be approximately 27%, plus or minus 100 basis points, which reflects a continuation of year-over-year gross margin expansion. Excluding share-based compensation, we expect total operating expenses to be $225 million plus or minus $10 million. We expect to maintain a similar quarterly operating expense run rate for the first half of 2026. We expect operating margin to be in the range of 13.2%, plus or minus 180 basis points. At the midpoint of our guidance, we expect share-based compensation to be approximately $63 million of which roughly $16 million is related to cost of goods sold. We expect net interest and other income for the quarter to be between $2 million and $10 million and income tax expense to be between $17 million and $35 million. Based on the tax environments across the jurisdictions we operate in, we expect an effective tax rate in the high teens percentage range for the full year 2026. Based on a fully diluted share count of approximately 560 million shares, we expect diluted earnings per share for the first quarter to be $0.35, plus or minus $0.05. For the full year 2026, we expect non-IFRS net CapEx to be in the range of 15% to 20% of full year revenue. The projected year-over-year increase in net CapEx in 2026 is primarily driven by strong customer demand in capacity corridors, where we are oversubscribed such as in silicon photonics, FDX, SiGe as well as in establishing new capabilities in areas such as advanced packaging. Not only are these important drivers of revenue growth, they are critical long-term accelerators of GF's gross margin expansion. Given the timing of these investments, we expect net CapEx may vary quarter-to-quarter subject to the timing of expenditure and receipt of government grants. We will continue to thoughtfully manage our capital spending plans to align with the broader demand environment. Although, we expect 2026 to represent a year's strategic investment in our capacity, we remain focused on our disciplined expansion principles and free cash flow generation. For 2026, we expect a free cash flow margin of approximately 10% of full year revenue as we receive customer prepayments and continue to invest in accretive and expanding product corridors. To wrap up, I would like to thank the dedication of our employees around the world for their unwavering commitment to our customers and strategic objectives over the course of the last year, and I look forward to building on this in 2026. Let me now pass the call back to Tim for some closing remarks. Timothy Breen: As you saw in our 6-K filing this morning, today is Niels' last earnings call at GF, and I want to express my sincere gratitude for his service and contributions. Over the past three years, Niels brought clarity, strategic discipline and a deep customer focus that strengthened our operations and helped advance our product and technology road map. I wish him the very best in his next endeavors. Here is Niels for some final remarks. Niels Anderskouv: Thank you, Tim. As I step down from my role as President and COO, I want to express my deep gratitude to the entire GlobalFoundries team. The past three years have been some of the most rewarding of my career. And together, we sharpened our strategic focus, strengthen our business discipline and advance the three foundational strategic pillars that now define GFC [indiscernible] position in the market. I'm incredibly proud of how we aligned our manufacturing, commercial and product organizations to move with greater speed, customer focus and purpose, a shift that is now reflected by the strong technical advancements across our road map, expanding design win momentum and our stronger operating rhythm. What stand out most though is the relentless dedication of our people their commitment, their drive to win and their belief in what GF can achieve have shaped the company's trajectory and laid a powerful foundation for the years ahead. GF is in a stronger position today than at any point in its history, and I have full confidence that Tim and the team will continue to accelerate the company's strategy and deliver exceptional results. It has been an honor to be part of this mission to you. And with that, let's open the call to Q&A. Operator? Operator: And our first question for today comes from the line of Mehdi Hosseini from Sesquhana Financial Group. Mehdi Hosseini: And the first one, I want to focus on silicon photonics, especially in the context of the recent SAP acquisition in Singapore and InfiniLink from November of last year. Can you remind us what the strategy here is and how GlobalFoundries is intended to differentiate? And I have a follow-up. Timothy Breen: Thanks, Mehdi. It's a great question. Obviously, you've seen over the last year a very strong acceleration and a lot of public announcements about the need for silicon photonics as a critical enabler of the scale-up of AI in the data center build-out that we're seeing. That's something we've been working on for more than a decade as GF organically building an incredible organic platform. And obviously, in 2025, we added to that with inorganic plays, including the acquisition of AMF and also of InfiniLink. Look, our goal, and I think where we're making great progress is to be the best in the industry for three key reasons: Number one, having the strongest process technology offering, and that includes an offering for 200 gig per lane technologies today and a road map to 400 gig per lane and beyond, which is what the industry needs to achieve the next level of performance, and we're well on track to deliver that and those acquisitions support in that journey. Also having the strongest enablement, obviously, these are new areas for customers to design, and they need robust PDKs, simulations, modeling and so on to be able to bring their solutions to market. They also need ecosystem partners within that, some of the partnerships we've mentioned, for example, with Corning, brings the table specialized solutions, things like detachable fiber attach, which are critical for the transition to copackage optics, and the last thing that, of course, GF is well known for is that global manufacturing footprint. And so we're scaling silicon photonics in Singapore and the U.S. including on a 300-millimeter platform, which, again, we think gives us a lot of opportunity to grow the business and differentiate going forward. I think you're seeing the proof points reflected in the revenue trajectory, we obviously had a strong 2025 doubling from the prior year, and we think that will continue through the course of 2026 and beyond. And that's given us also confidence to accelerate what we said previously about reaching $1 billion run rate revenue, which we think will reach by end of 2028. So overall, very strong momentum, lots more opportunities ahead. We're very much at the beginning of this transition in the data center. Mehdi Hosseini: Great. And then the second question, actually a different topic, but perhaps part of your longer-term strategy. And one -- I would like for you to remind us, what is your strategy with quantum compute? And I asked that because IonQ recently acquired SkyWater. SkyWater was a smaller analog fab. And I think your strategy on the risk side is somewhat also a strategic with a lower opportunity that Quantum brings. So can you remind us what the strategy is? And any additional color that you can provide us would be great. Timothy Breen: No, thank you. Actually, longer term, very excited about the trajectory for quantum. And I think the reason is you see now significant investment going into building scalable, full-tolerant quantum systems. And that's the key. It's not about proving at the lab scale now. It's about proving that we can actually build functional systems at scale. GF has very specific solutions for different quantum modalities, everything from Photonics, which we've talked about just now and more broadly, including partnerships that we have with companies like CyQuantum. But we actually also have partnerships in areas like spin qubit, ion trap, topological quantum. So a lot of these modalities that are all competing in a way to prove they can be the first ones to scale. GF provides for all of those. Obviously, since that announcement that you referred to, people have recognized even more the importance of high-volume manufacturing. Again, it's not just about proving at the lab scale, but how do you actually industrialize and build larger scale systems. We have good partnerships out there. We expect to announce more in the coming months. And again, just given the depth of our technical bench, it's an area I think will play a critical role going forward. Operator: And our next question for today comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: I want to talk a little bit about the supply side of the equation. You talked about what CapEx was doing. But as we think about areas of tightness, pricing environment and some of your more unique process technologies. How are you viewing the tightness of the differentiation and what that means for kind of sustained CapEx going forward beyond this year? Timothy Breen: So thank you for the question. I think we're seeing, particularly in these areas of differentiated technology, combined with strong end market traction, a big step-up, that's compared to a year ago in corridors, such as silicon photonics. Also, our FDX platform, a lot of use cases there from the car to the IoT and beyond. In areas like silicon germanium, we haven't spoken so much about, but again, getting pulled through in a lot of the optical connectivity in the data center. So the demand drivers are strong. those corridors are running hot. We're able to meet our customers' demands today. But given the ramp profiles of new designs that have been won already and are now taping out, will we see good areas rough to invest there and scale. The good news for us in terms of those investments is they're highly accretive, short time to market within our existing 4-wall footprint. So they come with quick ramp and very good capital efficiency. And maybe one thing to add to that is, obviously, they're also eligible for some of the best government support we've had in, frankly, our history in terms of putting that capacity on given the strategic nature of the footprint. So I think a good opportunity for us to grow, to invest more strongly against that customer demand. Sam Franklin: And Ross, maybe just to put a couple of numbers around that as well and kind of reinforcing Tim's point there around the guiding principles that we have for deploying CapEx. And as Tim said, number one, customer-led demand; number two, in accretive corridors; and number three, in a highly capital-efficient manner. Actually, 2025 as well is a good example of where we've already demonstrated that's starting to come through, not least in the increased investments we've made in Silicon Photonics to support the ramp that we've seen so far. But also some of those government grants that we've seen come through as a result of the strategic importance of our overall footprint. And so you take our gross CapEx in 2025 versus 2024. You're actually up about 15%, but on a net basis, down about 7%. The single biggest driver there is that we are now starting to see the level of increased government support across the U.S., across Germany, across Singapore, start to fall through. So relative to 2024, about $10 million of government grants came through 2025, about $150 million. We expect that to grow again in 2026. So really kind of plays to those thought of those three core principles. Ross Seymore: I guess as my follow-up, just if we take all of these investments on one side and I think, Tim, you described it as kind of a holistic technology solution provider in your transcript. How do we think about the margin structure? What does it mean to the gross margin over time for the company and perhaps even the OpEx intensity. It seems like the business model, whether it be mix shifting or just a solution approach is really a different model than when you last updated us on some of your long-term targets. So I just wanted to see how some of those targets might be changing. Sam Franklin: Sure, Ross. I'll take that one. And I think there's a couple of important points to unpack there, both in terms of some of the margin drivers and as you say, on the OpEx side of the equation as well. The margin, I think, is really starting to come through and what you saw us deliver in the fourth quarter as well. You take a relatively flat revenue profile year-over-year in the fourth quarter, we delivered almost 400 basis points of increased gross margin. Now some of that comes through the continuation of our focus on productivity of disciplined spending, very modest utilization pick up during the year as you heard, we were about 85% for the full year of 2025. Where we're really starting to now see the fruits of the strategic decisions that have been taken come through is around the mix. Clearly, with silicon photonics roughly doubling in 2025. That comes through at a highly accretive gross margin. That contributed to that large step-up that we saw and enjoyed in quantum in data center in 2025. And you overlay that with automotive, which has typically been a strong tailwind for us from a margin perspective, but also a secular growth perspective, you take the combination of those two, and that's about $2.2 billion of revenue in 2025, about 1/3 of our total revenue. That on a stand-alone basis, it's larger than some of the competitors that we see within this space. And so this continued diversification of the portfolio from an end market perspective and a product perspective is going to be a good driver of margin tailwind over the years to come. And then the last piece, which I'll just call out there as we think about it on a long-term basis is really about scale. And Tim talked about it in some of his prepared remarks as well, but we are being super disciplined about how we invest in our capacity. And first and foremost, we're doing it within the four walls that we have available. We have four walls opportunities available in Morten New York, in Burlington, where we are today as well as what we recently announced in Germany as well, which is converting our legacy BTF facility. So as we continue to get our sites to scale and get that scale with an improvement of the mix from a product and an end market perspective, we really expect to see good margin drivers over the years to come. And then maybe briefly, Ross, on your OpEx piece, you asked the question there. Look, I think it's fair to say there's a tactical element to OpEx and a strategic element to the OpEx as well. From a tactical perspective, if you look at 2025 and to some degree, 2024, we were getting the benefit of certain legacy tool sales coming through as a contra to OpEx. We also had good flow-through from the AM ITC during those years as well. We don't expect some of those tool sales to recur in 2026. And so there's a natural float up in some of the OpEx there. From a strategic point of view, look, it's very focused in terms of some of the inorganic plays that you've seen us make over the last few months. And really, if I take R&D as an example, the incremental investment in R&D programs across our existing product portfolio, but also in relation to the likes of MIPS and in future, the Synopsys processor IP business, that's really focusing on new IP cores, including AI cores, processor IP, again, positioning the future growth here. So a natural float up in some of the OpEx on that front as well. Hope that helps. Ross Seymore: Congrats Niels as well. Operator: And our next question comes from the line of Mark Lipacis from Evercore ISI. Mark Lipacis: Tim, if I look at the acquisition of the recent ones on the processor side, MIPS and ARC and then on the connectivity side, it's the Advanced Micro Foundry for SIFO and InfiniLink. So is there a synergy between these, for example, if the customers who are using the processor, are they're also using the connectivity IP? Or are these separate ideas? And then separate from that, is -- are these acquisitions, they -- are they just broadening your portfolio that you can offer? Or is this -- are they meant to also move you up the value chain, so to speak. So are you becoming more than what you've been in the past, I'd like a classic foundry. I don't know if that's the right way to say it, but are you moving up the value chain with these acquisitions? Is that part of the idea? Timothy Breen: Yes. No, Mark, thank you for the question. It's a great one. I mean really quick recap on the photonics-oriented acquisitions because we've already spoken about that a bit. Those are absolutely about bringing new technology to that road map, accelerating capacity, by the way, bringing also new customers. AMF came with different customers that GF hadn't worked, deeply within the past and now we have new opportunities to grow with those customers. By the not just in photonics, many of them are also potential customers for the rest of the portfolio. So that's highly synergetic. And then InfiniLink, great team in Cairo, Egypt, where you've got very good design skills in our platform. That's helping customers onboard more quickly, build more innovative solutions and architectures, including some of the customers that are building more co-packaged optics type solutions, which are more complex have more packaging and so on in them. So that's highly geared towards that data center AI build-out and obviously build on our organic photonic story. The mission synopsis is different. And so I think you can think of that more as laying a foundation for that physical AI transition. We firmly believe that will outstrip the current boom on the data center over the long haul because the number of applications are much, much broader. And what's interesting is the customer reaction we had to those acquisitions first one we announced MIPS and then even more so when we announced Synopsys, I got a lot of answers sheet says very, very positive feedback to customers who said, "Listen, this is great because this allows us to engage earlier together in the road map, and we're thinking about how we solve critical problems in the car, in the IoT, in the defense space and so on." And I think it's, therefore, not just, Sam kind of alluded to accretive revenue, which it is, but it's also synergetic to our manufacturing footprint and allows us to engage much earlier, which means those engagements are much more strategic much longer and more durable as well. So I think the synergies are with our current business, but both of them really play to those megatrends that we're talking about. Mark Lipacis: Very helpful. And then a follow-up, if I may. When you listen to your customers on their earnings calls like most of them are of the view that the supply chain inventory correction has largely played out. And I'm wondering if you could give us a sense like what is the visibility for you guys look into 2026 compared to a year ago? And any color you can provide us on like how your customers are thinking about giving you like longer lead times and longer kind of visibility or higher facility into the year versus a year ago? Is that helpful? Timothy Breen: It's a great question. And I think across all end markets, it is significantly more visibility versus a year ago. I think that's consistent. Obviously, there are some markets where the visibility is extremely high. And you hear that on other earnings calls, again, anything touching the data center. Most of the customers are talking about '27. For them, '26 is already a deal that I think is very consistent based on what you're also hearing from the big spend of data center CapEx and so on. So that's very strong. I think for us on areas like automotive, we're just sustaining momentum and not just in classical areas like microcontrollers where we have a strong business again, good visibility, but areas that are ramping very nicely like smart sensors, things imaging, think radar, some even emerging opportunities in LiDAR. And so you're seeing new growth, but this is also based on design wins that happened in some cases 2, 3, 4 years ago, and that's just the nature of that automotive business. So I think we remain with pretty good confidence and visibility into the automotive side. I think we talked about the IoT. It's a bit more of a story of product transition this year. So we do see growth. We definitely see stronger growth in the back half because we know which products are taping out and are moving into ramps in the back half of the year. But I'll call out key areas, again, like medical, they're starting to pick up, which is very interesting, I think, longer term, very, very good growth driver. Other areas of the IoT, I think, also industrial picking up as well on the same basis. And then look, smart mobile, we said we track the overall market. I think that's the one that people ask the most questions about in general from a market dynamics point of view, if you listen to some of those earnings calls. I'd say our portfolio is geared more to the premium handset and premium handset is typically more resilient to some of the disruptions you've heard about from other calls. So again, overall tracking the market. Obviously, we're watching the space very carefully. Operator: And our next question comes from the line of C.J. Muse from Cancer Fitzgerald. Christopher Muse: I'm just curious if you could spend a little time on the silicon photonics side. You talked about doubling revenues again here in 2016. Curious if there's a change in mix, customer base within that? And then as part of the bigger picture within CID, how are you thinking about kind of the growth trajectory for that overall business, particularly given silicon photonics doubling once again? Timothy Breen: Yes. No, great question, C.J. So overall, what I mentioned with AMF is we brought in new customers to the mix, which is great, and those customers as to say, have more opportunities that we can grow. That's given us a pretty broad portfolio into silicon photonics. As a reminder, the majority of photonics revenue today is in the pluggable space pluggables are doing very, very well globally. If you walk around any AI data center today, you'll find a huge number of pluggable optical transceivers being used. Obviously, that pulls on silicon photonics, but also within our CID end market that pulls on things like high-performance silicon germanium actually a very strong business for us that, again, we're investing in given that the capacity is being very, very well utilized today. So I think that part is there. What you're also seeing and hearing about is the beginning of the co-package optics, transition. I think we've always been consistent that, that was a '27 scale ramp more than a '26 scale ramp, but all the progress we're seeing in terms of design wins, in terms of takeout, planning gives that a good indication that that's on track. And that's just because CPO is the only way to address certain performance workloads, especially on scale up networks. And so look, I think photonics still, like I said, very early in its rollout and those form factor changes will also drive significant increases of content. Sam Franklin: And maybe, C.J.; just to capture 1 other aspect that look in 2025, we grew our I&D business about 30%. So really an inflection from some of the legacy migration that we saw in 2023, 2024. To Tim's point, a big piece of that is silicon photonics and optical networking, but we're also now seeing this continued growth from a communications infrastructure perspective and specifically within satellite communications as well. So you look at the LEO satellite launch projections over the course of the next couple of years, the continued commercialization industrialization of this technology as well. We believe that's a good tailwind as well heading into 2026 and consistent with the commentary that we provided on the call, we expect to have a similar growth rate in '26 as well. Christopher Muse: Very helpful. And then -- and maybe just to get our arms around all of the acquisitions in '25. How should we think about kind of the incremental revenues and the implications to gross margins as well as OpEx. Any kind of framework around that? Sam Franklin: Yes, happy to. And look, there's obviously a period of ramp and integration that comes through with these acquisitions as well. I sort of categorize a little bit the difference between, say, an InfiniLink acquisition, which is really focused on high capability, design team that will support revenue growth in the outer years, particularly within photonics and packaging, versus, say, AMF and MIPS, which are revenue generated from day 1, albeit more with a second half ramp. So the disclosures we provided on both MIPS and AMF in the past, where we expect MIPS to deliver about $60 million to $100 million of revenue in 2026, albeit with a second half skew. And similarly, AMF, call it, at least $75 million in '26. But look, they're not the reasons why we acquired both of those companies, the multiyear opportunity that comes with acquiring those companies is really where the focus is for GF, and we're going to provide more color on that when we get together as part of the circum photonics webinar that Eric outlined. So good opportunities on a multiyear basis, short term, call it roughly $150 million there or thereabouts, we'd expect across the two. As it relates to both of those, they are margin accretive. So think about it as roughly a point of incremental margin in 2026. Timothy Breen: And C.J., maybe just to add on because we've talked about the photonics kind of 2028 run rate goal that we've set and increasing and confidence to deliver given how we pulled it in. We have a similar goal for what we're doing on the custom design and IP side with MIPS and now with Synopsys. Again, we believe that can be more than $1 billion business for us -- incremental $1 billion business for us over time. And so again, these are meaningful opportunities. Obviously, we start from today, but there's a lot of growth behind the plans. Operator: Our next question comes from the line of Krish Sankar from TD Cowen. Sreekrishnan Sankarnarayanan: Tim, can you give some color on how to think about wafer volumes in ASP in 2026 given the different moving parts between smart mobile and trend in auto and data center infrastructure? Timothy Breen: Yes, it's a great question. I'll start and then Sam adds some costs. So I think you're kind of alluding to also the pricing environment. You've also heard comments from other players out there. We definitely see a stronger pricing environment in 2026. You see that evidenced not just by some of our peers and other players in the industry looking at price raises, but you're also hearing about customers of ours raising prices as well. So I think people are willing to pay for those growth areas, where they want increased volumes, they're willing to pay, and they're also passing in some cases, those on to their customers. So I think, again, versus a year ago, you're in quite a different price environment. We were very deliberate in our price decisions in '25, specifically in the smart mobile space. But again, we don't see any significant action in '26 on the same basis and overall in a better spot from a pricing point of view. We will grow wafer volumes this year. But I think, as Sam alluded to, the mix is really is really the driver for us in terms of the profitability growth because the delta between the most valuable wafer and the least valuable wafer is very significant, driven by the technology, the application and the market dynamics. And I think that mix driver will probably the stronger reason for growth from a profitability point of view in 2026. Sam Franklin: Yes, that's right, Krish. And just one point from Tim, and we'll focus principally on the guidance for the first quarter, but you can see some of that coming through, right, on a year-over-year basis, call it revenue up about 3%. But then you look at where the midpoint of the gross margin guide is as well. That's up over 3 points. And so it really plays into some of those comments, Tim was making around the mix as well. Sreekrishnan Sankarnarayanan: Got it. And then a quick follow-up. You gave a lot of color on the acquisitions, both the MIPS and Synopsys, ARC, IP, which makes a lot of sense. I'm just wondering, are you like kind of enclosing more into ARM territory? Are going to be competing with ARM in the future, or how to think about it? Timothy Breen: It's a great question. And I think the way we are anchoring all of these acquisitions is in a strong focus on what our customers are asking us for. And so one of my priorities since I've taken the role to spend a huge amount of time on the road meeting customers and understanding the gaps and the challenges they have. And they want optionality. They want choices. And let's take the risk 5 example. Risk 5 is a strategic priority for the majority of semiconductor companies. You've seen that from everything from Mesa to Qualcomm. Obviously, all of the IDMs have been very public in their support for risk V, and there are many, many more. And so what they said is we'd love to have a provider who can invest behind that road map, who can drive a multiyear kind of support structure who can invest in building tools and software so we can simulate our designs and our architectures before we make them in silicon. And so I think the feedback for that reason has been really, really good and so on. So I think a bit less is competition, but more about filling gaps in the portfolio that the customers need today. Operator: And our final question for today comes from the line of Timothy Arcuri from UBS. Timothy Arcuri: Non-wafer revenue, obviously, you're pushing into custom silicon it's gross margin accretive, but how accretive is it? And the 10%, 12% for March quarter as a portion of revenue, is that sort of what we should think about staying in that range for the rest of the year? And then I also had a follow-up too. Sam Franklin: Sure, I'll take that one, Tim. And as you think about what comprises our non-wafer revenue, look, the masks, the reticles IP royalties, nonrecurring engineering, all of those are key leading indicators for us in terms of where we see some of the opportunity as it relates to future production revenue and that has continued to ramp during the course of 2025, and we expect a similar range as we outlined for the call as it relates to at least the FERC quarter. But really, as we look at it over the longer term, clearly, the key addition as it relates to the last few months, is that a mix and what that kind of IP processor, software licensing royalty, revenue framework will provide as well. So it's the right range to think about for now. And clearly, that is a step-up of, call it, roughly 2 points in that range from where we were this time last year. And then from an overall margin perspective, the non-wafer revenue has traditionally and will continue to fall through at a level which is highly accretive to the corporate targets that we've set out. Timothy Arcuri: Okay, Sam. And then the middle of 2025, you thought you could get to 30% exiting the year, you got closed, but you didn't quite get there. So sitting here right now, do you think we can exit this year at 30% or possibly even higher than that? Sam Franklin: Sure, Tim. And we tried to give you a couple of the considerations on the call, and I'll just kind of reinforce some of those principles. And it really ties to some of the growth in margin that we've seen during the course of the last 12 months as well, continued expansion of margin associated with mix, continued improvement associated with productivity and really cost discipline within the business, call that a couple of points on its own. Really, the wildcard at this point is what happens from a utilization point of view as we get into the second half of this year, we see strong oversubscription in certain corridors from a technology point of view that will continue during the course of this year, and you heard that reflected in some of the comments from both eComms infrastructure and data center point of view, but also automotive as well. So I would say they're the kind of core components. Look, the long-term goal for us is still to be driving towards that 40% gross margin target. And I think what you've seen from us over the course of the last last six months, some very deliberate strategic actions to not only keep us on track to that, but ultimately go through it. Timothy Breen: And I'd say, Tim, just to a little bit -- I'm going to give you a yes for 2026 to the question of getting to our 30% target. But as Sam said, our focus is not to get there. Our focus is to get there and keep going to that long-term target that we talked about. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Chow for any further remarks. Eric Chow: Thanks, Jonathan. Thanks, everyone, for joining today. We're looking forward to seeing you at our next investor webinar on March 10, where we'll discuss how we're at the forefront of silicon photonics and advanced packaging. Thank you. Operator: Thank you, ladies and gentlemen, for your participation. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the Hilton Worldwide Holdings Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's prepared remarks, there will be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Mr. Charlie Ruehrer, Vice President, Corporate Finance and Investor Relations. You may begin. Charlie Ruehrer: Thank you, Chuck. Welcome to Hilton Worldwide Holdings Inc. fourth quarter and full year 2025 earnings call. Before we begin, we would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-Ks. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on our website at ir.hilton.com. This morning, Chris Nassetta, our President and Chief Executive Officer, will provide an overview of the current operating environment and the company's outlook. Kevin Jacobs, our Executive Vice President and Chief Financial Officer, will then review our fourth quarter and full year results and discuss our expectations for the year. Following the remarks, we'll be happy to take your questions. With that, I'm pleased to turn the call over to Chris. Christopher Nassetta: Thank you, Charlie, and good morning, everyone. We appreciate you joining us today. We're pleased to report a solid end to what was another strong year for Hilton Worldwide Holdings Inc. In 2025, we expanded our portfolio of brands, grew our pipeline to a new record, and strengthened our nearly 125 million member loyalty system with new partnerships and loyalty tiers, all of which we believe sets us up for continued growth in 2026 and beyond. Together with our team members and owners, we have delivered a solid year on both top-line and bottom-line performance. For the full year, system-wide RevPAR growth was up 40 basis points year over year, driven by strong performance in EMEA and growth in group and leisure transient. Industry-leading net unit growth outperformance in non-RevPAR business lines and cost discipline drove record adjusted EBITDA of $3.7 billion, up 9% year over year. In 2025, we returned $3.3 billion to our shareholders, the highest total capital return in our history, even with the softer than originally anticipated RevPAR, demonstrating the power of our capital-light business model. Turning to results for the fourth quarter, system-wide RevPAR increased 50 basis points year over year. As strong international performance and solid group demand were offset by softer U.S. government demand and weaker international inbound into the U.S. In the quarter, leisure transient RevPAR was up 2.3%, driven by international strength, especially in EMEA. Business transient RevPAR was down 2.1%, driven primarily by headwinds from the U.S. government shutdown. Group RevPAR was up 2.6%, driven by strong international group growth and company meeting demand. System-wide RevPAR for the quarter was strongest in December, up 1.7%, with strength in leisure and group and a meaningful pickup in business transient. Positive trends continued into early 2026, with group leading, including strong in-month group bookings, solid leisure demand, and continued business transient improvement. For the first quarter, we expect RevPAR growth of between 12% year over year, including the impact from the recent storms in the U.S. As we look to the year ahead, we feel optimistic that 2026 will be stronger than 2025. We believe this will be driven by continued strength in EMEA, improvement in APAC, and an improvement in the U.S., driven by stronger economic conditions, major events, easier comps, and continued limited supply. For the full year, we expect system-wide top-line growth of 1% to 2%, with international performance stronger than in the U.S. Turning to development, during the fourth quarter, we opened nearly 200 hotels, totaling nearly 26,000 rooms. For the full year, we added nearly 100,000 new rooms to our global portfolio, representing full-year net unit growth of 6.7% and our biggest year of organic openings. We achieved several milestones in the year, including reaching 9,000 hotels globally, celebrating 44 brand country debuts, opening our first property in four new markets, including Tanzania, Rwanda, Pakistan, and the U.S. Virgin Islands, and opening our 1,000th luxury and lifestyle hotel globally. Our luxury lifestyle brands continue to expand around the world, comprising nearly 30% of our total openings in the quarter. Lifestyle had a strong year, with all eight brands reaching record room counts and nearly all expanding their presence in new markets. Within our collection brands, for the full year, we opened over 11,000 rooms across 18 countries, including nine country debuts. It was a record year for tapestry growth, opening over 40 properties in the year, including most recently the debut of Tapestry in Japan. Within luxury, we continued to build strong momentum after the Waldorf Astoria New York opening, and in the fourth quarter, we opened our second Waldorf Astoria in Shanghai and celebrated the brand's debut in Helsinki. Strong interest in Waldorf Astoria continued into the fourth quarter as we announced agreements to expand Waldorf Astoria into several iconic cities across Greece, Spain, Oman, and Malaysia. In 2025, we also expanded our LXR footprint with new openings in France and Greece and announced plans to debut the LXR in the Turks and Caicos in the next few years. Conversions remain integral to our growth and accounted for roughly 40% of room openings in 2025, demonstrating the strong value proposition our system continues to deliver for owners. Against this backdrop of continued owner demand for conversion-friendly brands, we have been evolving our brand portfolio and creating opportunities to build the next chapter in Hilton's growth. We recently launched Apartment Collection by Hilton, which marks Hilton's entry into the fast-growing apartment-style lodging segment that represents a clear white space in the market. As a collection brand, it provides owners with flexibility to preserve a property's unique character while benefiting from Hilton's powerful commercial engine, global distribution, and award-winning Hilton Honors loyalty program. Apartment Collection by Hilton, alongside our other newly minted brand, Outset Collection, will be incremental drivers of our conversion momentum in the years to come, as will new brands, several of which we expect to launch later this year. Even with robust openings in the fourth quarter, our pipeline reached the highest level in our history, surpassing 520,000 rooms, reflecting both year-over-year and sequential growth driven by expansion across strategic markets and brand categories. New development construction starts in the U.S. were up over 25% in 2025, a trend that we expect to accelerate even further into 2026. Globally, for 2026, we expect new development construction starts to be up over 20%, bringing us back close to 2019 levels, signaling healthy developer appetite. As we look ahead, we expect that our robust global pipeline, strength in conversions, construction start momentum, and industry-leading brand premiums will support sustained net unit growth of between 6% to 7% for 2026 and beyond. We also remain focused on initiatives to drive increased loyalty, engagement, and guest satisfaction. In 2025, we strengthened our Hilton Honors Program by making loyalty both more accessible and more rewarding by introducing a faster path to elite status and a new premium tier in our program. We also launched Hilton Honors Adventures, an extension of Hilton Honors that invites travelers to immerse themselves in bucket-list-worthy travel, elevating loyalty benefits across land and at sea. Hilton Honors Adventures partnerships now include Explorer Journeys and AutoCamp, and we expect more to come as we continue to prioritize ways Honors members can earn and redeem points. Overall, we continue to see extraordinary performance of Hilton Honors in 2025, with the program now approaching 125 million members. During the quarter, Hilton was again named the number one world's best workplace by Fortune and Great Place to Work for 2025, becoming the first and only hospitality company to top both the global and the U.S. list twice. Our brands continue to receive recognition as well, and in 2025, Entrepreneur's Franchise 500 extended our seventeenth consecutive year run with Hampton by Hilton ranking number one hotel franchise in the lodging category. In total, 12 brands were recognized in the 2025 rankings for their performance and franchise value. Overall, we are proud of our performance in 2025 and believe our results continue to reinforce the power of our business model. Our brand-led, network-driven, and platform-enabled strategy will continue to help us achieve our robust growth trajectory and meet the evolving needs of our travelers around the world while delivering great returns to owners and shareholders. We're confident that we're well-positioned to continue driving strong performance in 2026 and beyond. Now, I'm going to turn the call over to Kevin, who will give you a few more details on the quarter and expectations for the full year. Kevin Jacobs: Chris, good morning, everyone. During the quarter, system-wide RevPAR increased 50 basis points versus the prior year on a comparable and currency-neutral basis. Growth was driven by strong international performance and solid group demand. Adjusted EBITDA was $946 million in the fourth quarter, up 10% year over year and exceeding the high end of our guidance range. Our performance was predominantly driven by strong performance in EMEA, non-RevPAR driven fees, and continued disciplined cost control. Management and franchise fees grew 7.4% year over year. For the quarter, diluted earnings per share adjusted for special items was $2.08. Turning to our regional performance, fourth quarter comparable U.S. RevPAR decreased 1%, largely driven by pressure across business transient and group, which underperformed expectations due to the prolonged government shutdown. For full year 2026, we expect U.S. RevPAR growth towards the low end of our 2026 system-wide guidance. In The Americas outside the U.S., fourth quarter RevPAR increased 3.8% year over year, driven by strong demand in both leisure and group segments. For full year 2026, we expect RevPAR growth to be in the low single digits. In Europe, RevPAR grew 5.3% year over year, led by strong leisure activity in Continental Europe due to events and holiday-driven demand. For full year 2026, we expect low single-digit RevPAR growth in the region. In the Middle East and Africa region, RevPAR increased 15.9% year over year, driven by strength in leisure and group demand due to major events. For full year 2026, we expect RevPAR growth in the mid-single-digit range. In the Asia Pacific region, fourth quarter RevPAR was up 9.2% in APAC ex-China, led by growth in Australasia from major events and strength in Japan and South Korea. RevPAR in China declined 1.4% in the quarter, an improvement to prior quarters, but remained constrained by weaker group demand due to the government travel policy. For full year 2026, we expect RevPAR growth in Asia Pacific to be in the low single digits, with RevPAR roughly flat in China. Turning to development, as Chris mentioned, for the quarter, we grew net units 6.7% and now have more than 520,000 rooms in our pipeline. We continue to have more rooms under construction than any other hotel company, with approximately one in every five hotel rooms under construction globally slated to join the Hilton portfolio. We expect to deliver 6% to 7% net unit growth for the full year. Moving to guidance. For the first quarter, we expect system-wide RevPAR growth to be between 12%. We expect adjusted EBITDA to be between $875 million and $895 million and diluted EPS adjusted for special items to be between $1.91 and $1.97. For the full year, we expect RevPAR growth of 1% to 2%, adjusted EBITDA of between $4 billion and $4.04 billion, and a diluted EPS adjusted for special items of between $8.65 and $8.77. Please note that our guidance ranges do not incorporate future share repurchases. Moving on to capital return. We paid a cash dividend of $0.15 per share during the fourth quarter, bringing dividends to a total of $143 million for 2025. Our Board also authorized a quarterly dividend of $0.15 per share. For 2026, we expect to return approximately $3.5 billion to shareholders in the form of buybacks and dividends. Further details on our fourth quarter and full year results can be found in the earnings release we issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to speak with as many of you as possible, so we ask that you limit yourself to one question. Chuck, can we have our first question, please? Operator: Thank you. The first question will come from Shaun Clisby Kelley with Bank of America. Please go ahead. Shaun Clisby Kelley: Hi, good morning everyone. Thanks for taking my question. Chris, like, would love to start with you both in the prepared remarks and overall sound a bit more optimistic. So we always value your kind of overview of where we kind of sit with the broader economy and the lodging industry. If you could just kind of give us your kind of latest thinking there and maybe specifically, a few thoughts around the business transient environment, particularly large versus small corporate. I think on the small or medium size, we've seen some weakness. Wondering what you think about that as we kinda turn the page into 2026. Thanks. Christopher Nassetta: Yep. Great question. And, obviously, probably what's the number one thing on everybody's mind. So a lot of this I covered on our last call and as I've talked to individual investors, you know, have shared these thoughts. But you know, if you think back about what I said, you know, on the third quarter call, I was reasonably optimistic about '25, you know, being a decent year, but '26 and, frankly, beyond, you know, at least for the next couple years. Being better. And my underpinning of that, which you know, I still believe is that you have some macro forces and some micro forces that are converging in a really positive way. Number one, being, you know, inflation does structurally continue to come down. If you really factored for the lag effect of the housing input, is over 30% of the contribution to the inflation numbers and you factor for what it is real time, would argue it's actually lower than, you know, than is being reported. So that's a good trend. What does that mean? That means expectation which I believe that rates will continue to come down, which will be stimulative and positive in a bunch of ways. You see it this week and broadly, you know, you're in, you know, a very big deregulatory environment under, you know, in The United States under this administration, which is obviously I think, real positive in a bunch of different ways, whether that's financial services, energy, AI, you know, basic and infrastructure, reshoring, you know, there is a massive amount of that is going on. You have fixed tax policy that got done last year that is just you know, that is super business favorable and investment favorable and, you know, you expect to see that start to benefit. And then a massive investment cycle, the obvious being like the AI complex, just the major tech companies in the last two weeks alone, I think, when I finished adding it up, they are going to spend this year $700 billion. So let's just say there's gonna be a lot more than a trillion dollars spent on that. In you know, by that complex all of the energy that goes along with it, all you know, everything around the AI complex, I think, is huge. But then the other things going on more quietly are reshoring, whether that's in rare earth minerals and pharma, chips, all of that stuff is going on. I mean, the chips act that got passed during the Biden administration, very little of that money has been spent. And then you have core infrastructure where we approve, you know, congress approved $1.6 trillion when you add up all the pieces. Again, a very small part of which has been invested at this point. When I talked in the third quarter, I said like, intellectually, it's really hard for me not to be you know, when I lift up above the noise of day to day politics to not feel like those things are gonna be really good for the economy and it's undeniable. But at the same time, I said, you know, I don't know exactly when it's gonna come, And at that point, we were not seeing a whole lot of evidence that that that was sort of seeping into the economy. Although I was very confident, as you remember, that that it would. By the way, the other thing going on is we're at the beginning of one of the greatest productivity booms in American history with the, you know, the whole AI Once those investments get done and over the next several years of adoption, you have massive opportunities on productivity. My belief then and now was that we will have economic growth picking up, and most importantly, because it impacts our business, that it would be broader based economic growth. It would not be as much this K economy where the very high end, the very wealthy keep doing well, and the middle class and below continue to struggle to pay for groceries and gas and their utilities. But that you would start to ultimately because the middle class has to be involved to make all this happen, particularly the investment side that you would start to enter a world where you would see middle class real wage growth. By the way, I think right now, you're starting to see the first prints of middle class real wage growth. That means people have more disposable income, and they will be spending more money including on our products. When you really get down to it, the bulk of our system, I think everybody's system is more concentrated because the middle class is the biggest percentage of the population in the mid market. And so, That's what I thought last quarter That's what I think now. The only difference I would say, is that we're starting to see it. Now I'm gonna be really honest. That and it's obvious, so I should be honest, is the data set that I'm looking at are not you know, months and months, quarters and quarters. What I'm really looking at as I said a little bit, when we talked about December is the end of the year got got a lot better than we thought. Even with the storms, the beginning of this year has been better. And it's been better in the ways we'd want to see it. What does that mean? That means midscale, upper mid scale, You know, it means midweek, it needs it means business transient to your question, Shaun, we're seeing a meaningful change from what we were seeing earlier in the fourth quarter and certainly in the third quarter. Whether that's sustainable or not, I don't know. But it feels to me if all the other macro conditions that I was talking about, if those continue to develop it sort of has to be the beginning of a trend. By the way, the other thing it's not macro, it's micro, but I said micros, we have a bunch of like, benefits this year, which you guys are aware of. Number one, the comps is said, are easier because I mean, you could have other things happen, but liberation day was a pretty big deal and the biggest government shutdown in American history was a pretty big deal. You hopefully don't repeat those at that, you know, at that scale. And we have a bunch of unique events, which you're well aware of, with the World Cup, America's 250, that are really stimulative to travel at the same time all these other things are going on. And so you know, I you know, yes, I have you know, we're at the beginning, I think of a trend. We have to get more data, you know, and, like, see it really sort of continue. But I I like what I'm seeing right now. And and as a result, you saw in our guidance that we think that 26%, as I had thought last quarter, will be a lot better than than 25. And I think we have very solid underpinnings to back that up. In the first quarter, by the way, in the guidance we're giving, super solid. At this point, we're halfway through the quarter. We have very very good sight lines into the rest of February and even into March, and it feels that it feels good in all the ways I just described. So that's the reason for my increased optimism is data. That I'm actually able to see data that says what I hoped and thought would happen is starting to happen and hopefully is sustainable. Operator: Your next question will come from Daniel Brian Politzer with JPMorgan. Please go ahead. Daniel Brian Politzer: Hey, good morning, everyone. Thanks for taking my question. You touched on this a bit, but maybe in a different lens. The AI and technology front, I mean, this continues to obviously evolve at a very rapid pace. So I guess the question is, how close are you to maybe announcing some partnerships there, if that's on the horizon? And then how do you think about the opportunity here both from the OpEx side internally and then externally from the revenue side in terms of distribution. Christopher Nassetta: Yeah. I mean, I talk we talked a lot about I think on the last call too and I suspect we'll be talking about this on every single call because, obviously, it's important. And as you can imagine, we're spending a huge amount of time on AI throughout our whole organization. And one of the things that I believe gives us a meaningful competitive advantage is that we have a modern tech stack. And relative to our competitive environment, I don't think anybody can claim what we can claim. And what is that? Well, you know, it's not me just patting my chest. It affords us much greater flexibility and agility to adopt AI in a bunch of really interesting ways. And so you can imagine we're exploring all those. As I said last time, there's sort of three big buckets of things. The first is just like creating efficiencies in the system. Some of that could benefit G and A. By the way, you've seen some of the benefits. I mean, G and A is lower than it was six seven years ago, and that's not all AI, but part of it is process reimagination, making ourselves better, applying the use of technology in ways been doing that forever, and AI is just another amazing tool that allows us to speed some of that up. And so we're looking at tons of things, like, you know, hotel openings is the one that we our teams are deep in the middle of. Like, you know, so many people touch you know, the process of opening a hotel, dozens and dozens, like, you know, creating, you know, massive efficiency around connecting all those dots. And we have dozens of other use cases in that area. And then there's the whole distribution space, which is the crux of your question. We tend not to make big announcements until we've done things. We're working with many of all the big players out there, the OpenAI, the jet, you know, Google. We're working with all of them. We're part you know, not not but the big ones that are big in the travel or trying to either are or trying to be. We're involved in all of their tests and, you know, we're developing the connectivity with those platforms, and I'm super optimistic about that. We're also because we have a very modern tech stack, doing some really interesting things in sorta natural search connected to booking and the experience within our own platforms some of which you'll start to see, you know, at some point in second quarter, which I think are really cool. My own view on the distribution space is quite I said, probably said this last time is simple. Like, we believe we have the best products, deliver the best service with the best culture. Our loyalty that continues to be super relevant, and the customers want what we do because we're good at it. We do a good job. Like, if you look at the hard data, market share, review site index, we perform really well. Customers wanna find us. We believe what's going on with AI is spectacular. There's always risk, by the way. You know, like, not don't have my head in the sand nor does anybody here. But I think in our space, which is very hard to disintermediate because it's physical business, The opportunities are far greater, both in distribution and otherwise than the risks are. And why? Because if we keep doing a really good job the way we do it and customers want our stuff, they're gonna be able to find our stuff in what will be frankly a more competitive environment that we've seen heretofore. They'll be able to find it in a way that's easier with less friction and that's more efficient. And so my belief is this is a pathway to lower distribution costs broadly, for our owner community if we're smart, never forgetting that the one thing at our scale, I mean, look at The US alone, we're 13 plus percent of the market, If you look at the quality market, no offense to the whole market, we're probably well over 20% of the market. We have complete control over rate, inventory, pricing, availability, and if we don't want to share it, nobody can get it and we have products that people want. I view that as super valuable. So as we think about how we engage with everybody in this space, and we are, as I said, already engaged in all the ways you would think with the big players I think it's a very symbiotic relationship. I think customers, for them to have platforms that are in travel, they sort of need our product and for us to show up we want to work with them. Think it's quite a balanced equation, as I said. I think the net result is generally good on distribution cost. The last bucket I talked about, which is super exciting and we're doing a bunch of stuff, is just the whole customer experience. I mean, so I talked a little bit about, like, the dreaming function in our own systems, a being able to not just dream and you know, sort of natural search and AI enabled, but then, you know, have it be seamless to booking, have it then be seamless to pre-arrival and planning your stay, on property experience problem resolution, post stay, you think about with the use of AI, the data, the tools that we already have and that we're building out in a much more fulsome way with a fully modern tech stack that we can put so much where we have an experience with our customers that is digital with AI and with our platform, we can really revolutionize how customers interact with us. And then we're at the physical side of it, we have the ability to create tools and we are doing it that enable our teams to have so much more information for people to plan their stay, on property, problem resolution, etcetera. That I think it's really, really game-changing. And we've been, I'm not gonna get into everything we're doing. Obviously, it's competitively set. But we're doing a whole bunch of stuff. We have I don't know, 40 use cases plus and growing, in all of those buckets around AI working with a bunch of great partners, many of the names that you read about. In the news every single day and have super close engagement. And I feel really listen. They were in the early days of AI, like, you know, for sure. But I feel like we're in a really good position based on the platform, the efforts we're making, yeah, and progress we're making as this evolves. Operator: The next question will come from David Katz with Jefferies. Please go ahead. David Katz: Hi, good morning, everyone, and thanks for taking my question. Noting in the press release and what you talked about with the outsized amount of investments going toward lifestyle and luxury and some of the commentary this morning. I'm wondering whether both the duration and the economic intensity of those contracts continue to grow over time. And whether there is kind of an acceleration in trajectory as more and more of those rooms come online. Obviously looking at fees and cash flow, etcetera, the output of the NUG, but I'd love some further insight there. Thanks. Christopher Nassetta: Yes. I think I understand the question. I'm not 100% sure I do. But I think if the basic question is, as you now have 1,000 hotels and it's becoming a real business and each of the individual brands within the category, which eight brands start to get scale and momentum, they sort of feed on themselves, you know, in the sense of delivering. You know, they build out a network. They build market share even higher. As they build market share even higher, they get adopted by more and more owners. And, you know, ultimately, the economic model, you know, starts the flywheel starts spinning. I think that you're right. Yes. So many of these brands, while we have a thousand hotels in luxury lifestyle, it's a lot of hotels. I mean, but still, you know, we have 9,409 thousand 400 and change. We are we're open two or three a day, so I always lose track. It's still a relatively smaller percentage. Many of the brands, you can think of like Tempo and Motto and even Canopy that are doing really well. They're very they're still graduate for that matter. They're still relatively you know, small brands. Even though they're performing well. And so, yeah, I do believe like we've seen in every other brand, and it won't be different particularly in lifestyle. Luxury luxury is a little bit different game, but in the lifestyle categories, as you start to build these out and create real network effect, you hear me say network effect a lot in a broader context, but in a more micro within individual brands that customers ascribe meaning to, you know, if you don't have enough locations, it's hard to sort of serve their needs. And the more you build that network effect, it does have sort of an effect of creating, you know, of spinning the flywheel faster. So I think a bunch of those brands, are early days and getting ready to really explode. You know, certainly some of the ones that have larger footprint potential like Tempo and Motto, and that's why we are looking in that space at a brand between which I've talked about, in between Motto and Canopy because we think it has a TAM that is very large. Luxury, listen, doing I mean, we've got in terms of dots on the map at this point, we got like 600 dots on the map, 650, I think, close to that as of today. We've got another 100 plus in the pipeline mean, the Waldorf Astoria New York opening was magical. I know some of you were there, and hopefully, you enjoyed it. You know? And that's the grand dame that started the whole brand. And so while it's one it makes a big difference. If you look at the openings, I noted a few of them. That we had over the last year. If you think about the openings we're going to have this year, and you look at the pipeline, like, Waldorf's on the move. Like, Waldorf is it's take it takes time. Luxury is a hard space. It takes time. It's one of the first things I got here eighteen years ago, and I remember saying to John Gray, we got to really get luxury, And we had, like, basically one molder of Astoria, you know, and here we are today with Open and in the pipeline, you know, close close to a 100 of them. So we have good things going on with Conrad, LXR, I mentioned that in the prepared comments. So I feel super good about what's going I mean, I think from a loyalty point of view, we have as many dots on the map as anybody in the products that if I look at redemption behavior, our customers are really loving particularly with the SLH relationship. And then I look at our core, you know, the core three brands we have in luxury, you know, they're performing well, They're pipeline is spectacular. Growth growth rate, you know, Growth rate looks really, really good over the next few years. So We're getting momentum across all of them. We're when you wake up in ten years, you know, I think it's like by volume and numbers and economics, it'll be you know, the upper mid market, you know, lower upper ups market where you're gonna have the most action just because that's where you know, the largest segment of customers is. And then the others will do great, but, you know, the volume the volume ends up where you would think it would end up. It ends up where the population you know, demographically is. Operator: The next question will come from Stephen Grambling with Morgan Stanley. Please go ahead. Stephen Grambling: Hey, thanks. Maybe another angle on Nug. You've been able to build, as you said, a best in class pipeline while just as importantly keeping CapEx and key money effectively flat in the guidance. So love to get your latest thoughts on how overall development environment is changing both in terms of competition and then also the use of key money as rates and liquidity are improving? And any thoughts on the balance of new development versus conversions from here? Christopher Nassetta: Yeah. I'll start. Maybe Kevin will finish whatever I miss. Listen, we have been really disciplined. I'd say it every time about key money. If you look at the broader market, key money is definitely edged up, but if you look at you know, if you look at our numbers, like, rooms under construction, the numb the percentage of deals that key money is, like, 9%. Hasn't really changed a lot. If you look at the average, we're saying up a couple 100,000,000 this year. Our average over the last bunch of years, it goes up, it goes down a couple years ago, we were 100. Last year, we were a little high. It's sort of as average plus or minus a couple 100,000,000. And if you look at the types of deals that we're doing, like, last I look at the data, I think it's 85% or 90% are in the upper upscale or above in terms of where we utilize key money. So That's where it's always been, the more complicated, bigger, full service, convention, and luxury. That's where, you know, historically, there's been more demand for key money to get deals done. It's much more competitive. And that's still where we see it. I mean, is there a has it creeped in a little bit? Yeah. But listen, when it comes down to it, like, we think our brands perform better. And we you know, with a little bit of key money versus a lot of market share, we think, is a bad trait for most owners. And we do we I you know, our teams are well equipped to sort of, you know, discuss that discuss that trade off. But in the end, owners as you are, as as buyers of the stock, they're trying to make money, and they're ultimately gonna I think, evaluate most owners are going to evaluate that trade off in a rational way. So you know, we we we feel good about our ability to keep doing what we're doing. It's not without some pressures and market dynamics, but if we keep delivering, you know, profitability the way we are, I feel I feel good about it. In terms of conversions, I think maybe the only thing I missed you know, obviously, last year, you know, was a big number, 40%. You know, we tend to see in, you know, more challenging environments, those numbers go the numbers go up. That's sort of a standard thing, which wouldn't be surprising. Now at the same time, we have a lot more shots on goal. We been adding brands. I talked about a couple of departments in outset, So we do think, know, conversions are gonna be a bigger part of our future than they might have been on average over the last ten years. I do not believe they will stabilize at 40%. You know, I think they will be in the range of 30 to 40% and it'll depend on, you know, sort of what's going on in the world. But I don't think anytime soon, we'll go back down into the twenties. If you look back you know, on average over know, over, you know, an extended period of time, it's been more in the mid to upper twenties. I do think we're sort of more permanently above that, both because the performance of the brands just more shots on goal with varied conversion friendly brands. So what did I miss, Kevin? Kevin Jacobs: I just on the financing environment, I'd just add. I think it's good and getting better and I think convert that supports conversions because the cash flow producing assets easier to finance than ground up. Although we did, know, we we referenced the ground up improvement stats in our prepared remarks for a reason that, you know, our brands the other thing in addition to conversions with them being cash flow producing assets, our brands are more financeable, right? So just in the same way that owners think they're gonna make more money with us and they do, lenders have more confidence that they're gonna get repaid if our if our brands associate with it. And so it becomes that much easier to finance. That's the only thing I know. Good to add. Operator: The next question will come from Steven Donald Pizzella with Deutsche Bank. Please go ahead. Steven Donald Pizzella: Hey, good morning, everyone, and thank you for taking our question. Just thinking about the 1% to 2% RevPAR guide for the full year in the first quarter, can you talk about how you expect RevPAR to play out from a quarterly cadence perspective throughout the year? Knowing the comps do get easier, you get the World Cup in the middle of year. And then it sounds like increased optimism in select service RevPAR accelerating. Could the RevPAR outlook be conservative? Kevin Jacobs: I would give Kevin the first part and I'll take the second. I mean, I'd say it always can be. Right? I mean, I think we you know, Chris talked a lot about the underpinnings that we see in the economy and it will it's we're halfway through the first quarter, right? So there's a lot of year but I think I would say they always can be if the things that we're seeing in the data persist, you know, of course, it could be better. And then in terms of the quarter, know, there's a lot this is you know, we've been doing this a long time. I think this is probably the year with the most complicated puts and takes on calendar that that I can remember in a while. But, you know, yeah, World Cup is second going into third, the government shutdown was fourth. So I think it's pretty well balanced over the course of the year in terms of the way it's gonna play out. And, you know, you could always surprise to the upside. I mean, World Cup's a good example. Right? Depends on who makes it through in into the final rounds and which countries are those, and it'll generate more demand. It can always vary, but I think it's pretty well balanced for the course of the year. But well said. I mean, I you know, when you look at everything I covered you know, answering Shaun's question about the macro, I applied and Kevin just reiterated some of the micro things. And then you apply you know, the comp issues that you had last year. Again, that's not to say we won't have other new things this year. It's hard not to feel pretty good about that range of I mean, not going go so far as to say I'd take the over versus the under, but I probably would. Operator: Next question will come from Robin Margaret Farley with UBS. Please go ahead. Robin Margaret Farley: Great. Thank you. I have a small question for Kevin and maybe a medium-sized question for Chris, if that kind of adds up to one question. Kevin, EPS two, but give it a shot. Yeah. The you know, your EPS guide typically, EPS grows at a higher rate than your EBITDA growth. And just kind of wondering what it's not obvious like your share count is down, looks like your tax rate is going be down. So the EPS growth rate sort of not not being higher than EBITDA growth? Is there just something obviously I'm not seeing? And then the medium-sized question for Chris. Chris, you mentioned your in your remarks, that you'll have more brands later this year. And I know last year, you talked about some things that you were gonna launch that you have, and it's not like maybe that would sort of have filled out your portfolio. So just wondering what is it that is it like white space things like apartment by Hilton or like because it it had seemed like maybe your portfolio would be pretty filled out with the brand launches you had talked about for last year. So just kind of your thoughts on that. Thank you. Kevin Jacobs: Kevin, answer the first the part of your first part of your one question. Yes. Robin, I don't know if it's a small question because EPS growth is pretty important to us and to investors, but it's a relatively small answer. It's I mean, you mentioned share count. We guide the share count. And then you got a couple of onetime items primarily related to interest expense associated with not just re-leveraging as EBITDA grows, but also implied in our guidance is moving closer to or actually at the midpoint of our range of our guided range for leverage is close to three and a quarter. So it's just those two factors, and that's all there is to it. If you adjust it for those two things, EPS growth is in the low double digits. The is always gonna happen just because we're always gonna be buying back shares. And the and the second At some point, we're not gonna keep increasing leverage. So that's having the effect. So it's those two things and that's it. Yeah. Just transitional. And second, I mentioned one. I mean, we have we're always in the skunk works looking at lots of things. The things that I think are most imminent are another lifestyle brand in between Motto and Canopy. So know, sort of say, upper mid scale, lower upper upscale, segment. We think there's a huge TAM for that as we've been thinking about, you know, both Motto and Canopy, which are doing great. You know, there we just think there's a big white space as we talk to customers and do the research. And as we talk to owners around the world, we think there's a lot of demand. And we think, as I said before, there there's a big TAM undergraduate, which I, you know, has, I guess, been written about because I have talked about it. I think I talked about it on the last call. We're really excited about that. That's imminent. You know, in the next sixty days. Again, you know, graduates fabulous, performing super well, pipeline's building really well. But they're, you know, but they're a whole bunch of markets hundreds and hundreds just in The US alone, probably 400. That really you know, can't afford to build a full graduate, which is an upper upscale brand. And need something more in the mid scale space. But they like the theme and the idea of what graduate ethos of the brand. And so we're gonna we wanna give all those college towns the same opportunity to have a really great graduate approach, and undergraduate, we think, is a fabulous way to do that. We have a couple other things we're working on. We you know, that are you know, will be a you know, we'll talk more about as as we get a little further along. Student housing associated with graduate something we're working on. I wouldn't say it's imminent, but we think the TAM is reasonable and you know, and worth doing, and so we're doing the work. And you know, a couple of other ideas, but I'll leave it. The two that are coming soon, you know, are the lifestyle and well, they're both in lifestyle category lifestyle upper mid scale and grad undergraduate. Operator: The next question will come from Elizabeth Dove with Goldman Sachs. Please go ahead. Elizabeth Dove: Hi there. Good morning. Thanks for taking my question. I wanted to touch on the non-RevPAR fee side of things. I think back at your Investor Day a few years ago now, you'd called out the algo in the kind of low double-digit range back then. You mentioned this morning, it was kind of an outperformer. Last year. Anything you'd share on how this evolves and the outlook for that over time, I guess, on the credit card side of things? Kevin Jacobs: Yes, Lizzie. I think we probably will stick to generally you referenced the Investor Day generally what said and what we said has sort of played out that we think that our non-RevPAR driven fees will continue to grow at above algorithm. Some of that's a credit card, some of that's timeshare. Some of that's our purchasing business. We've got some other ideas that we're working on in terms of, you know, commercializing our customer base to continue grow the business. I think we've done a pretty good job of that over time. And then our credit card program, I'm sure Chris may want to add something to this. Look, we have a fantastic credit card program that continues to be among the best and most popular cards in our industry and with Amex. Drives a lot of customer engagement, drives great economics both for our system and for us. And beyond that, we don't we tend to not talk all that much about it in terms of you know, some some of the details are competitively sensitive, but we think that that will continue to grow above algorithm as well for a long time. Operator: The next question will come from Brandt Antoine Montour with Barclays. Please go ahead. Brandt Antoine Montour: Hi, good morning everybody. Thanks for taking my question. I wanted to ask about group business. I don't think you guys gave a PACE number, but a PACE for 26 would be would be helpful. And then and then the real question though is really about how, you know, we came into last year, right, with really good group pace and then, of course, group in The US specifically did not it wasn't realized to that level because obviously because of tariffs. Would you say sitting here today knowing what you know about how that business works, we would need a shock to the demand side kind of like something we saw last March for group not to be an acceleration this year versus last year. Christopher Nassetta: Yes. You would. I mean, right now, we feel really good. I say coming into the year, relative to our expectation for the year, we feel great. We're in sort of like mid single digits system wide group position. Up for the year, you know, and that's against, obviously, with a one to 2% RevPAR guidance, you know, something you know, an expectation that when we finish the year, it would be somewhat lower than that. We'll see, but we feel yes, we feel like we got the solid base on the books. We think group will be the outperformer this year. We would have thought that last year, but for the reasons you described, it didn't end up being the case. But if you look at the categories, I'd say we believe all three other major categories, group leisure and transient are going to grow for the reasons I've spent too much time talking about, you know, driven by the macro tailwinds. We do think it will be in that order. You know, we do think it will be group at the top, short any sort of unforeseen events leisure, and then and then business transient. But we think we'll see healthy healthy growth across all segments of the group. Leading the way. Operator: The next question will come from Michael Joseph Bellisario with Baird. Please go ahead. Michael Joseph Bellisario: Thanks. Good morning, everyone. Just sort of along those same lines, just in terms of the booking window, maybe what changes have you seen recently? How has that evolved or improved? And then more confidence from meeting planners? Maybe what are you hearing from them recently? Thanks. Christopher Nassetta: Yeah. But the booking window is a been stable. It actually extended, by one day since last quarter. So not, you know it went from twenty six days to twenty seven days. So, I mean, not I would say that's relatively stable. But and what we're hearing from frankly across the board, what we're hearing from all in all segments feels pretty good. If you think about the business transient, we're talking to those customers all the time. I think the general theme is they all believe they're gonna travel more. This year for all the reasons. Like, you know, everybody's gotta get out than what they think gonna be a little bit you know, stronger economy. And they know they're gonna have to pay a little bit more because that's life and the environment we're in. And I'd say same on the group side, you know, we talk I'm talking to our head of sales all the time and I think I think, you know, his view is, you know, the trajectory you know, again, short, unforeseen circumstances that rattle that rattle, people, in terms of broader macro stuff. The sentiment the sentiment is quite good and, you know, people people have a healthy attitude about continuing to to book business. So it all feels pretty good. Operator: The next question will come from Patrick Scholes with Truist Securities. Please go ahead. Patrick Scholes: Great. Thank you. We certainly missed your Pollyanna polyaneism at the ALICE conference two weeks ago. I take any offense at that. How about instead of Pollyanna's? I you know, my my vocabulary that in a positive way. Wasn't the most upbeat conference. I get certainly could've used your mean, if we could've used your enthusiasm there, that you spoke about. I was otherwise occupied doing during my day job. Understood. Understood. A credit excuse me. A question on your credit card contract. Is there anything in your existing credit card contract that would allow for a step up in the royalty rate? And if so, how likely might that be that it would get triggered? Christopher Nassetta: Okay. After yesterday, I suspect that we might get this question. Let let's Sure. We Kevin gave the answer. We're not gonna get into, like, and can't legally get into all the terms of Gotcha. It's contractually we redid our suffice to say, we read redid our deals and then many years ago, and then redid them again again a couple years ago. We feel really good about the contract relationship we have with all of them, Amex obviously being the most dominant We feel really good about the growth rate that's built in you know, to the contract as well as the natural growth that's coming because the cards and acquisition of customers and the spend on the cards given given customers love the cards. Is very favorable. So I would not set an expectation that there's some big announcement coming from us You know, we're we're doing great. It's growing above algorithm, and we are highly confident it will continue to grow above algorithm for many years to come. Patrick Scholes: Okay. Thank you. And I'll also take the over on RevPAR as well. Christopher Nassetta: Good. I like it. Why are you being such a Pollyanna? Oh, well, no. I mean that in a positive way. Patrick Scholes: No. The the the perfect perfect storm of holiday shifts and World Cup and Christopher Nassetta: Alright. We'll see. Thank you. Operator: The next question will come from Trey Bowers with Wells Fargo. Please go ahead. Trey Bowers: Hey, guys. Thanks for the question. Lot of what I was gonna ask has been asked already, but I guess it's been pretty quiet from you guys on an inorganic basis for the last year. And you haven't really needed it. Organic growth has been best in class. But just curious what you're seeing out there in terms of opportunities, you expect that that should pick up over time? Just in anything around the M and A environment as we go forward. Thanks so much. Christopher Nassetta: Yeah. I get asked a lot, obviously. You know, if you look at the history, of the time, I and we have been here you know, eighteen going on nineteen years, other than two years ago with two, what I would describe, one micro transaction and one you know, relatively small transaction. We have not done any M and A, so all of our growth where we're, what, I don't know, two or three times system size in that timeframe has been organic. Where we've gone from eight brands to 26 brands You heard me talk about another couple babies were getting ready to birth. So we think that we have built a very, very good skill set. I would argue industry leading skill set to drive organic growth, which is not just, you know, development teams doing a great job, which of course they are. It's about our commercial teams doing a great job delivering performance. It's about our brand teams doing a great job, you know, delivering great products that customers want. We think it is you know, it is our alpha. That is that is what we've done, I think, with all respect. A bunch of great competitors. We've done more of and better than our competition. And as you know, that is a heck of a lot better way to drive overall returns. Because every time we do it, the returns on that are infinite versus going out and buying things. We found unique circumstances in the two we did a couple of years ago that were really driven by the times, like interest rates spiking, the environment slowing down, you know, things got a bit rattled, we we found some, like, unique seams that on things that we really liked. But that is not the core of what we do. I would I would say we look at everything that's out there. I don't see anything. I would not I would be I would be I would say I don't see anything on the horizon. I always have to say, because in this seat, you do never say never, but don't miss that. Not working on anything that I think is real. I think you should think about us as an organic growth story. We'd love what we have. We love you know, the skill set we've we've built, and we think it is the best way to drive the best returns, and we are you know, equally focused on capital allocation to the running the business. Obviously, the more we can do this organically, the more free cash flow spits out the more shares we buy, the more we become an even better serial compounder and that's our strategy. So you know, it you know, I grew up long ago as a Kappa. It's like, you know, we gotta run the business well, got to drive share, drive growth, have great brands, do a great job for customers. Have a great culture, all that. But when we spin it out the other end, we got to allocate capital really in intelligently and you know, again, we think we're pretty good at that think we can keep growing at this level. That we're talking about, the six to seven range for an extended period of time without having to buy growth. And we think that's going to drive a better outcome in terms of how we perform over the next one, two, three, five, ten, fifteen years. As it as it has over the last ten years. Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the call back over to Chris Nassetta for any additional or closing remarks. Please go ahead. Christopher Nassetta: As always, we appreciate you guys spending the time with us. As been a dynamic environment. Obviously, over the last year, you could sense my and our optimism about seeing sort of, you know, things turning the corner. We'll look forward to hopefully how we continue to see the first quarter. things improve along the lines that I described after we finish I hope everybody has a great day and a great week. Take care. Thanks. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to InvenTrust Properties Corp. Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Becky, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and a replay will be available on the Investors section of the company's website at inventrustproperties.com. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. I would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir. Dan Lombardo: Thank you, operator. Good morning, everyone. And thank you for joining us today. On the call from the InvenTrust Properties Corp. team is DJ Busch, President and Chief Executive Officer, Mike Phillips, Chief Financial Officer, Christy David, Chief Operating Officer, and Dave Heinberger, Chief Investment Officer. Following the team's prepared remarks, the lines will be open for questions. As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and financial performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainty. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release. In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials which are posted on our Investor Relations website. With that, I'll turn the call over to DJ. DJ Busch: Thanks, Dan, and good morning, everyone. Appreciate you joining us today. 2025 was an exceptional year for InvenTrust Properties Corp., marked by strong operating performance and disciplined execution. Same property NOI grew 5.3%, marking our second straight year above 5% and our fifth consecutive year of growth exceeding 4%. This performance speaks to the quality of our portfolio, the strength of our platform, and the consistent execution of InvenTrust Properties Corp.'s team. NAREIT FFO finished the year at the high end of our guidance range of $1.89 per share, representing 6.2% growth year over year. Our balance sheet remains well-positioned with sector low net debt to adjusted EBITDA and ample liquidity to support our expansion objectives. From a strategic standpoint, the year was equally transformative. We completed the successful sale of five California assets and efficiently redeployed that capital into higher growth Sunbelt markets. In total, we acquired 10 properties, including two in the fourth quarter, representing more than $460 million of gross acquisitions during the year. These investments deepen our geographic concentration and grocery exposure in areas where we see long-term population expansion, limited new supply, and the ability to leverage our operating platform. Christy will walk through our most recent acquisitions in more detail shortly. Institutional and private capital remains active in the open-air retail space, particularly in grocery-anchored assets. While that interest validates positive trends in our sector, it also reinforces the importance of discipline. We remain selective in our acquisition approach, focusing on opportunities that meet our return thresholds, enhance our operational footprint, and offer clear avenues for value creation through leasing and asset management. Our objective is to grow over time in a thoughtful, prudent manner. Beyond acquisitions, we continue to invest internally through targeted initiatives designed to maintain the overall quality and competitiveness of our portfolio while driving incremental NOI. These projects focus on remerchandising, repositioning anchor space, and selectively adding outparcels at existing centers. While redevelopment is not intended to be a focal point of our business model, we expect these efforts to contribute approximately 50 to 100 basis points of incremental NOI growth annually over the next couple of years. The retail landscape continued to demonstrate notable resilience in 2025. While store closures increased year over year, new retail construction stayed at multi-decade lows, development economics remain challenged, creating a constructive backdrop for owners of high-quality, well-located centers. At the same time, retailers are operating with better information as it relates to real estate decision-making, applying clearer return thresholds, and benefiting from more flexible supply chains. These factors favor landlords who can provide the right space in the right trade areas, a dynamic that aligns well with our focus and footprint. According to CoStar, top-performing retail markets in 2025 included Charlotte, Tampa, Orlando, and Dallas. Charlotte, where we acquired two properties during the year, stands out for robust population growth, job creation, and suburban development, ranking first among major US markets for retail rent increases. We are seeing similar trends in Phoenix, another area where we continue to expand our presence. Our strong performance in 2025 positions us well into 2026. That outlook is reflected in our guidance with core FFO per share growth expected to be in the mid-single-digit range and net investment activity of approximately $300 million. As always, strategy remains simple. Continue to expand our Sunbelt-focused portfolio and execute at the proper level to drive sustainable cash flow growth. With that, I'll turn it over to Mike to walk through the financials in more detail. Mike Phillips: Thanks, DJ, and good morning, everyone. For the full year, same property NOI totaled $171 million, representing growth of 5.3%, driven primarily by embedded rent escalations, which contributed approximately 160 basis points. Occupancy gains added about 80 basis points, while positive leasing spreads contributed roughly 90 basis points. Redevelopment activity provided an additional 70 basis points, with percentage and ancillary rents adding around 20 basis points, and net expense reimbursements contributing 130 basis points. These drivers were partially offset by a 20 basis point headwind from bad debt reserves. Same property NOI for the fourth quarter was $44.3 million, up 3% year over year. For the full year, NAREIT FFO totaled $147.8 million or $1.89 per diluted share, reflecting an increase of 6.2% over 2024. Core FFO rose 5.8% to $1.83 per share year over year. FFO growth was primarily driven by same property NOI net acquisition activity, partially offset by the impact of a higher weighted average share count. In the fourth quarter, NAREIT FFO came in at $36.8 million or $0.47 per diluted share, representing a 4.4% increase compared to 2024. Core FFO increased 7% to $0.46 per diluted share for the three months ending December 31. Our balance sheet remains exceptionally strong, providing InvenTrust Properties Corp. with flexibility and liquidity to execute our long-term growth strategy. At year-end, total liquidity stood at $480 million, including $35 million in cash and $445 million available under our revolving credit facility. Our weighted average interest rate is 4%, and our net leverage ratio is 26.3%. Net debt to adjusted EBITDA remained at a sector low 4.5 times on a trailing twelve-month basis. During the quarter, we completed two acquisitions totaling $109 million, funded with our available liquidity and the assumption of approximately $30 million of secured property-level debt. The board of directors approved a 5% increase to InvenTrust Properties Corp.'s annual cash dividend for 2026. The new annualized rate of $1 per share will be reflected in the April dividend payment. Turning to 2026 guidance, we expect full-year same property NOI growth in a range of 3.25% to 4.25%. This outlook incorporates a bad debt reserve of approximately 30 to 70 basis points. For NAREIT FFO, we are providing guidance in a range of $1.97 to $2.03 per share, representing a 5.8% increase at the midpoint compared to 2025. Our core FFO guidance is $1.91 to $1.95 per share, reflecting a 5.5% increase at the midpoint year over year. As discussed previously, the interest rate on our $200 million term loan swaps reset from approximately 2.7% to 4.5%, which will create a modest headwind to FFO for the last three months of the year. And with that, I'll turn the call over to Christy to discuss our portfolio activity. Christy David: Thanks, Mike. The retail landscape in 2025 was marked by steady execution and improving operating momentum. Our leasing teams performed well, converting renewals at attractive spreads and filling small shop vacancies with high-quality operators that enhance tenant mix and support the long-term performance of our centers. Leasing activity remained positive across the portfolio, with grocery, health and wellness, specialty food, and value-oriented concepts showing the strongest demand. Throughout InvenTrust Properties Corp.'s asset base, foot traffic and retail sales have remained durable, while our watch list of at-risk tenants is minimal. One area where execution has been particularly evident is in the performance of our acquisition properties acquired in 2024 and 2025. New and renewal lease spreads have averaged approximately 21%, demonstrating our ability to identify below-market opportunities. This showcases our leasing team's ability to unlock growth even in well-occupied centers. From a tenant health perspective, the story remains resilient. Retail sales are up, and announced store openings continue to exceed closures, signaling sustained confidence in physical retail. While turnover is a normal part of the strip center business, our tenant rosters are as strong as they have been at any point. Across our markets, retailers are increasingly focused on optimizing store fleets rather than pulling back, with new concepts actively pursuing space in well-located centers. The strength is evident in our leasing results, with several key metrics reaching their highest level since our listing in 2021. New leases executed in 2025 achieved a 30.9% spread, while renewals averaged 10.9%, resulting in blended comparable leasing spreads at 13.3%. Small shop lease occupancy also reached a new all-time high of 94%, and annual rent escalators on new and renewal small shop leases executed in 2025 averaged over 3.1%, the highest level since our listing. At year-end, total lease occupancy was 96.7%, and our retention rate was 85%, reflecting the planned departure of a single anchor at our Gateway Market Center property in Saint Petersburg, Florida, which is currently in the early stages of a transformational redevelopment. Excluding that space, our retention rate would be consistent with previous quarters at approximately 90%, and our lease occupancy rate would have been flat sequentially. Turning to acquisitions, we added two high-quality assets to the portfolio during the quarter. The first is Mesa Shores in Mesa, Arizona, a rare dual grocery-anchored center by Trader Joe's and Sprouts Farmers Market. We also expanded our Florida presence with the acquisition of Daniel's Marketplace in Fort Myers, anchored by Whole Foods. Both assets align with our Sunbelt necessity-based strategy and tenant mixes weighted toward national and regional brands, with upside through small shop leasing and merchandising. As we head into 2026, operating fundamentals for shopping center REITs remain solid and supportive of our platform. InvenTrust Properties Corp.'s portfolio is well-positioned for tenants focused on essential uses and services, omnichannel fulfillment, and seeking benefit from long-term demographic growth across the Sunbelt. Operator, we are now ready to open the lines to take questions. Thank you. Operator: If you wish to ask a question, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Our first question comes from Andrew Reale from Bank of America. Your line is now open. Please go ahead. Andrew Reale: Good morning, everyone. Thanks for taking my questions. I guess, first, I was just wondering if you could maybe talk a little bit more about your funding sources for the $300 million of net acquisition activity. I mean, it sounds like you have some capacity on the balance sheet, might lean into that a bit. So I was wondering kind of what type of debt would you look to issue? What type of pricing would you expect? And then just with the greater interest expense assumption in the guide, what portion of that is from the swaps rolling over and what portion of that would be from incremental debt? Thank you. Mike Phillips: Yeah. Andrew, this is Mike. I can start. So, yeah, you hit on the ad. We have plenty of room on the balance sheet to fund acquisitions this year. That's kind of the plan going into the forecasting. We have $300 million kind of at the midpoint net acquisitions. What you could see from us this year is using our line of credit probably a little bit more than we have in the past. And then opportunistically hitting the market, probably the two options that are best for us are in the private placement market or you could see some more bank debt. We'd probably prefer to use more permanent long-term financing through the private placement market. And that pricing right now is probably depending on anywhere between a 125 and a 150 basis point spreads. I think you asked about, like, the headwind for the swap spreading off in 2026, obviously, those don't burn off until September, so it's probably about a 1 to 1.5 penny headwind going into the year. Andrew Reale: Okay. And then maybe just a follow-up on that. Could you just help us think about if you have a new leverage target range and I guess just, you know, how high you'd be willing to take up that leverage in aggregate? Thanks. Mike Phillips: Yeah. Yeah. So the good thing is we can kind of fund through the balance sheet and not really come up to our leverage targets by the end of the year. So we can do the $300 million this year, and that's helped with us on a forward basis at kind of five times net debt to adjusted EBITDA, and we'd be comfortable really not going above 5.5 times on a forward basis at any given time. DJ Busch: Yeah. Maybe just to add on that, Andrew. I think, you know, when we think about the balance sheet, obviously, you know, being one of the lower levered companies, we do have the ability to self-fund through that incremental debt, which is an important avenue for us over the next couple of years. You can see that as it relates to the investment activity that we're trying to accomplish this year. You know, we're very protective of the balance sheet. Obviously, we try and keep it very simple. The maturity schedule is extremely manageable. And as Mike said, you know, we're always trying to gear towards that, you know, mid-fives on a forward basis. You know? But on any given quarter, you know, we're going to be opportunistic while protecting, you know, the balance sheet. Andrew Reale: Okay. Thank you. Operator: Our next question comes from Linda Tsai from Jefferies. Linda Tsai: Hi, good morning. On Amazon Go and Fresh closing stores, does that open any opportunities to open more Whole Foods, increase that 2% as a percentage of ABR in your portfolio? DJ Busch: Well, we don't actually have any of the Amazon Go's or any Amazon brick and mortar, I guess, in our portfolio. We obviously did a site analysis as it relates to our portfolio, specifically as it relates to our Whole Foods locations to make sure that we weren't at any type of risk if and when they decide to start transitioning some of those boxes. The good news is we are very well protected with our Whole Foods. Every Whole Foods in the InvenTrust Properties Corp. portfolio operates exceptionally well. Most of them are looking to add additional square footage if they can, but they're very profitable and have high sales volumes. The more interesting thing is, you know, the Whole Foods banner is obviously one that's, you know, done quite well for some time. It serves a very particular part of the market very well. And I think seeing Amazon lean back into that banner is positive for institutional quality shopping centers. Linda Tsai: Thanks. And then one of your larger peers discussed recently seeing lower CapEx requirements in their portfolio, and you highlighted the characteristics in your own portfolio previously. Are you seeing 26% as largely a renewals business again? And is this percentage of CapEx 20% of NOI continue to come down? DJ Busch: Yeah. So good question. I think that's a fair statement. We expect, and I think we've talked to you, Linda, and many others about the dynamics going forward as we get closer to kind of frictional vacancy. We see that as a very positive outcome for free cash flow for our business. The extent, you know, if you think about where our credit quality is, and obviously in our guidance, we've got into a lower credit loss this year versus the previous years. And a lot of that's due to the better credit quality and merchandise mix in the portfolio. So as that merchandise mix has improved, as the bankruptcy risk has been reduced in the InvenTrust Properties Corp. portfolio, we expect to, with the success that our retailers are having, we do expect renewals to be a bigger part of our business as we look forward. And what that means is growth with lower CapEx, to your point. So that 20%, which is inclusive of incremental redevelopment opportunities as well, but that 20% should continue to come down in the form of the two major categories being landlord work and tenant capital. So as we see that, we're really optimistic and excited about the ability to just have our current tenants be successful with us for the coming years and growing free cash flow without spending as much capital as we have in the past. We're trying to grow occupancy and fill backfill spaces that perhaps were bankrupt. Linda Tsai: Thank you, and good luck. Operator: Thank you. Our next question comes from Cooper Clark from Wells Fargo. Cooper Clark: Great. Thanks for taking the question. I wanted to ask about the $300 million net acquisitions guide. Curious if you could speak to the acquisition pipeline as it stands today in terms of volume and pricing. Curious how much of the acquisition volume within guidance is either under contract or deals where you have some certainty of closing as opposed to more speculative acquisitions? DJ Busch: Yeah. No. Good question, Cooper. Thanks. And so what I would say is, you know, as we do every year, we come into the year, we look at our pipeline, we evaluate the current opportunity set, and we try to provide a guidepost or a benchmark of what we're trying to accomplish this year. I think with the $300 million net investment activity, what we really are trying to show is that we're expecting to continue to grow our business, leverage our platform, and use the balance sheet, which we haven't done in a material way in the past, while still managing at a very low leverage level. Directly to your point, almost half of that $300 million has either been ordered or is under contract. We expect to close probably in the early part of this year. So we have really good visibility on about half, just under half of that $300 million. As we look further into the pipeline, there's a lot of exciting opportunities. It's still a very competitive market, but we've continued to find assets and opportunities that fit our criteria, which is a going-in yield, you know, in the high fives, low sixes, with great growth that supplements or complements, I should say, the portfolio quite well, and getting into the unlevered returns kind of in that low to mid-sevens range. And that's what we continue to see. You're going to, you know, as Christy alluded to in her prepared remarks, Phoenix, the Carolinas, smaller secondary markets that are very complementary to our portfolio, all being in Sunbelt, where we're seeing demographic trends that are still very favorable relative to elsewhere in the country. You're going to see a lot of the same. So if you look at the 10 assets that we acquired in 2025, you should see a very similar kind of opportunity set as we move through 2026. Cooper Clark: Great. And then just switching to the disposition cadence. Just curious how we should think about dispositions this year within the context of your last property in California and then potentially recycling out of some other lower growth assets? DJ Busch: Yeah. That's a good question. So last year was unique, right, with the California opportunity. That was something where we saw an opportunity to recycle capital in a creative manner, and we decided to jump on that. Obviously, the success of California front-loaded our acquisitions in 2025. That's not the strategy for 2026. What you should see is we will kind of pull forward and push back dispositions as it relates to the opportunities that we're seeing in our acquisition pipeline. With the exception of California, obviously, we have one asset in California that we've had an identified buyer for for quite some time. We're just going through some administrative and environmental stuff that is unique to California, and we do expect to close that in 2026. Beyond the last California asset that we have, the dispositions will be a source of capital once acquisition opportunities are identified. Cooper Clark: Great. Thank you. Operator: Thank you. Our next question is from Michael Gorman from BTIG. Your line is now open. Please go ahead. Michael Gorman: Yeah. Thanks. Good morning. Mike, if we could just go back to the same store for a second. I apologize if I missed it. But did you mention on the revenue side, any potential impact from the signed to not open pipeline the 2026 growth? And then maybe on the expense side, are there any same store expense headwinds just from some of the weather that we saw go through the Southeast earlier this year? Mike Phillips: Yeah. I'll start with that part, Mike. So nothing material on any of the weather events that happened in the South and Southeast. We're seeing in our portfolio right now. As far as signed not open, I don't think I mentioned it. We have about 2% of ABR, just $5.5 million. We do expect that mostly small shops. So it's like 80% of that is small shops. So we expect most of that to come online this year, about 95%. I think, importantly, of that 95%, about 50% of that will actually be revenue recognized this year. Michael Gorman: Okay. Great. That's helpful. And then maybe switching back to the transaction side. For the Fort Myers acquisition, I'm curious. It's an interesting asset. Obviously, it's grocery-anchored, but then a lot of very recognizable high-end discretionary brands. I'm just wondering maybe how that impacted the competitive set for an asset like that and then also how the assumable financing played a role in how competitive it got for an asset like that and maybe how that translates into other opportunities that you're seeing where it's assumable financing versus not and where you feel your advantage is in the transactions market there. DJ Busch: Thanks. And, Michael, no. I'm happy to take that. You know, Daniels was something that we identified and were excited about. Obviously, we have one other or another asset, and it's a market that we're trying to grow in as well. West Florida is something that has been of interest to InvenTrust Properties Corp. As you mentioned, it is grocery-anchored, but there is, dare I say, a little bit of a lifestyle component with some of the merchandise mix there. It's a great complement to our portfolio. You know, if you think about the construct of the InvenTrust Properties Corp. portfolio, about two-thirds of it is kind of right down the fairways. Grocery-anchored neighborhood types of centers that are going to be very stable growth, albeit maybe a little bit lower because there's a bigger percentage of the income coming from the grocer itself. And then the other third is it can be, you know, bigger box, lifestyle center, unanchored. So what we've built here is a portfolio that has kind of graphs from all different pieces of the open-air shopping center segment. All have different somewhat characteristics and growth profiles. But it fits really well, you know, when you blend it all together. So we'll continue to look at assets like Daniel's. But what you'll see as you know, we move in 2026, you'll see some of those neighborhood core grocery food centers as well. Oh, and let me address from a financing standpoint, we don't let that really change the way we underwrite properties. We look at it as if we look at it on an unlevered basis. We want to make sure that we're getting to the types of returns that make sense for the portfolio and the growth profile that makes for the portfolio. Having said that, with the competition, you will see some of these ones that have assumable financing get more competitive than others. That necessarily wasn't the case for Daniel's because we were able to get comfortable with the returns that were on the road, and we're excited about the opportunities that we're already seeing there. Michael Gorman: That's helpful. Thanks. And I have to agree. Was up by the Daniel's Marketplace about a week ago, and it's a great asset and a great location on a great corner. So congrats on that one. Thanks for the time. Operator: Thank you. Our next question comes from Hong Zhang from JPMorgan. Hong Zhang: Yeah. Hey. I guess, if I look at your redevelopment pipeline, the majority of your projects are expected to complete in the first half of the year. How should we think about your activating future projects in the pipeline in the near term, especially as it relates to Gateway Market Center, which I think is a chunkier asset? DJ Busch: Yeah. So like I mentioned in the prepared remarks, you know, the reason all the pipeline is interesting is, you know, it's really just reinvesting in our centers and improving the merchandise mix. You know? And like I said, you know, some of that will be added to GLA, but a lot of it's not. You know, one of the things that has been the most important tailwind in our business over the past couple of years, which has allowed us to grow same store by 5% the last two years and 4% over 4% for the five previous years, is the scarcity of quality space. And having that leverage is really what's been driving the growth across the shopping center sector, but certainly for the higher quality portfolios in markets where, you know, there's been really good demographic trends. As it relates to Gateway, that's one of the larger opportunities for us. And it's really going to be, you know, the relocation and remodeling of a high-quality Southeastern grocer and reimagining the center for the long term. So what we're going to do there is just fortify that asset for the many years to come. And those are the types of opportunities that we, you know, we're patient, and that one will probably start later this year, but it's going to take a while to stabilize. But once it does, it'll be an asset that, you know, will serve that submarket at Saint Petersburg, you know, for decades to come. Hong Zhang: Got it. Thank you. Operator: Thank you. Our next question comes from Paulina Rojas Schmidt from Green Street. Your line is now open. Please go ahead. Paulina Rojas Schmidt: Good morning. Most peers have highlighted a very competitive market. Do you think pricing has shifted over the past three months? Or has the level of competitiveness largely remained consistent? DJ Busch: I would say it feels consistent, and it really depends on what comes to market. And I think last year, we were very fortunate with some of the opportunities that we were able to run down, whether it be on market or off market. Would expect 2026 to be similar. But I will say it's hard to pay whether, you know, at the 30,000-foot level of pricing has moved in a material way. The competition is still very strong. We're seeing it across different the different kind of asset types that we or property types, I should say, that we've been looking at. Fortunately, we've had some repeat with the same sellers in some cases and off-market opportunities, which will continue to bet those huge those tend to take a little bit longer. But I will say, we always feel when we kind of do a postmortem on the assets that we have bought over the last couple of years, we always feel better six months later. So that's an indication of feeling that we got in at the right time. I think that would suggest that competition is going to continue to be there, perhaps pricing is going to continue to remain pretty sticky in our space. And there is private capital formations, as I know many of our peers have talked about, that's a real thing. Many of those folks are, whether they're looking for platforms or single assets, you know, there's a lot of excitement and rotation of capital. I think they could be coming in retail, which should benefit us longer term from a valuation perspective. Paulina Rojas Schmidt: Thank you. And my other question is, I feel like we have gotten used to rates bidding and raising guidance. Given the background has been so positive, what would take for you to exceed your high end of same property NOI guidance? DJ Busch: Well, yeah, it's a great question. And, you know, look, I think one of the things that we tried to do at the beginning of the year is we want to be, you know, we're we set guidance to make sure that we're setting expectations appropriately. The reality is, and I think I speak probably for most of the shopping center REITs in the sector, is that bad debt is surprised, you know, in a material way to, I guess, downside less credit loss. And it's hard to come to any given year and say, look, we're not going to have any credit loss. But that's almost been the case when you offset it with, you know, some of the cash receivables that you get tenants that you don't expect to pay you. And that's been the case for the last couple of years. It's hard to start at the beginning of the year and say that that's going to be continuous. I think most of us, including InvenTrust Properties Corp., expect there to be a more normalized level of credit loss because that's just the normal nature of our business. It just hasn't been the case. But as you saw in our guidance, we do we have reduced our credit loss because of the underlying quality of the merchandise mix and how that's improved over the last couple of years. And the fact that we're going into this year with no real foreseeable imminent anchor issues, at least in the InvenTrust Properties Corp. portfolio. So that gives us confidence that we the confidence that we needed to bring in that credit loss and loan in is reflected obviously, you know, that 50 basis points is reflective of the midpoint of our same store guide. To go through the high end, it's very simple. Can we get things open and red paint earlier? And is credit loss going to stay immaterial? Paulina Rojas Schmidt: That makes sense. Thank you. Operator: Thank you. Our next question comes from Floris van Dijkum from Ladenburg. Your line is now open. Please go ahead. Floris van Dijkum: Hey. Thanks, guys. People can't get my name right, but that's okay. I'm used to it by now. I had a question, DJ. You know, more philosophical. I mean, look. By the way, so, you know, I don't know if you if you think back on your time when you started here, that you would have gotten the company in the shape that's in right now, like, you know, kudos, for, you know, for spearheading that. So as you think about your market penetration and your market exposures, how should how do you think about that? Do you think about, you know, market size in terms of ABR or in terms of number of properties or percentage of NOI or ABR, and where do you see smaller markets like Phoenix, which I guess you just bought an asset in Mesa, you know, where is that going to grow just like what you've done with Charleston and some of the other newer markets in your portfolio? DJ Busch: Hey, Floris. It's a great question, and thank you for those comments. Let me start there. I think when we started when I started here in 2019 and more importantly, when we listed the company in 2021, the company was in great shape, but, you know, I would I'd be lying by saying I didn't think that this platform could get to where it is today, and I'm more excited about where we're going. And it really is, I think, one of the things that is underappreciated will continue to prove to our investor base and our tenants is the quality people and the platform at InvenTrust Properties Corp. It really is something special, and we want to continue to that year in, year out by growing cash flow and serving the communities the way we have been, and we will continue to commit to do so. As it relates to the portfolio, I think like I mentioned earlier, we love the opportunity set that we see across Sunbelt even though the market is competitive. That's okay. We've been used to finding opportunities that fit our criteria in a competitive environment. You know, I would say, Phoenix, it's a yeah. Obviously, it's a larger market. So when we think about that, you know, we don't mind growing continuing to grow Phoenix. And then using places like Tucson or perhaps Flagstaff as, you know, satellites, you know, maybe having one or two assets in those smaller markets and operating out of a large market like Phoenix. It's really that hub and spoke strategy that you see us do in Charlotte with Asheville. And with Charleston and Savannah. Those are the types of things where we can operate at a very efficient level, and we don't mind going into some of those smaller complementary markets that have, by the way, really strong growth characteristics based on some of the migration trends just at the state level. As long as we're buying one of the higher quality or the highest quality grocery or, you know, essential services types of center in those markets. And I think that that's what you'll continue to see from us as we look for new markets, as we look to further invest in some of our current markets. And then looking for those kind of spokes that spoke strategy as an offshoot to some of those markets where we already have pretty good concentration and exposure. Floris van Dijkum: Thanks. Maybe if I can add a follow-up by the way, I like your disclosure on your splitting out your anchor and your small shop tenants. Your lease economics and your spreads, etcetera. It gets me to think that, you know, your leasing spreads on your shop tenants are equal to your anchor tenants, despite the fact you're probably getting significantly higher fixed rent bumps during the period of the lease as well, highlighting the attractiveness of this particular segment. As you think about unanchored, I know you talked a lot a little bit about, you know, acquisitions with grocery anchored. There's a peer of yours that's pursuing this unanchored strategy. I think you have a couple of those kinds of centers in your portfolio. What are your thoughts on that? And maybe leading into your into shop heavy assets in your existing markets? DJ Busch: Floris, it's a great question, and it's always been a really interesting conversation and debate because on one hand, getting income through anchors or even, like, we have about, you know, call it 10 to 11% of ground lease income that comes predominantly from anchors. On a ground lease. That income is so sticky. But to your point, it is more. But in certain parts of the cycle, it's nice to be on anchor rents because, you know, they are the highest credit and the most resilient in the different parts of the real estate cycle. Having said that, you know, to your point, we do have a couple shadowing centers, and I think that's a strategy that works as well. I think one of the things that's most important to us is understanding the ownership structure of the anchor itself. We have no issue or very little issue with anchors that are owned by the operator. So if a grocer owns its own real estate, that's completely fine. A lot of the control dynamics of the center itself are very similar to whether they lease or own the space from us anyway. So it doesn't really change the conversation from a leasing dynamic or our ability to operate the property. It's very similar to what you're just getting. You're getting income or you're not. So we do look at continued shadow opportunities as long as we're comfortable with the infrastructure and the like. So I think I know who you're speaking of. I think that's a sound strategy. It can help from a growth perspective, but it does come with a little bit more volatility because you're not sitting on that anchor income. Floris van Dijkum: So I take that. That would mean that you're not pursuing an unanchored unless it's a shadow anchored grocer or something like that. DJ Busch: No. No. That's not necessarily true. We have done some unanchored acquisitions. They tend to be more unanchored, like, smaller lifestyle, if you will, as opposed to let's call it, you know, 10 to 15,000 square foot strip unanchored retail. Those things tend to be competitive. They're smaller dollar types of acquisitions, so there is a lot of competition in that market. But if we found one, especially one that was complementary to something that we already own, perhaps across the street or something like that, that's something that would be very interesting to us. So the one thing that we love about, you know, the canvas of opportunities that we have in our acquisition pipeline is it kind of runs the gamut from larger scale big box down to unanchored strip and everything in between. The most important thing is it meets the market criteria that has proven to be successful in our portfolio. Floris van Dijkum: DJ. Thank you. Operator: We currently have no further questions, so I'll hand back over to DJ Busch for closing remarks. DJ Busch: Thank you, everyone, for your participation and your questions. We look forward to seeing many of you in, I guess, the several conferences that are coming up in the next couple of months. So until then, have a great day. Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.
Michael: Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2025 Fourth Quarter and Full Year Results Conference Call. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference. Patrick Nolan: Thank you, Michael. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our homepage and our Investor Relations homepage. With regard to our upcoming investor calendar, we will be attending multiple investor conferences seen now in our next earnings release. Please see the events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements which involve risks as detailed in our 10-Ks. Our actual results may differ significantly from the matters discussed today. During today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say on a comparable basis, that means excluding the impact of FX, net M&A, and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and any net M&A. We will also refer to our incremental large performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth versus our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we've posted today's earnings call presentation to the IR page of our website. I encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe. Joseph Fadool: Thank you, Pat, and good morning, everyone. We are pleased to share our results for 2025 and provide a company update starting on slide five. I wish to begin by thanking our employees, our customers, and our suppliers for all of their trust and efforts during the past year and for their continued support. In 2025, we delivered approximately $14.3 billion in net sales, which was up approximately $200 million year over year. This increase was supported by a 23% increase in our light vehicle e-product sales, which demonstrated the strong demand for our hybrid and BEV products. Despite challenges in our battery business, we delivered modest organic growth. Excluding the decline in our battery and charging system segment, our organic sales were up approximately 1.6% year over year, led by outgrowth across both our foundational and light vehicle e-product portfolios. Despite modest sales growth, we significantly improved our overall financial profile by increasing the earnings power of BorgWarner. We expanded our adjusted operating margin by 60 basis points despite a 20 basis point net tariff headwind. We achieved 14% EPS growth year over year and generated more than $1.2 billion in free cash flow. Additionally, we returned over 50% of our free cash flow to shareholders through a balanced capital allocation approach. In my view, our 2025 financial performance was outstanding and positions us for continued momentum into 2026. Looking to the drivers of our future performance, we finished the year by securing our record number of new product awards across our foundational and e-product portfolios. All of our business units contributed to our record wins, and I expect a robust pipeline of further opportunities in 2026 and beyond. Additionally, I am truly excited to share with you a new product that will serve as a power generation solution for the data center market and other microgrid applications. As many of you know, the demand for on-site power generation is growing significantly. We believe this product could open up an additional avenue of significant profitable growth outside of our core automotive markets. I will provide more detail on this exciting news in a few minutes. Looking back on our 2025 performance, I'm very proud of our team and our results. As Craig will detail, we believe we remain well-positioned to continue to expand margins, grow adjusted EPS, and generate strong free cash flow in 2026. We expect to do this while also investing in our business to support our focus on long-term profitable growth. Now let's look at some new light vehicle product awards on slide six. First, BorgWarner has secured a conquest award with a major European OEM to supply a variable turbine geometry turbocharger for one of their hybrid electric vehicle platforms. This business win positions BorgWarner as part of the supply base that will power this OEM's first hybrid electric offering in North America. We are proud to extend our long-lasting relationship with this OEM. Next, BorgWarner has secured a contract with a major North American OEM to provide an 800-volt secondary IDM and a generator module incorporating a dual inverter. These products will be integrated into a series of the automakers' range-extended electric vehicle trucks and large-frame SUV models. I believe this award showcases our product breadth in the electrified propulsion space. Next, BorgWarner has secured an award with a premium European OEM to supply an IDM supporting a hybrid range-extended powertrain architecture. The IDM features BorgWarner's innovative single motor and integrated drive module. By enabling a single electric motor to perform both power generation and driving functions within a very compact package, the solution provides greater flexibility in vehicle platform design, system integration, and performance optimization. Next, BorgWarner's battery management system has been selected for an expanded program with a global OEM. The system will support additional B-segment and C-segment passenger cars as well as light commercial vehicles for battery electric and plug-in hybrid electric vehicle applications. Finally, BorgWarner has secured a new electric cross differential program with a leading Chinese OEM. This EXD solution is designed for a 48-volt system and is integrated with the customer's electrical and electronic architecture. This program represents BorgWarner's first 48-volt EXD application and expands the company's torque management capabilities for electrified vehicles. Next on Slide seven, I'm extremely excited to share the details of our new product for the data center market and other microgrid applications. BorgWarner has signed a master supply agreement with TurboCell, which is a subsidiary of data center infrastructure developer Endeavor. Under this agreement, BorgWarner will supply a highly modular turbine generator system. This exciting new technology leverages many of BorgWarner's core competencies, including our world-class turbocharging, thermal management, power electronics, advanced software controls, and high-speed rotating electric capabilities. It also leverages our deep manufacturing footprint. As many of you know, the power generation market is expected to grow significantly over the next decade. We expect roughly a mid-teens annual growth in demand for on-site power generation through 2035. This is where we expect our turbine generator system to be a transformative solution for the data center market, as we believe our product addresses the growing demand for alternatives to traditional on-site power generation. Within the US, we expect our turbine generator system to help support the acceleration of the power and energy solutions needed to strengthen our grid. For those of you unfamiliar with Endeavor, let me provide some background. Endeavor provides turnkey facility solutions to data center and microgrid customers. The company has twenty-five years of experience in the data center market and operates multiple facilities both in the United States and Europe. BorgWarner has worked with Endeavor and their TurboCell subsidiary for more than three years to bring this turbine generator system to market. Throughout this time, we found them to be a thoughtful partner that supports our vision of a clean, energy-efficient world. I look forward to all we can accomplish together as we bring an innovative lower emissions power generation platform to the data center market. From a financial perspective, we expect production of the turbine generator system to begin to ramp up in 2027 with sales expected to be more than $300 million during the first year of production. Now let's turn to Slide eight and discuss some of the advantages of the turbine generator system compared to existing power generation solutions. As you can see by the image on the left side of the slide, the turbine generator system leverages many of our foundational and e-product capabilities. And we believe the breadth of our capabilities is a competitive advantage that will be difficult to replicate. We believe the turbine generator system offers unmatched adaptability for diverse applications, including backup and primary power, advanced controls, and quick transient response to manage power and grid peaks. Based on our analysis, we also believe the turbine generator system provides a lower emission solution relative to other options. Importantly, it also allows for flexible fuel types including natural gas, propane, diesel, and hydrogen, giving additional options to the end user. BorgWarner expects to leverage our robust automotive supply base and world-class manufacturing capabilities to maximize vertical integration, allowing us to control approximately 65% of the content. I'm excited to update you throughout the year as we move closer to the start of production in 2027. I believe the development of the turbine generator system and securing the TurboCell supply agreement is a powerful representation of the BorgWarner team proactively identifying and seizing opportunities that fit our growth criteria, and I anticipate future opportunities for other industrial applications for BorgWarner products over time. Congratulations to our entire BorgWarner team. To summarize, the takeaways from today are the following. BorgWarner ended 2025 with strong results. We delivered $14.3 billion in net sales, a 10.7% adjusted operating margin, which was up 60 basis points compared to 2024. We also grew our full-year free cash flow to $1.2 billion, an increase of approximately 66% compared to last year. We secured a record level of new business by leveraging growth across our foundational and e-product offerings, which we believe demonstrate our focus on product leadership. And we announced the signing of a master supply agreement with TurboCell for our turbine generator system, which expands our product reach into new and growing data center and other microgrid markets. We expect this transformational and innovative system will further support our focus on long-term profitable growth by addressing the growing need for a superior power generation solution. As I reflect on my first twelve months as CEO, I'm so proud of our continued progress on three key factors I believe will drive long-term shareholder value. First, we delivered strong financial performance as evidenced by our 2025 results. Additionally, we expect another year of further operating margin improvement and EPS growth in 2026, despite declining markets and lower battery sales. Second, we secured record new business wins across our foundational and e-product portfolios, which we expect will support our ability to deliver long-term profitable growth. The 30 awards that we have announced over the past four quarters give me great confidence in our strategy. Our business units are embracing the challenge to find additional growth opportunities through new product developments like our turbine generator system and our EXD solution. And in 2026, we expect to launch new products like our innovative battery cooling plates. And third, we remain focused on delivering incremental shareholder value through our free cash flow generation. As Craig will highlight, we returned over 50% of our free cash flow to shareholders over the course of 2025. And we continue to prudently explore accretive inorganic opportunities to grow our capabilities. By continuing to focus on these priorities in 2026 and beyond, I believe we are well-positioned to continue growing the earnings power of BorgWarner, which we believe will drive long-term value for our shareholders for years to come. With that, I will turn the call over to Craig. Craig Aaron: Thank you, Joe, and good morning, everyone. Let's jump into our fourth-quarter financials by turning to Slide nine for a look at our year-over-year sales. Last year's Q4 sales were just over $3.4 billion. You can see that stronger foreign currencies drove a year-over-year increase in sales of $104 million. Then you can see a modest increase in our organic sales, which was primarily driven by turbocharger outgrowth and customer recoveries in North America, partially offset by foundational production headwinds in Europe and China. The sum of all this was just under $3.6 billion of sales in Q4. Turning to slide 10, you can see our earnings and cash flow performance for the quarter. Our fourth-quarter adjusted operating income was $427 million, equating to a strong 12% adjusted operating margin. That compares to adjusted operating income from continuing operations of $352 million or a 10.2% adjusted operating margin from a year ago. On a comparable basis, adjusted operating income increased $67 million on $29 million of higher sales. This performance benefited from more than 100 points in customer recoveries, primarily for a North American new product program that has seen significant volume shortfalls, as well as $11 million of positive net tariff recoveries. Our adjusted EPS from continuing operations was up 34¢ compared to a year ago as a result of higher adjusted operating income and the impact of over $500 million in share repurchases during 2025. And finally, free cash flow from continuing operations was a generation of $470 million, which drove our full-year 2025 free cash flow to over $1.2 billion, or a 66% increase from 2024. Now let's take a look at our 2026 full-year outlook on Slide 11. We are projecting total 2026 sales in the range of $14 to $14.3 billion compared to $14.3 billion in 2025. Starting with foreign currencies, our guidance assumes an expected full-year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. Dollar. We expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales, to perform broadly in line with our weighted light vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year over year, which is roughly in line with our market excluding the decline in battery sales. Now let's switch to margins. We expect our full-year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect an exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full-year decremental conversion in the low double digits, while the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls. We view this as strong underlying performance building off of 2025 that well exceeded expectations. Based on this sales and margin outlook, we're expecting full-year adjusted EPS in the range of $5 to $5.2 per diluted share, or approximately a 4% increase versus 2025 at the midpoint of our range. This once again demonstrates our focus on consistently driving earnings expansion despite lower industry production and battery cell declines. We expect full-year free cash flow to be in the range of $900 million to $1.1 billion, with a 2026 midpoint being a decline versus 2025's strong results, mainly due to an expected increase in capital spending as we support our upcoming turbine generator system launch and other light vehicle launches around the globe. We expect these investments to accelerate our top-line growth in 2027 and beyond. With that, that's our 2026 outlook. Now let's turn to slide 12 and review our share repurchase progress. First, we successfully repurchased $400 million of BorgWarner stock during 2025. This was ahead of our October guidance, supported by our stronger-than-expected free cash flow during the fourth quarter. Combined with our second-quarter repurchases and common stock dividends, we returned approximately $630 million to shareholders in 2025, which was approximately 52% of our free cash flow during the year. This demonstrates our focus on a balanced, disciplined, and consistent return of cash to our shareholders, which we expect to continue in 2026 and beyond. I would also highlight that we have repurchased over 31 million BorgWarner shares since 2021, or a 13% reduction in our outstanding shares over that period. This represents a $1.3 billion return of cash to our shareholders over the past four years and shows our confidence in the strong and sustainable cash flow we believe we will generate for years to come. As we look forward, we are pleased that we have $600 million of remaining availability under our current share repurchase authorization to support additional shareholder value creation. We continue to see a consistent and disciplined cash return to shareholders as an important component of our balanced capital allocation approach. So let me summarize my financial remarks. Overall, we delivered strong 2025 results. Sales were up modestly, supported by 23% growth in our light vehicle e-product sales. We delivered a very strong 10.7% adjusted operating margin, which was 60 basis points higher than 2024. And importantly, we saw operating margin expansion across all business units and appropriately reduced corporate overhead. 2025 adjusted earnings per diluted share increased 14% year over year, supported by our focus on margin expansion and returning cash to shareholders through share repurchases. And finally, we generated over $1.2 billion in free cash flow, or a 66% increase year over year, and approximately $630 million of this cash was returned to shareholders through share repurchases and dividends. Now as we look ahead to 2026, our outlook aligns with our focus on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth, despite our expectation that market volumes and battery sales will decline in 2026. Second, we continue to make important product investments that leverage the many mechanical and power electronics core competencies that BorgWarner has developed over decades of product leadership. These core competencies will help us continue to secure new business awards throughout 2026 and beyond. Today's turbine generator system announcement is a great example of finding new avenues of sales growth that provide a strong return on invested capital. And finally, with another year of anticipated strong free cash flow of $1 billion at the midpoint of our guidance, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner's earning power and execute a balanced capital allocation approach that rewards shareholders. As I look back, our 2025 results and our 2026 outlook, I'm extremely proud of the BorgWarner team around the globe and their ability to deliver strong financial results in an uncertain light vehicle production environment. We believe we have the right technology-focused portfolio, financial discipline, and global team to continue to drive the long-term earnings power of the company. We're excited about 2026, and we look forward to executing another strong year. With that, I'd like to turn the call back over to Pat. Patrick Nolan: Thank you, Craig. Michael, we're ready to open it up for questions. Michael: If you would like to ask a question, at this time, we'll pause momentarily to assemble our Q&A roster. And your first question comes from Colin Langan with Wells Fargo. Please go ahead. Colin Langan: Great. Thanks for taking my questions and congrats on a good quarter. Can we dig in a little bit more into the data center opportunity? Obviously, you gave a lot of color, but how should we think about the margins of that business as it launches? Is the $300 million a target, or is that already booked with an upside if you book more business? And is there any CapEx that we should be worried about as you need to invest to develop this business? Craig Aaron: Sure, Colin. Thanks for the question. So we announced the data center win of $300 million in revenue as we look out to 2027. As you think about the margin profile, what you should assume is a mid-teens incremental conversion on an extra $300 million of sales, which is consistent with our automotive business. What you should think about from an EPS perspective, we believe it will be EPS accretive immediately, and we see a strong return on invested capital for that program. From a CapEx perspective, you could see our CapEx guide is four and a half percent of sales, which is up from 2025. And that's because we're investing in the 30 plus wins we've announced publicly last year as well as the turbine generator system that Joe spoke about in his script. Colin Langan: Got it. That makes sense. Then if we could just dig into the PowerDrive, you kind of commented in your commentary, you mentioned something about a recovery. I mean, I guess that would explain why sales EBIT rose about 70 on sales up 40. Any way to frame the size of the recovery? Is that repeat into next year? Wouldn't that be a headwind if you had a one-off recovery this year? How should we think about the sustainability of growth in the segment given the slowdown of EV? Craig Aaron: Sure. So in the quarter, we had about 100 basis points of benefit in the fourth quarter. But as you look at power drive systems, I would encourage you to look at the full year. Joe and I were really watching power drive systems this year not just from a growth perspective where we saw substantial product growth, 23% product growth on the light vehicle side, a lot of that in PDS. But also ensuring that we incremented on that growth in the mid-teens. And if you look at PDS results for the full year, that's exactly what you see. So we feel really good about the progression of that business throughout 2025. As we look at 2026, we continue to expect light vehicle e-products growth in that low double digits, and we expect power drive systems to convert in the mid-teens off of that 2025. That's how you should think about that business as we move into 2026. Colin Langan: That's very helpful. Thanks for taking my question. Michael: Thank you, Colin. Your next question comes from Chris McNally with Evercore ISI. Please go ahead. Chris McNally: Thank you so much, team. Just a quick follow-up to Colin. So I mean launching the turbine business out of 3T at auto-like margins given the shared technology. I mean, it's obviously just fantastic. Can you give us a sense for that $300 million revenue? Don't need a hard number, but like a couple of years past '27, just the opportunity because it's, you know, whether this is a, you know, a triple or a home run. But it seems like there's a lot of runway here. Joseph Fadool: Good morning. I think the way to think about that business, we announced today $300 million in the start of production year. So, you know, this program, like many others, has a ramp-up phase to it. When we look more broadly at this market, you know, the data center market is growing in the mid-teens per year for the ten years is what most people believe. We think it's applicable to over 90% of the data center markets globally. And it's a product that is really differentiating us versus some of our competitors, you know, to give you some color on the technology. It incorporates a very fast transient response to support the load imbalances that happen quickly in data centers. We have a very integrated approach to the system. One of the slides in the deck, page eight, highlights really all the BorgWarner content that's helping us bring this to market. So, you know, from my perspective, this is exactly what we asked our business units to do. And that is drive top-line growth, increment in the mid-teens, and we feel very optimistic about this new entry into the industrial market. Chris McNally: Okay. That's great detail. I'll definitely follow-up offline. And then just the second one, going back to the auto side, so growth over market minus one, you talked about the battery drag, right, which is a multiyear unclear when we hit sort of bottom there. But I think you said that's 150 basis points. If you ex that out, you're still only really growing 50 basis points on the other three divisions, where there's basically good secular tailwinds in both ICE and hybrid. So can you just an order of magnitude when we may see those get back to that sort of low single digit that we were doing sort of consistently? And what would get us back to that level? What is the market driver? Thanks so much. Joseph Fadool: Sure. As I look back first at the last couple of years, 2024, 2025, it's clear to me that our outgrowth was impacted by EV programs that we booked several years ago. And as we know, the volume of many of these programs, at least in the Western world, has been lower than we expected. So what I can see now is that dynamic's gonna continue into '26, and that's what we're living with at this point. And I can also say I'm not satisfied with the outgrowth we've been seeing. So what I am pleased about, however, is all the booking strength in both the foundational and e-product side we've announced over the last eighteen months or so. So I expect these bookings to support our midterm objective. For our foundational e-product businesses to outgrow their respective markets, and we'll start seeing that top-line benefit in 2027 and further in 2028 and beyond. Chris McNally: Okay. Excellent. Thank you. Michael: And your next question comes from Joseph Spak with UBS. Please go ahead. Joseph Spak: Thanks. Good morning. It's helpful your slide that sort of shows the content you're getting on the power gen opportunity. And I know you have this comment 65% of the content controlled by BorgWarner. I guess I just wanna understand that a little bit more. And please correct me where I'm wrong because, you know, again, I'm sort of still getting familiar with the side of the business. But $300 million two gigawatts, that's like a $150 a kilowatt. I thought the rule of thumb on industrial scale powered, you know, gen was something like $900 per kilowatt. So that's, like, 15% of the value. So where am I off there and or what am I missing for your content opportunity within this power gen opportunity? Joseph Fadool: Yeah. Good morning, Joe. So first of all, the $300 million does not relate directly to the two gigawatts. So $300 million, the way to think about it, that's our initial year of production. So we're not going to have a full year. It's going to be our ramp-up year. We have kicked off and we'll install the two gigawatts of capacity. In addition to that, there's a backlog there that we expect to make some future decisions about additional investments. So our focus right now, though, is on the launch and making sure it's flawless and we deliver that $300 million more during that initial year. But I wouldn't directly correlate those two figures. One is a capacity figure, which we're installing. The other is the initial revenue from the start of production year. Joseph Spak: Okay. Well, then maybe just to follow-up there. Like, what does it correlate to? Or put another way, like, at capacity, how do you sort of size the revenue opportunity? Joseph Fadool: Yeah. We'll size it as we get closer to 2027. What we're announcing today is what we see as the initial revenue during the launch phase. And our teams are super focused on making sure that launch goes well. But we're really optimistic about this product and this market. As we all know, the power generation market needs more innovative and alternative solutions. And we believe, you know, at the end of the day, this is just a better mousetrap than many of those that are out there. It has fuel flexibility, fast transient response, it's very flexible and modular. It can support the small microgrids all the way up to serving multiple generative AI farms. So from our view, we think we have a lot of room and runway in the market, and we expect we're gonna capture our share of that. Joseph Spak: Okay. Maybe just, on the core business. You know, if we're how just broadly, I guess, how are you sort of thinking about the Turbo's outlook over the coming years and the competitive dynamics, I guess, within that market. And, you know, I guess one of the reasons I ask and it's a question we get a lot from investors is you have companies like Stellantis in the U.S. sort of coming back with the V8 and that sort of looks if you look what the V8 share of those on some of those vehicles used to be, it was quite high. And obviously, that was sort of replaced by, you know, a V6 Turbo. So it seems like there's some replacement going on. I know that's just one example. I don't mean to sort of over extrapolate, but if at a high level, if you could sort of talk about what customers are doing on the turbo side. Joseph Fadool: Sure. So we still see growth in the Turbo business line. So just as a reminder, you know, we're in the top two market leader in that product space. We love turbochargers. We see penetration continues to increase. We also see the adoption of more complex highly efficient turbines, like the one that we announced today, the variable turbine turbocharger, which improves performance at the low end. And on top of that, being one of the market leaders, we expect to conquest business often from some of the weaker players. And we think that trend will continue. And that was one of our announcements today with a European OEM. So from our position, we're really leading from a position of strength in turbochargers. We see that there's going to be a few more generations of technology. We're prepared to make that investment. So globally, we feel we're in a really great place with that business. Joseph Spak: Okay. Thank you. Michael: And your next question comes from James Picariello with BNP Paribas. Please go ahead. James Picariello: Hi, everybody. I want to double click on the business, the battery systems business. So yes, revenue down 35% to 40% year over year. Just what's next for this business? I assume there's an additional restructuring effort in place or underway to address the declines and yes, curious how you're thinking about the loss rate relative to what we saw in 2025. You know, with the business down as much as it is. Joseph Fadool: So we continue to see sales headwind in this business. As we've talked about today, mainly due to the challenges in North America, but to a lesser degree, demand in Europe is also down. So we expect the decline in this business to be about a 150 basis point headwind in our '26 growth. And in the near term, sales trends are a little bit difficult to predict. But what I'm very pleased at are the tough decisions and the actions that our team has taken to really minimize the losses and adjust the cost structure in this business. What that does for us is it also poises us well for future growth. So near-term sales trends are difficult to predict. However, I'm pleased with the actions we're taking, and I do feel still optimistic about this business. I believe we've got opportunities not only to continue as one of the market leaders in CV battery packs but also look outside of the commercial vehicle space for other opportunities for battery storage. James Picariello: Okay. Understood. And just I mean, I know you guys don't guide foundational growth versus product, but maybe can you just provide some thoughts on what's embedded in the 2026 outlook? Respect to the e-Propulsion sales that revenue stream. Craig Aaron: Sure. So when you look at the light vehicle e-product relative to 25% to 26% versus expecting low double digits, that's the way to think about it. Obviously, we gave you the details on the battery business. So we see another year of growth primarily in Europe and China, and we expect to convert that growth on the light vehicle side in the mid-teens. That's what's implied in the guide. James Picariello: Great. Michael: And your next question comes from Dan Levy with Barclays. Please go ahead. Dan Levy: Thanks for taking the questions. I want to go back to a question that's been asked on past calls about your M&A strategy. And, obviously, we see the stock today. It's, you know, and what's doing to your multiple. And I see, you know, some of the multiples of other companies that are levered to data centers and, you know, the question really is, if we are seeing an increase in your multiple, how does this potentially change your M&A playbook that all of a sudden there's a wider set of targets that would allow for accretive deals as opposed to when your was more compressed. And you have limited upside on how much you could do deal. So how does the opportunity set on M&A change here? And we'll start there. Joseph Fadool: Hi. Good morning, Dan. So, you know, as we've stated in the past, we still remain active but are very disciplined in our M&A approach. So we believe there's, you know, great compelling opportunities out there for a company like BorgWarner with financial strength and operational strength. So just want to remind us the three priorities that Craig and I have set are first any acquisition needs to really leverage our core competence. It has to make industrial logic at the end of the day. The second is we're looking for near-term accretion. So we're really pleased with our portfolio. We did a lot of heavy lifting in the last five years. As I sit here today, we want to make sure any acquisition not only strengthens the portfolio, we see near-term accretion and expand the earnings power of the company. And then finally, we want to pay a fair price at the end of the day. We don't want to overpay for anything. So we're going to continue to keep those criteria in front of us. As we've mentioned in the past, we've passed on some deals that didn't meet one or more of those criteria. And lastly, I'll just say, you know, we've really opened up the aperture when we talk about leveraging the core competence of the company, but we've significantly raised the hurdle. Using those three criteria to make sure we're adding to shareholder value and expanding the earnings power. Dan Levy: Okay, great. Thank you. The second piece is, I think just touching on some of the prior questions, the core business alongside this power gen opportunity, obviously, you know, there's a growth slowdown this year, and that's why the core business is flat. Sounds like you're talking to some opportunity for incremental launches beyond this year, and you have the opportunity from power gen. What is the right way we should be looking at the growth over market beyond this year, which has been compressed but sounds like you're talking about some tailwinds beyond this year that could get you back to maybe that three to four points of outgrowth that you had done previously? Joseph Fadool: So as we mentioned in the remarks, you know, Craig and I are not satisfied with our growth or outgrowth, and we're still living with a little bit of this overhang from the EV business outside of China. And that'll continue into '26. But if you look back in the last twelve to eighteen months, especially the last four quarters and the 30 wins that we've shared, we are very optimistic about the future launches of those programs. I think it really speaks to the portfolio strength and the flexibility that independent if a region is looking for combustion products, or EV products or hybrids, which pulls from both sides, we are very well positioned to capture that growth. So of course, it takes time for these new product wins to get to the launch phase and ramp up. And that's why we said, we expect to start to see some of that growth in '27 and even more in '28 and beyond. Dan Levy: Great. Thank you. Michael: And your next question comes from Luke Junk with Baird. Please go ahead. Luke Junk: Good morning. Thanks for taking the questions. Maybe if we could start, just hoping to unpack some of the margin dynamics around this modular turbine effort. Craig, you mentioned that you'd characterize it as a mid-teens incremental margin. I just want to think through maybe some of the elements in terms of leveraging your existing production for, let's say, some of the thermal products and the model itself? It sounds like this is sort of an assembly model ultimately, and if we think about that mid-teens, is it safe to say this is a piece of business you would expect to be above the corporate margin at maturity as well or even earlier stage? Thank you. Joseph Fadool: Yeah. Good morning, Luke. So let me start first with this is a great example of not just leveraging our but leveraging our manufacturing footprint and supply chain and automotive. The way to think about it is you may have noticed in the fourth quarter there was an announcement put out about a new plant in Hendersonville, North Carolina, which is just about twenty minutes from one of our larger turbocharger plants. That's where we're gonna do the final assembly, the test, and pack out of the complete system. Now leading into that factory, we've got four other factories around the globe that we're leveraging. These are existing automotive factories where we've got lots of manufacturing competence and depth. And they're producing some of the subcomponents that will then go into this final assembly in North Carolina. So that's how we're really leveraging the strength of BorgWarner. We are making a new investment in this factory in Hendersonville. It's a brand new Greenfield site. The team is making great progress on it. But I'm really proud of the fact we're able to leverage some of our automotive footprint and supply chain, by the way, so that we can get off to the right start and profitably grow this business. I'll let Craig comment on the incremental. Craig Aaron: Yes. And as Joe mentioned, this year, 2026, we're focused on successfully launching that product. And as we get into market in 2027 and you see that $300 million of sales growth, again, Luke, you should expect mid-teens incremental conversion. You should expect immediate EPS accretion. And you should expect a strong return on invested capital. We feel really good about the financial profile of that business. And we're excited to launch it in 2027. Luke Junk: That's all very helpful. Thank you. And then I want to switch gears. Craig, you mentioned that within the margin range this year, I guess, when I just pick out two things. One, that, you know, the path to the high end of the range is fully offsetting the organic decline, and I'm just wondering if there's anything you call out there. I know the company has some early-stage efforts around AI in particular that are interesting both on the manufacturing floor and within R&D? And then just to clarify, the mid-teens expectations for PDS specifically, is that including getting up and over the customer recovery that you had this quarter? Thank you. Craig Aaron: Sure. So I'll start and maybe Joe can provide some highlights from an AI perspective. When you look at our margin expansion, and first, I want to highlight margin expansion in 2025. Up 60 basis points year over year. Fantastic job by the team, and we saw margin expansion across every business unit as well as managing corporate overhead and program. So great job in 2025. As we move into 2026, we see another 10 basis points of expansion at the midpoint, and I'll kind of walk you through that, Luke. First, charging access, that's 10 basis points of margin expansion. Additional cost controls across our entire business, that's another 10 basis points of margin enhancement. And then, obviously, we have the lower sales, but the teams are doing a nice job of decrementing in the mid-teens on both the decline in the battery business and industry production. You go through the math that takes you to 10.8%, get to ten nine, it means we're gonna take additional cost measures, and I see the team is really rallying around that. With that, I'll turn it over to Joe to maybe talk about our AI efforts and what we're doing as a company. Joseph Fadool: So we are using machine learning and generative AI. We started about two years ago on some of the new generational AI technologies. And we started with some pilots. You know, we had pilots in our plants, we had pilots in our back office, and also some in R&D. And out of those pilots, let me estimate about 30% of them looked really positive. So that's where we're continuing to invest and scale those pilots so we can see more comprehensive improvement. Now some of the improvements are in quality, like if you think about visual inspection. We also have areas where we're able to reduce cost, labor costs, and more scrap costs. We're finding opportunities on the R&D side. So if you think about when we win a new program, we're producing highly engineered products. So the stack of requirements from a customer is pretty high. And engineers have to go through those requirements and turn them into specifications. We have found a great application of using GenAI to really simplify that process, which frees up our engineers to work on higher-level things like innovation and bringing the product to launch. So as we think about generative AI, it'll continue to help us not only improve our quality but our cost structure. And some of that falls to the bottom line. Some of it we're using to fund some of these future projects to drive long-term growth. So we're excited about what we're doing with generative AI, and we think it could be a major lever for the company. Luke Junk: Yeah. Just on the just lastly, the, yeah, the PDS margin expectations, specifically that mid-teens is all in including the recovery, just to clarify? Craig Aaron: It is. It is. So when you think about that jump-off point for BorgWarner, we're jumping off that 10.7% margin that we ended 2025 with. And so that obviously is inclusive of that recovery. And we expect to increment above that level as we move forward, including PDS. Luke Junk: Understood. Thank you. Michael: And your next question comes from Mark Delaney with Goldman Sachs. Please go ahead. Mark Delaney: Yes, good morning. Thank you very much for taking the questions. Was hoping to start first with your outlook for your business with the China domestic auto OEMs. We've seen vehicle sales in China soften in recent months and decline year on year, but the Chinese auto OEMs are increasingly expanding their export business and growing internationally. And just given how important of a customer set that is for BorgWarner and your strong presence with a number of those China domestic OEMs, can you help us net out what that might mean for your business with that sort of customers this year? Joseph Fadool: Sure. So good morning. So the way to think about our China business and just as a reminder, it's roughly about 20% of our overall business. So it's a very important market for us. And about 70% of that China business is with the domestic. So as we know, the domestics are just about at that 70% of the total market. One of the things you noted is although the local market there has slowed down, the exports have hit another high. Last year, over 7 million exports from China. So, you know, we're pretty excited about the work our team is doing in China. Most of our business is with the leading seven Chinese OEMs there. I would say over half of our electrification business is in China, and that's where the music is playing very loudly. So, you know, for us, having them grow outside of China is a great strength for us. We're even in discussions with the Chinese OEMs about localization outside of China, given our strong global footprint and technology. Mark Delaney: That's helpful context. Thank you. Other question was a follow-up on some of the prior commentary and questions around the M&A opportunity and understand the high-level criteria that BorgWarner's previously articulated. But as you think about expanding into the data center market and with the new offering today and turbine generator systems, you mentioned not having all of the content. Is that in maybe an area where you can augment or are there adjacent areas within that broader data center space that you may look to do M&A? Thanks. Joseph Fadool: Yes. First, I just want to double down on how proud I am of our team and how they are just leveraging so much of our portfolio. I mean, you think about 65% of the content we're controlling, that's tremendous. So I'm really excited about what we are doing with the turbine generator. You know, I'll just bring us back to the criteria we're using for M&A. We want to stay very disciplined and, you know, really, the first is leveraging our core competence. We want this anything we'd look at to really make industrial logic for anyone that looks at it. We want it to be near-term accretive, and, you know, we want to pay a fair price. So we haven't limited ourselves to automotive, but I would say, you know, the TG is a great example of what we can do organically. And many of our business units continue to look for growth opportunities. This is just a great example of what we can do with the current portfolio that we have. Mark Delaney: Thank you. Michael: We have time for one final question. And that question comes from Alex Potter with Piper Sandler. Please go ahead. Alex Potter: Awesome. Thanks very much. So one question, additional question here on the turbine generator. I know permitting and the timing of, I guess, data center rollout as a result of permitting constraints has historically been sort of a headache for this industry. How does your product address that? Or is it potentially exposed to some of those same headwinds? Joseph Fadool: So we're working, first of all, with our partner Endeavor, who really has a lot of experience in the data center market. Over twenty-five years. They bring tremendous customer intimacy. Knowledge about the real estate market and what it requires to install a complete data center. Now specifically for our product, we're gonna ensure it's UL certified. And it meets any of the requirements in any country that we plan to deploy it in. We don't see that as a real constraint for us. Again, you know, it's together with Endeavor who's bringing the customer side also, their innovation approach to the market is very similar to us. We have a similar vision and path to go to market with them. Of course, BorgWarner brings not only great technology but our automotive scale and manufacturing footprint. So it's really together. We think we're able to capture this unique part of the business. Alex Potter: Okay. Very good. And then maybe one last question here. Topical issue lately, I noticed that the word DRAM never came up in your prepared remarks or anywhere else. Just interested if you could quantify, or maybe ring fence your exposure to that shortage, which has been making a lot of headlines recently. Presumably, it's not a huge deal for you, but just wanted you to maybe put a finer point on that. Thanks. Joseph Fadool: Sure. We don't use DRAM in our products, but, of course, we're monitoring the overall market for any impacts the OEMs may incur in production. Alex Potter: Okay. So as of now, there's no impact on your production timelines or you're not hearing anybody flag this as a potential risk to the business in any way? Joseph Fadool: No. Not from our view. Alex Potter: Okay. Very good. Thanks, everyone. Patrick Nolan: With that, I'd like to thank everyone for their great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can go ahead and conclude today's call. Michael: This concludes the BorgWarner 2025 fourth quarter and full year results conference call. You may now disconnect.
Will McDowell: Good morning, and welcome to Tenet Healthcare Corporation's Fourth Quarter 2025 Earnings Conference Call. After the speakers' remarks, there will be a question and answer session for industry analysts. Tenet Healthcare Corporation respectfully asks that analysts limit themselves to one question each. I will now turn the call over to your host, Mr. William McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin. Good morning, everyone, and thank you for joining today's call. I am William McDowell, Vice President of Investor Relations. Saumya Sutaria: Pleased to have you join us for a discussion of Tenet Healthcare Corporation's fourth quarter 2025 results, as well as a discussion of our financial outlook. Tenet Healthcare Corporation's senior management participating in today's call will be Dr. Saumya Sutaria, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer. Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet Healthcare Corporation is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10 and other filings with the Securities and Exchange Commission. With that, I will turn the call over to Saumya Sutaria. Thank you, William, and good morning, everyone. We reported 2025 net operating revenues of Sun Park: $21.3 billion and consolidated adjusted EBITDA of $4.57 billion, which represents 14% growth over 2024. Full-year adjusted EBITDA margin of 21.4% improved 200 basis points over 200 basis points from the prior year. Our fourth-quarter results were again above our expectations, driven by strong same-store revenue growth, high acuity, and disciplined cost control. I would note that our full-year adjusted EBITDA ended the year nearly $500 million higher than the midpoint of our initial expectations. USPI continues to deliver attractive results. Volumes were strong, and the mix was good. Adjusted EBITDA grew 12% in 2025 to $2.026 billion. Same facility revenues grew 7.5%, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over the prior year. This performance was once again well above our long-term goal of 3% to 6% organic top-line growth. We had an active year in the M&A and de novo activity lines as well, investing nearly $350 million in 2025 and adding 35 facilities to the portfolio. And the pipeline for both M&A and de novo development remains strong as we look into 2026. We remain the preferred acquirer and developer of assets in this space. Turning to our Hospital segment, Adjusted EBITDA grew 16% to $2.54 billion in 2025. Same-store revenues per adjusted admission were up 5.3% over the prior year as payer mix and acuity remained strong. We have continued to reinvest back in our business to further our capabilities, stepping up our growth capital in 2025. And finally, over the past three years, we have been active repurchasers of our shares, retiring approximately 22% of our outstanding shares for around $2.5 billion since our share repurchase program began in 2022. We expect to continue to deploy capital for share repurchase, particularly at our current valuation multiples. Our portfolio of businesses is now more predictable with consistently strong performance in both the Hospital segment and USPI. Our results represent a continuation of a multiyear track record of strong same-store revenue growth, improved margins, and disciplined execution by our management team. We remain focused on driving further organic growth supplemented by accretive M&A at USPI. Turning to 2026 guidance, we are projecting full-year 2026 adjusted EBITDA of $4.485 billion to $4.785 billion, driven by ongoing strength in demand and acuity, physician recruitment, and service line expansion, as well as additional sites of care joining the portfolio. We are also tackling expense management more structurally in anticipation of the next few years. We anticipate full-year adjusted EBITDA for USPI of $2.13 billion to $2.23 billion. The continued shift of services towards lower-cost sites of care will be furthered by the beginning of the phase-out of the inpatient-only list in 2026. We see this as a gradual tailwind for USPI that will play out over several years. In this first year, we see opportunities in areas such as high-acuity spine and urology procedures. We have detailed tactical plans to capitalize on the opportunity and are actively operationalizing our capabilities to serve patients in 2026. USPI continues to be a high-growth, capital-efficient business that delivers high returns on capital expenditures. Turning to our Hospital segment, we are expecting adjusted EBITDA in the range of $2.355 billion to $2.555 billion in 2026. Our plans reflect the headwind associated with the expiration of the enhanced premium tax credits on the exchange marketplace. We continue to closely monitor enrollment levels as well as the potential ramp-off ramps for individuals to obtain coverage through lower metal tier commercial plans or other options. We are assuming a 20% reduction in overall enrollment as we have more significant exposure in states such as Arizona, Michigan, and California. We recognize the uncertainty regarding effectuation rates as individuals make determinations if they can afford their premiums and the resultant expected increase in uninsured rates and have conservatively taken these matters into our initial guidance. Additionally, we are implementing cost savings plans to help mitigate this pressure and will continue to engage with our patients to ensure that they have good access to care. We are confident in our ability to achieve the strong core earnings growth we forecast for 2026. The significant margin improvements that we have made over the past few years provide us a strong foundation on which to grow our transformed portfolio of businesses. We carry momentum into this new year and have many opportunities to expand our services and deliver value for patients, physician partners, and in turn, our shareholders. And with that, Sun Park will provide us a more detailed review of our financial results. Sun Park? Thank you, Saumya Sutaria, and good morning, everyone. Sun Park: We are very pleased with our performance in 2025, which again demonstrated robust same-store revenue growth in both the hospitals and USPI segments and adjusted EBITDA that exceeded our expectations each quarter, driven by continued high patient acuity, favorable payer mix, and effective expense management. In the fourth quarter, we generated total net operating revenues of $5.5 billion and consolidated adjusted EBITDA of $1.183 billion, a 13% increase over last year. Our adjusted EBITDA margin in the quarter was 21.4%, a continuation of our improved margin performance over multiple quarters. For the full year 2025, net operating revenues were $21.3 billion, and consolidated adjusted EBITDA was $4.566 billion, a 14% increase over 2024. Adjusted EBITDA margins in 2025 were 21.4%, up 210 basis points from the prior year. I would now like to highlight some key items for both of our segments, beginning with USPI. In the fourth quarter, USPI's adjusted EBITDA grew 9% over last year, with adjusted EBITDA margins at 40.5%. USPI delivered a 7.2% increase in same-facility system-wide revenues, with net revenue per case up 5.5% and same-facility case volumes up 1.6%. Turning to our Hospital segment, fourth-quarter adjusted EBITDA was $603 million, a 16% increase over 2024. Same-hospital inpatient adjusted admissions were flat, and revenue per adjusted admissions grew 7.5% year over year. Our consolidated salary, wages, and benefits were 40.2% of net revenues in the quarter, a 110 basis point improvement from the prior year. And our contract labor expense was 2.1% of consolidated SW&D expenses. Next, we will discuss our cash flow, balance sheet, and capital structure. We generated $367 million of free cash flow in the fourth quarter and $2.53 billion of free cash flow for the full year 2025. As of December 31, 2025, we had $2.88 billion of cash on hand, with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until late 2027. And finally, during the fourth quarter, we repurchased 943,000 shares of our stock for $198 million. We repurchased 8.8 million shares for $1.386 billion in 2025. Our leverage ratio as of December 31 was 2.25 times EBITDA or 2.85 times EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to a deleveraged balance sheet and believe that we have significant financial flexibility to support our capital deployment priorities and drive shareholder value. Let me now turn to our outlook for 2026. Our 2026 outlook assumes continued growth in same-store volumes and effective pricing, as well as strong operational efficiencies and disciplined cost controls. Additionally, we anticipate further contributions from M&A and de novo center openings at USPI. In addition, we are also assuming same-hospital admission growth of 1% to 2%, adjusted admissions growth of 1% to 2%, and same-facility USPI revenue growth of 3% to 6% for 2026. Importantly, our outlook does not assume any contributions from potential increases in supplemental Medicaid programs that have not yet been approved. Also, we believe that the expiration of the enhanced exchange tax credits will result in lower volume growth and a less favorable payer mix. We estimate that this represents a $250 million impact on our 2026 adjusted EBITDA, primarily in the hospital segment. Clearly, there are a wide range of potential outcomes here, and we will continue to monitor enrollment levels and effectuation rates. We will also leverage Conifer's capabilities to assist our patients with their insurance coverage. Based on all those items, we expect consolidated net operating revenues for 2026 in the range of $21.5 billion to $22.3 billion and consolidated adjusted EBITDA for 2026 in the range of $4.485 billion to $4.785 billion. There are two normalizing items that I would like to call out when comparing 2026 adjusted EBITDA to the prior year. First, we reported $148 million of prior-year supplemental Medicaid payments in 2025. Second, in 2026, we will recognize a one-time $40 million favorable revenue adjustment as a result of the completed Conifer transaction. After normalizing for these items and excluding the headwind from the expiration of the enhanced premium tax credits, our 2026 adjusted EBITDA is expected to grow 10% at the midpoint of our range. Finally, we would expect first-quarter 2026 consolidated adjusted EBITDA to be 24% of our full-year consolidated adjusted EBITDA at the midpoint. We anticipate that USPI's EBITDA in the first quarter will be 22% of our full-year 2026 USPI EBITDA at the midpoint. Turning to our cash flows, for 2026, we expect adjusted cash flow from operations in the range of $3.2 billion to $3.6 billion, capital expenditures in the range of $700 million to $800 million, resulting in adjusted free cash flows in the range of $2.5 billion to $2.8 billion, and adjusted free cash flow after NCI in the range of $1.6 billion to $1.83 billion. This range includes about $150 million in tax payments for the Conifer transaction. Excluding these tax payments, this will represent $1.865 billion of adjusted free cash flow less NCI at the midpoint of our 2026 outlook. We remain focused on strong free cash flow conversion from our EBITDA performance, including the continued outstanding cash collection performance at Conifer, while continuing to invest in high-priority areas of our businesses. Turning to our capital deployment priorities, we are well-positioned to create value for shareholders through the effective deployment of free cash flow. And our priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. And as Saumya Sutaria noted, we see a strong pipeline to support our $250 million annual target for USPI M&A in 2026. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we will continue to have a balanced approach to share repurchases depending on market conditions and other investment opportunities. And finally, we will continue to evaluate opportunities to retire and/or refinance debt. In conclusion, we had another outstanding year in 2025, with strong revenue growth, disciplined operations, and very attractive free cash flow generation. We are confident in our ability to deliver on our outlook for 2026 and continue to drive value for patients, physician partners, and shareholders. And with that, we are ready to begin the Q&A. Operator: At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. Before pressing the star keys, our first question comes from Ben Hendrix with RBC Capital. Please proceed with your question. Ben, are you there? We will go to the next one. Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question. Stephen Baxter: Hi, thank you. I was hoping that perhaps you could expand a little bit on the same-store hospital volume performance in the quarter and any moving parts there? It looked like it was a little bit weaker than the trend. And then just as you are thinking about hospital volumes in 2026, it looks like at the midpoint, you might be looking for that to potentially improve a little bit versus the 2025 performance. So just like to help us think about the moving pieces there with the exchanges in the core performance? Thanks. Sun Park: Yeah. I mean, obviously, acuity was good, which is what we are really focused on in the fourth quarter. Flu, I mean, I would just say from our standpoint, the respiratory season was probably a little weaker than otherwise might have expected, and that is probably the basic explanation. In 2026, understanding all the moving pieces, as I indicated in my comments, we had invested significantly in growth capital during the year, and we expect to see returns from some of those investments into 2026 and thus the improvement that you pick up on. Operator: Our next question comes from Whit Mayo with Leerink Partners. Please proceed with your question. Whit Mayo: Hey, guys. When you say, Saumya Sutaria, that you are tackling expense management more structurally, what do you mean by that? And can you elaborate on what is incremental about the cost efficiencies that you expect to see this year? Saumya Sutaria: Yes. Structurally, Whit really refers to the notion that we are looking, as opposed to what I would describe as more traditional annual expense management, we are looking, as we have talked about over the past year, more thoroughly at the deployment of technology basically that allows us more expense reduction opportunities, and that includes the application of those technologies in our global business center. That is a little bit of a different pathway than before, more sustainable, more I would describe as modernization of the business, given some of the new tools and technologies available to us. It is not just AI, which, you know, is I think become kind of the central buzzword for this. But there is a lot more that can be done in automation. And then the other thing is just as we look at our clinical throughput, the application of those technologies ramping up in our clinical throughput, we believe, is another area to take things to the next level. So whether that is areas like length of stay management or throughput in some of the more high-value portions of the hospitals, real estate, etcetera, ORs, ERs, etcetera. Those kinds of things become more structural in nature. That is what I meant by that. Whit Mayo: Okay. Thanks. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is live. Ben Hendrix: Great. Thank you very much, and apologies for getting cut off earlier. I just wanted to get a little more color on the hospital admission growth guide, the 1% to 2%. Just wanted to talk a little bit about the slowdown from last year, the degree to which if we can parse out that slowdown between exchange expiry, between kind of investments toward higher acuity and higher margin capabilities in the hospital setting, and then also just a general slowdown of admissions we have been seeing across the acute sector to begin with. So just any commentary you can offer there. Thank you. Sun Park: Yes. Hey, Ben, it is Sun. Saumya Sutaria already commented on kind of the Q4 mission, including the flu respiratory season being sort of not material for us. And then as we get into 2026, a lot of it has to do with this CapEx and technology investment that we have made in 2025, creating some volume momentum coming into 2026. On your question about the exchange, as we said in our comments, there is a pretty wide range of potential outcomes here. As Saumya Sutaria mentioned, we are assuming about a 20% decrease in enrollment. But we would have to then there are lots of areas where, what happens to those volumes. Right? Do those people find, do those patients find alternate coverage? And other plans, alternative plans? You know, certainly a big majority of them could become uninsured. But, you know, that volume will still show up at our hospitals, obviously, and in USPI. Just the question then becomes, can we optimize our cost and efficiency? So our range anticipates some impact of lost volumes, but, you know, I think our EBITDA range and as we discussed, our lost EBITDA ranges quantifying the exchange a little bit more. Operator: Our next question comes from Matthew Gillmor with KeyBanc Capital Markets. Your line is now live. Matthew Gillmor: Hey, thanks for the question. Maybe following up on the cost efficiencies. Are you able to quantify what you are able to pull through this year? Was also curious about the timing building throughout the year such that you will get a year-over-year benefit in future periods. Or do they take place earlier in the year so they are all captured in '26? Sun Park: Yeah. No, we are not providing specific guidance between that. I mean, you think about our guidance from a core growth of EBITDA standpoint, I would just expect that embedded in there is both the value of the initiatives that we have invested in through capital and growth strategies for this year and expense management strategies that would be, you know, more, I guess, I said more structural over and above what we might have done in a typical year. And as I indicated, you know, the thought process behind those is not just about 2026, it is about being prepared for the years ahead. Operator: Fair enough. Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Your line is now live. Kevin Fischbeck: Yes, thanks. Now I guess I just want to follow up on that point. I guess we think about that type of growth, I mean, is this the type of growth that you think is sustainable in out years as we think about offsets? Because 10 is a pretty big number to be thinking about. And so I just want to understand, is this new focus on expense management replicable? Are you it kind of is what we are doing in year one and that is it? Or is this is what we are doing in year one and we should be thinking about similar types of opportunity in the out years because it is a little hard to bridge what would normally be viewed as, you know, a hospital business that might grow 3% to 5%. Now you are saying it is 10%. Like, is that sustainable? Saumya Sutaria: Well, Kevin, I mean, I think two things. One is we have built up a track record of acuity growth and net revenue per case growth ahead of, ahead of, you know, generally what the market does. Our margin expansion over the past, not just two years as I indicated, but even beyond that in the hospital segment itself, has been significant above and beyond the asset sales that we did, which obviously helped some of that margin improvement. We said all along that we kept the markets where we felt like we had the best opportunities for growth and leadership. And as we look ahead, the environment that may be coming, you know, in '28, '29, etcetera, with OBBB and other things, now is the time to take on the challenge of really being well prepared for that. And so, you know, look, we understand what the core growth guidance is. We think it is very attractive guidance. We think there is a lot of work that is going to be required to get there and creativity. But on the other hand, that is exactly the work we should be doing given the platform that we have built. And so that is what we are going after. Operator: Our next question is from Josh Raskin with Nephron Research. Your line is now live. Josh Raskin: Thanks. I want to stay on the same topic. And Saumya Sutaria, I appreciate what you just said. I sort of looked at it. Margins were up 680 basis points into 2019, and the hospital segment is up 660 basis points. So it is not really mix. Seems as though we have heard a lot about process improvement and optimization at Tenet Healthcare Corporation for a couple of years, and now we are hearing about this new focus on expense management. I would just be curious to get your view on just the broader technology agenda, specifically including AI, and, you know, overall business including revenue cycle management. And just, you know, do you think there are additional step function improvements in margins? I guess that is the main question. Do you think we are going to see continued margin improvement like we have seen in the past? Saumya Sutaria: Yes. I mean, I do not obviously, we are giving guidance in a year where there happens to be a headwind that we have done our best to quantify with respect to the exchange premium tax credits. You know, stated a different way, if those headwinds were not there, we have been saying all along that we continue to believe there is margin expansion opportunity in the hospital segment. The urgency with respect to much of what we are talking about doing is enhanced because of the, you know, what has happened on the exchange marketplace or what has not happened on the exchange marketplace, you know, as the case may be. The other thing I am mindful of is that, you know, there are what happens with respect to many of these reimbursement items might change over the next couple of years. Right? So we are not really planning out to that level of specificity for '27, '28, etcetera, there are elections that happen between now and then. That could alter, modify, or just transform policy from where it is today. But I think this gets back to the first part of your question, which is as we look around the environment, we have done a lot in this organization to improve reliability, accountability, the types of efficiencies we have taken, as we have scaled the company down in the hospital segment, reliably moving our overhead structure in line with that, all the things you would expect from an organization that is attempting to be best in class in what it does. And now, with the advent of many of these technologies in AI and automation, the ability to actually begin to deploy those and see if we can drive the next level of improvement, we are better set up for that now because we have more standard processes. We have more standard workflows. We have labor standards and supply standards that have been uniformly disseminated across the company. You know, it is much harder to do those things when every market is doing something very different versus having established those standards. And we have done that, and we have consistently demonstrated that establishing those standards have improved our business. So now it is about taking that to the next level. And that is really what we are talking about. Operator: Our next question comes from Justin Lake with Wolfe Research. Your line is now live. Justin Lake: Thanks. Good morning. Wanted to follow up on some of the guidance stuff. Appreciate all the details. You mentioned obviously the DPP, gave us the one-time benefit last year that comes out. I am just curious if you could specify, is DPP other than that flat year over year or any change within that core guidance? Maybe you could also give us the run rate of DPP. And then I thought your estimate of the impact of the subsidy expirations was towards the higher end of my expectations at least. And I am curious how you treated your at least your thoughts on the shift potential shift of some of these enrollees back to employer commercial? What you have assumed there versus, let us say, I think, UHS or one of your peers is assuming none, one of your peers is assuming 15% to 20%? Thanks. Sun Park: Hey, Justin. It is Sun. Thanks for your questions. On your question about the Medicaid supplemental payments, yes, as you pointed out, so a couple of numbers here. We finished 2025 with $1.34 billion in total supplemental payments. And obviously, we pointed out about $148 million of is out of period payments. So let us call it 1.2 effective run rate for 2025. In 2026, our guidance assumes effectively a pretty consistent number with our 2025 normalized baseline. So hopefully that helps. And then on your question about exchange, yeah, I mean, like we said, we assume about 20% overall of enrollment. I would say on your question about our assumptions for people finding alternative plans, including commercial, we are about 10% to 15% as an internal assumption. Now all of that, again, depends on what we see in Q1. And what run rates we see, but that is our assumption embedded in our guidance. Operator: Our next question comes from Pito Chickering with Deutsche Bank. Your line is now live. Pito Chickering: Hey, good morning, guys. Thanks for taking my question. Can I ask about sort of the first-quarter guidance? Normally, you guys get more than 24% of EBITDA in the first quarter? I think in the script, you said that 21% of the company ACs, which is normal. So the means of the changes actually the hospital segment. So is this something fundamental like the flu or lower circle demand, or is this just the $40 million of prior period PPP from last year or something else? And then just a quick clarification, can you quantify the DPP that you received in the '25 fixed? Sun Park: Hey, Pito. It is Sun. Just to be clear, our USPS Q1 guidance is 22% of our full-year guidance in Q1 for USPI. And then for our hospital, you are right. You know, I think the $40 million one-time benefit in Q1 kind of skews the total rates. Other than that, we see pretty, you know, standard annual Q1 percentages as a percent of the full year. And then for your question on DPP Q4, we had $315 million. Pito Chickering: Great. Thanks so much. Sun Park: Thank you. Operator: Our next question is from Andrew Mok with Barclays Bank. Your line is now live. Thomas Walsh: Hi, this is Thomas Walsh on for Andrew. With Conifer's services to CommonSpirit concluding at the end of this year, could you frame the current plan to redeploy existing resources to growth opportunities? And otherwise reduce expenses? To right-size the cost structure? Saumya Sutaria: Well, I mean, we have a full year of service that we have to execute with respect to Conifer and our client this year. So we are not expecting to take cost reductions this year from that perspective. If anything, we may both increase revenue and cost if we end up doing more from a transition service standpoint, and that may come with a margin. You know, after that, we have talked about the fact that we have other growth opportunities that are already locked in starting in and around 2027 that will allow us to redeploy talent in that direction. So we can see that, you know, we will be rebasing a bit the business at Conifer and preparing it for future growth. I mean, I do not know. I would kind of just go back to the core of what actually happened here in what we did. I mean, if I were to be very simple about this, we had an expiring contract for which the cash flow that we would have taken in between 2026 and 2032 was basically breakeven at best because at the end of that period, we would have significant obligations to the client in terms of payments that would need to be made and, you know, equity that we would have to buy back. I mean, one thing that may not have been so clear, we have not made cash distributions from that joint venture in the last decade. And that resulted in a pretty significant buildup of redeemable non-controlling interest other liabilities. So what we did was we retired $885 million of those obligations on the balance sheet and got back 23.8% of the equity that was in the joint venture for $540 million. And then if you look at the remaining six years of the transaction, of the contract that got dealt with in the transaction, we received $1.9 billion in accelerated cash flow over three years that would have come over six years in the contract. And the present value of those two things was roughly double what we would have got by running off the contract. So, I mean, we have gone back for what it is worth and done the math. If you just look at this on an NPV basis after tax, the incremental value from actually running out the contract that we have created again, post-tax present value was north of a billion dollars. We calculate $1.1 billion. I mean, this was absolutely the right path to go down in addition to getting complete control of the strategic future of Conifer. How we deal with that in 2027 and beyond, including growth opportunities, investments that we can now control in reducing the cost to collect and positioning Conifer to be more competitive, is the work of 2026 that we have in this asset. But maybe that kind of bottom-line calculation, you know, now that we have had a chance to look at what the earnings will look like in the out years, based on what we know today, is helpful in framing what we did in this transaction. Again, after-tax NPV of about $1 billion to $1.1 billion is what we calculate. We are pleased with the outcome. Operator: Our next question is from Scott Fidel with Goldman Sachs. Your line is now live. Scott Fidel: Thanks. Good morning. I was hoping maybe you could elaborate a bit on for the ASC business, how you are thinking about it and planning for investments. They could be either around the new facilities or in terms of organic or de novo expansion. From a case mix and procedure perspective, just, you know, interested in where you see, you know, underlying demand the strongest, where you see, you know, the best opportunities, you know, to continue to drive the trend that you have had of, you know, favorable case mix and profitable, you know, sort of acuity and procedure growth in some of these specialty areas of the ASC business. Saumya Sutaria: Yes. No, thanks for the question. I guess I would make three comments. One is that I alluded earlier to the inpatient-only list and additional opportunities there. I think that will be a slow tailwind going forward as there are more things that qualify in that area. I think USPI is well known to be kind of at the leading edge of the innovation in higher acuity procedures in that area. We continue to build on our urology platform, looking forward to doing more spine work there. A lot of the robotics capabilities that we have brought into the ASCs continue to allow us to find new avenues of expansion. And obviously, the large ongoing opportunity that we continue to see double-digit growth in our joint programs across the network, all those areas are, I think, attractive, you know, looking forward. We had a big M&A year, and a lot of the value that USPI brings after they acquire the assets and get into those settings is the planning for service line diversification and whatnot. So, you know, we have a big cohort this year that usually takes about a year to start to work on new physician entry and restructuring of the operating schedules, you know, where possible, to bring some of that higher acuity in. Sometimes, as we have talked about in the past, it removes lower acuity procedures in the context of doing that. When you get new centers, usually, it takes a year or so to kind of get that done. So we have a lot of work to do in that regard. And then the last point I would make is that, you know, Q4, as we expected about a year ago, we said that we saw a ramp going forward. Q4 had a nice pickup in GI case recovery as well. And that was an important driver of that performance. So I think it is the same this year. We expect the year to build over the year stronger and stronger. The first quarter last year was an incredibly strong quarter for us because of a lot of the synergies that dropped on the covenant transaction, you know, the CPP transaction in 2025. But as we kind of overcome that, this first quarter, expect to see growing momentum in the business looking ahead. Operator: Our next question is from Ryan Langston with TD Cowen. Your line is now live. Ryan Langston: Great, thanks. Can you tell us where exchange volumes and revenues tracked in the fourth quarter? And I know you do not assume any pickup from the supplemental programs that are not approved. But do you have any insight into where we are at in the approval process for the pending programs, like Florida, Arizona, California? Thanks. Sun Park: Hey, Ryan. On Q4 for exchanges, we were about almost 7%, I am sorry, 7.5% of total admissions for HICCs, and then a little over 6.5%, somewhere in there, of our total revenues, consolidated revenues, was from exchange. On your question about Medicaid supplemental payments, yeah, we are obviously tracking all the sort of the pending submissions and approvals in some of the states that you mentioned. We do not, I do not know that we have any specific updates to provide at this time. We will obviously continue to monitor. Saumya Sutaria: Yeah. I mean, I think it is just worth reemphasizing, you know, we have not put anything in our guidance about programs that have not yet received approval for '26. Ryan Langston: Alright. Appreciate it. Thank you. Sun Park: Anything incremental, sorry. I should be clear. Anything incremental in our guidance? Operator: Our next question comes from A.J. Rice with UBS. Your line is now live. A.J. Rice: Hi, everybody. Maybe just some comments on what you are seeing with care contracting. Obviously, that sector continues to be under pressure with some of the government programs, etcetera. And I wondered, is there any change in discussion, in terms of the pace of new contract or contract renegotiations or terms? Or just general update in rates? Sun Park: Yes. Hey, A.J. It is Sun. No. No real change in our commentary. Look, I think we have very positive and successful conversations with payers in general based on Tenet Healthcare Corporation's overall service lines and what we bring to the table, including USPI as part of the overall package as well. Our commentary on rates is pretty consistent. We see 3% to 5% range from payers. And, overall, from a contracting standpoint, we are virtually contracting 2026. I would say, you know, high nineties. And then even for '27, we are about 80% contracted. I think we are in a very, very good spot. Thanks for your question. A.J. Rice: Okay. Operator: Our next question is from Sarah James with Cantor Fitzgerald. Your line is now live. Sarah James: Thank you. Can you elaborate a little bit more about what you saw in payer mix in 4Q for USPI? And then unpack what you are assuming for hospital and USPI as far as the scale of change in '26 between 1Q 2026 and 4Q 2026? Thanks. Saumya Sutaria: I will take the second half of it. I do not think we are anticipating any different if you are asking the question about are we anticipating any sort of a different mix quarter to quarter than we saw in the amount of EBITDA that we generate in the hospital segment or USPI proportionally, I do not think we are saying that at all. I mean, you know, this is always the case where you have, you could have movement of a percentage point or something like that. Up or down depending on we deal with winter weather, we deal with hurricanes, we deal with, but, you know, we rebook those things and attempt to deal with them. Sometimes that is intra-quarter, sometimes it is out of quarter. So I would personally focus on the overall guide, and our message in terms of the percentages for Q1 are not meant to imply that we are changing our proportions for Q2, Q3, and Q4. Sarah James: Yeah. I got it. I guess I was thinking more in terms of as effective effectuation takes place, if you would expect the payer mix to change at the end of the year and to what degree compared to your assumptions and what Saumya Sutaria: Yeah. I would say that, I mean, there is a reason why the guidance range is wider than it normally is. I mean, we do not know, right. I mean, we are tracking it. We have a unique vantage point with Conifer because we do enrollment work as well. So we get a bit of a view into what that enrollment work is yielding in terms of where are people going, what reaction are they having to their premiums as they get exposure to them? So I think we will have some leading-edge insights there. But let us be honest, it is not perfect at this stage. It is very early in the year, and, you know, I think the guidance is appropriately broad in the hospital segment because we really do not know exactly how that is going to translate. We have been transparent with our assumptions with you all, so that you can see where that is going to run relative to what actually happens. Sun Park: And, Sarah, this is Sun. On your question about payer mix on USPI, I would say it has been very consistent. As Saumya Sutaria mentioned, we have some GI that came back, so that will tweak the overall mix a little bit from a payer standpoint. But nothing substantive. So we are very pleased with the payer mix. You know, in Q4, we reported, you know, at USPI, net revenue per case growth of 5.5%, total EBITDA margins above 40%. So I think all those metrics show very strong revenue acuity. Sarah James: Thank you. Operator: Our next question is from Benjamin Rossi with JPMorgan. Your line is now live. Benjamin Rossi: Hey, good morning. Thanks for taking my question. Just as a follow-up for the ambulatory side. For the $30 million EBITDA headwind across ambulatory from the EAPTC is expiring, much of your payer mix for the ambulatory segment came from the ACA exchanges? 2024 and 2025? Then did you see any pull forward across that cohort here during the fourth quarter given your typical seasonal dynamics for ambulatory? Thanks. Saumya Sutaria: Yes. Ben, we disclose that information in terms of the segment, but we have been pretty clear all along that HICS exposure at USPI is significantly less than the hospital segment. And no, we did not see any significant pull forward. We looked for it. Remember, we talked about this a quarter ago. As well. We looked for it, but we did not see any significant pull forward. Benjamin Rossi: Great. Thanks. Saumya Sutaria: Thanks. Operator: Our next question comes from John Ransom with Raymond James. Your line is now live. John, are you there? Are you muted, John? John Ransom: Sorry. Can you hear me now? Saumya Sutaria: We can. John Ransom: Oh, sorry. You know, there is a big narrative over the past few months that providers are getting on top of payers, quote, unquote, with coding advances assisted by AI, particularly claims resubmissions or easier. Is that exaggerated? Are we what inning are we in it? And just given that you are positioned on Encada firm being a provider, what is your position on that debate? Saumya Sutaria: Yeah. I mean, John, I can only comment for Tenet Healthcare Corporation and, I guess, to some extent for how we operate at Conifer. Our coding has always been appropriate and compliant. We audit carefully. We have not changed our coding practices over the last few years, either for ourselves or necessarily for our clients. We aim for very high degrees of accuracy. And we have not made changes in those areas. We have obviously been successful in increasing our acuity, which has supported our net revenue per case in terms of our pathway there. And finally, just to unpack a little bit the question earlier related to this, with Sun's comments about our managed care contracting environment, you know, we also do not have extremely heavy HOPD, you know, HOPD market drive from what we are doing. So we do a lot on the basis of freestanding outpatient in what we do. And that ends up being a value to the plans. We have not found ourselves in conflict over coding practices. We find ourselves, you know, in conflict over the nature of the amount of time and energy we put into disputes, denials, underpayments, and things of that nature, that, you know, have a process back and forth that you have got to work through. But increasingly, we have been setting up systems with the health plans to have adjudication mechanisms to work with them on in order to resolve these things in a less resource-intensive way. Some payers have been better than others about doing that with us. But that is the path we are moving down. John Ransom: Thank you. Saumya Sutaria: Welcome. Operator: Our final question is from Craig Hettenbach with Morgan Stanley. Your line is now live. Craig Hettenbach: Yes, thank you. And appreciate all the details given the fluid backdrop in terms of puts and takes on this year. So I am just keying off of your comment of taking an active approach to buybacks, especially at the current valuation multiple. Given the significantly stronger balance sheet, free cash flow generation, and common spirit kind of proceeds, how are you and the Board just thinking about kind of the right cadence here of buybacks? Saumya Sutaria: Well, yes, I mean, I purposely indicated, I purposely noted and indicated that, I mean, all these things link together, right? I mean, it is not just that we have significant cash on the balance sheet. We just described maybe in more detail today, the kind of value we just generated from the Conifer transaction, effectively, a portion of that transaction was, you know, like debt retirement. Right? I mean, it was an obligation on the balance sheet that was real coming up in the next few years. And so then the other proceeds from that go back into investing in the business, investing in USPI, and it gives us the opportunity for more share buybacks. And, you know, I would link this to our guidance for 2026 in terms of, I know we have talked a little bit about, you know, our growth rates and core growth rates. I mean, we attempt to operate and behave like a company that trades at a higher multiple. We will deploy our balance sheet like an organization that recognizes that the multiple has a valuation that is attractive to buy back shares. And I think we have done that over the last year. I mean, that is our mindset. Right? We expect to perform at that level. We also expect to deploy our balance sheet in a way that demonstrates we have confidence in our ability to operate. That might be the easiest way to describe how we think about the two. They are interlinked for us. Craig Hettenbach: Thank you. Operator: We have reached the end of the question and answer session, and this concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.