加载中...
共找到 17,410 条相关资讯
Operator: Greetings, and welcome to The Chefs' Warehouse Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead. Alex Aldous: Thank you, Operator. Good morning, everyone. With me on today's call are Christopher Pappas, Founder, Chairman, and CEO, and James Leddy, our CFO. By now, you should have access to our fourth quarter 2025 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout the conference call, we will be presenting non-GAAP financial measures including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales, and as a percentage of gross profit, net debt, net debt leverage, and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and fourth quarter 2025 earnings presentation. Before we begin our formal remarks, I need to remind everyone part of our discussion today will include forward-looking statements including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance. And therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-Ks and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our fourth quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on The Chefs' Warehouse website under the Investor Relations section titled Fourth Quarter 2025 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Christopher Pappas. Chris? Christopher Pappas: Thank you, Alex, and thank you all for joining our fourth quarter 2025 earnings call. Business activity and demand remained consistently strong through the fourth quarter amidst a healthy environment for our core upscale casual to higher-end dining customer base. Our teams across domestic and international markets provided excellent product and service amidst a busy holiday season. During the quarter, we continued growing market share, closing the year with strong year-over-year organic volume growth, unique item placements, and new customer acquisition. I'd like to thank the entire Chefs' Warehouse team for their dedication and commitment in delivering a strong 2025 for our team members, our customers, supplier partners, and our shareholders. As a reminder, earlier in 2025, we eliminated two non-core programs in Texas that came with the acquisition of Hardee's in 2023. These programs, one protein program focused on high volume, low dollar poultry and another a produce processing and packaging program, together only represented approximately 1% of our full-year revenue. As such, until we lap this attrition in 2026, we will present price and volume metrics as reported and also excluding the impact of these changes to present more representative year-over-year price inflation and volume changes for our business overall. With that, please refer to slide three of the presentation. A few highlights from the fourth quarter include organic net sales grew 9.7%, organic specialty sales were up 6.4% over the prior year which was driven primarily by unique placement growth of 4.2%, reported specialty case growth of 3.3%, and price inflation. Excluding the elimination of the Texas produce process and packaging program, specialty case growth was 5.4% up versus the prior year quarter. Unique customers grew 1.2% year over year. Reported unique customer growth was impacted by the Texas commodity poultry attrition. Excluding this impact, fourth quarter year-over-year unique customer growth was approximately 3.5%. Pounds in the center of the plate were approximately 2.4% lower than the prior year fourth quarter. Excluding the attrition related to the Texas commodity poultry program, center of the plate pounds growth was 7.5% higher than the prior year fourth quarter. Gross profit margins decreased approximately eight basis points. Gross margin in the specialty category increased approximately 45 basis points as compared to 2024 while gross margin in the center of the plate category decreased approximately 50 basis points year over year. Jim will provide more detail on gross profit and margins in a few moments. Now please refer to Slide four for an update on certain of our operating metric improvements. Chart one shows continued improvement in gross profit dollars per route. Fourth quarter 2025 trailing twelve months was 6.2% higher than full year 2024 and 7.4% higher than 2023. Chart two shows fourth quarter 2025 trailing twelve months adjusted EBITDA per employee increased 13% versus full year 2024 and 27% versus 2023. Fourth quarter 2025 trailing twelve months adjusted operating expenses as a percentage of gross profit dollars improved 176 basis points versus full year 2024 and 200 basis points better versus 2023. Before I turn it over to Jim, I'd like to highlight some of the accomplishments our teams across all divisions of The Chefs' Warehouse delivered in 2025. They delivered 9.1% full-year organic revenue growth exceeding $4 billion in revenue for the first time in our history. Approximately 18% increase in adjusted EBITDA growth. Adjusted EBITDA margin of 6.2% and adjusted EPS growth of 29% versus 2024. Strong free cash flow generation. Providing for continued investment in regional growth with the acquisition of Italco Specialty Foods in Colorado. We continued investment in distribution center capacity expansion and facility consolidation. Strengthening our balance sheet with net debt to adjusted EBITDA approaching two times leverage. And the return of cash to shareholders via our share buyback program. Once again, I thank all of our teams across The Chefs' Warehouse for their continued investment in talent, technology, category growth, and operational efficiency. All these areas and many more allow our businesses to continue to provide our growing customer base with the highest quality product and service, supplier partners with market share expansion, and our team members with opportunities for career enhancement. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim? James Leddy: Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to slide five. Our net sales for the quarter ended 12/26/2025 increased 10.5% to $1.143 billion from $1.034 billion in 2024. The growth in net sales was a result of an increase in organic sales of approximately 9.7%, as well as the contribution of sales from acquisitions, which added approximately 0.8% to sales growth for the quarter. Net inflation was 8.3% in the fourth quarter, consisting of 3.4% inflation in our specialty category and 16.1% inflation on our center of plate category versus the prior year quarter. Reported inflation was impacted by two primary factors in the fourth quarter versus the prior year quarter. Center of the plate inflation was impacted by the commodity poultry program attrition in 2025. Excluding this attrition impact, net inflation in the center of the plate was 9.5% versus the reported 16.1%. Continued growth in specialty cross-sell as we further integrate CW and Hardee's causes elevated reported specialty inflation for the fourth quarter. Excluding this impact, specialty inflation was approximately 0.8% and overall inflation for the company was approximately 4.3% versus the prior year quarter. Gross profit increased 10.2% to $276.6 million for 2025, versus $251 million for 2024. Gross profit margins decreased approximately eight basis points to 24.2%. Selling, general, and administrative expenses increased approximately 8.9% to $225.2 million for 2025 from $206.8 million for 2024. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments, and higher self-insurance related costs. Adjusted operating expenses increased 7.4% versus the prior year fourth quarter and as a percentage of net sales, adjusted operating expenses were 17.2% for 2025. Operating income for 2025 was $43 million compared to $46.5 million for 2024. The decrease in operating income was driven primarily by a $10.5 million increase in other operating expenses, which reflects an impairment charge on a non-core customer relationship intangible asset of $8 million partially offset by higher gross profit versus the prior year quarter. Our GAAP net income was $21.7 million or $0.50 per diluted share for 2025 compared to net income of $23.9 million or $0.55 per diluted share for 2024. On a non-GAAP basis, we had adjusted EBITDA of $80.3 million for 2025 compared to $68.2 million for the prior year fourth quarter. Adjusted net income was $29.9 million or $0.68 per diluted share for 2025 compared to $23.9 million or $0.55 per diluted share for the prior year fourth quarter. Turning to the balance sheet and an update on our liquidity. Please refer to Slide six. At the end of the fourth quarter, we had total liquidity of $280.5 million comprised of $121 million in cash and $159.5 million of availability under our ABL facility. Subsequent to the close of 2025, on January 20, 2026, we completed the repricing of our term loan maturing in 2029. The fixed spread above SOFR was reduced from 3% to 2.5%. As of 12/26/2025, total net debt was approximately $529.5 million inclusive of all cash and cash equivalents and net debt to adjusted EBITDA was approximately 2.1 times. Turning to our full-year guidance for 2026, based on current trends in the business, we are providing the full financial guidance as follows. We estimate that net sales for the full year of 2026 will be in the range of $4.35 billion to $4.45 billion, gross profit to be between $1.053 billion and $1.076 billion, and adjusted EBITDA to be between $276 million and $286 million. Please note for the full year of 2026, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be between approximately 46 million and 46.7 million shares. Thank you. At this point, we'll open up to questions. Operator? Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press 1 on your telephone keypad at this time. You may press 2 if you would like to remove your question from the queue. 1 to register a question at this time. Our first question is coming from Mark Carden of UBS. Please go ahead. Mark Carden: Hi, this is Matt Rothway on for Mark Carden. Thank you for taking our questions. So with the extreme winter weather that we saw in January and early February, how have your year-to-date sales tracked versus your expectations? Christopher Pappas: Thanks for the question. January was obviously, January is seasonally the slowest or weakest month of the year in the industry. But our January was actually very, very good, very strong. The storm impacted February and it'll be a temporary impact. It really impacted that one week. And February bounced back really nicely. Mark Carden: Great. Thank you. And then as the follow-up, at the midpoint of your guidance, it implies a flat gross margin for the year. And some healthy operating expense leverage. Can you talk about some of the drivers of that operating expense leverage? Christopher Pappas: Yeah. You know, if you look at us, we tend to keep gross profit margin fairly flattish when we guide forward versus the prior quarter or the prior year. Because product mix and changes in the category growth at different products through our markets that have various levels of maturity always tend to move margin around. So we will, you know, basically, we're focused on growing gross profit dollars higher than our adjusted OpEx year over year and ideally quarter over quarter and month over month. So that's really the only reason. The range reflects, you know, various levels of volume, product mix changes, and market factors that could change gross profit margin through the year, but we still expect to generate pretty good operating leverage. Mark Carden: Great. Thank you. Christopher Pappas: Thank you. Operator: Thank you. The next question is coming from Alex Slagle of Jefferies. Please go ahead. Alex Slagle: Thanks. Good morning. Christopher Pappas: Morning. Alex Slagle: Congrats on 2025. It's certainly a year of uncertainties with the tariffs and commodity volatility shopping consumer. So I guess just stepping back as you look ahead, I mean, what do you think are gonna be some of the bigger challenges or uncertainties to overcome in 2026 if you had to sort of rank what keeps you up at night or might impact your business more than others? Christopher Pappas: Yeah. Well, I mean, besides the storm that hit us, what we saw, as Jim said, you know, we had a really strong January, and you know, besides the storm, the next follow after the storm, February was really strong. So I mean, we're seeing our customers doing really well. You know, the continued growth, you know, the numbers we saw from hotels coming out, you know, strong bookings. They had a good season. So as always, Alex, I mean, we're cautiously optimistic. I mean, you know, after COVID, you know, nothing seems like, you know, an insurmountable headwind to deal with. So, you know, some inflation, deflation, some, you know, tariff noise. You know, our folks again is, you know, upscale casual to, you know, the finest dining in the world. You know, from our collection of customer base, you know? So we're so diversified now that I think we have a really good balance, you know, to, you know, to have, you know, more and more customers and we're cautiously optimistic. You know? I mean, the little tariff noise, a little of this, you know, our diversified portfolio, you know, thousands of suppliers from over 45 countries. I think gives us a really good base that at least we sleep with one eye closed. So hopefully that answers your question. Alex Slagle: Yep. Got it. As a follow-up, wonder if you could talk about capital allocation priorities kind of buyback to bid pretty measured, and the debt leverage now at the lower end of your target range, looks like another strong year of free cash flow generation that you're looking for. Just how much are you focused on, like, keeping dry powder for potential acquisitions? Or you know, what's the thought process heading into '26? James Leddy: Alex, I think you put it really nicely. All of the above. I think, you know, we definitely wanna keep dry powder to take advantage of some acquired growth that could be accretive and strategic. We definitely wanna continue to strengthen the balance sheet gradually. And we expect to continue to return some cash to shareholders opportunistically. We don't have a scheduled program in place or an ASR or anything like that. So we do it, you know, when we can and when the market provides a good opportunity to. So I just think we're gonna continue on the path that we've been for right now until something would change that. Alex Slagle: Okay. Thanks for the color. Christopher Pappas: Thank you. Operator: Thank you. The next question is coming from Brian Harbour of Morgan Stanley. Brian Harbour: Thanks. Morning, guys. Maybe just on that point quickly, Jim. I mean, you are down to two times levered. Do you think that or I guess, you know, within your guidance, do you think that there would be more buyback this year, for example? James Leddy: Yeah. I mean, there definitely could be. But once again, we look at it opportunistically. We take a look at what's the return estimate on share buyback versus doing an acquisition that, you know, has presented itself and could be a possibility versus continuing to delever. And as we delever, we put us in an even better position to take advantage of market opportunities. So I think, you know, I don't think we're gonna send a message today that we're gonna drastically increase our buyback. We do have to get the renewal of our program in place. And we'll do that, at our board meeting, coming up. We expect to. So, yeah, more to come on that. Brian Harbour: Okay. And, as you, you know, think about your guidance for this year, I guess, is there any, you know, notable shape you'd call out to kind of the sales growth cadence or the margin cadence? I know you'll, you know, lap some of those business exits in 2Q. Could you sort of just talk about how you've kind of thought about that? Also maybe how inflation factors into that if you expect that to be sort of steady through the year or fading perhaps? James Leddy: Yeah. Yeah. Thanks for the question. No. I think the guidance is pretty consistent with what we've done historically. You know, we tend to, I think, be a little conservative. You know, we're coming off a very strong 2025. I think we feel pretty good about '26. But, you know, the guidance implies, you know, year-over-year revenue growth of between six to 8%. That's the higher end and even a little bit higher than our long-term algorithm that we put out to 2028. Obviously, we had, you know, higher growth in '25, but, you know, we tend to add a little bit of risk adjustment. We just think that that's prudent. In terms of inflation, we assume, you know, kind of a normal level of, you know, kind of call it two to 4% and the remainder, you know, being product mix changes and volume growth. And we'll adapt and adjust that as we pace through the year. But, you know, being just through 2026, we tend to not adjust the guidance significantly. Operator: Thank you. The next question is coming from Peter Saleh of BTIG. Peter Saleh: Great. Thanks and congrats on a great quarter. I was hoping you guys could comment a little bit on any regional variances and performance that you're seeing, any notable call outs particularly in, you know, your large growth markets, you know, California, Texas, Florida, anything to note there? Christopher Pappas: Yeah. It's, you know, Peter, I really don't have any bad news. I mean, it was a great quarter. The team did a great job. You know, they're really focused. Again, you know, we've built some new facilities, and we're getting great returns on them. We continue to hire more and more salespeople, you know, in those markets that we see a lot of growth opportunity. We continue to hire into our digital team, right, to reinforce, you know, our presence online where a lot of our customers are going and more and more orders are coming through and we're able to communicate with the customer between our outside sales force, our inside sales support, and our digital presence. I think you see that, you know, our strategy is working. Right? We're able to sell more items to more customers. That's our job. And as we get better and better, you know, I call it a family of companies from our protein division to our fresh produce division to our specialty. It's all working, you know, I think, as planned. And, you know, the goal for 2026 is to keep getting better and better at that and to keep increasing our share of wallet. And keep taking market share and winning, you know, new customer openings. And expanding our territory. So, it's a playbook that, you know, we put in place. As we continue to get more and more synergies, you know, more products on the same trucks, I think you're seeing the results. Peter Saleh: Great. And anything you can comment on the Middle East business? I know that business has been rather strong past, you know, several quarters, year or so. Any update you can provide on that trajectory as well? Christopher Pappas: Yeah. So, again, we've made large investments there. We've had a lot of the CapEx cost from last year, you know, is done. And the business continues to perform. We think the region will continue to grow. You know? I actually just did a trip out there and was very pleased with what I saw. You know, strong management team. Continue to expand the sales force. And, we see a very, very long road of positive growth. So it's an exciting territory for us. Peter Saleh: Thank you very much. Christopher Pappas: Thanks, Pete. Operator: Thank you. The next question is coming from Margaret-May Binshtok of Wolfe Research. Margaret-May Binshtok: Hey, guys. Thanks for taking my question. I just wanted to ask, I know you guys have talked a little bit about AI deployment with the opportunities for dynamic pricing, some customer behavior analysis. I just wanna know going into '26, how do you expect, I guess, the ramp of some of these potential initiatives? And, I guess, like, what inning are we in in terms of, you know, realizing some of the benefits here? Christopher Pappas: Yeah. And, you know, you know, that's a great question. And, you know, we've used AI. We used to just not call it AI. So we've had a lot of, you know, focus on improving, you know, the insights into our customer behavior. And, you know, the way we look at all our business and, you know, continue to improve our functions and our capabilities and efficiencies. So it's, I think it's ingrained now into our daily lives. You know, those departments, you know, report in and we continue to measure, you know, the information we get. You know, sometimes it's overload. You know, at the end of the day, we can only, you know, look at a customer and speak to a customer so much. You know? I think they have the same tools now looking at their business, but it's, I would say, what inning are we in? I think we're always back at inning one. You know, because the technology just continues to evolve. You know? It's how do we use the information, and at a certain point, it's, you know, my speech is to when I'm addressing our sales teams is you have the information. Use the technology. It's improving your life. Your quality of life too. It's doing a lot of the work that you used to have to spend hours and hours, you know, doing your own summary reports and research. And utilize that time to go see more customers and sell more items. And I don't think that's ever gonna change. Margaret-May Binshtok: Awesome. Thanks, Chris. And just a follow-up. Jim, I think previously, you had kinda described the M&A environment as being frothy. I just wanted to know heading into 2026, would you say you have, like, a similar comment? James Leddy: I don't think anything's changed in terms of the market or outlook on M&A. As Chris often says, he has a pile of opportunities on his desk really consistently. We're just being very, you know, cautious and looking for the right opportunities. I know, Chris, there's anything you wanna add around M&A. Christopher Pappas: Yeah. You know, I mean, we're in such a great spot right now that, you know, we've done so much M&A. And, you know, when your organic growth, you know, can be, you know, my goal is always to try to hit 10%. You know, things have to make a lot more sense now than when we were trying to grab new territory or build categories. So cautiously optimistic that, you know, we will get some really good M&A deals that are synergistic and give us something that we're missing or enhance the territory. You know, always say that a good fold-in, I would do it every week because they're low risk and they just supercharge our organic growth in most cases. So we're constantly looking and constantly speaking to a lot of people that, I am sure there'll be some really good M&A, but I really love where we're sitting right now. And, it has to be something that makes great sense. So, you know, we continue to talk, and I think there'll be some good deals done. But right now, we're really happy where we sit. Margaret-May Binshtok: Thanks, guys. James Leddy: Thank you. Operator: The next question is coming from Kelly Bania of BMO Capital Markets. Please go ahead. Kelly Bania: Hi. Good morning, and congrats also on a strong year and a strong finish to the year. Was curious as you kind of think about your 2026 guidance outlook, just how much new market investment is built into there? And maybe you can just kind of fold in with that just an update on Italco and if Denver is, you know, in a market that is going to, you know, get some more investment or what are the priority investment regions for this coming year? Christopher Pappas: Yes. Well, thanks, Kelly. Obviously, we've made a lot of investments in a lot of territories, from The Middle East to California, to Portland, Oregon to Florida. So we're expecting to continue to get an ROI on all those investments, and we are. You know? The team is doing an unbelievable job and, you know, you're seeing the results. You know, Colorado is a long-term investment. You know, we're getting ready to move that business into a much bigger facility and really, you know, go after that market. So, we're really excited about that, but, you know, we're in the really early innings. You know? I would say Texas is the investments that we're continuing to make. You know, we have to synergize a lot of those businesses. You know, we have multiple warehouses and we're probably in the second inning of that business. It continues to grow, continues to do well. It continues to be profitable. So I think that's a big, big opportunity. You know, as we continue to chefesize, you know, the businesses that we bought in Texas. But, you know, what's driving, you know, what's driving a lot of the, you know, positive momentum that you're seeing is, you know, is Florida. Is New York, it's California, you know? Chicago's doing really well. So we really don't have any, you know, too many, you know, spots that we're, you know, at that beginning where we're just getting our arms around it. We still have to synergize New England. We have to synergize what we do in the Mid-Atlantic. And we're looking at even New York where, like, you know, so successful. How do we double that? Right? So I think we continue to invest in all our businesses, and what we're seeing now is, you know, the opportunities yet. We still have to go into the South. Right? We're small in Tennessee. Tiny in The Carolinas. Connect the dots from Florida all the way up to Virginia. You know, to make sure that, you know, we are able to service all our customers who are growing nationally. And look for opportunities overseas. We see the success we have in The Middle East, and we think that, you know, we can have success. We think the chef model works in more and more places. So we're, you know, keeping our eyes open and the phone lines going. Kelly Bania: Thank you. That's helpful. And just in terms of the Salesforce, are you able to share just a figure on what you're targeting for headcount? Or maybe you're not targeting. Maybe that's more kind of a bottoms-up culmination of the different markets. But just kind of wondering how that looks in '26 versus '25? Christopher Pappas: I think the strategy is the same. If you find really, really good people, hire them. You know? It's a, you know, they're hard to find, you know, and it takes time to develop somebody into someone that could sell the chef book. Right? You know, we're selling to the best chefs in the world. So you gotta be knowledgeable when you do go out or knowledgeable when you're on the phone, and that takes time. So, you know, job one is to make sure that, you know, great people stay. Often say that I think, you know, once you get past, you know, year two or three, a lot of people are here for, you know, I don't wanna say for the rest of their lives, but it's, you know, one of the best jobs you can get in the food industry. Right? You're talking to great chefs. You're around great ingredients. You're talking to great farmers. So, you know, people that enjoy that environment, it's a great place to be, and they rarely leave. So The Chefs' Warehouse is hiring. If we could find, you know, if you're great, we wanna hire you. So, we go as fast, you know, we're hiring as fast as possible. Kelly Bania: Thank you. Christopher Pappas: Thanks. Operator: Thank you. The next question is coming from Todd Brooks of Benchmark Stonix. Please go ahead. Todd Brooks: Hey, good morning, and I'll add my congratulations on a really great year. So thank you, sir. Couple questions. If I look at the kind of the KPI chart in the deck around the gross profit dollars per route and the adjusted EBITDA per employee. What strikes me as kind of the consistent improvement you've seen annually over the two-year basis that you present as you start to look forward are we far enough into the wave of some of the bigger facility consolidations that maybe should we be thinking about that same level of contribution from a gross profit per route standpoint? Or is that something that just moderates as some of these bigger investments in Southern California and Florida mature over time. And then the rate of average EBITDA per employee improvement, how much of that is facility related versus technology? Versus scale? James Leddy: It's a good question, Todd. It's a powerful. Yeah. But I think I'll let Chris, you know, add. I'll just say that in terms of the go forward, it's really gonna align with our execution against our guidance. If we continue to execute, you know, with operating leverage of, you know, 150 to 200 basis points, a year, kind of in the range that we delivered the last two years. You know, then you'll continue to see those metrics improve. I think Chris mentioned we're in the early innings in terms of a lot of the investments that we made in facility expansion, facility consolidations, most of those are in the last two years. As we came out of COVID and we started to leverage those. So I think we're in the early innings. We're gonna continue to improve on those metrics. We still have some more, gonna consolidate our specialty facilities in Portland this year. We'll be working on the expansion of our Las Vegas Processing Center. We're expanding freezers in a number of markets. So we're continuing to, you know, Chris talked about Denver. And what we have to do in some of the other markets like New England. So we're gonna continue to have a moderate pace of investments that involve not only route consolidation, facility consolidations, as well as expansion for growth. So I think those metrics will continue to improve. Christopher Pappas: Yeah. I don't think there's a ceiling, Todd, you know, to, you know, how much better we can get and how much more to the bottom line, you know, percentage-wise we can deliver. I think we're realizing, you know, when we went public, in 2011, we had a mountain to climb. Right? You know, trying to open up new facilities, buy companies, put technology in, you know, we had tremendous headwind, you know, in trying to deliver on the numbers, I think, and the expectations. But, you know, we stayed true to our strategy and the course. In the belief that, you know, what we do and, you know, building moats around our model at a certain point, we would start to get that leverage. And I think, we're starting to see, you know, we're delivering on our expectations that incrementally we would get better year in. You know, and keep, you know, that EBITDA margin would continue to improve. You know? So, obviously, we wanna be competitive. We don't wanna slow growth down by pushing it, you know, too high. You know, we're really comfortable where we are right now, but we still have a good road of synergistic improvement as, you know, we consolidate facilities as, you know, we consolidate Salesforce. You know, more and more, you know, technology goes in and gives us that, that efficiency, right, to scale more efficiently. So, we're really excited about the possibilities of how much better we can get. Todd Brooks: That's great. Thank you both. And then just one more quick one, and I'll hop back in queue. You're talking to your customers, Chris, are you seeing it seems like the consumer and it feels maybe beyond fattish at this point. There's focus around protein consumption and the whole kind of food pyramid and how people are eating. Are you seeing menus change? Or I'm just trying to think within the concept of the center of the plate protein part of the business. Are menus maybe coming your way to kind of drive that piece of the business in '26 with more proteins focused on your client's menus? Thanks. Christopher Pappas: Yeah. I think the right way to look at it is, you know, you've had so many fads and so many, you know, it's always about, you know, how's the shot affecting the business, how is the, you know, you know, we went through that. Everybody was gonna become a vegan. Everyone's gluten-free. Everybody is, now high protein. What I think it's just normalizing. You know, you have great options now on most menus. If you're a vegetarian, you have great options. You don't have to go to a vegetarian restaurant. You know? I'm out just about every day. And if I don't really feel like eating a high animal fat protein dinner, there's great options on the menu. You know, to satisfy you. If you want a steak, most menus have a great steak or a great piece of fish or chicken. You know, we sell to great Indian type restaurants and great Asian type restaurants. So I think that, you know, chefs are very creative and restaurants are very entrepreneurial. And I think you're starting to see that blend in menus that can, you know, if you're a party of four, everybody can get what they want. And I think it's really evolved in a very positive way, and I think a lot of that the chef's warehouse, the way we go to market, and our portfolio of ingredients, and the way we, you know, come in with all our experts and that team sell, I'm very excited. You know, of what I'm seeing and, you know, the growth. And I think we, you know, can keep that up for many, many years. Todd Brooks: That's great. Thanks, Chris. Operator: Thank you. At this time, I'd like to turn the floor back over to Mr. Pappas for closing comments. Christopher Pappas: Sure. Well, we thank everybody for joining our first quarter call. Really proud of what our team was able to accomplish in '25 and in the fourth quarter. And, you know, besides, mother nature giving us some challenges, we are really excited about what we saw in January and continue to see in February. And I think our team is just doing an unbelievable job and we look forward to having a great year. And thank everybody for joining today's call, and look forward to our next call. Thank you. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time. And enjoy the rest of your day.
Operator: I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc., and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary safe harbor disclosure. I am joined today by Anastasia Mironova, our Chief Financial Officer. In light of our recent announcement to sell ARI's loan portfolio to Athene and the call we hosted on January 28, I will provide a brief update on the four REO assets ARI will retain, and then we'll turn the call over to Anastasia to review our Q4 financial results. ARI continues to actively manage its real estate owned portfolio with a clear focus on improving run rate cash flow and maximizing value at exit. With respect to the Brook, which is a reminder, is a newly built class A multifamily tower with 591 residential units and approximately 20,000 square feet of ground floor retail in Brooklyn, New York. The property is currently approximately 56% leased across market rate units and is experiencing strong leasing momentum. The retail component is 88% leased, to Dingtai Phung with occupancy expected next year. Management remains focused on completing lease-up and achieving stabilization which is expected later this year, while also evaluating options to unlock additional value from an adjacent owned land parcel. With respect to the two hotels, starting with the Mayflower, management has implemented cost savings initiatives, which should provide a notable pickup in net cash flow once completed. In Atlanta, ARI is executing value-add upgrades to the rooms and common areas of the Cortland Grand aimed at driving group business in 2026. Following a fire in October 2025 that temporarily took some rooms offline, the company is receiving business insurance proceeds and continues to evaluate restoration and insurance recovery paths to maximize value. Finally, ARI has a minority interest in a Massachusetts predevelopment portfolio consisting of two former hospital sites, owned through a joint venture with other Apollo affiliated vehicles and is actively working through zoning changes to increase the value of each site. With that, I'll turn the call over to Anastasia to walk through our financial results for the quarter and the full year. Thank you, Stuart. Anastasia Mironova: Good morning, everyone. In the fourth quarter, ARI reported distributable earnings of $37 million or $0.26 per diluted share of common stock. For the full year, distributable earnings totaled $139 million or $0.98 per diluted share. GAAP net income available to common stockholders was $26 million or $0.18 per diluted share for the fourth quarter, and $114 million or $0.81 per diluted share for the full year. During the fourth quarter, we recorded a specific CECL allowance of $3 million associated with the 2019 vintage commercial mortgage loan secured by a hotel property in Chicago. The loan has an outstanding principal balance of $45.5 million and is expected to pay off over the course of the next few months. There were no other charges to specific CECL allowance during the quarter, and the overall credit profile of the portfolio remains stable. The weighted average risk rating of the loan portfolio was at 3.0, unchanged from the previous quarter and prior year. The balance of loans on nonaccrual decreased by over $170 million year over year driven primarily by net proceeds received from unit sales at 111 West 57 and partially offset with the addition of the Chicago hotel loan to the population of loans on nonaccrual. Our exposure to 111 West 57 decreased by $250 million year over year and $105 million quarter over quarter, with six contracts closed during the fourth quarter. The general CECL allowance was flat compared to the previous quarter end at approximately $45 million. Total CECL allowance stood at $383 million at year end. This equates to 418 basis points of the loan portfolio's total amortized cost, down from 450.7 basis points a year ago. The decrease is attributable to sequential portfolio growth year over year. Turning to the portfolio, the fourth quarter and the full year 2025 were highlighted by strong loan origination activity. During the quarter, we committed $1.3 billion to new loans with $1.1 billion funded at close and completed approximately $200 million of gross add-on fundings for previously closed loans. For the full year, ARI committed $4.4 billion to new loans with $3.3 billion funded at close and completed about $900 million of gross add-on funding. Loan repayments and sales totaled $852 million in the fourth quarter, and $2.9 billion for the full year, reflecting continued borrower execution and portfolio rotation. Notably, over 60% of our loan portfolio is now represented with post-2022 originations. This activity resulted in the overall growth of the loan portfolio, which increased by approximately $1.6 billion year over year on an amortized cost basis. We ended the year with a total loan portfolio of approximately $8.8 billion by amortized cost, with a weighted average unlevered all-in yield of 7.3%. The portfolio has 99% first mortgages, and 96% floating rate exposure. The weighted average loan-to-value ratio is approximately 59%. Shifting to the right side of our balance sheet, ARI ended the year with $151 million of total liquidity. We also held over $430 million of unencumbered assets primarily represented with first mortgage loans and cash flow in REO assets. During 2025, we added $1.8 billion of net financing capacity including the closing of four new secured credit facilities, the extension of our revolving credit facility, and the upsizing of several other credit facilities. Book value per share was $12.14 at year end, relatively flat to the prior quarter end. With that, I would ask the operator to open the line for questions. Thank you. Operator: 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Rick Shane with JPMorgan. You may proceed. Rick Shane: Hey, everybody. Thanks for taking my questions. Probably not a ton to ask here, but I am curious what sort of feedback you are getting from investors and given the gap between the implied value of the transaction and where the stock's trading right now, what do you think is driving that in investors' minds? Anastasia Mironova: Hello? Hey, Rachel. This is Anastasia with Jeff. We have a technical difficulty. One second. Stuart Rothstein: Can you guys hear me? Hey, Rick. I can hear you, Stuart. Okay. Hey. Just quickly. Look. Overwhelmingly, the feedback has been positive. I think people greatly appreciate the efforts to unlock value. Obviously, as you might expect, there's also been a number of questions around what we envision doing with the capital. Broadly speaking, what type of strategies are in mandate, not in mandate? We've revealed, you know, as expected, not a lot at this point and are more focused on getting through the go-shop period and then, obviously, getting to a proxy filing, which will provide more information to people. Not for me to say exactly what is driving the disconnect between, you know, the announced book value of 12 plus and a stock which sort of has been bouncing between $10.70 and $10.80 other than, I would say, people still looking for further clarity on what the strategy may or may not be going forward versus our further comments on dissolution also being a potential strategy. But I think as we provide more clarity on what we're thinking about and where we're headed with the vehicle, I would expect the gap to narrow over time. Rick Shane: Got it. And as you think about alternatives, I guess the question, and I realize you have to be pretty circumspect about how you answer this, but at this point, are there clear options on the table for you that you were evaluating? And, you know, do you have three plans and pros and cons? Or is it still, hey, we don't know what we're gonna do, and we are seeking a solution in the abstract? Stuart Rothstein: I would say we're exactly where we thought we would be, which is I would say there are some specific ideas that have germinated organically internally that we are evaluating, but I would say too early to whether one of those ideas will ultimately be what we decide to pursue or not. And then not surprisingly, post the announcement, a lot of incoming phone calls around ideas that people would like to propose to us, which was very much expected, and we will very much engage in a number of dialogues just to hear people out on what other thoughts they may have. So a bit for two at this point. Rick Shane: Great. I appreciate the answers, and I thank you for taking the time this morning. Operator: Thank you. Our next question comes from Doug Harter with UBS. You may proceed. Doug Harter: Thanks. Stuart, can you talk about kind of how you think about ultimately marketing the REO assets? I appreciate the update you gave. If we take the Brook, as you get the stabilization, how much longer after that do you look to monetize the asset? What are the key signs to think about there? Stuart Rothstein: Yeah. Look. I think with the Brook, let me respond a couple ways. I think for the Brook itself, lease-up is going as expected and overall is pretty strong. We're leasing, you know, depending on the month, 20 to 40 units a month. Rents are where we expected them to be. And as I indicated in my comments, I think we'll hit stabilization the latter part of this year. At that point, it really becomes sort of an assessment of what does the market look like in terms of the transaction environment, the interest rate environment, etcetera, as we think about maximizing value. On the Brook, the one caveat I would add is I think those of you that follow the company closely are aware, there is a parcel adjacent to the that the expectation was always that that would be a call it, jewel box retail site adjacent to the Brook. We are exploring some other strategies to create more value on that vacant site. And if we thought we could increase value of that vacant site, we might factor that into our decision around timing of when we book to exit the Brook. I think with respect to the hotels, I think the Mayflower has been performing quite well as a hotel in general since we've taken it over. We think there's a real opportunity to move net cash flow significantly over the next twelve months or so with strategies around efficiency and cost savings that we want to implement. As soon as those are implemented and a higher run rate net cash flow is achieved, I would say we're ready to bring that to market. And then I think with respect to the Cortland Grand, I think, you know, unfortunately, the fire on a portion of the hotel has given us an opportunity to sort of rethink through the best way to achieve value at the Cortland Grand, but I would say given where we're currently carrying the Cortland Grand, we feel pretty good about the value there. Doug Harter: I appreciate that, Stuart. And then do you think about making decisions to monetize? Will you wait to determine what the future of ARI is? In case some of those assets might fit into that future? Or would you know, just how are you thinking about the sequencing in that construct? Stuart Rothstein: I think right now, obviously, we're not making any decisions in a vacuum. But I think, you know, sitting here today, given my comments to Rick on strategies going forward, I'm not sure I envision any of the REO portfolio as critical to where we think we're taking we may take ARI in the future. So in some respects, I think, you know, exit strategy and maximizing value for the REO is very much sort of a walled-off decision as we think about just maximizing value. Operator: Thank you. Our next question comes from Jade Rahmani with KBW. You may proceed. Jade Joseph Rahmani: First one would be a quick one is on the dividend. What will happen post the portfolio sale? Will there be a period in which there is no dividend? Because otherwise, it will be coming out of book value. So the $12.05 will presumably go down by the dividend. Stuart Rothstein: I think all we've disclosed at this point, Jade, is we do envision paying a Q1 dividend of this year. Still subject to board approval, but envision paying a Q1 dividend consistent with the run rate for the past number of quarters, which is $0.25 a share per quarter. Beyond that, the remarks we made on the call, whatever it was, a week, two weeks ago, indicated a desire to keep paying a dividend, but also subject to board approval and fully appreciate your comment on return of capital. And I would say we will have further discussions with our board as we move towards any type of Q2 decision, which is in the latter part of the second quarter. Vis a vis the interplay between dividend thoughts on ongoing strategy versus dissolution, and the right way to provide capital back to shareholders if, in fact, we end up in a situation where any type of distribution would be a return of capital. Jade Joseph Rahmani: And then following up on Rick Shane's question about strategy and thinking about potential options if you do not choose the dissolution path. Wanted to see how if you agree with these broader themes. I mean, to create an entity that would create trade above book value, you know, I think you would need to create an earning stream that offers a return that's higher than what the public market discount rate is for these kinds of stocks. And so that higher return might look along the lines of what ARI actually originally started out doing, mezzanine and construction lending, because I think that's one of the only ways to generate very high returns today. Otherwise, you could go the super safe return path and perhaps use leverage in a way that private players aren't able to access, you know, using Apollo's access to business to bank lines and other businesses like Atlas via securitization. Or third, invest in operating companies that have franchise value and perhaps retained earnings or potential for equity gains. So I just wanted to see if you agree with those things, if there's anything that jumps out that you know, I didn't cover. Just your overall thoughts. Stuart Rothstein: Look. I think at a high level, what I'd say is and you got to it with your last point, is I think we are spending a lot of time these days debating the public markets and the value of being in a, call it, price to book model versus a multiple of earnings model? And which affords the better opportunity for future growth, better trading opportunities, ability to continue to capitalize opportunities to the extent you see them in the market. I would say both are within purview today, and I guess the last thing I would say, you know, is the notion of trying to come up with a strategy that we think will trade better is to indicate that what we're trying to spend time on is an opportunity for something that has more legs than just being a one-off trade to put a billion and a half dollars worth of capital to work. Right? Like, there's plenty of places to put a billion and a half dollars, but if long term, if we don't view it as an opportunity to invest in something that we think has continued growth trajectory and an ability to, as you put it, either generate outsized returns or create some sort of operating company slash platform value, you know, I don't think we're just gonna do it. Quote, unquote, print a ticket to say we printed a ticket. Jade Joseph Rahmani: Thanks a lot. Operator: Thank you. I would now like to turn the call back over to Stuart Rothstein for any final remarks. Stuart Rothstein: Thank you, operator. Obviously, always appreciate people getting on a call to discuss. We are always available, myself, Hillary, Anastasia, to the extent people have follow-up calls. Thanks all. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Agree Realty Fourth Quarter 2025 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star 1 a second time. Please limit yourself to two questions during this call. Note, this event is being recorded. I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben. Thank you. Reuben Goldman Treatman: Good morning, everyone, and thank you for joining us for Agree Realty's fourth quarter 2025 earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law, including statements related to our 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-Ks, for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found on our earnings release, website, and SEC filings. I'll now turn the call over to Joey. Joey Agree: Thanks, Reuben, and thank you all for joining us this morning. 2025 represented yet another year of consistent execution for our growing company. In a dynamic macro environment, we remain disciplined, continued investing in our future, and delivered over 4.5% AFFO per share growth. The $1.55 billion invested across our three investment platforms was the second highest total in company history, representing more than 60% year-over-year growth. As demonstrated by our 2026 guidance, the fundamentals supporting our outlook are very strong. Our portfolio has never been better positioned. The depth and strength of our team is exceptional, and our balance sheet is in tremendous shape. We have commenced numerous IT undertakings, including the construction of the next iteration of ARC, and continue to drive efficiencies through systematic process improvement. These initiatives will support bottom-line growth this year and beyond, driven by ongoing efficiency gains and a material reduction in G&A as a percentage of revenue. During the course of the year, we once again proactively fortified our balance sheet, raising roughly $1.5 billion in capital. We concluded 2025 with over $2 billion of liquidity, including over $715 million of outstanding forward equity. With no material debt maturities until 2028, our balance sheet is in tremendous position to execute on our 2026 investment guidance and provide significant flexibility. At year-end, pro forma net debt to recurring EBITDA stood at just 3.8 times, enabling us to execute on the high end of our 2026 investment guidance without incremental equity while staying within our targeted leverage range of four to five times. Our pipeline has expanded significantly over the past month and now represents over $500 million and provides us confidence in increasing our 2026 investment guidance to a range of $1.4 billion to $1.6 billion. Our updated investment guidance represents approximately a 10% increase from our prior range, and the high end of the range is slightly above our 2025 investment activity. With yesterday's release, we have initiated full-year AFFO per share guidance of $4.54 to $4.58. At the midpoint, this represents 5.4% year-over-year growth and two-year stacked growth of 10%. When combined with our current dividend yield, this implies a total operational return of our target of approximately 10%. Combined with the fortress balance sheet, best-in-class portfolio, and historic track record of execution, we believe that ADC offers one of the most compelling value propositions in the REIT sector. Turning to our three external growth platforms, our partnerships across the real estate spectrum have never been stronger nor more productive. Today, Agree Realty is the preferred one-stop shop for the country's largest retailers. These partnerships are translating into actionable opportunities, including one-off acquisitions, sale-leasebacks, blend and extend transactions, programmatic development, and high-quality DFB projects. As a result, all three external growth platforms are accelerating and see increasing transactional opportunities. Moving on to recap last year, during the fourth quarter, we invested approximately $377 million in 94 high-quality retail net leased properties across our three external growth platforms. This included the acquisition of 94 assets for over $347 million. The properties acquired during the quarter were leased to leading operators in home improvement, auto parts, grocery store, farm and rural supply, convenience store, and tire and auto service sectors. Fourth-quarter investment activity was of very high quality, evidenced by the largest quarterly percentage of ground lease acquisitions since 2021 at over 18%. Notable transactions included three geographically diverse ground leases leased to Lowe's, as well as a Home Depot in Michigan paying under $5 per square foot rent. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 9.6 years. Investment-grade retailers accounted for nearly two-thirds of the annualized base rent acquired. For the full year 2025, we invested nearly $1.6 billion in 338 retail net lease properties spanning 41 states. Over $1.4 billion of our investment activities originated from the acquisition platform. The acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average lease term of eleven and a half years, with roughly two-thirds of rents coming from investment-grade retailers. As a reminder, we do not impute credit ratings for non-rated retailers. Our development and DFP platforms had a record year with 34 projects either completed or under construction, representing approximately $225 million of committed capital. We're continuing to see increased activity across both these platforms, as we partner with retailers and developers to execute on their store growth plans. During the fourth quarter, we commenced four new development and DFP projects with total anticipated costs of approximately $35 million. The new projects are with leading retailers, including Boot Barn, Burlington, Five Below, Ross Dress For Less, Ulta, and 7-Eleven. Construction continued during the quarter on nine projects with anticipated costs totaling approximately $59 million. Lastly, we completed construction on three projects during the quarter with total costs of $29 million. On the asset management front, we executed new leases, extensions, or options at over 640,000 square feet of gross leasable area during the fourth quarter, including a Walmart Supercenter in Rochester, New York, and a Lowe's in Roland Park, Kansas. For the full year 2025, we executed new leases, extensions, or options in approximately 3 million square feet of GLA with a recapture rate of 104%. We are very well positioned for 2026 with only 52 leases or one and a half percent of annualized base rents maturing. During the past year, we disposed of 22 properties for gross proceeds of just over $44 million at a weighted average cap rate of 6.9%. This includes nine properties that were sold for $20 million during the fourth quarter at a weighted average cap rate of 6.4%. Our capital recycling efforts will continue to focus on select non-core assets as well as opportunistic dispositions. At year-end, our best-in-class portfolio is approaching 2,700 properties and spanned all 50 states. The portfolio includes 251 ground leases representing over 10% of annualized base rents. Our investment-grade exposure at year-end stood at nearly 67%, and occupancy increased to 99.7%, reflecting a 50 basis point improvement since the first quarter of the year. Lastly, I want to recognize Peter and his team for their exceptional work in 2025. We achieved an A-minus rating from Fitch and successfully launched our commercial paper program, both milestones that will deliver meaningful savings and long-term benefits to our cost of capital. With that, I'll hand it over to Peter, and then we can open up for questions. Peter Coughenour: Thank you, Joey. Starting with the balance sheet, we had a very active year in the capital markets, raising approximately $1.5 billion of long-term capital, including roughly $715 million of forward equity, a $400 million bond offering, and closing on a $350 million term loan. Additionally, we established a $625 million commercial paper program, becoming one of only 19 US REITs with a commercial paper program. This has become our preferred source of short-term capital, enabling us to issue approximately $28 billion of notes during the year and generate over $1 million in savings compared to borrowings on our revolving credit facility. During the fourth quarter, we sold 1.5 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $109 million. We also settled 5.9 million shares of forward equity, receiving proceeds of over $428 million. At year-end, we had approximately 9.6 million shares of outstanding forward equity, which are anticipated to raise net proceeds of $716 million upon settlement. During the quarter, we closed on the previously announced $350 million five-and-a-half-year term loan. Prior to closing the term loan, we entered into $350 million of forward-starting swaps to fix SOFR until maturity. Including the impact of those swaps, the interest rate on the term loan is fixed at 4.02%. The term loan fits well into our debt maturity schedule and demonstrates continued strong support from our banking partners. Today, no amounts have been drawn under the term loan, which has a twelve-month delayed draw feature. We also entered into $200 million of forward-starting swaps during the year, effectively fixing the base rate for a future ten-year unsecured debt issuance at approximately 4.1%. This is consistent with our proactive hedging strategy and combined with our outstanding forward equity provides over $915 million of hedged capital to fund investment activity in 2026. As of December 31, we have over $2 billion of liquidity, including approximately $1.3 billion of availability under our revolving credit facility and term loan, the previously mentioned outstanding forward equity, and cash on hand. Pro forma for the settlement of our outstanding forward equity, net debt to recurring EBITDA was approximately 3.8 times at year-end. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 4.9 times. Our total debt to enterprise value was approximately 27%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, was very healthy at 4.2 times. Our floating rate exposure remained minimal, with approximately $321 million of outstanding commercial paper borrowings at year-end. And as Joey mentioned, we have no material debt maturities until 2028. We are in an excellent position to execute on our increased investment guidance this year without having to raise any additional equity capital. The strength of our fortress balance sheet was further validated by the A-minus issuer rating that we received from Fitch in August. The rating makes us one of only 13 publicly listed US REITs to carry an A-minus credit rating equivalent or better. This achievement reflects the prudent, disciplined way we continue to grow the company and stands as a testament to more than fifteen years of thoughtful portfolio construction and disciplined capital allocation. Over that period, we have invested nearly $11 billion in best-in-class retailers while maintaining a preeminent balance sheet and consistently leading the way in capital markets execution. Moving to earnings, core FFO per share was $1.10 for the fourth quarter and $4.28 for the full year 2025, representing 7.35.1% year-over-year increases, respectively. AFFO per share was $1.11 for the fourth quarter, representing a 6.5% year-over-year increase. For the full year, AFFO per share was $4.33, which reflects the high end of our guidance range and 4.6% year-over-year growth. As Joey mentioned, initial AFFO per share guidance of $4.54 to $4.58 for 2026 represents approximately 5.4% year-over-year growth at the midpoint, which would be our highest earnings growth since 2022. We provide parameters on several other inputs in our earnings release, including investment and disposition volume, general and administrative expenses, non-reimbursable real estate expenses, income and other tax expenses, as well as treasury stock method dilution. Our guidance for treasury stock method dilution relates to our outstanding forward equity. As a reminder, if ADC stock trades above the net price of our outstanding forward equity offerings, the dilutive impact of unsettled shares must be included in our share count in accordance with the treasury stock method. Provided that our stock continues to trade near current levels, we anticipate that treasury stock method dilution will have an impact of approximately 1p on full-year 2026 AFFO per share. That said, the impact could be higher if our stock price moves significantly above current levels. Our accelerating earnings growth supports a growing and well-covered dividend. During the fourth quarter, we declared monthly cash dividends of 26.2¢ per common share for each of October, November, and December. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 71% of AFFO per share for the fourth quarter. With that, I'd like to turn the call back over to Joey. Joey Agree: Thank you, Peter. Operator, at this time, let's open it up for questions. Operator: We will now begin the question and answer session. We ask that you please limit yourself to two questions. Our first question will come from the line of Michael Goldsmith with UBS. Please go ahead. Michael Goldsmith: Hi. Thanks. This is Amy Proven on with Michael. I was hoping to start, we could dig in a little bit on the increase in the 2020 investment guidance just thirty days after providing the initial guide. How was this increased split across the platforms? And were there any large transactions identified, or is this more of an increase in one-off opportunities? Joey Agree: Good morning, Amy. Since the initial release in January, we've secured a number of transactions, including a couple of sale-leaseback transactions that will close in Q1 and Q2, respectively, as well as some single credit portfolio transactions on the acquisition side. From the development and DFP side, we just have more confidence, frankly, in those projects commencing in Q1 and subsequently also in Q2. So all three platforms have seen accelerated activity. I would note that the increase after approximately thirty days in the investment guidance is primarily due to those sale-leaseback transactions, that's in the credit portfolio. Operator: Great. Thanks. And then on the non-core asset sales, you highlighted these dispositions of some retailers that I think we were expecting and some that we weren't, maybe Family Dollar, a fitness operator, a Goodyear store. What makes some of these tenants more right for capital recycling than others? Joey Agree: Yeah. So capital recycling, as I mentioned in our prepared remarks, the portfolio is in tremendous shape. There are opportunistic sales that were taking place in Florida, California, and Texas on Goodyears, as you noted. We pared back Advance Auto Parts exposure as well. And so you'll see us continue to pare back exposure to retailers that we don't either have full confidence in on a go-forward basis, select non-core assets within I would say the predominance of our disposition activity this year will just be valuation that are driven by the 1031 market or the big beautiful bill where we don't see the value of the asset matching our prospective purchase. Operator: Great. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Jon Golan with Bank of America. Please go ahead. Jon Golan: Thank you. Good morning. I was hoping you can maybe talk about, you know, the cap rate on acquisitions where you kind of see that trending. And then any other maybe there is cap rate stability, but anything changing on the escalators, lease terms, or options at expiration when you're speaking with your different retailers? Joey Agree: Oh, good morning, Anna. Don't see anything materially changing on the cap rate front. Obviously, it's the beginning of the year. We have, I say, complete, but pretty know, our Q1 pipeline is effectively filled at this point. No material cap rate deviations. Obviously, we won't move up the we won't change our parameters and move up the risk spectrum. So no change there. Also, I think the rent escalators have been embedded with the historic inflation that we've seen post-pandemic, and we haven't seen any reversal of that trend or increase in that trend in terms of size of escalators or frequencies. I think most tenants have agreed today that escalators of seven and a half to 10% every five years are appropriate given just the inflation that we're seeing currently and as well as historically on a funeral basis. Operator: Okay. Thank you. And then can you just share some information with us on construction costs? We're hearing those are increasing. Joey Agree: They certainly aren't going down in the hundred years fuel capacity up to the past hundred years, while commercial rental rates have peaks and valleys, construction costs just continue to migrate upwards. And so we're seeing construction costs that are fairly in line with last year. We've looked at some alternative, you know, engineering and alternative mechanisms to reduce those costs in conjunction with our retailers. Those costs are embedded, obviously, in our development budgets. They certainly aren't going down. As I mentioned, the typical junior box in this country today is approximately $160 per square foot vertical cost. That's an off-price retailer today. Pre-pandemic, those were $95 per square foot. Obviously, a constrained labor environment doesn't help that. Tariffs don't help that. Since we've been able to look at sourcing domestically and, like I said, other alternatives here to try to reduce those costs, different construction methodologies, reducing labor when appropriate, using some prefabricated materials. And Jeff Conklin, our construction team, have worked diligently with our retailers to value engineer any buildings. Operator: Thank you. Joey Agree: Thanks, Anna. Operator: Our next question will come from the line of Smedes Rose with Citigroup. Please go ahead. Smedes Rose: It's Nick Jusz here with Smedes. Just on the sale-leaseback, is that more timing-driven that you've seen those deals come through? Or are you seeing more interest broadly from corporates on that structure? Joey Agree: Next, great question. It's really just frankly specific. We haven't seen a multitude of sale-leasebacks come to market, certainly not within our sale within our sandbox. There are two in our two that we will on in Q1 and Q2. Q1 will have the larger sale-leaseback. A core tenant of ours, a relationship tenant of ours who we are very fond of and very close to an existing top 20 tenant of ours. So haven't seen an increase in the sale-leaseback velocity, but two tenants that we have historical relationships with will on here in the first two quarters of the year. Smedes Rose: That's helpful. Thank you. And then you mentioned the potential for G&A savings with some of the efficiencies. How does that look medium and longer term versus where you are today as a percentage of revenue? Joey Agree: So last year, we were very clear that it was an investment year for us. Coming off of 2024, we started with the do-nothing scenario. We had effectively net new zero net new team members incremental to the team. Last year, we added almost 25 team members to the organization. We're approaching 100. As I mentioned in the prepared remarks, and we're in a terrific position to continue to execute with depth across all areas and functional areas of the organization. At the same time, we continue to benefit from our IT improvements. The team here has done a really terrific job. I mentioned we're working on the ARC 3.0 next iteration of ARC, we put a Microsoft backbone in place, and they have a number of projects that the team is executing on. For data efficiency and access. Will continue to make us faster and more efficient. We're utilizing AI as we mentioned on prior for higher calls for the last three and five years for lease underwriting checklists. We've deployed AI for lease abstraction. We anticipate deploying artificial intelligence for purchase agreement drafts and other form documentation this year. And so I would anticipate that approximately 30 plus basis points of G&A savings relative to total revenues. And so I think we'll continue to see that on a go-forward basis. On top of that, as Peter mentioned, we're seeing just from our size, scale, obviously, obtaining the A-minus credit rating, a million dollars in savings from the commercial paper program. And so our size and scale now is giving us access to different tools, different capital raising, short-term capital, in this case, it saves a million dollars, so almost a penny last year. Subject to the curve and, obviously, the commercial paper program that can move up and move down. But we just have more tools, frankly, at our disposal to drive savings. And so this year, I would anticipate single-digit hires, and I think we are in tremendous position to execute across all facets of the business on a go-forward basis and continue to benefit from those efficiencies. Smedes Rose: Thank you. Joey Agree: Thanks, Dave. Operator: Our next question will come from the line of Spencer Glimcher with Green Street. Please go ahead. Spencer Glimcher: On the four DSPs commenced in the quarter, are you guys able to share if these are one-off projects for these tenants? Or are they part of larger store count expansion for the retailers? Just trying to get a sense if there will be, you know, opportunity for more projects alongside these retailers. Joey Agree: They are not one-off projects. There will be, I think, significant opportunity for us. What we're seeing is retailer, and many of these are publicly issued statements. Retailer expansion with the desire that is greater or greater than any time since prior to the GFC. So if we look across the board, Home Depot, Walmart, Kroger, Keepgoing, Tractor Supply, O'Reilly, all the off-price operators have realized in a twenty-first-century omnichannel world their store base is critical. And so absent construction costs getting in the way of project feasibility here, we're gonna continue to see that. I would anticipate us breaking ground on 10 plus projects over the course of the first and second quarter. And so we're excited about both the development pipeline. We've announced 3711 Speedway projects last year. We will continue to execute those in the first and second quarter this year. As well as some significant DFP projects where we'll step in and finance any of the developer and know them upon completion. Spencer Glimcher: Okay. Great. Thanks for the color. And then just on the ground lease market, maybe first on the transactions that you've executed on recently. Are there purchase options on any of those at the end of the lease? And then just maybe more broadly, if you're able to share any color on the ground lease market in general just in terms of opportunity set and or pricing that you're seeing. Joey Agree: Yeah. No purchase options at the end of the lease. That I can think of. That's very atypical. The ground lease market per se isn't really a market. I mean, oftentimes, sellers aren't even, frankly, cognizant of the ground lease structure and look at it as a net lease transaction. We did one unique transaction, I would say, during the quarter in Flanders, New Jersey, which had a number of ground leases, driven by a Lowe's ground lease, as I mentioned. In the prepared remarks. There's also a ground lease to Panda Express there, a ground lease to Wells Fargo, a ground lease to Wendy's there. And so a number of ground leases all pads to that Lowe's. Obviously, 18% was elevated in Q4 driven by that. The other Lowe's I mentioned as well as the Home Depot about twenty minutes from here. We'll have more ground lease opportunities in Q1, but I think, you know, thinking of it as a market is pretty challenging. Many times, we're working with retailers on early extensions or short-term either retail or directed. And so it's a unique seller pool all the way from institutions to mom and pop owners here. Spencer Glimcher: Great. Thank you. Joey Agree: You. Operator: Our next question comes from the line of John Kilekowski with Wells Fargo. Please go ahead. John Kilichowski: Great. Thank you. This is actually Jamie Feldman here, pinch-hitting for John. So how much of the high end of your investment guidance range, the $1.6 billion, is dictated by the available forward equity you always already have. Versus what you think the true opportunity set could be this year? Joey Agree: None of it's driven. I mean, I would say they're all they're really separate. Peter, feel free to chime in. But I think we're confident in the uses with the 1.4 to 1.6 billion. As we mentioned in the prepared remarks, we can stay under our targeted leverage range of four to five times. Really excluding dispositions, we anticipate having significant free cash flow after the dividend, even increasing the dividend this year. Obviously, with $700 million plus outstanding of forward equity, we're in tremendous shape. Peter Coughenour: Yeah. Jamie, just to echo Joey's comments, you know, we have over $2 billion of total liquidity, but thinking about it from a leverage perspective, we have $1.6 billion of buying power without having to raise any additional equity. And we can end the year at the high end of our stated leverage range of four to five times while executing really on the high end of our investment guidance range. And so we're very well positioned for this year from a balance sheet perspective. Given that liquidity and outstanding forward equity. I think that's really only one factor as we think about setting guidance. John Kilichowski: Okay. So if I heard you right, you really feel strongly one six is kind of the max of what you see out there? Joey Agree: Definitely not. I think it's our yeah. It is our guide at this time. We have no visibility outside of development into Q3 or Q4. We started commencing sourcing Q2 acquisitions fifteen days ago. What I can tell you is there's a half billion dollars in the pipeline, as I mentioned. That we are very confident in, and we'll continue to source across all three platforms. And update the market and everybody on this call as we continue to see activity. But no visibility outside of development in a couple of DFP projects beyond let's call it, May right now. John Kilichowski: Okay. Thank you for that. And then secondly, I think we had expected yields to compress more than they have. Any thoughts on why you think that hasn't been happening? Given there is more competition in the space? And then the developer funding program, you think that's better in a low rate regime or a higher rate regime? We think about you growing that business? Joey Agree: In terms of competition, we haven't seen any increase in competition due to the private capital that's entered the space. I think everyone on the call is familiar with the numerous different sleeves and operations that have launched. These you know, our transaction is 4 to $5 million. 20 people touch it from letter of intent in our underwriting. A letter of intent execution to close. We're a horizontally integrated machine that's closing two transactions per day. It's high touch, frankly. We are working with retailers to extend deals, to identify dealers, working directly with developers. We overcome obstacles and hurdles that are again, high touch real estate exercises, not just sale-leasebacks with middle market credit. And so it's a very different business and the preponderance of capital that has entered the space is chasing. In terms of our DFP platform, I think what's really driving the increased activity is one, our own efforts. Those are critical. But two, we already touched on construction cost today. And so with vertical construction cost, primarily vertical, I should say, penciling these projects is extremely challenging. You combine that with the availability and the cost of capital, as you mentioned, partly driven by the tenure, which drives equity return to fill any gaps or potential mezz debt. These projects are very difficult to pencil for private developers. And so our developer funding platform provides a unique solution to finance the entire project and to own it upon completion. Really taking the risk off the developer unless they blow their budget. And then it comes out of, frankly, their profit payment. And so we're entering with a fixed return. We're providing not only our balance sheet as well as an exit, but our relationships with retailers, many of which we have formed leases and very strong relationships with, so we can expedite or accelerate that project. And so we see that looking pretty stable, and our goal is to continue to ramp it. John Kilichowski: Okay. But I guess the question on just why yields have been so sticky. Are you saying because you haven't seen that much competition? Or is there anything else we should be thinking about? Joey Agree: I think the ten years obviously traded within a band. Right? We've seen the ten-year trade within a band. There's no you know, there's no material increase in competition. In the sandbox that we are operating in. And so we really haven't seen anything deviate over the past, I hope, call it year plus here now. John Kilichowski: Okay. Great. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Brad Heffern with RBC Capital Markets. Please go ahead. Brad Heffern: Yes. Hey, everybody. Thanks. You've had the medium-term goal of $250 million in development investment commitments per year. You think this will be the year that you see that number? And does that represent a steady state, or should we expect a higher goal at some point? Joey Agree: We're always raising goals here. We are built to scale as we talked about. On prior questions. I'm hesitant to say this will be the year because due to third-party timing, that's retailer approvals, municipal approvals, access approvals often from DOTs and county. Think this will be a continued year of growth for us. Our pipeline is large. The timing of those projects is often subject to third parties. But our pipeline continues to grow across development as well as developer funding platform projects in all stages from the shadow pipeline to breaking ground as we speak. Brad Heffern: Okay. Got it. And then, Peter, can you talk about what the assumed credit losses and guidance and where you ended up 2025 as well? Peter Coughenour: Sure. In terms of our AFFO per share guidance for 2026, we're assuming at the high end of that guidance range, 25 basis points of credit loss. Which is relatively in line with where we ended up for 2025. I believe we're at 28 basis points to be exact. And then at the low end of our AFFO per share guidance range for 2026, we're assuming 50 basis points of credit loss for the year. So overall, the portfolio continues to be in great shape. It was 99.7% occupied. As of year-end and is performing well. We're not seeing any significant changes to our watch list or any new entrants that are material from an exposure perspective, and anticipate the portfolio should continue to perform well in '26. Brad Heffern: Okay. Thank you. Operator: Our next question comes from the line of Bacon with Baird. Please go ahead. Bacon: Hey, thank you for taking my question. So you just mentioned, talked about how the development and pipelines are growing. I'm curious now that you're, as you said last year, a full suite real estate platform. How has that maybe changed conversations or seen other retailers that you haven't worked with come to you seeking out your full suite of capabilities? Joey Agree: No. It's a timely question. The team was down with a number of retailers yesterday that we are working with currently and aren't working with currently across all three platforms. I think most importantly, it provides a holistic conversation with retailers. I would add our asset management platform. And so everything we manage is internally property managed, lease administrator, internally, taxes, insurance, any ancillary responsibilities. The ability to sit down with any retailer in the country and provide an entrepreneurial platform that can across all phases of the life cycle of a transaction. From net new development to extensions of short-term leases for sale-leasebacks. Is just a unique value proposition that is one of one. And so you combine the entrepreneurial DNA of a real estate company, a private real estate company, with a $1.213 trillion dollar balance sheet of an A-minus rated company that is a publicly traded REIT with significant liquidity, access, and a premier cost of capital. And opportunities will arise. And so we continue to maintain dialogue with retailers, grow those relationships, that are existing. We're always talking to retailers about net new projects and launching a vertical with them in conjunction with our standard acquisition third-party activities. Bacon: Thank you for that. That's it for me. Joey Agree: Thank you. Operator: Our next question will come from the line of Upal Rana with KeyBanc Capital Markets. Please go ahead. Upal Rana: Great. Thank you. On the forward equity, you've got $700 million remaining to deploy. Is there any timing when you need to settle those shares? You've done some significant forward offerings. During 1Q last year and April. So just wondering if there's any timing related to those shares settling in expectations on when you need to deploy that capital. Peter Coughenour: We have a lot of flexibility in terms of settling the $750 million plus of outstanding forward equity. I think the earliest tranche matures in June. The latest tranche matures in May 2027, and so have a lot of flexibility in terms of when we settle those shares. I think it's fair to assume that most of those shares get settled at some point, and in 2026 subject, obviously, to uses and other capital sources. But have a good amount of flexibility in terms of when we decide to settle those shares and receive the proceeds. Upal Rana: Okay. Great. That was helpful. And then just given that we're halfway through one Q already and you've already increased your investment guidance by almost 10%, could you share any preliminary 1Q or even visibility you're seeing on investment activity? Joey Agree: Yeah. As I mentioned, there will be a sale-leaseback in there. With an existing top 20 tenant of ours, in the first quarter. The second quarter, we'll have a sale-leaseback with another top 20 tenant. There are two or three single credit portfolios, one with the largest retailer in the world from a third-party seller, another with the leading paint manufacturer and retailer in the world. Those are primary drivers, I would say, in there, and then one-off transactions on the acquisition front that are typical of everything we do. Upal Rana: Okay. Great. That was helpful. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Mitch Germain with Citizens Bank. Please go ahead. Mitch Germain: Thank you. Joey, you've been pretty good at predicting retail trends. And I'm curious if there's, like, a tenant or maybe a sector that you think could become a bigger piece of the portfolio on a go-forward basis. Joey Agree: So I'm gonna hesitate to look. We've talked about Boot Barn. We've talked about our increased exposure there. We foreshadowed Gerber Collision. We foreshadowed Tractor Supply. Obviously, we're extremely acquisitive with off-price, that TJX concepts. Burlington roster, tenants that we're always looking at. That are I would tell you on the periphery of our sandbox, or potentially even on the cusp of entering that sandbox, I'm hesitant to mention them because as soon as we start, frankly, targeting them, it seems that we get some copycats out there that then start chasing those credits. And so there are always tenants that we're looking at. We've been pretty outward with Five Below in terms of developing, acquiring. So there's always tenants on the outsides of that sandbox that are making their way in. I think we'll hold off disclosing them until they are in our table. Mitch Germain: Appreciate it. Congrats. Joey Agree: Thank you. Operator: Our next question comes from the line of Eric Borden with BMO Capital Markets. Please go ahead. Eric Borden: Great. Thanks. Joey, CVS performance appears to be improving. You know? Have the CVS's recent initiatives begun to show up in the performance metrics within your portfolio, and how does your exposure compare to their broader store base? Joey Agree: Yeah. We've look. We've got a tremendous CVS. I would note that pharmacy exposures at 12/31 was down to 3.6% in totality. Again, that's in as versus in 2010 when I launched the acquisition platform of being 43% Walgreens exposure. There's a case study in the deck about that. The very de minimis for us now. Our focus with CVS is acquiring high-performing stores where the fixed cost, the rents make sense, the days of dual, dueling suburban pharmacies on opposing corners, we believe, is over. Ground leases, super high-performing stores, and then stores that have an extremely low rental basis and are productive. And so we're not interested in the suburban $400,000 per year pharma. It's 14,000 feet on two acres. Yeah. Those are readily available on the market for anyone who wants to roll back the clock to ten, fifteen years. We're more interested in the pharmacies that are either on a ground lease or paying a couple $100,000 in rent or have outperformance twenty-four-hour operations. Or early extensions with our tenants there. And so it's a very selective acquisition process for us. It's a very informed acquisition process for us. We'll make select additions to the portfolio, but it's not a focus for us. Will not see any material growth in our pharmacy exposure CVS exposure at this time. Eric Borden: Yep. Great. And then just on the quick service restaurant side, noticed that the exposure increased to 2.3% of '4. Joey Agree: So the Flanders Outlaw, the Panda Express, the Wendy's, We acquired an Olive Garden ground lease with a garden guarantee during the quarter. Restaurants, a McDonald's ground lease. So I would tell you restaurants for us. We will continue to stay away from outside of the ground lease structure. Or a very unique opportunity. Not a focus for us, especially in today's economy. And then more important, when we look at the fungibility of the box, the rent per square foot, we just don't see the residual values there. To mark to market. And so restaurants will be on the perimeter. If you see us acquire a restaurant, or any such single-purpose type structure or fit out, it will generally be on a ground lease. Eric Borden: Alright. Thank you very much. Appreciate the time. Joey Agree: Thank you. Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead. Omotayo Okusanya: This is Sam on for Tayo. Was wondering if does the exposure to lower-income consumers present you know, some sort of down risk, particularly around categories such as dollar stores, off-price retail, or discount stores? And, like, what are you guys doing to mitigate this risk? Joey Agree: I think it's the absolute on last call, I said we are the trade-down effect. What we're seeing in 2026 is just the steepening of decay. The theme in 2024, and I don't wanna get, you know, this is about affordability, and I'll put it in quotes. The theme of 2024 and 2025, was the low-income consumer and the challenges they were having. The theme of 2026 and hopefully, it gets resolved, but I don't see any resolution in the near term, is the middle-income consumer. We have dual working parent households in this country. Costs are increasing, whether it's automobiles, health insurance, residential costs. Right? Costs cost of living across the board. Inflation, the cumulative inflation that we've seen since the pandemic has been devastating for these families. And so if you look at the print of the targets of the world, and you juxtapose that against the prints of the Walmarts of the world and the dollar stores of the world, the trade-down effect is palpable. You can see those consumers looking for bargains, for discounts. You see it, frankly, in the size, the basket size, the ticket size. And the frequency of the trips. You see Five Below retailers, like Five Below, really thriving in this environment. Our general performing extremely well, and Walmart, frankly, kicking ass, crossing a trillion-dollar equity cap. And so you'll continue to see us focused on those retailers that cater to that consumer. We avoid luxury. We avoid experiential. We avoid fun. It's goods and services that are necessity-based. And if they're not the lowest-priced operator, they have a unique value proposition. And so that's our focus. It has been our focus. I think it inures to our benefit what we're seeing out there given the portfolio composition that you see obviously, in our materials. Omotayo Okusanya: That's all I got. I appreciate the time. Joey Agree: Thank you. Operator: Our next question comes from the line of Linda Tsai with Jefferies. Hi, good morning. Earnings growth was over 4.5% in 'twenty-five and you're guiding the midpoint to 5.4% in 'twenty-six. You view this 4.5% to 5.5% earnings growth cadence as a sustainable state? Joey Agree: Yeah. Good morning, Linda. We've been very clear for months that our earnings algorithm would kick in this year. And we drove over four and a half percent AFFO growth per share last year after only deploying $950 million. Approximately in 2024. And while investing and dealing with the big lots, bankruptcy machinations. And so we were very clear that our earnings algorithm would kick in this year. We have no upcoming material debt maturities, and so we're all systems go. Let's be clear. Across all three external growth platforms, as well as from a balance sheet perspective. And so our goal has consistently been to deliver 10% operational returns. We will deliver ten percent two-year stacked AFFO growth, whether it's last year, this year, this year, next year. We've been very clear about that while maintaining a defensive posture from a portfolio position maintaining our strict underwriting criteria and a fortress balance sheet. Linda Tsai: Thanks. And then in terms of new-to-market customers, not sure if you track it this way, but what percentage of ABR came from new-to-market in '25? And would you expect to increase your exposure to these customers in '26? Joey Agree: New to market, meaning new to our portfolio. Linda Tsai: Yes. Peter Coughenour: Peter, I can't think of one new tenant to the portfolio that we added. Can you? Joey Agree: No. If we did, it would have been in a pretty de minimis way. Peter Coughenour: Yeah. Extremely de minimis. We took out a bank ground lease for, I think, 80,000 or a $100,000. As an outlot to one of the Lowe's that we acquired. So it would be an ancillary small piece, but really no new tenants or new entrants of any substance at all in the portfolio in 2025? Linda Tsai: Just one last one if I could. So Walmart's 5.6% of your ABR, obviously, gold standard in terms of tenant credit. But any ceiling which you'd be comfortable with, you know, any specific tenant exposure? Joey Agree: To Walmart specifically? Linda Tsai: Just anyone. Joey Agree: Look. Walmart is the only tenant, as you mentioned, over 5% of the portfolio. We've thought that that was a gray line for a while. It was breached by different operators within the space. We also look at 10% as a great threshold for sector, line of trade, groceries just over 10%. We feel very comfortable there. I'm happy to add more Walmart exposure on a percentage basis as we go forward. We're always working on Walmart transactions, frankly. Across our platforms. There are Walmarts in our pipeline right now. So with the percentage basis, we feel very good with where Walmart is. I mean, they are also our top three or top four ground lease tenant in the portfolio, number three, actually, in terms of ground lease ABR. And so we're very confident in our Walmart exposure. The company continues to perform tremendously. And so we're comfortable. I think at the peak during COVID, it went off almost up to nine, Peter. Correct me if I'm wrong. Up to 9%. I wouldn't anticipate that occurring. But we'll certainly pursue Walmart transactions aggressively. Linda Tsai: Thank you, and good luck. Joey Agree: Thanks, Linda. Operator: Our next question comes from the line of Rich Hightower with Barclays. Please go ahead. Rich Hightower: I want to go back, I think, was Jamie Feldman's question just on sizing sort of the forward equity component of the total sources. And so, you know, is the gating factor there at any given time related to the deal pipeline? Is it market impact on the share issuance? Is it, you know, something else? Just what would prevent you from taking, you know, 700 something million in ATM, I'm sorry, in the forward, you know, unsettled shares today to a billion, 1,000,000,001 half or something like that. Joey Agree: Well, you get the confluence of factors. Most importantly, ultimately uses. Right? Do we have the uses of that capital? Obviously, we have the liquidity and the balance sheet tolerance, full flexibility to do whatever we want. The most important thing is to have that flexibility and never raise any type of capital. We wanna continue to be opportunistic, but think, ultimately, it's sources. So with no material debt mature uses, excuse me, ultimately, with no material debt maturities, in all of the capital that we raise effectively going toward net new investment activity. We'll monitor those that the pipelines across all three verticals, but that's the driver. Peter, anything else you wanna add? Peter Coughenour: No. I agree with that. I think staying ahead of our uses is ultimately most important, and that will allow us to continue to be opportunistic in terms of how and when we raise capital. And, today, with over 2,000,000,000 of liquidity and a billion 6 of buying power, as I referenced earlier, we are well ahead of our uses and well positioned for the year. Rich Hightower: I guess just to follow-up on that. I mean, is it a safe signal for the rest of us, I guess, on this side of the phone call that, you know, every quarter or so, you know, as you're kind of issuing forward shares, that a signal that the pipeline is indeed sort of growing above and beyond the current target, or is that not really the right way to interpret some of those movements? Joey Agree: We'll look at all capital sources. I hope we get back to the day where we can issue a perpetual preferred at four in a quarter. We'll look at all capital sources, see how they fit within our capital stack. Last year was the first year in a number of years with the five and a half year delayed draw term loan. We have a full suite, obviously, access to all four quadrants of longer-term capital. Short term, we have the line of credit, the commercial paper program, significant free cash flow, as well as dispositions, which we anticipate ramping a little bit this year. So, you know, there's really no direct causation. Are they correlative? Sure. I would say it's correlative. As we see our investment pipeline grow, further, it's wholly possible that we'll add incremental equity to fund that subject to other capital sources and obviously, the respective cost of those capital sources. But, look, we have been at the forefront of capital raising in the net space, and I would argue read them today, utilizing forward equity. First in 2018 on a regular way, and then subsequently, off of the ATM. And so we anticipate continuing, obviously, in an external growth business to be raising capital. We have swaps in place, as Peter mentioned, to tap the unsecured long-term unsecured bond market this year as well. And as the year progresses, we'll look at all, obviously, the sources and the uses and to match them to create an A-minus balance sheet that's on par. With our expectations. Rich Hightower: That's helpful. If I could sneak in one more just on development and DSP. Know, just maybe help us understand where, you know, kind of across America, you know, this sort of development is taking place. You know, because I think, otherwise, you know, retail, commercial real estate, you know, obviously, is being underdeveloped more broadly, but you guys are finding these sort pockets. I mean, is it infill? You know, is it redevelopment of sort of existing underperforming real estate? Is it, you know, green kind of associated with new residential development in different places? Just what does that composition look like? Joey Agree: Interesting question. Look. The constraint today and net new development is not desire from retailers. It is cost and the fee project feasibility driven by the vertical construction cost primarily. And so we are operating from the West Coast to the East Coast, all the way down South. There are tertiary markets. There are primary markets. There are redevelopment of existing structures, splitting up larger boxes into junior boxes. There's ground-up projects that have tips or outlots or extremely low land bases to support it. It's highly diversified. It's hard corners. For c stores. It is exit ramps for CFLC stores. Larger commercial fueling locations that provide for diesel. And so if you look at the c store sector today in the growth of the regionals and the nationals, the off-price sector, their voracious appetite to grow, whether it's TGX's buy banners, Ross's too, or Burlington's desire to get to a thousand stores. Then the big box space, Lowe's, Home Depot, as I mentioned, Walmart, Costco, Kroger are even announcing net new stores. We see the tremendous appetite to growth to, again, get the permutation correct, in an omnichannel world. I would tell you all retailers have recognized that free shipping and then a 40% return rate does not work. And so they're trying to get stores in place to get our butts to the store to pick things up. And if it is delivered, to deliver from the store to fulfill that last mile or two in the most efficient way possible. Whether that's tertiary or primary. And so there's tremendous appetite for growth. Again, most of these retailers are public. They're out there with their stated store goals. We can we're in a really unique position to fulfill that appetite through with our three vertical external growth platforms. Rich Hightower: That's great. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: Hey, this is Jenny on for Ron. Thanks for taking my question. The first is we noticed the weighted average lease term on 4Q acquisition was nine point six years versus, like, ten point seven years in Q3. I'm just curious more broadly, how do you think about lease terms when you underwrite acquisitions? Like, what's the right balance between lease duration and returns? Thank you. Joey Agree: All project-specific or opportunity-specific will buy short-term lease when we like the real estate, the mark to market, or have strong performance feedback. We'll obviously, the sale-leasebacks will have longer term. Some of my favorite opportunities are pre-inflationary or construction cost inflation opportunities in the junior box space. They're paying $10.11 dollars per square foot on a short-term deal. When mark to market is $17.18, $19 just due to those construction costs I've been talking about on this call. And so you'll see a variety of lease terms. This is a real estate operation here. Lease term is one input. Store performance, underlying real estate fundamentals, access, visibility, fungibility of the box, signage, traffic counts, demographics are all playing a part into that role as well. So, I wouldn't think of Q4 as a static state at all. I think if we dive into the individual transactions, you'll see really what the driver was and really push it over through the approval threshold. Ronald Kamdem: Appreciate the comment. The second question is how should we think about the releasing spread for investment-grade tenants? I see you only have 1.5% of ABR being renewed next year, but how should we think about the releasing spread? Joey Agree: No difference. I think the one zero four has been improved. A 104% recapture rate has been pretty static. Over the last few years, we've been at a 103 or a 104% each year. It doesn't seem to be moving, the vast majority of our upcoming expirations which will be handled with favorable outcomes here, will you know, think that blended will fall into the same range. We don't anticipate many of these tenants leaving here. Ronald Kamdem: Gotcha. Thanks so much. That's all for me. Joey Agree: Thank you. Operator: Our final question will come from the line of John Kilekowski with Wells Fargo. Please go ahead. John Kilichowski: Great. It's Jamie again just with a quick follow-up. The disposition guidance 5 to 75,000,000. I think you had mentioned, you know, $10.31 and even OBVA being a driver of demand. How are you thinking about that range? And then, you know, can you talk more about what's changed and, you know, what if you might be ramping up that pipeline due to pricing. Joey Agree: Well, I think I hadn't heard the acronym. I think the OBVA is the driver there for us. And so we have what I would call not or not economically rational real estate purchasers that are benefiting from accelerated depreciation that they're taking aren't looking at the real estate fundamentals. And if someone wants to buy a Goodyear with a five handle in front of it, we're sellers. I'll be honest. Yeah. We're big fans of Goodyear. We're their largest landlord. We obviously did sale-leaseback with them and took the real estate that they owned on balance sheet. And did a sale-leaseback at extremely low rents, but they have control of that property through options. We see redevelopment potential. They're contractual rental increases. And so if someone wants to pay something that we don't think makes sense relative to, where we can redeploy that capital, we'll do that. So a lot of it is the one big beautiful bill purchasers. Then you have some interesting, I'll call it, purchasers that seem to traverse Florida. That doesn't seem, the pricing often doesn't seem to make sense, and we take advantage there. California as well and Texas as well. In some of these states. Now you're not gonna see and then I'll tell you what we'll look at opportunistic sales on larger price point assets as well. And so if we think we can redeploy the capital at a material spread while increasing the credit profile and the real estate fundamentals, the tenant we're gonna jump on that opportunity, and then overall, it's an accretive transaction for us. So many of these are inbound, not even listed. Would you have a portfolio of 2,700 properties, there's always inbound activity. You know, we'll listen. We'll look at those and vet those opportunities and the qualifications of the purchaser and have an appropriate, we're gonna strike to drive ultimately accretion. John Kilichowski: Okay. But it still sounds like it's more that smaller buyers rather than institutions when you think about the sales? Joey Agree: Yeah. Generally, it's the smaller ten thirty-one net lease dominated ten thirty-one purchaser or tax-motivated purchaser. As you mentioned. You know, occasionally, there is some institutional inbounds for a variety of reasons. Maybe they own the adjacent property. Maybe there's an overall redevelopment that they're trying to execute upon. But the vast majority of transactions, just like the entire space, is individual, individual purchases. John Kilichowski: Okay. And then I know it's a small dollar amount, but what are you targeting for cap rates and dispositions? Joey Agree: I would say on a blended basis in the sixes. Right? Again, we'll pare down. I anticipate advanced auto exposure to a frankly, a material level and not very material today. There are some Goodyear transactions in the pipeline, which are nonrefundable, which will close in the first quarter or have closed already. I don't see anything different in the second quarter or beyond this time. John Kilichowski: Okay. Alright. Great. Thank you. Joey Agree: Thank you. Operator: This concludes the question and answer session. I'll hand the call back over to Joey Agree for closing remarks. Joey Agree: Well, thank you all for joining us this morning. Good luck to the rest of earnings season, and we look forward to seeing you at the upcoming conferences. Appreciate your time. Operator: This concludes today's call. Thank you for joining. You may now disconnect.
Ezgi Yagci: Good afternoon. My name is Delam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems, Inc. fourth quarter and full year 2025 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I will now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire Medical Systems, Inc. You may begin the conference. Ezgi Yagci: Thank you, Delam, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer, and Matt Osberg, Chief Financial Officer. Earlier today, we released financial results for the three and twelve months ended 12/31/2025. A copy of the press release is available on our website. On this call, management will make forward-looking statements within the meaning of the federal securities laws. All forward-looking statements, including, without limitation, those relating to our operations, financial results, financial condition, investments in our business, full year 2026 financial and operational outlook, and changes in market access and different aspects of coding or reimbursement, are based upon our current estimates and various assumptions. Forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. For a discussion of these risks and uncertainties, please see our filings with the Securities and Exchange Commission, including our periodic reports on Forms 10-K and 10-Q, as well as the Form 10-K which we expect to file later this week with the SEC for the fiscal year ended 12/31/2025. Inspire Medical Systems, Inc. disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, 02/11/2026. With that, it is my pleasure to turn the call over to Tim Herbert. Tim? Thank you, Ezgi, and thanks, everyone, Timothy P. Herbert: for joining our business update call for the fourth quarter and full year 2025. On this call, I will start by providing an update on reimbursement of our Inspire 5 system, followed by some key takeaways of our fourth quarter and full year results. Then Matt will provide a financial review of our quarter and full year 2025 results and our full year 2026 outlook. We will then open the call for questions. The key challenge for our business since late last year is, of course, the coding of the Inspire 5 procedure. A few weeks ago at an investor conference, we shared that we were actively engaging with key government agencies and physician societies regarding the use of CPT code 64568 versus—excuse me. Sorry. Caught a bug. First, the CPT code 64582 with a -52 modifier for the Inspire 5 procedure. In the last week, we received clarification regarding the coding that should be used for the Inspire 5 procedure. Currently, health care centers and physicians should bill the most recent health care policies, be it a MAC or a commercial payer. Based on the clarification, we believe the code will transition to CPT code 64582 for the Inspire 5 procedure, including the use of a -52 modifier. We estimate that the reduction to the professional fee associated with applying the -52 modifier could range from approximately 10% to 50% of the base rate. The actual reduction may vary by MAC and we will not know the precise impact until sufficient claims data have been submitted and processed across payers. In any case, we believe that a significant decrease in the professional fee resulting from use of the -52 modifier will likely influence physicians' willingness to perform the Inspire 5 procedure and may limit the number of cases they choose to undertake. We intend to address these challenges by focusing on short- and long-term initiatives. Over the short term, as we work through 2026, we plan to work with the appropriate stakeholders on initiatives intended to minimize the actual reduction applied to the professional fee, as well as to drive consistency across the country. As an initial observation, we believe there is strong justification for applying a smaller reduction given the markedly higher surgical skill and complexity associated with implanting the stimulation lead compared to the sensing lead. Furthermore, because of the excellent progress made with the launch of Inspire 5 to close out 2025, significant coding experience now exists for the Inspire 5 procedure. CPT code 64568 was used for approximately 10,000 Inspire 5 procedures in 2025, which provides a basis for professional reimbursement. The professional fee for CPT code 64568 is approximately 10% less than the reimbursement for CPT code 64582 used for Inspire 4 procedures and reflects the reduced work associated with implanting the pressure sensing lead. As a note, we are nearing the completion of manufacturing of the Inspire 4 systems, however, we believe that we have sufficient inventory available for centers who may choose to remain with the Inspire 4 system for the foreseeable future. Given this dynamic reimbursement landscape, we have revised and widened our full year revenue guidance for 2026 to reflect the broad range of possible impacts that we may experience throughout the year. Over the long term, we will be focused on developing a new CPT code. With clarity on the coding of Inspire 5 procedures, as well as hospital and ASC site of service reimbursement, and an action plan to clarify the professional fee payment, we can return to patient care. And I will start by reiterating our commitment to put the patient first and deliver strong patient outcomes. Over the past few months, we had the privilege to show data from the Singapore study and the U.S. limited market release, and we are excited and energized by the strong performance of the Inspire 5 system. Being more specific, the Inspire 5 system has demonstrated superiority over Inspire 4, as the data has shown a reduction in surgical time with the Inspire 5 system, inspiratory overlap, which is the essential factor for closed-loop therapy, has shown to be significantly improved with the Inspire 5 system. And the AHI in the Singapore study has demonstrated a 79.5% responder rate using the Sher criteria, which is far superior to the 66% responder rate demonstrated in the STAR Phase III pivotal trial in 2012. Inspire system reliability continues to improve year over year, and the 2025 data to date has shown a 0.5% occurrence of device explants and a 1.5% occurrence of revisions. With respect to the Inspire 5 U.S. launch, the team has made significant progress in the fourth quarter, and we are excited to report that physician training is complete, contracting is over 95% complete for centers, and SleepSync onboarding is complete for over 90%, bringing the total to over 90% of our centers implanting Inspire 5 today. We expect to have stable product inventory for Inspire 5 throughout 2026, and we anticipate transitioning the existing Inspire 4 IPG line to Inspire 5 later in 2026. Switching to our quarterly results, we are very pleased with the strong revenue performance and cost discipline we delivered in the fourth quarter, which enabled us to deliver positive operating income and earnings. We ended the year with 295 U.S. territories, and 275 U.S. field clinical representatives. As we enter 2026, we are being more strategic in our approach to territory management and optimizing our model through targeted territory consolidation and increased field clinical reps. We hired seven field clinical reps in the quarter, consistent with our strategy to get the ratio closer to 1:1 territory manager to field clinical rep. On patient marketing, we had a very strong finish to 2025 regarding patient demand for Inspire therapy, including a significant increase in the fourth quarter in social media activity. We believe that this increase is related to the incremental growth investments we made in 2025. The WISER program, which is a government initiative requiring prior authorization of Medicare cases in six pilot states, kicked off in 2026. To date, many Medicare cases have been submitted and approved, however, there have also been denials for multiple reasons including medical criteria inconsistencies in the AI software as well as coding. We continue to provide prior authorization support to our centers as they work through the WISER implementation and we will update you as we have more information. But the WISER program has affected Medicare patient procedures in these six states in the first quarter. With respect to our R&D initiatives, we recently began testing a prior authorization feature in SleepSync which will provide a simplified uploading of patient data to support preparation of prior authorization submission. We believe this is an important initiative to enhance patient access to Inspire therapy, and we continue to look for additional ways to increase the utility of SleepSync. We are also excited to announce that we recently received FDA approval for 3 Tesla MRI compatibility. Ezgi Yagci: In addition, Timothy P. Herbert: in 2026, one of our primary product development programs will be Inspire 6, which will include sleep detection and auto activation, meaning the device will turn itself on when the patient falls asleep and turn itself off when the patient awakens, maximizing therapy adherence. In summary, we remain focused on the patient to continue the growth and the adoption of Inspire therapy. We will execute our growth strategy of driving high-quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include training advanced practice providers, certifying additional surgeons qualified to implant Inspire therapy, and driving the adoption of SleepSync and our digital tools. All of which are embedded in our commercial team's objective in enhancing patient access to Inspire therapy. Looking ahead, we are excited about our future, and we believe that we have the appropriate strategies in place to drive long-term stakeholder value, and we are focused on addressing reimbursement as I described above. Looking beyond 2026, we continue to take actions to position the company for profitable growth. As we close 2025, I would like to thank Rick Buchholz for his many years at Inspire Medical Systems, Inc. With the close of 2025, Rick will move on to his new opportunity, and we wish him well. He joined Inspire Medical Systems, Inc. in 2014 and was a key contributor to bringing Inspire to where it is today. With that, it is also my pleasure to introduce you to Matt Osberg, for his initial earnings call at Inspire Medical Systems, Inc. Thank you, Tim. Good afternoon, everyone. I am excited to be part of the Inspire team, and I look forward to getting to know each of you in the coming months. Now let us review our 2025 fourth quarter and full year financial results. Fourth quarter revenue increased 12% to $269 million, and full year revenue increased 14% to $912 million, with both increases primarily driven by growth at existing centers and new center additions. Fourth quarter and full year operating margin improved primarily due to sales leverage and a higher sales mix of Inspire 5 systems. As expected, fourth quarter and full year income tax was a significant benefit primarily driven by the previously disclosed release of the company's income tax valuation allowance of our net deferred tax assets in 2025. Fourth quarter net income per diluted share increased $3.51 to $4.66. Full year net income per diluted share increased $3.09 to $4.89. Fourth quarter adjusted net income per diluted share increased $0.51 to $1.65. Full year adjusted net income per diluted share increased $0.80 to $2.42. Fourth quarter operating cash flow was $52 million, bringing the full year total operating cash flow to $117 million. We completed $50 million of share repurchases in the fourth quarter, bringing the full year total to $175 million, and we ended the quarter with $405 million in cash and investments. Our strong cash position allows us to remain focused on making investments to drive profitable growth. Turning to our 2026 outlook, we are revising our full year revenue outlook to be in the range of $950 million to $1,000 million, representing 4% to 10% growth. This range reflects the expected impact on our first quarter from coding uncertainty as well as the range of outcomes that exist by adopting CPT code 64582 with the -52 modifier and the related physician reimbursement rates for the full year. The low end of our outlook contemplates a 50% discount to the physician fee, while the high end of our outlook contemplates a 10% discount. As we progress through the first half of the year, we expect to gain further insights on the professional fee associated with the use of this modifier. Additionally, we expect adjusted operating margin in the range of 6% to 8%, net income per diluted share in the range of $1.23 to $1.81, and adjusted net income per diluted share in the range of $1.85 to $2.35. Our outlook assumes an effective tax rate of 44% to 49% and an adjusted effective tax rate of 26% to 28%. As we are in a situation where our pretax income is a relatively small base, certain discrete tax charges can have a material impact on our tax rate. Due to the fact that we have a significant amount of stock-based compensation outstanding, and due to the volatility of our stock price, the tax impact of stock-based compensation on our effective tax rate can be material and could have significant variability from year to year, including moving from a tax expense to a tax benefit between years. Therefore, we have excluded the tax impact of stock-based compensation in our adjusted income tax expense and our adjusted effective tax rate. The ultimate amount of tax impact will primarily be determined by the difference in the value of the stock at the grant date as compared to the vesting date for RSUs and PSUs, or the grant date versus the exercise date for options. We expect the tax impact from stock-based compensation will be concentrated in the first quarter of the year, as that is when the majority of the vesting of our RSUs and PSUs occur. Our outlook assumes estimated weighted-average diluted shares outstanding of approximately 29,400,000 and capital expenditures between $45 million and $50 million. Looking at the cadence of the year, due to the expected impact on our first quarter from coding uncertainty, we expect revenue in the first quarter of 2026 to be approximately flat to prior year. Additionally, we expect a net loss in the first quarter due to our revenue expectation and forecasted year-over-year higher operating expenses. We expect sequential improvement in both our revenue and net income throughout the year, with the fourth quarter having the highest levels of revenue and profit in the year. Finally, in addition to revenue, we plan to focus more of our communications on measures such as operating income, operating margin, and net income per diluted share, as well as adjusted operating income, adjusted operating margin, and adjusted net income per diluted share. These changes more closely align our reporting with our medical device peer group and give our shareholders a better understanding of our recurring operations. As we have not previously reported on adjusted operating income and adjusted operating margin, we have included a reconciliation of these measures for each quarter and the full year 2025 in our press release and investor presentation. In closing, despite the dynamic reimbursement landscape, our team remained focused on the fundamentals to drive strong performance in 2025. As we look ahead to 2026, we will continue to emphasize execution and remain focused on what we can control. I am excited to be part of the Inspire team, and excited about the opportunities we have to drive continued profitable growth and long-term shareholder value. With that, our prepared remarks are concluded. Delam, you may now open the line for questions. Ezgi Yagci: Thank you, sir. As a reminder, to ask a question, you would need to press 11 on your telephone. To withdraw your question, please press 11 again. We ask that you please limit your questions to no more than one and one follow-up. Please standby while we compile the Q&A roster. And I show our first question comes from the line of Adam Maeder from Piper Sandler. Please go ahead. Hi, Tim, Matt, Husky. Thank you for taking the Timothy P. Herbert: questions and apologies for the background noise. Adam Carl Maeder: I wanted to start on reimbursement. And I guess the first question is just around the physician fee with Gen 5 using the 82 code and the -52 modifier and, you know, the 10% to 50% reduction is obviously a wide range. So the question is, when do you expect to have more clarity exactly where that shakes out from the various payers? I think you said you have a strong case to come out closer to the 10% haircut. So maybe just elaborate on that. And what can the company and the medical societies do from an involvement standpoint in those discussions? Timothy P. Herbert: Hi. Thanks very much. I think from the first off, there are existing policies in place. So step number one is for facilities and professionals to bill to the current policy. So this evolution to -52 is going to be a little bit of a process as it works forward. Number two, we want to be proactive, working initially with the MACs, but then eventually also working with commercial payers too. But initially with the MACs, we can describe the differences between Inspire 4 and Inspire 5, the history using Inspire 5 with CPT code 64568 in 2025, and document the reduction in the work performed in 64582 to be able to get alignment with the MACs, and more importantly, to drive consistency. So, yes, we expect that and we believe that we are going to work with these societies and with the physician groups to make sure that we can drive that consistency so they have predictability to be able to move forward with implants. Adam Carl Maeder: Okay. That is helpful. And for the follow-up, I guess maybe just talk about kind of the pathway forward here in terms of Gen 5. And I think you mentioned you are pursuing a dedicated code. You know, just key steps and timelines in that process. And, you know, I guess one question that I have, sorry to take it on, is you know, why not push the Gen 4 system a little bit more, you know, aggressively, just given that reimbursement is, I will call it, buttoned up with 64582, you know, until we really have, you know, Gen 5 kind of fully situated. Thank you for taking the questions. Understand that. I think a couple things in Timothy P. Herbert: that you talk about in that discussion. Number one, we do want to pursue a new CPT code for the simple reason there has been public discussions that using a -52 modifier is not a long-term solution. That is really used for special cases. And so that is important for us to be able to address that. Number two, if you look at the payers, we believe that they are going to minimize that reduction because if they are going to pay for an Inspire 5 procedure of a 50% reduction, that could be $350 some compared to $700 for an Inspire 4. So we think calmer heads will prevail. We believe that we can work with the payers and the societies to get alignment to be able to continue to offer Inspire 5, because that is a product that has shown effectiveness even as compared to Inspire 4. That being said, to the last part of your discussion, we do have inventory of Inspire 4 available to those physicians and those centers that wish to continue with that by submitting a CPT code. Now, the timing of that is such that that would come online with the RUC process near 01/01/2028. So that is a two-year period. So it is important that we work through to minimize reduction with the -52 modifier, but also have Inspire 4 available. Thank you. Thanks, Adam. Thank you. And I show our next Ezgi Yagci: comes from the line of Jonathan David Block from Stifel. Please go ahead. Tim, I guess I am just curious on the revision to the 2026 revenue guidance. What is specific to the new reimbursement landscape into the 82 code with the modifier versus what you are seeing with the WISER program, because you did call out just some early findings there, some headwinds. So is there a way to delineate one versus the other, or how do we think that through? Timothy P. Herbert: Hi, Jon. I think the WISER program is the government program to require prior authorizations in six pilot states. Now those six states are significant contributors of procedures, and so that is why we are working very diligently to solve the technical challenges with the portal that WISER has implemented. And WISER program did not allow any implants until January 15, because I think there was awareness that there would be challenges as they fired up the program. So we do see that WISER, we will be able to get our arms around that and work with our centers to be able to get the prior authorizations once the portal is streamlined and we are able to work through the bugs. So a little bit more of just a Q1 phenomena with WISER. What is the first question? Ezgi Yagci: The primary reason for our revenue reduction, though, is the coding uncertainty and the potential shift to the -52 modifier for the remainder of the year. WISER is causing a little bit of disruption in those six states. But the bigger issue is the updated reimbursement guidance. Ezgi Yagci: That is helpful context. I just wanted to that last point, make sure that was all embedded in the revision. Then maybe just a quicker follow-up is, Tim, can you remind us in terms of, you know, the physicians, like, what percent are salary-based, what percent are RVUs? And I am just curious, anecdotally, any feedback you are getting for those that have billed and seen the modifier, like, what you are hearing from the field, from the physicians, or from the reps. Thanks, guys. Timothy P. Herbert: Sure. I think that the majority of our physicians are private practice. Any physician who is associated with a large medical practice or a large hospital system would be salary-based. Physicians who are part of an academic center tend to be salary-based. So it does not have the same level of impact with them, but they are also, a lot of them are the key opinion leaders that help drive this process. So they will be working with us in detail to try and minimize this reduction of the reimbursement going forward. Ezgi Yagci: What we have said, Jon, in the past is that on average, 30% of our centers are academic centers. I think you can take that as a proxy for implanting surgeons. Timothy P. Herbert: Okay. Thank you, guys. Ezgi Yagci: Thank you. And I show our next question comes from the line of Robert Justin Marcus from JPMorgan. Timothy P. Herbert: Great. Thanks for taking the questions. Just one for me. Tim, I imagine the first quarter guide of flat Adam Carl Maeder: is based on what you are seeing so far. Timothy P. Herbert: In the quarter, Ezgi Yagci: I guess, how do you get comfort Robert Justin Marcus: with the 4% to 10%, especially if the low end is a 50% cut with the -52 modifier? You know? That would probably assume high single to close to double digit for the rest of the year. How do you get comfortable with that? And why could it not be even lower? Timothy P. Herbert: Oh, gotcha. We ran our models, and we based what Ezgi just kind of commented on: the percent of our surgeons that are at academic or at large facilities versus private practice, also looking at the timing of any implementation from both Medicare as well as commercial payers with the -52 modifier. And so when we ran through our models, we believe that we are comfortable with the range. And it is our desire to, and we believe that if we can work with the MACs to minimize any reduction on that -52 modifier, that we can be on the higher end of that range. Robert Justin Marcus: Alright. I said one, but I got to follow-up. And I also apologize, Matt. Welcome, and congratulations. Look forward to working with you. Timothy P. Herbert: Thanks, Robbie. Robert Justin Marcus: Tim, just a quick follow-up to that. You know, does that guide, 4% to 10%, assume that something improves from here on out? Or if everything stays the same, do you feel comfortable you could still hit that? And I will leave it there. Thanks a lot. Thank you. Well, I think, really, the -52 really has not modified right now. It has not really Timothy P. Herbert: kicked in right now. And so I think that that is where the range is kind of based on what we believe the impact would be, given that variable situations in there with the reimbursement from 10% to 50%. Obviously, the WISER is having a short-term impact in Q1 as we work through the logistics. But I think once we get more clarity, we will get more comfort around this. Yes. And, Robbie, I would just add to that. You know, I think you heard in my Robert Justin Marcus: prepared remarks, you know, the bottom end of that range is Timothy P. Herbert: more of a 50% reduction, and the top end does get closer to that 10% reduction. So it kind of depends on how things play out within that range over then as we see things in the next few months. Robert Justin Marcus: Thanks a lot. Ezgi Yagci: Thank you. And I show our next question comes from the line of Travis Lee Steed from Bank of America Securities. Just wanted to ask about the pathway to getting a new code. And is there a temporary code, miscellaneous code, that you would go to while transitioning, and kind of what happens with the doc payment during that process, and how you get comfort that Robert Justin Marcus: you know, the reimbursement of payments could not go lower with a new code? Timothy P. Herbert: Oh, sure. Good question. I think the new code application process is well documented, and I think the application will go in in the near future, and that starts with the initial review with the AMA CPT panel. And if we get that approved, then it moves on to the RUC process to be able to do the valuation of it. And as you say, that is a valuation process to weigh the time it takes to do the procedure, and they try to get an accurate measure. But in the meantime, we will run with 64582, so we will not be using any kind of miscellaneous code, any kind of temporary code, any kind of Category III code. Right now, our intention is to go to a new Category I code through the full process, which includes a RUC. And with that, yes, there is always risk that the RUC would identify a lower payment from where 64582 is today. Travis Lee Steed: Alright. Helpful. And Robert Justin Marcus: on the kind of the ability to still kind of grow earnings and expand margins here with lower revenue growth, you know, I would assume it is probably a little harder to get leverage, and so just kind of thinking about, like, the puts and takes and your ability to continue to grow earnings in a slower revenue environment? Timothy P. Herbert: Thanks. I think we have had good cost discipline over the last several quarters. We will continue to do that. Again, we are going to be working the reimbursement as a priority to minimize that payment. And if we minimize that payment, we get to the higher end of our range. Obviously, we are able to get leverage from those numbers. But we are going to be diligent with our spending. And as we learn more about that reduction, being able to be flexible. Travis Lee Steed: Good. Thank you. Timothy P. Herbert: Travis. Ezgi Yagci: Thank you. And I show our next question comes from the line of David Kenneth Rescott from Baird. Please go ahead. Robert Justin Marcus: Great. Thanks. I heard comments around, you know, the initiatives to minimize this actual reduction applied to the professional Timothy P. Herbert: fee, and Adam Carl Maeder: wondering if there is any appetite to minimize Timothy P. Herbert: from your end the impact that hospitals Adam Carl Maeder: will see. I think pricing potentially could be a lever there. So wondering if at all that is Timothy P. Herbert: something you are thinking about and generally how we should be thinking about device pricing Adam Carl Maeder: in 2026? Timothy P. Herbert: Great. Thank you, David. I think for pricing, I think going back with 64582, it aligns pretty well with where our current pricing model is. So as it stands today, we believe we are going to have consistent product pricing going forward, but that is certainly always something that is something that we can review. David Kenneth Rescott: Okay. And I think, you know, maybe midway through Adam Carl Maeder: last year, when you lowered the 2025 guide, there was a comment about, you know, maybe some newer centers that were meant to be coming online or getting trained on the system, you know, were getting delayed. Kallum Titchmarsh: So wondering, you know, just how you are thinking about your installed base, we will call it, of trained accounts on the Inspire system, and how those progressed throughout 2025, and then how that impacts the ramp that you will see from a utilization perspective as some of the delays, we will say, of newer centers coming online, progressed throughout 2025? Thank you. Timothy P. Herbert: Great. As you recall, David, back last year, we held back on opening centers in the first half of the year and ramped that up more diligently in the second half of the year. And I think we are going to want to keep that rate moving forward. Obviously, it will have impact based on the reduction of the physician fee, but we want to be able to maintain that rate, if you will. But the centers that came on late in the year are brought on with the expectation to have strong utilization and be able to move forward. Ezgi Yagci: Thank you. And I show our next question comes from the line of Lawrence H. Biegelsen from Wells Fargo. Please go ahead. Timothy P. Herbert: Good afternoon. Thanks for taking the question. Welcome, Matt. Kallum Titchmarsh: There are two for me. Tim, could you talk about the clarification Robert Justin Marcus: you got this week or within the last week? Who was it from? You know, what did it say that led you to the conclusions you provided today? Timothy P. Herbert: And I had one follow-up. Really, just have been, as we said before, we have been working with all the societies, all the agencies, to be able to identify and gain clarity on the coding. We still contend that 64568 is a descriptor that most closely matches the Inspire 5 Kallum Titchmarsh: procedure. Timothy P. Herbert: There is an economic discussion in there now that shows that it is not being supportive, especially with the number of procedures that we perform. So without getting too specific into the details of who, when, and how, we have got to the point that we know that 64582 will be the code going forward, including with a -52 modifier. Thanks. Tim, can you talk about Robert Justin Marcus: competition? We all saw the Nyxoah Q4 results. There was probably some stocking there. But, you know, we do see a lot of posts on LinkedIn. So what are you assuming in the guidance Ezgi Yagci: from the impact of competition, Robert Justin Marcus: and just secondly, do you know if they are going to have to use the -52 modifier, Ezgi Yagci: or there will be any difference in their reimbursement? Robert Justin Marcus: Thank you. Timothy P. Herbert: Thanks, Larry. I will not comment on their coding strategy. You will have the opportunity, I am sure, to ask both of those companies on their respective strategies. But as far as what we see out in the field, we have great confidence in our technology, especially the Inspire 5. And the data that we have seen both in Singapore and the limited market release, and the early experience, and the safety profile has been strong. So, yes, you are seeing a one-off opening of a center here and there, but we did build a little impact into our Timothy P. Herbert: guide. Timothy P. Herbert: For competition, but we still believe that we are in a very strong position from an overall market. Thank you. Ezgi Yagci: And I show our next question comes from the line of Christopher Thomas Pasquale from Nephron Research. Please go ahead. Timothy P. Herbert: Tim, could you talk about your expectation for commercial payers? You talked about providers billing with whatever the most recent guidance was. We obviously know the MACs Adam Carl Maeder: have gone away from 68, but I would imagine that it varies Timothy P. Herbert: on the commercial side. Do you expect some of the large payers to continue to allow cases to be submitted under 68, Robert Justin Marcus: or do you expect them also to go to 82 with the modifier? Timothy P. Herbert: I think currently, they do allow 64568. That is their policy, and we, of course, have to bill to their policy. Now the difference, Chris, with commercial payers, Medicare Advantage—remember, these are all prior authorized. And so when they are prior authorized, we do have the specific CPT code in the prior authorization, including per their policy. So it is a little bit of a lesser impact on commercial payers initially. But in time, we do believe that they will transition over to 64582 and likely to include the -52 modifier. And at that point, we do have to work with them on their global contracts to make sure that they have the proper physician reimbursement. Okay. And then your territory count is down by 40, I believe, from a year ago. Robert Justin Marcus: How much of that was sort of intentional or rethinking of Timothy P. Herbert: the U.S. sales organization? And can you give us an update on the number of centers those reps are serving? Rep-to-center ratio over time had stayed relatively stable. Did you expand your installed base in 2025? Any numbers there would be great. Gotcha. It is intentional. We know that as we are ramping up territories, we are more strategic with the numbers that you quoted to more closely align with strategic territories to allow improved utilization and improved use of the team. But with each of those decisions, we also were adding field clinical reps so we can have the field clinical reps work one-on-one with the centers on case management and training, and we can have the territory managers working out front with referrals, adding centers, adding capacity, and keeping the commitment of the surgeons and the practices. So really kind of a focus on the role of the territory managers and an expanded role for the field clinical reps. So that is the intentional move that we made. And then Kallum Titchmarsh: generally, it is maybe five centers per territory. Christopher Thomas Pasquale: Okay. Thank you. Timothy P. Herbert: Thanks, Chris. Thank you. Ezgi Yagci: And I show our next question comes from the line of Anthony Charles Petrone from Mizuho Americas. Please go ahead. Robert Justin Marcus: Thanks, and good evening, everyone. I will stay on top here. Maybe, Tim, you mentioned there in your prepared remarks, you know, you are going to need a certain level of claims data to make the determination on whether you are at the lower or upper end of the 10% to 50%, you know, pro fee cut. So I am wondering, like, how much claims data do you need? Will you have that in hand by the end of 1Q, or does that bleed into 2Q? Because then it kind of sets up a moving target in terms of guidance. And then I will have one quick follow-up. Timothy P. Herbert: I think that it would be nice to have some data by the time we get to the Q1 call, but it also is in regards to the policies getting updated with the MAC. And, again, our leading statement is we need to bill to the most current policy, so we will be working with the MACs. And some of those may not have the modifier in place yet. So we are going to watch that to see how we can pick up that data and minimize the reduction in that surgeon fee. But we may not have full exposure to that by the time we get to the Q1 call. Anthony Charles Petrone: I guess, how many MACs already have the mapping to the -52 modifier? Is it—I think it is three of seven. And I guess you are waiting on the other four to Timothy P. Herbert: actually have that Anthony Charles Petrone: -52 modifier in place. Yes. Timothy P. Herbert: Anthony, currently in the policy, none of the MACs have them mapped into a -52. There is some commentary with one of the MACs, but currently, we are billing 64582 with those MACs, and we are going to be working closely with them to communicate when or if they are going to implement the -52. Anthony Charles Petrone: And then real quick, just a follow-up would be, you know, you have some evidence here, initial, that there could be a smaller reduction, you know, based on the surgical skill. You had that in the prepared comments. It almost reads like there is a dual path here, that you will pursue a new coding structure on one path, but then, you know, sort of show evidence here that the reduction should be lower. Is that the right way to think about it? Or is this just a one-track path that you are pursuing a new code? Timothy P. Herbert: Thanks. Oh, you are absolutely correct. It is a dual path. There is a short term to address the current situation with 64582 and when the -52 modifier gets implemented. And then long term, it is go to a whole new Category I CPT code. But that code would be in place 01/01/2028. Timothy P. Herbert: Thanks. Ezgi Yagci: Thank you. And I show our next question comes from the line of Richard Samuel Newitter from Truist. Please go ahead. Hi, thanks for taking the questions. Maybe just the first, I guess, it was asked earlier as to whether or not Timothy P. Herbert: there was a CPT III code, Adam Carl Maeder: maybe a dual track while you pursue your CPT I. Kallum Titchmarsh: And I am curious as to why you are not pursuing that. Robert Justin Marcus: The reason being, I would have thought Timothy P. Herbert: that at least would have allowed you to pivot away from Suraj Kalia: any modifier requirements and you get to go, you know, go back to a stable appropriate payment system at least during 2027. So just help me understand why that is not a viable or worthwhile path while you are pursuing the CPT I as well that does not go into effect into 2028? And then I have a follow-up. Timothy P. Herbert: Yes. I understand, Rich, and thanks for that. A Category III code, if applied for and awarded, could take effect on 01/01/2027. And the word I would remove from your description is the word stable. And what we would enter into at that point is an environment where we would not have defined reimbursement, and that would be variable across the board, introducing a new Category III code similar to if we were to use a miscellaneous code. So we made the choice to stay the course with that Category I code long term. We know that we have clarity on facility reimbursement. If we went to a Category III code, we would not have that clarity. That is the most important part because that is how we get paid, and the facilities get the reimbursement from those centers. And we are looking at a range of reimbursement for the professional fee. And again, we are targeting to minimize that risk in the short term. That will carry us through 2027. Okay. Thanks for that. And then just did you guys provide a U.S./O.U.S. breakout? I may have just missed it. I could not find it in the press release. Robert Justin Marcus: Are the numbers? Ezgi Yagci: It should be in the press release, but I will have to check. Timothy P. Herbert: It will be in the 10-K when we file later this week if it is not in the press release. Timothy P. Herbert: Next question. Thank you. Ezgi Yagci: And I show our next question comes from the line of Shagun Singh from RBC. Ezgi Yagci: Just one for me. Shagun Singh: Do you think we could see a broader negative impact from this WISER program? It does focus on wasteful and inappropriate service reduction that HNS is now a part of. Timothy P. Herbert: Thank you. Timothy P. Herbert: Yes. I think that we have a long history working with Medicare. And there is a parallel program with RAC audits—I think you maybe heard that term—where there are third parties that will come in to facilities and they will audit their Medicare cases to make sure that they have the proper documentation and those patients that have received treatment are on label. So over the years, we have been very diligent at training all centers to make sure that they are prepared for RAC audits. And so while the WISER program has a little bit of a challenge getting started, we believe we will be in good shape because we already have facilities that are very diligent in making sure they have proper documentation and proper patient selection to make sure that they are on-label candidates for Inspire. Timothy P. Herbert: Thank you. Ezgi Yagci: One moment while we compile the Q&A. And I show our next question comes from the line of Danielle Joy Antalffy from UBS. Please go ahead. Timothy P. Herbert: Danielle, are you there? I think she fell off the line now. So alright, we will see if she comes back on. Let us go to the next question. Ezgi Yagci: Thank you. And I show our next question comes from the line of Michael Anthony Sarcone from Jefferies. Timothy P. Herbert: Hey, good afternoon, and thanks for taking the questions. Really just one for me. Maybe you can give us the latest and greatest on what you are seeing in terms of GLP-1s and what, if any, headwinds you have baked into the guide? Absolutely. We do put a little basis into the guide if we track as we talked before, we had our survey from last year, and we look to continue to expand that knowledge. But we do know patients are trying GLP-1s for multiple reasons. The high BMI patients, I think that is really an important step, because they can lose weight and qualify for Inspire. And the data is coming in a little bit to see what percentage actually resolves their sleep apnea. So we still believe that GLP-1s will be a tailwind for us. And we work with our centers to make sure that they are taking care of their patients, keeping in contact with the patients, and, if appropriate, putting them on the GLP-1 to lose weight with a secondary benefit which is a reduction in sleep apnea. Michael Anthony Sarcone: Thanks, Tim. Timothy P. Herbert: You bet. Thank you. Timothy P. Herbert: Thank you. Ezgi Yagci: I show our next question comes from the line of Danielle Joy Antalffy from UBS. Please go ahead. Timothy P. Herbert: Hi. Is this working now? Timothy P. Herbert: Yes. It is. Yes. Okay. Sorry. I do not know what is going on today, but technology is not my Danielle Joy Antalffy: friend. So I am sorry about that. Thank you guys so much for taking the question. I appreciate a lot of this call has been about reimbursement and the impact there, but I am actually curious about—because this seems like an unfortunate situation to me where you have got what seems like a growing funnel of patients that want to get this procedure, and now if you do not have doctors that are as willing to do it, I am just curious how you guys are working with whether it is your centers, the patients, to manage these patients who are coming into the system, but maybe are finding this bottleneck of physicians that actually want to treat the patient. Because it feels like the front of the funnel is not necessarily slowing. So I am just—sorry. That is like a kind of convoluted question. I am just curious if you can comment on that. Timothy P. Herbert: Got it. Okay. So what drives us at Inspire is Inspire 5 is a rock-solid product. And we show the clinical evidence to it. We know the benefits that patients can have because we have clinical data both from Singapore as well as from our new product launch in the U.S. And so that is what drives the employees here in that we know that we have an ability to help patients with their disease. Secondly, we do know there is variability in the professional fee reduction with any -52 modifier. So as that transitions into the program, with the strength of the Inspire 5 data and with the experience of having 10,000 procedures performed with Inspire 5 in the year 2025, we have very good experience to work with the payers to minimize that reduction. But we need to put that in play. And even though we do have Inspire 4 units available for those centers, we will continue to push 5. That being said, going back a little bit to a previous question, we do know centers that are able to continue to move forward. And so we will focus and lean in on those centers while we work with payers at some of the private practice to minimize the impact from the professional fee reductions. So, yes, so, Danielle, we keep up the fight. And what works is we have strength on the front end of the funnel, and we have a really good product to be able to work with. Danielle Joy Antalffy: Yes. Okay. I mean, is there a scenario where you have centers that are willing to take more patients? I mean, I guess I am just trying to understand what happens to the Timothy P. Herbert: patient Danielle Joy Antalffy: that gets referred to a physician, and they are like, oh, we are not doing that anymore because we do not get paid enough. I mean, I know that would not be the conversation, actually. But, you know, where does the patient go? Timothy P. Herbert: That is a valid statement because what is clear here with the clarity—we got clarity of coding, and we got clarity in the facility reimbursement. And the reimbursement for the facility actually increased $1,000 from last year. So the reimbursement is strong at facilities, so in those centers where we may have a salary-based surgery, we believe that we can bring more patients to those facilities if some of the private practice physicians are more challenged based on the economics. But we are going to work all avenues very diligently. Ezgi Yagci: Okay. Thank you so much. Timothy P. Herbert: Thank you. Ezgi Yagci: And I show our next question comes from the line of Daniel Markowitz from Evercore ISI. Timothy P. Herbert: I know, Daniel. Did we lose you? Ezgi Yagci: If you have your phone on mute, please unmute you. Sorry. Can you hear me on that? Timothy P. Herbert: Yep. Yep. Sorry about that. Sorry about that. Thanks for taking my questions. I had two. Robert Justin Marcus: The first is on the math. I am curious, the exercise you are running on the physician fee and how that could impact the business. Is it mostly survey work, or how do you do this? I guess I am just Timothy P. Herbert: curious. With the revenue guidance, there is a 6% delta between the low versus high end, compared to, on the physician fee, 10% to 50% of potential 40% delta. So I guess, how do you run the exercise of Robert Justin Marcus: figuring out what physician fee cut leads to what type of impact on your business? Timothy P. Herbert: Sure. There will be a continuation and expansion of the last question. And, Daniel, so we look at this saying, we know there are centers that will remain consistent, and we may be able to drive more patients to those centers because, as an example, the surgeon may be salary-based, if you will. Academic centers are not affected so much by the professional fee because they are salary-based. So we can continue working in those areas. In some of the ASCs, if a surgeon is a partial owner, they are less dependent on the professional fee than they are the site of service fee. So there are avenues in there that we can continue to pursue. And the area where the surgeons are at the greatest challenge are those private practice physicians who get their operating rights or privileges and get OR time from a large hospital, but they get paid on their own professional fee. Those are the surgeons that are at the most risk because we are asking them to do a procedure that does not pay them for their time spent on it. Now, that is why we have good argument and rationale to justify a lower reduction from the professional fee to be able to support those physicians. So it is not just a straight math equation across—a reduction of the professional fee does not have the same impact across all centers. Daniel Markowitz: The other thing I would add to that, Daniel, is, you know, we called out that there is an impact on Q1 just for some of the coding uncertainty that we have seen. That is compounding the range as well and making that a little bit wider. Timothy P. Herbert: Got it. That is helpful. And then my follow-up: Daniel Markowitz: as I look at the high end of the revenue guidance, Timothy P. Herbert: help me understand what the cadence would look like in that scenario? Is it fair to assume we would be exiting the year at something like mid-teens percent growth? And would that contemplate some sort of catch-up? As you said, Daniel Markowitz: some of the patients might be redirected to other centers? Or can you just help us understand how we get to the high end of the guidance? Timothy P. Herbert: I think you described it pretty good. Maybe we describe it more as comfort. And I think as we get additional clarity and it minimizes the risk of reimbursement of what they are going to be paid once we have data, then we could get back into leaning in harder. So we would expect acceleration in the second half of the year. And we believe that if we can get the data that we will be able to show improved reimbursement. And then the surgeons will be more comfortable making the determination to commit more of their time Timothy P. Herbert: and more of their operating room time for Inspire. Daniel Markowitz: Helpful. Thank you. Timothy P. Herbert: Thanks, Daniel. Ezgi Yagci: And I show our next question comes from the line of Patrick Wood from Morgan Stanley. Please go ahead. Robert Justin Marcus: Beautiful. Just two quick ones for me. Patrick Wood: First one, I know you guys do not guide to it, but just a sense to OUS. I understand why we have all been focused obviously on the U.S. at the moment, but the relative guide going forward in the sense of the contribution in 2026 that you guys expect from OUS would be helpful. Timothy P. Herbert: Thank you. I know that—go ahead. You want to jump in? So I actually have the numbers Ezgi Yagci: for Rich's earlier question. To answer your question, Patrick, 4% to 5% OUS contribution, roughly, for the full year 2026. Q4 U.S. revenue was $256.9 million, 95% of revenue. OUS $12.1 million. And full year was $807.2 million U.S., $39.9 million OUS. Amazing. Thank you. And then just really quickly, Patrick Wood: I know we sort of touched on the commitment to moving to Inspire 5, but if you wanted to switch back a little more durably to Inspire 4, let us say for a longer period of time, do you have things like the contracts set up, like the manufacturing supply chain bits enabling you to do that if you chose to go down that pathway, or is there something preventing you from doing Timothy P. Herbert: that? Well, I think that as you looked at our inventory numbers on the tables that you see, we do carry a significant inventory. The majority of that is Inspire 4. So we have the ability to carry forward with 4, and in the time it will take us to get to the new CPT code. But we do not believe centers in the U.S. will really go back to Inspire 4. I think once physicians and centers experience Inspire 5, they are comfortable with the procedure—not putting in the pressure sensing lead, the reduced work to do the Inspire 5 procedure. And then the outcomes associated with Inspire 5, I think people are going to be careful about going back to Inspire 4. But that being said, there were centers that are high volume that were doing Inspire 4 late in the year. To answer your other question, our ability to go back and fire up the line and restart making piece parts associated with Inspire 4 does get a little bit limited on parts obsolescence as we transition to 5. So we do have inventory to carry us forward. But, yes, we want to transition over to full production on Inspire 5. Timothy P. Herbert: Totally got it. Thanks, guys. Thank you. Thank you. Ezgi Yagci: And I show our next question comes from the line of Brett Adam Fishbin from KeyBanc Capital Markets. Please go ahead. Robert Justin Marcus: Alright, guys. Thanks for taking the questions, and welcome, Matt. Ezgi Yagci: Just maybe switching gears a little bit here just on the fourth quarter earnings number. Robert Justin Marcus: I think maybe a little bit lost. You guys grew EPS over 40% and really well above expectations and the implied guidance coming out of last quarter. So curious where you saw incremental expense leverage relative to what you were planning on with the full year guidance coming out of 3Q? Timothy P. Herbert: Yes. I will start, and, Ezgi, you might add in here. So, you know, I think what you saw in the fourth quarter was a beat in expectations throughout the P&L. Revenue was better than we expected. Gross profit margin was better than we expected as we had a higher percentage of Inspire 5. And then, you know, as Tim said in his prepared remarks, we did have good cost discipline. We were thoughtful about our spending and spent less than we anticipated. So compile all that. You know, obviously, we have got the significant tax benefit, but even if you adjust that out, Robert Justin Marcus: all of those contributed to the beat in Q4. Ezgi Yagci: Alright. Cool. And then just one follow-up. Robert Justin Marcus: On expenses for 2026. Just curious, like, how you are thinking about overall direct-to-consumer marketing this year relative to 2025. I am sure as the year progresses, there may be some Kallum Titchmarsh: change based on the reimbursement status. But just in terms of, like, a base case, how you are thinking about that at this point, and then, like, where you are targeting the advertising in 2026 compared to 2025. Thank you. Ezgi Yagci: Thanks for the question. Our current thinking is that it will still be flat to slightly up, but we are going to take a look at that as we go forward here. Advertising mix will be mostly similar to what you have seen in the past, but I think greater focus on social media and, you know, more of those types of platforms. We will still continue to run our TV advertising, but more focused on social media and digital. Timothy P. Herbert: And I think, you know, Tim said it earlier, you know, we know we have got a wide range of outcomes on Robert Justin Marcus: top line. We are going to be thoughtful and flexible about our spending and just make sure that we are tracking that based on where we see revenue coming in. Suraj Kalia: Alright. Awesome. Thank you so much. Timothy P. Herbert: Thank you. And I show our last question in the queue comes Ezgi Yagci: from the line of Michael Kratky from Leerink Partners. Please go ahead. Timothy P. Herbert: Hi, everyone. Thanks for fitting me in. So for instances where the MACs announced the removal of the 64568 code for OSA back in December and then implants subsequently happened in January, can you quantify what portion of the claims you have seen so far come in have been rejected versus not? Yes. Little unknown. We have had procedures paid on 64568. We have had procedures paid on 64582. We have had some procedures actually get denied and require clarification. We have had notifications of centers receiving notification of payment at 64568 only to be followed up with an adjustment to the payment level of 64582. So bottom line, it is all over the place. And I think now this is the good news as we close the call here. We have the clarity of the code. And so facilities and ASCs know what the reimbursement is going to be. And it is no longer the unknown if it is going to be the new reimbursement. It is going to be to the improved 64582 with a $1,000 increase. So, again, I think having clarity of the code, having consistency with reimbursement at the centers is really the solid thing. And then our next step is to really lock down on minimizing the professional fee, and we think that we are going to have a good audience specifically with the MACs to discuss that with us. Understood. Thanks, Tim. Very good. Thanks very much. Hey, as always, I am grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work, and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to the patient remains unmatched and is the most important element of our success. I wish to thank all of our employees as well as the health care teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe, and Asia. For all of you on the call, we really appreciate your continued interest and support of Inspire and look forward to providing you with further updates in the months ahead. So thanks very much, and, Delam, back to you. Ezgi Yagci: Thank you, sir. This concludes today's conference call. You may now disconnect.
Espen Nilsen Gjøsund: To SFL Corporation Ltd.'s fourth 2025 conference call. My name is Espen Nilsen Gjøsund, and I am Vice President of Investor Relations in SFL Corporation Ltd. Our CEO, Ole Bjarte Hjertaker, will start the call with an overview of the fourth quarter highlights. Then our Chief Operating Officer, Trym Otto Sjølie, will comment on performance matters, followed by our CFO, Aksel C. Olesen, who will take us through the financials. The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of The US Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual resources to differ include, but are not limited to, conditions in the shipping, offshore, and credit markets. You should therefore not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of risks and uncertainties which may have a direct bearing on operating results and our financial condition. Then, I will leave the word over to our CEO, Ole Bjarte Hjertaker, with highlights for the fourth quarter. Ole Bjarte Hjertaker: Thank you, Espen. We are pleased to announce our 88th consecutive dividend. We continue to build SFL Corporation Ltd. as a maritime infrastructure company with a diversified high-quality fleet. For the fourth quarter, we reported revenues of $176 million and an EBITDA equivalent cash flow of $109 million. Over the past twelve months, EBITDA amounts to $450 million, reflecting the continued strength and stability in our operations. In recent quarters, we have taken decisive steps to strengthen our charter backlog, securing long-term agreements with strong counterparties and deploying high-quality assets. We have made significant investments in efficiency upgrades across the line of the fleet, which has enabled a very strong fleet performance. Chief Operating Officer, Trym Otto Sjølie, will elaborate on this later. In December, we announced two transactions with a charterer of four Suezmax tankers where we agreed to sell a pair of 2015-built Suezmax tankers in the market at a very strong price. The vessels were acquired for $47 million per vessel back in 2022, and we agreed to sell the vessels to a third party for approximately $57 million per vessel with a profit share agreement with the charterer. One vessel was delivered in December, and we recorded a book gain of $11.3 million in the fourth quarter. Net cash effects after repayment of debt and profit shares to the charterer were approximately $26 million. The second vessel was delivered to the buyer earlier this week, and a similar gain will be reported in the first quarter. This transaction has been very profitable for us, with an annualized return on equity above 25%. In parallel, we also agreed to release the charters on two other 2020-built Suezmax tankers against a compensation of $11.5 million per vessel instead of selling the vessels in the market to a third party. Similar to the two other vessels, the return on this investment has been very strong based on prevailing values at the time of the agreement in December. We decided to keep these vessels as they are Korean-built and very fuel-efficient. They are also newly dry-docked and more attractive for new potential long-term charters compared to the two older vessels. Based on US GAAP accounting rules, the full settlement compensation was expensed as a cost in the fourth quarter, which turned a net profit into a net loss for the quarter, despite the very strong return on investment so far. The positive side of this is that we have the vessels on our books at only $55 million, while charter-free values according to ship brokers are currently in excess of $80 million. The vessels are currently traded in the spot market, and the market has strengthened significantly since the deal was agreed upon less than two months ago. Net cash flow contribution is currently higher from these two vessels alone than all four vessels in the original charter agreement. I would note that charter hire from vessels in the spot market is accounted for on a load-to-discharge basis based on US GAAP, so we can expect some volatility in the profit and loss statement from quarter to quarter due to vessel positioning. We will look for new long-term charter opportunities in due course, and market analysts predict a very strong tanker market in the next few quarters. We have seen unprecedented consolidation recently in the supply side for the larger 2 million barrel VLCCs, and very high charter rates in that segment, which is expected to also have a positive spillover effect on the 1 million barrel Suezmax market as these two segments over time have shown a high correlation. Turning to our offshore assets, the harsh environment drilling rig Linus performs very well on the long-term contract with Conoco, while the harsh environment drilling rig Hercules remained warm stacked in Norway pending new employment. The offshore drilling sector is gaining tangible structural support driven by recent strategic industry developments that underscore higher day rates, extended contract duration, and rising demand for premium high-specification rigs. First, the announced all-stock merger between Transocean and Valaris announced earlier this week marks a pivotal consolidation in the space. Secondly, a recent new three-year contract for the Noble Great White drilling rig in Norway, which starts up in 2027, illustrates the strengthening contract fundamentals. With this backdrop, we remain optimistic about securing new employment for Hercules in due course. With the announced 20¢ dividend, SFL Corporation Ltd. has now returned more than $2.9 billion to shareholders over 88 consecutive quarters. This represents a dividend yield of around 9% based on yesterday's share price. Our charter backlog stands at $3.7 billion, with two-thirds contracted to investment-grade counterparties providing strong cash flow visibility. Over time, we have consistently demonstrated our ability to renew and diversify our asset base, supporting a sustainable long-term capacity for shareholder distributions. Our solid liquidity position, including undrawn credit lines and unlevered assets at quarter-end, ensures that we remain well-positioned to continue investing in accretive growth opportunities. With that, I will now hand the call over to our Chief Operating Officer, Trym Otto Sjølie. Trym Otto Sjølie: Thank you, Ole. We have a diversified fleet of assets chartered out to first-class customers on mostly long-term charters, and the majority of our customer base is large industrial end-users. After the sale of two Suezmaxes in Q4, our current fleet is made up of 57 maritime assets, including vessels, rigs, and contracted newbuildings. Our backlog from owned and managed shipping assets stands at approximately $3.7 billion, and the fleet following Q4 is made up of two dry bulk vessels, 30 container ships, 14 large tankers, two chemical tankers, seven car carriers, and two drilling rigs. Our charter backlog is mainly derived from time charter contracts, and with the exception of four container ships on bareboat leases, the rest are on time charter or in the short-term or spot market. The charter revenue from our fleet was about $176 million, and we had a total of 4,808 operating days in the quarter. Our overall utilization across the shipping fleet in Q4 was about 98.6%. Adjusted for unscheduled technical off-hire only, the utilization of the shipping fleet was about 99.8%. This quarter, we had two vessels in scheduled drydock at a cost of about $4.2 million. Furthermore, we had a chemical tanker in the shipyard to carry out upgrades to the LNG dual-fuel system to better handle gas boil-off. A sister vessel will have the same upgrade done in Q1. This is part of our drive to ensure we can fully utilize our dual-fuel capabilities. All of our six LNG dual-fuel vessels are actually operating on LNG, which aligns with our ambitions to reduce greenhouse gas emissions from our fleet. I will now give the word over to our CFO, Aksel C. Olesen, who will take us through the financial highlights of the quarter. Aksel C. Olesen: Thank you, Trym. Turning to this slide, we present a pro forma illustration of our cash flow for the quarter. Please note that this is only a guideline to assess the company's underlying performance. It is not prepared in accordance with US GAAP and excludes extraordinary and non-cash items. The company generated approximately $176 million in charter hire during the quarter. Of this, around $81 million came from our container fleet, including profit share related to fuel savings on seven of our large container vessels. The car carrier fleet generated approximately $26 million of charter hire compared to $23 million in the prior quarter, reflecting that all vessels were fully back in service during the period, following a scheduled drydocking last quarter. In tankers, the fleet generated approximately $42 million in charter hire, down from around $44 million in the previous quarter due to a scheduled drydocking. In dry bulk, we have divested the majority of the fleet over recent quarters and now have two Camsimax vessels remaining, while trading in a short-term market. Revenue from these vessels was approximately $2.7 million, or the equivalent of approximately $15,000 per day per vessel. Revenue from our energy assets was approximately $23 million, mainly generated by the Linus, which is in a long-term contract with ConocoPhillips through May 2029. Net operating and G&A expenses for the quarter were approximately $67 million, broadly in line with the previous quarter. Overall, this resulted in an adjusted EBITDA of approximately $109 million, which is in line with the third quarter. Turning now to the profit and loss statement and the US GAAP. For the quarter, we reported total operating revenues of approximately $176 million compared to $178 million in the previous quarter. The net result for the quarter was impacted by several non-recurring and non-cash items, including a gain on the sale of Suezmax tankers of approximately $11.3 million, settlement compensation of $23 million relating to two Suezmax tankers, positive mark-to-market effects from hedging derivatives of $600,000, positive mark-to-market effects from equity investments of $700,000, and an increase in credit loss provisions of $200,000. As a result, under US GAAP, the company reported a net loss of approximately $4.7 million or $0.04 per share. Turning to the balance sheet. As of year-end, cash and cash equivalents totaled approximately $151 million, with an additional $46 million available on the undrawn credit facilities. The facility related to the Hercules rig, which matured at year-end, was repaid using balance sheet cash, leaving the rig debt-free at quarter-end. We have since negotiated a new financing facility, which we expect to execute during the first quarter, subject to customer closing conditions. The remaining capital expenditures for our 5.1 newbuildings of approximately $850 million are expected to be funded through a combination of pre and post-delivery financing. We are experiencing very strong interest from lenders, reflecting a strong financing market for these assets. Finally, based on quarter-end figures, the company's book equity ratio stood at approximately 26%. To conclude, the board has declared the 88th consecutive cash dividend of $0.10 per share, representing a dividend yield of approximately 9%. The charter backlog stands at approximately $3.7 billion, with more than two-thirds linked to customers with investment-grade ratings, providing strong cash flow visibility. We have a solid balance sheet and liquidity position, and we remain well-positioned to act on accretive investment opportunities. With that, I will hand the call back to Espen, who will open the line for questions. Espen Nilsen Gjøsund: Thank you, Aksel. We will now open it up for a Q&A session. For those of you who are following this presentation through Zoom, please use the raise hand function under reactions in the toolbar to ask a question. If your name is called out, please unmute your speaker to ask your question. Gregory Robert Lewis: Thank you, and good afternoon, everybody, and thanks for taking my questions. Thanks for highlighting the activity with your Suezmax ships. I guess I would be curious how you are thinking about those vessels. Clearly, the crude tanker spot market seems to be surprising to the upside. Everybody's expectations. Rates are strong. I know that the focus is on putting out long-term charters. We have definitely seen some short, I guess, twelve-month charters for some of the larger vessels, some VLCCs, but I am just curious, given the strength in rates and where we are in the first part of 2026, are we starting to see signs or interest from customers or charters around multi-year contracts, or should we just be thinking more, hey, the spot market is good, the outlook is good for the next couple of years, and we are just going to use this kind of as a trade? Ole Bjarte Hjertaker: Hi, Greg, and thanks. Yes, we find that market segment quite interesting right now for a couple of reasons. Just to also be clear about that, when this transaction opportunity came about, this was really backed by the agreement we had with this customer where we, after a certain period of time, gave them the opportunity to effectively trigger a sale with a profit share as long as we were over a level that gave us a very good return in the first place. The market had been moving up, and they were interested in doing that. So we sold two older, Chinese-built vessels, and if you look at the equity returns we generated on those with the implied profit split that we got out of it too, we are talking sort of high twenties in return on equity on those deals. So you could say it was a really strong deal and much better than we anticipated when we did that deal back in the day. They also wanted to do the same with the other two, but the other two, the Korean-built vessels, are more attractive for long-term charters. They are Korean-built, they are sort of eco design, they have scrubbers, we just had them through a dry dock, and we believe they are more attractive also for longer-term charter opportunities. What we did not anticipate back in December was the way the market moved upward sharply. Over this two-month period, both one-year charters indicated by brokers and also the index, the TD20 index that is used for hedging this market, is up 20% in that short period of time. A couple of reasons for that, you have some trading pattern issues, but I think one very important underlying factor here on the tanker side, which I would call almost unprecedented in the market, at least in the history I have seen, is that you have one party or group of people who are working together who effectively control around a third of the available or traded tanker VLCC fleet out there. We believe they are willing to hold back ships if they do not get the charter rate where they want it to be, which implicitly would give also the other owners out there confidence to hold back and not just drop their, drop their pants, so to speak, and fix at lower levels. I think that is a very fundamental shift in the market. Then we have to look at the correlation between the VLCC market and the Suezmax market where over the last twenty-five years, the Suezmaxes have earned around 85% of the VLCC charter rate. We believe that with the dynamics on the VLCC market and also trading patterns, which is quite interesting for the Suezmax size, we think the market could remain firm for some time. Our ultimate objective here is to find new longer-term charters for these vessels, but in the meantime, we enjoy the spot market. Just to be clear, we used to have four vessels. The two vessels that are remaining are generating more net cash flow than all four did in the previous chartering arrangement. So far, we are generating more cash out of two vessels compared to four vessels in the past. Gregory Robert Lewis: It is definitely good to be a tanker owner at the moment. I was hoping, I realize that it is always the board's decision, there are lots of variables that go into how the company thinks about dividends. As we think about the dividend over the next twelve months, how are we thinking about it? Is one of the factors the market looking for in the secondhand market, i.e., opportunities clearly in tankers, prices are high, charter rates are catching up? How is the opportunity for growth looking in the containership market, which seems to be maybe where numbers, the economics might look a little better in doing a purchase and charter out? Ole Bjarte Hjertaker: Thanks. To start with the dividend question, the board never guides on dividends going forward, but the underlying structure or what goes into that evaluation is long-term sustainable cash flows. If you look at the last year, we did sell a number of vessels, some that were coming to the end of the charter period. We sold some older feeder container ships, etc. which freed up quite a bit of capital. To have a sustainable distribution, you have to have producing assets generating those returns. That is one thing. Also, I would say last year, for geopolitical reasons, with that sort of trade war or at least trade friction mounting, we sensed that many of the players out there were stepping a little bit back. They were very uncertain about how this all would evolve. It is difficult to get counterparties to commit long-term. We sense now that the dynamics are better. We see more engaging for new business, but we cannot really comment on anything before we potentially do it. From a board perspective, it is very disciplined. We try not to run out and just spend the money we have capital available. It is all about trying to do the right deals, long-term deals. From time to time, you may get lucky like we did on the Suezmax tankers with a much stronger return than we expected. That is what you should expect from us. We should try to deploy the capital in a balanced way, build the distributable cash flow. We still have the drilling rig Hercules idle that used to produce a lot of cash flow for us in 2024. There are a few factors here going into that. Still, we are looking at north of $100 million in dividends per year even at this level. We are paying a lot of cash flow out to shareholders. It is more than $2.9 billion over the 88 quarters. We have shown a disciplined approach to it that we have been standing firm through pretty rough cycles, and hopefully, we will have a good capacity also going forward. Gregory Robert Lewis: Super helpful. Thank you for taking my questions. Espen Nilsen Gjøsund: Thank you. Then we will also have a question from Mr. Climent Molins. Kindly unmute your speaker to ask your question. Climent Molins: Hi, Ole and team. Thank you for taking my questions. I joined a few minutes late, so you may have touched upon this, but I wanted to follow up on Greg's question on the charters you terminated. Could you remind us what was the rate on the previous contract? Secondly, could you talk a bit about the fixtures you have secured to date in the spot market? Ole Bjarte Hjertaker: Yes. This was a deal that was done back in 2022. The two Chinese-built vessels were acquired for, at that time, around $47 million, if I am not mistaken. We had them on charter rates of around $27,000 per day for that period, and then we sold them now for $57 million net. We have enjoyed strong cash flows, depreciated the assets, and then sold them for 20% more gross than we bought them for three years earlier, hence the very strong returns on that deal. Similar dynamics on the newer vessels. They were more expensive, so we bought them for around $64 million, if I am not mistaken. If you look at the broker reports now, and you have, for instance, the broker firm Fearnleys, they just increased their valuation on tanker assets, and they now guide five-year-old Suezmax tankers at $85 million. It is a significant uplift also for these assets. If you look at the spot market, we typically will not guide on spot market there and then. You can look up to the brokers. They will typically guide you on what the charter rates are. Just to give you a guiding, right now, and this is just from our broker report, they guide a one-year TC for a modern Suezmax tanker would be in the high forties. They guide $47,500. While if you use the Suezmax TD20 index, you could do twelve months now in excess of $60,000 per day based on the index alone. The market is quite strong as a guide. As I mentioned, we were below $30,000 in the old structure. Remember also on those vessels, you have to subtract operating expenses, interest, and amortization on the loans. We are now in this market generating more than we did from the two vessels than we did from all four vessels combined on a net basis. I would mention, though, that based on US GAAP, first of all, we had to expense the termination fee on the two modern vessels despite having a very low book value level on those vessels. Because we own them already, it had to be taken straight through P&L in the fourth quarter. That had that effect. Also, when you trade in the spot market, being tankers or bulkers, based on US GAAP, you have to account for the revenues on a load-to-discharge basis. Typically, these assets go empty and ballast, as we call it, one way, and you load it, and then you go loaded the other way. You will see some volatility in the P&L effect for these assets, all depending on the position they are in, whether they, through the specific quarter, were more loaded than empty in that rotation. When we got them back off the charter, and this is, again, a coincidence, but both vessels were just coming off a loaded journey, and therefore started with some ballast days. This is something that will balance and equal out over the year. From quarter to quarter, there may be some earnings volatility due to US GAAP. Climent Molins: Makes sense. Thank you. After recent sales on the dry bulk side, you only have two remaining Panamaxes. Those seem clearly non-core. Is that a fair assessment? Secondly, there has seemingly been some interest from potential charterers on long-term contracts on Newcastlemax new builds. What are your thoughts on potentially reallocating some capital towards dry bulk? Ole Bjarte Hjertaker: Thanks. We have always been invested in the dry sector. You could say it is more of a coincidence now that we are down to two vessels. We are segment diagnostics, so we would look at deals in all the segments, including the dry bulk segment, and have a look at multiple transactions. To get to a deal, it has to make sense for us from a purchase price, charter rate, counterparty, financing structure we can build around it, and, of course, our charterer would want to pay the charter rate we need to have to make that work for us. This is a balance, and you are correct. We have only two vessels left now. I would not say they are non-core. Those vessels were on ten-year time charters and have been over time quite profitable for us, but we are traded more in the short-term market currently. We look at opportunities on the dry side, as we do in other sectors, and as I said, the diagnostics, it is all about getting a good risk-adjusted return. Climent Molins: Thanks for the color. I will turn it over. Thank you for taking my questions. Espen Nilsen Gjøsund: Alright. Then we have some written questions. Could you please share any updates on the Hercules? Ole Bjarte Hjertaker: Yes. The Hercules has remained idle since November 2024, so it was idle through 2025, generating very strong cash flows when it was working. Now it has remained idle. We have been looking for employment. That market has been a little slow, it is fair to say, but we now see signs both from a consolidation perspective where we had the big merger announced earlier this week, Transocean and Valaris. We also saw a drilling rig with, I would call it, similar harsh environment, ultra-deepwater features. That was recently fixed on a three-year charter with startup in 2027. Based on what we see from brokers, it looks like there are more market dynamics and more employment opportunities there going forward. We cannot comment specifically on the rig or the discussions we may have on this rig specifically. We will announce contracts if and when they materialize. Espen Nilsen Gjøsund: Thank you. Also have another one here. How do you see the long-term evolution of the contract revenue mix across the different shipping segments? Do the container new build orders signal the strategic direction the company intends to pursue? Ole Bjarte Hjertaker: The new build container ships were ordered in 2024. It is typically what we like to do, long-term time charters to investment-grade counterparties. Modern technology enables us, and through the long-term charter, we are able to pay that investment down significantly. We are not specifically focused on one single segment. We try to position ourselves as logistics partners for strong, industrial-focused partners. The containership market has been an interesting market for us, but we would be happy also to look at other segments. Espen Nilsen Gjøsund: And related to different segments, what segment are you currently most optimistic about in relation to potential future growth? In what niche do you see the best economics? Ole Bjarte Hjertaker: It is almost an impossible question. As we look across the board between the segments, we do not have any favorite. What we have seen over time is that there have been more longer-term charters in typically liner-type assets, container ships, car carriers. We also see that from time to time on tankers where you see longer-term charters and also on dry bulk. We also have some chemical carriers in our portfolio where we also have good interaction with logistics players. We look across the board, and hopefully, we will build the portfolio in more than one segment. Espen Nilsen Gjøsund: Thank you. We also have a question. What is the status of SFL Composer? Trym Otto Sjølie: Right. I think I will interpret that question as after the collision that we had in Q3. The vessel was going into dry dock when she was hit by another container vessel or by a container vessel. We were going into dry dock anyway at that time, and we had a slot available, so we did not really lose any time. All of the damage repairs were covered by insurance, including also the off-hire related to the incident. For SFL Corporation Ltd., we did not lose out on this at all. The vessel is now back in service with Volkswagen and operating in the Atlantic as normal. Espen Nilsen Gjøsund: Thank you, Trym. And last question here. Can you say something about the size of the new rig financing facility? Aksel C. Olesen: Sure. You are relating to the new Hercules facility that we are being kind of regurgitated and prepared, and that is in the amount of $100 million. Espen Nilsen Gjøsund: Thank you, Aksel. As there are no further questions from the audience, I would like to thank everyone for participating in this conference call. If you have any follow-up questions for the management, there are contact details in the press release. Or you can get in touch with us through the contact pages on our web page, www.sflcorp.com. Thank you all.
Marie Dumas: Good morning, everyone. I'm Marie Dumas. I'm the new Investor Relations Director for Dassault Syst�mes. Some of you might recognize my voice from my previous role at the company, and I'm delighted to reconnect with many of you today. Joining from Dassault Syst�mes with me are Pascal Daloz, our Chief Executive Officer; and Rouven Bergmann, our Chief Financial Officer. On behalf of the team, I'd like to welcome you to Dassault Syst�mes Fourth Quarter and Full Year 2025 Earnings Presentation. Following the presentation, we will open the floor for questions. First, from the room, and then from participants joining us online. Later today, we will also host a conference call. Dassault Syst�mes results are prepared in accordance with IFRS. Most of the financial figures are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 document d'enregistrement universel published on March 18. With that, I will now hand over to Pascal Daloz. Pascal Daloz: Good morning, everyone. Thank you for joining us today to review the Dassault Syst�mes performance for the fourth quarter and the full year 2025. Let's start with an opening comment, which is at Dassault Syst�mes, we do not manage only for the quarter. We build platform that lasts for decades. I think 2025 was a year of transition. 2026 is a year of executions. And I think those 2 years are financial foundations because they are the year when we prepare the next cycle of growth, scale and long-term value creation. So let's start with the facts. 2025 was a disappointing year for you, but also for us. We finished at the low end of our objective with 4% growth, excluding foreign exchanges. I think this performance does not meet the standard we set to ourselves as part of the long-term plan. And we own that. That said, we moved the company for a while. And I think we made meaningful progress on the priorities that matter the most for the long-term success. What moves forward? First, the 3DEXPERIENCE and the Cloud. I think we deliver significant wins and competitive displacement. And in 2026, we will build on this momentum, turning headwinds into tailwinds and deepening our leadership in industrial AI. And I think our ambition is clear, it's to remain the partner of choice for all the industries. Second, MEDIDATA and Centric PLM, they faced challenges in 2025 and weighted our results. I think we are seeing the early sign of the recovery at Centric, and for MEDIDATA, we are investing for the long term. Keep in mind that Life Sciences is undergoing a fundamental transformation from inefficient document-based process to AI-powered Virtual Twins that redefine how pharma innovates, complies and operates. So this shift is really structural, and the structural changes usually take time. Third, in 2025, we introduced 3D UNIV+RSES, a new environment where virtual twin and AI converge, connecting the virtual and the real in a seamless dynamic loop. In 2026, we turn this vision into concrete value. Finally, we remain disciplined on costs while continuing to invest on our future growth. Execution matters and returns matter as well. Now as we enter in 2026, we are scaling our transformation plan, ensuring every step we take positions Dassault Syst�mes and our customers for sustainable successes. And our transformation is built around 3 strategic pillars. The first one, the product offering. We are reshaping our portfolio, accelerating towards 3D UNIV+RSES and investing where scale matters. Second, the go-to-market. We are strengthening the go-to-market execution with targeted end-to-end engagement, especially in Life Sciences for the top 50 large accounts and consumer industry for the formulated products. We are also transforming our partner ecosystem to generate demand, not just distribute licenses. And to support this, we have strengthened the leadership with the Transformation Officer and an Operating Officer focusing on the execution and performance. Third, the business model, and this is a very important part. As customers accelerated the adoption to subscription and cloud, we are introducing the annual run rate reporting in 2026. I think this will provide a clear visibility into the health and the momentum of our recurring revenue base. In parallel, we are also evolving beyond the seat-based pricing toward a value-based pricing model for AI-powered solutions. Because we don't just deliver the software, I think we are delivering outcomes and we will capture a fair share of the value we are creating. This transformation is not just about growth. It's about building a resilient customer-centric company ready for the generative economy. Now let's step back a little bit and look at the market realities. Every industry we serve, whether it's manufacturing, life sciences, infrastructure and cities is under an intense pressure. Supply chain volatility, rising regulation, aging infrastructure and an urgent need for breakthrough innovation in all the domains. These are not just constrained. In fact, they are catalysts, and this is exactly where Dassault Syst�mes step in, not only as a vendor but as a strategic partner for many of our customers. We are helping them to turn the complexity into a competitive advantage that last for decades. In manufacturing, we see 2 realities. The traditional sectors face margin pressure and demand uncertainty. At the same time, defense, high-tech are bold, they are making bold investments where the complexity and the collaboration are the new normal. And this is here where the 3DEXPERIENCE platform is becoming the de facto standard, enabling faster cycle, collaboration at scale and streamlined operations, reducing program time lines to under 18 months in Transportation & Mobilities, delivering between 25% to 40% efficiency gains in Aerospace & Defense, cutting error to 1/3 to almost half in high-tech through prebuilt simulations. That's what we do. In Life Sciences, the pressure is still intense, tighter regulations, rising R&D costs and a shift towards personalized therapeutics or precision medicines. And the incremental improvement is not longer enough. I mean, the customer, they need a new operating model. With our end-to-end lab to manufacturing solutions, we are already helping them to reduce their operating costs by over 30%, while turning the compliance into a competitive advantage. Now in Infrastructure & Cities, demands for autonomous and resilient system is accelerating. Data center demand will double by 2030. The nuclear infrastructure requires safe decommissioning in many countries, cities need to be resilient by design, and I think our AI-powered Virtual Twins reduce the project time line by over 25%, while ensuring safety and compliances. This is really how we are and we create new markets while addressing the most critical challenges of our time. Now across every sector, our customers, they prove one thing. We don't just talk about AI, we deliver it. In Transportation & Mobility, as I was saying, innovation pressure has never been higher. Products are more complex, time lines are shorter. Competition is global. And value is a good example of this. You know Valeo, it's a global leader in the automotive technology from ADAS to electrification systems. And I think together, we are pushing the boundaries of the generative experiences. Here, AI does not only assist, it co-creates. And how we do this? By training the virtual twin on our synthetic data, we generate thousands of design alternatives optimized for performances, cost, compliances before a single prototype is built. This is really the new way of working, turning complexity into opportunity. In Life Sciences, our partnership with Catalyst, I think, show how an industry can be reinvented. By moving from static document to data-driven Virtual Twins, Catalyst is really redefining the CRO model. The clinical trial become agile, patient-centric, continuously optimized. And this is not about fixing the old model, it's really about building a new one. In infrastructure, with Technique at Home, I think we are redefining how the next-generation nuclear systems are designed and operated. The Virtual Twins connect the entire ecosystem, ensuring the traceability, the compliance by designs and more importantly, closing the loop between the virtual and the real world. So that year, we did also something extremely important. A year ago, if you remember, we introduced 3D UNIV+RSES. But what does it mean in practice? 3D UNIV+RSES are not applications, they are knowledge factories where knowledge is enriched, know how is scaled and the results are trusted. And AI is the engine, not a generic AI, not a surface AI, an AI which is grounded in science, engineering and industry. This is not about large language models. I insist on this because with LLM, you will never be able to build drones. You will never be able to design humanoids. You will never be able to discover cell therapeutics. And this is what our customers do. And this is really what we do for them to help them to certify what they do. o we are building what we call industry world model, which is the next generation of AI after the large language model. And what is important is those models understand how the real world works and how to build it. That's something extremely important. Why so? Because those model, they are built on physics. They are trained on decades of industrial knowledge with a continuously validated Virtual Twins. It's explainable, it's certifiable and it's trusted. And there is one fundamental reasons because in the physical world, you cannot forgive the mistakes. This is the reason why our partnership with NVIDIA matters. I think together, we are combining the virtual twin with AI factories and accelerated computing. But maybe long -- more than the long explanations, launch the video, please. [Presentation] Pascal Daloz: So I hope you got it, and it's not me telling this. Jensen, the founder and the CEO of NVIDIA. And I think what we do together, we are building the foundation for industrial AI. And as you said, it enables 3 things: First, in research and innovations to develop the models that simulate the casualty, not only the correlation from a statistic standpoint. Second, the factory of the future, which are software-defined. And why they are software defined? Because autonomous factories continuously optimize through simulation is the reality. And third, the new way of working, which is how you can have skilled virtual companions, not a simple chatbot, but industry trained experts who could help teams to design, comply and optimize everything you do. So in 2026, now we turn this into reality with the 3 AI native solutions, the new categories. The first one, we call it the Virtual Companions. They are not assistants, they are experts. They scale the knowledge, they democratize the expertise. They turn the complexity into productivities. The second one, the Generative Experiences, AI that encodes the best practices, science and compliance by default, a faster innovation, lower risk, higher confidence. And third, the virtual twin as a service, we don't sell the software we deliver outcomes. That's why we are evolving our business model from seed-based licensing to value-based monetization for this new category of solutions because together, I think our AI-driven solutions unlock 3 powerful levers of value creation. The first one is expanding the adoption with the Virtual Companions with usage-based. Keep in mind that right now, the real limitation we face is the number of people being skilled to use our software. Now if we have Virtual Companions being trained by design, they will take the benefit of what we deliver to them. The second one is monetizing the know-how with Generative Experiences. For 40 years, we have invested in many, many industries, aerospace, auto, now life sciences, high tech. And we have accumulated a lot of industry know-how, how to design things, how to produce them. With this knowledge, we can automatize many things. And what the gain we have in front of us, it's a moon shot. It's 10x. It's not a 20% improvement. It's not 30% improvement. It's really a radical change. Last but not least, we can sell the outcome with the virtual twin as a service. Why so? Because right now, how does it work? We provide the software. You have a lot of services, which is needed to implement the software on-premise to train the people, to change the processes. Now with AI, we can -- rather than to sell the tool, we can automatically generate the end result, the virtual twin. It's a way to reintegrate part of the value in our software. So that's what we do, and this is how we are turning AI from a promise into a concrete sustainable value. And I think this is just at the beginning. Now that was the key question a week ago. I mean all of you, you were asking the question, which is AI is revolutionizing everything. But there are 2 kind of companies, the one that compounds and the one who could be commoditized. I think Dassault Syst�mes is built to compound. We are not just participating to the AI revolution. We are really shaping it for the industry. And this November, at our Capital Market Day, we will come back on this, how these visions could -- is translating into the financial impact. But before that, now it's time for me to hand over to Rouven. Rouven, you have the floor. Rouven Bergmann: Thank you, Pascal. And also a warm welcome from my side to all of you here in the room and joining us online for our Q4 2025 earnings conference call. Before reviewing the numbers, I would like to highlight 3 key themes that define 2025. First, to sustainable growth. Our core industrial business, I want to reemphasize that our core industrial business was resilient in 2025 with strategic client wins. However, we faced a backdrop of tough comps and complex macro, specifically in the fourth quarter. We are focused on further strengthening our growth model while we are looking at improving our operational excellence. We have identified the challenges, and we will now execute to deliver, as Pascal said. Second, AI at the core. The collaboration with NVIDIA reinforces our leadership position in industrial world models, and it supports the development of next-gen AI-driven solutions for engineering and manufacturing. And in 2026, our focus shifts from product launches to monetization. Third, business model evolution. The 3DEXPERIENCE platform continues to drive the transition towards cloud and subscription and our recurring revenue base. And as AI adoption accelerates, the business models are evolving beyond traditional seat-based pricing towards a usage and value-based model. And to better reflect this shift, we will begin to report an annual run rate or ARR, and I will talk about this in more detail later. So as Pascal said, 2026 will be a year of execution where we will strengthen our foundation and our full year guidance for the total -- so our full year guidance for the total revenue growth of 3% to 5%, which is important to highlight. It provides the room to navigate current challenges and to prepare the organization for the new era of growth. Now with this in mind, I will transition to the numbers in more detail. In Q4, total revenue rose 1% ex FX to EUR 1,682 million, with software revenues slightly up by 0.3%. We navigated a complex macro dynamics with weaknesses specifically in France and Germany, mainly in the auto sector. Plus, we also faced headwinds at MEDIDATA and Centric in the fourth quarter. Now we have taken the actions to address these issues, which I will discuss shortly. The recurring revenue rose 3% in Q4, with 4% subscription growth, while services was up 11%. The operating profit for the quarter was EUR 622 million with a healthy operating margin of 37%, it's up 90 basis points ex FX, thanks to the productivity gains that we leveraged across the group, and we had initiated those already entering into the year of 2025. EPS was EUR 0.40, up 9% ex FX. For full year 2025, we saw total revenue of EUR 6,240 million, along with software revenue growing at 4%. Recurring revenue grew 6%, and it's making -- it's creating an 82% recurring revenue base as a percent of software revenue, while subscription revenue grew 11%. We delivered good profitability in '25 with an operating profit of EUR 1,994 million and an operating margin of 32%, achieving 40 basis points of improvement versus last year with an EPS of EUR 1.31, up 7%. Now turning to the growth drivers. The 3DEXPERIENCE platform is at the core of our growth strategy and the foundation to review the power of AI for industry. 3DEXPERIENCE revenue grew 10% for the full year, and it's now 40% of software revenue. As expected, the fourth quarter was impacted by a strong comparison base year-over-year. And on top, we faced the weak auto sector in Europe. However, important to highlight, we signed several strategic 3DEXPERIENCE deals that have the potential to expand over the course of '26 and '27. This will generate future revenue and help build the momentum in ARR, which I will come back shortly. Cloud revenue at the group level grew 9% in Q4 and 8% for the full year with 3DEXPERIENCE Cloud growing 38% and 32%, respectively. This strong growth highlights the value of the platform for clients where the transformation is critical as is the need to leverage AI. Now looking at our geographies and product lines. The Americas rose 3% in Q4, with a good performance in high-tech and transportation mobility in the Americas. Full year '25 was up 5%, and we faced year headwinds in Life Sciences as well as in Home & Lifestyle. The core industries in the geo were strong and resilient with 10% growth. Europe declined minus 5% in Q4, but it was up 2% for the full year. The weakness in the quarter was against a strong base comparison, and it was also impacted by softness in France and Germany, and I mentioned that before, mainly driven by the challenges in the automotive sector in these countries. Meanwhile, Southern Europe was resilient and also Northern Europe gained momentum with a good performance in High Tech. Asia was robust. We grew 6% in the quarter. It was 5% for the year. Growth was driven by Transportation Mobility and High Tech. We had very good momentum in Korea as well as strong growth in India, while Japan delivered solid growth. China had a softer quarter on a backdrop of tough comparables in the quarter. Now to the product lines. So industrial innovation was up 1% in Q4 and 6% for the full year. As noted, the quarter was impacted by the lower growth in 3DEXPERIENCE and in particular, the challenges we faced in Europe. But overall, for the full year, we saw a very positive momentum, which was led by solid traction in SIMULIA and ENOVIA, and continued solid growth with CATIA. We are confident on the resilience of our core business, which is led by the cycle of 3DEXPERIENCE adoption, while preparing for the next wave of growth with AI-based Virtual Twins and companions. On the mainstream side, growth was 1% in Q4, 2% for the full year. Growth was again driven by strong momentum of SOLIDWORKS, which was up high single digits in the fourth quarter and in the full year. As expected, Centric was down double digits in the fourth quarter on a high comparison base. Two effects that played a role on Centric. First, we saw some renewals shifting and also we accelerate the move to cloud as we explained to you previously. And now we expect a marked recovery this year in '26 with a new management in place and a robust pipeline that's building going forward. Now to Life Sciences. Here, the growth was lower than expected. We were down minus 4% in Q4, while the full year was minus 2%, as we faced continued headwinds for MEDIDATA, which I will cover in more details shortly. Outside of this, MEDIDATA signed several strategic account win backs over the course of the year. This includes the likes of Novartis, Merck, AbbVie and Gilead. It highlights our competitive advantage as we build strong foundation and expand our footprint with the large pharma companies. Now as we look ahead, we are convinced that the time has come to transform the biopharma industry from a document-based approach to virtual twin-based operations, as Pascal highlighted. This has been our vision for Life Sciences for long term. Therefore, let's take a holistic view of our Life Sciences industry on software revenue that we are generating today. You see on this slide, this includes MEDIDATA as well as the 3D portfolio adopted by pharma and med tech. And in order to better highlight the growth dynamics, we are differentiating 2 elements, the direct business, the enterprise business as well as the indirect go-to-market model we have where we predominantly sell to our CRO partners. Now to the direct enterprise business. It accounts for 70% of the total revenue in this industry, and it grew 3% in total in 2025. Now within that, the MEDIDATA Enterprise business grew 1%. However, this growth was impacted by one client, Moderna, that adjusted its run rate to reflect lower study volumes. And excluding that, our MEDIDATA Enterprise business was, in fact, up 6%. Meanwhile, 3DEXPERIENCE grew 7%. And now to the indirect business. And here, important to understand, this business is mainly focused on the biotech sector on the small -- on the very small pharma companies. So selling -- and here, we are selling through CROs, and this accounts for 30% of the Life Sciences industry, and this is declining by minus 5% year-over-year. Our market saw lower study starts, which were down minus 7% compared to minus 5% revenue decline. So the study starts were lower by minus 7%. Importantly, we continue to expand our market share also here in Phase 2 and Phase 3 by about 1 point in 2025. And now also, we don't want to anticipate this too early. We did see some green shoots in Q4 as its large CROs are starting to increase the number of new studies on our platform. So what are the actions we are taking to reinvigorate growth? You see them here on the bottom of the slide. First, on the enterprise side. What we are doing is we are setting in motion a dedicated account teams to focus on overall pharma transformation with our platform and leveraging AI. These teams are formed and in action across all the geos. Now to the indirect business, the goal is to reduce our exposure to volatility in the volume business. And to this end, we are evolving our pricing model and terms and conditions to monetize continued data access, which will be critical in the times of AI because this is the way the models will evolve and will help and support our pharma customers to improve the efficiency of clinical trials. Now turning to the cash flow and balance sheet items. Let's start with the operating cash flow. We generated EUR 1,630 million in operating cash flow year-to-date, and this was up 1% compared to last year on a constant currency basis. Indeed, despite a challenging environment marked by FX headwinds and new tax regulations, we demonstrated resilience and cash generation. As previously discussed, we absorbed about a EUR 40 million hit in, which was driven equally by the hike in employer contributions on share-based compensation and new exceptional tax for large companies in France. Excluding this, operating cash flow grew 3% ex FX. In the first half of 2026, we expect the working capital to be positively impacted by the collection from large subscription deals we signed in 2025. Now to free cash flow. It was up 2%, also excluding currency. CapEx investments were lower approximately by EUR 30 million due to lower investments in leasehold improvements versus 2024, while investments in cloud and IT infrastructure were stable. The cash conversion remains a top priority. We reached 82% for 2025 versus 84% in 2024. And this is ahead of our previous estimates, mainly due to better collections. In 2026, we expect cash conversion rate to improve driven by cash collections and better alignment of billing to revenue. Now to complete the picture. Cash and cash equivalents totaled EUR 4,125 million at the end of 2025, and it compares to EUR 3,953 billion at the end of '24. This increase of EUR 173 million includes a negative full year currency impact of EUR 263 million, mainly to the weakening of the U.S. dollar over the period. The net cash position reached EUR 1,530 million at the end of Q4. Any additional information, you will find in the operating cash flow reconciliation in our presentation that we published this morning. Now I want to transition to a new topic. Pascal already introduced it the annual recurring revenue run rate, which we are introducing in 2026 for now. And it is already previewed that with you at our Capital Market Day in June last year. It's a key metric to reflect our continued transition towards a subscription and cloud-based business model. We believe that ARR provides a consistent view of the underlying run rate and the health of our recurring revenue base, while it's also eliminating the volatility from revenue recognition. As such, the ARR is a snapshot, which reflects the 12 months recurring value derived from all active contracts at period end. And it includes software subscriptions, cloud, SaaS hosting as well as support. It excludes future commitments. In the appendix, you will find a detailed definition of ARR on how the methodology is applied, and we also are giving you 3 illustrative examples. Now if you look at the numbers, growing at an average of 6% over the last 2 years, the ARR highlights the consistent execution in core and subscriptions and cloud and is driving the growth of our recurring business. It is also more closely tied to the invoicing and cash flows from those deals. In Q4 2025, the ARR reached almost EUR 4.5 billion with an increase of around EUR 100 million of net ARR in the quarter. This highlights the consistent performance in signing new cloud and subscription contracts, while revenue is highly dependent on the timing of revenue recognition. In 2026, we are establishing this new metric in our reporting, and the plan is to guide starting 2027. Now during the Capital Market Day in November, we will outline the steps in the context of our 2029 financial plan. Now as we look ahead, the trajectory to accelerate growth is, of course, linked to the shift in our business model. Now let me discuss very briefly the levels of ARR growth. First, the mix is driven by faster growth of subscription versus maintenance ARR. I think we see that already clearly in our numbers. It's happening. Second, the growth in 3DEXPERIENCE and cloud as AI-powered Virtual Twins and Virtual Companions boost our 3D UNIV+RSES portfolio. The third, within Life Sciences, we are expanding our footprint, and we are creating and preparing the next generation of growth with new clinical -- with a new clinical trial platform powered by AI. And finally, with Centric, the ARR growth has a long runway. Now with this, let me turn to our financial objectives for '26. We expect total revenue and software revenue growth of 3% to 5% ex FX for the full year of 2026. Importantly, this guidance marks a tipping point. In 2026, the share of subscription revenue will surpass the maintenance revenue, and that's also why we are providing an ARR to better reflect the growth dynamics, not yet as a guidance, but to show the momentum and the progress. The operating margin is expected to achieve 40 to 80 basis points improvement ex FX, which takes us to the range of 32.2% to 32.6%. As we continue to balance investments and margin expansion, leveraging our operating productivity gains. We see the EPS growing at 3% to 6% ex FX to EUR 1.30 to EUR 1.34. Now this is all based on our FX assumption and our full year average rate for the U.S. dollar to euro at 1.18 in yen to euro of 170. Now quickly to Q1, we expect 1% to 5% growth for both total revenue and software revenue. Operating margin is expected to be in the range of 29.2% and 30.7%, and EPS at EUR 0.28 to EUR 0.31. Finally, I would like to share some key assumptions underlying this guidance framework for 2026. So first, we expect 3DEXPERIENCE and Cloud momentum to remain broadly in line with last year. It's driven by continued expansion with our -- within our installed base and ongoing market share gains. We are focused on entering new markets and accelerating the monetization of our AI portfolio. Now from a geographical standpoNow from a geographical standpoint and industry standpoint, the demand in the Americas remains healthy, while Asia continues to show resilience. In Europe, we see solid pipeline development in Southern and Northern regions, which is partially offset by continued expected weakness in the automotive sector, mainly in Germany and France. Potentially, this is impacting the timing of decision-making within quarters. The defense sector represents a potential upside. Within our mainstream business, SOLIDWORKS continues to deliver mid- to high single-digit growth in both revenues and users. For Centric, we expect a return to low teens growth, supported by execution against a strong pipeline and a higher mix of cloud revenues. Now Life Sciences is facing a transition year with actions underway to position the business for a return to growth from 2027. On the margins, we expect continued improvement driven by productivity gains from AI initiatives and operational excellence. So these initiatives are focused on increasing our flexibility and reallocating investment towards top line growth. Now in conclusion, 2025 and 2026, we are laying the foundations for our next phase of growth. I want you to remember 3 things. First, the 3DEXPERIENCE platform is at the core of our industry transformation, and it's creating a long runway of growth. On AI, we are introducing new categories of solutions, those go beyond productivity gains, it's about creating new possibilities. And we are taking actions to scale our operations with one single goal in mind: to generate sustainable growth. Now with this, Pascal and I look forward to taking your questions. Marie Dumas: We will start taking questions from the room. Unknown Analyst: This is [indiscernible] from [ ING. ] So I allow myself to start with asking a question maybe with everybody's mind. Your guidance seems quite cautious for 2026, right? So I can understand there are headwinds. There are some things we are in the beginning of the long runway. But what could go wrong? I mean, what do you think will be the major headwinds in the year to come? Pascal Daloz: Rouven, I start, and then after you will add whatever you want. What's the difference between the 2026 guidance and the 2025 guidance? 2025, we were running quarter-after-quarter after the top line guidance. And you have seen, we have been able to deliver the EPS as initially planned, but we have to adjust in the middle of the year, the top line. So I do not want this for 2026. Let's be clear. So maybe you will see this as a very conservative guidance, and I accept the point. But from a dynamic standpoint, I really want to build on the good momentum and again, keep the company focused on what matters, which is in this AI stories. I mean, it's time for us to invest massively. It's time for us to take the positions. It's time for us to accelerate the transition to subscriptions, and this is the game plan we are doing. And that's the reason why, to be direct with you, I think we are relatively conservative in our guidance. Now what could be wrong? I think we have factored many, many things already. And I think you have seen in the -- Rouven's presentations, compared to 2025, there are certain things which are moving in a good direction. Centric is moving and back to growth. It was really a headwind last year. MEDIDATA, we are cautious, even if we have early signs of improvements, but we did not factor improvement in the guidance. And on the mainstream, you see H1 last year was growing mix single digit. H2 last year is growing high single digit, and we have a better perspective for year '26. And on Industrial Innovation, I think we are taking some cautiousness on the auto sector, especially for Europe, which was, in a way, the bad surprise of Q4 last year. That's what's in it. I don't know if you want to add a few things, Rouven? Rouven Bergmann: For the top line, that's the situation. I think for -- I think the other point that's really important to highlight is we are creating the room also to make investments to support our growth because it's very critical at this point in time. We are at an inflection point to accelerate growth. We're transitioning the business model. We are focused on accelerating our growth in subscriptions to build the ARR for acceleration. I think that's the upside we have. And that's how we constructed the 2026 outlook for growth acceleration to come. Derric Marcon: Derric Marcon, Bernstein. So one remark, Rouven. You told us in June 2025 that you will give us ARR or subscription annual recurring revenue without removing any guidance or projection, but we don't have -- we no longer have the split of your recurring revenue target between subscription and support, something you gave before. So maybe you will continue in that way. And so first question, can you help us to reconcile the guidance, plus 3% plus 5%, with the ARR growth that you project for 2026? And if you have an acceleration at the end of 2025 on ARR, why we don't see that on the revenue guidance for 2026? And the second question is about the remaining performance obligation that you gave at the end of the year. Can you help us to reconcile or bridge what is in the RPO next 12 months and ARR, please because the RPO was growing nicely at the end of 2024. We don't see that in the 2025 numbers. So I'm wondering if we will have the same picture at the end of 2025 when we try to extrapolate the RPO numbers for 2026 and reconcile that with the guidance. Sorry, it's pure figure, Pascal. Pascal Daloz: No problem. And I will start, by the way, and Rouven, feel free to add whatever you. So first of all, on the split between subscription license, if you go to the appendix, we are providing the details. So we did not change the way to guide the market, and we definitively do not want to hide something. Now as you know, the annual recurring run rate cannot be fully translated into the revenue the following year because you have the revenue recognitions mechanisms. And I will let Rouven to elaborate. Nevertheless, if you look at the last 2 years, it's a good proxy to approximate the recurring revenue anyway. Now how to bridge with the guidance, which is your questions because you have 6% on one hand and you have 3% to 5%, right? So remember, in the recurring part of the revenue, half is subscription, half is maintenance. The maintenance support is growing at 1%. So which basically means, the rest, the other 50% should, at minimum, grow to 11% to 12%. You do the math. That's point number one. Point number two, why 3% to 5%? Because if you are at 5%, it means the license are flat. If you are at 3%, it means the license are decreasing by 10%, as simple as that. This is how you will be able to reconciliate the guidance we are providing with the ARR. Maybe, Rouven, you could explain a little bit more some specificity? Rouven Bergmann: Yes. We gave the 3 examples that I think are illustrating the methodology. What you really need to keep in mind, what is really the challenge of Q4 also is a tough comparison of Q4 2024, where we had very high subscription growth in parts also because our on-premise subscription are also including some in-quarter revenue, which when you look at an ARR, it's all allocated over a 12 months period, right? We really only look at the run rate. We don't consider any revenue in point in time. It's really over time. And now as you straight line all of our bookings into this methodology, you will see the true growth of our business activity outside of the revenue recognition noise, so to say, that's in the numbers. So that, I think, creates a clear metric of year-over-year comparison. Now over the last 2.5 years, it grew consistently 6%. As Pascal said, you have to understand the underlying, I think, growth drivers and momentum because the subscription is growing 10-plus percent, also keep in mind, we are still facing inside that the MEDIDATA headwind, so the core business of Dassault Syst�mes, 3DEXPERIENCE is growing much, much faster in the subscription revenue, which is important to understand. And as the MEDIDATA business is expected to improve, we will see the upside of that as well in this number. One other comparison I would like to share with you is the recurring revenue growth was 6% over the last 2 years, and it's very consistent with the ARR. Now we're talking about an ARR of EUR 4.5 billion, growing at 6% with the potential to accelerate because of the mix effect as well as subscription becomes -- is getting to the threshold of 50% plus, and then you have a base effect where that growth is starting really to become meaningful. Maybe a last point on -- you mentioned the remaining performance obligation. And I think the coverage that we have in our visibility for the next 12-month subscription revenue growth, that is very comparable to 2020 when we enter 2025 as it is in 2026. We are forecasting 8% to 10% subscription revenue growth for which we have good visibility to achieve that. Pascal Daloz: Now maybe I should add one additional topic, which is an interesting one. If you look at the performance of Q4, 1% growth, flat for the software. If you look at the ARR, it's EUR 105 million incremental, overall EUR 1.5 billion software revenue, which is 7%. So again, I'm insisting on this because we are really transitioning to the subscriptions and to the cloud. Now if you look at the way many of our peers did it, they were decreasing for many years. We are not. We are slowing down the growth for sure, but we are really transitioning. And that's the reason why this metric is extremely important for you because it's a way to see the momentum we are building. It's a way to see the ramp-up we are creating with those long-term contracts. This is what is behind. I think there are another question related to -- Derric, you had the last question? Derric Marcon: Just on the remaining performance obligation. I think the next 12 months figure for remaining performance obligation last year. So at the end of 2024, if I remember well, was growing in the low 20s, so 23% or 24%. Why we don't see that appearing in the numbers of 2025? And when we will look at the figure at the end of 2025, how can we extrapolate that number and bridge that with your guidance for 2026? Rouven Bergmann: We are not -- Derric, we are not guiding in the remaining performance obligation because we -- the way the revenue recognition is, we're not fully ratable as it relates to that. The remaining performance obligation is a value aggregated for the next 12 months of bookings value, not revenue. So it's always depending on the timing of renewals, right? In a year where there is upcoming larger renewals, it is less because then it will be back to the growth after the renewal. So there can be time-to-time variances. I think what's important to understand for you is that the visibility we have into subscription growth is the same in '26 as it was entering '25. Derric Marcon: At the same time, if I compare the guidance for subscription in 2025 at the beginning of the year and the end results. Rouven Bergmann: I understand. I understand your point. Not -- you don't -- you never have 100% coverage, of course, right? The coverage is typically around 85%, 84% for subscription. So depending on the timing of signing and this can impact at the end of your achievement, and this is what happened. Laurent Daure: It's Laurent Daure from Kepler Cheuvreux. I also have three questions. The first is on the 3D UNIV+RSES and your plan for the next 2 or 3 years. I was wondering if you were planning to invest mostly organic adding staff or if you were considering partnership or even M&A, so the way you will build it. My second question is on Centric. You had a very strong decline in the fourth quarter. What can you give us to make us comfortable, the fact that you will renew with double-digit growth and probably, hopefully in the first part of the year, maybe the pipeline or whatever? And my last question, even if I don't want to preempt the Capital Market Day, from '26 to '27, what could be on top of maybe MEDIDATA, the additional growth? Is it AI related or any other things? Pascal Daloz: You start with the first. Rouven Bergmann: I can start with Centric. Yes. So you're right. Q4 was -- we faced the decline. The visibility for the first quarter is already there. What is also important to highlight is not only the SaaS transition, but also the diversification. So we are going really from the apparels, shoes, the traditional business, the apparels, the consumer-centric industries also to food and beverage and retail. So we are really expanding our scope. And the new leadership team is embracing that as well as the opportunity to expand really enterprise-wide from the front end also to the back end with 3DEXPERIENCE. So we have multiple growth levers on Centric that we are building and that are contributing to the business going forward, and that gives us confidence. And the last point I would say that when you look at it geographically for Centric, the Centric business has a strong momentum in Europe. Asia is building. And in Americas, we see a strong reinforcement. And that is, I think, another very important element that we really see that business on a global basis diversified, and that has strengthened as we enter in '26. We continue to invest. You remember, last year, we made the ContentServ acquisition. We are now through the full integration of that. And this really expands the domain and the platform for Centric to expand within the current customer base and brands, which is creating the next -- another potential points of growth. Pascal Daloz: And maybe above all of this, Laurent, the problem came from the management, the previous management, who did an acceleration of the revenue. And we are -- this is clean. I mean, now it's behind us. Coming back to 3D UNIV+RSES, I think the way you should look at it, it's not an extension of the current portfolio. I mean it's really a redefinition of our offerings, the same way we did when we came with 3DEXPERIENCE almost now 15 years ago. So why I'm saying this? It's because it's requesting a new ecosystem. So in a way, you have seen new partnership, and NVIDIA is a good example of this. You need a new computing -- accelerated computing capabilities. At the same time, NVIDIA, they need to -- I mean, computing without knowledge is blind. So we are the one providing the knowledge with our Industry World Model. So the combination is extremely meaningful. And we will continue to partner with basically people having or leading this game. The real question, I think, is the M&A behind your questions. Yes, if we look at the landscape, I think it's not a bad time to consider M&A. MEDIDATA reimbursement is behind us. The cash flow is relatively significant, even if you are challenging a little bit the cash conversion. But at the end, it's a lot of money every year we are generating. The exchange rate is helping us to consider certain acquisition in the U.S. And the software landscape is under pressure. So I remember having exactly the same question 2 years ago, and I was telling you, it's not the right time. I think now it's the time. I will not say more, but at least you understand the way we think. And the last part, which is related to the '26, '27 ARR, what are the growth drivers. I think maybe, Rouven, you just started to mention it in your presentation. Rouven Bergmann: Yes, yes, yes. I think 2026, we have the guidance, Laurent, right? So let's look at '27 and beyond. What are the potential upsides we have and how we can accelerate. First of all, keep in mind, our large, large client base and the long runway we have to penetrate that client base with 3DEXPERIENCE cloud and our AI portfolio. That's really the strongest engine we have and it's -- and the acceleration potential. Now this, together with the transition to the subscription and cloud, which creates the recurring revenue building on top of that and creating the base effect of the faster-growing subscription growth. That's to me the first thing that is important, and you see we are focused on that to build this to reach this inflection point where we will see the acceleration. You're right to mention Life Sciences. We are -- you see that we are taking the investments. We have a lot of good things going already. You see the enterprise business is growing when you exclude some special effects. So there is a lot of good things that are happening, and we will continue to double down to strengthen them. And as it relates to the volume business, once we retain that exposure to churn, we will also see the benefits here. The expansion on the 3DEXPERIENCE portfolio for the industry, Pascal highlighted that as a massive opportunity. Centric, we discussed, I outlined this before is another growth driver that is not -- that is material. So -- and then there is the last point, you mentioned it, which is potential M&A, which is not factored into this model, creating an upside that we have. So that's the situation as we are transitioning from '26 to '27, and this is what I will focus to explain and outline in the Capital Market Day in November this year, where it's about translating that into an ARR model to give you confidence and understanding of the path ahead. Marie Dumas: So we'll take one more question in the room and we'll go online. Gregory Ramirez: Yes. Gregory Ramirez, GR20 Research. I have one question on the Healthcare business for '26. Trying to do the math, it seems to imply something low to mid-single-digit decline. What is the implied impact of the Moderna contract? Does that mean that if the impact for '25 is just on 1 quarter, that will have some -- still some headwinds for the first 3 quarters of '26? And regarding the enterprise business excluding Moderna, does that mean that it will be growing? So when we exclude the Moderna effect, that means that maybe in Q4 '26, this will drive the growth for '27? Rouven Bergmann: Yes. Maybe first, I want to clarify that we are not expecting decline in the Life Sciences business overall in 2026. We're expecting flat in 2026. Pascal Daloz: With everything we do. Rouven Bergmann: With everything we do in Life Sciences, from an industry standpoint, we expect to be flat. As it relates to the impact of Moderna, this is a 2025 impact. It was not only related to Q4, but it's really for 2025. But the aggregate of this impact is now behind us. Moderna reduced their contract by more than half to reflect their new business level activity. We're still the prime partner for Moderna. We have not given that or losing that to anybody else. It's our client. But their business realities have changed, and we have adjusted to that, which was -- it had a big impact on the performance. So now with that behind, as we look at the enterprise business going forward with -- I gave you some names and large enterprise clients that we have signed, where we are expanding our footprint. And beyond that, we will do even more. By the way, in March, we have MEDIDATA NEXT, where we have many of those clients coming with us on stage to explain what they do with us to expand across our portfolio to transform what clinical development is today. And that will translate, and we're confident about that, that will translate into growth in the enterprise segment going forward. Where we have less control is on the part of the volume business with the CROs. And this is where we are, to some extent, exposed to funding environment on the biotech sector, which can be volatile, and we know it has not been great over the last 2 years. But also there, we see some green shoots coming. And if that materializes, it will stabilize the business. Pascal Daloz: Maybe one additional thing. So if you look at the enterprise segment, and Rouven showed the number to you. The structural growth of MEDIDATA, excluding Moderna, it's 6%. And the growth of the rest of what we do is 7%. So we have 2 legs, if you want, which are solid. And we do not see a reason why it will not continue to be the case in 2026, right? The part where we are extremely cautious because we have been burned last year with this. Rouven Bergmann: That's only last year. Pascal Daloz: We were getting a recovery of the CRO to be back to at least being flat, and we landed at minus 5%. So that's what is not factored in the guidance. We do not take any improvement in the guidance of the CRO business. Despite the fact that some of them, they have published a better result in Q4 compared to Q4 2024. Marie Dumas: Thank you. We will now take questions online, please? Operator, could you start the online Q&A? Operator: [Operator Instructions] And it comes from line of Moawalla from Goldman Sachs. Mohammed Moawalla: Yes. Great. My first question was just to sort of understand the 2026 outlook a bit better. Can you help us understand at both the low end and the high end of the range kind of the assumptions, particularly around what you're incorporating for some of the larger deals as well as the kind of mega deals, what's in there and what isn't? And then again, coming back to sort of bridging the kind of ARR to the revenue growth guidance you've given, you sort of mentioned that we're kind of getting close to parity between subscription and maintenance. But obviously, in there is the MEDIDATA and Life Sciences recurring revenue. So could you give us a better feel for what the underlying subscription growth rates in kind of the core or when the business ex MEDIDATA has given? We're doing a transition both in the enterprise business but also SOLIDWORKS and Centric. Just to sort of better understand the moving dynamics of growth. And then lastly, you sort of touched a bit on more consumption outcome-based revenue as you drive kind of the AI applications or use cases. How does this sort of change the kind of the visibility going forward? Because I think because of conventional business is there's going to be more variability. But when does this become kind of more meaningful to your midterm growth rate? And is that going to be -- and how is that going to be captured? Rouven Bergmann: Okay. Mo, thank you for your questions. I'll start with the first one on how to position the guidance of 3% to 5% revenue growth. As I said, at the beginning of my prepared remarks, I just want to reemphasize this point that this guidance provides us room to navigate. It's derisked. It's derisked for mega deals. We do not include any mega deals into that. Of course, we always have large and chunky deals that are important to happen, but not mega transactions. I think what we need to do to overperform this guidance is I mentioned that there are certain areas that are introducing upside into what we do. We have not included significant growth in the defense sector, for example, simply because we have not yet seen this sector to contribute incrementally strong to our demand. But there are opportunities, of course, in this market that we are very focused to tackle and to get involved and to take benefit of it. We are building a very powerful AI portfolio, transforming our industries and building that to expand what we do with our current clients. And Pascal gave the examples and discussed that. This has, of course, a huge potential for us to accelerate the growth in 3DEXPERIENCE and AI. For now, as you see in the guidance, we have taken a more prudent approach to -- and this was what I shared with you as well, we consider the momentum in 3DEXPERIENCE growth to be consistent with 2025 and 2026. So of course, now as we enter in 2026, we are a significant step further in making these use cases and scaling them and replicating them. So there is, from that perspective, clearly, an opportunity for us to improve and grow and accelerate from there. Now we have to keep in mind that we have to offset also some potential softness in the auto sector. Now there is 2 sites to look at, 2 ways to look at that. While there is maybe softness in the fourth quarter, but still it represents significant opportunities for us also in 2026 because we have -- I want to remind you, Mo, and everyone here that we have signed significant deals in this sector over the last 2 years that are building the foundation to bring these clients onto 3DEXPERIENCE now with the potential to expand, and we are expanding with them in AI, and we are changing the game with that and creating significant opportunities that we couldn't do years before because we simply weren't in this position to do it. So that is all in front of us. And now in this context, I think we wanted to position the guidance from 2026 that is consistent with 2025. We ended at 4%. The midpoint of this guidance is at 4% with the potential to do better than that, but also to have the room to make the right choices for the mid- to long term to accelerate growth. On the low side, what can happen on the low side more? We -- there are macro factors that can always impact us and make things even more difficult and the timing of decisions more difficult. That can be a factor that we need -- we took into account on our guidance to be at the low end of 3%, but that's not what we are targeting. So going to the ARR. You're asking for a lot of additional information, Mo. And for sure, I will be prepared to disclose some of that at the Capital Markets Day. So please bear with me that I will be a little bit more high level, but I will give you the directions on where the ARR, what are the elements of the ARR and the different growth dynamics inside the AR. You're right when you call out MEDIDATA as part of the ARR, of course, that has been a headwind on the 6%, very clear on our subscription ARR. I mentioned subscription ARR is growing more than 10%. And now when you exclude MEDIDATA on core industrials, subscription ARR is growing mid- to high teens. It's a strong resilient cost driver for a long time. And we have, as I said, we have some potential to further accelerate that as more and more of our business transitions to cloud and 3DEXPERIENCE. Now that also -- you know the size of MEDIDATA. MEDIDATA in total is about a EUR 1 billion business. Now we have been -- in the way we've defined the ARR, we have some business in MEDIDATA as it relates to the volume business where we have churn effect, that's not renewable. It's not included in our ARR. So we have not factored in the 100% of Medidata subscription business because not everything is renewable. But nevertheless, it's a very large number inside the subscription ARR that has been facing a lot of headwind. Once we are removing this headwind, and you see we are already doing it for the enterprise part. Now the CRO part is still what is the challenge. But as we are removing that and increase and essentially generate a net increase in ARR quarter-over-quarter for MEDIDATA, that will then contribute to also increase the subscription ARR from what today is plus 10% to the next level. And I would say to go from plus 10% to gradually up point by point to reach 15-plus percent in the subscription ARR in aggregate. So -- but again, I will be prepared to outline those components at the Capital Market Day in more detail. Here today for me is to introduce this concept to you, explain the growth drivers. And with that, build the foundation on the levers that we are focusing on for growth acceleration to come. Pascal Daloz: Now the last part of the question, Mo, is related to the new business model for the new AI solutions. If you look at the story of Dassault Syst�mes, we changed almost everything, except one, the business model because it has always been an equation of the number of users, the number of seats. Now what's the problem? With the AI, you have virtual users now. We call it virtual companion. Some of our peers, they call it agent. So the model cannot be anymore the same. That's point number one. Point number two, I think the software are really selling the capabilities. Now we have an ability by combining the capabilities with the knowledge to sell the end result. Whatever the virtual twins of the improvement. So that's the reason why we are coming with new units. And let me explain to you what the units are about. The first one, we have the unit of works. When a Virtual Companion is working, in a way, it's working like a human. And the same way you have a cost for a human, you should have a cost for the companion. So we are not inventing anything on this one because this is what ChatGPT, Entropy, this is exactly what they do. It's a fraction of the cost of the people. More importantly, when we have a Virtual Companion, it could be a mechanical engineer. This one could be a mechanical engineer and an electrical engineer. It could be also, in addition, a specialist to do the simulation. So we have what we call the unit of knowledge. And the more knowledge the companion they have, the more we price for this because it's a way to capture the value of what we bring, right? If you have to hire someone right now, who has graduated from the best mechanical school, graduated from the best IT or computing school, it will be difficult. With a companion, we have an ability to enable this. Last but not least, what -- there is a third unit, we call it the unit of knowledge. And again, I insist on this for 4 decades, we have accumulated a lot of industry knowledge. We know how to design a car. We know how to produce it. We know how to certify them. We know how to scale the production systems. And this is true in every industry we serve. Now what can we do with AI? We can automatize those processes. And I can tell you, this is a significant value we are creating. In many cases, it's a 10x. It's really a moonshot. So that's the reason why we need also to have dozen units if you want to price in order to capture this value. And last but not least, I make this in my comments. But the entire industry is pushing to do Software as a Service. I present, we should do Service as a Software because you have so much money being spent in services just to make the technology enable that there is a chance not to use artificial intelligence to produce automatically the end results. So -- and that's what's the virtual twin as a Service is about, it's how we can mix the capabilities with basically what used to be human driven, and now it could be a virtual companion in order to deliver the end results. That's the new lever we have in our hands to create additional value. It's tangible, it's concrete, it's not science fiction, it's fiction with science. And it works because it's a way -- I mean, I have enough experiences the last year with many engagement to tell you. We know how to objectivize the value discussion with many of our customers. Now this will come on top of what we do because, again, I repeat myself, if you have a Virtual Companion, you still need CATIA. The Virtual Companion is the one using CATIA. It's not substituting CATIA. You still need to use CATIA SIMULIA, DELMIA in order to produce the end result. So that's an additional lever we are creating. And if you remember what I say, with the companion, we are accelerating the adoption. It's taking too much time to train the people. It's taking too much time for many of our customers to hire people. Now we have the way we master in a much better way the cycle of adoption. We have a better way to monetize the knowledge and the know-how we have put in our software because usually, people, they are comparing the capabilities, but they forget that we have put a lot of industry knowledge in our software. And again, we have the way to monetize the end result of what we do. That's the entire purpose. Now given the visibility, it's a little bit early to speak about this. The only thing I can tell you is just last year, in 6 months because we released those products, the first initial drop was midyear last year. We have been able to build to basically create a EUR 50 million backlog, right? That's what we have been able to do. And this is growing extremely fast. But again, same story, we will come back with more insight at the Capital Market Day in November. Marie Dumas: We can take the next question online, please. Operator: And the question comes from the line of Adam Wood from Morgan Stanley. Adam Wood: I've got 2, please. Just first of all, thinking about more traditional kind of metrics of visibility in the business. Could you maybe help us with pipeline coverage as it stands today? And I guess, particularly given the comments around automotive and investor fears around that, have there been any notable shifts in terms of where the pipeline is by industry that might reassure? And then secondly, I think we've seen in software a lot where there's been deceleration in revenue growth and particularly where companies have a lot of things changing and opportunities. You've obviously mentioned AI, the subscription transition for you. Can you just help us understand the balance that you're trying to strike between making sure you're reinvesting at the right level in the company to drive that revenue acceleration and maybe protecting margins in the short term? And are you comfortable you're getting that kind of split rate? Pascal Daloz: Thank you, Adam. I will start with the first part of the question, and Rouven will take the second one. So related to the pipeline, the coverage right now is 2.5x. So if I look at it, we have the pipeline to cover 2.5x the sales plan for the full year, which is good, which is good. The idea is to create 0.5 more during the year because we are creating also the pipeline over the time. So as a starting point, it's a good ratio. What's the difference compared to last year is the mix. Last year, we were relatively overweight with a lot of opportunity in the auto sector. And if I remember well, the pipeline in the auto sector was around 35%, 37% last year, right, Rouven? Rouven Bergmann: Yes. Pascal Daloz: This year, we are below 30%, which is, I think, better given what is happening, I mean, the volatility we have, especially in Europe on this topic. Where we see a share, which is increasing is in the aerospace and defense, which is, I think, more than -- close to 17%, 18% for this year. It was a little bit, let's say, last year, it was around 12%, if I remember well. What's the difference? We still have the backlog because as you may know, this industry still have a lot of planes to produce, and they still struggle to deliver the backlog. And we have a lot of demands coming from the manufacturing part. You remember the large deal we signed with Lockheed Martin a year ago, it was on this topic. But also, we have new segments. Defense is one of them, but also you have the new space. New space is in this industry what the EV was, let's say, 10 years ago for the car industry. People developing drones, low orbit satellites, the new launcher, I mean, the new space station as well. And they are the one basically equipping themselves very rapidly, and they are raising and growing fast their engineering departments. So this is also something important. We'll see also more demand in the high-tech sector. It's something I did not mention, but we spoke a lot about NVIDIA as a partner. But NVIDIA is also a customer, right? And for the one we have, I mean, we look at what Jensen said last week on stage. NVIDIA is using our technology. In fact, we have built the virtual twin of their future AI factories. And if you look at this entire sector, this is where the money flow right now. I mean, every morning, you open the newspaper, you see all the hyperscalers, all nations committing themselves to invest billions to create these AI factories. It's a very complex object. I mean, you cannot imagine the complexity of it. It's much more complex than a nuclear plant. And by the way, as I comment, do not make the confusion between the data center and the AI factories. The data center is to make an analogy, the warehouse. This is where you store the data. The AI factory, it's a real factory. This is how you transform the data into insight, knowledge, value added. So the complexity and the requirements, it's -- I mean, there is nothing comparable to what we know currently with the data center. So where I want to go, they need a virtual twin. And that's what we do. We are building the virtual twin of the AI factories of the future. This is a tremendous opportunity where we're expanding a lot. And to come back to the initial questions, that's the reason why the share also in the high-tech sector is increasing significantly in the pipeline, and we are around 15%. So long story, a short one, good coverage, mix difference. I think the mix is probably more resilient compared to last year, less exposure to the auto sector, much more distributed. The rest, industrial equipment, the consumer goods and packaged goods is almost the same than what we had last year. Rouven Bergmann: Okay. And then to your second question on the investment policy, how is this reflected? And really, we are looking at the different parts of the organization, starting with R&D. And here, the focus is on allocating our resources to accelerate the AI portfolio and also help to prepare the go-to-market with our brands because the R&D and the go-to-market, as you can imagine, as we are now bringing these next-generation applications to our clients, where R&D brands and go-to-market are extremely connected with our industries. So when I look at the opportunities and where we are investing on the go-to-market side, Pascal mentioned high-tech data centers, that's a growth opportunity, but also related to that, the energy sector, the energy transition, which is a massive opportunity for us. And we have had already in '25 some great wins here. And -- but we know the energy shortage and the pressure on the energy market will further open opportunities for us to virtualize and to improve and help this industry. Aero and space is a very resilient industry for us, where we are doubling down our focus on the go-to-market as well. And of course, industrial equipment. We have seen very resilient results in SOLIDWORKS, and we expect that momentum to be also in 2026. And last but not least, I mentioned that before, Adam, but just to complete the list here, the auto sector remains a critical industry for us with a lot of opportunities. And we are focusing also our go-to-market on that because we have a large footprint and the opportunity to expand. Now we talked about the life sciences go-to-market where we are investing with dedicated integrated account teams. We are really reallocating our resources to address that industry more holistically and open up new pockets of growth and budgets that we didn't systematically addressed in the past, which we have an opportunity to do, and we will. And then the last part, I think Pascal mentioned that also before, we are focusing on scaling the indirect channel, where just through the value network, the suppliers serving the OEMs, we have a lot of opportunity in this market as well, where we are enabling our partners with our new AI solutions to transform these suppliers. Now on G&A, we have initiated a large transformation project here as well to leverage AI and cloud in our back office to streamline the operation. Marie Dumas: We will take one more question online. Operator: And it comes from the line of Michael Briest from UBS. Michael Briest: Just thinking about the CMD in November, are you currently reiterating your 2029 financial ambition? Should we expect that to be updated at that event? Because I'm looking at subscription and you're expecting it to be 55% of software by then, and it was 40% last year, maybe 42% this year. That looks like a steep ramp. And then I appreciate the comments on M&A opportunities. But given the share price, what is your view? Is there any shift in the view on potential buybacks given the valuation of the data? Rouven Bergmann: All right. Thank you, Michael. On the Capital Market Day, regarding the 2029 financial ambition, there's 2 things. First, the introduction of the ARR will allow to have a more focused discussion on the growth levers and our path to accelerate top line growth, which is really around subscription, recurring cloud. And now with AI, we are in a different point than compared to last year where we have very concrete monetization examples on how they will build on top of our existing model. The second point I would reemphasize is that our financial commitment is on the EPS to -- and that also has a lever of the operational efficiency that we are implementing. That's why we reemphasize that today that we are taking the actions to improve the EPS and margin, which then, of course, will have a stronger effect as the top line comes back. So we will discuss that at the Capital Market Day and how we are going to bridge to reach our financial ambition by 2029 as we outlined last year. Pascal Daloz: The second part of your question, Michael, is related to the capital allocation. So again, there is no -- I mean, I have nothing against the share buyback. But if you step back a little bit, let's assume I'm spending EUR 0.5 billion to do this. the levers on the EPS will be relatively limited. And the same EUR 0.5 billion invested to acquire new AI start-up will deliver a better level. So that's the reason why right now, I'm really directing the capital much more to the external growth than to the share buyback. The share buyback for us, you remember our policies is only to offset the dilution coming from the LTI. That's what we do. But again, I have no dogmatic positions. I'm not against. I'm with you on the value creation, but I think we have a better road to create value by investing on the new AI domain than rather than to buy the shares. I think it's time to conclude. Again, thank you, all of you for your engagement today. But I want to leave you with one clear message. I think Dassault Syst�mes is really undergoing a profound and deep transformation of its business model. It's obvious that we are transitioning decisively to subscription-driven future. And it's not only coming from the acceleration of the cloud platform strategy, but above all of this is the evolution of our offerings. AI is at the core of the platform. This will enable our customers to create, simulate, operate virtual twin at scale to bring the virtual in the real world together and to manage the -- for the entire industry. And I think this transformation is not incremental. It's really a fundamental transformation. So -- and we do all of this with a certain resilience. Whatever you say we continue to grow, maybe at a moderate pace, yes, I accept this. But we sustained the momentum when if you look at in our industry, many of our peers, they struggle when they did this transition. And they did the transition before the AI came. So I think I hope you get a better sense of what we do, how we are executing, how we are innovating and how we are advancing to deliver the next phase of growth. I think Rouven and the Investor Relations team are looking forward to seeing you in the coming weeks because they will do road shows and see you no later than next quarter for me. Thank you.
Operator: Ladies and gentlemen, good morning, and welcome to the analyst conference call on the Fourth Quarter and Full Year 2025 results of Ahold Delhaize. Please note that this call is being webcast and recorded. During this call, Ahold Delhaize anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks and uncertainties, other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP. John-Paul O'Meara: Thank you, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q4 and full year 2025 results conference call. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. There, we provide extra disclosures and details for your convenience. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. So with that, Frans, over to you. Frans Muller: Yes. Thank you very much, JP, and good morning, everyone. In 2025, we operated in a rapidly shifting environment, frequent and unpredictable government policies, pockets of inflation and volatility and rapid advances in AI and technology. In that context, being a consistent and trusted partner for customers, associates and all other stakeholders matters more than ever. As you will have seen in our release this morning, I'm proud to say we are delivering on our Growing Together commitments and are well positioned for what lies ahead. Our execution through the holiday season is a great example of how our growth model is coming together, allowing us to finish the year on a high. And for the full year, net sales increased 5.9%, while comparable sales, excluding gas, increased 3.2%. We delivered a healthy underlying operating margin of 4%, diluted underlying EPS growth of 7.8% as well as strong free cash flow, allowing us to increase shareholder returns. In Grocery, success is never driven by only one thing. It's a result of many details coming together and that on an everyday space. As our capabilities mature and integrate, our execution in turn is becoming more connected. The backbone of this is that the flexibility we have created in our ecosystem to deploy scaled and yet tailored solutions, the resilience of our local value propositions and brand personalities and the disciplined execution driven by aligned teams with a strong culture of ownership and accountability that underpins the Growing Together strategy. So let me unpack this a little bit more in detail with some practical examples. First, starting with the customer. Let's talk about strengthening customer value through trusted products. Across our markets, our local brands invested in price and value by lowering prices and broadening own brand assortments in key daily needs. In the U.S., we had our first full year investing towards a total of $1 billion in price investments over those 4 years. And at the same time, we strengthened our own brand assortments, adding 1,100 new products in the U.S. and 1,450 in Europe. In Europe, where own brand penetration is close to 50%, our assortments are a clear competitive advantage. Over the past year, we expanded collaboration through our AMS buying alliance, and this delivered quality improvements while also generating cost savings with a further expansion planned into 2026. These efforts are truly resonating with customers. Own brand growth continued to outperform the rest of the store with group level penetration reaching 39.8%, reflecting strong appreciation for quality, health, value and innovation. The next core block is vibrant customers experience, covering every interaction between our brands and customers in stores, online and through services. Customers increasingly expect convenience, personalization and a seamless integration across channels. In the U.S., we completed the rollout of PRISM, creating a unified digital backbone for personalization at scale, as it enhances opportunities in advertising and retail media. This enabled us to reach around 32 million customers and deliver 14 billion personalized offers in 2025. Customers are also responding positively to our shift forward towards the same-day delivery and partnerships with DoorDash and Instacart with additional partnerships planned. Together, these initiatives strengthen relevance, convenience and loyalty across channels. In addition, in 2025, we opened 220 new stores and remodeled more than 450 locations, maintaining a modern, healthy and attractive store fleet. As a result, we have strengthened our #1 or #2 positions in most of the markets where we operate. Another factor, which is unlocking compounding opportunities for us, is driving customer and business innovation, where digital, data and AI are increasingly powering both customer value and performance. Technology and AI represent a growing share of our EUR 2.7 billion in annual CapEx. We are applying these capabilities across our ecosystem, improving availability and forecasting, enabling AI-assisted customer journeys and scaling predictive and visual intelligence solutions. These investments, combined with our focus on local store-first fulfillment and a more asset-light operating model, are yielding good results. Online sales grew 12.9%, led by 22.8% growth in the U.S. Food Lion had a standout quarter with over 35% e-commerce growth and a 2% point increase in penetration. With the recent closure of 6 e-commerce fulfillment facilities, we have now completed the shift to our store-first operating model. In the Netherlands, the Albert Heijn app plays an essential role in daily lives for millions of consumers. Supported by generative AI, the app is becoming more personalized, multilingual and intuitive, making it easier for customers to plan meals, manage rewards and discover inspiration and new recipes. At bol, we continue to innovate across the end of the journey -- the end-to-end journey. AI-powered features such as Gift Finder and Spot & Shop are increasing engagement and reach. By combining rich shopper insights with impactful campaigns, bol was named the #1 retail media publisher for the second year in a row in the Netherlands. Retail media, as you know, is an increasingly important growth machine for the company. The key strength is our ability to build once and scale across brands. With one global retail media platform, we can deploy new solutions quickly across markets while tailoring execution locally. So with strong capabilities in place, growth now is more about culture rather than capability, which you can see in our people decisions. Good examples here are Margaret's move from bol to Albert Heijn or Keith brought a remit in the U.S. as a Chief Commercial and Digital Officer. Both Margaret and Keith bring deep retail media and technology expertise into grocery, also understanding the importance of developing best-in-class digital offerings and boosting capabilities across the commercial value chain through the power of AI. This reflects our belief that a win at one brand is a win for all brands and that scaling talent and capabilities is just as important as scaling technology. So let me now turn to shaping our portfolio to drive growth and excellence, where disciplined portfolio decisions and operational execution work hand-in-hand. In Europe, we welcomed Profi at the beginning of 2025, establishing a strong platform in Romania for future growth. Throughout last year, Profi opened 70 new stores, marking the start of a promising growth trajectory. At Albert Heijn, we opened 19 new stores and launched a major refresh of the Fresh Square concept in more than 500 locations, responding to growing demand for convenient, nutritious food solutions. In Belgium, we now recently completed the acquisition of Louis Delhaize, adding 303 stores and expanding our presence in convenience in 2026. As the largest food retail group on the U.S. Eastern Seaboard, we see meaningful runway in a still fragmented market. In a region where supermarket volumes declined in 2025, we delivered positive volumes by leading into price, own brands and omnichannel convenience. In the U.S., Food Lion launched 153 remodels and started construction on 93 remodels in the Greensboro market, which will be launched later this year. Stop & Shop remodeled over 30 stores, deploying an efficient use of capital, progressing on their revitalization plan. As part of this plan, Stop & Shop improved store standards, service and value perception. Price investments now cover more than 65% of the fleet, supported by stronger own brands, new marketing and in-store signage, upgraded stores and improved execution. Through the combination of these efforts, we have seen steadily improving trends in comparable sales growth, including volume growth, by the way, and in our Net Promoter Score, or NPS. Especially encouraging are the year-to-date improvements in value for money and ease of shopping, showing the holistic nature of Roger and his team revitalization efforts. Finally, let me spend a moment on healthy communities and planet because we believe the everyday choices we all make do matter. As a family of great local brands, we are ambitious about the measurable impact we can have, striving to make healthier options more accessible and affordable, supporting the natural systems that make food possible and reducing waste across our value chain. An important part of this, something we don't often talk about, is our U.S. pharmacy business, which plays a growing role in customer trust, health access and loyalty. Millions of customers use our pharmacy services, placing them amongst our most engaged shoppers with the majority of them paying primary -- with the majority of them being primary customers. With ongoing drug store closures, our pharmacies also provide an important access point for health services in their local communities. Under the Inflation Reduction Act, Medicare prices will come down for 10 high-cost drugs. From a financial perspective, Jolanda will share additional figures as part of the 2026 outlook, which for all intents and purposes is a technical change for us. More importantly, for many customers, this provides meaningful financial relief, potentially freeing up spending for other everyday needs. As we leave 2025 behind, we can be proud of the progress achieved and the strong foundation built in the first year of Growing Together. Our strategy has been pressure-tested, our capabilities are evolving and our teams are operating in a strong rhythm, which is delivering compounding results. We are carrying this momentum into 2026 with confidence in our execution, our portfolio and our ability to continue to create value for customers, associates, communities, and of course, shareholders. With that, I will now hand over to Jolanda for more detail on our financial performance and outlook. Jolanda Poots-Bijl: Well, thank you, Frans, and good morning to everyone. Our performance underlines the resilience and flexibility of our brands to deliver also in dynamic market conditions. It's a good reflection of how we're balancing our growth investments and cost-saving strategies in the U.S. and in Europe, whilst remaining laser-focused on creating the best customer value proposition for every wallet. Our growth model is built on a simple and repeatable cycle. That cycle is anchored in the strength of our local brands, our leading omnichannel capabilities and the customer value proposition that resonates. By combining sales-led growth with disciplined cost control and thoughtful capital allocation, we can invest in price, convenience and digital while maintaining strong free cash flows and returns. So let's dive deeper into the numbers. Net sales grew 6.1% to EUR 23.5 billion in Q4 and 5.9% to EUR 92.4 billion for the full year, driven by strong comparable sales, both in the U.S. and in Europe, portfolio expansion, including Profi and continued growth in omnichannel. Q4 comparable sales were 2.5%, which includes a negative impact of 0.1 percentage points from weather and calendar shifts and a negative impact of 0.2 percentage points from the end of tobacco sales in Belgium. Online sales grew 12.9% in Q4 and 13.3% for the full year, reflecting strong momentum in online grocery across both regions. Underlying operating margin was 4.2% in Q4 and 4% for the full year. Strong U.S. performance more than offset headwinds from Serbia pricing regulation and first-time integration of Profi. Diluted underlying earnings per share was EUR 0.73 in Q4, up 11.9% and EUR 2.67 for the full year. Q4 IFRS operating income was EUR 899 million, corresponding to a 3.8% margin. IFRS results were EUR 96 million lower than underlying, mainly due to the impairment charges related to the strategic shift to a local store-first omnichannel fulfillment model in the U.S. For the full year, IFRS operating income was EUR 3.5 billion, representing a 3.8% margin. The EUR 192 million difference versus underlying was largely driven by portfolio optimization actions, including the shift to a store-first model in the U.S. and the acquisition and integration costs related to Profi. These actions reflect disciplined portfolio management aligned with our strategy. Operational excellence remains a core enabler of our Growing Together strategy. Through our family of great local brands, we leverage scale to combine sourcing power and scale tech to deliver local impact in a simpler, smarter and more seamless manner, unlocking new efficiencies through automation and innovation. In 2025, we delivered nearly EUR 1.3 billion in save for our customer savings, in line with our ambition for the year. These savings are reinvested with discipline into price, technology, store upgrades and sustainability initiatives, increasing value for customers, creating free cash flow and returns. This also includes investments in growing complementary income streams such as enhanced personalization and support services for brand partners, creating a capital-light revenue stream. With double-digit growth in 2025, we are making good progress towards complementary income of around EUR 3 billion by 2028. Let's now take a closer look at our regional performance. On Slide 21, for your convenience, we present the impacts of weather and calendar over the last quarters by region. U.S. net sales were EUR 13 billion. Comparable sales, excluding gas, increased 2.7%, driven by continued growth in online and pharmacy sales. The cycling of Hurricane Helene had a negative impact of approximately 20 basis points. Online sales growth reached an excellent 22.8% for Q4 versus last year, driven by strong performance across all our brands. The combination of our delivery speed, customer reach and extensive assortment, enabled by our strategic shift to same-day delivery and ongoing partnerships with DoorDash and Instacart, is what wins over customers. Underlying operating margin in the U.S. was 4.7%. The margin outperformance was driven by higher sales leverage, improvements to our online margins, the positive impact from a shift in category mix and lower shrink levels, which more than offset price investments and the dilutive impact from ongoing growth in pharmacy sales. Last October, we announced plans to develop a state-of-the-art DC in North Carolina. This investment adds capacity and automation in a key growth region. It improves efficiency and service levels and supports the long-term needs of our local brands, including Food Lion. And as you all know, Food Lion has been on an impressive trajectory of growth with Q4 marking the 53rd consecutive quarter of growth. In Europe, Q4 trends were in line with the prior quarter. Net sales were EUR 10.5 billion, up 11.2%, partly due to the Profi acquisition, an increase in comparable sales of 2.4% and new store openings. Comparable sales had a negative impact of 50 basis points from the cessation of tobacco sales in Belgium and calendar shifts. In Q4, online sales increased by 6.6%, driven by double-digit growth at Albert Heijn. The strength of our European brands, their ability to adapt in complex conditions and their relentless focus on cost savings allowed us to deliver an underlying operating margin of 4.1%. This was slightly better than anticipated, considering the headwinds from the sudden government decree and intervention on the limitation of prices in Serbia. Some of the brand highlights in the quarter include Albert Heijn reaching a record market share of 38.2% for the year, Delhaize Belgium completing its transformation and expanding in convenience and the CSE brands, particularly Romania, demonstrating resilience and readiness for renewed growth. At bol, Q4 capped a strong year with high single-digit growth, record Black Friday sales and 70 basis points of market share gains as the brand successfully countered increased competition from Amazon and Chinese players. Full year underlying EBITDA increased to EUR 207 million, driven by advertising growth and cost discipline. Moving now to cash flow. Free cash flow was EUR 1.5 billion in Q4 and EUR 2.6 billion for the full year. This exceeded our guidance for the year and is in part a reflection of the strong holiday period and solid Q4 performance. Additionally, our gross CapEx spend was lower than our original guidance for the year due to the timing of new store openings as well as the finalization of our project plans around the construction of the new Food Lion distribution center. Given the overall performance, I'm pleased to announce our proposal to increase the dividend for 2025 by 6% to EUR 1.24 per share. This reflects our stated ambition to sustainably grow dividend per share and generate strong shareholder returns. To that end, we also initiated a EUR 1 billion share buyback program for 2026 earlier this year. Finally, let me add some insights to Frans's comments on our healthy community and planet priorities. Through our trusted products, we are making healthier and more sustainable choices easier and more affordable. We do this by improving nutritional value, increasing transparency and using data and insights to guide customer choices. In 2025, the percentage of own brand healthy food sales was 52.1%. Like-for-like, we improved with 40 basis points compared to 2024 as our CSE region implemented the Nutri-Score methodology changes in 2025. Our total tons of food waste per food sales decreased 39.1% versus the 2016 baseline. This is a 4.4 percentage point improvement versus 2024, driven by smart sourcing, better inventory management and more donations. CO2 emissions in our own operations decreased 39.1% versus our 2018 baseline, which is an improvement of 3.4% versus last year, mainly driven by the installation of more sustainable refrigeration systems. Virgin plastic in our own brand packaging decreased 10.9% versus 2021, which is an improvement of 0.8 percentage points versus last year as our brands were able to increase the percentage of recycled content in our own brand product packaging. This progress reflects a true company-wide effort and something that deeply matters to our people. It is embedded in how we operate and is why healthy communities and planet remains a key priority for us. Now, turning to our guidance for 2026. First, a few specific items to reflect in your 2026 models. The Inflation Reduction Act will reduce U.S. pharmacy sales by approximately $350 million with no impact on underlying profit. The Delfood acquisition is adding over $200 million in European sales. And 2026 includes a 53rd week, which is expected to add 1.5% to 2% to net sales and 2% to 3% to underlying net income from continuing operations with no significant impact on operating margin. Our outlook reflects a disciplined approach to maximizing returns while maintaining flexibility. We expect an underlying operating margin of around 4% with limited downside expected given our strong operating momentum and the good start of the year. Mid- to high single-digit EPS growth at constant rates, a free cash flow of at least EUR 2.3 billion and a gross CapEx of approximately EUR 2.7 billion. While we do not provide quarterly guidance, some phasing effects should be expected during the year, as we flow investments in line with real-time trading conditions, allowing us to stay sharp, calibrate actions iteratively as new learnings emerge and remain flexible to market developments, including macroeconomic and geopolitical uncertainties such as Serbia. For 2026, you can, therefore, expect a persistent focus on value for customers, continued growth of our brands, disciplined investment in stores, logistics and digital and a relentless focus on cost and cash flow. This is how we operate, consistent, disciplined and delivering compounding results. And with that, I will hand back to Frans for closing remarks. Frans Muller: Thank you very much, Jolanda. As you have heard, and as you have seen, our Growing Together strategy is now fully in motion. The focus ahead is simple, doing more, even better. We have spoken today about many of our capabilities, but in an industry like ours, one of the most powerful and often underestimated is thriving people being connected to their communities. The partnerships between our brands and the communities they serve is as important an asset as scale or technology or algorithms. This proximity to our customers, listening carefully, learning continuously and adapting quickly to what matters most in their daily lives is, therefore, the real oil that makes the ecosystem run smoothly. Therefore, also a big compliment to our teams for a remarkable result in 2025. Behind that, everything we do is within the framework of a clear operating reality. We remain laser-focused on cost, disciplined in how we allocate capital and deliberate in sequencing investment so that growth is funded, repeatable and resilient. This is how we create value every day for customers, associates, communities and shareholders and why we enter 2026 with confidence. With that, thank you for your attention. And Sharon, please open the lines for questions. Operator: [Operator Instructions] And our first question today comes from the line of Frederick Wild from Jefferies. Frederick Wild: So the first one is, would you be able to help us understand the competitive and consumer environment at the moment in the U.S. and your outlook there for 2026, including things like food inflation? And how you expect volumes to develop? Secondly, you mentioned, Jolanda, a cadence throughout the year. Given what's happening in Serbia, given maybe some of the U.S. pressures we're seeing at the moment, can we take those comments to mean that you're expecting a -- the year to sort of sequentially improve as we go through it? Frans Muller: Thank you, Frederick, for your questions. On the consumer sentiment in the U.S., if you read the newspapers that people think, hey, it is a weaker sentiment than we had seen before. We also saw here and there reports of negative volumes in the U.S. in the market in itself. If you look at our numbers, we came out the 2025 year with positive volumes in the U.S. with flat volumes in 2025, the fourth quarter. And I think this is also caused by the fact that we have very strong market positions, #1 and 2 positions in the U.S. that we are very connected to our communities, that we have a very good proposition, that we invested online technology and in our stores. So I think we are competing quite strongly. On inflation, we see in food at home Northeast inflation of 2.2% at the moment. And if you ask my prediction, which is not so easy, then I think we see a flat inflation, 2.2%, going forward in the 2026 year. That's how we calculate this. So that's a little bit on inflation. That is on consumer sentiment. And when people talk about consumer sentiment, sometimes we forget 2 things that we are in a food business. So we are not in a discretionary type of business, that we have a very strong brands, #1 and #2 position, 90% of our sales and that we -- and I tried to convey this in my note that we have very strong community connections. And the element of trust is super important, and that's what we earned over the years, and that's only strengthened during COVID. And that's, I think, what we also benefit from now, plus our price investments, a EUR 1 billion price investment over 4 years in the U.S., our strengthening and growing own brand share. So I think we have a good proposition here to support the customer journeys, not only physically, but also online and also through AI and technology. Jolanda? Jolanda Poots-Bijl: Yes. And thank you for your question. Yes, the cadence, as we guided in our storyline just now, we are confident. We started the year well, and we have given a guidance of around 4%. That cadence is something that we don't want to dive into. Europe and U.S. might have different cadences for us started. And we want to allow ourselves the flexibility to invest where we see an opportunity and do that in the perfect cadence to create value for our customers, but also for our shareholders, of course. Frans Muller: And we are in a growth strategy together? Jolanda Poots-Bijl: Yes, that's why we're heading forward fast. Frans Muller: We are going to grow the business. Jolanda Poots-Bijl: And that's what we're investing in. Operator: We will now go to the next question, and your next question comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a big picture one. Just trying to understand how you approach margins on a group level because you consistently talk and communicate and guide on a group margin level. Is that how you run internally as well as in -- if you expect some weakness, let's say, in Europe, you try and compensate for it in the U.S., obviously, within limitations of what you can do on pricing and cost. Does that explain probably a much stronger-than-expected U.S. margin in Q4? That's the first question. Secondly, Frans, it would be amazing if we could dive a little bit into where are in... Frans Muller: Sreedhar, could you speak up a little bit, Sreedhar? Could you speak a little bit louder? Because it's a little bit difficult to understand and... Jolanda Poots-Bijl: Sreedhar, my ears are less strong than Frans' ears, so I need... Frans Muller: Speak up a little bit. Sreedhar Mahamkali: Sorry, sorry. Yes. Of course, yes. I'll just repeat. Just a real question. First one on how you approach group margin because you consistently guide on a group margin. Internally, do you actually manage it as such as in when you see potential weakness in one part of the business, you try and lean into another to deliver the group margin consistently. So that's the first question. Second one is just in terms of where we are on the Stop & Shop reinvestment, price investment and how close to completion are we now given Stop & Shop seems to be progressing in terms of a recovery. So if you can just talk through a little bit more on the reshaping of Stop & Shop offer and where we are in the journey, that would be very helpful. Jolanda Poots-Bijl: Thank you, Sreedhar, and thank you for helping us out here. So your question, I'll take the first one on group margin, our business is local, and we optimize our businesses on that local opportunities and challenges that we have. So we're not balancing out in the portfolio as such. We're managing the optimum business by business and back end, and that's the strength of our model. We try to combine our scale to support those businesses locally. So I think that, in short, answers your question. Frans Muller: Yes. And I think also, Sreedhar, we would like to stay as competitive as we can be on brand level for the U.S., for example, on country level or brands in Europe or in the Benelux. I think that's our promise to customers, our commitments to make sure that we have the local proposition as strong as possible. And then, yes, in the mix, we see the results, of course. At the same time, to stay competitive, we invest a lot in prices. And of course, you know that we have a very strong cost saving program, which Jolanda already talked to. And that plan, we also manage very strictly, too. So I think that's where we get the funding to support locally. It's a local business, Sreedhar. It's -- you can't say, well, we take more money in one brand to subsidize another one. That's not how retail is working for us on Stop & Shop. Sreedhar Mahamkali: Maybe very briefly just on that point, U.S. margin was clearly stronger than most of us were expecting. Was it ahead of your expectation? Because you clearly guided to stable margin... Frans Muller: [indiscernible]. Jolanda Poots-Bijl: Yes. Sreedhar, to be totally transparent, it was above our original plans. And as it is in grocery, you know it as much as we do, it's lots of small things. And if they all come together a little bit more positive than you expect, then you can outperform. And let me mention just a few of them. If you look at our product mix, we sold more fresh than center store. Yes, that's a little support to that margin. We saw that vendor allowances were a little bit more positive. Our online profitability is improving. So it's many small elements all coming together, having small impact as such, but then together, you outperform. So yes. Frans Muller: And a strong holiday season. Jolanda Poots-Bijl: A strong ending of the year. So sales flow-through was -- it was all those elements. Yes. Frans Muller: Thanksgiving, great. Christmas, great. Diwali, also great, by the way. So we had a strong holiday season. And that -- and shrink numbers also went down because if we have high sales, then also shrink numbers come down as well. So a lot of things in the right direction. So, well, I'm not surprised because we have a strong team there, but I think it was stronger than we would initially have expected. Jolanda Poots-Bijl: Yes. Frans Muller: Finally, then we come to the -- before you mix in another question, Sreedhar, we now go to -- it's a good question. We now go to Stop & Shop. So Stop & Shop, we invested in prices as we promised ourselves and our customers. And in 2025, we were in 65% of our sales, 65% of our sales. We did -- we made our price investments. This will go in 2026 up to roughly 80%. So we make additional funding available for our price investments. At the same time, Roger and his team, first of all, a very dedicated, enthusiastic, energetic and a new -- and partly new team, they made quite some changes. They are now very focused on execution. Availability of product is much better. Labor costs are better under control, better service for customers in stores, better mentality. And we see also now that with the relief of the 32 stores we closed, we have now a much better store set for Stop & Shop as well. Also, Stop & Shop, as you might know, has a very high online penetration of around 11%. So also there, the omnichannel is very strong. We see NPS going up for Stop & Shop. We see price perception within the NPS also getting better. They enjoy the higher penetration of our private brand products as well for Stop & Shop. So a number of things are going in the right direction. And at the same time, we also remodeled 30 more stores for Stop & Shop with a different type of frame. So Stop & Shop also, there good momentum. And you have heard me and Jolanda earlier, a good momentum is great, but we will have to see this a few quarters more before we completely embark on this journey. But also there are compliments to Roger and his team, what happened is, yes, there's a new wind -- a positive wind blowing at Stop & Shop for not only the associates, but also for our customers. John-Paul O'Meara: Let's try to not Sreedhar's lead on that one, at least, that's 3 for the price of 2. Operator: We will now go to the next question. And your next question comes from the line of William Woods from Bernstein. William Woods: Obviously, there's been kind of clear debate over the U.S. margin trajectory over the last couple of years, and you showed good results today. When you look over the next year, how does your strategy change in the U.S. as you go into the second and the third year of the strategy? And do you think we're at the trough of the U.S. margin today? Jolanda Poots-Bijl: William, for that question, it might sound a bit boring, but I think I explained earlier, boring for me is a new exciting. We continue on the journey that we shared with the markets when we launched our Growing Together strategy. I think, in our business, it's important to get in a good rhythm in the cadence and then deliver on that cadence. So no big changes expected in the new year. It's fighting to support our customers every day with the best prices possible, continuing with those price investments that we announced, opening up more stores, doing the remodels, driving growth and sharpening our competitive position. So no spectacular changes. It's continuing what we embarked on. Frans Muller: Jolanda mentioned earlier, William, the EUR 2.7 billion CapEx in our total company. A growing part of this is going into technology, AI and these kind of elements. That is also counting for our U.S. business, of course. So with -- when we see digital AI, both in the efficiency part and the forecasting part, but also in the consumer-facing part, we do a better and better job, loyalty, personalization and these kind of things. So we should not forget that, that also that positive trend of growing more into technology investments is also still continuing as well. Jolanda Poots-Bijl: Maybe last, but not least, because we just delivered the EUR 1.3 billion on save for our customers. The next round is already, of course, heavily in because we have another target of EUR 1.25 billion also for this year. So it's also that relentless focus on, exactly what Frans says, using AI, automation, looking for ways to drive our cost down because year-on-year, of course, it's getting a little bit tougher to realize those targets. So we're obviously also heavily into making sure that we drive those cost savings because that's one of the pillars of our success going forward. Operator: Your next question today comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: Apologies. Yes, maybe I was on mute. Sorry about that. And so the first one is just the investor event a couple of years ago, you talked about high single-digit percentage EPS growth as an algorithm. If we look at '26, I guess, ex the 53rd week, we're probably not quite getting there. Just wondering what the headwinds are you see in 2026 to that and whether that high single-digit percentage EPS growth is still the right growth rate to think about for the medium term? And second one, sort of follows on from that, I guess, is just if we look at the U.S., I mean, outside of potential consumer weakness, we've got SNAP cuts, GLP-1s more readily available, Walmart taking share, Amazon gaining more traction with its online grocery business. I mean, why would we not expect the U.S. to slow down on the top line meaningfully in 2026? Jolanda Poots-Bijl: Well, thank you, Rob, for that question. So first of all, our Growing Together commitments was high single-digit growth on EPS over the 4-year period, and we stick to that commitment. If you look at our 2026 guidance based on the 53 weeks that we have in that year, we guide on a mid- to high single-digit growth again. You are right, if you take out the impact of the 53rd week, of course, EPS is impacted. Two elements to keep in the back of your head. There is the Serbian impact. Serbia used to be a profitable business, guiding well in our European average margins. It's now a loss-making business. So that is included in our guidance, and we're also fighting to repair that issue, one could say. So Serbia has an impact. And also don't forget, the 53rd week, it is money that will be banked, and it is part of that 4-year trajectory of growing together. Frans Muller: On your second question, Rob, yes, it's pretty competitive out there in the U.S., and that's what this business also -- makes it also exciting. But we are used to this already for a longer time. This is not a new phenomenon in itself. The elements I just would like to stipulate here is that we have a business which is now better positioned than before for growth. We have a better supply chain. We have a stronger own brand offer. We are investing in pricing, and we will invest more in pricing, the EUR 1 billion in 4 years you have heard. We are growing our total Food Lion network, not only by stores, and we will open more stores for Food Lion, that is also a new trajectory, but we also keep remodeling our existing fleet. And where there are opportunities for Food Lion to dense up, let's say, the footprint by potential acquisitions, then we also will look at this. Technology and mechanization will help us to reducing cost or get a better customer journeys. So -- and we talked about it earlier when one of the largest competitors in the U.S. is gaining share in the Carolinas, that does not mean that we lose. We win share with Food Lion in the markets where we operate, those states in the southern part of the Eastern Seaboard. And that is because we are connected to our customers. We are very local. We have very good networks, and we have great people. And I think that is not changing. I also heard that a marketplace player is also closing a few stores in the fresh areas, which is also telling us this is competitive and food retail with the margins we make is not easy. And that's why I think also experience and good people kick in as well. So competitive, yes. Are we able to compete? Absolutely. We think that we also gained market share in the fourth quarter in the U.S. And with positive volumes, I think we have, yes, a good start for 2026 also when we look at the first period of the year. So competitive, but we're in a fighting spirit and the teams are really -- yes, very geared up for the journey. Robert Joyce: Okay. So you think you're well positioned to keep taking share, Frans, it sounds like. Frans Muller: We'll come back to you quarter-by-quarter. Rob, don't jinx it now, but that is a... Jolanda Poots-Bijl: It's our ambition... Frans Muller: No, we have a growth strategy, and you know that our growth strategy means 2 things, means volume growth and market share growth. And that is for every brand individually the task, and that's how we construe our plans. And then, we have to see how that works out and how strong we really are. Operator: Our next question today comes from the line of Fernand de Boer from Degroof Petercam. Fernand de Boer: Two questions from my side. One is about actually on Europe. If you look at last year, '25, you had, of course, the dilution of the acquisition of Profi, you had Serbia, that's now most in the base. So what should probably a bit hold you from higher margins in Europe in '26? And then, the second one is on Albert Heijn. You are now at 38% market share. I think competitors are trying to move. How do you look at that going forward? Jolanda Poots-Bijl: Thank you for that question. I'll take the first one, and Frans will take the Albert Heijn question. We have the first year integration of Profi, and indeed, we are now positioned for growth in Profi. So we envision to open up more stores and drive growth there. And we will get some of those first synergies kicking in. We expect Profi will take around 2 to 3 years to land at the European average margin. So I would not say we're there yet. We are on a journey, and we look forward to that. Serbia, of course, is an impact that was only slightly in last year because it started -- the decrease started September 1. So that is, for sure, a difference versus last year. Frans Muller: And then Fernand, on Albert Heijn, yes, this is a very impressive market share. You round it down to 38%, but it's a very impressive market share. But this comes with 0 arrogance in the marketplace. So the teams have designed their commercial plans for 2026. We might see a few brands in the Dutch market, which have the intention to bounce back. We had an almost 12% growth of our online in Q4 for Albert Heijn. And we also would like to make sure that we stay growing online as well, double digit for Albert Heijn. We look at strengthening our journeys and our portfolios. We have 1,900 organic products, where we are absolutely the leader in differentiation, same for convenience, same for meal solutions. So the creativity is there with the team. Online will be an important component to grow, and I think that means also if you look at price investments, and we know the price favorites where we with 2,000 items have the best offer in the market that will also continue that focus that we make that promise work as well. So Albert Heijn, you talk about the Netherlands, but Albert Heijn is also doing a great job, by the way, in Belgium. Also there, we had a very strong result over the year and also big plans to grow our business there as well. So in short, keep very focused on the omnichannel proposition, 0 arrogance, use the innovation you have in your team to build better products, better private label, which is well over 50% share now at Albert Heijn and work strongly on your cost as well because also there, price investments have to be invested also through cost savings. And that is for Albert Heijn, not different than for anybody else. Fernand de Boer: Maybe one last question on working capital. How far further can you stretch your accounts payable? Jolanda Poots-Bijl: Sorry, the mic went off. I don't know what Frans was doing. A strong year-end sales, of course, means that your inventories are temporarily a bit lower and your accounts payable are a bit higher. So that's also a timing impact of one could say, backloaded sales or a good year ending. We're not expecting to stretch our accounts payable any further. We're just dealing with it as we should be as a good partner in crime also for our suppliers. Fernand de Boer: And the 53rd week, does it have impact on your working capital? Jolanda Poots-Bijl: It will have a bit of an impact, of course. But what we will do, as we will -- as we always do, we will disclose any impact of that last week in our communication to the market in a very transparent way. Frans Muller: Like you did already for sales effect and total net margin. Jolanda Poots-Bijl: Yes. And also in the reporting, we will make sure that the impacts are very clear. Operator: We will now go to the next question, and the next question comes from the line of Xavier Le Mene from Bank of America Securities. Xavier Le Mené: Two, if I may then. You mentioned that AI you do and other technology are reshaping the way you are operating. So you mentioned a few examples, but can you potentially elaborate a bit more and give us a bit of color about the type of productivity gains you can expect? And potentially, an indication of the scale, so magnitude of gain you can get there. So even what is the contribution to cost savings potentially? The second question would be on online. You mentioned it's profitable for the first time in 2025. Should we think about online being a potential driver for margin expansion going forward? And what are your expectation for 2026 and beyond? Frans Muller: Thank you, Xavier. On the question of AI, and AI is, of course, an interesting subject as if this is just new to us. I mean, we're working over many years on AI solutions, if it's robotization, if it's our financial processes, if it is making predictions for our demand, looking at our apps for consumer-facing. And we have now a lot of new features as well. So there will be a lot of AI and opportunities in mechanization. We do a lot of things on recipes and even more creative solutions for customers. You saw what we -- when we talked about Spot & Shop, make a picture of the lamp or the pair of shoes with your neighbors you like more, and you make a picture, load it in the app for bol and you get a suggestion where you can buy these kind of things. So we have a lot of back-end solutions, robotics, mechanization, forecasting, marking down to avoid food waste. We talked about it earlier. But more and more, we get even more consumer-facing opportunities with visual search and all these kind of things with AI is giving us. So a lot of things happening there. The other thing is that you might have noticed that we also got a new Chief Technology Officer on board with Jan Brecht. And Jan Brecht is working very closely, of course, with IT and digital and tech teams. And I just came in here, I just bumped in a room today in the meeting room, where they were talking about our group focus area, work group on AI, where we also bring Americans and Europeans and central people together to see, hey, what can we learn from each other, and we're going to learn a lot from the U.S. as well. What can we learn from each other to make even those propositions more standardized, in the end cheaper in serialization and to scale it up. So a lot more to come. And I think we will talk every quarter about the new features like we did today as well. Jolanda Poots-Bijl: On your second question, and thank you for that, online profitability margin going forward. We look at online in a holistic way. So we're not separating it anymore. Of course, we have those numbers, but we don't separate it in as, okay, it's margin dilutive, and how do we balance that out in the portfolio? We drive growth. Online is a core driver of that growth. And from a holistic and more strategic point of view, having those online customers, which creates indeed growth, it also gives us access into people's daily lives. We can design personal assistance that going forward will give us strategic opportunities, gives us data. We can do the personalization. So there are many elements for us that are so much more important than just an online business and the dilution. We indeed communicated half 2025 that we are now online profitable in the group. That profitability is increasing and improving. So going forward, we double down on online also, as Frans stated, for example, for Albert Heijn. We find ways to improve our profitability even further. And we're quite confident that as a part of our overall strategy, this will benefit our customers, our company and also providing the returns to our shareholders that you could expect to have from us from a holistic point of view. Operator: We will now take our final question for today. And the final question comes from the line of Francois Digard from Kepler Cheuvreux. François Digard: Could you elaborate on the online sales growth in the U.S. in '25 and specifically in Q4? I would appreciate the deep dive if you could help us to understand the main drivers behind this performance. And how sustainable do you believe this growth is? Notably how -- I would be interested to know how you share the value with your Click & Collect partners in this business. Frans Muller: Thank you, Francois. [Foreign Language]. 23% growth in the fourth quarter is, of course, magnificent, 35% for Food Lion. And you could argue that it's a little bit from a lower base in itself, but it's still amazing. Penetration getting over 9% now. Stop & Shop historically already in very high participation, but also growing there to over 11%, so a very positive penetration growth in all the brands we operate. We operate very different than before. As you know, we are now having our Click & Collect options powered by PRISM, owned -- well -- own-developed software, which is giving us, yes, first of all, efficiency, picking efficiency, but also a much better customer connect and a much better customer journey in that online Click & Collect, let's say, part of our proposition. We also partner with DoorDash and Instacart. That is going very well. We might address that we might find another strong partnership, too, which is going to fuel extra growth, so we talk about online a lot. The teams are so convinced that omnichannel is the name of the game. Those customers are more loyal, store and online connected. Jolanda already mentioned that we also got a fully allocated profitable and even more profitable. That's also good news. And of course, online and these kind of things are more linked to AI efficiencies, but also more linked to retail media at the same time. And therefore, that online growth is also for us a very important element of having a better deal, having a better proposition for our customer base. Jolanda Poots-Bijl: Maybe adding to that, Frans, I mean, if you look at what is driving our growth next to all the points that you mentioned, if you compare it with some of the competitors in the market, you have access to a very large assortment on our PRISM portal. So that assortment and the breadth of it, I think, helps, and it's fast. So we have a delivery time of 3 hours, which compared to some of those other also huge players, that's high speed. So speed and assortment probably also helps to win customers over. Frans Muller: Yes. And if you're in Brooklyn with your Eastern European assortment, then you pick your online order in that store, your store and your assortment. So it's store-specific. It's a unique PRISM proposition. And I think that's also different than a few of those, let's say, more centralized online things. Also there, we are local. Also there, we give our customers their local store in the mobile phone. François Digard: And how sustainable you see these trends because 20% is just replenishing? Frans Muller: Yes. For the full year, it was 18%... Jolanda Poots-Bijl: Which is also quite high. Frans Muller: Which is also quite high. So double-digit growth is for us important. I think I would leave it there. I mean -- and as I mentioned, 35% for Food Lion, but they have to catch up a little bit because they were at a lower penetration. So they will grow faster, I think, but double-digit growth is our plan. John-Paul O'Meara: So thank you, Francois, and thank you, everyone, for joining us on the call today. Thank you, too, Sharon. We'll be out on the road as usual tomorrow and over the next 7 or 8 weeks. So happy to catch up with you. And if we didn't get your question today, we'll gladly give you a call now after the call. But thank you for your attendance. Jolanda Poots-Bijl: Thank you indeed, and see you next time. Frans Muller: See you next time. Thank you, JP, as well for the preparations.
Marie Dumas: Good morning, everyone. I'm Marie Dumas. I'm the new Investor Relations Director for Dassault Syst�mes. Some of you might recognize my voice from my previous role at the company, and I'm delighted to reconnect with many of you today. Joining from Dassault Syst�mes with me are Pascal Daloz, our Chief Executive Officer; and Rouven Bergmann, our Chief Financial Officer. On behalf of the team, I'd like to welcome you to Dassault Syst�mes Fourth Quarter and Full Year 2025 Earnings Presentation. Following the presentation, we will open the floor for questions. First, from the room, and then from participants joining us online. Later today, we will also host a conference call. Dassault Syst�mes results are prepared in accordance with IFRS. Most of the financial figures are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 document d'enregistrement universel published on March 18. With that, I will now hand over to Pascal Daloz. Pascal Daloz: Good morning, everyone. Thank you for joining us today to review the Dassault Syst�mes performance for the fourth quarter and the full year 2025. Let's start with an opening comment, which is at Dassault Syst�mes, we do not manage only for the quarter. We build platform that lasts for decades. I think 2025 was a year of transition. 2026 is a year of executions. And I think those 2 years are financial foundations because they are the year when we prepare the next cycle of growth, scale and long-term value creation. So let's start with the facts. 2025 was a disappointing year for you, but also for us. We finished at the low end of our objective with 4% growth, excluding foreign exchanges. I think this performance does not meet the standard we set to ourselves as part of the long-term plan. And we own that. That said, we moved the company for a while. And I think we made meaningful progress on the priorities that matter the most for the long-term success. What moves forward? First, the 3DEXPERIENCE and the Cloud. I think we deliver significant wins and competitive displacement. And in 2026, we will build on this momentum, turning headwinds into tailwinds and deepening our leadership in industrial AI. And I think our ambition is clear, it's to remain the partner of choice for all the industries. Second, MEDIDATA and Centric PLM, they faced challenges in 2025 and weighted our results. I think we are seeing the early sign of the recovery at Centric, and for MEDIDATA, we are investing for the long term. Keep in mind that Life Sciences is undergoing a fundamental transformation from inefficient document-based process to AI-powered Virtual Twins that redefine how pharma innovates, complies and operates. So this shift is really structural, and the structural changes usually take time. Third, in 2025, we introduced 3D UNIV+RSES, a new environment where virtual twin and AI converge, connecting the virtual and the real in a seamless dynamic loop. In 2026, we turn this vision into concrete value. Finally, we remain disciplined on costs while continuing to invest on our future growth. Execution matters and returns matter as well. Now as we enter in 2026, we are scaling our transformation plan, ensuring every step we take positions Dassault Syst�mes and our customers for sustainable successes. And our transformation is built around 3 strategic pillars. The first one, the product offering. We are reshaping our portfolio, accelerating towards 3D UNIV+RSES and investing where scale matters. Second, the go-to-market. We are strengthening the go-to-market execution with targeted end-to-end engagement, especially in Life Sciences for the top 50 large accounts and consumer industry for the formulated products. We are also transforming our partner ecosystem to generate demand, not just distribute licenses. And to support this, we have strengthened the leadership with the Transformation Officer and an Operating Officer focusing on the execution and performance. Third, the business model, and this is a very important part. As customers accelerated the adoption to subscription and cloud, we are introducing the annual run rate reporting in 2026. I think this will provide a clear visibility into the health and the momentum of our recurring revenue base. In parallel, we are also evolving beyond the seat-based pricing toward a value-based pricing model for AI-powered solutions. Because we don't just deliver the software, I think we are delivering outcomes and we will capture a fair share of the value we are creating. This transformation is not just about growth. It's about building a resilient customer-centric company ready for the generative economy. Now let's step back a little bit and look at the market realities. Every industry we serve, whether it's manufacturing, life sciences, infrastructure and cities is under an intense pressure. Supply chain volatility, rising regulation, aging infrastructure and an urgent need for breakthrough innovation in all the domains. These are not just constrained. In fact, they are catalysts, and this is exactly where Dassault Syst�mes step in, not only as a vendor but as a strategic partner for many of our customers. We are helping them to turn the complexity into a competitive advantage that last for decades. In manufacturing, we see 2 realities. The traditional sectors face margin pressure and demand uncertainty. At the same time, defense, high-tech are bold, they are making bold investments where the complexity and the collaboration are the new normal. And this is here where the 3DEXPERIENCE platform is becoming the de facto standard, enabling faster cycle, collaboration at scale and streamlined operations, reducing program time lines to under 18 months in Transportation & Mobilities, delivering between 25% to 40% efficiency gains in Aerospace & Defense, cutting error to 1/3 to almost half in high-tech through prebuilt simulations. That's what we do. In Life Sciences, the pressure is still intense, tighter regulations, rising R&D costs and a shift towards personalized therapeutics or precision medicines. And the incremental improvement is not longer enough. I mean, the customer, they need a new operating model. With our end-to-end lab to manufacturing solutions, we are already helping them to reduce their operating costs by over 30%, while turning the compliance into a competitive advantage. Now in Infrastructure & Cities, demands for autonomous and resilient system is accelerating. Data center demand will double by 2030. The nuclear infrastructure requires safe decommissioning in many countries, cities need to be resilient by design, and I think our AI-powered Virtual Twins reduce the project time line by over 25%, while ensuring safety and compliances. This is really how we are and we create new markets while addressing the most critical challenges of our time. Now across every sector, our customers, they prove one thing. We don't just talk about AI, we deliver it. In Transportation & Mobility, as I was saying, innovation pressure has never been higher. Products are more complex, time lines are shorter. Competition is global. And value is a good example of this. You know Valeo, it's a global leader in the automotive technology from ADAS to electrification systems. And I think together, we are pushing the boundaries of the generative experiences. Here, AI does not only assist, it co-creates. And how we do this? By training the virtual twin on our synthetic data, we generate thousands of design alternatives optimized for performances, cost, compliances before a single prototype is built. This is really the new way of working, turning complexity into opportunity. In Life Sciences, our partnership with Catalyst, I think, show how an industry can be reinvented. By moving from static document to data-driven Virtual Twins, Catalyst is really redefining the CRO model. The clinical trial become agile, patient-centric, continuously optimized. And this is not about fixing the old model, it's really about building a new one. In infrastructure, with Technique at Home, I think we are redefining how the next-generation nuclear systems are designed and operated. The Virtual Twins connect the entire ecosystem, ensuring the traceability, the compliance by designs and more importantly, closing the loop between the virtual and the real world. So that year, we did also something extremely important. A year ago, if you remember, we introduced 3D UNIV+RSES. But what does it mean in practice? 3D UNIV+RSES are not applications, they are knowledge factories where knowledge is enriched, know how is scaled and the results are trusted. And AI is the engine, not a generic AI, not a surface AI, an AI which is grounded in science, engineering and industry. This is not about large language models. I insist on this because with LLM, you will never be able to build drones. You will never be able to design humanoids. You will never be able to discover cell therapeutics. And this is what our customers do. And this is really what we do for them to help them to certify what they do. o we are building what we call industry world model, which is the next generation of AI after the large language model. And what is important is those models understand how the real world works and how to build it. That's something extremely important. Why so? Because those model, they are built on physics. They are trained on decades of industrial knowledge with a continuously validated Virtual Twins. It's explainable, it's certifiable and it's trusted. And there is one fundamental reasons because in the physical world, you cannot forgive the mistakes. This is the reason why our partnership with NVIDIA matters. I think together, we are combining the virtual twin with AI factories and accelerated computing. But maybe long -- more than the long explanations, launch the video, please. [Presentation] Pascal Daloz: So I hope you got it, and it's not me telling this. Jensen, the founder and the CEO of NVIDIA. And I think what we do together, we are building the foundation for industrial AI. And as you said, it enables 3 things: First, in research and innovations to develop the models that simulate the casualty, not only the correlation from a statistic standpoint. Second, the factory of the future, which are software-defined. And why they are software defined? Because autonomous factories continuously optimize through simulation is the reality. And third, the new way of working, which is how you can have skilled virtual companions, not a simple chatbot, but industry trained experts who could help teams to design, comply and optimize everything you do. So in 2026, now we turn this into reality with the 3 AI native solutions, the new categories. The first one, we call it the Virtual Companions. They are not assistants, they are experts. They scale the knowledge, they democratize the expertise. They turn the complexity into productivities. The second one, the Generative Experiences, AI that encodes the best practices, science and compliance by default, a faster innovation, lower risk, higher confidence. And third, the virtual twin as a service, we don't sell the software we deliver outcomes. That's why we are evolving our business model from seed-based licensing to value-based monetization for this new category of solutions because together, I think our AI-driven solutions unlock 3 powerful levers of value creation. The first one is expanding the adoption with the Virtual Companions with usage-based. Keep in mind that right now, the real limitation we face is the number of people being skilled to use our software. Now if we have Virtual Companions being trained by design, they will take the benefit of what we deliver to them. The second one is monetizing the know-how with Generative Experiences. For 40 years, we have invested in many, many industries, aerospace, auto, now life sciences, high tech. And we have accumulated a lot of industry know-how, how to design things, how to produce them. With this knowledge, we can automatize many things. And what the gain we have in front of us, it's a moon shot. It's 10x. It's not a 20% improvement. It's not 30% improvement. It's really a radical change. Last but not least, we can sell the outcome with the virtual twin as a service. Why so? Because right now, how does it work? We provide the software. You have a lot of services, which is needed to implement the software on-premise to train the people, to change the processes. Now with AI, we can -- rather than to sell the tool, we can automatically generate the end result, the virtual twin. It's a way to reintegrate part of the value in our software. So that's what we do, and this is how we are turning AI from a promise into a concrete sustainable value. And I think this is just at the beginning. Now that was the key question a week ago. I mean all of you, you were asking the question, which is AI is revolutionizing everything. But there are 2 kind of companies, the one that compounds and the one who could be commoditized. I think Dassault Syst�mes is built to compound. We are not just participating to the AI revolution. We are really shaping it for the industry. And this November, at our Capital Market Day, we will come back on this, how these visions could -- is translating into the financial impact. But before that, now it's time for me to hand over to Rouven. Rouven, you have the floor. Rouven Bergmann: Thank you, Pascal. And also a warm welcome from my side to all of you here in the room and joining us online for our Q4 2025 earnings conference call. Before reviewing the numbers, I would like to highlight 3 key themes that define 2025. First, to sustainable growth. Our core industrial business, I want to reemphasize that our core industrial business was resilient in 2025 with strategic client wins. However, we faced a backdrop of tough comps and complex macro, specifically in the fourth quarter. We are focused on further strengthening our growth model while we are looking at improving our operational excellence. We have identified the challenges, and we will now execute to deliver, as Pascal said. Second, AI at the core. The collaboration with NVIDIA reinforces our leadership position in industrial world models, and it supports the development of next-gen AI-driven solutions for engineering and manufacturing. And in 2026, our focus shifts from product launches to monetization. Third, business model evolution. The 3DEXPERIENCE platform continues to drive the transition towards cloud and subscription and our recurring revenue base. And as AI adoption accelerates, the business models are evolving beyond traditional seat-based pricing towards a usage and value-based model. And to better reflect this shift, we will begin to report an annual run rate or ARR, and I will talk about this in more detail later. So as Pascal said, 2026 will be a year of execution where we will strengthen our foundation and our full year guidance for the total -- so our full year guidance for the total revenue growth of 3% to 5%, which is important to highlight. It provides the room to navigate current challenges and to prepare the organization for the new era of growth. Now with this in mind, I will transition to the numbers in more detail. In Q4, total revenue rose 1% ex FX to EUR 1,682 million, with software revenues slightly up by 0.3%. We navigated a complex macro dynamics with weaknesses specifically in France and Germany, mainly in the auto sector. Plus, we also faced headwinds at MEDIDATA and Centric in the fourth quarter. Now we have taken the actions to address these issues, which I will discuss shortly. The recurring revenue rose 3% in Q4, with 4% subscription growth, while services was up 11%. The operating profit for the quarter was EUR 622 million with a healthy operating margin of 37%, it's up 90 basis points ex FX, thanks to the productivity gains that we leveraged across the group, and we had initiated those already entering into the year of 2025. EPS was EUR 0.40, up 9% ex FX. For full year 2025, we saw total revenue of EUR 6,240 million, along with software revenue growing at 4%. Recurring revenue grew 6%, and it's making -- it's creating an 82% recurring revenue base as a percent of software revenue, while subscription revenue grew 11%. We delivered good profitability in '25 with an operating profit of EUR 1,994 million and an operating margin of 32%, achieving 40 basis points of improvement versus last year with an EPS of EUR 1.31, up 7%. Now turning to the growth drivers. The 3DEXPERIENCE platform is at the core of our growth strategy and the foundation to review the power of AI for industry. 3DEXPERIENCE revenue grew 10% for the full year, and it's now 40% of software revenue. As expected, the fourth quarter was impacted by a strong comparison base year-over-year. And on top, we faced the weak auto sector in Europe. However, important to highlight, we signed several strategic 3DEXPERIENCE deals that have the potential to expand over the course of '26 and '27. This will generate future revenue and help build the momentum in ARR, which I will come back shortly. Cloud revenue at the group level grew 9% in Q4 and 8% for the full year with 3DEXPERIENCE Cloud growing 38% and 32%, respectively. This strong growth highlights the value of the platform for clients where the transformation is critical as is the need to leverage AI. Now looking at our geographies and product lines. The Americas rose 3% in Q4, with a good performance in high-tech and transportation mobility in the Americas. Full year '25 was up 5%, and we faced year headwinds in Life Sciences as well as in Home & Lifestyle. The core industries in the geo were strong and resilient with 10% growth. Europe declined minus 5% in Q4, but it was up 2% for the full year. The weakness in the quarter was against a strong base comparison, and it was also impacted by softness in France and Germany, and I mentioned that before, mainly driven by the challenges in the automotive sector in these countries. Meanwhile, Southern Europe was resilient and also Northern Europe gained momentum with a good performance in High Tech. Asia was robust. We grew 6% in the quarter. It was 5% for the year. Growth was driven by Transportation Mobility and High Tech. We had very good momentum in Korea as well as strong growth in India, while Japan delivered solid growth. China had a softer quarter on a backdrop of tough comparables in the quarter. Now to the product lines. So industrial innovation was up 1% in Q4 and 6% for the full year. As noted, the quarter was impacted by the lower growth in 3DEXPERIENCE and in particular, the challenges we faced in Europe. But overall, for the full year, we saw a very positive momentum, which was led by solid traction in SIMULIA and ENOVIA, and continued solid growth with CATIA. We are confident on the resilience of our core business, which is led by the cycle of 3DEXPERIENCE adoption, while preparing for the next wave of growth with AI-based Virtual Twins and companions. On the mainstream side, growth was 1% in Q4, 2% for the full year. Growth was again driven by strong momentum of SOLIDWORKS, which was up high single digits in the fourth quarter and in the full year. As expected, Centric was down double digits in the fourth quarter on a high comparison base. Two effects that played a role on Centric. First, we saw some renewals shifting and also we accelerate the move to cloud as we explained to you previously. And now we expect a marked recovery this year in '26 with a new management in place and a robust pipeline that's building going forward. Now to Life Sciences. Here, the growth was lower than expected. We were down minus 4% in Q4, while the full year was minus 2%, as we faced continued headwinds for MEDIDATA, which I will cover in more details shortly. Outside of this, MEDIDATA signed several strategic account win backs over the course of the year. This includes the likes of Novartis, Merck, AbbVie and Gilead. It highlights our competitive advantage as we build strong foundation and expand our footprint with the large pharma companies. Now as we look ahead, we are convinced that the time has come to transform the biopharma industry from a document-based approach to virtual twin-based operations, as Pascal highlighted. This has been our vision for Life Sciences for long term. Therefore, let's take a holistic view of our Life Sciences industry on software revenue that we are generating today. You see on this slide, this includes MEDIDATA as well as the 3D portfolio adopted by pharma and med tech. And in order to better highlight the growth dynamics, we are differentiating 2 elements, the direct business, the enterprise business as well as the indirect go-to-market model we have where we predominantly sell to our CRO partners. Now to the direct enterprise business. It accounts for 70% of the total revenue in this industry, and it grew 3% in total in 2025. Now within that, the MEDIDATA Enterprise business grew 1%. However, this growth was impacted by one client, Moderna, that adjusted its run rate to reflect lower study volumes. And excluding that, our MEDIDATA Enterprise business was, in fact, up 6%. Meanwhile, 3DEXPERIENCE grew 7%. And now to the indirect business. And here, important to understand, this business is mainly focused on the biotech sector on the small -- on the very small pharma companies. So selling -- and here, we are selling through CROs, and this accounts for 30% of the Life Sciences industry, and this is declining by minus 5% year-over-year. Our market saw lower study starts, which were down minus 7% compared to minus 5% revenue decline. So the study starts were lower by minus 7%. Importantly, we continue to expand our market share also here in Phase 2 and Phase 3 by about 1 point in 2025. And now also, we don't want to anticipate this too early. We did see some green shoots in Q4 as its large CROs are starting to increase the number of new studies on our platform. So what are the actions we are taking to reinvigorate growth? You see them here on the bottom of the slide. First, on the enterprise side. What we are doing is we are setting in motion a dedicated account teams to focus on overall pharma transformation with our platform and leveraging AI. These teams are formed and in action across all the geos. Now to the indirect business, the goal is to reduce our exposure to volatility in the volume business. And to this end, we are evolving our pricing model and terms and conditions to monetize continued data access, which will be critical in the times of AI because this is the way the models will evolve and will help and support our pharma customers to improve the efficiency of clinical trials. Now turning to the cash flow and balance sheet items. Let's start with the operating cash flow. We generated EUR 1,630 million in operating cash flow year-to-date, and this was up 1% compared to last year on a constant currency basis. Indeed, despite a challenging environment marked by FX headwinds and new tax regulations, we demonstrated resilience and cash generation. As previously discussed, we absorbed about a EUR 40 million hit in, which was driven equally by the hike in employer contributions on share-based compensation and new exceptional tax for large companies in France. Excluding this, operating cash flow grew 3% ex FX. In the first half of 2026, we expect the working capital to be positively impacted by the collection from large subscription deals we signed in 2025. Now to free cash flow. It was up 2%, also excluding currency. CapEx investments were lower approximately by EUR 30 million due to lower investments in leasehold improvements versus 2024, while investments in cloud and IT infrastructure were stable. The cash conversion remains a top priority. We reached 82% for 2025 versus 84% in 2024. And this is ahead of our previous estimates, mainly due to better collections. In 2026, we expect cash conversion rate to improve driven by cash collections and better alignment of billing to revenue. Now to complete the picture. Cash and cash equivalents totaled EUR 4,125 million at the end of 2025, and it compares to EUR 3,953 billion at the end of '24. This increase of EUR 173 million includes a negative full year currency impact of EUR 263 million, mainly to the weakening of the U.S. dollar over the period. The net cash position reached EUR 1,530 million at the end of Q4. Any additional information, you will find in the operating cash flow reconciliation in our presentation that we published this morning. Now I want to transition to a new topic. Pascal already introduced it the annual recurring revenue run rate, which we are introducing in 2026 for now. And it is already previewed that with you at our Capital Market Day in June last year. It's a key metric to reflect our continued transition towards a subscription and cloud-based business model. We believe that ARR provides a consistent view of the underlying run rate and the health of our recurring revenue base, while it's also eliminating the volatility from revenue recognition. As such, the ARR is a snapshot, which reflects the 12 months recurring value derived from all active contracts at period end. And it includes software subscriptions, cloud, SaaS hosting as well as support. It excludes future commitments. In the appendix, you will find a detailed definition of ARR on how the methodology is applied, and we also are giving you 3 illustrative examples. Now if you look at the numbers, growing at an average of 6% over the last 2 years, the ARR highlights the consistent execution in core and subscriptions and cloud and is driving the growth of our recurring business. It is also more closely tied to the invoicing and cash flows from those deals. In Q4 2025, the ARR reached almost EUR 4.5 billion with an increase of around EUR 100 million of net ARR in the quarter. This highlights the consistent performance in signing new cloud and subscription contracts, while revenue is highly dependent on the timing of revenue recognition. In 2026, we are establishing this new metric in our reporting, and the plan is to guide starting 2027. Now during the Capital Market Day in November, we will outline the steps in the context of our 2029 financial plan. Now as we look ahead, the trajectory to accelerate growth is, of course, linked to the shift in our business model. Now let me discuss very briefly the levels of ARR growth. First, the mix is driven by faster growth of subscription versus maintenance ARR. I think we see that already clearly in our numbers. It's happening. Second, the growth in 3DEXPERIENCE and cloud as AI-powered Virtual Twins and Virtual Companions boost our 3D UNIV+RSES portfolio. The third, within Life Sciences, we are expanding our footprint, and we are creating and preparing the next generation of growth with new clinical -- with a new clinical trial platform powered by AI. And finally, with Centric, the ARR growth has a long runway. Now with this, let me turn to our financial objectives for '26. We expect total revenue and software revenue growth of 3% to 5% ex FX for the full year of 2026. Importantly, this guidance marks a tipping point. In 2026, the share of subscription revenue will surpass the maintenance revenue, and that's also why we are providing an ARR to better reflect the growth dynamics, not yet as a guidance, but to show the momentum and the progress. The operating margin is expected to achieve 40 to 80 basis points improvement ex FX, which takes us to the range of 32.2% to 32.6%. As we continue to balance investments and margin expansion, leveraging our operating productivity gains. We see the EPS growing at 3% to 6% ex FX to EUR 1.30 to EUR 1.34. Now this is all based on our FX assumption and our full year average rate for the U.S. dollar to euro at 1.18 in yen to euro of 170. Now quickly to Q1, we expect 1% to 5% growth for both total revenue and software revenue. Operating margin is expected to be in the range of 29.2% and 30.7%, and EPS at EUR 0.28 to EUR 0.31. Finally, I would like to share some key assumptions underlying this guidance framework for 2026. So first, we expect 3DEXPERIENCE and Cloud momentum to remain broadly in line with last year. It's driven by continued expansion with our -- within our installed base and ongoing market share gains. We are focused on entering new markets and accelerating the monetization of our AI portfolio. Now from a geographical standpoNow from a geographical standpoint and industry standpoint, the demand in the Americas remains healthy, while Asia continues to show resilience. In Europe, we see solid pipeline development in Southern and Northern regions, which is partially offset by continued expected weakness in the automotive sector, mainly in Germany and France. Potentially, this is impacting the timing of decision-making within quarters. The defense sector represents a potential upside. Within our mainstream business, SOLIDWORKS continues to deliver mid- to high single-digit growth in both revenues and users. For Centric, we expect a return to low teens growth, supported by execution against a strong pipeline and a higher mix of cloud revenues. Now Life Sciences is facing a transition year with actions underway to position the business for a return to growth from 2027. On the margins, we expect continued improvement driven by productivity gains from AI initiatives and operational excellence. So these initiatives are focused on increasing our flexibility and reallocating investment towards top line growth. Now in conclusion, 2025 and 2026, we are laying the foundations for our next phase of growth. I want you to remember 3 things. First, the 3DEXPERIENCE platform is at the core of our industry transformation, and it's creating a long runway of growth. On AI, we are introducing new categories of solutions, those go beyond productivity gains, it's about creating new possibilities. And we are taking actions to scale our operations with one single goal in mind: to generate sustainable growth. Now with this, Pascal and I look forward to taking your questions. Marie Dumas: We will start taking questions from the room. Unknown Analyst: This is [indiscernible] from [ ING. ] So I allow myself to start with asking a question maybe with everybody's mind. Your guidance seems quite cautious for 2026, right? So I can understand there are headwinds. There are some things we are in the beginning of the long runway. But what could go wrong? I mean, what do you think will be the major headwinds in the year to come? Pascal Daloz: Rouven, I start, and then after you will add whatever you want. What's the difference between the 2026 guidance and the 2025 guidance? 2025, we were running quarter-after-quarter after the top line guidance. And you have seen, we have been able to deliver the EPS as initially planned, but we have to adjust in the middle of the year, the top line. So I do not want this for 2026. Let's be clear. So maybe you will see this as a very conservative guidance, and I accept the point. But from a dynamic standpoint, I really want to build on the good momentum and again, keep the company focused on what matters, which is in this AI stories. I mean, it's time for us to invest massively. It's time for us to take the positions. It's time for us to accelerate the transition to subscriptions, and this is the game plan we are doing. And that's the reason why, to be direct with you, I think we are relatively conservative in our guidance. Now what could be wrong? I think we have factored many, many things already. And I think you have seen in the -- Rouven's presentations, compared to 2025, there are certain things which are moving in a good direction. Centric is moving and back to growth. It was really a headwind last year. MEDIDATA, we are cautious, even if we have early signs of improvements, but we did not factor improvement in the guidance. And on the mainstream, you see H1 last year was growing mix single digit. H2 last year is growing high single digit, and we have a better perspective for year '26. And on Industrial Innovation, I think we are taking some cautiousness on the auto sector, especially for Europe, which was, in a way, the bad surprise of Q4 last year. That's what's in it. I don't know if you want to add a few things, Rouven? Rouven Bergmann: For the top line, that's the situation. I think for -- I think the other point that's really important to highlight is we are creating the room also to make investments to support our growth because it's very critical at this point in time. We are at an inflection point to accelerate growth. We're transitioning the business model. We are focused on accelerating our growth in subscriptions to build the ARR for acceleration. I think that's the upside we have. And that's how we constructed the 2026 outlook for growth acceleration to come. Derric Marcon: Derric Marcon, Bernstein. So one remark, Rouven. You told us in June 2025 that you will give us ARR or subscription annual recurring revenue without removing any guidance or projection, but we don't have -- we no longer have the split of your recurring revenue target between subscription and support, something you gave before. So maybe you will continue in that way. And so first question, can you help us to reconcile the guidance, plus 3% plus 5%, with the ARR growth that you project for 2026? And if you have an acceleration at the end of 2025 on ARR, why we don't see that on the revenue guidance for 2026? And the second question is about the remaining performance obligation that you gave at the end of the year. Can you help us to reconcile or bridge what is in the RPO next 12 months and ARR, please because the RPO was growing nicely at the end of 2024. We don't see that in the 2025 numbers. So I'm wondering if we will have the same picture at the end of 2025 when we try to extrapolate the RPO numbers for 2026 and reconcile that with the guidance. Sorry, it's pure figure, Pascal. Pascal Daloz: No problem. And I will start, by the way, and Rouven, feel free to add whatever you. So first of all, on the split between subscription license, if you go to the appendix, we are providing the details. So we did not change the way to guide the market, and we definitively do not want to hide something. Now as you know, the annual recurring run rate cannot be fully translated into the revenue the following year because you have the revenue recognitions mechanisms. And I will let Rouven to elaborate. Nevertheless, if you look at the last 2 years, it's a good proxy to approximate the recurring revenue anyway. Now how to bridge with the guidance, which is your questions because you have 6% on one hand and you have 3% to 5%, right? So remember, in the recurring part of the revenue, half is subscription, half is maintenance. The maintenance support is growing at 1%. So which basically means, the rest, the other 50% should, at minimum, grow to 11% to 12%. You do the math. That's point number one. Point number two, why 3% to 5%? Because if you are at 5%, it means the license are flat. If you are at 3%, it means the license are decreasing by 10%, as simple as that. This is how you will be able to reconciliate the guidance we are providing with the ARR. Maybe, Rouven, you could explain a little bit more some specificity? Rouven Bergmann: Yes. We gave the 3 examples that I think are illustrating the methodology. What you really need to keep in mind, what is really the challenge of Q4 also is a tough comparison of Q4 2024, where we had very high subscription growth in parts also because our on-premise subscription are also including some in-quarter revenue, which when you look at an ARR, it's all allocated over a 12 months period, right? We really only look at the run rate. We don't consider any revenue in point in time. It's really over time. And now as you straight line all of our bookings into this methodology, you will see the true growth of our business activity outside of the revenue recognition noise, so to say, that's in the numbers. So that, I think, creates a clear metric of year-over-year comparison. Now over the last 2.5 years, it grew consistently 6%. As Pascal said, you have to understand the underlying, I think, growth drivers and momentum because the subscription is growing 10-plus percent, also keep in mind, we are still facing inside that the MEDIDATA headwind, so the core business of Dassault Syst�mes, 3DEXPERIENCE is growing much, much faster in the subscription revenue, which is important to understand. And as the MEDIDATA business is expected to improve, we will see the upside of that as well in this number. One other comparison I would like to share with you is the recurring revenue growth was 6% over the last 2 years, and it's very consistent with the ARR. Now we're talking about an ARR of EUR 4.5 billion, growing at 6% with the potential to accelerate because of the mix effect as well as subscription becomes -- is getting to the threshold of 50% plus, and then you have a base effect where that growth is starting really to become meaningful. Maybe a last point on -- you mentioned the remaining performance obligation. And I think the coverage that we have in our visibility for the next 12-month subscription revenue growth, that is very comparable to 2020 when we enter 2025 as it is in 2026. We are forecasting 8% to 10% subscription revenue growth for which we have good visibility to achieve that. Pascal Daloz: Now maybe I should add one additional topic, which is an interesting one. If you look at the performance of Q4, 1% growth, flat for the software. If you look at the ARR, it's EUR 105 million incremental, overall EUR 1.5 billion software revenue, which is 7%. So again, I'm insisting on this because we are really transitioning to the subscriptions and to the cloud. Now if you look at the way many of our peers did it, they were decreasing for many years. We are not. We are slowing down the growth for sure, but we are really transitioning. And that's the reason why this metric is extremely important for you because it's a way to see the momentum we are building. It's a way to see the ramp-up we are creating with those long-term contracts. This is what is behind. I think there are another question related to -- Derric, you had the last question? Derric Marcon: Just on the remaining performance obligation. I think the next 12 months figure for remaining performance obligation last year. So at the end of 2024, if I remember well, was growing in the low 20s, so 23% or 24%. Why we don't see that appearing in the numbers of 2025? And when we will look at the figure at the end of 2025, how can we extrapolate that number and bridge that with your guidance for 2026? Rouven Bergmann: We are not -- Derric, we are not guiding in the remaining performance obligation because we -- the way the revenue recognition is, we're not fully ratable as it relates to that. The remaining performance obligation is a value aggregated for the next 12 months of bookings value, not revenue. So it's always depending on the timing of renewals, right? In a year where there is upcoming larger renewals, it is less because then it will be back to the growth after the renewal. So there can be time-to-time variances. I think what's important to understand for you is that the visibility we have into subscription growth is the same in '26 as it was entering '25. Derric Marcon: At the same time, if I compare the guidance for subscription in 2025 at the beginning of the year and the end results. Rouven Bergmann: I understand. I understand your point. Not -- you don't -- you never have 100% coverage, of course, right? The coverage is typically around 85%, 84% for subscription. So depending on the timing of signing and this can impact at the end of your achievement, and this is what happened. Laurent Daure: It's Laurent Daure from Kepler Cheuvreux. I also have three questions. The first is on the 3D UNIV+RSES and your plan for the next 2 or 3 years. I was wondering if you were planning to invest mostly organic adding staff or if you were considering partnership or even M&A, so the way you will build it. My second question is on Centric. You had a very strong decline in the fourth quarter. What can you give us to make us comfortable, the fact that you will renew with double-digit growth and probably, hopefully in the first part of the year, maybe the pipeline or whatever? And my last question, even if I don't want to preempt the Capital Market Day, from '26 to '27, what could be on top of maybe MEDIDATA, the additional growth? Is it AI related or any other things? Pascal Daloz: You start with the first. Rouven Bergmann: I can start with Centric. Yes. So you're right. Q4 was -- we faced the decline. The visibility for the first quarter is already there. What is also important to highlight is not only the SaaS transition, but also the diversification. So we are going really from the apparels, shoes, the traditional business, the apparels, the consumer-centric industries also to food and beverage and retail. So we are really expanding our scope. And the new leadership team is embracing that as well as the opportunity to expand really enterprise-wide from the front end also to the back end with 3DEXPERIENCE. So we have multiple growth levers on Centric that we are building and that are contributing to the business going forward, and that gives us confidence. And the last point I would say that when you look at it geographically for Centric, the Centric business has a strong momentum in Europe. Asia is building. And in Americas, we see a strong reinforcement. And that is, I think, another very important element that we really see that business on a global basis diversified, and that has strengthened as we enter in '26. We continue to invest. You remember, last year, we made the ContentServ acquisition. We are now through the full integration of that. And this really expands the domain and the platform for Centric to expand within the current customer base and brands, which is creating the next -- another potential points of growth. Pascal Daloz: And maybe above all of this, Laurent, the problem came from the management, the previous management, who did an acceleration of the revenue. And we are -- this is clean. I mean, now it's behind us. Coming back to 3D UNIV+RSES, I think the way you should look at it, it's not an extension of the current portfolio. I mean it's really a redefinition of our offerings, the same way we did when we came with 3DEXPERIENCE almost now 15 years ago. So why I'm saying this? It's because it's requesting a new ecosystem. So in a way, you have seen new partnership, and NVIDIA is a good example of this. You need a new computing -- accelerated computing capabilities. At the same time, NVIDIA, they need to -- I mean, computing without knowledge is blind. So we are the one providing the knowledge with our Industry World Model. So the combination is extremely meaningful. And we will continue to partner with basically people having or leading this game. The real question, I think, is the M&A behind your questions. Yes, if we look at the landscape, I think it's not a bad time to consider M&A. MEDIDATA reimbursement is behind us. The cash flow is relatively significant, even if you are challenging a little bit the cash conversion. But at the end, it's a lot of money every year we are generating. The exchange rate is helping us to consider certain acquisition in the U.S. And the software landscape is under pressure. So I remember having exactly the same question 2 years ago, and I was telling you, it's not the right time. I think now it's the time. I will not say more, but at least you understand the way we think. And the last part, which is related to the '26, '27 ARR, what are the growth drivers. I think maybe, Rouven, you just started to mention it in your presentation. Rouven Bergmann: Yes, yes, yes. I think 2026, we have the guidance, Laurent, right? So let's look at '27 and beyond. What are the potential upsides we have and how we can accelerate. First of all, keep in mind, our large, large client base and the long runway we have to penetrate that client base with 3DEXPERIENCE cloud and our AI portfolio. That's really the strongest engine we have and it's -- and the acceleration potential. Now this, together with the transition to the subscription and cloud, which creates the recurring revenue building on top of that and creating the base effect of the faster-growing subscription growth. That's to me the first thing that is important, and you see we are focused on that to build this to reach this inflection point where we will see the acceleration. You're right to mention Life Sciences. We are -- you see that we are taking the investments. We have a lot of good things going already. You see the enterprise business is growing when you exclude some special effects. So there is a lot of good things that are happening, and we will continue to double down to strengthen them. And as it relates to the volume business, once we retain that exposure to churn, we will also see the benefits here. The expansion on the 3DEXPERIENCE portfolio for the industry, Pascal highlighted that as a massive opportunity. Centric, we discussed, I outlined this before is another growth driver that is not -- that is material. So -- and then there is the last point, you mentioned it, which is potential M&A, which is not factored into this model, creating an upside that we have. So that's the situation as we are transitioning from '26 to '27, and this is what I will focus to explain and outline in the Capital Market Day in November this year, where it's about translating that into an ARR model to give you confidence and understanding of the path ahead. Marie Dumas: So we'll take one more question in the room and we'll go online. Gregory Ramirez: Yes. Gregory Ramirez, GR20 Research. I have one question on the Healthcare business for '26. Trying to do the math, it seems to imply something low to mid-single-digit decline. What is the implied impact of the Moderna contract? Does that mean that if the impact for '25 is just on 1 quarter, that will have some -- still some headwinds for the first 3 quarters of '26? And regarding the enterprise business excluding Moderna, does that mean that it will be growing? So when we exclude the Moderna effect, that means that maybe in Q4 '26, this will drive the growth for '27? Rouven Bergmann: Yes. Maybe first, I want to clarify that we are not expecting decline in the Life Sciences business overall in 2026. We're expecting flat in 2026. Pascal Daloz: With everything we do. Rouven Bergmann: With everything we do in Life Sciences, from an industry standpoint, we expect to be flat. As it relates to the impact of Moderna, this is a 2025 impact. It was not only related to Q4, but it's really for 2025. But the aggregate of this impact is now behind us. Moderna reduced their contract by more than half to reflect their new business level activity. We're still the prime partner for Moderna. We have not given that or losing that to anybody else. It's our client. But their business realities have changed, and we have adjusted to that, which was -- it had a big impact on the performance. So now with that behind, as we look at the enterprise business going forward with -- I gave you some names and large enterprise clients that we have signed, where we are expanding our footprint. And beyond that, we will do even more. By the way, in March, we have MEDIDATA NEXT, where we have many of those clients coming with us on stage to explain what they do with us to expand across our portfolio to transform what clinical development is today. And that will translate, and we're confident about that, that will translate into growth in the enterprise segment going forward. Where we have less control is on the part of the volume business with the CROs. And this is where we are, to some extent, exposed to funding environment on the biotech sector, which can be volatile, and we know it has not been great over the last 2 years. But also there, we see some green shoots coming. And if that materializes, it will stabilize the business. Pascal Daloz: Maybe one additional thing. So if you look at the enterprise segment, and Rouven showed the number to you. The structural growth of MEDIDATA, excluding Moderna, it's 6%. And the growth of the rest of what we do is 7%. So we have 2 legs, if you want, which are solid. And we do not see a reason why it will not continue to be the case in 2026, right? The part where we are extremely cautious because we have been burned last year with this. Rouven Bergmann: That's only last year. Pascal Daloz: We were getting a recovery of the CRO to be back to at least being flat, and we landed at minus 5%. So that's what is not factored in the guidance. We do not take any improvement in the guidance of the CRO business. Despite the fact that some of them, they have published a better result in Q4 compared to Q4 2024. Marie Dumas: Thank you. We will now take questions online, please? Operator, could you start the online Q&A? Operator: [Operator Instructions] And it comes from line of Moawalla from Goldman Sachs. Mohammed Moawalla: Yes. Great. My first question was just to sort of understand the 2026 outlook a bit better. Can you help us understand at both the low end and the high end of the range kind of the assumptions, particularly around what you're incorporating for some of the larger deals as well as the kind of mega deals, what's in there and what isn't? And then again, coming back to sort of bridging the kind of ARR to the revenue growth guidance you've given, you sort of mentioned that we're kind of getting close to parity between subscription and maintenance. But obviously, in there is the MEDIDATA and Life Sciences recurring revenue. So could you give us a better feel for what the underlying subscription growth rates in kind of the core or when the business ex MEDIDATA has given? We're doing a transition both in the enterprise business but also SOLIDWORKS and Centric. Just to sort of better understand the moving dynamics of growth. And then lastly, you sort of touched a bit on more consumption outcome-based revenue as you drive kind of the AI applications or use cases. How does this sort of change the kind of the visibility going forward? Because I think because of conventional business is there's going to be more variability. But when does this become kind of more meaningful to your midterm growth rate? And is that going to be -- and how is that going to be captured? Rouven Bergmann: Okay. Mo, thank you for your questions. I'll start with the first one on how to position the guidance of 3% to 5% revenue growth. As I said, at the beginning of my prepared remarks, I just want to reemphasize this point that this guidance provides us room to navigate. It's derisked. It's derisked for mega deals. We do not include any mega deals into that. Of course, we always have large and chunky deals that are important to happen, but not mega transactions. I think what we need to do to overperform this guidance is I mentioned that there are certain areas that are introducing upside into what we do. We have not included significant growth in the defense sector, for example, simply because we have not yet seen this sector to contribute incrementally strong to our demand. But there are opportunities, of course, in this market that we are very focused to tackle and to get involved and to take benefit of it. We are building a very powerful AI portfolio, transforming our industries and building that to expand what we do with our current clients. And Pascal gave the examples and discussed that. This has, of course, a huge potential for us to accelerate the growth in 3DEXPERIENCE and AI. For now, as you see in the guidance, we have taken a more prudent approach to -- and this was what I shared with you as well, we consider the momentum in 3DEXPERIENCE growth to be consistent with 2025 and 2026. So of course, now as we enter in 2026, we are a significant step further in making these use cases and scaling them and replicating them. So there is, from that perspective, clearly, an opportunity for us to improve and grow and accelerate from there. Now we have to keep in mind that we have to offset also some potential softness in the auto sector. Now there is 2 sites to look at, 2 ways to look at that. While there is maybe softness in the fourth quarter, but still it represents significant opportunities for us also in 2026 because we have -- I want to remind you, Mo, and everyone here that we have signed significant deals in this sector over the last 2 years that are building the foundation to bring these clients onto 3DEXPERIENCE now with the potential to expand, and we are expanding with them in AI, and we are changing the game with that and creating significant opportunities that we couldn't do years before because we simply weren't in this position to do it. So that is all in front of us. And now in this context, I think we wanted to position the guidance from 2026 that is consistent with 2025. We ended at 4%. The midpoint of this guidance is at 4% with the potential to do better than that, but also to have the room to make the right choices for the mid- to long term to accelerate growth. On the low side, what can happen on the low side more? We -- there are macro factors that can always impact us and make things even more difficult and the timing of decisions more difficult. That can be a factor that we need -- we took into account on our guidance to be at the low end of 3%, but that's not what we are targeting. So going to the ARR. You're asking for a lot of additional information, Mo. And for sure, I will be prepared to disclose some of that at the Capital Markets Day. So please bear with me that I will be a little bit more high level, but I will give you the directions on where the ARR, what are the elements of the ARR and the different growth dynamics inside the AR. You're right when you call out MEDIDATA as part of the ARR, of course, that has been a headwind on the 6%, very clear on our subscription ARR. I mentioned subscription ARR is growing more than 10%. And now when you exclude MEDIDATA on core industrials, subscription ARR is growing mid- to high teens. It's a strong resilient cost driver for a long time. And we have, as I said, we have some potential to further accelerate that as more and more of our business transitions to cloud and 3DEXPERIENCE. Now that also -- you know the size of MEDIDATA. MEDIDATA in total is about a EUR 1 billion business. Now we have been -- in the way we've defined the ARR, we have some business in MEDIDATA as it relates to the volume business where we have churn effect, that's not renewable. It's not included in our ARR. So we have not factored in the 100% of Medidata subscription business because not everything is renewable. But nevertheless, it's a very large number inside the subscription ARR that has been facing a lot of headwind. Once we are removing this headwind, and you see we are already doing it for the enterprise part. Now the CRO part is still what is the challenge. But as we are removing that and increase and essentially generate a net increase in ARR quarter-over-quarter for MEDIDATA, that will then contribute to also increase the subscription ARR from what today is plus 10% to the next level. And I would say to go from plus 10% to gradually up point by point to reach 15-plus percent in the subscription ARR in aggregate. So -- but again, I will be prepared to outline those components at the Capital Market Day in more detail. Here today for me is to introduce this concept to you, explain the growth drivers. And with that, build the foundation on the levers that we are focusing on for growth acceleration to come. Pascal Daloz: Now the last part of the question, Mo, is related to the new business model for the new AI solutions. If you look at the story of Dassault Syst�mes, we changed almost everything, except one, the business model because it has always been an equation of the number of users, the number of seats. Now what's the problem? With the AI, you have virtual users now. We call it virtual companion. Some of our peers, they call it agent. So the model cannot be anymore the same. That's point number one. Point number two, I think the software are really selling the capabilities. Now we have an ability by combining the capabilities with the knowledge to sell the end result. Whatever the virtual twins of the improvement. So that's the reason why we are coming with new units. And let me explain to you what the units are about. The first one, we have the unit of works. When a Virtual Companion is working, in a way, it's working like a human. And the same way you have a cost for a human, you should have a cost for the companion. So we are not inventing anything on this one because this is what ChatGPT, Entropy, this is exactly what they do. It's a fraction of the cost of the people. More importantly, when we have a Virtual Companion, it could be a mechanical engineer. This one could be a mechanical engineer and an electrical engineer. It could be also, in addition, a specialist to do the simulation. So we have what we call the unit of knowledge. And the more knowledge the companion they have, the more we price for this because it's a way to capture the value of what we bring, right? If you have to hire someone right now, who has graduated from the best mechanical school, graduated from the best IT or computing school, it will be difficult. With a companion, we have an ability to enable this. Last but not least, what -- there is a third unit, we call it the unit of knowledge. And again, I insist on this for 4 decades, we have accumulated a lot of industry knowledge. We know how to design a car. We know how to produce it. We know how to certify them. We know how to scale the production systems. And this is true in every industry we serve. Now what can we do with AI? We can automatize those processes. And I can tell you, this is a significant value we are creating. In many cases, it's a 10x. It's really a moonshot. So that's the reason why we need also to have dozen units if you want to price in order to capture this value. And last but not least, I make this in my comments. But the entire industry is pushing to do Software as a Service. I present, we should do Service as a Software because you have so much money being spent in services just to make the technology enable that there is a chance not to use artificial intelligence to produce automatically the end results. So -- and that's what's the virtual twin as a Service is about, it's how we can mix the capabilities with basically what used to be human driven, and now it could be a virtual companion in order to deliver the end results. That's the new lever we have in our hands to create additional value. It's tangible, it's concrete, it's not science fiction, it's fiction with science. And it works because it's a way -- I mean, I have enough experiences the last year with many engagement to tell you. We know how to objectivize the value discussion with many of our customers. Now this will come on top of what we do because, again, I repeat myself, if you have a Virtual Companion, you still need CATIA. The Virtual Companion is the one using CATIA. It's not substituting CATIA. You still need to use CATIA SIMULIA, DELMIA in order to produce the end result. So that's an additional lever we are creating. And if you remember what I say, with the companion, we are accelerating the adoption. It's taking too much time to train the people. It's taking too much time for many of our customers to hire people. Now we have the way we master in a much better way the cycle of adoption. We have a better way to monetize the knowledge and the know-how we have put in our software because usually, people, they are comparing the capabilities, but they forget that we have put a lot of industry knowledge in our software. And again, we have the way to monetize the end result of what we do. That's the entire purpose. Now given the visibility, it's a little bit early to speak about this. The only thing I can tell you is just last year, in 6 months because we released those products, the first initial drop was midyear last year. We have been able to build to basically create a EUR 50 million backlog, right? That's what we have been able to do. And this is growing extremely fast. But again, same story, we will come back with more insight at the Capital Market Day in November. Marie Dumas: We can take the next question online, please. Operator: And the question comes from the line of Adam Wood from Morgan Stanley. Adam Wood: I've got 2, please. Just first of all, thinking about more traditional kind of metrics of visibility in the business. Could you maybe help us with pipeline coverage as it stands today? And I guess, particularly given the comments around automotive and investor fears around that, have there been any notable shifts in terms of where the pipeline is by industry that might reassure? And then secondly, I think we've seen in software a lot where there's been deceleration in revenue growth and particularly where companies have a lot of things changing and opportunities. You've obviously mentioned AI, the subscription transition for you. Can you just help us understand the balance that you're trying to strike between making sure you're reinvesting at the right level in the company to drive that revenue acceleration and maybe protecting margins in the short term? And are you comfortable you're getting that kind of split rate? Pascal Daloz: Thank you, Adam. I will start with the first part of the question, and Rouven will take the second one. So related to the pipeline, the coverage right now is 2.5x. So if I look at it, we have the pipeline to cover 2.5x the sales plan for the full year, which is good, which is good. The idea is to create 0.5 more during the year because we are creating also the pipeline over the time. So as a starting point, it's a good ratio. What's the difference compared to last year is the mix. Last year, we were relatively overweight with a lot of opportunity in the auto sector. And if I remember well, the pipeline in the auto sector was around 35%, 37% last year, right, Rouven? Rouven Bergmann: Yes. Pascal Daloz: This year, we are below 30%, which is, I think, better given what is happening, I mean, the volatility we have, especially in Europe on this topic. Where we see a share, which is increasing is in the aerospace and defense, which is, I think, more than -- close to 17%, 18% for this year. It was a little bit, let's say, last year, it was around 12%, if I remember well. What's the difference? We still have the backlog because as you may know, this industry still have a lot of planes to produce, and they still struggle to deliver the backlog. And we have a lot of demands coming from the manufacturing part. You remember the large deal we signed with Lockheed Martin a year ago, it was on this topic. But also, we have new segments. Defense is one of them, but also you have the new space. New space is in this industry what the EV was, let's say, 10 years ago for the car industry. People developing drones, low orbit satellites, the new launcher, I mean, the new space station as well. And they are the one basically equipping themselves very rapidly, and they are raising and growing fast their engineering departments. So this is also something important. We'll see also more demand in the high-tech sector. It's something I did not mention, but we spoke a lot about NVIDIA as a partner. But NVIDIA is also a customer, right? And for the one we have, I mean, we look at what Jensen said last week on stage. NVIDIA is using our technology. In fact, we have built the virtual twin of their future AI factories. And if you look at this entire sector, this is where the money flow right now. I mean, every morning, you open the newspaper, you see all the hyperscalers, all nations committing themselves to invest billions to create these AI factories. It's a very complex object. I mean, you cannot imagine the complexity of it. It's much more complex than a nuclear plant. And by the way, as I comment, do not make the confusion between the data center and the AI factories. The data center is to make an analogy, the warehouse. This is where you store the data. The AI factory, it's a real factory. This is how you transform the data into insight, knowledge, value added. So the complexity and the requirements, it's -- I mean, there is nothing comparable to what we know currently with the data center. So where I want to go, they need a virtual twin. And that's what we do. We are building the virtual twin of the AI factories of the future. This is a tremendous opportunity where we're expanding a lot. And to come back to the initial questions, that's the reason why the share also in the high-tech sector is increasing significantly in the pipeline, and we are around 15%. So long story, a short one, good coverage, mix difference. I think the mix is probably more resilient compared to last year, less exposure to the auto sector, much more distributed. The rest, industrial equipment, the consumer goods and packaged goods is almost the same than what we had last year. Rouven Bergmann: Okay. And then to your second question on the investment policy, how is this reflected? And really, we are looking at the different parts of the organization, starting with R&D. And here, the focus is on allocating our resources to accelerate the AI portfolio and also help to prepare the go-to-market with our brands because the R&D and the go-to-market, as you can imagine, as we are now bringing these next-generation applications to our clients, where R&D brands and go-to-market are extremely connected with our industries. So when I look at the opportunities and where we are investing on the go-to-market side, Pascal mentioned high-tech data centers, that's a growth opportunity, but also related to that, the energy sector, the energy transition, which is a massive opportunity for us. And we have had already in '25 some great wins here. And -- but we know the energy shortage and the pressure on the energy market will further open opportunities for us to virtualize and to improve and help this industry. Aero and space is a very resilient industry for us, where we are doubling down our focus on the go-to-market as well. And of course, industrial equipment. We have seen very resilient results in SOLIDWORKS, and we expect that momentum to be also in 2026. And last but not least, I mentioned that before, Adam, but just to complete the list here, the auto sector remains a critical industry for us with a lot of opportunities. And we are focusing also our go-to-market on that because we have a large footprint and the opportunity to expand. Now we talked about the life sciences go-to-market where we are investing with dedicated integrated account teams. We are really reallocating our resources to address that industry more holistically and open up new pockets of growth and budgets that we didn't systematically addressed in the past, which we have an opportunity to do, and we will. And then the last part, I think Pascal mentioned that also before, we are focusing on scaling the indirect channel, where just through the value network, the suppliers serving the OEMs, we have a lot of opportunity in this market as well, where we are enabling our partners with our new AI solutions to transform these suppliers. Now on G&A, we have initiated a large transformation project here as well to leverage AI and cloud in our back office to streamline the operation. Marie Dumas: We will take one more question online. Operator: And it comes from the line of Michael Briest from UBS. Michael Briest: Just thinking about the CMD in November, are you currently reiterating your 2029 financial ambition? Should we expect that to be updated at that event? Because I'm looking at subscription and you're expecting it to be 55% of software by then, and it was 40% last year, maybe 42% this year. That looks like a steep ramp. And then I appreciate the comments on M&A opportunities. But given the share price, what is your view? Is there any shift in the view on potential buybacks given the valuation of the data? Rouven Bergmann: All right. Thank you, Michael. On the Capital Market Day, regarding the 2029 financial ambition, there's 2 things. First, the introduction of the ARR will allow to have a more focused discussion on the growth levers and our path to accelerate top line growth, which is really around subscription, recurring cloud. And now with AI, we are in a different point than compared to last year where we have very concrete monetization examples on how they will build on top of our existing model. The second point I would reemphasize is that our financial commitment is on the EPS to -- and that also has a lever of the operational efficiency that we are implementing. That's why we reemphasize that today that we are taking the actions to improve the EPS and margin, which then, of course, will have a stronger effect as the top line comes back. So we will discuss that at the Capital Market Day and how we are going to bridge to reach our financial ambition by 2029 as we outlined last year. Pascal Daloz: The second part of your question, Michael, is related to the capital allocation. So again, there is no -- I mean, I have nothing against the share buyback. But if you step back a little bit, let's assume I'm spending EUR 0.5 billion to do this. the levers on the EPS will be relatively limited. And the same EUR 0.5 billion invested to acquire new AI start-up will deliver a better level. So that's the reason why right now, I'm really directing the capital much more to the external growth than to the share buyback. The share buyback for us, you remember our policies is only to offset the dilution coming from the LTI. That's what we do. But again, I have no dogmatic positions. I'm not against. I'm with you on the value creation, but I think we have a better road to create value by investing on the new AI domain than rather than to buy the shares. I think it's time to conclude. Again, thank you, all of you for your engagement today. But I want to leave you with one clear message. I think Dassault Syst�mes is really undergoing a profound and deep transformation of its business model. It's obvious that we are transitioning decisively to subscription-driven future. And it's not only coming from the acceleration of the cloud platform strategy, but above all of this is the evolution of our offerings. AI is at the core of the platform. This will enable our customers to create, simulate, operate virtual twin at scale to bring the virtual in the real world together and to manage the -- for the entire industry. And I think this transformation is not incremental. It's really a fundamental transformation. So -- and we do all of this with a certain resilience. Whatever you say we continue to grow, maybe at a moderate pace, yes, I accept this. But we sustained the momentum when if you look at in our industry, many of our peers, they struggle when they did this transition. And they did the transition before the AI came. So I think I hope you get a better sense of what we do, how we are executing, how we are innovating and how we are advancing to deliver the next phase of growth. I think Rouven and the Investor Relations team are looking forward to seeing you in the coming weeks because they will do road shows and see you no later than next quarter for me. Thank you.
Operator: Welcome to 2020 Bulkers Q4 2025 Financial Presentation. [Operator Instructions] This call is being recorded. I'll now turn the call over to CEO, Lars-Christian Svensen. Please begin. Lars-Christian Svensen: Thank you, operator. Welcome to the Q4 2025 Conference Call for 2020 Bulkers. My name is Lars-Christian Svensen, and I will be joined here today by our Chairman, Magnus Halvorsen; and our CFO, Vidar Hasund. Before we start the presentation, I would like to remind you that we will be discussing matters that are forward-looking. These assumptions reflect the company's current views regarding future events and are subject to risks and uncertainties. Actual results may differ materially from those anticipated. I will now continue with the highlights of the quarter. We reported a net profit of $13.8 million and an EBITDA of $16.5 million for the fourth quarter of 2025. We achieved an average time charter rate of about $39,300 per day in the same period. Our total dividends amounted to $0.63 for the months of October, November and December 2025. In October 2025, we signed an agreement to sell the Bulk Sao Paulo for a total of $72.75 million with Q1 2026 delivery. In November 2025, we signed further agreements to sell the Bulk Sydney and the Bulk Santos for a total of $145.5 million. These 2 vessels will also be delivered to new owners within Q1 2026. In subsequent events, we reported an average net TCE earnings of about $30,800 per day for the month of January 2026. And this morning, we also announced a dividend of $0.15 for the same month. And with that, I will now pass the word to Vidar. Vidar Hasund: Thank you, Lars-Christian. 2020 Bulkers reports a net profit of $13.8 million and earnings per share of $0.60 for the fourth quarter of 2025. Operating profit was $15.8 million and EBITDA was $16.5 million for the quarter. Operating revenues and other income were $21.4 million for the fourth quarter. The average time charter equivalent rate was approximately $39,300 per day gross. Vessel operating expenses were $3.5 million, and the average operating expenses per ship per day were approximately $6,300 in the fourth quarter. G&A for the fourth quarter was $1.1 million. 2020 Bulkers recognized approximately $0.5 million in management fee as other income in the financial statements. Interest expense were $1.9 million for the quarter. Shareholders' equity was $148.4 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the fourth quarter and is nonamortizing until maturity in April 2029. Cash flow from operations was $15.5 million for the quarter. Cash and cash equivalents were $22.1 million at the end of the quarter. The company declared total dividends to shareholders of $0.63 per share for the months of October, November and December 2025. That completes the financial section. And now over to you, Magnus. Lars Halvorsen: Thank you, Vidar. As our remaining ships will now soon be delivered to their new owners, I just wanted to reflect and summarize a little bit the 2020 Bulkers history and the financial returns we've generated for our loyal shareholders. We started out in 2017 by ordering 8 scrubber-fitted Newcastlemax vessels at New Times Shipyard paying at the time, all-inclusive $47.6 million. And we believe at the time, there was a very interesting risk reward given the attractive newbuilding prices and falling order book. As we became an operating company, we remained profitable every single quarter from the delivery of our last vessels. And looking at what this has meant in terms of returns, the company was initially financed by $142 million in equity through a number of share issues. As of and including the declaration we made today, we have declared a total of $251 million in dividends and distributions to other shareholders. And as we've reported today and Vidar went through, we expect to have net proceeds from the sale of the last vessels amounting to around $311 million after all debt has been repaid. Additionally, we have around $50 million on cash on the balance sheet as of today. What this means for the investors who supported us throughout the whole story, participating prorate in every equity offering since November 2017, we've generated an IRR of 28% per annum measured in dollars. For those and perhaps more relevant who came in on the IPO on then Oslo Axess in June 2019, the annual return, including dividends, has been 31% measured in U.S. dollars. This compares to 17% for the S&P 500 and just under 16% for the Oslo Stock Exchange measured in dollars for apples-to-apples comparison. As we stated in the release today, our intention is to, as soon as possible, return all the proceeds from the sales to shareholders as well as the majority of cash on hand. We will retain a small amount in the company to support G&A, which will enable us to stay listed while we can evaluate potential strategic or other opportunities. Before I go to the Q&A, I'd like to thank everyone who's been part of the story so far. We obviously wouldn't have been able to do this without the investors. And I think particularly the ones that supported us in a very challenging share offering in May 2019. At the time, dry bulk was not exactly in fashion. It was very tough to get it done. And also a big thanks to the employees, the Board, the banks, brokers, New Times Shipyard and of course, very importantly, our very good charters, so -- which we have remained very loyal to. And with that, I'll leave it over to the operator for questions. Operator: [Operator Instructions] As there appears to be no questions in the queue, I'll hand it back to the speakers for any closing remarks. Lars Halvorsen: Okay. I think we've said what we want to do. So thank you, everyone, for dialing in. And if you have any questions that you didn't ask, feel free to reach out to us. Thank you very much.
Srini Gopalan: Hello. Welcome, everyone, and thank you for joining us live right here in New York City for our year-end earnings call and Capital Markets Day update event. Before we get started, I'll draw your attention to our safe harbor statement. This presentation includes forward-looking statements that may differ materially from actual results as well as certain non-GAAP measures. Please see our SEC filings for a review of risk factors. Please also see our investor relations website for all related materials, including a GAAP and non-GAAP reconciliation. Okay. Let me walk you quickly through our agenda today. Srini is going to begin with a halftime check-in since our September 2024 Capital Markets Day. Before turning to our widening differentiation across best network, best value, and best customer experiences. He's then going to talk about growth. He's going to talk about how our growth opportunities across our core wireless business, across our broadband business, and in new growth areas are going to continue to drive sustained outperformance for the Un-carrier. And then Peter will wrap it all together with a financial update. We'll then have the broader leadership team join us right here on stage to answer your questions. Okay. Let's get the show started. Srini Gopalan: Good morning. How are you all doing? Well, you all for being here. It's a unique occasion. Few of you have asked me why are we doing this event? Well, it's Q4 earnings. It's halfway through our Capital Markets Day cycle, so felt it was good to do a halftime check-in. And there's the small thing that Mike and I did back in November, the CEO transition. And I'm excited to talk to you guys about the future, about my vision for this phenomenal company. And talk to you in detail about some of the unparalleled growth we have staring at us. So I'm excited to be here and excited to spend the next couple of hours talking about a business I've grown to love over the last ten years. Let's get started. I'm gonna kick off with a quick kind of halftime check-in. So how are we doing halfway through our capital markets day cycle? And the short answer is incredibly well. You've all seen these numbers. But every time I look at them, I'm awed with what we've achieved already. We're growing four times faster in service revenue than any of our competitors, twice as quickly on EBITDA, We've returned over $20 billion to our shareholders. Our free cash flow generation and our conversion of service revenue into free cash flow is an industry benchmark and continues to stay really strong. And that's where the rubber hits the road, right? You can report multiple things differently. Ultimately, what matters is free cash flow conversion. So incredible results and we've either met or beaten pretty much everything we've guided to. From a Capital Markets Day guidance perspective. As of this point halfway through the cycle. Srini Gopalan: And what lies underneath that is the incredible ability we've built to not just bring in new relationships, new families, new businesses, into the T-Mobile US, Inc. fold, but also grow and deepen those relationships. So if you look at our performance over it's a bit stubborn, the clicker. But if you look at our performance over the last five years, we've bought in over a million new prepaid relationships every year. Right? That's new businesses. That's new families, Right? One, 1,200,000 new relationships every year. There's only one of our one other competitor who reports that. And you can see those have been negative. And it's not just bringing in these relationships that matters. It's what we do with them. It's the extent to which we nurture existing relationships. Our ARPU has grown by 13% since 2020. And in an industry where people worry about deflation, where people worry about pricing power, our ability to drive these relationships. T-Mobile US, Inc. stands out. As the one carrier who's not just grown volume, but also grown the nature of that relationship driven more CLV, into these relationships. So all that's great. Those are the headline numbers. Right? Great financial performance, great revenue, solid work on volume and value, wanna talk about something different. What underlies this? Right? What's the secret sauce that drives a lot of this? And the thing that's driven all of this performance is our widening differentiation. Now there was a law of physics in this industry which is there has to be a trade-off. You can either have the best network, in which case, customers have to pay a premium for it, or you can deliver best value and best experience, but the network kind of sucks. Right? That was the law of physics of this industry. And the reason for our outstanding results is we've challenged and broken that law of physics. Because at T-Mobile US, Inc., our customers have no trade-off to make. They get the best network, the best value, and the best experience from one provider. And that widening differentiation underlies all of our results. What I'll talk to you about is we don't take that differentiation for granted. We fight every day to widen that differentiation. It's widened over the last three years, and you'll see it widen even further. That's what opens out the unparalleled growth opportunities that we're staring at. Gonna double click you through each of these elements, best network, best value, best experience, what we've done, how we're gonna widen that differentiation further, and then convert that into what does that mean in terms of growth opportunities for us. Let's start with the best network. Historically, through the storied history of the Un-carrier, the one thing we didn't have was best network. Over the last five years, we have quietly built the best network. And that changes our proposition fundamentally. It's what takes us into the no trade-offs territory. Let's talk about the best network. Right? Building the best network starts with having the best assets. And what are the best assets? Spectrum, We have more spectrum than anyone else. Importantly, we have better spectrum than anyone else. Our 2.5, which we often call the Goldilocks spectrum, r 2.5 covers 70% more area. Than C band. And that's just one example It's a very big important example of where we have not just more spectrum, but better spectrum. Our grid, now, our history, with mid-band frequencies meant for a long time, this was a bit of a disadvantage. We needed a denser grid to cover this air same area. In a 5G world, the density of that grid is a huge positive for us. It allows us to generate speeds and capacities that others can only dream of. And pulling all of that together, is the brain of the network. Our core, Now we moved to a 5G stand-alone core back in 2021. Our competitors got there sometime in '25. That's a three to four year lead on the quality of our 5G network. 5Gs SA, now 5Gs Advanced, the number of capabilities we're building into our core gives us the ability to take these best assets and put the best brain to it. Now, all of that is kind of the asset side of the story. Spectrum, towers, core, it's all great, pulls together to give us the best assets. But in the classic Un-carrier manner, what we've done different is we've turned those assets into something that makes the customer experience better. Now we talked at Capital Markets Day about our vision for customer-driven coverage. That vision today is a reality. We use AI and huge amounts of customer data to deploy capital in our network based on what's right for customers rather than chasing a vanity stack like pops. I'll give you an example of where this makes a real difference. Let's take Sacramento. Now, the traditional way of thinking about improving the network and is densify the network, cover more box. The reality is to improve the customer experience, for the people in Sacramento, where you actually need to double down on coverage. It's not just Sacramento itself, but Lake Tahoe. Given the amount of time they spend in Lake Tahoe. Right? And that understanding of where people work where they live, where they play, that combination of things is really what drives network experience. And using AI, using scale machine learning, all of our site deployment we deploy almost 4,000 greenfield sites a year now. All of our site deployment is surgically planned to improve our customer experience. That's been the heart of what's driven the best network. Great assets, a fabulous score, and the ability to use all of this to meaningfully change the game on customer experience. And what that's resulted in is a true ultra capacity network. Now the proof of capacity, the best way to think about capacity, is speed. So what speeds can your network deliver is the best way of thinking about what is it actually that this network offers in terms of capacity. Now you look at our median download speeds. Our median download speeds are, get this, twice as much as our nearest competitors. That gives you a sense of the amount of capacity this ultra capacity network has today. It's phenomenal. And speed, again, for me is not just a vanity stat. It's not a esoteric number. It's a really good indication of capacity, And when you have a new phone like the iPhone 17, it's great to compare what happens on our network versus other networks. We're 85% faster than one competitor. And nearly 50% faster than the other competitor. That's true network differentiation. And it's not just us saying it. Many of you in this room, the experts, have known for a while that we have the best network. We won Ookla. We won OpenSignal, speed tests. What gives me real pride today is J. D. Power. After 35 reports over seventeen years, the erstwhile number one network has been unseated, T-Mobile US, Inc. today is the number one in network quality as judged by J. D. Power. That's after 35 reports, seventeen years, We are number one. As a network. What's even more important than what the experts say, however, is what customers say. And this is we talk about these money slides. This is one of those graphs that I look at very, very often. Because this is what translates into customer perception. Network switches amongst the most sensitive, amongst the people who do most research, network switches when we ask them, what is the best network? Right? Now back in 2020, one in eight thought T-Mobile US, Inc. was the net was the best network. One in two and a half thought Verizon was the best network. Today, we're at a place where one in four believe that T-Mobile US, Inc. is the best network. Slightly more than one in four. And you can see that gap is closing. And you can see there's a long way for us still to go. We have the ability to meaningfully expand this lead. With our ultra capacity network, with all of the features that 5Gs SA gives us, with 5Gs Advanced, with our continued investment and doubling down on what this network is. We're not standing still. We're committed to network leadership. And we're committed to expanding this lead. And the best indication of that is how we think about the next wave of network innovation. 6G. 5G we own 5G. We still own 5G. 5G has allowed us to build a business called FWA from a standing start. To close to 8,000,000 customers. In three to four years. It blows my mind. Right? 5G, was the core of how we started competing in a segment we didn't exist, T-Mobile US, Inc. for Business. Our 5G superiority has driven a lot of the industry-leading growth. And we're not standing still. 6G opens up multiple possibilities for us. Whether that's AI, physical AI, edge AI, and we're right there defining the standards of 6G. I'll talk a bit more about specific opportunities with 6Gs later. One thing to remember, though, is our lead in 5G does mean that our RAN refresh cycle runs significantly ahead of the rest, and we start with an unfair advantage on 6G. It's an unfair advantage we love, The fact that people like John Saw saw the vision for 5G way before the rest of the industry did, puts us in a fabulous place to drive the next wave of innovation. And that 26% of network switches see us as the best network only going in one direction. It's going this way. And that unlocks phenomenal amounts of growth. And I'll come back and talk about where those growth opportunities exist. So best network, after thirteen years of the Un-carrier to be able to say that, I relish it. And if you notice, I'll say that a few times today. But it's not just best network. Having no trade-offs is more than best network. It's also best value. And we are in a truly unique place on Best Value. We provide best value not just for new customers, but also for our existing customers. We provide best value not just in terms of the freest iPhone, but in terms of value that you can count on every day. Savings, value that you get every hour. Let's talk about existing customers. Our existing customers pay between 12-15% lower than AT&T and Verizon's. That is a massive factor in terms of the flexibility it gives us It's also something that we zealously guard and protect. Because it's the heart of enabling us to claim no trade-offs, It is at the heart of flexibility that it gives us in terms of how we price new customers and importantly, it's the heart of the relationship. It's making sure that we can reassure people every day that they get not just best network, but also best value. And when we look at new customers, we the val the holistic value we provide is substantially better than AT&T and Verizon. And you can compare the experience beyond plan here where you not only get all of our services, but you also get Netflix on us. You also get Hulu on us. You also get Apple TV. You also get T Satellite. The bouquet of things that we offer and the savings we drive every day because there's a 20 to 30% gap new customers. in terms of value we're able to provide So you've got existing customers who save every day, and you've got new customers who save every day. Not just on the free phone you get every three years, but in terms of meaningful things that drive your life every day. And that best value is something we're going to guard zealously That's something we will protect. That is our heritage. And that's something we will not give up purely because we have best network now. Now you think about value in network, and there's a third thing customers care about. Experience. How do you treat me? Now, our experience story over the last thirteen years has been built on two things: incredible people and an incredible culture. Let's start with our care centers and retail. Now typically, when you talk about taking cost out, people go at this from saying, let me take cost out of experience. Let me kind of shave this much head count off. That's not how the Un-carrier thinks of it. We think of it as costs come because we've created a problem for people. And the question is, what can we do with our incredible frontline to enable them to solve those problems better? You can see on the call reduction front through a real focus on eliminating force, on working with our frontline to solve people's problems better ensuring that they don't need to call twice the same problem, equipping them with better tools, you're seeing a 50% reduction in calls. Had committed to 75% in the Capital Markets Day, at the halftime, We're making great progress on this. And this is not simply about technical things. There's a There's a great element of culture to this. One of the things that happens at T-Mobile US, Inc. is when this team visits an experience center You know, normal big companies kind of the big shots show up. Present for fifty-five minutes, and then they need to be somewhere else So they'd love to take questions, but they don't have time for it. Does that sound familiar? At T-Mobile US, Inc., this works very differently. I get on a good day, maybe eight minutes on stage, John Fryer fires them up for maybe two minutes. And then we have fifty minutes of our frontline relentlessly pounding us on what have you done recently for me in terms of solving customer problems. And their expectation is very simple. That as far as we can, they'd like us to solve the problem there. This isn't a let me take this with that's a really good point. Let me take this back home with me, and I'll get my assistant to do something about it. Our frontline is demanding They want an answer now. And they want to know why you can't send an email when you're sitting at that stage to solve my problem. That's a huge part of what's enabled all of the stuff that you're seeing. And the same thing plays out in our retail stores. Our company-owned retail, our experience stores, give us a significantly better NPS than our authorized retailers. That's down to culture. That's down to the incredible empathy our people show. And we're stoking that. We have cut back on some of our authorized retail and driven even more investment. Into our experience store. That's a big part of the secret sauce of what's driven our best experience. And it's not just that. A big part of our culture is how we think about rewarding existing customers. Unlike other companies, we don't believe customers need to prove their loyalty to us. We believe we need to prove our loyalty to them. Which is why all of our plans compact with things that they don't get elsewhere. And then there's my favorite, the money can't buy stuff with magenta status. And T-Mobile Tuesdays is probably a great highlight of that. We do wild stuff on T-Mobile Tuesdays. Free Slurpees, Actually, we give away we work with Wingstop. To give away free chicken. And Wingstop actually ran out of chicken. Which gives you a sense of the again, Fryer and Kat got lots of emails from angry customers demanding more free chicken. But that gives you some sense of When we talk about experience, this is a lot of fun for us. This is about how we work with our front This is about what we put into our product. This is about genuinely committing to giving our customers an experience that special, unique, edgy, that surprises them, that brings our relationship to life. And we're not stopping. We're now taking the best technology digital, AI, putting that in the hands of our incredible frontline, to drive an even sharper and even more differentiated experience. And at the center of all that is TLife. TLife, more than a 100,000,000 downloads, and, there were weeks last year when we were the most downloaded app on the App Stores. Both the App Stores. That's not the most downloaded telco or carrier service app That's the most downloaded app, full stop. Now we've got 34 odd million relationships, businesses, families, And typically, the primary account holder is the person who accesses TLife, 24 out of those 34,000,000 order of magnitude, use TLife every month, and they use it four times every month. It's an incredible source of engagement It's a huge portal into our experience. It's game-changing for us in terms of the nature of the relationship. Srini Gopalan: And with intense CX, which is AI that we've developed working really closely with OpenAI, where the objective is simple. It is to personalize the experience. We've raised the bar on what a carrier experience should look like, and using AI and digital we're taking it to the next level in terms of making that experience feel a lot more personal, feel a lot more tailored to the individual. This gives us lots of opportunities but first up, it changes the nature of our core consumer wireless business. You look at the extent of self-service now. We started off this journey with 22% of our upgrades being done through TLife, and they were all assisted. Which is an agent would show the customer what to do. That was in Q4 2024. Just a little more than a year ago. Today, we're sitting at 73% of our upgrades being done on TLife, and 39% of them unassisted consumers doing it themselves. And this unlocks a huge amount of efficiency as well as satisfaction. Peter will talk in detail about this. But across our AI and digital initiatives, we expect close to $3 billion in savings by the '27, in our '27 run rate. Which is incredible, because this has not been a slash and burn let's take out x thousand people. This has been how do we go after the experience, how do we make that experience a win-win, where consumers enjoy it, where they naturally move towards this, while at the same time making us significantly more efficient as a business. And that's the heart of the unlock, and we'll see the same story play out through Adaline, which is our second biggest transaction in retail, as well as with acquisitions. We announced breaking through another big consumer pain point the ability to switch easily with easy switch back in November, and as easy switch scales, we'll see even more transactions move on to TLife, and TLife will be the center of our relationship the portal into T-Mobile US, Inc. And again, we're not stopping here. Because like I said, we're about continuing to widen differentiation. Across network, value, and experience. One of the most personal things as we talk about personalizing experience is language. We have over 6 billion international calls every year on our network. More than 40% of our base travels internationally. And I'm proud today to introduce for the first time across the world on any network using AI Live Translate, built right into the core. Of our network. I'll let this video explain it and then come back and talk to you about it. Srini Gopalan: Now there's a there's a few things that get me incredibly excited about that. The product itself, live translation, suddenly, you kind of moving across barriers, You're enabling people to speak to each other, which at the end is the core purpose and mission of our industry. What gets me even more excited is this is the first scale use case of AI being built directly into the core network. Which is why the only thing you need to use this product is one person on the T-Mobile US, Inc. network. You don't need an app. You don't need to type something in and pass it to someone else to trans using translate. You just need one person on the T-Mobile US, Inc. network. And you can speak the other language. And it's an incredible capability But what I like even more than this is underlying this we've built a platform that allows us to build multiple AI services, directly into our core network. And as we talk about personalizing an experience, as we talk of kind of raising the bar on what you can expect from your carrier. This is a great example of where we're going. So we pause for a minute. Kind of talk about our journey from where we were the best network, the fact that we're not stopping there, the fact that that is even going to broaden further as we get into the 6G age, The ultra capacity network that we already have is only gonna get better. Best value, which for us doesn't mean simply new customers getting great value. And getting great value once in three years with a phone. It means delivering value every day It means delivering value to our existing customers and new. Talked about experience and how we're transitioning from a lot of that being driven purely by our people and culture to empowering those people kind of stoking that culture with the best in technology, and making that even more personal. How does all of this come together? Right? It's easy to talk about widening differentiation, but do we have any evidence of it? My favorite number is our NPS. It measures what people think about our relationship. Would they recommend us? To someone else? And here's what's happened to NPS over the last three years. If you look at where we were in twenty-three, it was we were kind of in the same place as our competitors, give or take a bit. You look at where we are in '25, We've opened up. This is what widening differentiation looks like. This is what happens when you break out of the pack. This ultimately is the biggest driver to all of the outsized financial performance that you saw. It's the fact that we're able to take these relationships use our unique combination of best value, best network, best experience, to widen that differentiation. And that differentiation are we happy with where we are today? Absolutely not. We'd love to see those bars especially the magenta bar. Grow significantly and widen the space between us and our competitors. And that's what moving our network forward moving our value forward, and moving our experience forward is. It's all about taking that and widening that differentiation. Because our strong belief proven by the results that we've seen, is what keeps driving us what drives our success is not the promotion that we did last month. What drives the tide of momentum and moves it in our direction is that widening differentiation. And that widening differentiation for us opens out unparalleled growth opportunities. And I want to spend a few minutes talking about the differentiation is great. What does that mean in terms of growth opportunities? We are convinced that we are staring at a set of growth opportunities that no one else in our industry has. Let's talk about them. Let's start with core consumer wireless. Historically, we've over-indexed on the value seeker portion of this. Today, network seekers see T-Mobile US, Inc. the home of the best network. Over 20 million families and businesses shows AT&T and Verizon mostly in the 4G era, because they were happy paying a premium because they wanted the best network. That is no longer true. And that opens up a massive growth opportunity for us. You take New York City, We are by far leaders here. With significant share Even in New York City, we're under-indexed on network seekers. And that's why we're continuing to grow share as of today. in New York City even with significant lead over the over the rest The opportunity on network seekers exists across geography exists across types of customers. Our second big opportunity small markets in rural areas. Just to be clear, because we call them small markets in rural areas, it doesn't mean a lot of people don't live 40% of America lives here. Our share used to be 13% back in 2020. Including 24%. But 24% means there's a lot of headroom to grow here. Again, these markets tend to over-index on network seekers, and moving to the best network opens up massive opportunity here. And that's not all. Even within core consumer wireless, You look at our back book pricing. And we'll talk in more detail about this. That opens up a lot of headroom in terms of value growth, in terms of how we can deepen that relationship. So if I look at core consumer wireless, there are three significant drivers of growth. And again, that's not all. Because we have T-Mobile US, Inc. for business. Here, our customers rigorously test networks before buying. And we love that. Because we know our odds of winning with a customer who's rigorously tested the network are very, very high. Again, New York's a great example. The first responders here depend on key priority. And they picked t priority after rigorous testing. Lots of runway here in terms of share growth. Moving on to broadband. Now our broadband business for the most, our FWA product is based on this ultra capacity network. And a lot of you have asked us, so, you know, where does FWA go? How do you think of capacity in this context? We've said 12 million customers in 2028. Today, I'm delighted to tell you that we believe this business will go to 15 million customers in 2030, and that there's a lot of runway even beyond that. Fiber, we believe, will add three to 4 million customers. Which will give us a broadband business of 18 to 19 million customers by 2030. I'd like to pause for a minute. We would have built a business with 18 to 19 million customers in seven years. Not sure is any company of our size and scale that's done that. 18 to 19 million customers in this industry in broadband, and remember for us, this is all incremental. None of this is an overbuild of copper and cannibalization All of this is incremental revenue. Is incremental customer relationships that we can nurture. And the growth in this business and the upside still left in it is substantial. And I'll double click on this in a little more detail. And then there's new growth areas, T ads, we've talked about. We've just launched our financial services. And we're really excited about where 6Gs goes. This last part, only a small proportion of it is captured in our guidance, as we build these businesses. But again, I'll double click through each of these to give you a sense of why I'm so excited by the growth that lies ahead of us and why I'm convinced that the best lies ahead. Let's talk about core consumer wireless first. We've grown sorry. I clicker. Yeah. We've grown really quickly and we've talked about why NPS being a big driver the network seeker population whether it's in TFB, whether it's in SMRA, or in our top 100. Is a huge unlock for us. Now let let me give you some stats. Right? New York City, talked about. We're continuing to grow share. Because we're still under-indexed with network seekers. An interesting fact is in areas where our competitors have built fiber, we have gained share. Now I'm not suggesting that there's any causality there. Right? But we have gained share even in areas where our competitors have built fiber because we continue to attract the network seeker population in those areas. And our historical under-indexation gives us share growth opportunities. This collection of opportunities across top 100 and when you look at our top 100, all of you are familiar. We split it into three kinds of markets. Markets where we're number one, number two and number three, and we're growing across all three. We're continuing to win household share. All of this gives us a significant opportunity and from a unit economics perspective, it's very, very accretive. Because under-indexing and network seekers when you're looking at future growth is a good thing. Because I in compared in comparison with value seekers, you do see accretion in terms of the relationship. And ARPU and ARPA. That's on the volume side. On the value side, our front book, back book pricing equation is a huge positive. It means that when we think about new customers coming in, as a group, they're actually accretive to both ARPU and with time ARPA. Because of the pricing of our back book. And it allows us a lot more flexibility in terms of pricing of the front book It also gives us runway in terms of deepening our relationship with existing customers and from time to time, we will look at some of our legacy plans and optimize our rate plans. In the context of more for more. So that combination of things gives us a lot of runway on the RPAS side, which is kind of the value, the p times q the complement to what I talked about on the volume side. I do want to spend a couple of minutes on one thing, though. The one tenant that has been fundamental to the Un-carrier is win-win economics. Which is economics that create really strong CLVs combined with economics that deliver unparalleled value to our customers. And from time to time, the industry loses its way and we kind of get into some bad practices, and that's when, as the Un-carrier, we step in and change the course. And what typically happens is other people follow. As I look at the industry today, I believe we're at another such point where we as an industry have gotten over-focused on how free the newest phone is, and we've lost track of some of the incredible things that we bring to the customers in terms of value. And I'm not going to say a lot more about this right now, but we will change that. The Un-carrier will make another move which will take us much more towards the direction of where we create value which will take the emphasis back to win-win economics things that are good for the customer and things that lead to more sustainable CLVs with time. Because we believe maintaining win-win economics things that are good for investors as well as customers, is critical to driving a healthy environment in this industry. But you'll hear more from us in the next few weeks and months as we drive this journey forward. But that's consumer wireless, and the broader wireless opportunities in TFB. So we've got clear line of sight to strong volume growth, especially with network seekers, and we've got the advantage of our back book combined with, as you can see here, strong premium plan loading on our front book, and the ability to grow relationships. All of which makes our p times q equation look really strong Peter will delve into that in a lot more detail. But we believe we will continue growing ARPA in the range of 2.5% to 3%. Even as we go through this journey and that'll get powered by some of the things we're talking about here. Let me move next to broadband growth. And how do we create this business with 18 to 19 million customers by 2030? Our broadband business to date, largely has been phenomenal. We've led the industry in broadband new customers. And that's from a standing start. You can see, really, we started scaling in 2022. And this business has been running at a real clip. Close to 2 million new customers every year. The industry leader in broadband net adds. And what's driven that again is NPS. What's driven that again is the simple reality of when you give customers a great product, you win. Our NPS today is higher than fiber. That's a composite of the product the value we provide, the experience, the ultra capacity network, that is the that is the source of the unlock for us on FWA. And that product has only gotten better. And this is kind of to me, the best demonstration of what an ultra capacity network is. When you look at what's happened, we have a 77% growth of customers a 27% increase in usage per customer, and our speeds have gone up by 50%, during that period of time. And if you take our newest routers, it's gone up nearly we've nearly doubled speeds. At the same point in time that we've seen 80% more customers using 2030% more. That is incredible in terms of the amount of capacity our ultra capacity network has. That's what makes us really confident that we can get to 15 million customers in 2030 and our speeds will be higher than this. Let me walk you through kind of how we think about the 50 million customers we step back for a minute first. As all of you know, we've run this business with a fallow capacity model. What does that mean? It means at a hex bin level, and there are 30 million hex bins, it's a small geographical area. Each of those 30 million hexbins what we do is we look at our wireless usage today, We project that forward for growth. And all of this is done at peak hour because that's the only thing that matters for a wireless network. So we look at wireless usage and peak projected for growth going forward. Reserve that capacity for wireless. Whatever is left, is then used for FWA. When we talk about 15 million customers in 2030, at higher speeds than what we have today, it still assumes fallow capacity. It does not assume any of the spectrum acquisitions that the one big beautiful bill will land up doing It doesn't assume any spectral ink efficiency increase because of 6Gs. What it does build for is the fact that we're broadening our our our product range. So as we sell more into businesses, for example, they don't use between seven to nine. So that create that is fallow that is true fallow capacity. It does build in the increased spectral efficiency because of better routers. It does build in the increased spectral efficiency as a result of being on 5Gs advanced. Features like L4S, which allow us to use our existing assets even better. And so when we look at that 15 million number, that's on a very conservative basis. And when I look at FWA as a category, I think the days of asking the question of, you know, is this a temporary category? Is this here to stay? Those are gone. Right? The speed of evolution of mobile technology as we look forward convinces me that this category is going to have a lot more upside. At this point in time, we can see line of sight to the 15 million, and that's what we'll go for by 2030. But that creates itself remember again, all of these are incremental. None of this is overbilled. None of this is compromising legacy revenue. And in addition to that, have a business we're really excited by, fiber, T Fiber, everything we've done to date has only confirmed our expectations in terms of the power of our brand, the relevance of our distribution, our ability to convince customers that this is the next stage in their journey, We've also been super thoughtful about the capital intensity of this. And we've picked partners who we can trust where they bring expertise that we don't have. We expect just based on our current assets, to scale to 12 million to 15 million homes passed, and three to 4 million customers by 2030, which would leave us with a broadband business of 18 to 19 million customers largely built over a seven year period. Which is again testament to the value of that NPS chart what we can do with our relationships, the power of our brand, and the power of this team. I'll spend my last few minutes now on new growth opportunities. As I said, the vast majority of these are not built into the numbers that Peter will show you. Let me just back up and tell you how we think about new growth opportunities. For us to do something other than consumer wireless business wireless and broadband. We start with kind of three questions. How large is the TAM or the target market in the business we want to be in? Is it big enough for us to play? Like, when we asked the question on broadband, the answer was clearly yes. Second, can we use our existing strengths our network, our customer relationships, do they make a difference in this industry? Does it help us win? And third, can we disrupt the industry? Because, again, we believe producing me too product in a new industry is not what T-Mobile US, Inc. is about. When the answer to those three questions is yes, then we double down and focus on that. Three areas that excited by. Advertising, T ads, You know we acquired Bliss and Vistar? That business is tracking It's in line with all of the things we talked to you about at the last Capital Markets Day. It's a business that we think has a lot of upside, and we're continuing to drive that. Financial services, we're working with Capital One. We launched our credit card in November. That's gone really well. We're excited about all of the stuff we're seeing in our first results. And we think there's there's a lot more to do in financial services because it ticks those three boxes. We believe that we can meaningfully reinvent, It's clearly a large enough TAM We have a huge amount of credit information and our existing customer base is massive, and our ability to leverage that is substantial. So again, that's a business we're excited by. And last but not least, physical and edge AI, and everything that a world that becomes increasingly connected brings to us as an opportunity both in terms of the way I think of this is in an AI RAN, we will be using we will be using a lot more compute. And if you were to think about this, what 6Gs will be, is a network that not just processes bits and bytes, but also tokens. And effectively, what physical and edge AI will do a bit like FWA, we landed up using fallow capacity here you will land up having fallow compute. That we could then put to use both in physical and edge AI. But I'm rapidly getting to kind of out of my depth on physical and edge AI, so we thought we'd invite a close friend of T-Mobile US, Inc. a man who probably knows more about physical and edge AI than anyone else, Jensen Huang, to share his thoughts on 6G and physical AI. Hello, Srini. It's great to join your Capital Markets Day. T-Mobile US, Inc. is the world leader in telecommunications networks. You did it by rethinking innovation, and how networks are engineered. A year ago, T-Mobile US, Inc. and NVIDIA announced the opening of the AI RAN Innovation Center. Together, we quickly moved from idea to making live calls over NVIDIA's aerial AI ran computer. AI continues to transform every industry. And will also revolutionize telecommunications. Like electricity, the Internet, AI is essential infrastructure. Every consumer will use it. Every company will be powered by it. And every country will build it. Now intelligence is moving into the physical world. With robots, autonomous vehicles, and cities. A billion cars, billions of robots in the future, millions of factories, and hundreds of millions of farms will all be connected to intelligence. AI will be distributed at the edge. Present at the location and understand the logic of the physical world. This is where AI RAN and 6G change everything. The radio network becomes a distributed AI. T-Mobile US, Inc. has recognized this shift. Every base station with NVIDIA aerial becomes an AI computer. And 6G is the connective fabric. Computing sensing, and connectivity converge. This creates entirely new opportunities for the telecommunications industry. That's why this moment matters. I'm thrilled to see our vision of AI RAN taking shape in T-Mobile US, Inc.'s Seattle Labs. Together, we're demonstrating how telecommunications is an essential platform for AI. And together, T-Mobile US, Inc. and NVIDIA are building this future. Srini Gopalan: So let me just pull this all together. The foundation of everything that we've built the foundation of everything we're building, is our NPS. It is our ability to continuously differentiate. You can see that gap widening and we've only just got started. Our fundamental capabilities across network, value, and experience is something we're working at every day. To make that gap widen even further. And what that gives us is the plethora, the unparalleled set of growth opportunities that you can see above. And we're only scratching at the surface here. One of the big advantages is you get all of those growth opportunities with no drag of legacy. And that combination of huge differentiation that will only widen with time unleashing a set of growth opportunities is the heart of our story. That in combination with this team in front of you, who have constantly set really big goals, gone out, smashed them, and strive every day to exceed every number we give you. Is the heart of the T-Mobile US, Inc. story, and that's what drives outsized financial performance. And talking of outsized financial performance, I'd like to invite Peter Osvaldik on stage to talk to us. Thank you. Thanks. Peter Osvaldik: Alright. You can tell we're just a little bit excited, and it's not just because the Seahawks won Super Bowl. Whoo. Whoo. I thought that'd be a little dangerous. We're close. That's good. Alright. Well, let's get into it. You know, I thought I'd start a little bit with a look at you know, Q4 and twenty twenty-five. And as Srini had said, you know, Srini said, it's a little hard to click this clicker. Anyway, you know, what did that strong differentiation deliver? It delivered industry-leading results yet again. 261,000 postpaid net account additions in Q4. Think about that. That's 10 times What the other competitor who reports this delivered in Q4. And that's important because as Srini said, this is the center of value creation for the industry. And this proves consistently and at scale that customers are choosing T-Mobile US, Inc. Combined with that growth in postpaid net accounts, we delivered postpaid ARPA growth of 2.7% on a year-over-year basis. And importantly, the organic growth was 3.6%, If you recall, as we had talked about before, our acquisitions of both MetroNet and US Cellular came with a base that had lower ARPA. Allowing us to run our playbook of ARPA expansion that we did so successfully both with Sprint as well as our base over time. That momentum between growth and ARPA expansion led to service revenue that was up 10% year over year on a reported basis and 5% year over year on an organic basis. That's 10 times and five times the next highest competitor for those keeping score. And I am. So that strength flowed through to adjusted EBITDA, which grew 7% year over year or 4% on an organic basis. And of course, the most defining metric for us is our ability to convert service revenue into free cash flow. Which we did at 22% in Q4 topping off a year where we delivered it at 25%. And that's important because it highlights a lot of the things that Trini was mentioning. The structural advantage of T-Mobile US, Inc. as expressed in terms of the best metric for value creation provided of course you're not cutting CapEx and going backwards. If you're investing in the core business appropriately like we are for expansion, you're delivering 25% free cash flow margin that's the best measure of are you able to create value shareholders. Alright. So let's look ahead. What does this all mean? How does this formula this growing differentiation, going to result in updated twenty-six and twenty twenty-seven figures? So for '26, we now expect approximately $77 billion in service revenue, representing 8% top-line growth, That includes about $3.6 billion of contribution from M and A, So we have 6% organic growth and acceleration from what we just delivered in 2025. In 'twenty-seven, we now expect between 80.5 and 81 and a half billion in reported service revenue 5% top-line growth, and includes $4 billion in contribution from M and A so delivering 5% organic growth significantly ahead where we gave you just in September 2024 our projections at Capital Markets Day. I think it's important if you step back think about what we're delivering here. At the high end of this guidance, from 2025 to 2027 we're going to deliver more than $10 billion of service revenue growth. Supporting that growth, as we've talked about, is strong postpaid net account growth. And our expectations for 2026 as we enter the year are to generate between 900,000 and one million postpaid net account additions. And for those of you who are curious, and I know you are, implicit in that guide is an expectation of about two and a half million postpaid phone net additions. Combined with that growth in postpaid net account additions, we anticipate postpaid ARPA growth of between 2.5% to 3%. And that's from all of the elements and ability to expand that Srini mentioned. It's new account inflow, taking our premium plans at 60% plus It's our base as they interact with TLife and our experience stores taking on premium plans. It's continued expansion of connections per account and introducing new products and services into account, which you can only do when you have the trust of customers, and that's evidence from MPS. And I'm pleased to share that we're now going to raise the bar on ourselves once You've heard a lot today about how we believe and we've long discussed and reported that postpaid account net additions and postpaid ARPA. Are the real correlation to value creation in this industry. Think about that. You have another competitor who delivered 600 some thousand postpaid phone net additions, but only 26,000 postpaid net account additions. The way you correlate how we're growing the service revenue and then translation profitability is how we're actually able to attract and expand customer relationships and that's best expressed by accounts and ARPA. As we said, over 90% of our postpaid phone lines are actually on a line account. And a vast majority or a substantial portion of our 34 plus million postpaid accounts actually have products beyond just postpaid phone. So when you think about it that way, that's really the unit at which you create value as Srini has long said. Beginning in Q1, long standing we've been focused on postpaid accounts and postpaid ARPA and that will be our sole focus going forward. So we'll no longer be reporting subscriber level elements. Again, I've given you the underlying assumption, two and a million postpaid phones and that very strong 900,000 to 1,000,000 postpaid net account additions. But this is what you should expect from us. This is the bar you should hold to. This is the bar you should hold the rest of the industry to. Who can attract customers switch full relationships who can grow those relationships in ARPA, that's how you get service revenue growth like we're delivering here. Peter Osvaldik: What does that mean? Adjusted EBITDA? So in 2026, we now expect between 37 and 37 and a half billion that includes about 1.3 billion from M and A contributions, so 10% reported growth. And 7% organic growth, an expansion again from what we delivered in 2025. 2027, including $1.7 billion from M and A contribution, we expect 9% reported growth and 8% organic growth the midpoint. Again, further expanding on the growth that we're delivering in 2026 which is further expanding on the growth that we just delivered in 2025. And again, if I step back, at the high end of the guidance, this means from '25 to 2027, we'll have delivered more than $7 billion of incremental core adjusted EBITDA. Getting us to between 40 billion and $41 billion This is of course driven by a number of things. One, continued profitable service revenue growth and operating leverage as you've seen from the ability to attract customers generate postpaid account net additions and continue to expand ARPA. But it also comes from contributions of our unique approach to how we put the customer at the center of everything digitalize, create efficiencies, utilize AI not for cost cutting as the primary focus, but for customer experience as the primary focus which generates significant efficiencies as a benefit. While at the same time enhancing their experience continuing to increase their NPS scores, continuing to allow us to deliver customer switching. We now expect between 2026 and '27 relative to 2025 these initiatives are going to deliver 1.3 billion of incremental savings in 2026, and 2.7 billion in 2027, but we're not done there. It's just the beginning of the journey. There's a lot more expansion beyond 2027. And those come from a lot of the things you've been hearing from us. Our progress on digitalization and enhancement of the customer experience through, as I experienced, through TLife, beginning with upgrades, what we've been able to do with first assisted and then unassisted upgrades. Now add a line some prospects that allows a whole new world of how do you approach retail. And approach retail with a focus on creating experience stores, a rationalized retail structure more in sourced, more focused on customer experience, that at the same time drives efficiencies and value. You heard Srini our incredible frontline and how they've reduced inbound customer contact but there's more to be done. Powered with Intense CX now that Frontline will be able to further reduce inbound customer contacts on the way to the goal that John Fryer should with you at our Capital Markets Day in 2024. Customer-driven coverage. We've been talking about this since Capital Markets Day in 2024. A proprietary AI infused model that allowed us to begin focusing CapEx dollars on where they matter most to customers. And if you put the CapEx dollars where they enhance customer value in experience the most, you get the most efficient deployment of CapEx. We've now been able to apply that model to the existing entirety of the network base. And we'll be able to start generating OpEx savings to allow for reinvestment, and the way we're doing that is we apply the same view to every one of our towers. Every one of our small cells, and said, which of these are driving the most customer value and concurrently which are not driving the most customer value. And we can streamline and optimize the network to reduce those and reinvest in those that are driving the most value. And of course, as you'd expect like everybody else, but probably in a leadership fashion, there's a lot of efficiencies in the back office, in IT, through utilization of simplicity, efficiency and AI. If you do it from a customer centricity lens first, you get differentiated results. Now, 2026 is going to have a slightly different phasing to core adjusted EBITDA than 2025 had, which you'd expect because we're both delivering on synergies in the U. Cellular and those will expand as we go through the year, but we're also going to harvest more of these AI and digitalization and simplicity savings as we go through the course of the year. So we expect Q1 core adjusted EBITDA to be between $9 to $9.1 billion There's a few below the line items in 2026 I wanted to highlight as well. Beginning with, we expect approximately 1.2 billion in merger-related costs primarily related to U. S. Cellular. As you recall, we had an exciting announcement around our acceleration of the timeline integrate U. S. Cellular at two years. Network optimization that I just mentioned, this CDC-based network optimization to generate value. Is going to result in a network optimization cost of approximately $450 million will be done through that primarily in Q1 and Q2 we'll harvest those savings and reinvest into the network. We'll have workforce restructuring charges of approximately 150 million in Q1 as we go through our simplification initiatives and conclude what we began in Q4. Alright, CapEx. No big surprises here. We've mentioned to you before, we expect CapEx of $10 billion in 2026, and that includes Between $9 billion to $10 billion and again, all of this from a network perspective will be deployed through the customer-driven coverage lens. Means that every single dollar we put into the network goes to accrue to the highest customer experience improvements and hence the best value delivery for us. While simultaneously expanding the network leadership and allowing for long-term growth. Okay. Let's tumble down to adjusted free cash flow. And the short story here is we continue to deliver a cash generation profile and margin that is industry-leading. Free cash flow is expected to be between 18 billion to $18.7 billion in 2026 growing to between 19.5 billion to 20.5 billion in 2027. Now there's a number of things as you go through an integration that I want to highlight for 2026. We anticipate approximately $1.3 billion of merger-related cash outlays. Again primarily associated with that acceleration of The U. S. Cellular integration. Also expect approximately $1.2 billion of cash outlays for the network optimization and workforce restructuring costs that includes the workforce restructuring charges that we took in Q4 where the cash outflows will happen in twenty-six. And because we're accelerating that integration so dramatically, now expect those costs to drop down significantly in 2027 to $1 billion Cash taxes are expected to be 1 and a half billion for 2026 and 3.5 billion in 2027 fully integrating the benefits we anticipate from the one big beautiful bill. Now, one important note is around cash interest. I know a lot of you in this room like to model rapid deleveraging for us. So I wanted to just highlight that we take a very prudent approach our guidance assumptions that we're delivering to you. What we do is we assume leverage at two and a half times, which means we assume utilization of the entire strategic capacity envelope. We don't put any benefits into service revenue or core adjusted EBITDA for but for purposes of cash interest modeling as we give a free cash flow guide, we assume full utilization of that. And so that results in an assumption of 4.3 billion in cash interest outlays in 2026 stepping up to 5 billion in 2027. Just for perspective, on an you know, it's apples to oranges in terms of what you're seeing in consensus because of that desire to deleverage us rapidly. And that means relative to consensus, this was about 500 million higher in 2026. And 1.1 billion higher in 2027. If you're trying to get an apples to apples comparison and understand what the underlying business expansion is doing. You know, that's something to look at given how we prudently and I think conservatively guide and assume the full utilization of the envelope. But again, the most important part here is our ability to convert service revenue into free cash flow at industry-leading pace. That's a key differentiator for T-Mobile US, Inc. and as I mentioned before, highlights the structural advantage that this business has and the ability to create shareholder value. Alright. Well, certainly, that growth core adjusted EBITDA and a delivery of free cash flow and industry-leading service revenue margin means there's a lot of capacity And so, how do we think about it? Well, we think about it very consistently with how we've shared it with you before. Capital allocation philosophy hasn't changed. It's disciplined. It's consistent. It's focused on maximizing value creation for shareholders. Begins with always setting a prudent leverage target which we continually reassess both on our belief of the internal forecasts of the business as well as what's happening from a macroeconomic perspective. We then prioritize investment in the core business. As you see, not only can we deliver in the short term, but our ability to enhance and expand this network leadership by investing in the business prudently, it's what's going to generate continued differentiation for customers even beyond 2027. We focus on high ROI strategic investments. I'll get into some of the ones that we've done there. And then our focus is to deliver with excess stockholder returns a very balanced approach between dividends and share repurchases. And all of this is done with an eye on maximizing both midterm, short term, but just as importantly, long-term value creation. Alright. So with my last Super Bowl pun, let's do our own halftime show of what have we done. Since our Capital Markets Day in 2024, we funded strategic investments of approximately $12 billion. That included our acquisition of US Cellular, included establishing the JVs with MetroNet, Lumos, Bliss, Vistar, as well as investing in Spectrum, for the long-term continued network leadership. We returned over $20 billion to shareholders, balanced between dividends as well as share buybacks which puts our total now since the program inception 2022 to over $45 billion. As we look forward, for the balance of 2026 and 2027, we have a remaining envelope of over $52 billion, driven again by that core EBITDA expansion in the free cash flow delivery. Our initial view of this is allocating up to $30 billion towards shareholder returns. That currently includes an assumption of approximately up to $10 billion in share repurchases per year. And I'm excited to announce today that we are accelerating our Q1 share buybacks to $5 billion. Up to $5 billion. Or double our run rate. And you might have seen Deutsche Telekom's announcement this morning given the strength of the business and their belief in where we're going as we've laid out for you today, they are not planning currently to sell any T-Mobile US, Inc. shares in 2026 and in fact, they're looking at strategic alternatives to further deepen their investment. I think between the acceleration of share buybacks in Q1 that you're seeing from us, as well as DT's statement that you can see the conviction in the business. And most importantly, we're always guided with respect to share buybacks as to where our belief of the intrinsic value of this company is and where the trading dynamics are today. Alright. Well, what does that leave? That leaves over $22 billion a flexible envelope. And we'll deploy that much as we've done in the past. It can be deployed for strategic ROI investments. It can be deployed potentially for further stockholder returns. And this all assumes a prudent two and a half times leverage assumption. healthiest And we're focused again on all of this. The focus remains on ensuring that we have the and the most strategically flexible balance sheet in the industry allowing us to capture opportunities for shareholder value creation as they come. Alright. I know you're very curious to get to q and a, so let me just summarize quickly. I think we've as Srini mentioned, we have a tremendously growing differentiation. Not only has our current differentiation and where we've arrived with best network best value and best experiences continue to deliver industry-leading results, both from customers selecting T-Mobile US, Inc. and our ability to translate that into outsized financial growth, top line, bottom line, free cash flow. But we see the ability to grow this differentiation and continue to deliver outsized results in 2627 and beyond. So with that, we're going to get to q and a, so if you give us just a second to set up here, we'll get the team up and get to your questions. But thank you. Srini Gopalan: Okay. Let's get to q and a. We'll have Mike runners across the room. Please raise your hands if you've got a question. And please also introduce yourselves once you have the mic. I'll start with Peter since he's right there. Peter Supino: Can you hear me? Yeah. Yeah. Thanks for the great presentation. I wanted to ask about the change in your disclosure about the elimination of postpaid phone subscriber reporting and, I guess, ARPU If you could just expand on your thoughts behind that and how you think it allows you to run the business better and ultimately benefit shareholders. Thanks. Srini Gopalan: Maybe I'll kick off Yep. And then hand off to you, Peter. So the change in reporting to me is actually comes from a conviction of what do we want to focus on. Do we want to double down on. Accounts, and I think of them as relationships because these are really families and businesses. That's the fundamental way in which consumers buy. 90% of our postpaid lines belong to a multiline account. It's how consumers buy, and it's where value gets created. It's the thing that's most correlated with CLV. And from our perspective, this team and everyone on the front line is incentivized on accounts. Is incentivized on relationships. We want that alignment to exist between how consumers buy what creates value, how this team is incentivized. And that in our minds, raises the bar on the industry. Because it drives this conversation on how many relationships have you actually bought in. Right? And that's, to us, the fundamental unlock and the most transparent way of thinking about the p times q equation. Peter? Peter Osvaldik: Yeah. I mean, as I mentioned, and fundamentally, what underpins that is the fact that the vast majority of our customer accounts have deep relationships. So you need to think about both as your approaching new accounts coming in, but also as you're thinking about the base and expansion of ARPA, over 90% of our postpaid phone lines are on multiline accounts. A significant portion of our accounts have products beyond you know, phone lines, whether that's tablets, watches, our very successful broadband offering where we're the most bundled player in that space so we can get into that. I'm sure there'll be questions around that later. So when you think about how do I one, think about the customer relationships. Customers don't think about their relationship with T-Mobile US, Inc. as I have three different relationships or three and a half different relationships, they think about it as one. And when you win that trust over demonstrated by NPS, that allows you to expand and give them new products, whether it's connectivity products, or more importantly, as we demonstrated, when you have a platform like TLife, with 24 million monthly active users, meaning they're using that thing four times a month. It allows you a completely differentiated experience. They're not it's not just I interact with my customer base once every couple of years when they come into the store. Now I can interact with them on a multi-monthly basis to introduce them, one, into new products like T-Mobile Visa, but also help them understand how we can expand in a win-win a more for more construct the relationship with them and that's what gives us the confidence to in think about ARPA expansion the way we are. So it's really fundamentally how the customer It's how we're thinking about the relationships. And honestly, when you think about it, just focusing on postpaid phones and postpaid phone ARPUs is one small portion of the postpaid service revenue line and doesn't really correlate as well as accounts and ARPA what you've been able to do with service revenue growth over time. That's why you see such different how can you be 600,000 and 900,000 and suddenly have such different wildly different expectations for 2026 service revenue delivery. It's because we're focused on the actual unit of value creation and how customers think. Srini Gopalan: And even when you're restricted to postpaid phone, very few people go out and buy one line. Phones shopped as family. As a business. That's what drives consumer behavior. And that's what our North Star should be. Srini Gopalan: Hi. Hi. Thank you for taking the question. Can you just help us think about the long-term penetration rate implied within your broadband guidance of 12% to 15 million passings is how you at least discussed it in the past and it implied penetration below 30%. And so just help us maybe contextualize that what you're seeing in the market today as well with the type T Fiber launch. Srini Gopalan: Yeah. The T Fiber is tracking all of the things that we set out to do with it. And we're tracking well on plan. When you think about long-term penetration, though, the thing you need to remember is we'll still be building. Right? And so if what you're looking at is what is cohort level penetration, then it will be higher than that number you're looking at purely because we'll still be building. Srini Gopalan: So I think what we're seeing in terms of how the brand translates, how channel translates, we're seeing everything we expected to see and we're very happy with the progress. As Srini said, we need to look at this in a prospect of still going to be building at a relatively fast pace as we go to 27, 28, 29, 30. So for a lot of the cohorts we will have, we won't be at terminal penetration, which usually happens more towards year three, year four. So that's why you have these numbers that look to be below 30%, but they won't be on a terminal cohort perspective. They'll be significantly higher than that. Srini Gopalan: First, a follow-up to that. How many homes passed you guys have now? So what's the build rate going forward? And do you guys talk about the cost per build? And then just maybe a broader question on know, the wireless market. Just what are you seeing in terms of competition? Do you still think that the business has pricing power? I know we're trying to get away from ARPU here. But know, just sort of the drivers are clearly churn and ARPU. How do you see ARPU trending and your ability to price? And then maybe this is for Cathy. Are we gonna get churn account churn going forward to be able to sort of assess the health of the business? Thanks. Srini Gopalan: K. Maybe I'll start with the phone competition and the and the wireless market. Then you can talk about account churn. And, Andre, you can pick up the broadband question there. Three in-one question. No. Why am I getting So let's start with the first one. What are we seeing in the wireless market? Look, as always in this market, you kind of go through cycles of promotions. You kind of go through periods in time when there are lots of free phones. We saw that happen in Q4. We're feeling very good about where we are. Now in Q4, specifically, like Peter said, in a very competitive cycle, we outgrew the only other person who reports accounts 10 to one. Right? So we're feeling really good about the strength of this business. The momentum that it's driving. And I've said this before, Look, promotions are things we over rotate on. There is a direction of travel, and that direction of travel is driven by differentiation. That's why you get this exceptional performance This was our highest postpaid phone lines even though we don't talk about that that much. Since the merger. Right, in the context of record-beating accounts. Right? And when you're talking about pricing power and kind of our ability to grow the relationship, it's a composite of three different things. It's the fact that our pause naturally tend up because of our back book, front book dynamic and the premium plan loading. Which is why we're guiding to 2.5% to 3%, on ARPA. The Our back book also means that there are opportunities for us to look at pricing. Underlying our guide of where, and Peter unpacked, the 2,500,000.0 is also an ARPU of one to one point five. So we do see ARPU growth happening in 'twenty-six, even though that's not the primary thing that we're focused on. And the last bit is expanding our relationship. Which is through fixed wireless, which is through fiber, which is through everything else, we do. So we see a lot of ability to grow both volume and value in this market. I'll leave you with one final piece, which kind of reflects our value-oriented view of the world. When you look at just the month of December, and this is something we track very closely, Mike and I were talking yesterday. The value of our port-ins was 15% higher than our port-outs. So when you think of what drives value creation in this business, even in an intensely competitive month like December, we saw significantly higher values in than out. Peter, you want pick up a comment? Sure. Absolutely. Yeah. To give transparency around this metric, we'll absolutely be reporting account-based churn. Srini Gopalan: And on homes passed, don't we don't disclose if these are joint ventures. The only thing we can say is we're tracking to where we want it to be tracking and we will hit the $12 million to 15 million homes passed by 2030. So that's something we are very confident about. Srini Gopalan: Thanks. Just on the 6% service and 5% service in 2627, respectively. Any com is that mostly core? Right? So can you give us a sense of, like, the size today of the advertising business? You know, you talked about tea life 24 million. It seems like monetization there. Edge compute, maybe some monetization there. Are any of these things maybe you can rank order them that could add 50, 100 basis points to service revenue growth. So maybe, like, size what you got now in advertising and then anything that's that material not even can go beyond 27. 28, 29, anything that can give you 50, 100 basis points. Thanks. Srini Gopalan: Yeah. I would say, as you're you're absolutely right, Walt. It's majority of it is core growth. And I think as Srini mentioned earlier on, there's actually nothing in the plan with respect to Edge, or AI RAN or any of that opportunity Now we see it and we're in a leadership position. I think it's going to drive fundamental growth. Whether any of it comes in, in a meaningful manner by '27, I don't know. That's potential upside. I think you've seen us talk about a lot of other new business opportunities, including the very successful early, but tremendously successful launch of the first foray into financial services with T-Mobile Visa. That's potential upside to the plan. That's not incorporated into it. Versus how much of that is potential outperformance? Mike? Srini Gopalan: Good morning. Thank you for the question. I wanted to ask about the comments around potentially moving away from devices subsidies Is that something that you see happening industry-wide potentially? And you know, what are the implications of that, you know, just given where we are in the you know, product upgrade cycle and how you see that impacting the gross ads or jump all opportunity for next year? Thank you. Thanks, Mike. I'll keep this brief, and I'll hand off to Mike Katz to talk a little more about it. There's not that much we're going be able to say about this right now. For obvious reasons. But I think there's the principle for us is really important. We think when the industry starts moving away from win-win economics, for investors and customers, We need to step in and change the direction of And our sense is this is a point in time where we're beginning to see some of that drift. Right? I'll let Katz talk about that in more detail. Mike, do you want Mike Katz: Yeah. Srini talked a lot about differentiation. How important differentiation is for us and for and for customers, and I think that's a great example of You know, like can't make iPhones any freer than they are today. And the truth is is customers you know, phone purchase is a point in time. You know, happens once every couple, three years. And between those times, they're living with their wireless service every single day. And we think customers expect and demand more from us than just a free phone deal every three years. And that's why what the value that we've built into the plan is so important because it's a reminder to customers every single day of these incredible benefits that they're getting. Incredible benefits. You know, T-Mobile US, Inc. customers save a thousand bucks a year. Relative to competitors. Both because of the core rate plan savings, the front book, back book dynamics that Srini talked about, but incredible, not niche benefits, incredible benefits that our customers use at scale. In fact, T-Mobile US, Inc. customers of these Magenta status and T-Mobile US, Inc. two Mobile Tuesday's benefits on average, most of our customers use multiple of those every single month. So that's where we think we can create the real differentiation And, you know, phones, everybody does great deals on phones. It's what happens between the phone purchases, I think, where T-Mobile US, Inc. really stands out. Srini Gopalan: And to your point on subsidies and kind of what that means for jump balls and the rest were. And when we plan the year, when we plan ahead, we look at jump balls. We look at competitive intensity. And our guide incorporates all of that, both the 900,000 to a million and underlying that order of magnitude, 2 and a half million debts, which is kind of where we're positioned right now. And on subsidies, we will always be competitive with phones. It's really changing the center of gravity of the conversation. To stuff that creates sustained value, which is all the stuff Mike's talking about. Because also from an economics perspective, that's where we believe real CLVs are. Srini Gopalan: So I guess a couple of questions on the broadband business. The first is when you look at the service revenue mix going forward, I mean, the guidance that you guys have provided, how much of that growth comes from you know, the broadband business specifically and more in general, the newer businesses, if you can help us understand that. And then from a margin perspective, I mean, there's a lot of things you mentioned today, like focus on ARPA, you know, less subsidies potentially. More focus on the back book price and so on. All of this would imply that your core organic wireless margins should at a faster pace going forward? Than it's been so far because, you know, there's less focus potentially on volumes if you could just help us parse through some of these details to understand in the mix of EBITDA and revenues, that would be helpful. Srini Gopalan: So we take the first, but thanks, Karan. So the question really on wireless you're asking is an operating leverage question. Right? And you are seeing, as we move from 26 twenty-five to twenty-six to twenty-seven, really strong improvement in operating leverage. At the EBITDA level. So you're going from 5% and change because you shared the XM and A numbers as well to seven to seven and change, almost eight. And that's a reflection of the fundamental operating leverage improvement. Both in terms of our focus on ARPA the ARPA growth, as well as some of the cost reductions that Peter talked about. In terms of the broadband piece, Peter, do you wanna pick that up? Yeah. It's all you know, we we don't report segments because we don't run the company that way. We run the company, as you heard today, in terms of customer relationships and ARPA expansion. So broadband is an important element of how we get to ARPA expansion. In fact, again, we're the most bundled in terms of successful ability to take customers and either customers and then sell our broadband product into it or have broadband-only customers get introduced to the power of the T-Mobile US, Inc. network and then expand their products up there. So it's all implicit within the ARPA guide in there. And then when you run the business inclusive of synergies and integration and all of that, we're really thinking about it as one. Business and one operating leverage. Even for example on new businesses, ability to utilize TLife, as I was speaking about earlier, not only self-serve or help improve the with our amazing frontline and customer-owned retail stores and our experience stores, it also then provides a platform for new business growth cross-sell all that. So that's why we think about it in totality. And I think when you step back, what I'd look at is driving again at the high end. From '25 to '27, $10 billion of service revenue growth and you're going to drop $7 billion of EBITDA growth as part of that. That's the all-in number that we're looking at as well as are we actually able to deliver in an industry-defining way free cash flow margins on service revenue. Srini Gopalan: Greg Williams, TD Cowen. Just wanted to get your updated view on your appetite for additional spectrum. There's presumably more spectrum out in the marketplace todaySrini Gopalan: Well, for that. The way we've thought about spectrum historically, and we'll be consistent with that, is every piece of spectrum that comes up, we look at it on a build versus buy basis. Right? What would it cost to densify versus buying the spectrum? And that's why we walked away from things like the EchoStar We fundamentally believed it was too expensive. Now that said, we're incredibly committed to maintaining spectrum leadership. And network leadership. And we're looking forward to how this plays out in the auctions Our view on that, again, is we'll do the same There's kind of three things, right? One, the build versus buy. Two, looking at the spectrum that comes up in terms of consistency with our existing spectrum holding, And three, a commitment to maintaining our spectrum leadership. Those three things together will drive what we do with spectrum acquisitions. And you've seen where needed, we've been incredibly disciplined about the valuation of that spectrum and where it makes sense. The good news is there's a lot of new spectrum coming with the one big beautiful bill, which will drive valuations of that spectrum. As well, just from a supply perspective. Peter Osvaldik: Yeah. And the beauty of it is, of course, we only guided through 27 today, but obviously, we have aspirations of growing beyond 27, both from a core EBITDA perspective and free cash flow perspective. And so you just see how much capacity this business is creating. And because we're so prudent and strategic with how we allocate capital, that creates capacity for all of the things, so to speak. And when you think about run this out to twenty-eight, twenty-nine, thirty, when, you know, who knows the timing of all the potential spectrum opportunities. You're creating a lot of meaningful capacity to think about wisely in terms of investment. Srini Gopalan: Great. Let's go over to Frank and then two down from Frank. Frank Louthan: Great. Thanks. So can you walk us through the economics of the financial services business with the credit cards? What is sort of the opportunity there in terms of revenue and EBITDA? And is that something that would get folded into ARPA? Srini Gopalan: Yes, we're not we haven't broken that out separately. It's early days. But just think about what as we mentioned, the way we look at new business and this is very consistent with how Mike Katz laid it out at Capital Markets Day in 2024. Where can we bring significant scale and the assets that we have, meaning we have trusted customer relationships. We have our network assets. We have our distribution assets. We have now an app that has 24 million multiple times a month monthly active users. Which means you can and we have data particularly on our base, meaning we can do advantage credit decisioning. There's a reason. I mean, you know, we've been really tremendously strong in the capabilities we've delivered. Some by necessity from where the Un-carrier began in terms of being able to deal with subprime and near-prime populations. Q4 was another quarter we delivered much lower bad debt as a percentage of total revenue than AT&T or Verizon. It's because of the capabilities in the datasets and making sure that we create better customer value and better customer experiences. So think about financial services. One, there's a lot of great ideas out there. And I think we have them too. One of the big barriers to great ideas getting in the hands of customers And changing and improving the customer experience in financial services, is honestly CAC. Right? I mean, a lot of these business ideas get killed because of customer acquisition costs. We can change that whole paradigm. We have TLife, you have trusted relationships with 34 million accounts, If you're thinking about postpaid phone, that's 85 million postpaid phone users out there. And they're using TLife. And now you can bring them a better product perhaps even something they can't even get in the financial service space because of our advantage credit decisioning and data. Opportunities. And you can do it at a customer acquisition cost that nobody else can touch. So that's those like, that's one way to think about that opportunity. That's how we're thinking about the financial service opportunity. There's very little in the plan from a financial service perspective. But I know Andre, I'm just curious. I know when the CFO is the biggest of this, I don't have to say much. All the time, But listen, fully aligned. I think, as Peter said, we always look at this as win-win for the customers. And what we're seeing today is the ability to not have some of these industry legacy, either revenues in the back book like you see it in FWA. Right? There's a great advantage of being able to flow through all this growth Greenfield. Because we don't have a backbone to protect. Now when new in some of these industries like financial services, we have no backbone. The second thing is our clear advantage in terms of access to customers, leveraging our NPS scores that are leading industry-leading and the fact that we have acquisition capabilities both on retail and on digital with TLife, allows us to create these win-win relationships that we were talking about when we were talking about wireless, the same approach to this industry. Alright? And you think about credit card industry, financial services, or advertisement, these are all industries that have opportunities to create a lot more win-win with customers, and that's what we're focused on. That's what's gonna guarantee us growth beyond what we're putting in the targets we have today. Avi Gringard: Yep. There we go. Avi Gringard, Tech's Financial. So we've been talking mostly about consumer. I was curious how your expectations of business or enterprise growth play into your guidance going forward? Srini Gopalan: So we see a huge opportunity in business. We've talked about double-digit revenue growth. For the next three years. It'll probably run for the next five. The reality The reason we see that huge opportunity comes back to the position we've put ourselves in from a network perspective. A lot of our growth today is coming from differentiated things, only our network can offer. From the most obvious example of that, key priority, where our ability to slice and our ability to build that network creates a clear win with TFB customers. But it also goes through things like when people do RFPs, based on large-scale testing of networks. Right? We clearly win in those cases. So we see a lot of upside across everything from SMB to enterprise to David Barden: Hey, guys. Thanks so much. Dave Barden from New Street Research. Guess my first question would be, Srini, could you elaborate a little bit on your understanding with DT about how long they will cease to contribute their shares into the stock buyback program and kind of the framework that that we should expect that that will operate under as we forecast? And I guess the second question would be, with respect to presumably any incremental ambition for fiber expansion, Is the best way for fiber expansion for T-Mobile US, Inc. to use the existing Lumos and Metronet partnerships to let them do the expansion or do you wanna create or would you be willing to create new partnerships to go and take advantage of other opportunities to kinda create a portfolio fiber companies? Thank you. So thanks for the question. I'll pick up the fiber piece and maybe you can talk about, the share buyback. Srini Gopalan: Stuff. So on fiber, our view on this has been clear. We see fiber as a real opportunity to create customer and equity value. We're not targeting a number certainly not targeting a number of homes passed. Right? So we're not kind of keen on how much fiber lays outside multiple buildings. Right? We're keen on building a business that creates equity value and creates value for customers. Today, everything you saw was based on the Lumos MetroNet expansion. So all the numbers we presented today is the assets we have currently. Are we open to looking at more assets? Yes, at the right price. Because we're not going to sit here with a gun to our head on we're going to cover this many streets, forget customers. And then work back from that while people inflate their prices. When they have a discussion with us. Are we open to more assets? Yes. They need to be at the right price. Just from our the way we think of the way this market works, our 15 million FWA customers that we've now announced till 2030 if you were to equate that to fiber homes passed, that's above 40 million already. You take 12 plus 15 of fiber homes passed, where We're going to be in 50 plus million from a homes passed count perspective. It's a count we think is actually precisely relevant, but if that's the count you want to do, that's order of magnitude where we are. So my view on fiber is absolutely interested in looking at other assets and other scalable platforms, but they need to be at the right price to create value. Peter Osvaldik: Yeah. Look, as our majority investor, I can't really speak to their intention. Right? I mean, we're focused on running and creating value creation for T-Mobile US, Inc. shareholders and Deutsche Telekom as an investor obviously has their own motivation. So I can't speak to their long-run thought process or their decision-making around it. That really is something you have to ask DT. What I'd step back and say is, what they laid out and what they disclosed this morning, I think it's driven by what we laid out here and shared with you. Is we created a great vision for outsized growth in our September twenty twenty-four Capital Markets Day and today increased that vision. I think give you all the kind of pieces around how we believe this growth can continue way beyond 2027 and deliver industry-leading results beyond. We're not sharing that guidance here today. We're focused on 'twenty-six and 'twenty-seven. And then our own conviction. Again, we're always guided by how the plan that we've put together including our internal views of it informs us around the intrinsic value range of this company. And where are the shares trading today And if we believe there's a significant discount to that, that informs our approach to what we recommend to the board from a share buyback perspective. I imagine, since obviously Deutsche Telekom has the ability to see all of this as in their roles on our Board. They're also convicted with the plan. In fact, they said so, to be able to say, we're not actually going to sell any of our shares in 2026. Whether that's into the share buyback or on the open marketplace. And in fact, we're going to look at strategic opportunities to potentially enhance our shareholder holdings. So it's our long-run belief in this business, That's what convicted us to actually double the pace of Q1 share buybacks to $5 billion And I think those statements will have to speak for their own. But I think it's a similar mindset. Srini Gopalan: For a minute there, I thought Peter was going to guide for twenty-eight. Srini Gopalan: Hi. Mike Funk from Bank of America. So I think last Capital Markets Day, there was a slide where you showed the drivers of switching activity in wireless. The primary drivers I believe were network quality, customer and then kind of pricing value were lower down. So based on the K shape economy that we're in, have those drivers changed? And how does it inform your comments about device subsidy? Srini Gopalan: So everything we see suggests those are still the big drivers. I want to double click on a couple of them. Right? So network quality, we spent a lot of time on. On value, just to be clear, we will zealously guard our value position. And one of the reasons Mike and I talked about how value is being interpreted in this market That reflects our focus on continuing to guard that value position. What's important to us, though, is to guard it where it matters for customers. Not to guard it in places which destroy value. Either for customers or us. Like And that's part of the debate on the whole subsidy piece in terms of if phones are lasting longer, if they're becoming more expensive. If what you're finding is more freer but then baked into price and there's a gotcha somewhere. How do we move this industry to a place where we truly deliver value? Because we think value is always important irrespective of the state of the industry. And we will stay at the forefront of it. It's how we do it that really matters. And doing it in a manner that resonates with customers. Still see those as the big drivers, and we'll be will be the best of all three. Srini Gopalan: Chetan, did you have a question? Chetan Sharma: Thanks for taking the question. A couple of questions around AI RAN. How are you thinking about AI RAN going and connect the dots for us going into 6G. And what what can we expect in 2026? And then question around T Satellite. The impact you have seen of T Satellite the last six months. Srini Gopalan: K. So let me do the T Satellite piece and then hand over to John Saw. Depends on how long you have because he can You get him started talking about AI RAN and 6G, we could be here for a while. Let's talk about T Satellite. Look, T Satellite from our perspective, has been a huge success. It was a world first when we worked with Starlink to create a functioning direct-to-cell service. It's it's hard to do. We're actually making a satellite going at high speed, talking to a moving mobile phone. Is not easy to do. It is fundamentally a complementary product. And the physics and the economics of that business will make it stay that way. I mean, it's great for the 500,000 square miles of uncovered America. To have an alternative. But let's be realistic. Manhattan, I want my wireless network. Right? And that's our understanding, and that's, I think, the emerging understanding across the industry. That this is a great complementary service We love the work we've done. We like our partnership very much. With Starlink. So that's kind of where I am on satellite. And now over to Doctor. Sohr for 6Gs and AI RAM. John Saw: So gentlemen, AI RAN we think, has a tremendous potential to transform the future of mobile networks. Especially 6Gs. At our last Capital Markets Day, we announced the creation of the AI RAN Innovation Center, with some of our key partners like NVIDIA, Nokia, and Ericsson to develop and test a new architecture We really wanted to push the industry to think about a new architecture with more powerful compute. That allows us to actually not just process telco workloads, but also AI workloads at the same time. And like Srini said a little earlier, you know, we see a future network where you are able to not just process bits, but also tokens. And why is that important? I think you heard Jensen and Suneet talk about the emergence of physical AI. Right? Today, as big as AI is, it's focused on generative AI. TAM is about four to $5 trillion, which is huge. But it's really a digital space enhancement. It's focused on the IT economy. And wait till you see physical basically, AI moving into the physical world. And start interacting with it, and that's physical AI. And that's why we see the potential there. You know, if you believe some experts, hundreds of trillions of dollars, that's a total TAM. Right? And we believe that 6G is the connective tissue for physical AI. Right? And it is going to be the intelligent fabric that connects data centers, network edge, as well as AI devices itself. Right? So 6G is not just the connecting pipe, but really the nervous system for physical AI. That is why we are focused on AI around. We wanted to change the way compute is done in telco for generations now and bringing a more powerful powerful compute model that does tokens, and bits. So we're making good progress. Since then, we have got both Nokia and Ericsson now being able to make full voice calls through the NVIDIA platforms. And towards the 2026, we expect to start some field trials. Jonathan Keys: Great. Thanks for working me in. Jonathan Keys, Diowa Capital Markets. Great presentation. Wanted to ask specifically, I guess follow-up on a question earlier about churn. Q4 churn was pretty elevated for both postpaid and prepaid. For 2025 and for 2024. And that's with your NPS scores going up, with rolling leveraging your differentiation of the value add that you provide. I guess, how do you see churn going forward? And from what I heard earlier, sounds like you're just gonna be giving churn of accountants versus per phone. Going forward. And then the second thing I wanted to ask is how much are you going to leverage price increases, especially the legacy plans? Terms of the service revenue growth? Srini Gopalan: K. So let me start with churn. So clearly, NPS and churn are hugely correlated. What I think we saw in '25 was also a normalization of churn as an industry as a whole. Because you went through these years with thirty-six-month contracts and suppression of churn. Now when you look at '25 as a whole, our increase in churn which is seven bps, is the lowest amongst the three players. Right, which is just indication of the NPS stuff playing through. Even in Q4, when you're talking about elevated, I think we went up 10 bps, and everyone else went up for 10 to 14 bps. But importantly, if you look at full year '25, I think what you saw was a normalization of overall churn rates. They went back to what they were effectively before the suppression. Of the thirty-six-month contract. Right? And our view on account churn, again, is that's the big number to look at. Because again, if you look at the value loss that happens, when an entire account leaves you, that truly hurts CLV. Versus you take an inactive account, which somebody suddenly realizes this line I'm not using, and decides to move away from it. Actually doesn't cause any value loss. That's why we're focused on account churn rather than online churn. The other question, Peter? Rate increases as per Oh, yeah. So on look, our view on this is what will drive ARPA is a composite of three things. The biggest two will be the fact that we have this front book, back book dynamic, which means as your premium plan load in the front book, you naturally see a growth in ARPA. The second is expanding our relationships. From time to time, we will look at specific cases, and we did one in January. Where we think there is a case with the legacy book to look for price changes, and these are really rate plan optimizations. Mike Katz: Yeah. One other thing I'd say is this really underscores the importance of the strategy that we have about the included services and differentiation in our premium plans. Because it gives reason that customers a reason to move up in rate plan by choice. And that strategy has been really successful. I mean, there's meaningful differentiation between our Experience More plan and our Experience Beyond plan. And customers that are looking for those benefits buy up themselves both at acquisition but also during their life cycle. And, you know, that is unique to T-Mobile US, Inc. You know, nobody else packs these benefits inside the play. And just to underscore Mike's point, that natural upgrade cycle is not purely an acquisition play and premium plan loading. It also happens in the life cycle. Which is why we're guiding to 2.5% to 3% ARPA, 1% to 1.5% underlying that from ARPU. Peter Osvaldik: It's also you know, there was a tidbit you dropped I'm not sure everybody picked up and that is the delta in the value we saw with switching. So churn isn't always unhealthy. We've been very successful in the pre-reduction of churn environment and now back to the normalized churn environment. And you saw in December, a 15% delta between the value of accounts coming in and the value of accounts leaving. And there's a lot about this in the industry, we're trying to be very transparent around it. That's how you get the growth, that's then when you combine it with ARPA, you get the service revenue that's completely different from a profile perspective. We just promised you 8% service revenue growth versus one competitor who said 0% for wireless service revenue growth This is where it comes from. Just promised you service revenue growth actually going into core EBITDA growth and 10% headline growth and 7% organic growth. And that's with contract assets flat. That's assumed in our guidance unlike some others who are really loading more and more discount onto the balance sheet. Another way to move around core adjusted EBITDA which is why you need to think and look all the way through free cash flow generation. Again, provided you're making the right investments in the business, and you think you've seen today from us, we certainly are to expand our network margin of leadership. How much free cash flow you can generate out of service revenue is probably the best predictor. Ben Swinburne: Thank you. Serena, I wanna ask you about TLife digitization. And I think I think it connects to the I think Peter said 2.7 billion of savings, I believe, is 2017. Know that's not all TLife, but that's a piece of it. What are you doing to make sure that this migration is customer-led I think it's pretty clear it's good for your business to move to a digital provisioning model, but your retail distribution, your frontline people are obviously core to your NPS, your strong position with the consumer. And I guess I would imagine there might be some risk you sort of push the consumer in places that maybe impacts that NPS score. How are you guys managing all that? Because those are some big savings Peter's outlined. Srini Gopalan: Absolutely. Look, we've been incredibly thoughtful about this. We haven't driven digital and AI from a we're going to lay off this many thousand people because we need the cost from it. We started with and this is why this has been a three-year journey. Step one was building the capabilities. Having our IT in place, having the digital in place. Step two, was customer adoption, which is actually working with customers in the moving them to assisted digital. And step three is now scaling. But really, the person who should talk about this and the most remarkable transformation I've seen in a frontline and customer-centric way is John because he's driven a lot of this, John. John Fryer: Yeah. It's a great question, and it's something that we are tackling ourselves which is really what we wanna do is we wanna meet customers where they are. And we need to be honest about this, that, like, stores open from 10 AM to 8 PM, that's the only time you can do business or when you call 611 and you reach one of our that that's not meeting customers where they are. People want more power and capability right on their smart screens to be able to do things access T-Mobile US, Inc. Tuesdays, all the Magenta status benefits, transacting, changing a plan, adding a feature, removing a feature, all those things, we wanna be able to do that. At the same time, there's a lot of customers who have some anxiety about like, hey, all these promotions and the complexity, I need someone to help me with that. And what we want to also do is lean in to this experience store format. We've got hundreds of these stores up and running and then in-source more of our selling and service versus outsourcing. You know, strategy one zero one, you outsource what you're not core competent on and you insource what you are core competent on. And what we feel just incredibly proud of is the way that we go to retail, the way that we do customer care, and we want to do more and more of that ourselves. And I said this the Capital Markets Day back in September 2024 that ultimately the role of retail is changing. We don't want it to be a center of just transaction. That's thirty years ago. What we wanted to be is a center of experience How do you discover? How do you experience new products and services Think about everything that John talked about just a few moments ago and what's coming with 6G. And physical AI and understanding and learning about that in our stores. We want that to happen. And at the same time, we wanna build more and more expertise We're proud of this 45 net promoter score that we have. You saw what Trini just shared just a little while ago in terms of how that is really separated. Not only in the top 100 markets, also in smaller markets of rural areas as well. We're leading in NPS versus our principal competitors versus everybody in those markets. We see an opportunity to further that gap. Not like reading our press comments at 45. We're like, okay, that's good. But we have ambitions to push that past 50. And we are sweating everything that we can do between the digital experiences and the technology that we're building in TLife then empowering our people and creating TLife as a platform so no matter if you call customer care, or walk into a store or do it yourself at 11:00 at night after you put the kids to bed, it's the same system, the same platform if you need our help and you need our expertise, we're gonna be there for you. If you can do it on your own, we wanna meet you where you are as well. Sam McHugh: Thanks, Ben, and congratulations on your new role. Sam McHugh here from BNP. Okay. Careful. Did I say something wrong? Is it okay? Sorry. Two quick questions. The first one on guidance and phone nets. Think I think we've got pretty comfortable. Repeat that, Sam. Yeah. We've all got pretty comfortable in the last few years. Kind of having a good feel about what the guidance implies and then the end result and the on the beats on phone nets. Is there any reason to think that the way you're guiding on postpaid accounts is kind of conceptually different from how you used to guide on postpaid phones? And then the second question was on the better value plan that you launched a few weeks back. And if there's any early signs on kind of upsell in the existing base or if it's having any meaningful impact yet. Thanks. Srini Gopalan: Just coming so to your question on phone nets versus accounts, Sam, Look, our guidance philosophy remains the same. We go out and put a tough number out there, and then this team works its socks off to beat that. That will remain the same. In terms of historic ratios, they've historically, we've had 2.8 phones per account. Now you can see with our guide, about two and a half with 900 to a million. We're also assuming a certain amount of growth on fiber. We're assuming a certain amount of growth on fixed wireless, which may not on day one come with a bundle. So that's the way you should think about Nothing changes from the way we guide. Right, in terms of our philosophy of setting a number out there, which we think is the right number given what the industry where the industry is at, given the number of jump balls, given the competitive state of it, and then going after and working our socks off to beat it. Better value, Mike? Yeah. I mean, I think better value is a good example of a lot of things that we've been talking about here today. Where we built a plan that was really built around family savings. And switching your family over to T-Mobile US, Inc. and how much you can save with that plan Not just not just today and not just this year, but every year relative to the competition. And, you know, like we've said here many, many times already, we think that's important because customers aren't just picking based off of a free phone in a point of time. It's what what can we deliver for customers every day, both in value and in network. And that plan was designed to do that. So, I know we're not gonna get into a lot of details this quarter, but so so far the plan's doing exactly what we expect it to. And it's been great. Eric Luebchow: Eric Luebchow from Wells Fargo. I wanted to dive into the 15 million fixed wireless target you have by thousand thirty. Maybe you could talk about kind of the pacing to get here as we look out in 2020 You've been adding close to 2 million new fixed wireless subs a year. And maybe you could talk a little bit as well about the distribution of geography. I think, historically, this has been a product that's been more in urban areas. It's been more consumer-led. Are you seeing any broadening of that as you move into more rural markets, as you sell more into the enterprise that'd be great. Thank you. Srini Gopalan: So I guess a few things. One, phasing of that move that's look. You we are where we are right now, and we've constantly outrun whatever phasing we had on this product because the demand has been so strong on the back of NPS. We'll see what that phasing lands up playing out like over the next few years. We'll also see that 15 looks like with time. That's all we can really see at this point in time. It's our it's our most conservative view on where we'd get to based on the assumption of no additional spectrum, based on assuming no spectral efficiency with 6G, All of those, honestly, will have a bigger impact. Than purely our run rate. Right? On geographies and kind of segments we're in, we're absolutely going to expand that product into business. Which is great because that is the definition of fallow capacity. I think increasingly and Andre, you might want to comment on this. I think the urban versus rural SKUs are less true, especially as we grow into SMRA. Andre Almeida: Yeah. So both, as Srini said. I think one is the SKU will always exist. It's a matter of density. But you saw Srini and John talk about the progress we're making in sMRI, and that obviously translates with time also in our ability to compete in those markets. Again, we go back to we have the highest NPS in these markets, we have the strongest network position. So that translate is translating and will continue to translate again, another opportunity to that gets us comfortable with the 15 million number, which is we're still under indexing areas where we have the best network and we have the best NPS. In b two b, it's a something that we've launched and we've been successful at. We're still in early days of this. I think b to b in in wireline is a is a great opportunity for for fixed wireless And you will see us over the next couple of months. Innovating a lot what broadband and what Internet connection means for b to b. So stay tuned. But there's a big opportunity. As you know, there's a big and you see it in sort of what other players have have are putting out. There's a big transition of technology happening in b to b. From traditional connectivity based on Ethernet and PLS towards much more of an underlay overlay split where you start seeing more traditional Internet connections being the baseline of connectivity, and then being complemented with SD WAN and SASE solutions. That's a huge opportunity because that allows us to get into that space, without having to carry the legacy and the complexity of having to run complex support systems for customers. So that is opening up. Technology is moving in a way both on FWA capacity capabilities but also on the way customers want to buy that technology that gives us opportunity in B2B connectivity as we go forward. Matt Harrigan: Matt Harrigan, Stonix. Simple question. When you look at the simple math on the switching effects, it's much more powerful than unit growth in the market. You've got some huge tailwinds, 24% penetration Device innovation helps you. You look at iPhone 17. You got the still very sticky lag in the network. Perception. But if we did have unthinkably an economic slowdown on the low end of the K at least, probably already having that, Maybe you couldn't hit the two five, but do you think you could get near that number? Because and, honestly, maybe your other actors would be more price rational in that environment. Who knows? Do you think you can get substantial growth even if we do finally get a recession? Thanks. Srini Gopalan: Yep. This is why I mean, thanks for the question. This is why we have zealously protected value over the years Right? We've always believed that we need to be resilient to any economic climate. Even though we understand that our category in many ways is the most resilient to economic change. We are, as a category, we're never a lot of people ask us, you know, what's happening with bad debt? Are there any signs of a consumer slowdown? And my response to that typically is, we're never the canary in a gold mine. Right? We're just it is such an essential that we're very, very resilient to economic cycles. That said, what this team is absolutely passionate about is not losing our value heritage. And that's why over the years, as our competitors at various points in time, have used their pricing power, quote unquote, which has put up prices on existing customers without really doing more for more, We've been very thoughtful and choiceful we will be going forward as well. On where we do any rate plan optimization. Because staying best value is absolutely critical to our ethos. And that's what even in a world where economic times get harder and even in the off chance that the category gets more value seeking. Think we're incredibly well cushioned and protected. Against that eventuality. Peter Osvaldik: In fact, you know, we're certainly not forecasting that, but if you see a world future where there might be more of a consideration and flight to value because of macroeconomic changes well, then T-Mobile US, Inc. is probably best positioned to actually a more meaningful share of that given where we're at particularly as you have more consumers doing consideration of switching and they start asking around the way they do and now you've come to the place where you have best network and still offer the best value. Srini Gopalan: Alright. Well, that's all the time we have. Thank you all for joining us. There's light refreshments over there if you want something on the way out our team will be available to mingle for just a little bit. Srini Gopalan: Thank you. Thank you. Okay. Thank you, guys.
Operator: Welcome to 2020 Bulkers Q4 2025 Financial Presentation. [Operator Instructions] This call is being recorded. I'll now turn the call over to CEO, Lars-Christian Svensen. Please begin. Lars-Christian Svensen: Thank you, operator. Welcome to the Q4 2025 Conference Call for 2020 Bulkers. My name is Lars-Christian Svensen, and I will be joined here today by our Chairman, Magnus Halvorsen; and our CFO, Vidar Hasund. Before we start the presentation, I would like to remind you that we will be discussing matters that are forward-looking. These assumptions reflect the company's current views regarding future events and are subject to risks and uncertainties. Actual results may differ materially from those anticipated. I will now continue with the highlights of the quarter. We reported a net profit of $13.8 million and an EBITDA of $16.5 million for the fourth quarter of 2025. We achieved an average time charter rate of about $39,300 per day in the same period. Our total dividends amounted to $0.63 for the months of October, November and December 2025. In October 2025, we signed an agreement to sell the Bulk Sao Paulo for a total of $72.75 million with Q1 2026 delivery. In November 2025, we signed further agreements to sell the Bulk Sydney and the Bulk Santos for a total of $145.5 million. These 2 vessels will also be delivered to new owners within Q1 2026. In subsequent events, we reported an average net TCE earnings of about $30,800 per day for the month of January 2026. And this morning, we also announced a dividend of $0.15 for the same month. And with that, I will now pass the word to Vidar. Vidar Hasund: Thank you, Lars-Christian. 2020 Bulkers reports a net profit of $13.8 million and earnings per share of $0.60 for the fourth quarter of 2025. Operating profit was $15.8 million and EBITDA was $16.5 million for the quarter. Operating revenues and other income were $21.4 million for the fourth quarter. The average time charter equivalent rate was approximately $39,300 per day gross. Vessel operating expenses were $3.5 million, and the average operating expenses per ship per day were approximately $6,300 in the fourth quarter. G&A for the fourth quarter was $1.1 million. 2020 Bulkers recognized approximately $0.5 million in management fee as other income in the financial statements. Interest expense were $1.9 million for the quarter. Shareholders' equity was $148.4 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the fourth quarter and is nonamortizing until maturity in April 2029. Cash flow from operations was $15.5 million for the quarter. Cash and cash equivalents were $22.1 million at the end of the quarter. The company declared total dividends to shareholders of $0.63 per share for the months of October, November and December 2025. That completes the financial section. And now over to you, Magnus. Lars Halvorsen: Thank you, Vidar. As our remaining ships will now soon be delivered to their new owners, I just wanted to reflect and summarize a little bit the 2020 Bulkers history and the financial returns we've generated for our loyal shareholders. We started out in 2017 by ordering 8 scrubber-fitted Newcastlemax vessels at New Times Shipyard paying at the time, all-inclusive $47.6 million. And we believe at the time, there was a very interesting risk reward given the attractive newbuilding prices and falling order book. As we became an operating company, we remained profitable every single quarter from the delivery of our last vessels. And looking at what this has meant in terms of returns, the company was initially financed by $142 million in equity through a number of share issues. As of and including the declaration we made today, we have declared a total of $251 million in dividends and distributions to other shareholders. And as we've reported today and Vidar went through, we expect to have net proceeds from the sale of the last vessels amounting to around $311 million after all debt has been repaid. Additionally, we have around $50 million on cash on the balance sheet as of today. What this means for the investors who supported us throughout the whole story, participating prorate in every equity offering since November 2017, we've generated an IRR of 28% per annum measured in dollars. For those and perhaps more relevant who came in on the IPO on then Oslo Axess in June 2019, the annual return, including dividends, has been 31% measured in U.S. dollars. This compares to 17% for the S&P 500 and just under 16% for the Oslo Stock Exchange measured in dollars for apples-to-apples comparison. As we stated in the release today, our intention is to, as soon as possible, return all the proceeds from the sales to shareholders as well as the majority of cash on hand. We will retain a small amount in the company to support G&A, which will enable us to stay listed while we can evaluate potential strategic or other opportunities. Before I go to the Q&A, I'd like to thank everyone who's been part of the story so far. We obviously wouldn't have been able to do this without the investors. And I think particularly the ones that supported us in a very challenging share offering in May 2019. At the time, dry bulk was not exactly in fashion. It was very tough to get it done. And also a big thanks to the employees, the Board, the banks, brokers, New Times Shipyard and of course, very importantly, our very good charters, so -- which we have remained very loyal to. And with that, I'll leave it over to the operator for questions. Operator: [Operator Instructions] As there appears to be no questions in the queue, I'll hand it back to the speakers for any closing remarks. Lars Halvorsen: Okay. I think we've said what we want to do. So thank you, everyone, for dialing in. And if you have any questions that you didn't ask, feel free to reach out to us. Thank you very much.
Operator: Ladies and gentlemen, good morning, and welcome to the analyst conference call on the Fourth Quarter and Full Year 2025 results of Ahold Delhaize. Please note that this call is being webcast and recorded. During this call, Ahold Delhaize anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks and uncertainties, other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP. John-Paul O'Meara: Thank you, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q4 and full year 2025 results conference call. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. There, we provide extra disclosures and details for your convenience. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. So with that, Frans, over to you. Frans Muller: Yes. Thank you very much, JP, and good morning, everyone. In 2025, we operated in a rapidly shifting environment, frequent and unpredictable government policies, pockets of inflation and volatility and rapid advances in AI and technology. In that context, being a consistent and trusted partner for customers, associates and all other stakeholders matters more than ever. As you will have seen in our release this morning, I'm proud to say we are delivering on our Growing Together commitments and are well positioned for what lies ahead. Our execution through the holiday season is a great example of how our growth model is coming together, allowing us to finish the year on a high. And for the full year, net sales increased 5.9%, while comparable sales, excluding gas, increased 3.2%. We delivered a healthy underlying operating margin of 4%, diluted underlying EPS growth of 7.8% as well as strong free cash flow, allowing us to increase shareholder returns. In Grocery, success is never driven by only one thing. It's a result of many details coming together and that on an everyday space. As our capabilities mature and integrate, our execution in turn is becoming more connected. The backbone of this is that the flexibility we have created in our ecosystem to deploy scaled and yet tailored solutions, the resilience of our local value propositions and brand personalities and the disciplined execution driven by aligned teams with a strong culture of ownership and accountability that underpins the Growing Together strategy. So let me unpack this a little bit more in detail with some practical examples. First, starting with the customer. Let's talk about strengthening customer value through trusted products. Across our markets, our local brands invested in price and value by lowering prices and broadening own brand assortments in key daily needs. In the U.S., we had our first full year investing towards a total of $1 billion in price investments over those 4 years. And at the same time, we strengthened our own brand assortments, adding 1,100 new products in the U.S. and 1,450 in Europe. In Europe, where own brand penetration is close to 50%, our assortments are a clear competitive advantage. Over the past year, we expanded collaboration through our AMS buying alliance, and this delivered quality improvements while also generating cost savings with a further expansion planned into 2026. These efforts are truly resonating with customers. Own brand growth continued to outperform the rest of the store with group level penetration reaching 39.8%, reflecting strong appreciation for quality, health, value and innovation. The next core block is vibrant customers experience, covering every interaction between our brands and customers in stores, online and through services. Customers increasingly expect convenience, personalization and a seamless integration across channels. In the U.S., we completed the rollout of PRISM, creating a unified digital backbone for personalization at scale, as it enhances opportunities in advertising and retail media. This enabled us to reach around 32 million customers and deliver 14 billion personalized offers in 2025. Customers are also responding positively to our shift forward towards the same-day delivery and partnerships with DoorDash and Instacart with additional partnerships planned. Together, these initiatives strengthen relevance, convenience and loyalty across channels. In addition, in 2025, we opened 220 new stores and remodeled more than 450 locations, maintaining a modern, healthy and attractive store fleet. As a result, we have strengthened our #1 or #2 positions in most of the markets where we operate. Another factor, which is unlocking compounding opportunities for us, is driving customer and business innovation, where digital, data and AI are increasingly powering both customer value and performance. Technology and AI represent a growing share of our EUR 2.7 billion in annual CapEx. We are applying these capabilities across our ecosystem, improving availability and forecasting, enabling AI-assisted customer journeys and scaling predictive and visual intelligence solutions. These investments, combined with our focus on local store-first fulfillment and a more asset-light operating model, are yielding good results. Online sales grew 12.9%, led by 22.8% growth in the U.S. Food Lion had a standout quarter with over 35% e-commerce growth and a 2% point increase in penetration. With the recent closure of 6 e-commerce fulfillment facilities, we have now completed the shift to our store-first operating model. In the Netherlands, the Albert Heijn app plays an essential role in daily lives for millions of consumers. Supported by generative AI, the app is becoming more personalized, multilingual and intuitive, making it easier for customers to plan meals, manage rewards and discover inspiration and new recipes. At bol, we continue to innovate across the end of the journey -- the end-to-end journey. AI-powered features such as Gift Finder and Spot & Shop are increasing engagement and reach. By combining rich shopper insights with impactful campaigns, bol was named the #1 retail media publisher for the second year in a row in the Netherlands. Retail media, as you know, is an increasingly important growth machine for the company. The key strength is our ability to build once and scale across brands. With one global retail media platform, we can deploy new solutions quickly across markets while tailoring execution locally. So with strong capabilities in place, growth now is more about culture rather than capability, which you can see in our people decisions. Good examples here are Margaret's move from bol to Albert Heijn or Keith brought a remit in the U.S. as a Chief Commercial and Digital Officer. Both Margaret and Keith bring deep retail media and technology expertise into grocery, also understanding the importance of developing best-in-class digital offerings and boosting capabilities across the commercial value chain through the power of AI. This reflects our belief that a win at one brand is a win for all brands and that scaling talent and capabilities is just as important as scaling technology. So let me now turn to shaping our portfolio to drive growth and excellence, where disciplined portfolio decisions and operational execution work hand-in-hand. In Europe, we welcomed Profi at the beginning of 2025, establishing a strong platform in Romania for future growth. Throughout last year, Profi opened 70 new stores, marking the start of a promising growth trajectory. At Albert Heijn, we opened 19 new stores and launched a major refresh of the Fresh Square concept in more than 500 locations, responding to growing demand for convenient, nutritious food solutions. In Belgium, we now recently completed the acquisition of Louis Delhaize, adding 303 stores and expanding our presence in convenience in 2026. As the largest food retail group on the U.S. Eastern Seaboard, we see meaningful runway in a still fragmented market. In a region where supermarket volumes declined in 2025, we delivered positive volumes by leading into price, own brands and omnichannel convenience. In the U.S., Food Lion launched 153 remodels and started construction on 93 remodels in the Greensboro market, which will be launched later this year. Stop & Shop remodeled over 30 stores, deploying an efficient use of capital, progressing on their revitalization plan. As part of this plan, Stop & Shop improved store standards, service and value perception. Price investments now cover more than 65% of the fleet, supported by stronger own brands, new marketing and in-store signage, upgraded stores and improved execution. Through the combination of these efforts, we have seen steadily improving trends in comparable sales growth, including volume growth, by the way, and in our Net Promoter Score, or NPS. Especially encouraging are the year-to-date improvements in value for money and ease of shopping, showing the holistic nature of Roger and his team revitalization efforts. Finally, let me spend a moment on healthy communities and planet because we believe the everyday choices we all make do matter. As a family of great local brands, we are ambitious about the measurable impact we can have, striving to make healthier options more accessible and affordable, supporting the natural systems that make food possible and reducing waste across our value chain. An important part of this, something we don't often talk about, is our U.S. pharmacy business, which plays a growing role in customer trust, health access and loyalty. Millions of customers use our pharmacy services, placing them amongst our most engaged shoppers with the majority of them paying primary -- with the majority of them being primary customers. With ongoing drug store closures, our pharmacies also provide an important access point for health services in their local communities. Under the Inflation Reduction Act, Medicare prices will come down for 10 high-cost drugs. From a financial perspective, Jolanda will share additional figures as part of the 2026 outlook, which for all intents and purposes is a technical change for us. More importantly, for many customers, this provides meaningful financial relief, potentially freeing up spending for other everyday needs. As we leave 2025 behind, we can be proud of the progress achieved and the strong foundation built in the first year of Growing Together. Our strategy has been pressure-tested, our capabilities are evolving and our teams are operating in a strong rhythm, which is delivering compounding results. We are carrying this momentum into 2026 with confidence in our execution, our portfolio and our ability to continue to create value for customers, associates, communities, and of course, shareholders. With that, I will now hand over to Jolanda for more detail on our financial performance and outlook. Jolanda Poots-Bijl: Well, thank you, Frans, and good morning to everyone. Our performance underlines the resilience and flexibility of our brands to deliver also in dynamic market conditions. It's a good reflection of how we're balancing our growth investments and cost-saving strategies in the U.S. and in Europe, whilst remaining laser-focused on creating the best customer value proposition for every wallet. Our growth model is built on a simple and repeatable cycle. That cycle is anchored in the strength of our local brands, our leading omnichannel capabilities and the customer value proposition that resonates. By combining sales-led growth with disciplined cost control and thoughtful capital allocation, we can invest in price, convenience and digital while maintaining strong free cash flows and returns. So let's dive deeper into the numbers. Net sales grew 6.1% to EUR 23.5 billion in Q4 and 5.9% to EUR 92.4 billion for the full year, driven by strong comparable sales, both in the U.S. and in Europe, portfolio expansion, including Profi and continued growth in omnichannel. Q4 comparable sales were 2.5%, which includes a negative impact of 0.1 percentage points from weather and calendar shifts and a negative impact of 0.2 percentage points from the end of tobacco sales in Belgium. Online sales grew 12.9% in Q4 and 13.3% for the full year, reflecting strong momentum in online grocery across both regions. Underlying operating margin was 4.2% in Q4 and 4% for the full year. Strong U.S. performance more than offset headwinds from Serbia pricing regulation and first-time integration of Profi. Diluted underlying earnings per share was EUR 0.73 in Q4, up 11.9% and EUR 2.67 for the full year. Q4 IFRS operating income was EUR 899 million, corresponding to a 3.8% margin. IFRS results were EUR 96 million lower than underlying, mainly due to the impairment charges related to the strategic shift to a local store-first omnichannel fulfillment model in the U.S. For the full year, IFRS operating income was EUR 3.5 billion, representing a 3.8% margin. The EUR 192 million difference versus underlying was largely driven by portfolio optimization actions, including the shift to a store-first model in the U.S. and the acquisition and integration costs related to Profi. These actions reflect disciplined portfolio management aligned with our strategy. Operational excellence remains a core enabler of our Growing Together strategy. Through our family of great local brands, we leverage scale to combine sourcing power and scale tech to deliver local impact in a simpler, smarter and more seamless manner, unlocking new efficiencies through automation and innovation. In 2025, we delivered nearly EUR 1.3 billion in save for our customer savings, in line with our ambition for the year. These savings are reinvested with discipline into price, technology, store upgrades and sustainability initiatives, increasing value for customers, creating free cash flow and returns. This also includes investments in growing complementary income streams such as enhanced personalization and support services for brand partners, creating a capital-light revenue stream. With double-digit growth in 2025, we are making good progress towards complementary income of around EUR 3 billion by 2028. Let's now take a closer look at our regional performance. On Slide 21, for your convenience, we present the impacts of weather and calendar over the last quarters by region. U.S. net sales were EUR 13 billion. Comparable sales, excluding gas, increased 2.7%, driven by continued growth in online and pharmacy sales. The cycling of Hurricane Helene had a negative impact of approximately 20 basis points. Online sales growth reached an excellent 22.8% for Q4 versus last year, driven by strong performance across all our brands. The combination of our delivery speed, customer reach and extensive assortment, enabled by our strategic shift to same-day delivery and ongoing partnerships with DoorDash and Instacart, is what wins over customers. Underlying operating margin in the U.S. was 4.7%. The margin outperformance was driven by higher sales leverage, improvements to our online margins, the positive impact from a shift in category mix and lower shrink levels, which more than offset price investments and the dilutive impact from ongoing growth in pharmacy sales. Last October, we announced plans to develop a state-of-the-art DC in North Carolina. This investment adds capacity and automation in a key growth region. It improves efficiency and service levels and supports the long-term needs of our local brands, including Food Lion. And as you all know, Food Lion has been on an impressive trajectory of growth with Q4 marking the 53rd consecutive quarter of growth. In Europe, Q4 trends were in line with the prior quarter. Net sales were EUR 10.5 billion, up 11.2%, partly due to the Profi acquisition, an increase in comparable sales of 2.4% and new store openings. Comparable sales had a negative impact of 50 basis points from the cessation of tobacco sales in Belgium and calendar shifts. In Q4, online sales increased by 6.6%, driven by double-digit growth at Albert Heijn. The strength of our European brands, their ability to adapt in complex conditions and their relentless focus on cost savings allowed us to deliver an underlying operating margin of 4.1%. This was slightly better than anticipated, considering the headwinds from the sudden government decree and intervention on the limitation of prices in Serbia. Some of the brand highlights in the quarter include Albert Heijn reaching a record market share of 38.2% for the year, Delhaize Belgium completing its transformation and expanding in convenience and the CSE brands, particularly Romania, demonstrating resilience and readiness for renewed growth. At bol, Q4 capped a strong year with high single-digit growth, record Black Friday sales and 70 basis points of market share gains as the brand successfully countered increased competition from Amazon and Chinese players. Full year underlying EBITDA increased to EUR 207 million, driven by advertising growth and cost discipline. Moving now to cash flow. Free cash flow was EUR 1.5 billion in Q4 and EUR 2.6 billion for the full year. This exceeded our guidance for the year and is in part a reflection of the strong holiday period and solid Q4 performance. Additionally, our gross CapEx spend was lower than our original guidance for the year due to the timing of new store openings as well as the finalization of our project plans around the construction of the new Food Lion distribution center. Given the overall performance, I'm pleased to announce our proposal to increase the dividend for 2025 by 6% to EUR 1.24 per share. This reflects our stated ambition to sustainably grow dividend per share and generate strong shareholder returns. To that end, we also initiated a EUR 1 billion share buyback program for 2026 earlier this year. Finally, let me add some insights to Frans's comments on our healthy community and planet priorities. Through our trusted products, we are making healthier and more sustainable choices easier and more affordable. We do this by improving nutritional value, increasing transparency and using data and insights to guide customer choices. In 2025, the percentage of own brand healthy food sales was 52.1%. Like-for-like, we improved with 40 basis points compared to 2024 as our CSE region implemented the Nutri-Score methodology changes in 2025. Our total tons of food waste per food sales decreased 39.1% versus the 2016 baseline. This is a 4.4 percentage point improvement versus 2024, driven by smart sourcing, better inventory management and more donations. CO2 emissions in our own operations decreased 39.1% versus our 2018 baseline, which is an improvement of 3.4% versus last year, mainly driven by the installation of more sustainable refrigeration systems. Virgin plastic in our own brand packaging decreased 10.9% versus 2021, which is an improvement of 0.8 percentage points versus last year as our brands were able to increase the percentage of recycled content in our own brand product packaging. This progress reflects a true company-wide effort and something that deeply matters to our people. It is embedded in how we operate and is why healthy communities and planet remains a key priority for us. Now, turning to our guidance for 2026. First, a few specific items to reflect in your 2026 models. The Inflation Reduction Act will reduce U.S. pharmacy sales by approximately $350 million with no impact on underlying profit. The Delfood acquisition is adding over $200 million in European sales. And 2026 includes a 53rd week, which is expected to add 1.5% to 2% to net sales and 2% to 3% to underlying net income from continuing operations with no significant impact on operating margin. Our outlook reflects a disciplined approach to maximizing returns while maintaining flexibility. We expect an underlying operating margin of around 4% with limited downside expected given our strong operating momentum and the good start of the year. Mid- to high single-digit EPS growth at constant rates, a free cash flow of at least EUR 2.3 billion and a gross CapEx of approximately EUR 2.7 billion. While we do not provide quarterly guidance, some phasing effects should be expected during the year, as we flow investments in line with real-time trading conditions, allowing us to stay sharp, calibrate actions iteratively as new learnings emerge and remain flexible to market developments, including macroeconomic and geopolitical uncertainties such as Serbia. For 2026, you can, therefore, expect a persistent focus on value for customers, continued growth of our brands, disciplined investment in stores, logistics and digital and a relentless focus on cost and cash flow. This is how we operate, consistent, disciplined and delivering compounding results. And with that, I will hand back to Frans for closing remarks. Frans Muller: Thank you very much, Jolanda. As you have heard, and as you have seen, our Growing Together strategy is now fully in motion. The focus ahead is simple, doing more, even better. We have spoken today about many of our capabilities, but in an industry like ours, one of the most powerful and often underestimated is thriving people being connected to their communities. The partnerships between our brands and the communities they serve is as important an asset as scale or technology or algorithms. This proximity to our customers, listening carefully, learning continuously and adapting quickly to what matters most in their daily lives is, therefore, the real oil that makes the ecosystem run smoothly. Therefore, also a big compliment to our teams for a remarkable result in 2025. Behind that, everything we do is within the framework of a clear operating reality. We remain laser-focused on cost, disciplined in how we allocate capital and deliberate in sequencing investment so that growth is funded, repeatable and resilient. This is how we create value every day for customers, associates, communities and shareholders and why we enter 2026 with confidence. With that, thank you for your attention. And Sharon, please open the lines for questions. Operator: [Operator Instructions] And our first question today comes from the line of Frederick Wild from Jefferies. Frederick Wild: So the first one is, would you be able to help us understand the competitive and consumer environment at the moment in the U.S. and your outlook there for 2026, including things like food inflation? And how you expect volumes to develop? Secondly, you mentioned, Jolanda, a cadence throughout the year. Given what's happening in Serbia, given maybe some of the U.S. pressures we're seeing at the moment, can we take those comments to mean that you're expecting a -- the year to sort of sequentially improve as we go through it? Frans Muller: Thank you, Frederick, for your questions. On the consumer sentiment in the U.S., if you read the newspapers that people think, hey, it is a weaker sentiment than we had seen before. We also saw here and there reports of negative volumes in the U.S. in the market in itself. If you look at our numbers, we came out the 2025 year with positive volumes in the U.S. with flat volumes in 2025, the fourth quarter. And I think this is also caused by the fact that we have very strong market positions, #1 and 2 positions in the U.S. that we are very connected to our communities, that we have a very good proposition, that we invested online technology and in our stores. So I think we are competing quite strongly. On inflation, we see in food at home Northeast inflation of 2.2% at the moment. And if you ask my prediction, which is not so easy, then I think we see a flat inflation, 2.2%, going forward in the 2026 year. That's how we calculate this. So that's a little bit on inflation. That is on consumer sentiment. And when people talk about consumer sentiment, sometimes we forget 2 things that we are in a food business. So we are not in a discretionary type of business, that we have a very strong brands, #1 and #2 position, 90% of our sales and that we -- and I tried to convey this in my note that we have very strong community connections. And the element of trust is super important, and that's what we earned over the years, and that's only strengthened during COVID. And that's, I think, what we also benefit from now, plus our price investments, a EUR 1 billion price investment over 4 years in the U.S., our strengthening and growing own brand share. So I think we have a good proposition here to support the customer journeys, not only physically, but also online and also through AI and technology. Jolanda? Jolanda Poots-Bijl: Yes. And thank you for your question. Yes, the cadence, as we guided in our storyline just now, we are confident. We started the year well, and we have given a guidance of around 4%. That cadence is something that we don't want to dive into. Europe and U.S. might have different cadences for us started. And we want to allow ourselves the flexibility to invest where we see an opportunity and do that in the perfect cadence to create value for our customers, but also for our shareholders, of course. Frans Muller: And we are in a growth strategy together? Jolanda Poots-Bijl: Yes, that's why we're heading forward fast. Frans Muller: We are going to grow the business. Jolanda Poots-Bijl: And that's what we're investing in. Operator: We will now go to the next question, and your next question comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a big picture one. Just trying to understand how you approach margins on a group level because you consistently talk and communicate and guide on a group margin level. Is that how you run internally as well as in -- if you expect some weakness, let's say, in Europe, you try and compensate for it in the U.S., obviously, within limitations of what you can do on pricing and cost. Does that explain probably a much stronger-than-expected U.S. margin in Q4? That's the first question. Secondly, Frans, it would be amazing if we could dive a little bit into where are in... Frans Muller: Sreedhar, could you speak up a little bit, Sreedhar? Could you speak a little bit louder? Because it's a little bit difficult to understand and... Jolanda Poots-Bijl: Sreedhar, my ears are less strong than Frans' ears, so I need... Frans Muller: Speak up a little bit. Sreedhar Mahamkali: Sorry, sorry. Yes. Of course, yes. I'll just repeat. Just a real question. First one on how you approach group margin because you consistently guide on a group margin. Internally, do you actually manage it as such as in when you see potential weakness in one part of the business, you try and lean into another to deliver the group margin consistently. So that's the first question. Second one is just in terms of where we are on the Stop & Shop reinvestment, price investment and how close to completion are we now given Stop & Shop seems to be progressing in terms of a recovery. So if you can just talk through a little bit more on the reshaping of Stop & Shop offer and where we are in the journey, that would be very helpful. Jolanda Poots-Bijl: Thank you, Sreedhar, and thank you for helping us out here. So your question, I'll take the first one on group margin, our business is local, and we optimize our businesses on that local opportunities and challenges that we have. So we're not balancing out in the portfolio as such. We're managing the optimum business by business and back end, and that's the strength of our model. We try to combine our scale to support those businesses locally. So I think that, in short, answers your question. Frans Muller: Yes. And I think also, Sreedhar, we would like to stay as competitive as we can be on brand level for the U.S., for example, on country level or brands in Europe or in the Benelux. I think that's our promise to customers, our commitments to make sure that we have the local proposition as strong as possible. And then, yes, in the mix, we see the results, of course. At the same time, to stay competitive, we invest a lot in prices. And of course, you know that we have a very strong cost saving program, which Jolanda already talked to. And that plan, we also manage very strictly, too. So I think that's where we get the funding to support locally. It's a local business, Sreedhar. It's -- you can't say, well, we take more money in one brand to subsidize another one. That's not how retail is working for us on Stop & Shop. Sreedhar Mahamkali: Maybe very briefly just on that point, U.S. margin was clearly stronger than most of us were expecting. Was it ahead of your expectation? Because you clearly guided to stable margin... Frans Muller: [indiscernible]. Jolanda Poots-Bijl: Yes. Sreedhar, to be totally transparent, it was above our original plans. And as it is in grocery, you know it as much as we do, it's lots of small things. And if they all come together a little bit more positive than you expect, then you can outperform. And let me mention just a few of them. If you look at our product mix, we sold more fresh than center store. Yes, that's a little support to that margin. We saw that vendor allowances were a little bit more positive. Our online profitability is improving. So it's many small elements all coming together, having small impact as such, but then together, you outperform. So yes. Frans Muller: And a strong holiday season. Jolanda Poots-Bijl: A strong ending of the year. So sales flow-through was -- it was all those elements. Yes. Frans Muller: Thanksgiving, great. Christmas, great. Diwali, also great, by the way. So we had a strong holiday season. And that -- and shrink numbers also went down because if we have high sales, then also shrink numbers come down as well. So a lot of things in the right direction. So, well, I'm not surprised because we have a strong team there, but I think it was stronger than we would initially have expected. Jolanda Poots-Bijl: Yes. Frans Muller: Finally, then we come to the -- before you mix in another question, Sreedhar, we now go to -- it's a good question. We now go to Stop & Shop. So Stop & Shop, we invested in prices as we promised ourselves and our customers. And in 2025, we were in 65% of our sales, 65% of our sales. We did -- we made our price investments. This will go in 2026 up to roughly 80%. So we make additional funding available for our price investments. At the same time, Roger and his team, first of all, a very dedicated, enthusiastic, energetic and a new -- and partly new team, they made quite some changes. They are now very focused on execution. Availability of product is much better. Labor costs are better under control, better service for customers in stores, better mentality. And we see also now that with the relief of the 32 stores we closed, we have now a much better store set for Stop & Shop as well. Also, Stop & Shop, as you might know, has a very high online penetration of around 11%. So also there, the omnichannel is very strong. We see NPS going up for Stop & Shop. We see price perception within the NPS also getting better. They enjoy the higher penetration of our private brand products as well for Stop & Shop. So a number of things are going in the right direction. And at the same time, we also remodeled 30 more stores for Stop & Shop with a different type of frame. So Stop & Shop also, there good momentum. And you have heard me and Jolanda earlier, a good momentum is great, but we will have to see this a few quarters more before we completely embark on this journey. But also there are compliments to Roger and his team, what happened is, yes, there's a new wind -- a positive wind blowing at Stop & Shop for not only the associates, but also for our customers. John-Paul O'Meara: Let's try to not Sreedhar's lead on that one, at least, that's 3 for the price of 2. Operator: We will now go to the next question. And your next question comes from the line of William Woods from Bernstein. William Woods: Obviously, there's been kind of clear debate over the U.S. margin trajectory over the last couple of years, and you showed good results today. When you look over the next year, how does your strategy change in the U.S. as you go into the second and the third year of the strategy? And do you think we're at the trough of the U.S. margin today? Jolanda Poots-Bijl: William, for that question, it might sound a bit boring, but I think I explained earlier, boring for me is a new exciting. We continue on the journey that we shared with the markets when we launched our Growing Together strategy. I think, in our business, it's important to get in a good rhythm in the cadence and then deliver on that cadence. So no big changes expected in the new year. It's fighting to support our customers every day with the best prices possible, continuing with those price investments that we announced, opening up more stores, doing the remodels, driving growth and sharpening our competitive position. So no spectacular changes. It's continuing what we embarked on. Frans Muller: Jolanda mentioned earlier, William, the EUR 2.7 billion CapEx in our total company. A growing part of this is going into technology, AI and these kind of elements. That is also counting for our U.S. business, of course. So with -- when we see digital AI, both in the efficiency part and the forecasting part, but also in the consumer-facing part, we do a better and better job, loyalty, personalization and these kind of things. So we should not forget that, that also that positive trend of growing more into technology investments is also still continuing as well. Jolanda Poots-Bijl: Maybe last, but not least, because we just delivered the EUR 1.3 billion on save for our customers. The next round is already, of course, heavily in because we have another target of EUR 1.25 billion also for this year. So it's also that relentless focus on, exactly what Frans says, using AI, automation, looking for ways to drive our cost down because year-on-year, of course, it's getting a little bit tougher to realize those targets. So we're obviously also heavily into making sure that we drive those cost savings because that's one of the pillars of our success going forward. Operator: Your next question today comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: Apologies. Yes, maybe I was on mute. Sorry about that. And so the first one is just the investor event a couple of years ago, you talked about high single-digit percentage EPS growth as an algorithm. If we look at '26, I guess, ex the 53rd week, we're probably not quite getting there. Just wondering what the headwinds are you see in 2026 to that and whether that high single-digit percentage EPS growth is still the right growth rate to think about for the medium term? And second one, sort of follows on from that, I guess, is just if we look at the U.S., I mean, outside of potential consumer weakness, we've got SNAP cuts, GLP-1s more readily available, Walmart taking share, Amazon gaining more traction with its online grocery business. I mean, why would we not expect the U.S. to slow down on the top line meaningfully in 2026? Jolanda Poots-Bijl: Well, thank you, Rob, for that question. So first of all, our Growing Together commitments was high single-digit growth on EPS over the 4-year period, and we stick to that commitment. If you look at our 2026 guidance based on the 53 weeks that we have in that year, we guide on a mid- to high single-digit growth again. You are right, if you take out the impact of the 53rd week, of course, EPS is impacted. Two elements to keep in the back of your head. There is the Serbian impact. Serbia used to be a profitable business, guiding well in our European average margins. It's now a loss-making business. So that is included in our guidance, and we're also fighting to repair that issue, one could say. So Serbia has an impact. And also don't forget, the 53rd week, it is money that will be banked, and it is part of that 4-year trajectory of growing together. Frans Muller: On your second question, Rob, yes, it's pretty competitive out there in the U.S., and that's what this business also -- makes it also exciting. But we are used to this already for a longer time. This is not a new phenomenon in itself. The elements I just would like to stipulate here is that we have a business which is now better positioned than before for growth. We have a better supply chain. We have a stronger own brand offer. We are investing in pricing, and we will invest more in pricing, the EUR 1 billion in 4 years you have heard. We are growing our total Food Lion network, not only by stores, and we will open more stores for Food Lion, that is also a new trajectory, but we also keep remodeling our existing fleet. And where there are opportunities for Food Lion to dense up, let's say, the footprint by potential acquisitions, then we also will look at this. Technology and mechanization will help us to reducing cost or get a better customer journeys. So -- and we talked about it earlier when one of the largest competitors in the U.S. is gaining share in the Carolinas, that does not mean that we lose. We win share with Food Lion in the markets where we operate, those states in the southern part of the Eastern Seaboard. And that is because we are connected to our customers. We are very local. We have very good networks, and we have great people. And I think that is not changing. I also heard that a marketplace player is also closing a few stores in the fresh areas, which is also telling us this is competitive and food retail with the margins we make is not easy. And that's why I think also experience and good people kick in as well. So competitive, yes. Are we able to compete? Absolutely. We think that we also gained market share in the fourth quarter in the U.S. And with positive volumes, I think we have, yes, a good start for 2026 also when we look at the first period of the year. So competitive, but we're in a fighting spirit and the teams are really -- yes, very geared up for the journey. Robert Joyce: Okay. So you think you're well positioned to keep taking share, Frans, it sounds like. Frans Muller: We'll come back to you quarter-by-quarter. Rob, don't jinx it now, but that is a... Jolanda Poots-Bijl: It's our ambition... Frans Muller: No, we have a growth strategy, and you know that our growth strategy means 2 things, means volume growth and market share growth. And that is for every brand individually the task, and that's how we construe our plans. And then, we have to see how that works out and how strong we really are. Operator: Our next question today comes from the line of Fernand de Boer from Degroof Petercam. Fernand de Boer: Two questions from my side. One is about actually on Europe. If you look at last year, '25, you had, of course, the dilution of the acquisition of Profi, you had Serbia, that's now most in the base. So what should probably a bit hold you from higher margins in Europe in '26? And then, the second one is on Albert Heijn. You are now at 38% market share. I think competitors are trying to move. How do you look at that going forward? Jolanda Poots-Bijl: Thank you for that question. I'll take the first one, and Frans will take the Albert Heijn question. We have the first year integration of Profi, and indeed, we are now positioned for growth in Profi. So we envision to open up more stores and drive growth there. And we will get some of those first synergies kicking in. We expect Profi will take around 2 to 3 years to land at the European average margin. So I would not say we're there yet. We are on a journey, and we look forward to that. Serbia, of course, is an impact that was only slightly in last year because it started -- the decrease started September 1. So that is, for sure, a difference versus last year. Frans Muller: And then Fernand, on Albert Heijn, yes, this is a very impressive market share. You round it down to 38%, but it's a very impressive market share. But this comes with 0 arrogance in the marketplace. So the teams have designed their commercial plans for 2026. We might see a few brands in the Dutch market, which have the intention to bounce back. We had an almost 12% growth of our online in Q4 for Albert Heijn. And we also would like to make sure that we stay growing online as well, double digit for Albert Heijn. We look at strengthening our journeys and our portfolios. We have 1,900 organic products, where we are absolutely the leader in differentiation, same for convenience, same for meal solutions. So the creativity is there with the team. Online will be an important component to grow, and I think that means also if you look at price investments, and we know the price favorites where we with 2,000 items have the best offer in the market that will also continue that focus that we make that promise work as well. So Albert Heijn, you talk about the Netherlands, but Albert Heijn is also doing a great job, by the way, in Belgium. Also there, we had a very strong result over the year and also big plans to grow our business there as well. So in short, keep very focused on the omnichannel proposition, 0 arrogance, use the innovation you have in your team to build better products, better private label, which is well over 50% share now at Albert Heijn and work strongly on your cost as well because also there, price investments have to be invested also through cost savings. And that is for Albert Heijn, not different than for anybody else. Fernand de Boer: Maybe one last question on working capital. How far further can you stretch your accounts payable? Jolanda Poots-Bijl: Sorry, the mic went off. I don't know what Frans was doing. A strong year-end sales, of course, means that your inventories are temporarily a bit lower and your accounts payable are a bit higher. So that's also a timing impact of one could say, backloaded sales or a good year ending. We're not expecting to stretch our accounts payable any further. We're just dealing with it as we should be as a good partner in crime also for our suppliers. Fernand de Boer: And the 53rd week, does it have impact on your working capital? Jolanda Poots-Bijl: It will have a bit of an impact, of course. But what we will do, as we will -- as we always do, we will disclose any impact of that last week in our communication to the market in a very transparent way. Frans Muller: Like you did already for sales effect and total net margin. Jolanda Poots-Bijl: Yes. And also in the reporting, we will make sure that the impacts are very clear. Operator: We will now go to the next question, and the next question comes from the line of Xavier Le Mene from Bank of America Securities. Xavier Le Mené: Two, if I may then. You mentioned that AI you do and other technology are reshaping the way you are operating. So you mentioned a few examples, but can you potentially elaborate a bit more and give us a bit of color about the type of productivity gains you can expect? And potentially, an indication of the scale, so magnitude of gain you can get there. So even what is the contribution to cost savings potentially? The second question would be on online. You mentioned it's profitable for the first time in 2025. Should we think about online being a potential driver for margin expansion going forward? And what are your expectation for 2026 and beyond? Frans Muller: Thank you, Xavier. On the question of AI, and AI is, of course, an interesting subject as if this is just new to us. I mean, we're working over many years on AI solutions, if it's robotization, if it's our financial processes, if it is making predictions for our demand, looking at our apps for consumer-facing. And we have now a lot of new features as well. So there will be a lot of AI and opportunities in mechanization. We do a lot of things on recipes and even more creative solutions for customers. You saw what we -- when we talked about Spot & Shop, make a picture of the lamp or the pair of shoes with your neighbors you like more, and you make a picture, load it in the app for bol and you get a suggestion where you can buy these kind of things. So we have a lot of back-end solutions, robotics, mechanization, forecasting, marking down to avoid food waste. We talked about it earlier. But more and more, we get even more consumer-facing opportunities with visual search and all these kind of things with AI is giving us. So a lot of things happening there. The other thing is that you might have noticed that we also got a new Chief Technology Officer on board with Jan Brecht. And Jan Brecht is working very closely, of course, with IT and digital and tech teams. And I just came in here, I just bumped in a room today in the meeting room, where they were talking about our group focus area, work group on AI, where we also bring Americans and Europeans and central people together to see, hey, what can we learn from each other, and we're going to learn a lot from the U.S. as well. What can we learn from each other to make even those propositions more standardized, in the end cheaper in serialization and to scale it up. So a lot more to come. And I think we will talk every quarter about the new features like we did today as well. Jolanda Poots-Bijl: On your second question, and thank you for that, online profitability margin going forward. We look at online in a holistic way. So we're not separating it anymore. Of course, we have those numbers, but we don't separate it in as, okay, it's margin dilutive, and how do we balance that out in the portfolio? We drive growth. Online is a core driver of that growth. And from a holistic and more strategic point of view, having those online customers, which creates indeed growth, it also gives us access into people's daily lives. We can design personal assistance that going forward will give us strategic opportunities, gives us data. We can do the personalization. So there are many elements for us that are so much more important than just an online business and the dilution. We indeed communicated half 2025 that we are now online profitable in the group. That profitability is increasing and improving. So going forward, we double down on online also, as Frans stated, for example, for Albert Heijn. We find ways to improve our profitability even further. And we're quite confident that as a part of our overall strategy, this will benefit our customers, our company and also providing the returns to our shareholders that you could expect to have from us from a holistic point of view. Operator: We will now take our final question for today. And the final question comes from the line of Francois Digard from Kepler Cheuvreux. François Digard: Could you elaborate on the online sales growth in the U.S. in '25 and specifically in Q4? I would appreciate the deep dive if you could help us to understand the main drivers behind this performance. And how sustainable do you believe this growth is? Notably how -- I would be interested to know how you share the value with your Click & Collect partners in this business. Frans Muller: Thank you, Francois. [Foreign Language]. 23% growth in the fourth quarter is, of course, magnificent, 35% for Food Lion. And you could argue that it's a little bit from a lower base in itself, but it's still amazing. Penetration getting over 9% now. Stop & Shop historically already in very high participation, but also growing there to over 11%, so a very positive penetration growth in all the brands we operate. We operate very different than before. As you know, we are now having our Click & Collect options powered by PRISM, owned -- well -- own-developed software, which is giving us, yes, first of all, efficiency, picking efficiency, but also a much better customer connect and a much better customer journey in that online Click & Collect, let's say, part of our proposition. We also partner with DoorDash and Instacart. That is going very well. We might address that we might find another strong partnership, too, which is going to fuel extra growth, so we talk about online a lot. The teams are so convinced that omnichannel is the name of the game. Those customers are more loyal, store and online connected. Jolanda already mentioned that we also got a fully allocated profitable and even more profitable. That's also good news. And of course, online and these kind of things are more linked to AI efficiencies, but also more linked to retail media at the same time. And therefore, that online growth is also for us a very important element of having a better deal, having a better proposition for our customer base. Jolanda Poots-Bijl: Maybe adding to that, Frans, I mean, if you look at what is driving our growth next to all the points that you mentioned, if you compare it with some of the competitors in the market, you have access to a very large assortment on our PRISM portal. So that assortment and the breadth of it, I think, helps, and it's fast. So we have a delivery time of 3 hours, which compared to some of those other also huge players, that's high speed. So speed and assortment probably also helps to win customers over. Frans Muller: Yes. And if you're in Brooklyn with your Eastern European assortment, then you pick your online order in that store, your store and your assortment. So it's store-specific. It's a unique PRISM proposition. And I think that's also different than a few of those, let's say, more centralized online things. Also there, we are local. Also there, we give our customers their local store in the mobile phone. François Digard: And how sustainable you see these trends because 20% is just replenishing? Frans Muller: Yes. For the full year, it was 18%... Jolanda Poots-Bijl: Which is also quite high. Frans Muller: Which is also quite high. So double-digit growth is for us important. I think I would leave it there. I mean -- and as I mentioned, 35% for Food Lion, but they have to catch up a little bit because they were at a lower penetration. So they will grow faster, I think, but double-digit growth is our plan. John-Paul O'Meara: So thank you, Francois, and thank you, everyone, for joining us on the call today. Thank you, too, Sharon. We'll be out on the road as usual tomorrow and over the next 7 or 8 weeks. So happy to catch up with you. And if we didn't get your question today, we'll gladly give you a call now after the call. But thank you for your attendance. Jolanda Poots-Bijl: Thank you indeed, and see you next time. Frans Muller: See you next time. Thank you, JP, as well for the preparations.
H. Foss: Hi, everybody. Welcome to Flex LNG's Fourth Quarter 2025 Result Presentation. My name is Marius Foss. I'm the CEO of Flex LNG. And today, I'm joined with our CFO, Knut Traaholt, who will make us through the financials later in our presentation. Today, we will cover the Q4 and full year 2025 results, provide an update on the LNG shipping market. As always, we will conclude this webcast with a Q&A session. Knut Traaholt: And before we start, we would like to highlight the following. We are using certain non-GAAP measures such as TCE, adjusted EBITDA and adjusted net income. These are supplements to the earnings report reported in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures are available in the Q4 earnings report. There are also limitations to the completeness of our presentation. Therefore, we encourage you to read the quarterly report together with this presentation. And with that, let's begin and back to you, Marius. H. Foss: We sell in revenues of $87.5 million or $85 million, excluding the EUAs related to emission trading system. The fleet average TCE during the quarter ended up at $70,100 per day. Net income for the fourth quarter came in at $21.6 million, implying an earnings per share at $0.40. When adjusting for unrealized losses and interest rate swap and FX, ending up with adjusted net income of $23.3 million or adjusted earnings per share of $0.43. We completed the dry dock of Flex Volunteer in January. She is now trading in the spot market. We received a notice from one of our charters that they will not declare the 1-year options on the good vessel Flex Aurora, and we expect to have her back in our fleet in March. Our spot exposure in 2026 is limited to 3 vessels, Flex Volunteer, Flex Aurora and the Flex Artemis, and all 3 vessels are marked for long-term contracts. The remaining 10 vessels are on time charters. We are today presenting guidance for the full year and with 3 vessels in the spot market, we are presenting wide ranges, reflecting exposure to the volatile spot markets. We expect full year revenues to be between $310 million and $340 million, and the expected TCE per day around $65,000 to $75,000 per day. Adjusted EBITDA is expected to come in at around $225 million to $255 million for the full year. The Flex LNG has a very robust financial position. We are -- with a cash balance of $448 million at the year-end. No debt matures prior 2029, and we have a solid contract backlog. The Board has declared another $0.75 per share dividend. This is the 18th consecutive dividend of $0.75 per share, and we have distributed then around $770 million since 2021. Our last 12 months dividend is $3 per share, implying a dividend yield of approximately 11.5%. When looking at the 2025 figures, the short summary is that we delivered in line with our guidance. The full year TCE ended at $72,000 per day and with sell-in revenues of $340 million. Our adjusted EBITDA came in at $251 million. We traded 2 vessels in the spot market in 2025, the Flex Artemis and the Flex Constellation, and we completed 4 dry dockings in 2025, Flex Aurora and Flex Resolute in Q2, Flex Amber and Flex Artemis in Q3. With that, let's have a look at our contract backlog. In 2026, we have 78% of available days fixed on long-term charters. As you can see in the bottom of this slide, Flex Artemis and Flex Volunteer are now trading in the spot market, while Flex Aurora will be redelivered from her current charters in March. We are actively marketing all 3 vessels for both spot and long-term contracts. Further, in 2027, we have options for Flex Resolute, Flex Courageous and Flex Freedom. These options are due to be declared during this year. The spot market was a roller coaster last year with soft rates in the start of the year, while we saw a rally in Q4 with spot fixtures for modern 2 strokes reaching up to $175,000 per day. We expect 2026 to be equally volatile and active market with many fixtures. There is a lot of new LNG export volumes ramping up, continued geopolitical uncertainties, potential congestions, both at import and export terminals, but at the same time, there's also a lot of new buildings being delivered. Therefore, we have modest expectations for the earnings from our spot exposure -- exposed vessel this year. Flex Constellation is due to complete her final voyage in March before she will commence her 15-year time charter delivered in direct continuation. Looking at our total contract coverage, we have today 50 years of minimum firm backlog, which may grow up to 75 years if the charters declare all the options attached. We are optimistic about our open exposure later in this decade. We have greater open exposure during this period, which aligns well with our expectations of an attractive shipping market. Significant new supply volumes are set to come on stream, creating strong market fundamentals. Let's have a look at the guiding for 2026. We expect full year revenues to be between $310 million and $340 million, and correspondingly, we expect the TCE for 2026 to be around $65,000 to $75,000 per day. The range in revenues and TCE reflect our open position and exposure to the volatile spot markets. Adjusted EBITDA is expected to come in around $225 million to $255 million for the full year. In addition, we will complete 3 dry dockings in 2026. The docking of the Flex Volunteer was completed in January, while Flex Freedom, it will enter dry dock later in February. Flex Vigilant is expected to dry dock in Q2. We have budgeted around 20 days of fire on average and the average cost of $5.9 million per docking. Before handing over to Knut, I want to touch base on the key factors behind the dividend decision. Most of our decision indicators are dark green with a few exceptions. Earnings and cash flow, we have adjusted this to a lighter green, reflecting more open exposure. Market outlook. We maintain a range level. The supply of new LNG volumes is firm, but there are simply too many ships being delivered ahead of the new volumes. The long-term outlook is, however, very optimistic. Backlog and visibility. Even though we have a comfortable 50 years of minimum firm backlog, it is prudent to maintain light green. Based on these factors, the Board has declared another quarterly dividend of $0.75 per share. The dividend will be paid out on about 12th of March for shareholders on record 27th of February. And with that, I hand it back to you, Knut, for a walk through the financials. Knut Traaholt: Thank you, Marius. In 2025, we had strong operational performance with close to 100% technical uptime, net of the days for dry dockings of our 4 vessels. The dry dockings in 2025 was completed on 64 days in total, significantly below the budgeted 80 days and hence providing more available days for revenue generation. The TCE for the fourth quarter ended up at slightly above $70,000 per day, resulting in a TCE of $71,700 per day for the full year and then on par with our guidance. OpEx for the fourth quarter was $16,600 per day. And as you can see, higher than the previous quarters. This is due to planned and scheduled engine maintenance performed based on running hours. Hence, we performed more of this in the fourth quarter compared to previous quarter. For the full year, OpEx per day was $15,800 and slightly above our guided level of $15,500 per day. For 2026, we budget OpEx per day to be $16,000. The increase is primarily driven by technical expenses for scheduled maintenance and cost inflation, in particular, related to crew changes. In summary, the fourth quarter revenues, net of EUAs for EU emissions trading system was $85 million and $340 million for the full year. The $15 million reduction year-on-year is primarily explained by higher market exposure with Flex Constellation and Flex Artemis trading in a softer spot market. Adjusted EBITDA and adjusted net income for the full year ended up at $251 million and $101 million, respectively. This is fully in line with our guidance provided earlier last year. As a reminder, in our adjusted number, we adjust for unrealized gains and losses from the interest rate swap portfolio, FX and write-offs of debt issuance costs and access fees related to the 3 refinancings completed last year. We generated cash flow of $44 million from operations and net of working capital movements and dry docking expenditures, we generated approximately $36 million in net operating cash flow. We repaid $27 million in scheduled debt installments and distributed $41 million to our shareholders. In sum, our cash position was reduced with $31 million. This left us with a robust cash balance of $448 million at the end of the year. In addition to our cash position of $448 million, we maintain a book equity ratio of 27%. As noted before, our book values reflect the historical low acquisition cost and then adjusted with the regular depreciations. We have also an interest rate swap portfolio for interest rate hedging, which is valued at $17.5 million on the balance sheet. The average fixed rate of this interest rate swap portfolio is fixed at 2.5%, and we expect to maintain a hedge ratio of around 70% into mid-2027. And since January 2021, this swap portfolio has generated unrealized and realized gains of around $132 million. And with that, I hand it back to you, Marius, for the market section. H. Foss: Thank you, Knut. Well done, this robust financial position provide us highly commercial and financial flexibility going forward. Summarizing the export volumes for 2025, it was a year of growth for LNG with Europe clearly leading the demand. Global LNG export rose 4% on a year-to-year for around 429 million tonnes, driven by strong U.S. growth up to 25% versus '24. The rapid ramp-up from Plaquemine LNG, combined with new supply from Corpus Christi accounted to the majority net growth in the U.S. Outside North America, new volumes additional were limited, while Russia LNG exports declined 2 million tonnes, largely due to sanctions. Australia saw a large decline due to heavy maintenance. On the demand side, Europe absorbed the majority of the increased volumes with imports up to 24% year-to-year, reinforcing its role as a key balancing market. Asia, on the other hand, was more mixed. Fast-growing markets such as China and India saw reduced import year-to-year. In 2025, China reduced its imports with 15% from 2024 and relied more on domestic production, increased pipeline imports, especially from the Power of Siberia pipeline. This is also impacted by the geopolitical events and the trade war with the U.S. India is typically a price-sensitive LNG importer. And while JKM traded above the $10 mark, India tend to import more LPG. On the more mature LNG market, Japan, South Korea and Taiwan, LNG imports were in some unchanged from 2024. The U.S. supply most of the new volumes in Europe in 2025, and Europe has effect switched its reliance from Russian pipeline flows with the U.S. LNG. The explanation of the big jump in LNG imports in 2025 is clear on the right-hand side of this slide. European gas storage levels entered 2026, well below normal and are now said to be around 40% at the risk to fall to levels not seen since 2022. If Europe ends the winter with low storage levels, huge amount of gas will be needed to inject to return stock to minimum levels ahead of next winter. Most are used to meet daily demand, so Europe's total buying requirements in the coming months could be enormous. Hence, we expect strong demand pull from Europe. As long as Europe will maintain a high demand in 2026, there will be fewer intra-basin voyages, putting a lid on the spot market. This is also reflected in the expectation for 2026 spot rates. However, the third wave of LNG supply is underway, and we saw in Q2 last year, ramp-up of new export capacity can suddenly absorb a lot of tonnage in short time. This is very well illustrated in the ramp-up of LNG Canada, which moved a lot of tonnage away into the Pacific Basin. Total new building orders in 2025 was 35, down from 79 in 2024. Ordering momentum has carried out in 2026 with around 20 new building orders record as early in February. Vessels ordered in 2025, 2026 are scheduled for delivery late 2025 or 2029. A meaningful share of these orders remain without attached contracts. This signals growing confidence in a firm shipping market later in this decade, a period that aligns well with our open exposure. The new building prices remained fairly stable for $250 million for a standard 2-stroke vessel built in Korea. This is supportive for asset values for existing tonnage, including our fleet. We do not expect new building prices to fall materially anytime soon. 23 new buildings were delivered in the fourth quarter 2025, bringing the total deliveries up to 79, up from 60 in 2024. With 6 vessels already delivered this year, the remaining order book is estimated to around 290 vessels, equivalent to around 40% of the existing fleet. 90 to 95 vessels are expected to be delivered in 2026, including roughly 20 units that slipped from 2025. Of the total order book, approx 45 vessels are currently uncommitted. This profile means that while there will be a lot of new tonnage entering the market in 2026 and '27. With a lot of new modern tonnage entering the market, the steam vessels rolling off long-term contracts, we saw a record high 15 steam vessels scrapped in 2025. This is a strong signal. We expect recycling activity to continue. Spot rates for steam vessels are quoted currently under $5,000 per day, effectively pushing these vessels out of the market. The ship broker, SSY believes close to 100 steam vessels will roll off their long contracts over the coming years. And these vessels are expected to exit the active trade either scrapped or enter into regional trades. This slide shows the 3 waves of global LNG capacity and why the period we are now entering really matters. We are entering the third wave of LNG, and it's larger than ever seen before. Over 200 million tonnes of new export capacity is expected to come on stream or around 50% growth in the global liquefaction capacity. Most of this growth is concentrated in 2 places, the North America and Qatar. Qatar North Field East is expected to begin deliveries late this year with new trains coming online thereafter. In addition, LNG Canada will continue to ramp up towards full capacity in 2026, alongside increased output from Corpus Christi in the U.S. This widely anticipated start-up of Golden Pass LNG is expected later in 2026, providing a further boost of U.S. liquefaction capacity. With that, let's move on to the Q&A session. Knut Traaholt: Thank you, Marius. That hands us over to the Q&A sessions and questions that have been submitted. And thank you for all of those who have sent us questions for this quarterly presentation. There's a number of questions regarding the upcoming options that you walked through in the fleet overview. Can you give any more color around these options and the likelihood of being declared? H. Foss: Thank you. That's a good question. We are also waiting for that. I can't really comment on when these options are due, but the charters will do so during 2026 regardless if they are declared not these options have -- will not have an effect with our fleet portfolio of 75% in 2026. So we all have seen in our presentation, 2027 and 2028 is an interesting period with the increased volumes. So it's -- yes, we're also interesting to see if the charters are sharing the same as we have shared in this presentation today or not. So we will report back when these options are due and inform the market accordingly. Knut Traaholt: And now with Flex being redelivered and we have increased market exposure. There are also a number of questions on the decision factors and how this should be viewed regarding future dividend payments. I think we can start off by saying that each dividend payment is a decision made by the Board by each -- at each Board meeting ahead of the quarterly presentation. So there's difficult to say something about the future of dividends. But what we can say is on the decision factors, yes, we have adjusted some, but the majority of the decision factors are dark green or light green. In the decision, it's important here to view that we have a very solid financial position with a high cash balance to support the dividend. And we also have a large contract backlog, which are not subject to options being declared or not. One thing that we are monitoring and will be assisted into evaluating future decision factors will be the visibility, in particular, the trading of the spot vessels and also if any of these open ships will get another long-term contract. There are also a number of questions here on new buildings and the recent surge in new building orders, in particular in the start of the year and on flex and on fleet growth. Do you consider new buildings similar to these owners? H. Foss: Thank you. With what you have explained now with the position we are in, we are in a position to order ship if needed, but we are trying to be, say, disciplined and not to order if we don't have a contract attached. As explained in our presentation now is that the new building in modern 2-stroke today is about $250 million. and the benchmark for a 10-year contract is, say, $85,000, give and take. And in our calculations, that's not really a good investment for a shipowner. So we are trying to be patient, disciplined and also working with our charters that if new building should be needed, we are ready to go to the yard and discuss new contracts with our charters if somebody wants to support with us. But speculatively, we see others are ordering that, and that's a good sign of where we are heading. I think the exposure we have with the current open ships coming open later is -- will mean that we are in a very good position to get these ships extended or new contracts. Knut Traaholt: Yes, there is a follow-up comment to that to support to that. There is will we order ships newbuildings, while we have nearly half of the fleet exposed in the market for '28, '29. H. Foss: No, I think we should take the benefit of what we have on the water, which still is considered as new building. They have now -- basically the entire fleet has been through a 5-year service, and I believe all our ships leaving dry docks now are better than you. So I think we have a good quality tonnage, which the size is in line with the new orders. So we will focus on that first, stay disciplined. Knut Traaholt: And that covers the main topics of the questions we received today. So that concludes the Q&A session. H. Foss: Thank you, Knut. Thank you for all joining into our webcast today. We would like to welcome you all back to our Q1 2026 presentation, which will be back in May. Thank you.
Operator: Good morning. My name is Nick, and I will be your conference operator for today. At this time, I would like to welcome everyone to the United Fire Group, Inc. Fourth Quarter 2025 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Thank you. I will now turn the call over to United Fire Group, Inc. Vice President of Investor Relations, Timothy Borst. Please go ahead. Timothy Borst: Good morning, and thank you for joining this call. Yesterday afternoon, we issued a press release on our results. To find a copy of this document, please visit our website at ufginsurance.com. Press releases and slides are located under the Investors tab. Joining me today on the call are United Fire Group, Inc. President and Chief Executive Officer, Kevin Leidwinger, Executive Vice President and Chief Operating Officer, Julie Stephenson, and Executive Vice President and Chief Financial Officer, Eric Martin. Before I turn the call over to Kevin, a couple of reminders. First, please note that our presentation today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates, forecasts, and projections about the company, the industry in which we operate, and beliefs and assumptions made by management. The company cautions investors that any forward-looking statement includes risks and uncertainties and are not a guarantee of future performance. Any forward-looking statement made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made. These forward-looking statements are based on management's current expectations, and the company assumes no obligation to update any forward-looking statements. The actual results may differ materially due to a variety of factors, as described in our press release and SEC filings discussed specifically in our most recent annual report on Form 10-K. Also, please note that in our discussion today, we may use some non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings. At this time, I will turn the call over to Mr. Kevin Leidwinger, CEO of United Fire Group, Inc. Kevin Leidwinger: Thank you, Tim. Good morning, everyone, and thank you for joining us today. I will cover a few highlights this morning, then Julie Stephenson will discuss our underwriting results and Eric Martin will discuss our financial results in more detail. Over the past three years, United Fire Group, Inc. has undergone significant transformation as we have deepened our underwriting expertise, evolved our capabilities to attract a more expansive customer base, enhanced our actuarial insights, and improved alignment with our distribution partners. I am proud to see the cumulative effect of our work reflected not only in our strong fourth quarter and full year 2025 results but also in the company's significantly improved financial performance since 2022. In 2025, we grew our business to record size while delivering the best annual underwriting profit, investment income, and return on equity in a decade or longer. Underwriting profit grew from $9 million in 2024 to $67 million in 2025. Net investment income grew by nearly 20% while our full-year operating earnings per share improved by 80% and book value per share grew by more than $6. Full-year net written premium grew by 9% to more than $1.3 billion from record new business production, strong retention in our core commercial business, and continued renewal premium increases as our underwriters remain diligent in an evolving market. The annual combined ratio improved to 94.8% with ongoing improvement in the underlying loss ratio, catastrophe loss ratio, and expense ratio. Consistent execution of our reserving philosophy across the year has afforded us the opportunity to deliver stability in financial results while advancing to a more conservative position in our range of actuarial estimates that reinforces the portfolio and strengthens our balance sheet. Improved underwriting profit and sustainable growth in net investment income contributed to an annual return on equity of 13.7%, the best in nearly two decades. At the same time, our strategic investments in technology are improving operational efficiency and expanding our underwriting capabilities, allowing our people to focus on delivering the strong personal relationships and responsive service our partners and policyholders value. A few examples include our new policy administration system, underwriter workbench, and artificial intelligence-based tools augmenting processes to better serve our customers today. We believe these investments will generate significant operational efficiencies as our capabilities mature. With 2025's record year behind us and our focus squarely on 2026, our eightieth year in business, I could not be more pleased with the progress we have made since our transformation began in late 2022. I would like to take a moment to highlight some key financials that illustrate how far the company has progressed over the last three years. Between 2022 and 2025, net written premium has grown from $984 million to $1.3 billion, an 11% compounded annual growth rate as our distribution partners have embraced United Fire Group, Inc.'s transformation. Our combined ratio has improved from 101.4% to 94.8%, rebounding from an underwriting loss to an underwriting profit of $67 million. Our annual investment income has more than doubled from $45 million to $98 million. Operating earnings per share have increased more than fourfold from $1.09 to $4.00. Return on equity has climbed from 2% to 13.7%, and book value per share has increased over 25% from $29.36 to $36.88. In addition, we have greatly enhanced the company's reserve position since 2022 as part of our ongoing commitment to maintaining strong and stable reserves. We are excited about the company's improved financial performance and momentum we established with our distribution partners. As we focus on the strategic execution of our business plan in 2026, we believe United Fire Group, Inc. is well-positioned to deliver continued profitable growth as a disciplined, solution-oriented underwriting company capable of more broadly serving our distribution partners than ever before. With confidence in our future financial performance and an enduring commitment to creating long-term value for our shareholders, I am pleased to share that the board of directors has declared a 25% increase in our quarterly cash dividend from 16¢ per share to 20¢ per share. And with that, I will hand the call to Julie Stephenson to discuss our underwriting results in more detail. Julie Stephenson: Thanks, Kevin. The company's transformation over the past three years and the collective hard work and engagement of our employees have been nothing short of astounding. We are very pleased with our financial results. The improved underwriting practices we employ today will serve to support these positive outcomes in future results. From a growth perspective, the headline net written premium growth numbers Kevin quoted have played out in a strategically differentiated manner across our business units that span much of the commercial market. Growth remains strongest in our core commercial business, which includes small business, middle market, and construction. We continue to benefit from the greater number of opportunities our distribution partners are providing as they embrace our expanded capabilities and deeper expertise and are more aware of our desired risk profile. We capitalized on these opportunities in 2025, delivering record new business of $247 million, nearly twice the amount of new business generated since the beginning of our transformation efforts. Rate increases moderated to 4.8% for the quarter, reflecting a more competitive environment. This is mostly observed in property, with casualty lines experiencing a more modest impact, with the exception of umbrella, which returned to double-digit increases on the heels of recent rate actions in that line. While the market has become more competitive, we believe current pricing continues to be attractive, and our efforts to rebuild this portfolio positioned us well heading into this market. In addition to benefiting from a strong rate environment over the last several years, we have been building increased rigor in our underwriting practices, with an insistence on excellent risk selection, adequate price for exposure, and contractual integrity. We have instilled these practices as fundamental principles in our underwriting processes that will serve to provide sustainable results through any changing market dynamics. Specialty E&S net written premium grew at a double-digit pace in both the fourth quarter and full year. Although competitive pressure is emerging in the E&S market, our casualty pricing remains robust. As property rates moderate further, we continue to actively pursue moderate hazard opportunities in both property and casualty to balance the volatility of the portfolio over time. Our surety business also delivered double-digit net written premium growth for the quarter and full year. Our rebuilt surety organization is generating strong momentum while demonstrating the underwriting discipline necessary for ongoing success. Alternative distribution continues to provide United Fire Group, Inc. with profitable business through three primary channels: treaty, programs, and funds at Lloyd's. Premium volume grew across all three channels in the fourth quarter compared to the prior year. For the full year, Lloyd's and programs grew net written premiums in the mid-single digits, while treaty reinsurance was down slightly year over year, as we chose to non-renew a small number of treaties that no longer met our profitability objectives. Moving to profitability, our loss ratios are fully reflecting the quality and composition of the portfolio developed over the last three years. The underlying loss ratio improved to 55.4% in the fourth quarter and improved 1.6 points to 56.3% for the full year. The book of business continues to benefit from earned rate achievement, stabilized severity trends, and favorable frequency across our portfolio that remain better than our forecast. The business written over the last three years under our improved practices and more specifically defined appetite now accounts for 43% of the portfolio. New business written in 2025 is outperforming the renewal portfolio on the whole, as synergy between our new underwriting habits and enhanced analytical capabilities are maturing. Overall, prior year reserve development was consistent with prior quarter observations, yielding an overall neutral result in the fourth quarter. We are committed to maintaining a conservative posture with our reserves in order to better protect our balance sheet. The fourth quarter catastrophe loss ratio was 1.2%, and the full-year catastrophe loss ratio of 3.2% outperformed our expectations for the year. Considering the first quarter wildfires accounted for one point of our full-year loss ratio, these results are truly exceptional. While our results benefited from favorable industry-wide conditions, we saw significant impact from our ongoing underwriting and portfolio management efforts, including recent improvement in deductible profiles across the property portfolio. These actions, along with our exposure management improvement in prior years, are expected to generate sustainable benefits to our property catastrophe risk profile and results going forward. This is reflected in our modeled annual expected catastrophe loss ratio of below 5% in 2026. Regarding the renewal of our 1/1 reinsurance treaties, we were very pleased with the outcome. It was a highly successful renewal resulting in lower ceded margins, expanded coverage, and improved terms and conditions. We experienced exposure-adjusted rate decreases in all of our major programs this year, including double-digit decreases across our natural catastrophe treaties. Coverage was expanded in many areas to keep pace with our growing portfolio, and broadly, our program generated increased interest in the marketplace. While we benefited from the overall market dynamics, our improved experience helped drive additional savings across our program. We received a 10% exposure-adjusted rate decrease in the core multi-line treaty, our largest program. This renewal included a modest increase in our retention as our increased confidence in our portfolio and stronger capital position allowed us to improve the economics of this program. We also received a 10% exposure-adjusted rate decrease along with expanded coverage for our surety program, reflecting our improved results and execution in this line. I will now turn the call over to Eric Martin to discuss the remainder of our financial results. Eric Martin: Thank you, Julie. We continue to deliver sustainable improvement in net investment income in the fourth quarter, with our high-quality fixed income portfolio generating 17% more income than in the prior year. Improved profitability has allowed us to grow the size of our fixed maturity portfolio by approximately 10% in the fourth quarter as a virtuous cycle of improved underwriting profitability benefits all aspects of enterprise value creation. The elevated interest rate environment continues to provide opportunities to sustainably grow fixed maturity income and overall earnings, with new purchase yields steady at approximately 5% and exceeding the overall portfolio average. Outside of fixed income, our portfolio of $100 million of limited partnership investments generated a strong return of $2.4 million in the quarter, an annualized return of approximately 10%. Turning to the expense ratio, the fourth quarter result of 35.7% improved 1.4 points from the prior year, reflecting the benefits of ongoing growth and disciplined management actions. While there will be occasional noise in the expense ratio, we expect our ongoing actions to result in a gradual reduction of the expense ratio over time. Fourth quarter net income was $1.45 per diluted share, with non-GAAP adjusted operating income of $1.50 per diluted share. This quarter's earnings improved book value per common share to $36.88. Adjusted book value per share, which excludes the impact of unrealized investment losses, grew to $37.87 at year-end. From a capital management perspective, during the fourth quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of December 5, 2025. Our capital management priorities are to fund profitable growth in the business and then return excess capital to shareholders. Our capital position continues to strengthen, and as a result, our financial flexibility continues to improve. With conviction in the sustainability of United Fire Group, Inc.'s improved profitability, our Board of Directors has authorized a 25% increase in our shareholder dividend to $0.20 per share to be paid on March 10 to shareholders of record as of February 24. As it relates to share repurchases, our current board authorization of 1 million shares provides ample flexibility to optimize how we deploy capital to shareholders. With United Fire Group, Inc.'s return on equity exceeding 13% in 2025, and our stock price trading near adjusted book value, we are well-positioned to deliver compelling growth and shareholder value over time. This concludes our prepared remarks. We will now have the operator open the line for questions. Operator: Thank you. We will now begin the question and answer session. The first question today will come from Matthew Erdner with Jones Trading. Please go ahead. Matthew Erdner: Hey, good morning, guys. Thanks for taking the question and congratulations on a great end to the year. You guys touched a little bit about the rate increases, how it is more competitive, you know, mostly in the property segment there. But, you know, as that seems to kind of be leveling off in the near term, can you talk about current pricing, you know, the expectations there going forward? You know, and the effect that that may have on achieving the mid-teens ROEs that you guys are targeting? Julie Stephenson: Hey, Matthew. It's Julie. I will start. You know, certainly, we have seen the market demonstrating more competitive behavior. But we believe it is still reasonably rational. We are still achieving positive rates in the market, and we are approaching it, I think, confidently. We are sticking to the underwriting discipline that we have instilled over the last few years, at least the last few transformative years. And we think that through disciplinary selection and just making sure we are getting the right price for the exposures that we are underwriting, we will be able to navigate whatever the market throws at us in the near term. I think more importantly, we believe there is still business to be written at attractive margins. And we will pursue that diligently. Matthew Erdner: Got it. That's helpful there. Yeah. Yeah. No. That makes sense. And then, you know, I guess going to the underwriting expense ratio, you mentioned the gradual reduction over time. And then saving with technology operational efficiencies. You know, what's the long-term target there? And then, you know, I guess, what should we be thinking about of, you know, how you guys are looking at that? Eric Martin: Yeah. Matt, this is Eric. Thank you for that question. You know, when we look at our expense ratio, I would say over the past three or four quarters, I have been targeting a run rate of about 35%. I think Q2 and Q3 were just a little bit below that. Q4 is a little bit above it. But as we look forward here for the next couple of quarters, 35% is a good target run rate. But over time, that will come down. As we see growth at a 10% clip going forward, we would think the expense ratio would tend to come down over the next several years, and we are going to take all the right actions for the company investing in our future and that sort of thing. But that will continue to clip down, I mean, call it roughly a half a point a year, we think, going forward here at that 10% growth. Matthew Erdner: Awesome. That's very helpful. Thank you, guys. Operator: The next question will come from Paul Newsome with Piper Sandler. Please go ahead. Paul Newsome: Maybe a few more thoughts on the reinsurance business. Is it fair to assume that just given what's going on with the market, we should expect at least some margin compression in those books overall? Julie Stephenson: You know, we took a hard look at every single treaty we write with this 1/1 renewal that we just experienced, and we certainly are seeing the dynamics that we actually benefited from on our ceded program play through in our alternative distribution book as well. We did see increased competition. I mean, it certainly affected rates and terms and line sizes. But we think we will continue to succeed in this environment. You know, our playbook emphasizes disciplined underwriting, relationship quality, and an aligned risk appetite. We are looking to long-term commitments, and we continue to price every treaty over treaty, and we insist on certain profit expectations. We do not expect those to change. And if that means that we are putting, you know, fewer treaties on the books going forward, then so be it. We are prepared. But we still believe that there is attractive business to be had. We had a nice 1/1 season. We bound new business. Paul Newsome: Could you not so much on a quarterly basis, but maybe on an annual basis, dive a little deeper into the other liability line, the other parts of your business that's showing really wonderful profitability. But that seems to be the one area where you have less profitability. I'm just curious if what the dynamics of that are causing the differentiation. Julie Stephenson: We have certainly seen some pressure on profitability, mostly in the umbrella line. We have seen a few large umbrella losses, and so we have taken a very conservative approach. You may have noticed that we have made new rate filings, raised our minimum premiums on Umbrella, so we are confident that we will be pricing the business appropriately moving forward. And as you would have observed, we have been strengthening our reserves ever since 2022. We have strengthened those other liability reserves practically quarter over quarter. So we believe that we are, you know, protecting the profitability on a go-forward basis by right pricing and appropriate capacity deployment, and then we feel like the reserve position puts us in a good spot. Paul Newsome: Is this the nuclear verdict problem that we've seen many places that's affecting that umbrella, or is there something else in your book that's different? Julie Stephenson: You know, I do not think so. I mean, given the book of business that we have and the amount of capacity that we deploy risk over risk, we have not seen big nuclear verdicts, but we are certainly subject to the other impacts of social inflation in general. So yeah, we are guarding against it through how we price the portfolio and how we pull the reserves together. Paul Newsome: Great. Congratulations on the year. It was definitely a wonderful turnaround. Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Kevin Leidwinger, CEO, for any closing remarks. Kevin Leidwinger: We had a great fourth quarter and a record-setting year in 2025, and we believe we are exceptionally well-positioned to continue to profitably grow in 2026. So thank you for joining us today, and we look forward to talking with you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to The Kraft Heinz Company Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, As a reminder, this conference is being recorded. It is now my pleasure to introduce Anne-Marie Megela, Vice President of Investor Relations. Please go ahead. Thank you. Anne-Marie Megela: Thank you everyone for joining us today. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our Chief Executive Officer, Steve Cahillane, and our Chief Financial Officer, Andre Maciel. Operator, please open the call for the first question. Operator: Our first question is from Andrew Lazar with Barclays. Andrew Lazar: Great. Thanks so much. Good morning, everybody, and welcome back, Steve. Thanks, Andrew. Yep. Maybe to start off, Steve, in the remarks, you mentioned a bunch of times for how The Kraft Heinz Company is sort of underinvested in its brands and the incremental $600 million is an effort to sort of correct that. Guess, much of this is simply the company catching up to where investment levels should have been so more company-specific, versus maybe acknowledging that the currently more challenging industry environment in which other food names have also raised investment levels. Including making price investments. And then following on that, how do you see this level of investment? Or do you see this level of investment as sort of the right base of spending to be able to grow from or you have to reassess that as you go? Thanks so much. Steve Cahillane: Yeah. Thanks for the question, Andrew. What I tell you is when I came in, I knew that the company was underinvested. That had been widely reported. You guys have all written about that. We know the history of The Kraft Heinz Company over the last ten years. So I came in with the expectation that I would find underinvestment, and indeed, I did find underinvestment. But I also found a lot of opportunities. And I think the biggest change over the last six weeks has been the exploration that I've been on and what I have found in terms of brands that truly respond to investment, green shoots that the company was already working on, and areas where we could do a lot of self-help and fix the business and, you know, point ourselves in a more positive direction. And I'm talking about meaningful things that I've seen. And so we went through that exploration and did a lot of work around what would be required in order to invest appropriately against the business to return it to organic growth. And so I'd say the bulk of your question the real answer to your question is we're really getting back to where we ought to be, not necessarily, looking at the challenging environment saying we need to do something different. We're getting back to where we ought to be in terms of sufficiency against our brands, capability building, in the commercial area to really put ourselves in a position of competitiveness. And that led to the decision to pause the spin because we want to put 100% of our focus 100% of our time, our people, our investment against returning the company to growth and not be distracted by the massive amount of work that's required in the separation. And, obviously, I know what it takes to have a successful separation. You need stable businesses. You need a lot of things that we're gonna be working on right now to preserve the optionality that we have going forward. And so the real answer to your question is we're getting back to where we ought to be. And I do think it's a level of sufficiency that is appropriate for us going forward. And I have a lot of confidence that we're gonna be able to return this company to solid profitable, organic, margin-enhancing growth. Andrew Lazar: Great. Thank you, and see you next week. Anne-Marie Megela: Thanks, Andrew. Operator: Our next question is from Peter Galbo with Bank of America. Peter Galbo: Steve, Hunter, good morning. Thanks for taking the question. Guess, Steve, just going back on your comments in regarding to Andrew's question just now, when we all met, a number of weeks ago with you, I think your commentary was you know, hey. I had to sign off on the spin before coming on board. And, obviously, today, you know, you're announcing a pause. So just maybe help us understand a little bit more even what's happened in the last four weeks to kind of cause that change in terms of the thinking. And then as a secondary kind of follow-up to that, just how should we be framing a temporary pause versus maybe a more indefinite pause? Would be helpful. Thanks very much. Steve Cahillane: Yeah. Thanks, Peter. So when I was in discussions with the board of directors to come here, I came with eyes wide open and recognizing that there was a lot of opportunity and endorsing the strategic rationale around the separation. And what I said to you guys when we met a couple of weeks ago, four weeks ago, or whatever it was, that, you know, I fully endorse and understand the industrial logic of the separation, and I still do. I think it makes logical sense, and I think the board came to the right conclusion at the time. What I've since learned is how much opportunity there is to fix the business in the short term and to turn the business around in a more positive trajectory. And because resources are finite, I came to the conclusion that this was the best outcome for us. And I should backtrack because when I agreed to come on board and the discussions I had with the board, they said, you know, we reserve the right to get smarter. And as you get under the hood and really explore, you know, everything from what's in perimeter, how we could go about the separation, everything should be on the table. And so it was an iterative process that we came to, and I understand that when you're not going along with us through those four or five weeks of process, it can seem rather sudden, but this was something that was explored in-depth. We've all been working twenty-four seven. To come to this conclusion and build the plan that we're very confident in. And it preserves optionality for doing any other portfolio optimization things that you might imagine in the future. So I wouldn't put an end date on anything that we're going to say this is the date when we're going to reexplore whether or not a separation is the right thing. We're gonna get smarter each and every day. We're gonna turn the business around organic growth, and that will, as I already said, preserve optionality to do any number of portfolio optimization activities in the future. You know, we in companies like ours, we have to evaluate and reevaluate on a regular basis where we are and where we want to go. Where we wanna go right now is this investment against the business to drive organic growth. Anne-Marie Megela: Great. Thanks very much, Steve. Operator: Our next question is from David Palmer with Evercore ISI. David Palmer: Thanks. Good morning, Steve. And welcome. I wanted to ask you about the investment and maybe what we're gonna see in the market, in the scanner data. You know? How to first of all, you know, how did you arrive at $600 million being the right number? But also perhaps discuss the phasing of that spending and maybe even categories and brands we could expect to see results earlier versus maybe later. And thank you. Steve Cahillane: Yeah. Thanks, David. So you're going to see the spend really start to ramp up in the second quarter. We've been in the planning process right now, and we would hope to see meaningful results in the back half of the year, meaning, you know, when I say meaningful results, I mean a change in trend and bending the trend in market share. And we're gonna be talking a lot about value market share and holding ourselves accountable to that. I think we said in the prepared remarks that, you know, about half of this would be against price and product and packaging, improving the way we show up for our consumers at store. That's gonna be very important. It will be across the portfolio. But a lot will be against what we, heretofore had been calling the North American grocery company where we've got some opportunities to really do better. But equally, brands like Heinz and Philadelphia cream cheese have already been showing in the last thirteen weeks, in the last four weeks, some meaningful improvement based on things that the team had started to do in the back half of last year. So we'll continue against that. And we arrived at the $600 million really through, you know, as much science as we could and then a lot of experience, in the company and the experience that I bring as well. So we'll be about five and a half percent against, you know, against a ratio of our top line. In terms of what we're spending against the brands. We'll put meaningful investment in and A. We're lean. You know, you can look at any metric and understand that The Kraft Heinz Company is lean. We don't wanna be lean in the commercial organization, so we'll be hiring, sales and marketing professionals. To beef up our capabilities there. That takes some time, so that'll be more like a third and fourth quarter, spend. But altogether, the $600 million, I think, gives us a lot of confidence that we've got what it takes against the entire company with, half of that being, as I said, against the brands and showing up for consumers with the right opening price points, the right price, the right promotional, opportunities, and the right brand marketing against what are really a collection of iconic and wonderful brands that I've already said do respond to investment. Andre Maciel: Maybe to build on that, I think we will continue we have seen, as Steve pointed out, good momentum in our base elevation business, sauces, cream cheese. We the last thirteen weeks, we flipped to market share growth. And 70% of the revenue in data elevation is now gaining market share, which very solid in The US. And as we look at even at early reads, into January, we see that the momentum continuing. In fact, a total portfolio in The US, we have seen the market share now back what it was. Until from three years ago. So it's good to be in that position. And, obviously, you work to do. I think the objective with all this investments is to position to grow the company to be delivering volume-led profitable growth and have a much higher percent of the portfolio gaining market share like it was back in 2017, nineteen. We should continue to as Steve pointed out, we're gonna see this ramp up happening in the second half of the year. You should see emerging markets continue to deliver strong results. If you look in 2025, aside from Indonesia, we grew close to double digits including with volume growth, gonna continue to see our emerging markets delivering that level of growth apart from Indonesia from Q1 and building from that There's a very good momentum there. We're gonna see our Canadian business continue to deliver growth as they had delivered the last three years. So there are good parts of the portfolio that have good momentum. We are also part of that investment is to further accelerate those bright spots But as Steve said, there is a good portion of this investment as well is on the opportunities that we have seen on the North American grocery portfolio. Operator: Thank you. Our next question is from Stephen Robert Powers with Deutsche Bank. Stephen Robert Powers: Great. Good morning. Thank you very much. Steve, so I wanted to just follow-up on Peter's earlier question. You talked about how this decision to postpone the separation was either you know, kinda premised by premised on the opportunity you've to turn around the business in the short term. And I guess the natural follow on question to that for me, my perspective is, what how do we define short term? Is that know, do we need to see results, you know, in the next couple of quarters, in the course of 2025? And therefore, the separation is postponed. It's sort of in until '26, or is there a different timeline associated with sort of the short term response that you're you're expecting. And then if you I could, then the second question would be, you talked about where these investments will be focused. Kind of by brand, I'm assuming that these are disproportionately focused on The US, but maybe just a little bit of elaboration if there's investment, whether brand or commercial investments that you see overseas as well. Thank you. Steve Cahillane: Yeah. So I'll start with the second one. These will be disproportionately against The US. Where we need, a level of investment, in order to turn the trends that we've had. Andre, I think, just outlined very well. The rest of the world where we've got a lot of strengths. But there will be opportunities to invest outside The US, but predominantly, this will be in The US. And we would expect to see, as I mentioned, a change in trend in the back half of this year. You see our guidance. We would hope to do better end of that guidance always, but, you know, these investments take time, and they take commitment, and they take, you know, a level of sticking to it. And, reallocating as necessary as we learn what's working better than what may be not optimized. And so as we think about 2027, you know, we would aim to be in a position where we turn the we return the company to growth. We exit 2026, with the best trends that we've had, during the course of the year. That would be our expectation, and we go to 2027 with an eye towards growth. In terms of any kind of separation in the future, as we today, we're pausing and not putting an end date on that. When this business is successful and growing organically, in 2027, we'll have all sorts of optionality to think about portfolio and the way we wanna think about our portfolio going forward. But job one right now and why we've made this decision is to put all of our attention and resource against this stepped-up plan to return the company to organic growth. Stephen Robert Powers: Great. Thank you. I think I had said 2025. So thanks for correcting me on what year we're in. Appreciate that. Thanks. Andre Maciel: You bet. You bet. Operator: Our next question is from Robert Moskow with TD Cowen. Robert Moskow: Hi. Thanks for the question. Hey, Steve, you mentioned that you wanna put the resources against brands that respond to investment. And I was wondering in the work you did internally, did you find brands that have not responded well to investment as well. I think the nagging concern among many investors is that portfolio has a lot of antiquated brands. The quality gap with competition has widened too far. And that they just won't respond. And then secondly, I wanted a follow-up on comments on the last earnings call from Carlos about investing in better coordination for your commodity exposure. Like, I think he said that he thought the company had fallen behind vertically integrated players and Meet coffee, and cheese. And, just wanted to know if if I didn't see that in in the comments. You feel like you have to invest in that too? They're kinda related. Steve Cahillane: Yes. Thanks, Rob. I'll let Andre take the second part of the question. I'll take the first part of the question. We focus more on what's working, where the best investments are. But know, I've said in the past, when you have a portfolio as broad as ours, you're never gonna be in a situation where every brand is growing. Know? We all know that. So we're focusing our attention on where we can get the best responses. And, you know, and, obviously, those are some of the brands that have already been invested in, like, Heinz and Philly Cream Cheese, which we've already mentioned. But we've got mac and cheese a huge brand of ours that I have seen does respond very well. We've got a great innovation in, 17 gram protein super mac. Coming out this year. We're gonna make sure that that is more than sufficiently supported in the marketplace, and we're gonna look for other opportunities. And we have other opportunities like that so we can get the totality of the portfolio growing which doesn't mean there might be a 20% of the portfolio that is more challenged. That's gonna be the case in a portfolio like ours. But we need to make sure we're doing portfolio management and optimization such that the winners, far outpace, the ones that are more challenged. And, Andre, you wanna take the commodity? Andre Maciel: Yeah. Sure. And to build on what you just said, like, we are seeing good momentum on our taste elevation portfolio worldwide and including The US. Return hydration desserts, back to share gain, which is good. So it is responding well to investments, so there is more get there. It's a very profitable part of the portfolio. Mac and Cheese, there is a lot of investments you put in the back half of last year. We're starting some signs of traction and have an innovation that we feel very strongly about. So there is a lot that is about fueling those places where I have good momentum. But it's also about, as you pointed out, Rob, deploying some of the resources to improve the rest of the portfolio as well. There are opportunities on continue to invest in the product and in packaging. That's where a portion of $300 million is going to get deployed against. So I think all of that to allow the whole portfolio to start to move in a more positive trajectory. Regarding the commodity question, look. Nothing really changes, Rob. Like, we have been, over the years, very disciplined about following the commodity. And when we price, and we should want to continue to remain disciplined. We cannot control how other competitors might react to commodity curves and they do or not. I think what we can do is what we can control, which is continue to be disciplined around falling the commodity. Anne-Marie Megela: Okay. Thank you. Operator: Our next question is from Michael Lavery with Piper Sandler. Michael Lavery: Thank you. Good morning. Just wondering if you could give us any sense of where you land long term. Do you think the long term algo changes? Is this plan set to put you on algo? And if so, with what timing? And then maybe just a follow-up on this year. Would you have any repurchases considered in the guidance? And how should we think about that? Steve Cahillane: Yes. Thanks for the question. We're not prepared, and it's too early to talk about long term algorithms. I just you know, underscore what I said in terms of bending the trend and the year with momentum and looking at 2027. As a year where we can turn to organic growth. Perhaps at that time, we'll be in a position to talk more about long term algorithms. And the second part of the question was Andre Maciel: Yeah. Look. On the capital allocation priorities, we have stated for a long time our number one priority is to deploy excess cash on the business and that's exactly what we're doing right now. Followed by maintaining our net leverage at approximately three times. And we've what we're expected EBITDA to land in '26 with the guidance we're providing, we will deploy excess cash to pay down debt this year. You know? And we will deploy part of the excess cash next year to pay down debt as well. Because we want to count our policy does not change, so we continue to target the net leverage to be at three times. So once we believe we have now the sufficient level of the business needs on the organic front, and reinstated the debts to our target leverage, then if you have excess cash beyond that, you can deploy in alternative forms. Steve Cahillane: Okay. Great. Thank you. Operator: Our next question is from Leah Jordan with Goldman Sachs. Leah Jordan: Good morning. Thank you for taking my question. I wanted to ask about SNAP given you added a headwind to your outlook this year. What is your SNAP exposure today? How much have the recent SNAP changes impacted your business so far? And I think ultimately, how do you think about addressing the needs for this customer cohort for balancing the broader needs we've talked about so far this morning across your portfolio? And I guess, ultimately, how does this impact your view on the need to invest in base prices versus promotions as well? Steve Cahillane: Yeah. Thanks for the I'll start, and I'm sure Andre can build on it as well. You know, snap does obviously a headwind in consumer goods because the consumer that's under the most pressure is having money removed from their household budget. But it also presents an opportunity for us to compete for that consumer, with opening price points, with small pack sizes, with all the things that we talked about doing. And so there is a headwind, but that's before we work against mitigation and how we mitigate against those headwinds. And so, we're all in the same boat in terms of this, this particular issue, but we've got a lot of plans in place, and we'll continue to develop plans. To meet that consumer where they are with the right price points, the right entry price points, the right pack sizes. Andre Maciel: Yeah. Our exposure today, about 13% of The US retail business comes from Snap. Compared to 11% in the industry. So we do over index a little bit. Part of the $600 million investment is on opening price points. And we do anticipate roughly 40% of the category is not of the SKUs. 40% of the categories will have some specific strategy around opening price points, and that's part of what in the plan right now. We do expect, and it's contemplated in the guidance, a 100 bps headwind coming from SNAP as a function of the level of funding being reduced. But I think a part of the investment, as we said, is about getting that being throughout the year, more concentrated in the second half of the year so we can mitigate or partially mitigate that impact. Operator: Great. Thank you. Our next question is from Christopher Carey with Wells Fargo. Christopher Carey: Hi, good morning everyone. I wanted to ask about the you know, investment into the concept of value pricing, In the prepared remarks today, you talked about leaning in on promotional activity You talked about opening price points. You talked about revisiting base prices. Where necessary. Those all kind of have different lead times associated with them. Was just curious how this how you envision this playing out. Will you Lead with more promotional activity early starting in Q2? We expect price rollbacks beginning in Q2? And and the fields with the packaging investments, it certainly feels like there's gonna be some revenue growth management associated with this, which tends to have longer lead times. So maybe, you know, price pack is is a bit later in the curve. Right? So obviously, I'm just trying to understand how the implementation of the concept of value is gonna happen. As you phase through this between promotions, price rollbacks, and some of the price back architecture initiatives you might have? Any clarity there would be helpful. Steve Cahillane: Yeah. I think you did a very good job answering your question because, you're exactly right. Some of the price package architecture takes some time. We're working on it already right now. The company understood about the importance of opening price points and pack sizes and so forth before I got here. And so we're working to accelerate some of that work. We can make very quick adjustments, though, in pricing and opening price points and nothing crazy or irrational here. You've heard me talk in the past maybe about, the importance of earning price in the marketplace giving consumers a reason to pay more, through innovation, through product, through, performance. And what's happened over the course of the last several years industry wide is because of the massive amount of input cost inflation. You know, we busted through four or five levels of price points in a very accelerated fashion, and the consumer was left very disappointed in that. And that's been very, well understood and obvious. And so as we continue to work on our productivity programs, the company has done a very good job at, delivering productivity. We aim to do that again. And, you know, between the productivity, between the investments, we believe we can get back price points that are more friendly to consumers, and we can do that pretty quickly. Andre, if you wanna build on that? Andre Maciel: Yeah. So to build on Steve is saying, a disproportional amount or the majority of $600 million is really deployed about what we believe are healthier ways to grow the business in the long term. So that is about more marketing, more R&D, investments in the product and packaging, and increasing the infrastructure or head count around sales and marketing so it can show up with better execution. So but there is a portion of the investment that is geared toward price. As you expect, given that you're saying that we expect to build share momentum heading to the '2. However, you remember that we did step up investment on price in 2025 Not everything that work work the way we anticipated. There was a lot of lessons learned there. And so there is a portion of that investment that is starting, earlier in Q2. That is already about optimizing the tactics that we have deployed last year. K? So you could expect us to see improvement in what you have deployed last year, but then the incremental really focus on the 40% of the categories, not 40% of the revenue. Okay. 40% of the categories. We do have very selected places where base price makes sense. So we wanna talk the specific categories here on this call, but there are a couple of spots where it makes sense to do that because we crossed some thresholds, and we believe it's not in a healthy level. But, again, this is very selective. We should expect that the majority is really around building momentum in ecommerce. That's where I think we had a lot of traction in the second half, show up with bearings, store execution, and deploy on the opening price points. Christopher Carey: Makes sense. Get one. Anne-Marie Megela: For one more question. Operator: Thank you. Our last question is from John Baumgartner with Mizuho Securities. John Baumgartner: Good morning. Thanks for the question. Steve, I'd like to ask about the reinvestment. You're ramping the financial resource but if we could focus on the softer skills, how you connect with how you stand out to retailers on merits other than just maybe scale and trade promotion, are the soft skills, those consumer-facing skills, when you improve those, is it a matter of, like, technology and insights at this point? Is it a matter of augmenting personnel, changing the culture? Just, you know, where do you see the company needing to improve aside from financial support in the P&L? And how much of a heavy lift do you anticipate that to be? Steve Cahillane: Yeah. Thanks for the question, John. You know, this company has great capability and great people. We're just very lean. And so we need to supplement and bolster the people that we have against our commercial activities and we need to continue to invest in technology and where the world is going. You know? It's well documented. AI is changing everything, and we need to be on the forefront of the way we think about technology and deploying it against our brands and with our customers. You know, we start with the consumer first mindset. No question about that. This investment is against making sure that we can attract consumers and drive greater household penetration. And I'm very confident that when our customers hear today, what we're doing, reinvesting against this wonderful portfolio. I've had lots of conversations with all these customers already. I think this is gonna be very welcome news. And so that's perhaps what we haven't talked much about, but this means a lot to our customers. When The Kraft Heinz Company shows up with this type of investment plan against brands that matter. And so we're excited about the future, and appreciate everybody's interest in the call today. John Baumgartner: Thank you. Operator: Thank you. This concludes our question and answer session. I'd like to hand the floor back over to Anne-Marie Megela for any closing comments. Anne-Marie Megela: Thank you everyone for your interest today, for your questions, and we will see you all next week. Have a day. Operator: This concludes today's conference. We thank you again for your participation. You may disconnect your lines at this time.
Operator: Good day, and welcome to American International Group, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the conference over to Quentin McMillan. Please go ahead. Quentin McMillan: Thanks very much, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. Peter Zaffino: These statements are not guarantees of future performance or events and are based on management's current expectations. American International Group, Inc.'s filings with the SEC provide details on important factors that could cause actual results or events to differ materially. Except as required by applicable securities laws, American International Group, Inc. is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks may also refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release financial supplement, and earnings presentation, all of which are available on our website at aig.com. Following the deconsolidation of Corbridge Financial on June 9, 2024, historical results of Corbridge for all periods presented are reflected in American International Group, Inc.'s consolidated financial statements as discontinued operations in accordance with U.S. GAAP. Finally, today's remarks related to net premiums written are presented on a comparable basis, which reflects year-over-year comparison on a constant dollar basis and adjusted for the sale of Global Personal Travel and Assistance Business as applicable. We believe this presentation provides the most useful view of our results and the go-forward business in light of the substantial changes to the portfolio since 2023. Please refer to Page 29 of the earnings presentation for reconciliations of such metrics reported on a comparable basis. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Good morning, everyone. Thank you for joining us to discuss our fourth quarter and 2025 full-year financial performance. I will begin with prepared remarks after which Keith will provide a detailed overview of our financial performance. Jon Hancock will then join us for the Q&A session. On our call today, I will briefly share key highlights from our excellent fourth quarter performance, review our outstanding full-year financial performance, provide brief commentary on American International Group, Inc.'s January 1 reinsurance renewals, discuss our fourth quarter strategic transactions, and highlight our progress on our GenAI and data and digital strategies. Finally, I will conclude with how American International Group, Inc. is positioned for continuing momentum into 2026. Let me begin with a brief overview of our fourth quarter performance and some of our key highlights. We delivered adjusted after-tax income per diluted share of $1.96, a 51% increase year over year. Underwriting income was $670 million, an increase of 48% year over year. Global commercial net premiums written grew 3%, despite North America retail property contracting due to our reduced appetite given the current market environment. We had strong new business growth led by international commercial, which grew an impressive 14% year over year. The accident year combined ratio as adjusted was 88.9%, our seventeenth consecutive quarter with a sub-90% result. The calendar year combined ratio was 88.8%, an improvement of 370 basis points from the prior year quarter. Overall, our fourth quarter performance reflects our consistent underwriting and closes out an exceptional 2025 for American International Group, Inc. Now let me walk you through our full-year financial performance. Adjusted after-tax income per diluted share was $7.09, an increase of 43% year over year. Adjusted after-tax income for the year was $4 billion, an increase of 24% year over year. For the full year 2025, we generated underwriting income of $2.3 billion, an increase of 22% year over year. 2025 was the first year since 2008 that we delivered greater than $2 billion in underwriting income excluding divested businesses, an important milestone in American International Group, Inc.'s journey. For full-year 2025, global commercial net premiums written were $17.4 billion, an increase of 3% year over year. Adjusting for the large closeout transaction in our casualty portfolio that benefited overall growth in that prior year, net premiums written increased 4%. North America commercial grew net premiums written by 4%, or 5% when adjusting for the large closeout transaction. With balanced growth across the portfolio that was partially offset by retail property which contracted 8%. International commercial grew net premiums written by 3%, primarily driven by property and global specialty, and partially offset by financial lines, which contracted 5%. In global personal, net premiums written contracted 3%, driven by higher ceded premiums under the high net worth quota share reinsurance treaty that we entered into at January 1, 2025. In early January, Ross Buck Mueller was named executive chairman of Private Client Select. We have tremendous confidence in his ability to guide the high net worth business and believe he will have an immediate and positive impact in positioning the business for the future. Overall, global commercial new business grew 9% year over year, International new business grew 10%, driven by global specialty, which grew 15%. North America commercial insurance produced over $2.6 billion of new business in the year, an increase of 8% year over year. We made strong progress reducing our expense ratio which ended 2025 at 31.1%, down 90 basis points from the prior year, and remain focused on achieving our Investor Day target of a sub-30% expense ratio by 2027. Our full-year accident year combined was 88.3%, and our calendar year combined ratio was 90.1%. Both outstanding results. For the full year 2025, excluding North America property, global commercial lines pricing, which includes rate and exposure, increased 2%, with a 6% increase in North America and a 1% decrease in international. As we've discussed throughout the year, property markets in North America remained under pressure, with increased competition in both the admitted and non-admitted markets. Retail property pricing was down 10% and excess and surplus lines pricing was down 13% for the year. Keith Walsh: Despite the challenging market dynamics, the accident year and calendar year combined ratios remain excellent in property. In North America casualty lines, pricing remained favorable and continued to outpace lost cost trend with percentage increases in the mid-teens in wholesale and excess casualty. In North America financial lines, pricing was down 2% for the year, Pricing reductions moderated in the second half of the year with segments of our D&O portfolio ending the year with a positive rate change. In international commercial, overall pricing was down 1% or flat excluding financial lines, Unlike The US, pricing in international property was up 3% for the year, offset by energy where pricing was down 10% driven by abundant capacity. Net investment income on an APTI basis was $3.8 billion, an increase of 8% year over year, reflecting our shift to higher-yielding assets with strong financial ratings. Core operating ROE was 11.1%. A 200 basis point improvement year over year and American International Group, Inc.'s first adjusted ROE metric above 10% in over ten years. Peter Zaffino: Importantly, we delivered a strong performance in 2025 while maintaining our disciplined approach to capital management. We returned $6.8 billion in capital to our shareholders, including $5.8 billion in share repurchases and $1 billion in dividends. We also increased our quarterly dividend by 12.5%, the third consecutive year with a dividend increase of 10% or more. Debt outstanding at year-end was $9 billion, and our debt to total capital ratio was 18%. We continued to reduce our ownership of Corbridge Financial generating approximately $2.5 billion in gross proceeds over the course of 2025. At the end of 2025, our remaining ownership stake was 10.1%. Keith Walsh: This week, Nippon Life waived American International Group, Inc.'s 9.9% retention requirement which gives us the ability to sell down our position throughout 2026 which we intend to do, subject to market conditions and regulatory approvals. Since we announced Blackstone's purchase by 9.9% equity ownership in Corbridge Financial, in November 2021, American International Group, Inc. has realized nearly $20 billion from our Corbridge Holdings, when accounting for share sales, receipt of extraordinary and common dividends, and transition service fees. What's even more extraordinary is that American International Group, Inc. has been able to replace 100% of Corbridge Financial and Validus Re's earnings per share in just two years. Going forward, we're very well positioned with significant financial strength and liquidity to execute against our strategic objectives, our growth ambitions, and our capital management priorities. I'll now turn to reinsurance. But before I provide more details on our January 1 renewals, I want to share a brief context on the reinsurance market. 2025 started with the California wildfires, and that initially tempered reinsurance rate reductions for the industry. What followed was benign cat loss activity in the second half of the year resulting in increased reinsurance capacity. This dynamic drove a favorable renewal environment for insurers at January 1. As a general statement, although reinsurers were prepared to compromise on pricing, they remain disciplined on attachment points at one one. Our long-term belief in holding firm on attachment points has proven to be advantageous for American International Group, Inc. We've always said, once you give it up, you don't get it back, and that remains true today. Turning to our January 1 renewal outcomes, American International Group, Inc. achieved enhanced terms and favorable pricing. We benefited significantly from the current environment, with more aggregate capacity available in the market, or consistent buying, an attractive portfolio, and the exceptional relationships we've developed, with our reinsurance partners. Here are a few highlights. Our property catastrophe program continued to improve. The weighted average risk-adjusted rate decrease for American International Group, Inc. on property catastrophe is in excess of 15% yielding substantial year-over-year savings. The return periods of the attachments of our property catastrophe coverage is broadly lower across our geographies, and businesses. Our exhaust limit is at a comparable level for all regions worldwide. We were able to collapse the high net worth placement into our North America occurrence layer for the 500 x to 500 layer, And finally, we achieved further efficiency in our aggregate protection, including a single maximum contributing loss rather than a separate one for each of the North America commercial and global personal portfolios. For casualty, we're in a reinsurance market that differentiates for quality. And as a result, our treaty is renewed with exceptional pricing and terms and conditions. Our quota share in North America maintained a very attractive seating commission in the low thirties, Our excess of loss attachment and limits remain the same. As the expiring treaties. However, our rate on subject premium decreased year over year. Finally, we were able to add the Everest portfolio into the treaty at American International Group, Inc.'s pricing and terms without an increase in nominal cost. Overall, I'm very pleased with our one one renewals. Our approach to continues to be an important component of our strategy to minimize volatility in our portfolio and positions American International Group, Inc. well for 2026. In the fourth quarter, we announced several strategic transactions. These are innovative, capital-efficient deals without balance sheet complexity, technology debt, legacy liabilities, or meaningful expense investment. All are expected to contribute to American International Group, Inc.'s earnings, earnings per share, and return on equity in 2026 and we believe these transactions should be more accretive in '26 and 2027 than share repurchases. I'll take a moment now to provide an update on our progress. In October, we were very pleased to announce renewal rights deal for Everest's global retail insurance portfolio. The portfolio is well balanced across geographies and expands our global retail commercial footprint. And distribution access while adding business that is complementary to our portfolio today. As a reminder, the purchase price relating to Everest is calculated as a percentage of the total renewable premium of the Everest portfolio, which we now expect to be close to $1.8 billion after doing more work with Everest. This would adjust our purchase price down from a $300 million to $270 million with possible further downward adjustments of up to $70 million if less than 80% of the portfolio is renewed. We're making very good progress with the conversion of the Everest portfolio. We accelerated the conversion of $65 million in gross premiums written in fourth quarter, In January, we had a retention rate of 75%, reflecting approximately a $180 million in gross premiums written, an impressive result considering that we did not commence work to convert the book in Europe until we receive the required regulatory approvals in December. This is a terrific performance and a validation that clients and brokers want American International Group, Inc. to have an expanded role on their insurance placements. American International Group, Inc. has many advantages in executing this conversion. We have ample capacity to grow, reinsurance treaties that will benefit the business at a lower cost, and a more advantageous expense base given we did not need to replicate Everest's infrastructure to service the business. We expect the combination of these factors to drive a 10 benefit to the combined ratio of the converted business. To support the conversion, we leveraged our Gen AI capabilities to evaluate the Everest portfolio and prioritize the accounts we want to renew in a fraction of the time. As we've discussed, we've deployed a robust ontology of American International Group, Inc.'s businesses and we're able to quickly build an Everest ontology In essence, a digital twin of that portfolio, which allowed us to prioritize how the portfolios could blend together enabling us to deliver compelling solutions for clients and our broker partners. We reviewed Everest's portfolio to determine account limits. Attachment points, and pricing, and to identify conversion strategies. In addition, we leverage our GenAI solution underwriting by American International Group, Inc. Assist to accelerate the conversion process in key lines of business, increasing renewal speeds significantly. We're pleased with our progress and our focus on ensuring a smooth transition in the portfolio over the next three quarters. Now I'd like to share more detail regarding our investment in Convex Group, where we took an approximately 35% equity interest coupled with a 9.9% ownership stake in Comvex's majority owner Onyx Corporation. These investments closed on February 6 and they are expected to be accretive to American International Group, Inc.'s earnings within the course of the year. As part of the Convex transaction, we also took a 7.5% whole account quota share of Convex's business for 2026. Which will earn in over the year. Our share will increase to 10% in 2027, and 12.5% in 2028 and thereafter. This transaction was a rare opportunity to secure a long-term strategic partnership with one of the most highly respected specialty insurance companies and its majority shareholder. American International Group, Inc. has led the industry in utilizing third-party capital to develop innovative structures that create tailored risk-sharing solutions. After successfully launching Syndicate 2478 at the start of the year, We closed 2025 with the formation of Syndicate 2479, a new special purpose vehicle launched in partnership with Amwins and Blackstone in December, with a stamp capacity of $300 million of premium income. This partnership represents a differentiated model for portfolio underwriting supported by third-party capital including capital committed by the largest US wholesale broker. We expect it will generate premium growth and fee income for a modest incremental capital commitment. This is also the first time we've deployed our Gen AI capabilities in an SPV transaction. Partnering with Palantir, we use large language models to match data and define risk characteristics within Amwyn's program business. That were aligned with the syndicate's risk appetite. In addition to assessing future opportunities, this capability enables us to use advanced analytics to help shape the current portfolio. We have a strong pipeline of SPV opportunities, and we'll continue to pursue future opportunities for expansion in our specialty and other lines of business. I'll take a moment now to update you on our Gen AI initiatives. We've made significant progress embedding GenAI across our core underwriting and claims processes and expanding it across American International Group, Inc. As this work continues, our confidence has only grown our ability to drive industry-leading impact on our deployment of GenAI. Our top Gen AI priorities for 2026 include deploying underwriting by American International Group, Inc. Assist and claims by American International Group, Inc. Assist across the majority of our commercial businesses. Enhancing American International Group, Inc.'s ontology by developing a comprehensive digital twin of American International Group, Inc.'s processes, workflows, and data elements to drive enhanced speed and efficiency. Developing an orchestration layer to coordinate AI agents to drive better decision-making and reduce costs across the organization, and further utilizing GenAI for American International Group, Inc.'s SPV strategy portfolio analytics, and compute. Since our initial rollout of underwriting by American International Group, Inc. Assist, we've expanded its use to seven additional lines of business, including our Lexington business. We remain on track to complete our accelerated rollout to the rest of North America, UK, and EMEA in 2026. We're already seeing benefits from these efforts. For example, Lexington's business has seen a 26% increase in submission count year over year. As a reminder, at our Investor Day, we shared our ambition of reaching 500,000 submissions by 2030. As of the end of last year, we've already reached over 370,000 submissions demonstrating the robust opportunity. We believe our use of GenAI gives us a strong advantage going forward in this dynamic market. It's early days, but by deploying underwriting by American International Group, Inc. Assist in Lexington, we've delivered significant productivity gains. Quentin McMillan: Focus on the orchestration of AI agents that can act as a force multiplier for our team. To do this, we're building an orchestration layer whereby we assign responsibilities to AI agents and determine when these agents are activated. The sequence of their tasks, what information they can access, how work is handed, to other agents, and instances when greater human oversight is required. We think of these AI agents as companions that operate alongside our teams with specific roles such as knowledge assistance, can provide relevant information in real time, advisers that can provide additional insight based on historical use cases, and critic agents that challenge the knowledge and adviser agents as well as the underwriter's decisions. Through the orchestration layer, we can coordinate these agents to work together to help streamline simple, repetitive, and lengthy processes to support decision-making. We made substantial progress on our Gen AI strategy in 2025 and remain focused on continuing to pursue the opportunities we see ahead to support our business goals. 2025 was an outstanding year of accomplishment, in which we delivered against our strategic operational and financial commitments and position the company for an exceptional 2026. Overall, we remain on track to meet or exceed the financial objectives we outlined at our investor day. We have strong momentum, with growth expected to come from multiple sources including organic growth initiatives, savings from excess of loss reinsurance, the continued successful conversion of the Evers portfolio, our whole account quota share with Convex, our special purpose vehicles, and the repositioning of our high net worth quota share at one one. Given our strategic transactions and several of the drivers I just mentioned, we're well positioned to drive premium growth into 2026. Because it's always hard to forecast, I'd like to take a minute to provide some perspective on what we see for net premiums written growth for the full year 2026 noting that this guidance reflects our views and assumptions as of today. For the full year 2026, we expect low to mid-teens net premiums written growth in general insurance and we believe that 2026 is already off to a very strong start. Before I hand it over to Keith, I want to briefly speak about the leadership transition we announced last month. I'm incredibly proud of our colleagues, and the work we've accomplished together, and I could not be more confident in American International Group, Inc.'s future. With the company well positioned for its next pay I felt it was the right time to retire as chief executive officer and transition to the role of executive chair of the board. I'm very excited to welcome Eric Anderson to American International Group, Inc. on February 16 as president and CEO elect. Eric is the right leader to take American International Group, Inc. into the next phase of its journey. He's a highly respected executive with nearly thirty years of experience at Aon. His accomplishments are widely recognized throughout the industry and he has consistently made positive contributions in every role he's held. Eric will be on the first quarter call, can share his perspective then. I want to assure you that he's fully committed to our Investor Day financial guidance and strategic objectives. I look forward to working with him and our outstanding management team to drive American International Group, Inc. forward from a position of strength. As American International Group, Inc. enters this next chapter, I have great confidence in our company's leadership, the foundation we built, and our ability to drive sustainable, profitable growth and create long-term value for all of our stakeholders. Thank you, Peter, and good morning. We had a strong fourth quarter and full year. Starting with the quarter, we continue to make good progress. With 51% growth in adjusted EPS and solid investment and underwriting results. This marks another quarter of improvement in our key financial metrics, while continuing to build the financial strength of our balance sheet. Adjusted after-tax income for the quarter was $1.1 billion, an increase of 31% year over year. Underwriting income was $670 million, an increase of 48% year over year, and net investment income was $954 million, an increase of 9%. Turning to general insurance. Net premiums written were $6 billion, an increase of 1%. This was driven by global commercial with growth of 3%. We continue to post excellent underwriting margins across general insurance, building on our multiyear track record. Accident year combined ratio as was 88.9%. A 30 basis point increase year over year. Accident year loss ratio was 56.8% a 100 basis point increase year over year or 70 basis points excluding travel. The increase was driven by additional margin in our casualty loss picks, favorable loss experience in the prior year quarter in global specialty, and change in business mix, as we grow more casualty over property. Partially offset by underlying improvement in global personal. General insurance expense ratio was 32.1% a 70 basis point improvement year over year driven by the acquisition ratio partially offset by a higher GOE ratio due to the reapportionment of expenses into the business from other operations. This will be the last quarter we talk about the pushdown of expenses into the business from our lean parent initiative. We achieved this in 2025 and have a clean baseline to compare 2026. Total catastrophe losses for the quarter were a $125 million, or 2.1 loss ratio points predominantly driven by hurricane Melissa Prior year development, net of reinsurance, and prior year premium, was a $116 million favorable. Which included a $120 million of favorable loss reserve development $31 million of ADC amortization, and $35 million prior year premiums. The favorable development almost entirely stemmed from North commercial with $94 million. Primarily driven by US financial lines, property, and Canada casualty. Overall, the general insurance calendar year combined ratio was 88.8%. A 370 basis point improvement compared to the prior year quarter. An excellent result. Now moving to the segments. 3%. The growth was driven in targeted areas, notably programs, which increased 17% Western World was up 14%. And excess casualty grew 11%. This is partially offset by retail and Lexington property which declined 1910% respectively. These lines continue to be where rate pressure remains most prevalent. Retention in North America was 89% in admitted lines. And 76% in Lexington. An excellent outcome for an excess and surplus lines business. New business grew 8% year over year. Driven by financial lines and casualty. North America commercial accident year combined ratio as adjusted was 87.2%. An increase of 260 basis points over the prior year quarter. The accident year loss ratio of 62.2% was up a 100 basis points owing to changes in business mix as we reduced certain property lines and earning more casualty and captives business, which are benefit beneficial to the overall combined ratio but carry a higher loss ratio. The expense ratio of 25% was up a 160 basis points, including a 60 basis point increase in the acquisition ratio due to change in business mix, and a 100 basis point increase in the GOE ratio owing to lean parent. North America commercial calendar year combined ratio 84.7%. An outstanding result and an improvement of 14.1 points from the prior year, driven by continued strong margins, lower catastrophe losses, and favorable prior year development. Turning to international commercial. Fourth quarter net premiums written increased 4%, This growth was led by global specialty, up 9% driven by marine, and casualty, which increased by over 15%. This was partially offset by financial lines, which was down 6% as retention remained strong, but rate pressure continues to weigh on growth. International retention remains strong at 87% which was balanced across the portfolio. New business was excellent. Up 14% year over year. Accident year combined ratio as adjusted was 85.9%, an increase of 230 basis points. The accident year loss ratio was 54.2%, a 130 basis point increase year over year. This was primarily owing to energy. Where market loss experience in 2025 was higher compared to an unusually favorable 2024. The expense ratio rose 100 basis points to 31.7% due to movement of expenses from other operations. The international commercial calendar year combined ratio was 88.8%, underscoring the strength, and consistency of the portfolio. Turning to Global Personal. Net premiums written were down 6% year over year largely driven by the high net worth quota share reinsurance treaty which was a headwind in 2025. Accidenting your combined ratio as adjusted was 95.3%, a 360 basis point improvement year over year adjusting for the divested travel business. The accident year loss ratio of 52.9% improved 60 basis points driven by the personal auto portfolio both from rate and underwriting actions within certain international markets leading to stronger underlying profitability. The expense ratio improved 300 basis points to 42.4% as the acquisition ratio benefited from improved commission terms in The US high net worth business. The global personal calendar year combined ratio was 94.3% an improvement of a 110 basis points year over year. Moving to fourth quarter pricing starting with North America. Excluding the property business, our North America renewal pricing increase was 6%. In North America casualty, the overall pricing environment remains favorable. With retail excess casualty up 15% and Lexington casualty up 12%. Both remained above loss cost trend. In US financial lines, pricing was down 2%. In line with the third quarter. We continue to believe our portfolio is strong, and we are well positioned as a market leader. In North America property, competition persisted both the admitted and ENS markets with incremental softening in mid market from the third quarter. We remain disciplined in our underwriting standards, and focus on targeted areas where we can achieve adequate risk adjusted returns. Accumulative rate increases over the past several years and disciplined approach enabled us to maintain strong profitability across our admitted and E and S businesses during this market cycle. International commercial, overall pricing was down 2%. Casualty pricing increased 2%. Global specialty pricing was down 1%, an improvement from the third quarter. Overall pricing remains above our technical view, following several years of cumulative rate increases, and we to see global specialty as an area of growth. Property pricing was down 2%, and financial lines pricing was down 4%. Our well diversified portfolio allows to navigate different market conditions, prioritizing lines of business that offer the most compelling risk adjusted returns. Moving to other operations. Fourth quarter adjusted pretax loss was a $129 million versus the prior year quarter of $150 million Looking at full year results, adjusted after-tax income was $4 billion an increase of 24% year over year. The improvement was primarily driven by stronger underwriting results an increase in net investment income, and expense benefits from American International Group, Inc. Next. For 2025, general insurance net premiums written grew 2%. General Insurance full year accident year combined ratio adjusted was 88.3%, largely in line with the prior year. The accident year loss ratio was 57.2%, a 100 basis point increase year over year or 40 basis points increase excluding travel. The increase was driven by the reapportionment of unallocated loss adjustment expenses additional margin in our casualty loss picks, favorable loss experience in the prior year quarter in Global Specialty, and business mix change as we grew more casualty over property. This was partially offset by a 120 basis point improvement in 31.1% compared to 32% for the prior year. This is an outstanding result given the absorption of nearly $300 million of corporate parent expenses in general insurance in 2025. We are pleased with our progress and believe we are on track to achieve our target expense ratio of below 30% by 2027. Total catastrophe related charges were $920 million or 3.9 points of loss ratio. Prior year reserve development, net of reinsurance and prior year premium, was $472 million, a benefit of 2.1 points to the loss ratio. The full year 2025 combined ratio was 90.1%, an outstanding result and an improvement of a 170 basis points versus 91.8% in 2024. Moving to net investment income. The fourth quarter net investment income on an APTI basis was $954 million, an increase of 9% year over year. Internal insurance net investment income was $881 million. Growing 13% year over year. During the fourth quarter, the average new money yield on our core fixed income portfolio including the fixed maturity and loan portfolio, was roughly 65 basis points higher than sales and maturities. The annualized yield was 4.59%, a 68 basis point improvement over the prior year quarter. For the full year, General Insurance net investment income reached $3.4 billion. A 12% increase over 2024. This was primarily driven by our core fixed income portfolio, contributing $3.1 billion, up 17%. This increase reflects the execution of our strategy to reposition the public fixed income portfolio globally to capitalize on higher yields while maintaining a strong overall credit quality of a plus. We recently announced a new partnership with CVC a world-class global investment manager with deep capabilities across credit, and private markets and over €200 billion of assets under management. American International Group, Inc. will be a cornerstone investor in CBC's newly established private equity secondaries evergreen platform, providing up to $1.5 billion from our existing $3 billion private equity portfolio. In addition, American International Group, Inc. will invest up to $2 billion in a separately managed credit account. Of which $1 billion will be deployed in 2026. CVC's new secondaries platform allows us to rebalance our private equity portfolio while driving operational, Turning to other operations. Net investment income of $73 million declined $20 million over the prior year quarter and largely reflects income from our parent liquidity portfolio of $60 million and Corbridge Financial dividend income of $12 million. Turning to capital management. For 2026, we intend to repurchase at least $1 billion of common shares subject to market conditions. As Peter mentioned, we are no longer subject to the 9.9% retention requirement from Nippon on our core bridge ownership. As we receive proceeds from the sell down of our remaining Corbridge position, we expect the majority will likely be deployed to additional share repurchases. We continue to execute our balanced capital management strategy. Driving long-term value through investment in organic and inorganic opportunities as well as prudent capital return to shareholders. Book value per share at December 31 was $76.44, up 9% from December 1, 2024, reflecting strong growth in net income as well as the favorable impact of lower interest rates offset by $6.8 billion of capital return to shareholders through dividends, and share repurchase. Adjusted tangible book value per share was $70.37 up 4% from December 31, 2024. In summary, we delivered an excellent 2025 with disciplined underwriting, strong earnings growth, balanced capital management, and execution of our strategic initiatives while investing for the future. We are well positioned to meet or exceed all of our Investor Day targets by 2027 or earlier With that, I will turn the call back over to Peter. Keith, thank you. Michelle, we're ready for questions. Thank you. Operator: One one. If your question has been answered and you'd like to remove yourself in the queue, press 11 again. Our first question comes from Alex Scott with Barclays. Your line is open. Alex Scott: First one I had for you is on the expense ratio. Yeah. There's obviously a bunch of moving pieces with corporate expenses coming in and some work to remove a portion of those as well as some of the AI initiatives. So I was hoping you could sort of talk us through what we can expect from the expense ratio over the next few years as as you're working through some of that? Peter Zaffino: Thanks, Alex. If I start let's start with the fourth quarter. You know, one is it's like seasonally lumpy, and it's always usually the highest. So I wouldn't you know, really anchor off of the of the fourth quarter. I'll give you at least the variables. It's it's primarily and almost entirely the parent expenses. We had the last quarter in terms of taking a portioning and assigning expenses that sat in other operations in parent into the business, which has done an exceptional job of absorbing, creating bandwidth, you know, for the additional expenses. Also, in the fourth quarter, we had some onetime you know, approximately $20 million of PCS cleanup You know, there were some things that were left over in terms of the transition, and we just, recognize those in the fourth quarter. I would take a look at the full year. I mean, if you if you look at the full year, where, again, we were allocating parent expenses you know, north of $250 million You know, going from 12.6 to 13 was de minimis. The business did an exceptional job of you know, managing, again, additional expenses. It's fully loaded. We're not gonna be talking about this in 2026. As to additional, you know, allocations or expenses. And I would expect the expense ratio to be lower on a run rate basis when you compare 26 to 25. I mean, we're all over the expenses. We made enormous progress in terms of total expenses, and you know, this organization's incredibly focused on every single one of our investor day objectives. And and the expense ratio below 30 is a top priority, and and we will get there. Alex Scott: Very helpful. Thanks. The next one I wanted to ask on is is just at a high level, the general insurance net premium written growth that you mentioned. You know, sounded pretty strong relative to what I was thinking. So I'd be interested, you know, what what portion of that is from the deals that you've announced as opposed to the organic growth? And the organic growth, where are some of the places you're you're getting that? And do we need to consider you know, sorta new business penalty or mix shift or anything like that as we're thinking through our loss ratio trajectory? Peter Zaffino: Can I say nice try on asking for further guidance? No. I can't break out you know, look. We I wanna just make sure that we gave you a line of sight as to what we're seeing as of today. In terms of the growth. It comes from a variety of different places. I mean, we have absolutely, initiatives in place where we think that we can drive growth in the core business. You know, the reinsurance at one one was very beneficial for American International Group, Inc., and it was not dropping coverage, as I said in my prepared remarks. I mean, when I look at the return period attachment points on cap are lower, Exhaust is the same. We're not changing our, you know, risk tolerance. We kept the casualty the same. So it is really just on sort of same store sales getting, you know, the benefit of that. I don't know if we outlined it enough in terms of the convex, you know, sort of whole account quota share. And and the benefit of, you know, assuming that business you know, Amwins, you know, this was for the SPV, it was the first you know, one where we did third party risk. And so, you know, we are taking some of that on our balance sheet, and then the remaining is going into the SPV. So we'll see some organic growth from there. And you know, I I don't know how much I wanna go into this just because I wanna be able to take some other questions. But, you know, the high net worth was always supposed to be you know, I'd mentioned this well over a year ago that we were going to do a whole account quota share to bring in partners. We brought in five. And we would determine in a year or so if we wanted to reduce that. And so we did reduce it to three, and the three partners that we have you know, could be likely insurance company paper options down the road for the MGA. So there's will be less session you know, throughout you know, 2026. So I I think all of those are contributing in a way that is positive to growth and, you know, not one in particular is driving the outcome. Alex Scott: Very helpful. Thank you. Operator: Thank you. Our next question comes from Meyer Shields with KBW. Your line is open. Meyer Shields: Great. Thanks so much. Keith, in your comments, you mentioned additional margin in casualty lines. I was hoping you could add a little detail to that. Keith Walsh: Thanks, Meyer. Yes. We we did talk about that. You know, I wanted to just maybe level set a bit. One of the things we have talked about is you know, we've been very conservative, I think, on our casualty and probably ahead of the curve over the last several years. We talked about this at Investor Day. We raised our loss cost trend assumptions back in 2019 to double digits in this line. And so and by 2022, all excess casualty segments were at 10% or greater on our loss crush trend. But more recently, we're being we're being conservative in our accident year picks, putting extra margin in for our longer tail lines. It really, you know, puts us in a position where we view our reserves as a position of strength and we've put that additional margin in our casualty loss picks. And it's real largely related to macro macro uncertainties, and it's not related to any deterioration in our underlying portfolio. And while it's not specific to any risk, it's it's intended to cover uncertainties for things like social inflation and rising litigation costs. And so we feel really good about our positioning there. Wanted to highlight that. Meyer Shields: Okay. That's helpful. Also, within GI, there's a decent sequential step up in interest and dividends, and I was hoping you could break it down. Is there anything unusual in there? Is that like a good starting run rate? Keith Walsh: No. Thanks, Meyer. There's there's a lot going on in the investment portfolio, and the team really has done an exceptional job this year, in in really transforming Just to give you a little bit of you know, journey that we've been on, we we've gone from a largely in house asset manager when we owned Corbridge to largely outsourced at this point with key partners. And, you know, at this point, just to give you a stat, you know, CoreBridge of our $80 billion portfolio only manages, less than $3 billion at this point. And so we've really made that change. One of the things the team did this year is that we had many parts of the world we had much lower yields on the portfolio. We did actively turned over about 40% of the portfolio. And just to put that in in perspective, and and reinvest it in higher yields, of course, Just to put that in perspective, a normal turnover for us would be about 15% of the portfolio a year. That's an active 25% we turned over to reinvest at higher yields. Additionally, as you can imagine, we've been actively working with our private equity partners We've sold down our real estate portfolio, and and pushed the proceeds to one of our partners. And with the CVC deal we just announced, we're really cleaning up on the the PE secondaries where we just weren't earning an adequate return. On what on where we were, and we think we're better positioned there. So it's a combination of many things, but the piece you're talking about is really the reinvestment into higher yields around the world. Meyer Shields: Fantastic. Thank you so much. Next question. Operator: Thank you. Our next question comes from Bob Huang with Morgan Stanley. Your line is open. Bob Huang: Hi. Good morning. Just want just maybe dig a little bit deeper onto the the AI commentary, maybe starting with when you talked about 2026 being the implementation for orchestration layer on AI agents. Not not sure if you have an answer for this, but if we think about the infrastructure software side of things, would this be an orchestration that sits on top of all the technology for American International Group, Inc. and then thus manage that way, or is the orchestration layer just for localized AI systems? And then it essentially would manage localized AI initiatives. Like, is there a way to think about that? Peter Zaffino: So thanks for the question. I think what we were referencing you know, we have made incredible progress in terms of the implementation of Gen AI and also trying to stay aligned with the advancements of the tech companies that are making you can see it in this quarter, just massive CapEx but also making material progress on their their capabilities. So, like, when we talked out at Investor Day, didn't really even talk much about orchestration. And we thought that what we had outlined in March was aspirational and, you know, six to twelve months later, we see the capabilities are much greater. And so not only are we making massive advancements with data ingestion, shrinking digital workflow, but also in the large language models and the advancements, you know, I'll use Anthropic as an example. We start off with claude2.o, and know, we're now at four six. And so, like, know, a lot of those advancements. What I was referencing on the orchestration is just that the implementation of single agents throughout organizations is real. And there's great opportunities in functions, in mid office, in front office, but orchestrating that in an orderly way of being able to get that at scale is what we're gonna focus on in 2026. And so we've been experimenting with multiple agents on the underwriting side. Then the functional side. I'd also add into, like, you know, our back office You know, we outsource to Accenture. I'll give you an example there. And they're doing an incredible, you know, job in terms of reinventing themselves in their ability to, you know, create agent large language models. We share in the savings. We share in the design of the orchestration and how it actually comes into our workflow. So I would expect to be giving you updates throughout the year. Terms of the progress that we're making, and making sure that it's not only you know, it will be on the technology stack, but I'm talking more about orchestrating a significant amount of agents within the organization that are more organized. Bob Huang: Got it. So it sounds like a lot of opportunities on integration and AI side of things. Absolutely. But maybe just a follow-up on on that. You've been on this technology and AI journey for some time now. Given the progress you've made thus far, what are the low hanging fruits that you think that are you're readily that you're ready to take advantage of and then that can maybe show up in the numbers. What are more of the complicated projects that you're excited about that perhaps is more further out five years down the road? Peter Zaffino: Yeah. Thanks, Bob. I mean, the first one is absolutely to reduce cycle time with a higher quality data to the underwriter. I mean, we're seeing, like, a you know, massive shift in our ability to process a significant submission flow way beyond our expectations without additional human capital resources. So that's been the biggest surprise. There's some training that's gonna be required for us in terms of know, what does the underwriter you know, look at if it has all of this rich information in a fraction of the time. So that's a part of, you know, our training, and we've been doing that in in '25, and we'll accelerate in '26. I I wanna repeat the answer that I you know, just you know, gave you, but I think the the real long-term opportunity is going to be you know, getting the orchestration of agents in in an organization, to be able to scale and, you know, be able to analyze that information that's not biased in a way that's through the entire workflow. So I think of, like, you you think of a digital workflow from front to mid to back, you can shrink all of that with the implementation of GenAI and multiple agents with a proper orchestration. And there's a lot of companies that actually have orchestration capabilities. It's just a matter of doing it within your own sort of framework, and making sure that you're working with the regulators and being, you know, very you know, forward-thinking in the partnership there. But I think the acceleration and the opportunity is greater than I thought at Investor Day. Bob Huang: Got it. Really appreciate that. Thank you. Operator: Thank you. Our next comes from Elyse Greenspan with Wells Fargo. Your line is open. Elyse Greenspan: Hi, thanks. Good morning. My first question is on the expense ratio. Do you guys, you know, thirty one one for for 25. You know, you guys reaffirmed the thirty percent twenty twenty seven target. Should we think of that as the improvement split between the next two years? Or is there anything, I guess, you would highlight with the expense ratio we think about getting you know, from where you guys are to your your target. Peter Zaffino: No. I think, Elyse, I I think I outlined, you know, that really, the expense ratio was a direct correlation to the parent expenses being taken from other operations and putting into the business. And, again, I have to say the business did an exceptional job We will not have that, headwind in in 2026. I think from the expense discipline I think this company deserves a lot of credit for its ability to execute transformations, whether it was 200 or what we did in the underwriting or what we did with American International Group, Inc. next. This is in the DNA of the company. We will get the expenses out. We'll also get leverage from, you know, very strong premium growth. So I I I think that there's I don't wanna revise guidance, but we are not nervous about getting to this in '27, and we expect to see meaningful improvement in in 2026. And and it'll be much more predictable. Elyse Greenspan: Thanks. And then my second question is just on the the capital color. Keith, I think you said a minimum of $1 billion. I just wanna make sure I'm understanding. So that's the the baseline. And then if the Corbridge stake is monetized, that would come on top of the $1 billion in 2026? Keith Walsh: Hey, Elyse. Yes. That is correct. So we said at least a billion is our baseline. And then any core bridge proceeds the vast majority of that will be deployed into additional share repurchase. Elyse Greenspan: Thank you. Operator: Thank you. Our next question comes from Paul Newsome with Piper Sandler. Your line is open. Paul Newsome: I was hoping Peter, to maybe, ask a big picture question as we get closer to end of the call. About your experience in the soft market and, you know, what you think generally how things will evolve You can tie it to what you think what's gonna happen with revenues and in the next year or just in general if you think that this extension this is an extended top market or something that could be short. Peter Zaffino: Thanks, Paul. I'm gonna ask Jon. I can't have Jon fly all the way from London and not answer a question, and he has more experience on the underwriting side than I do. But I I the one big material item is you have to prepare for this well in advance. I mean, so in in terms of how you're shaping a portfolio, if you wanna be opportunistic I think we've been incredibly thorough throughout the globe in terms of looking at and being very consistent on underwriting standards we always talk about getting the best risk-adjusted returns. We look at volatility. We look at loss cost. We look at margin on loss cost. And we look at our ability, you know, to scale And, also, a very real and, you know, honest with humility discussion around our relevance on those products in the marketplace. And I think we have leadership on so many of the products. And, also, you know, not always looking at just the index. In other words, like, you know, we've seen property you know, come off with rates. We wanna be very careful. We're not looking to grow it. The property had its best year on an accident year basis, on a calendar year basis, from a combined ratio, across American International Group, Inc. I mean so, like, we wanna make sure we're not overreacting but being very conservative in terms of how we're actually you know, deploying capital. So I don't think the entire market's in a soft market. I mean, property always gets the headline where the, you know, minus tens and E and S might be slowing down. But I'm like, E and S again, I like to look at submission count retentions and our submission counts, you know, and parts of Lexington are up 30%. That's a positive, and then you wanna make sure that you're positioned in a dislocation I think when I look at, like, Lexington, global specialty, next time there's a market turn, you know, we are gonna be able to grow substantially. Jon, maybe you could talk a little about cycle management. Jon Hancock: Yeah. Thanks, Peter. And I and I agree with you. I know we all talk about the market. I don't I don't think you know, for twenty, thirty years, there's been such a thing as the market. There's multiple markets, multiple cycles going on at any one time. And it's not the entire market that's dipping now. And this is all about being ready for it, isn't it? We we have had in some places when sales and people are talking about the hard market for the last years, not everywhere it's been hard in rates. So we've been planning for for this for a long time. We've changed some of our processes, robustness over our reserve reviews, our our loss picks, our inflation planning, our margin planning is has been strong anywhere. We've improved hugely in readiness for for for this. We monitor micro segments. We monitor new versus new. We monitor different, geographies. And we really do know firstly, where the big growth opportunities are and also where the highest margin opportunities are. But we're also very, very clinical on where our risk-adjusted returns are and what we will and won't write. So and we we talk a lot on these calls and and then and then other forum. We we have this diverse portfolio across the whole globe. And there is no single market going. There are rate pressures. Of course, Rob. We're not in denial about that. It's not everywhere. It's not at the same time. Different products, different geographies or at different stages of of the cycle. So we react to that, and we we go looking for where the best opportunities are that that suit us. And I'll just finish then. And I think it's important to know you know, that the risk of sounding arrogant. We are really well positioned to manage this. And we are not an index for the market. If if I saw our rate, our risk-adjusted returns exactly the same as the market. Yep. I'd be very disappointed actually because we we try and do things differently and use our capacity and our capability together. Peter Zaffino: That's great, Jon. And I think also, Paul, I'd just add one other thing is that you set the entire company up for these markets, just not the underwriting portfolio. What's your leverage? What's your cash flow? Know? What do you have for liquidity? How strong is the balance sheet? How strong have your loss picks been? How confident you're on the accident year loss ratios, when you're looking to improve combined like we are, we're taking it out of the expense because of efficiencies. And how much have you been investing for the future as the world changed at a rapid pace where I think we've been a leader in Gen AI? So I think that we do a kind of, like, look at it really broadly and then making sure that, you know, the underwriting are really focused on, you know, delivering those returns. Paul Newsome: Okay. Want Paul, you want a last follow-up? Paul Newsome: Was just gonna ask you about M and A. You you you may send in your comments that the recent deals have been or you're doing hopefully better than buybacks. Is that kind of the baseline if you think prospectively for any Peter Zaffino: Not always. I mean, but I think it's a you know? Wanna be able to tell you, you know, how do we think about it in terms of earnings, EPS, ROE, and how is it you know, compared to share repurchase for sure. I I don't I don't wanna say always or never, but in today's environment, that's why Keith gave the guidance he gave is we think the best use of the proceeds from Corbridge today is in share repurchases that we've done some compelling investments that are gonna help propel American International Group, Inc. over the next two years. And then as we get to the back half of twenty six, we'll look in terms of, you know, what those trade offs are in the future. Paul Newsome: Appreciate it. Thank you very much. Peter Zaffino: Okay. Thanks, everybody. We really appreciate you participating today, and everybody have a great day. Operator: Thank you for your participation. You may now disconnect. Good day.
Operator: Good morning, everyone, and welcome to the Westinghouse Air Brake Technologies Corporation Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please say no conference specialist by pressing the star. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Kyra Yates, Vice President of Investor Relations. Please go ahead. Kyra Yates: Thank you, operator. Good morning, everyone, and welcome to Westinghouse Air Brake Technologies Corporation's fourth quarter 2025 earnings call. With us today are President and CEO, Rafael Ottoni Santana, CFO, John A. Olin, and Senior Vice President of Finance, John Mastlers. Today's slide presentation, along with our earnings release and financial disclosures, were posted to our website earlier today and can be accessed on the Investor Relations tab. Some statements we are making are forward-looking and based on our best view of the world and our business today. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael Ottoni Santana. Rafael Ottoni Santana: Thanks, Kyra, and good morning, everyone. Before John and I get into the details of the fourth quarter, I'd like to take a moment to reflect on our performance over the past year and share my thoughts on the year ahead. 2025 was another outstanding year reflecting the strength and resilience of our business model and our ability to execute in dynamic markets. We delivered top-line growth of 7.5% and grew adjusted EPS by nearly 19%. We accomplished all of that while converting a record orders pipeline into a very strong multiyear backlog. As we move into 2026, our orders backlog and pipeline momentum remain very strong, supported by growing demand. We also advanced our strategic priorities through acquisitions and integration initiatives, unlocking synergies and driving operational efficiencies. To these ends, we're very pleased with the businesses that we acquired in 2025, the teams that came with these businesses, and the strong financial results that we have seen from day one of our ownership. Additionally, our efforts on integration, cost management, and simplification continue to exceed our expectations. As we exit 2025, the underlying momentum of our business gives us the confidence in delivering another strong cycle. We expect 2026 to mark our sixth consecutive year of mid to high teen adjusted EPS growth, positioning us to drive very significant long-term value creation. Finally, our financial position remains strong. We continue to execute against our capital allocation framework to maximize shareholder value by investing for future growth and returning value to our shareholders. As a result of our performance in 2025 and our confidence in the future, our Board of Directors has increased our dividend by 24% and has increased our share buyback authorization to $1.2 billion. This is the strongest position our company has been in, and we're both confident and determined about the years ahead. Let's move to Slide five to discuss our fourth quarter results. I'll start with an update on our business, my perspectives on the quarter, and progress against our long-term value creation framework, and then John will cover the financials. We delivered another strong quarter. Sales were $3 billion, which was up 15%, and adjusted EPS was up 25% from the year-ago quarter. Total cash flow from operations for the quarter was $992 million, representing a very strong cash conversion. The twelve-month backlog closed the year at $8.2 billion, up 7% from the prior year, while the multiyear backlog surpassed $27 billion, up 23%. These backlog results will drive our continued revenue and earnings momentum and provide us strong visibility and revenue coverage in 2026. Shifting our focus to Slide six, let's talk about 2025 end market expectations in more detail. While key metrics across our freight markets remain mixed, we are very encouraged by the overall strength of our business, the momentum we're seeing in international markets, and the continuing pipeline of opportunities across geographies. In North America, carload traffic was flat in the quarter, which resulted in fewer active locomotives. However, the locomotives that were in service operated at a higher intensity compared to last year, demonstrating the critical role our technology and solutions play in driving efficiency for our customers. Internationally, carloads continue to grow at a robust pace across core markets such as Latin America, Africa, India, and Asia. Significant investments to expand and upgrade infrastructure are supporting our international orders pipeline. Looking at the North America railcar build, as discussed last quarter, demand for new railcars was down compared to the prior year and landed at approximately 31,000 cars for 2025. The industry outlook for 2026 is expected to be 24,000 cars, down another 22% versus 2025. Finally, moving to the transit sector, we continue to see underlying indicators for growth. Ridership levels are rising in key markets such as Europe and India, and we are seeing high backlogs at car builders alongside increased public investment for fleet expansion and renewals. Next, let's turn to Slide seven to discuss a few business highlights. This quarter, we converted more than $2 billion of pipeline into new locomotive and modernization orders for North American customers. An important milestone that reflects our customers' long-term commitment to invest in their fleets and further strengthen what is now our largest multiyear backlog for North America. We are seeing some customers capitalize on strong fleet investment returns. This is not just about upgrading assets. It is about improving service levels for their customers, lowering total cost of ownership, reducing obsolescence, and positioning fleets for the next generation of technology-enabled operations focused on safety, reliability, and availability. We expect orders to follow this trend, reinforcing the long-term demand for Westinghouse Air Brake Technologies Corporation's innovative solutions. Moving to digital, we secured $75 million in orders for PTC and Kinetics in key international markets such as Brazil and Kazakhstan. Also in the quarter, we delivered the first battery-electric heavy haul locomotives to BHP. An important milestone for Westinghouse Air Brake Technologies Corporation and the industry. These locomotives are engineered to perform in one of the world's most demanding environments, leveraging advanced energy management technology, including regenerative braking, to maximize efficiency and significantly reduce emissions. Together with BHP, we are demonstrating how cutting-edge solutions can help meet operational needs while advancing sustainability efforts. Finally, I'm excited to bring Frauzer Sensor Technologies into Westinghouse Air Brake Technologies Corporation following the closing of that acquisition in December. This business is a market leader in train detection, wayside object control solutions, and axle counting systems. In addition, we are pleased to share that we closed on the acquisition of Downer Couplers yesterday. This acquisition will further strengthen our position in critical rail technologies. With that, I'd like to welcome both the Frauzer and Delner employees to Westinghouse Air Brake Technologies Corporation. All of this demonstrates the underlying strength across our businesses and the strong pipeline of opportunities which we continue to execute on. Moving to Slide eight, I want to briefly discuss how we are positioned to deliver strong and sustainable results. Over the past five years, Westinghouse Air Brake Technologies Corporation has built a track record of navigating challenging markets, geopolitical uncertainty, hyperinflation, tariffs, and other significant disruptions, and 2025 was no exception. Our success is driven by a highly committed management team and industry-leading technologies, allowing us to remain resilient and relevant to our customers and our stakeholders. Our twelve-month backlog of $8.2 billion provides visibility and support for growth. This backlog has consistently grown over the past five years, even amid a relatively flat North American rail market and a volatile macro economy, thanks to the innovation and the high level of recurring revenues that our products generate. Our ability to expand operating margins across the business reflects disciplined execution by driving continued productivity, simplifying the organization, managing costs, and pricing for the value we deliver. Finally, we have also demonstrated our ability to consistently generate strong cash flows, with cash conversion averaging 99% over the last six years. Looking ahead, we are confident that our execution, combined with the strength of our business and leading technologies, will result in Westinghouse Air Brake Technologies Corporation being resilient through the economic cycles, delivering profitable growth, and driving superior shareholder returns. Turning to slide nine, before turning it over to John, I want to highlight the significant fleet renewal opportunity that remains in North America. Fleet renewal is not discretionary. It is a critical lever our customers have to improve operating ratios, enhance service for their customers, and strengthen their overall competitiveness. As I mentioned last quarter, North America railroads are still operating an aged fleet. Today, more than 25% of active locomotives are over 20 years old, and 25% still run on DC technology. This aging fleet creates a compelling case for continued modernization. As locomotives age, failure rates and maintenance costs rise, making modernizations a highly attractive return on our customers' investment. We have also noted the operational advantages of AC technology. For every three DC locomotives, customers can replace them with approximately two AC units, enabling Class 1s to reduce fleet sizes while improving productivity and reliability. This helps address obsolescence, reduces maintenance costs, and enhances service levels, all while providing our customers with impactful returns on their investments for modernizing their fleets. To help our customers capture these benefits on additional fleets, we're excited to launch our first-ever EVO modernization program in 2026. The Evolution Series locomotives, first introduced in 2005, are now reaching an age where modernization becomes increasingly compelling. Our new EVO modernization builds upon our proven EVO engine platform and is designed to deliver meaningful operational impacts to optimize performance, reduce costs, and advance their long-term strategic objectives. Key new technologies, such as an upgraded control system and EVO Advantage, will be available as part of this EVO Mod. This product is expected to deliver greater than 20% improvement in reliability and tractive effort by replacing DC traction motors and replacing aged electronics and control systems. In addition, the new mods with EVO Advantage are expected to drive up to 7% improvement in fuel savings. Overall, we're excited about the significant value modernizations will unlock for our customers and for our business. We remain confident in the long-term opportunities ahead. With that, I'll turn the call over to John to review the quarter segment results and our overall financial performance. John? John A. Olin: Thanks, Rafael, and hello everyone. Turning to slide 10, I'll review our fourth quarter results in more detail. Overall, the quarter came in slightly ahead of our expectations for both revenue and EPS. Cash from operations significantly exceeded expectations, while operating margins were lower than planned. Operating margins were adversely impacted by higher compensation expense driven by our outstanding operating cash flow and cash conversion performance during the quarter. Sales for the quarter were $2.97 billion, which reflects a 14.8% increase versus the prior year, with strong contributions from both the freight and transit segments. As expected, Q4 sales benefited from very strong organic growth behind strong orders and sales momentum, along with catch-up on locomotive deliveries that shifted from the second quarter due to a supply part issue. We also delivered strong inorganic growth led by Inspection Technologies, which outperformed our acquisition plan. Excluding the impact of currency, Q4 sales were up 13.2%. For the quarter, GAAP operating income was $356 million. The increase was driven by higher sales and improved gross margin as we continue to focus on productivity and simplification. GAAP operating margin fell in the quarter due to higher restructuring and transaction costs. Adjusted operating margin for the quarter was 17.7%, up 0.8 percentage points versus the prior year. This increase was driven by improved gross margins of 2.1 percentage points, which was partially offset by operating expenses, which grew at a higher rate than revenue. GAAP earnings per diluted share was $1.18, which was down 4.1% versus the year-ago quarter. During the quarter, we had net pretax charges of $55 million for restructuring, which were primarily non-cash and related to our integration and portfolio optimization initiatives, to further integrate and streamline Westinghouse Air Brake Technologies Corporation's operations, as well as transaction costs related to most recent acquisitions. In the quarter, adjusted earnings per diluted share was $2.10, up 25% versus the prior year. Overall, Westinghouse Air Brake Technologies Corporation delivered a very strong quarter, demonstrating the underlying strength and momentum of the business. Now turning to slide 11, let's review our product lines in more detail. Fourth quarter consolidated sales were up 14.8%. Equipment sales were up 33.5% from last year's fourth quarter. For the year, equipment sales were up a strong 12.2%. Our services sales were down 5% as expected, and as we discussed in our third quarter call. This was driven by the timing of modernization deliveries. Component sales were up 11.1% versus last year. For the full year, services had revenue growth of 1.2% despite mod deliveries being significantly down year over year, which demonstrates the strength of the core services business. Due to growth seen in industrial products offsetting the impact from the significantly lower North America railcar build. For the year, component sales were up 2% despite North American railcar build being down 27%. Digital intelligence sales were up 74.4% from last year. This was driven by the Inspection Technologies and Fraucher Sensor Technology acquisitions. When excluding acquisitions, digital was down 1%. For the year, digital sales were up 31% driven by acquisitions. In our 6.7% driven by our products and services businesses. For the year, Transit was up 7.3%. Foreign currency exchange had a favorable impact on sales of 4.7 and 2.2 percentage points for the quarter and total year. Moving to slide 12. GAAP gross margin was 32.6%, which was up 1.7 percentage points from the fourth quarter last year. Adjusted gross margin was up 2.1 percentage points during the quarter. Our team continues to execute well by driving operational productivity and lean initiatives in an effort to offset higher material costs, primarily a result of incremental tariffs. GAAP operating margin was 12%, which was down 0.9 percentage points versus last year. Adjusted operating margin improved 0.8 percentage points to 17.7%. Operating margin was positively impacted by cost recovery from escalation, increased productivity, integration savings, partially offset by unfavorable mix and higher tariff costs. Adjusted SG&A expenses were higher year over year due largely to SG&A expense associated with our acquisitions and higher compensation expense for our employees tied to our very favorable cash performance in the quarter and for the year. GAAP SG&A was up an additional amount over adjusted SG&A due to restructuring expense associated with our integration two point zero and three point zero and portfolio optimization costs associated with divestitures. Engineering expense was $68 million, $17 million higher than Q4 last year, primarily due to acquisitions. Now let's take a look at the segment results on slide 13. Starting with the Freight segment. As I already discussed, Freight segment sales were up a very strong 18.3%. GAAP segment operating income was $318 million, driving an operating margin of 15%, down 0.2 percentage points versus last year. GAAP operating income included $50 million of restructuring costs, portfolio optimization charges, and was adversely impacted by purchase accounting charges resulting from our acquisitions. Adjusted operating income for the Freight segment was $470 million, up 35.1% versus the prior year. Adjusted operating margin in the Freight segment was 22.1%, up 2.7 percentage points from the prior year. The increase was driven by improved gross margin, even despite mix headwinds and tariff impacts. The increase in gross margin was partially offset by an increase in our operating expenses expressed as a percentage of revenue. Finally, segment twelve-month backlog was $6.02 billion. Our twelve-month backlog was up 8%, while the multiyear backlog of $22.49 billion was up 25.1%. Turning to Slide 14. Transit segment sales were up 6.7% at $842 million. When adjusting for foreign currency, transit sales were up 2%. GAAP operating income was $108 million. Restructuring costs related to Integration two point zero and three point zero and portfolio optimization were $4 million in Q4. Adjusted segment operating income was $118 million. Adjusted operating income as a percent of revenue was 14%, down 2.4 percentage points from the prior year, driven by higher operating expenses as a percent of revenue. Finally, Transit segment twelve-month backlog for the quarter was $2.21 billion. Our twelve-month backlog was up 5.1%, while the multiyear backlog was up 14.7%. Now let's turn to our financial position on Slide 15. Fourth quarter cash flow generation was very strong at $992 million, resulting in total year cash from operations of $1.76 billion and cash conversion of 104%. During the year, flow benefited from significantly higher net income and higher year-over-year down payments, partially offset by tariff headwinds. Our balance sheet and financial position continue to be very strong, as evidenced by first, our liquidity position, which ended the quarter at $3.21 billion, and our net debt leverage ratio, which ended the fourth quarter at 1.9 times after funding the purchase of Browser Sensor Technology for approximately $765 million. Our leverage ratio remained in our stated range of two to 2.5 times after closing on the acquisition of Delner. During the year, we repurchased nearly $223 million of our shares and paid $173 million in dividends. As a result of our performance in 2025 and our confidence in the future, our Board of Directors approved a 24% increase in the quarterly dividend. Our Board also increased our existing share repurchase authorization to $1.2 billion. We continue to allocate capital in a very disciplined way to maximize returns for our shareholders. Moving to Slide 16, I'd like to provide an update on the progress that we've made on our integration portfolio optimization initiatives. Starting with Integration two point zero, when we originally announced, we indicated that the initiative would deliver an incremental $75 million to $90 million of run rate cost savings by 2025. With program-to-date restructuring expenses of $149 million, we exited 2025 having achieved $103 million of run rate savings. With the program largely complete and ahead of original expectations, Integration two point zero was a clear success. And importantly, we have carried that momentum forward as we execute our Integration three point zero initiative, which we announced in early 2025. When we introduced Integration three point zero, we outlined an incremental $100 million to $125 million of run cost savings by 2028. I'm pleased to report that our team has delivered strong early performance. In the first year alone, we generated $49 million of run rate savings at a cost of approximately $50 million. Given this performance, we are raising our guidance. We now anticipate $115 million to $140 million of run rate savings by 2028, with anticipated expenses of $125 to $155 million. Turning to our portfolio optimization initiative, we have continued to execute against all planned dispositions of non-strategic product lines, actions designed to strengthen our focus, improve profitability, and reduce manufacturing complexity. During 2025, we exited $72 million of low-margin non-strategic revenue and expect to exit an additional $60 million in 2026. Overall, we remain very encouraged by the team's execution and the value these initiatives continue to unlock across the company. Now moving to slide 17, let me quickly recap the year. Overall, the team delivered a great year for all our stakeholders. We generated 7.5% revenue growth, expanded adjusted operating margins by 1.4 percentage points, and increased adjusted EPS by 18.7% while delivering very strong cash flow. The resiliency of the business combined with disciplined execution positions us for a solid foundation for continued profitable growth as we enter 2026. With that, I'd like to turn the call back over to Rafael Ottoni Santana. Rafael Ottoni Santana: Thanks, John. Now let's turn to Slide 18 to discuss our 2026 outlook and guidance. We continue to see underlying demand for our products and solutions across the business. Our pipeline is very strong, and both our twelve-month and multi-year backlogs provide clear visibility to profitable growth ahead. Our team is fully committed to driving top-line growth and margin expansion in 2026. With these factors in mind, we expect 2026 sales of between $12.2 billion to $12.5 billion, up 10.5% at the midpoint, and adjusted EPS to be between $10.05 and $10.45, which represents 14% growth at the midpoint. It is important to note that this guidance incorporates the expected impact from the Delner acquisition. As we discussed earlier, our cash conversion performance has been very strong, and we expect that to continue. Over the past two years, we have delivered an average of over 110% cash conversion, which is a testament to the strength of our operating discipline. Best-in-class cash conversion has been and is expected to remain a hallmark of investing in our company. While we will continue to provide long-term cash guidance, beginning 2026, we'll no longer be providing annual cash conversion guidance. I remain confident that Westinghouse Air Brake Technologies Corporation is well-positioned to drive profitable growth and maximize shareholder returns in 2026 and beyond. Now, let's wrap up on Slide 19. As you heard today, our team continues to execute against our value creation framework and our five-year outlook, driven by the strength of our resilient installed base, world-class team, innovative technologists, and our customer-focused approach. With solid underlying demand for our products and technologies, and a rigorous focus on continuous improvement and cost management, we feel strong about the company's future and our ability to maximize shareholder returns. With that, I'd like to thank our team for their great work this year and their continued commitment to drive top quartile performance. I'll now turn the call over to Kyra Yates to begin the Q&A portion of our discussion. Kyra? Kyra Yates: Thank you, Rafael. We will now move on to questions. But before we do, and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question. Operator: One. If you are using a speakerphone, we do ask you please pick up your handset prior to pressing the keys to ensure the best sound quality. If at any time your question has been addressed or you'd like to withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Our first question today comes from Angel Castillo from Morgan. Please go ahead with your question. Oliver Z Jiang: Hi. It's Oliver on for Angel. Thanks for taking our questions. We just wanted to talk about the recent flurry of orders that you guys had announced. You know, with those signed, does your pipeline of opportunities, you know, potentially narrow a little bit? And if not, could you talk about how that's grown across different regions and different end markets? Any color there would be super helpful. Rafael Ottoni Santana: So now we continue to have a very strong pipeline of opportunities, and internationally it's very, very strong. Our teams are continuing to work very hard to convert that pipeline into orders. And it speaks to really some markets where we have a strong presence. Places like Australia, Brazil, East Asia, we continue to have opportunities in Africa and parts of the CIS region. Of course, we are encouraged by the momentum we saw here in North America. I think this reflects ultimately strong customer commitment to win and grow the business through improved reliability, lower operating costs, better fuel efficiency, and reduced fleet obsolescence. So as we look at aging fleets out there, I think that's much more pronounced in North America. And that continues to be probably the single biggest powerful tailwind we have in the company. Oliver Z Jiang: Got it. Thanks, Raj. So that's super helpful. And then just on your components business, I know your railcar deliveries are to be down 20%, 25% again this year. Can you talk about potential offsets there, whether it's in the industrial business or the heat transfer piece? Potentially, do you see that growing to offset some of that decline? Rafael Ottoni Santana: Thank you. So as we look into 2026, every single one of our businesses, we see them driving profitable growth. With regards to the components business, I think we're very pleased with the progress there despite the softer freight car builds. I think those teams have continued to take decisive action to adjust the cost structure to new volume levels. And what I like about what I'm seeing there, and it's across the company, is really the portfolio is working. Right? I mean, we've made investments, but if you think about the organic plays or inorganic plays in the case of Freight Components, some of the investments we've made in the heat exchanger business in industrials is really paying off, and that's where you see some of those offsets taking place along those businesses. To continue to perform. Operator: Our next question comes from Scott Group from Wolfe Research. Please go ahead with your question. Scott Group: Hey, thanks. Rafael, can you just kind of go through that bit about the cash conversion and the guidance change and just the rationale there? Rafael Ottoni Santana: Yes. Hey, Scott. Number one, very strong cash conversion for the business as we expected. We're continuing to operate and reward our stakeholders in the business based on cash performance. So that continues to be paramount for the company. We continue to have very strong variation. As you see it not just quarter to quarter, year to year, it's certainly more pronounced as you go into some of the international deals and you collect cash earlier, we expect to continue to improve. Cash performance in the company. Yes, Scott. With regards to the overall guidance, we continue to shoot for above 90% in our long-term guidance. As we look at what we've done over the last six years, we've averaged 99% on a business that is growing its working capital quite substantially as our revenues and profits have grown very much since then. And actually, Scott, if you look at the last two years, we've been up 110%. Average cash conversion. So with that, we'll continue to stay focused. Our comp plans are all very much tied into cash, both short-term and long-term. And it has become a hallmark of an investment in Westinghouse Air Brake Technologies Corporation. But with that, we'll continue to shoot for the 90%. But in terms of an annual guide, we're pulling the 90% this year. Scott Group: Okay. I think I understand. This transition we're starting to see with fewer mods and more new, I guess, should we think about the net impact here? Maybe just a couple of things to just do you think our sales with the class one rails growing this year and then sort of this shift to more new, how do we think about the net impact to margins for that business and I guess bottom line? With this shift? Rafael Ottoni Santana: Let me start here, Scott, first with regards to new units and mods. We continue to see the combination of that at a global level growing. Well, while I say that's true for the globe, it's not true for North America. And especially driven this year again by mods. Last year, the modernizations, we had a pronounced decline. It was double digits. It's more pronounced this year. And we have seen a shift towards some of the tier four units. With that being said, I think we continue to see a modernization of the aged fleet in North America, one of the most powerful tailwinds we have as we continue to really invest in solutions. We just announced the Evo Advantage, and that opens up a fleet that's growing to really 10,000 units here. It's a global fleet with, I'll call, very compelling elements of payback tied to fuel efficiency, tied again to reliability. So, I think we're continuing to invest in that, and that's going to be a very compelling piece of it. But new locomotives are certainly making more and more headlines there in terms of investment. Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question. Ken Hoexter: Hey, great. Good morning. Hey, I'm on a plane, so I'll be quick. So just given the orders, what was in the backlog and what is new when you think about those recent announcements? And then thanks for the update on the backlog, but in your outlook for EPS, can you talk about what the upside downside to the target is? Rafael Ottoni Santana: With regards to what's in the backlog, Ken, it's everything that was done in the fourth quarter is certainly in the backlog. So when we talk about the $2.2 billion on our key wins sheet, that's all in backlog. Ken Hoexter: Right? Rafael Ottoni Santana: And when we talk about things in the pipeline, which Rafael did, they're not in the backlog yet, but as they convert, they will certainly be put in the backlog. Now when we look at overall guidance, Ken, we feel real good about where we're at. And the range that we have there. We've got a fair amount, we got a lot of good things happening within our business. We have some headwinds. We just talked about mods but also on the railcar build. But with that, we've also got a fair amount of headwinds with regards to tariffs coming at us. Right? We've seen in the third quarter to fourth quarter, a significant increase in the cost of tariffs as things come out of inventory in through the P&L, we would expect that to see the same type of dynamic in 2026 and in particular the first half while we are running all our mitigants against that. So we believe we've got a very balanced plan and a good guide as we go into 2026 to manage any eventualities that come at us. Ken Hoexter: Thanks, John. I guess my question was of all the Class one rails that have just put out orders, were half of those already in the backlog as of last quarter? Is it all new? And then follow on would be just thoughts on the first new build order from Progress Rail in a long time. Is that likely to see something you're seeing increasing competitive step back in? Thanks. Rafael Ottoni Santana: For clarity, Ken, everything that we've announced on the Class 1s, some of those have been announced this quarter, they are in last quarter's backlog. We signed those agreements in 2025. And so there's nothing that we've done that is not in the backlog at this point. With regards to your second part of your question, I'm not going to comment on the specifics of a competitor order. What I'll tell you is very confident about the portfolio of solutions we have. In the case of Tier four in specific, this is about really proven reliability, availability of over 1,000 units that we got running out there. Those are units that we've continued to really invest and to continue to further create advantages versus competitive products that are out there. So we're very confident about that portfolio. When it comes to Tier four and when it comes to modernizations as well. So you'll see us keep being advancing that and coupling that with really a lot of the elements of software and the digital electronics, digital intelligence business. So we're not sitting on our laurels. We've got the best products that are out there. And we're certainly investing to make them better. Operator: Our next question comes from Jerry Revich from Wells Fargo. Please go ahead with your question. Jerry Revich: Yes, hi. Good morning, everyone. Jerry. Hi. Rafael, so really nice to hear the Evo Class locomotives are entering the commercial phase of the rebuild cycle. Can you talk about based on customer interest and the pipeline, when do you expect to see those locomotives enter the rebuild pipeline and separately what are lead times like today for North America? I know combine mods plus new. Can you just talk about the overall lead times in the facilities, if you don't mind as well? Rafael Ottoni Santana: They are entering that phase. So some of the first evals delivered back in 2005. So that makes it again a compelling case here. On that. I think that's a positive for the overall business. In terms of lead times, it will depend very specifically on the fleets that you're looking at it. But I'd say at this point, when we look especially at 2026, we've got the coverage we need. Regards to both mods and new units. So discussions with regards to new programs would really for most of it sit towards 2027 and beyond. Which is, by the way, where most of really the orders that have been announced, it really sits on '27 and beyond. From that perspective, Jerry. Jerry Revich: Super. Thank you. And then obviously very active M&A environment for you folks over the past couple of years and know it's early on Delaware in particular, but I'm wondering if we could just talk about how your expectations for the performance of the business have evolved since you've announced the acquisition acquisitions and anything interesting in terms of opportunities that you're seeing as you're integrating the assets? Rafael Ottoni Santana: Gerry, a couple of comments. We just had our Board meeting last week and we actually reviewed the acquisition since 2019. And we're ahead of pro forma great IRRs on those. With regards to specifically the three announced last year ahead of pro forma really strong performance from that perspective. I think some of my comments I mean, it's good to see, let me take just the case of Avnet. We've got three new product introductions happening on that business on each one of their product lines. And that coupled with I'll call it just a global reach we have, we're seeing strong interest on that. We've got one of the products, it's on the RVI on the remote visual inspection. The other one is on the MDT side with ultrasonic and the other one on the ANI piece of that. Strong demand, we're having to really make sure we continue to invest in the supply chain to support that. So positive dynamics, it's great to see the teams we brought on board and good progress. Early days, first six months here for Avnet and FrauShare we just announced, but good momentum. Operator: Our next question comes from Steve Barger from KeyBanc. Please go ahead with your question. Christian Zyla: Good morning. This is Christian Zyla on for Steve Barger. Thanks for taking my questions. Hi, Christian. With orders and backlog so strong, can you just talk about how that impacts your near-term and long-term visibility? Your twelve-month backlog is nearing annual levels, and your total backlog is about two years' worth of sales now. So do you guys just have better than usual visibility into 2027? And are customers giving you longer road maps or more information about the modernization efforts long term? Rafael Ottoni Santana: So near term, I'd say if you look at the coverage we have for '26, it's really consistent with the coverage we had a year ago. And of course, that's not including the acquisitions that we did, those have shorter lead times. So the coverage there is a last, but very consistent. From that perspective. When you look at '27 beyond, it's stronger. Debt coverage. And with that, I mean, we have also a very strong pipeline. So that gives us really think a good opportunity here. To convert more orders and really add into that coverage for 2027 and beyond. Christian Zyla: Got it. And then there just seems to be a pickup in new builds for locomotives and mod activity along with maybe an inflection in over road freight? Like do you see those as indicators to overall freight improvement? Just what are your thoughts on kind of how that inflection is playing out? Thank you. Rafael Ottoni Santana: I think you're to separate a little bit here. North America from international in some of that regard. We're continuing to see strong demand internationally. I think we've been quite specific about fleets growing at a base of 5%. So that continues to be very robust. Megawatt hours, which is really fleets are running harder as well. So that's quite a positive. When you look at North America, the dynamic short term '26 we're actually going down when you look at the elements of both modernizations and new units. I think it's very important to keep that in mind. By the way, when you think about our service business, overall, while the core of service is really strong, numbers are coming down. And it's a function of really modernizations. Driving that. The core service business continues to be very strong. It's one that it's expected to continue to outperform the growth average of the company over time. The fleets are running harder in North America. So the megawatt hours are tracking in the right direction. But we've got lower dynamics going to the modernization, which is alcohol pulling some of those numbers down. But I think it's very important to emphasize that underlying trajectory of the core growth of service remains solid, strong, and above mid-single digits as we look into 2026 and beyond. Operator: Our next question comes from Brady Steven Lierz from Stephens. Please go ahead with your question. Brady Steven Lierz: Yes, great. Thanks. Morning, everyone. Rafael, I just wanted to follow-up on some of the EVO mod commentary from earlier. Is there any way you can help us think about the size of the EVO mod opportunity compared to the over 2,500 mods you've already completed? And just do any of your recently announced mod orders with the class ones include this new EVO modernization product, or are they all still FDL? Rafael Ottoni Santana: So we would expect first programs on EVO to start this year, Meninck, to progress with customers there. I think that opens a significant opportunity. That fleet's growing to be close to 10,000 units globally. That's an important installed base. That we have with really very strong track record on that product. I think the biggest opportunity really immediately continues to be this aging fleet. We talk about when you think about the active fleet, over 25% of units are still DC traction. Just an enormous opportunity here for significant payback for customers. And as I mentioned before, we see that as one of the most powerful tailwinds for the company in that regard. And those units are also over 25% over 20 years of age. So at that point in cycle, so we continue to see opportunities for that to continue to happen, and it's more pronounced in North America. Brady Steven Lierz: Great. Thanks. That's helpful color. Maybe just as a quick follow-up, John, SG&A was up a pretty meaningful amount sequentially and year over year. Could you just help us understand what drove the increase? I know in your remarks you mentioned higher incentive comp. Was that really the majority of the driver? Just any color there would be helpful. John A. Olin: Yes. So there's two things, Brady, that drove it. One is just the acquisitions. Now we've got the SG&A for Evident and Fraucher in those numbers. But in addition to that, is the comp accrual that we had in the fourth quarter was much higher than what we had anticipated. So as we talked about cash a little bit earlier, right, cash is a hallmark of our investment in our company, and we take it very seriously. And we do have it in our comp program, both our bonus and our long-term. As we got to the through third quarter, we're about 57% cash conversion. We were expecting more in the 90% range on the year. But the team knows how important it is, and they did a fantastic job of bringing in working capital. And we finished the year with an incredible cash conversion in the fourth quarter, almost 300 percent and $992 million of absolute cash. So with that, it comes with a compensation accrual. And it doesn't come with additional earnings on that, right. So that pushed our SG&A up as a percent of revenue. But we feel really good about the overall dynamics of our margin in the fourth quarter. When you look at the driver of margin, our gross margin was really strong, up 2.1 percentage points, and that includes a fair amount of headwinds with regards to mix. Remember, you saw that evident, I'm sorry, equipment at a lower margin is growing at 33.5% versus services, a higher margin being down that 5%, and that's that flip flop between new and mods we've been talking about. And then in addition, tariffs grew quite a bit from third quarter to fourth quarter. Remember, we've talked about it takes two to four quarters to get through our inventory. And we're at that spot, we're about a year into tariffs, and we're starting to really see it come out of inventory. Inventory onto our P&L, and we'll see that as we move into 2026 as well, Brady. Operator: Our next question comes from Harrison Bauer from Susquehanna. Please go ahead with your question. Harrison Bauer: Hey, thanks for taking my question. You guys mentioned the largest multiyear North American backlog, which is great. Do you see or the need to make any investments in your North American capacity to ramp total new locomotive and mod productions? As you look further out or maybe just add production lines? And then do you expect relatively stable, modest, you know, new locomotive and mods over time from North America or really just an extended visibility? So just curious on ramps investment in your capacity you might have to make in North America. Thank you. Rafael Ottoni Santana: We have the capacity in North America, and we continue to invest in the quality of that capacity. So, we continue to improve productivity and so forth. So, feel very positive from that perspective. I think with regards to the dynamics of North America, I mean, CapEx is actually down if you think about a Class 1s into 2026, which reflects a bit some of the dynamics I just described on the combination of mods and new units big down. For this year versus last year. With that being said, we're sitting on a very significant opportunity here that really provides very significant payback for our customers. So they can win with their customers, they can grow volumes and on very proven programs that will ultimately reduce the total cost of ownership, it will improve fuel efficiency, it will drive reliability and service levels. So, I think that continues to be a significant opportunity that customers are going to be evaluating. In North America. Harrison Bauer: Thanks. And maybe just as a follow-up on tariffs. I know that the guidance assumes tariffs ineffective the latest. But could you maybe provide what you saw as maybe the realized tariff impact in 2025? And then maybe bridge to what your guidance implies for 2026 and what that incremental year-over-year tariff impact might be? Thank you. Rafael Ottoni Santana: Yes. If you're referring to an absolute number, we're not providing an absolute number. We want our stakeholders to focus on the actions that were taken to mitigate and certainly on the growth trajectory of our overall business. What I can say is that just as we had expected, the financial impact of tariffs is growing. It's growing exponentially as we come out of the third quarter into the fourth quarter. And we'll expect that growth as we move into the first half of the year. Right now, it's a significant number, but also we've been at this for a year in terms of our mitigates and how we're going to minimize those tariffs. And we've talked about in the past, a four-pronged approach which we continue to employ. Which is one, getting all the exemptions that we're entitled to. The second is on the supply chain. Right, is are we sourcing these parts and products from the right places today given the new landscape? Now that takes more time. Those things sometimes can take up to a couple of years to requalify suppliers and those types of things. But that is in the mix. And the third one certainly is sharing the cost with our customers. And when we take those three, those are not enough to mitigate. All the tariffs that we have coming at us in particular in 2026. And that kind of leaves us with that fourth lever, right, which is an overall proactive approach to how we're managing our company's cost. But in aggregate, we feel that we'll mitigate those costs. And quarter to quarter, we're going to feel more headwinds in the '26 than in the back half with regards to tariffs, and that's where we expect them to peak. Operator: Our next question comes from Ben Moore from Citigroup. Please go ahead with your question. Ben Moore: Hi, morning. Thanks for taking my question. Rafael, John, John, and Kyra. So trying to understand the lower sales on for your service on significantly lower North American mods? And maybe if I can ask it this way, last year, you gave your cadence of services versus equipment revenue on the lumpiness first half versus second half. Can you give a similar kind of view on the cadence of that 2026? And then also kind of driving impact on freight operating first half versus second half? John A. Olin: Yes. Absolutely. What we're seeing in the fourth quarter with equipment up 33.5% and services down five is what we had been talking about most of last year. In the first half of last year, we saw services growing at a faster rate, and actually equipment was down. We knew that was going to flip in the back half. And it's just a matter of timing of our runs between mods and new locos. But it played out exact the quarter, and with that, we had a mix headwind. But let's turn our attention to next year. And broaden the question out a little bit from just services, but let's talk about the overall cadence of our earnings. When we look at the midpoint of our guidance that we just came out with, we're at ten point five percent year-over-year growth on volumes. Think the way to think about that is that about half of that is driven by inorganic growth. Right. That's the three acquisitions that are coming at us. And partially offset by portfolio optimization, which continues to serve the company very well. And then to think about the other part of it about mid-single-digit organic growth. So on an absolute basis, we're looking at more revenue in the second half than the first half, not a lot, but certainly it will be bigger in the second half. And when we turn and look at the growth of our revenues first half to second half, we would expect our growth in the first half to be significantly higher than the second half. And that's going to be driven by two things. The first thing is number one, is the acquisitions. Right. In 2026, we will have revenue from our three acquisitions, EVID, Inspection Technologies, Frauchers, and Delner across most all of the first half and has got nothing to compare against in the year-ago half. As we get into the back half, we are going to have a comparable, and that will be with Evident. The second thing that's going to affect the timing of our growth between halves is we would expect to do more combined mods and locos in the first half than the second half. Okay? As we move on and we look at the second part of our guidance, which is EPS is up 14.5%. While we do not give operating margin as guidance, we do expect it to be up in 2026, and that's you'll find when you do the math. As we talk about that operating margin and we look at the first half, we would expect the first half to have modest growth in overall operating margin. And we would expect the second half to have more significant growth in operating margin. And there's three reasons for this. Number one, as we look at the first half being just modestly higher, it's going to be affected by the year-over-year comps. In 2025, our first half was up 1.8 percentage points of operating margin, and the back half was up one. So that dynamic is going to play out as we move through 2026. The second area is again going back to what we talked about on tariffs, right? Tariffs are going to peak in 2025 in the I'm sorry, in 2026 in the first half. And it will virtually have nothing to compare to on the year-ago basis. While tariffs were there, it was mainly going into inventory. And, so we're going to have some headwinds on the first half. Our mitigants will come in more equally over the year. In that respect. And then the third thing is, our incredible focus on managing our costs through Integration two point zero, product three point zero, regular productivity, and portfolio optimization. Those will build over the year and will deliver more benefit in the second half than the first half. Ben Moore: Amazing. Thank you so much, John. Maybe for Rafael, switching to sort of more of a longer-term outlook. Your freight backlog has been averaged at about $18 billion for several years now, and it's been great to see the jump $21 billion from the Kazakh order last quarter and then to $23 billion today, which is fantastic. How is your view for the outlook given all the puts and takes from international and U.S. opportunities in the pipeline? Should we see that step back down to $18 billion for the longer term going back to the last several years average? Can we see incremental step up and staying, above the 21% or even the 23 going beyond? Rafael Ottoni Santana: We are very pleased with the progress, especially with regards to the pipeline. I mean, despite of record order intake, that pipeline continues to be very strong, and it's international, it's really a very significant part of it. It's driven by international. But there's some other parts of the business that are doing very well. You think about mining, in specific, we're continuing to see a strong demand for ultra-class trucks, which we happen to be very well positioned to work on that as well. And I think we're very happy to see how the portfolio is working. I made some earlier comments on areas that we're seeing soft demand. But the investments we've made, and I mentioned on both fronts on organic, some of the investments we made on PTC2.0, that's allowing a lot of the international orders for our digital intelligence business. So that's a very important part of it. But also in areas like inorganic, we talked about the drop in the freight car manufacturing side of it. And we're seeing the opportunity for parts of the business like in the heat exchanger, in the industrials to really offset some of those pressures. So I think we're going moving forward towards with that portfolio. With that, some parts of that portfolio might not have necessarily the same dynamics if you think about the elements of especially backlog. But it's a stronger portfolio. So the progress with acquisitions is clear. We're moving in the right direction here. Ahead of pro forma. And I think most important here is the quality of the backlog. The margins as you look at individual products and individual elements of that we have higher margins. The other piece which we can't underscore enough is the amount of really activity the team's got going on right now in terms of simplifying, taking cost out. It's really an element of record cost out those teams are going to be driving. And it's encouraging to see that momentum. Across the portfolio. With that, I think we're very confident in committed to deliver on what I guess we've highlighted here as another cycle of meaningful profitable growth. Operator: Our next question comes from Tami Zakaria from JPMorgan. Please go ahead with your question. Tami Zakaria: Hi, good morning. Thank you so much. And thanks for all the color on the margin cadence. We would think the Transit segment probably doesn't have a lot of tariff impact. So if you could provide some color on how to think about seasonality for that segment as it relates to last year? Rafael Ottoni Santana: Let me just start here. We remain very much on track to expand full-year margins again, and that's supported by a lot of the elements of Integration three point zero, the portfolio optimization we continue to do, and the fact that team continues to be very selective on the order intake. And over our strategic plan, we expect transit margins to move into the high teens. I think that's very much the direction. We're very pleased with the overall progress we're continuing to make. But John, And specific seasonality, Tammy, we talked a little bit earlier this year in the second quarter and third quarter that the team in transit was trying to better level load some of their production. And what they did was they brought forward some of the volumes. So we saw a greater organic growth in the second and the third quarter than the fourth. And we garnered some of those manufacturing efficiencies in Q2 and Q3, a little bit to the detriment of the fourth quarter. And having said that, as we look into 2026, we would expect a pretty balanced view of volume growth and margin growth over that year. Now there's always variations quarter to quarter. We saw a variation certainly in our fourth quarter for both Transit and the full company adherent '25 with regards to the extraordinary cash performance that we had. We'll always see those things, but I think we'll see a more balanced delivery out of transit in 2026. Tami Zakaria: That's very helpful. And quickly on the incremental $50 million savings that you've talked about, is it mostly according to the transit segment or freight or pretty much split between the two? John A. Olin: Yeah. When we look at the integration at March, as we did two point zero, transit's a little bit overshared. So yes, I think, Tammy, we're closer to the kind of the fifty-fifty between the two segments, even though the Transit segment's a smaller part of overall revenue. Tami Zakaria: Understood. Thank you. Operator: And ladies and gentlemen, that will conclude today's question and answer session. At this time, I'd like to turn the conference call back over to Kyra Yates for any closing remarks. Kyra Yates: Thank you, Jamie, and thank you everyone for your participation today. We look forward to speaking with you again next quarter. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Hello, everybody, and welcome to the SharkNinja's Fourth Quarter 2025 and FY 2025 Earnings Call. My name is Elliot, and I will be coordinating your call today. If you would like to register a question during today's event, I would now like to hand over to James Lamb, Senior Vice President of Investor Relations and Treasury. Please go ahead. Good morning, and welcome to SharkNinja's Fourth Quarter 2025 Earnings Conference Call. James Lamb: Earlier today, we issued our Q4 earnings release, which is available on the company's website at ir.sharkninja.com. A replay of today's webcast will also be available on the site shortly after the call. Let me remind you that today's discussion will include forward-looking statements based on our current perspective of the business environment. These statements involve risks and uncertainties, and actual results may differ materially. For more details, please refer to our earnings release and the company's most recent SEC filings, which outline factors that could impact these statements. The company assumes no obligation to update or revise forward-looking statements in the future. Additionally, during the call, we will reference non-GAAP financial measures, which we believe provide valuable insight into the underlying growth trends of our business. You can find a full reconciliation of these measures to their most directly comparable GAAP measures in the earnings release. Joining me today are our Chief Executive Officer, Mark Barrocas, and Chief Financial Officer, Adam Quigley. Mark will start by providing a business update, followed by Adam, who will review our Q4 and full year 2025 financial results and share our outlook for 2026. Mark will then offer some closing remarks before we open the call up to questions. During the Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to Mark. Mark Barrocas: Thank you, James. Good morning, everyone, and thank you for joining us today. 2025 concluded on a high note for SharkNinja. It was an outstanding holiday season driven by broad-based strength across product categories, geographies, and channels. Our remarkable fourth quarter and full year performance reflect many factors, but the simplest are the most crucial. Consumers want Shark and Ninja products, and they are discovering them in more places than ever before. We believe we are meeting consumers where they are by delivering accessible innovation and exceptional value. We are incredibly proud of what SharkNinja accomplished this year. Record financial results, swift and decisive execution, and an ever-growing array of groundbreaking products that consumers love. Our most important objective this year and every year is building trust with consumers. We win when consumers around the world get excited to buy our products and feel delighted when using them. To this day, nothing makes me happier than reading a five-star review online, and nothing gets me more motivated than feedback telling us where we can improve. Obsession with the consumer is in our DNA. It powers everything we do. We believe that when we successfully captivate consumers, we earn permission to expand further into their lives. With a never-ending spectrum of consumer problems to solve, we feel the opportunity ahead of us is enormous. Our Q4 results were excellent across the board, with net sales increasing nearly 18% year over year, the fastest growth rate of 2025. Domestic growth accelerated to almost 16%, complemented by international growth of over 21%. Adjusted gross margin expanded by nearly 40 basis points, and adjusted EBITDA increased 36% year over year. This performance reflects our third consecutive quarter of leverage in adjusted operating expenses as a percentage of net sales, a pattern we believe demonstrates the scalability of our model. Importantly, this performance came against a challenging macro backdrop. While our markets remained under pressure throughout 2025, on top of declines in both 2024 and 2023, we continue to rapidly gain share. According to Surcana, the total US market that we participate in declined in the low single digits year over year for the full year 2025, excluding SharkNinja's performance. Q4 was even more challenging for the industry, with mid-single-digit declines year over year, again excluding SharkNinja. The magnitude of our outperformance is noteworthy, with market share gains across each of our four category groupings in 2025: cleaning, cooking and beverage, food preparation, and beauty and home environment. Despite macro headwinds, SharkNinja delivered its eleventh consecutive quarter of double-digit top-line growth. And we did it while staying true to our core strategy, continuing to invest to drive innovation and maintaining our marketing momentum. We kept executing the same tried and true playbook even with every challenge presented in 2025. In the face of uncertainty, our goal is consistent execution and durable performance, not just for one quarter, but for every quarter. We are confident in our ability to operate in tough consumer environments, and diversification is a central reason why. Diversification is the foundational driver of success across our business. The most obvious benefit is revenue growth. We have more products, more channels, and more geographies, giving us multiple paths to expand. I'll return to this when I discuss our three-pillar growth strategy, but first, let's look at the several ways diversification differentiates SharkNinja, starting with the consumer. Consumer diversification allows us to reach a broader demographic than ever before. Years ago, our core customer was typically a 35 to 55-year-old woman. Today, we have high school students asking for 60-year-old men sharing product reviews on social media, and everything in between. As we enter new categories, especially in beauty and outdoor, we expect this reach to expand further. Most importantly, a more diverse consumer base generates deeper insights that fuel our disruptive innovation engine. Supply chain diversification is another major differentiator. Our work here began more than five years ago, driven by significant investment in people, infrastructure, and time. Today, we have the ability to manufacture nearly 100% of our US volume outside of China. We think our multi-country sourcing footprint across Southeast Asia gives us a meaningful advantage in supply predictability, cost efficiency, and risk management. With this supply chain transformation largely complete, 2026 represents our first full year of optimization, unlocking even greater potential benefits ahead. Marketing diversification continues to expand our reach and engagement. From Tom Brady spots during major football events on connected platforms to our engineers engaging directly with consumers on forums like Reddit, SharkNinja's marketing ecosystem is both expansive and distinctive. Our social-first ecosystem has been deliberately built to foster affinity and loyalty amongst consumers. One analyst recently highlighted our social media momentum. SharkNinja reached 3.9 million followers across Instagram and TikTok in 2025, reflecting a 119% year-on-year growth, far outpacing peers, who averaged just 8% growth on these platforms on a much smaller base of followers. Reaching consumers broadly requires an equally diverse go-to-market strategy. In 2025, we deepened partnerships with key retailers, gaining increased flexibility in pricing and promotions. At the same time, we significantly enhanced our direct-to-consumer capabilities. Our newly redesigned sharkninja.com is already delivering strong early results, with higher engagement, improved conversion, and increased average order value. Finally, investment diversification, particularly in technology, is strengthening our foundation for long-term growth. In 2025, we completed the final stages of our global Oracle implementation. We launched Salesforce in the US and Canada to power our new DTC platform. We rolled out advanced ROI dashboards for social media spending. We also leaned in materially with artificial intelligence, from product innovation to consumer experience. Our goal is to embed a greater level of AI capabilities in all of our products going forward, some of which will debut as early as 2026 in categories like coffee, air purification, and robotics. We're on track to hire 100 new software engineers to help drive this AI ambition. From more intelligent user interfaces to greater automation, to app-based companion features, we believe consumer experience is another rich area of AI-powered potential. As an example, we moved from sampling under 5% of contact center calls to AI scoring nearly 100% of interactions for quality, empathy, and listening. Additionally, we feel the massive amount of consumer insight data that SharkNinja processes can benefit from AI applications. Our objective is faster, more precise product innovation to improve messaging and content to resonate in a stronger way with consumers. This is the SharkNinja flywheel: consumer insights, a resilient global supply chain, always-on marketing, and omnichannel distribution. We believe it's a competitive advantage that is exceedingly difficult to replicate at our scale. The diversification shows up very clearly in our financial results: sustained double-digit growth, expanding margins, and strong free cash flow. I'd like to spotlight our balance sheet, where years of compounding success have put us in a net cash position as we exit 2025, an achievement that opens meaningful new options for SharkNinja. Today, the leadership team and I are thrilled to announce that our board of directors has authorized an inaugural $750 million share repurchase program. We're excited about the potential that our record levels of cash and equivalents and our anticipated future cash flow could have to drive shareholder value for years. We intend to utilize this authorization to repurchase shares opportunistically while also planning to offset the natural dilution from stock-based compensation. We believe this is a significant milestone for SharkNinja and a testament to our operational discipline and cash management execution. With that, let me turn to our three-pillar growth strategy, beginning with our first pillar, expansion into new and adjacent categories. In 2025, we met our goal of entering two additional subcategories, finishing the year at 38 with the addition of propane grill and outdoor fire pit. We plan to add two more categories to our portfolio in 2026 with significant excitement around both launches. Category expansion is one of our most foundational differentiators. It grows our addressable market and reshapes how consumers perceive the Shark and Ninja brand. A standout example is Shark Beauty, which we feel is rapidly emerging as a leader in beauty technology. We view this opportunity as a massive global white space. In 2025, we established Shark Beauty as a disruptive innovator in skincare with the global launch of Shark TrioGlow. The recent debut of Shark Facial ProGlob with Depuffy, a revolutionary at-home hydro-powered facial device with contrast therapy. These products were runaway holiday successes, complementing our strong hair care performance and helping to cement Shark Beauty as the number one skincare facial device brand in the US. We see clear runway ahead not only in hair and skin but across the broader health and wellness ecosystem. The Ninja Fireside 360, our combo smokeless fire pit and propane-powered outdoor space heater, exemplifies how new categories bring new consumers into our brands. For many buyers, this innovative product was their first Ninja purchase, opening the door to a lifetime relationship with SharkNinja. It also demonstrates how we build new technical competencies. By investing in propane expertise, we successfully paved the way to launch the Ninja FlexFlame and Ninja Fireside 360, creating a foundation for future innovation. This model of engaging experts, learning deeply, and innovating boldly is core to SharkNinja. It underpins our expansion across heated cooking, frozen treats, food prep, and beyond. We believe our 2026 pipeline also reflects years of capability building, and we're exceptionally excited about what lies ahead. Our second growth pillar is growing share in existing categories. Maintaining leadership in large, mature categories requires relentless innovation, execution, and focus. Two standout examples from 2025 are the Ninja Christie and the Ninja Lux Cafe. Ninja Crispy represents the next generation of air frying, promoting healthier cooking with the benefits of glass. Our larger format, Christie Pro, delivered a strong holiday performance, setting the stage for broader global expansion in 2026. Ninja Lux Cafe is one of the most exciting success stories. By reimagining the at-home espresso experience, we've created the best-selling espresso SKU in the United States in under one year. In 2026, we will extend this platform with two major renovations, positioning Lux Cafe as a powerful growth engine across a wider spectrum of consumers. Our Shark cleaning franchise also delivered outstanding results with continued market share gains across corded and cordless vacuums. In 2026, we plan to introduce breakthrough innovations across several legacy categories, including corded uprights and traditional blending, reinforcing our leadership positions. Our third pillar, international expansion, delivered another year of strong performance. The most important takeaway is that our model can scale globally. We believe the most critical parts of our strategy are applicable worldwide, not just to a few countries. Driving widespread consumer demand with five-star reviews, expanding retail partnerships, and producing viral local language markets are all key elements to our international playbook. These attributes can be scaled even more as we evolve from a distributor-led to a direct model in more countries. In Q4, we successfully transitioned to direct operating businesses in the Nordics, Poland, and Benelux while preparing to convert Italy and Spain in 2026. To serve fragmented customers and a direct relationship with larger retailers, we're upgrading our DTC platforms across major international markets. In each case, we've established a hybrid model, distributor partners creating a powerful growth combination. The UK delivered another strong quarter with over 9% year-over-year growth, while EMEA saw robust results across multiple geographies and channels. Our Latin America business also performed exceptionally well. In Mexico, we believe triple-digit growth underscores the strength of our momentum and exciting opportunities ahead. The success that we're seeing across Latin America is fueling consumer interest for our products in places we don't currently sell, like Ecuador and Peru. In 2026, we're focusing more attention on expanding our reach by ramping a new partnership with the dominant e-commerce player in the region. Stepping back, diversification remains the central theme. While it introduces complexity, it is powered by constants: experience leadership, an innovation-driven culture, unwavering consumer focus, and disciplined execution. This approach has enabled us to build two multibillion-dollar brands, and we believe we're only at the beginning. This momentum carries directly into our outlook for 2026 with yet another year of double-digit growth reflected in our net sales guidance. We also remain committed to expanding profitability on the adjusted EBITDA line with an even faster rate of expected growth versus the top line. As our track record demonstrates, SharkNinja is focused on delivering consistent quarter-after-quarter performance. With that, I'll turn it over to Adam, who will walk you through our financial results and share our outlook for 2026. Adam Quigley: Thank you, Mark, and good morning, everyone. I'm excited to review our results for the fourth quarter and full year 2025. Starting with a summary of 2025, SharkNinja achieved $6.4 billion in net sales, up nearly 16% year over year. Our domestic net sales grew 13.5%, and international net sales increased 20%. Adjusted EBITDA increased more than 19% year over year to $1.14 billion for the full year, with adjusted EBITDA margin expanding approximately 50 basis points. Finally, adjusted earnings per share reached a new record for Shark at $5.28, up nearly 21% year over year. A moment ago, Mark highlighted the consistency SharkNinja strives to achieve in our results. We think our sales growth this year is a powerful proof point of this model in action. On a rounded basis, our year-over-year total net sales increased 15%, 16%, and 18% through April 2025. Now let's dive into more detail about our performance in Q4 specifically, starting with sales. Net sales in the fourth quarter increased 17.6% year over year to $2.1 billion. By geography, domestic net sales increased 15.7% to just over $1.37 billion. International net sales were $729 million, up 21.4%. Our UK business grew nicely in Q4, with net sales up 9.2% year over year to $326 million. For the full year, our UK business grew 7.3% year over year. Even while air fryers, our single largest category in the UK, declined throughout 2025, the rest of our portfolio of categories more than offset the headwind, a testament to the power of our diversification. Our global category performance further reinforces how SharkNinja can win through diversification. Our overall air fryer sales increased in 2025 despite the tough comparables in the UK. Across the rest of our international business, we experienced a robust holiday selling season with high retailer enthusiasm to partner with SharkNinja. The EMEA region performed well with strength across multiple countries. Latin America continues to grow rapidly, led by Mexico. Overall, we expected our international net sales growth to accelerate exiting 2025, and we accomplished just that. Year over year, net sales grew 23.2% in the second half of 2025, compared with 17.3% in the first half. We see enormous future growth opportunity within the international segment for 2026 and the years to come. Turning to performance by category, net sales in the cleaning category increased 3.4% year over year to $670 million. Carpet extraction was a particular standout, partially driven by disruptive innovations like the Shark Stain Force cordless spot and stain cleaner. Net sales in the cooking and beverage category increased 11.7% year over year to $667 million. As we've seen in prior quarters, the 28.1% year over year to $438 million. Our frozen treats business saw further global momentum in the quarter to help propel this category. As we progress throughout 2026, we are excited to introduce new innovations in frozen treats and beyond. Finally, our beauty and home environment category increased 3.2% year over year to $326 million, our highest growth rate of the year. Importantly, this strength came from multiple subcategories, including fans, air purifiers, and our portfolio of Shark Beauty tech products. Now let's move to the gross profit, where our results in the quarter exceeded our internal expectations driven by two primary factors. First, our international gross margins expanded nicely based on a number of elements, including cost optimization and channel mix. Secondly, our overall sales mix was more favorable than anticipated, driving margin upside. We did start to see the increased impact of tariffs on our domestic gross margin in Q4, partially offset by this mix benefit on top of the robust and evolving set of mitigation strategies that we have spoken about previously. Adjusted gross margins in the fourth quarter increased nearly 40 basis points year over year to 48.2% of net sales, and GAAP gross margins increased roughly 90 basis points to 47.9% of net sales. Similar to last quarter, the difference between our adjusted and GAAP gross profit results is negligible and should diminish further as 2026 progresses. For the full year, our adjusted gross margins improved approximately 30 basis points year over year to 49.4% of net sales. This outcome exemplifies SharkNinja's core competency on gross margin and our diversified approach to driving upside even in a challenging environment. Moving down the P&L, our adjusted operating expenses this quarter totaled $645 million or 30.7% of net sales. This compares to 33.5% of net sales in the year-ago quarter or nearly 280 basis points of favorability year over year. We have now produced adjusted operating expense leverage for three consecutive quarters, a clear demonstration of our continued cost discipline balanced with considerable reinvestment in the business to fuel growth. Research and development expenses increased 13.1% year over year to $98 million compared to $87 million in the prior year period, leveraging 20 basis points year over year. We believe investing behind R&D resources such as personnel and prototypes remains critical to power our innovation engine. Sales and marketing expenses increased 8% year over year to $459 million compared to $425 million in the prior year period, leveraging almost 200 basis points year over year. Our performance this quarter is a great example of the balance I mentioned a moment ago between cost control and investment for growth. Relative to last year, we have internally developed more sophisticated social media optimization tools. These help us more efficiently spend advertising dollars in social channels to drive strong ROI. At the same time, we've added meaningful global talent to our Shark Engine team, content creators in cities across the world. We believe our sales and marketing capabilities provide a key competitive differentiator for SharkNinja, one that we will work to enhance globally into the future. General and administrative expenses decreased 13% year over year to $107 million compared to $123 million in the prior year period, leveraging about 180 basis points year over year. The bulk of the decrease this quarter relates to lower expenses on personnel, including stock-based compensation favorability year over year. At SharkNinja, our ultimate goal is profitability growth in excess of net sales growth, with adjusted EBITDA as our key metric. We emphatically succeeded on this dimension in Q4, with adjusted EBITDA growing 36% year over year to $395 million, roughly double the rate of top-line growth. This represents an 18.8% adjusted EBITDA margin, up approximately 250 basis points compared to the prior year period. For the full year 2025, our adjusted EBITDA margin reached 17.7% of net sales, up roughly 50 basis points year over year. As we enter 2026, we will continue to utilize our diversified set of gross margin levers and operating expense discipline to keep laser-focused on adjusted EBITDA margin improvement potential. To wrap up the income statement, our GAAP effective tax rate in Q4 was 22.6%, while our non-GAAP effective tax rate was 21.9%. Adjusted net income for the period was $275 million or $1.93 per diluted share compared to $198 million or $1.40 per diluted share in the year-ago period. Our adjusted earnings per share in Q4 grew 38% year over year, while GAAP earnings per share nearly doubled from $0.91 per diluted share to $1.80 per diluted share. Turning to the balance sheet and cash flow, total inventories were $1 billion exiting the quarter, up 11.4% year over year. With all the tariff prebuilt stock now sold through, our inventory levels exiting the year reflect a healthy position to support our future growth plans. Our strong fourth-quarter results across net sales and profitability delivered record cash flow performance for SharkNinja. In 2025, we achieved $634 million of cash from operating activities and ended the year with over $777 million of cash and cash equivalents, up more than 100% year over year. Total debt outstanding at the quarter-end was $739 million, and we continue to have nearly $490 million of capacity available to us on our $500 million revolving credit facility. We feel this level of cash generation and balance sheet strength gives us the durable financial foundation to invest in growth, thoughtfully deploy capital, and maintain optionality as the environment evolves. As Mark touched on, we have deliberately strengthened SharkNinja's profile through years of disciplined execution. We have long viewed our balance sheet as a key advantage relative to peers. In 2024 and 2025, we prioritized flexibility around elements like inventory and working capital. In 2026 and beyond, we feel we are in a prime position to remain nimble while also prioritizing capital allocation in a more meaningful way. This is why we are so excited about the $750 million share repurchase authorization. We view it as another means by which we can drive long-term value for our shareholders. Mark Barrocas: Let's move to our outlook. We entered the year excited about the multiple growth opportunities ahead and cognizant of the tariff-related headwinds that are now fully manifesting in the P&L. Consistent with prior quarters, our initial 2026 outlook assumes current tariff levels persist, including minimum rates of 20% for China, 20% for Vietnam, and 19% for Indonesia, Thailand, Malaysia, and Cambodia. For the full year 2026, we expect our net sales to increase between 10-11%, adjusted net income per diluted share to be in the range of $5.90 to $6.00, an increase of 12% to 14% year over year. Adjusted EBITDA to be in the range of $1.27 billion to $1.28 billion, representing growth of 12% to 13% year over year. Net interest expense to be flat relative to 2025, our GAAP effective tax rate to be approximately 22% to 23%, and capital expenditures to be between $190 million to $210 million for the year. Adam Quigley: To close, performance in Q4 capped off a truly remarkable year for SharkNinja. In the face of extraordinary challenges, we relentlessly drove value for our consumers, retail partners, employees, and shareholders. 2025 will likely be remembered as an exceptional and unique period, but in many ways, it has been business as usual for SharkNinja. We remain squarely focused on delivering our goals, quarter after quarter, year after year. With that, I will now turn it back to Mark. Mark Barrocas: Thanks, Adam. During our Q1 conference call back in May, I reflected on some of the major macroeconomic challenges during my seventeen-year tenure: the great financial crisis, the COVID-19 pandemic, component shortages, and now the tariff-related upheaval of 2025. Our tremendous results this year reinforce our perspective that these are not roadblocks. They're opportunities. We believe SharkNinja has emerged from this period stronger, smarter, more agile, and unwaveringly committed to winning. All powered by our diversification strategy across the business. This is why I'm so excited for 2026 as a fresh chapter in SharkNinja's evolution as a company. On the business side, we're now a direct operator in more markets than ever before. There is a huge opportunity ahead to scale our international business, supported by the success in Mexico and early indications in EMEA. We also entered the year with a meaningfully stronger omnichannel presence, more placements at retailers, and momentum with many of our largest partners. This was complemented by our revamped direct-to-consumer presence rolling out across the globe in early 2026. On the financial side, we've achieved our goal of becoming a domestic filer. This is an exciting milestone for SharkNinja and the final step needed to earn consideration for broader index inclusion. Keep an eye out for our annual report on Form 10-K in the next few weeks and our proxy later in the spring. Across all facets of our business, we believe SharkNinja is set up incredibly well for success for years to come. I'm often asked by investors how and why we continue our pattern of strong net sales growth and profitability improvements going forward. We think the answer is simple. We focus on two foundational cornerstones: disruptive consumer-focused product innovation and viral marketing capabilities that create consumer demand. We feel the combination of these driving forces is powerful and differentiated, especially when considering how much white space we see. New categories to pursue, existing categories where we can go deeper, and new countries to enter. With so much opportunity ahead, we think our culture is a key enabler of success as long as we stay grounded in what matters the most. Positively impacting people's lives every day in every home around the world, and the existential need to be the very best. These mantras permeate everything we do: our focus on the consumer, our multilayered flywheel, our growth pillars, our ability to execute, and our guiding principles. To the over 4,000 team members committed to the outrageous and extraordinary mindset, I thank you for a truly incredible 2025. We feel like we're still at the beginning of an exciting journey and a bright future for SharkNinja. Operator: Thank you. We will now kick off the Q&A. This concludes our prepared remarks, and I'll now turn it over to the operator to begin the Q&A session. Operator? Operator: To ask a question, please ensure your device is unmuted locally. And today, we ask you to limit yourself to one question and one follow-up. The first question comes from Brooke Roach with Goldman Sachs. Your line is open. Please go ahead. Brooke Roach: Good morning, and thank you for taking our question. Mark, given the momentum in the business, I was hoping you could outline what you believe is an appropriate medium-term growth algorithm for your US business. What does that mean for US growth in 2026? And what contribution do you expect from units versus price? Mark Barrocas: Brooke, I'm sorry. At the end, what contribution do you expect from units versus price? Brooke Roach: Correct. Yes. Thank you, Mark. Mark Barrocas: Yeah. So, Brooke, look, we came out of Q4 and delivered great growth in the US. Our D2C business is growing nicely. Our retailer partners gave us tremendous support in the holiday season, and they're continuing to do that into 2026. New channels are emerging, like TikTok shop, as we talked about. So, we think the US business is a double-digit growth business. We delivered that in '25, and we expect to continue that momentum into '26. Operator: We now turn to Steven Forbes with Guggenheim. Your line is open. Please go ahead. Steven Forbes: Morning, Mark, Adam. I'm trying to get through this. We're having a little trouble hearing you guys on the call here, but my question really is about the international segment growth. So you mentioned triple-digit growth in Mexico. A lot of excitement around LatAm, but you also commented on the recent transitions to a direct model in a variety of countries. As we think about the first quarter in particular, given that we're cycling the disruption from Mexico last year, any way to help us just think through how you guys are planning for the international segment growth profile to evolve as we work through 2026? Adam Quigley: Yes, that is much better. So we'll try this. I think I got most of your questions, Steve. This is Adam. So as we look at the international growth profile, we do continue to see international growing at a faster rate than the domestic business. We're seeing incredible momentum out of the LatAm business, specifically in Mexico, continuing to accelerate as we entered and exited the second half of this year. We do expect that to continue into 2026. And we've really laid some really great framework and foundations in that market to continue to build upon. Over on EMEA, I think what you've seen is an acceleration overall from the first half into 2025 as well. Obviously, we've talked a lot about lapping pretty strong air fryer comps overall. Pleased with the diversification that we're seeing, particularly in the UK. The UK is in a really good growth position now, having lapped and continuing to lap pretty strong air fryer comps there. Similar trends in Germany and France, where, again, our focus is on diversification in those markets. Continuing to bring the wealth of category expansions that we have across our developed markets into some of those new and expansion markets. Mark Barrocas: Look, Steve, I mean, we grew in the fourth quarter 21%. We said that there was going to be some noise in the numbers due to the transition of Benelux, Poland, and the Nordics. In Q1, there's some disruption as it relates to the movement of Spain and Italy. So, yes, we are comping the Mexico transition. There will be some kind of transition impacts that are going to happen in Q1. By the end of Q2, we're still on track to have a normalized business moving forward. And so we think this was the right thing to do. We're up and running now on a direct basis in the Nordics, Benelux, and Poland. By the second quarter, we'll be up on a direct basis in Spain and Italy. We think these distributor-to-direct major transitions will be gone as we come out of the second quarter. But overall, the UK growth was very nice. Our European business continues to be very strong. Latin America, we pointed out. And I'm very excited as we go into the second half of this year to the Middle East. I mean, I think we're seeing some really good signs out of some products that we launched in Q4 in the Middle East that our distributor will start getting back into inventory toward the end of Q1. So I think there's a lot of pathways for growth for us in the international business. Steven Forbes: Maybe I'll just stick, Mark, with the international commentary because it's sort of where I was getting with the question. You think about the success in Mexico post the transition, post the disruption that you experienced. I don't know if you can maybe frame up for us here on the call how much visibility do you have into those countries that you've transitioned as you look out to '26 into 2027, you're planning for 2028. I mean, you're on record talking about the mix of the business eventually getting to fifty-fifty. Obviously, that's some pretty exciting international growth implications. So maybe I'll just leave the question there and have you comment on just the visibility behind the growth profile as we get past the disruptions. Mark Barrocas: Look, Steve, I think the biggest thing is let's start off with do consumers love the products? Okay? Like, first and foremost, are they resonating with the products? And I think we've got really good visibility as it relates to that. I mean, I think if you go online and you look at online reviews in Norway or you look at online reviews in Mexico, the products are really resonating with consumers and not just across one or two categories, but across lots of categories. The second is, is our demand generation model resonating and working? And while Adam pointed out the great Q4 that we had in Mexico, all of that Spanish language media is spilling over into the rest of Latin America as well. I mean, our PriceSmart business was very strong in Q4. We talked about expanding quite a bit with MercadoLibre in 2026. That's all coming because demand is being generated throughout Latin America by the social media and the demand generation that's happening in Mexico that's spilling over into these other markets. So I think we have great visibility on the consumers loving the products. I think we have really good visibility on is our demand generation model working? I think it's always slower to get into brick-and-mortar retailer placement. But our pure player business is growing quite a bit. Our D2C business is growing quite a bit. And look, the brick-and-mortars will come online as their planograms set and things like that. But at the end of the day, it's a matter of how are we resonating with the consumer, what kind of relationship are we building with the consumer. And I think whether it's Norway or Poland or Belgium or Mexico or Colombia, the consumer is resonating with our model and with our products. And so we're excited as we go into 2026. Operator: We now turn to Jonah Kim with TD Cohen. Your line is open. Please go ahead. Jonah Kim: Thank you, Mark and Adam, for taking my question. Just wanted to double-click a little bit on the beauty segment. Could you talk about the customers you're acquiring to the Shark brand through beauty? Any notable characteristics of these customers versus your other brands and products? And then also just related to that, how do you see the distribution opportunity within beauty? What are some white spaces both domestically and internationally? Thank you so much. Mark Barrocas: Look, what is the difference? I mean, we're obviously attracting a younger demographic. I mean, we're attracting a young female demographic in particular. You'd be surprised, actually, in our skincare business, we're also attracting a young male demographic. I think that we're creating lots of social media excitement, whether it's CryoGlow or whether it's FacialProGlow. But I'll give you a couple of interesting points about the beauty business. I mean, let's think about Christmas 2024. If you wanted to buy an LED mask, it was a fringe product that was sold online, mainly sold with some no-name brands. In 2025, we led the category. You could buy a Shark Cryo Glow at Costco in Bloomington, Indiana. And I think what bodes so well for this is that we're enlarging the size of the market. I mean, the total LED mask market in the United States was $35 million in 2024. We did more than two times that just in '25 ourselves. So what we're doing in skincare is a lot like what we did with the creamy or a lot like what we did in other categories where we're developing the category. I mean, we're the number one skincare facial device in the US coming out of the holiday season. But more than that, our goal is we want to be the number one beauty tech company in the world. And we think it starts with hair, and we think it extends into skin. We think there's a lot of other places for us to go within the beauty space. I mean, scalp, I think, is an interesting place. I think nails is an interesting place. I think wellness is quite interesting, and we're looking into it. So I think it bodes really well for a big expansive global category for us to develop, but it also opens up the next doors for us as to where does SharkNinja go next. Operator: We now turn to Andrew Tadora with Bank of America. Your line is open. Please go ahead. Andrew Tadora: Good morning, everyone. So Mark, I guess, in 2025, you launched several new celebrity campaigns for both the likes of Tom Brady and Kevin Hart. I guess, how would you define the success of these campaigns? And maybe what new initiatives do you have to continue to engage your customer this year? Mark Barrocas: Okay. I think in '25, we absolutely became more part of culture. Our social media followers grew over 100%. Our engagement with consumers grew over 100%. Everything from how consumers viewed us in the F1 movie, which was a tremendous success for us. I think Tom and Kevin and David and what we're doing with those celebrity partnerships are kind of the tip of the pyramid. But I think it's all part of a campaign that starts at the celebrity level and looks at macro influencers like people like Alex Earl. We work with tons of micro-influencers that have very high engagement and followership in specific categories. I mean, that could be in something like outdoor cooking, or that could be in something like clean talk or food prep or other areas. But I think it's all part of how do we meet the consumer where they're engaging in content. Whether that is ask me anythings on Reddit, whether that is TikTok shop, whether that is Instagram, whether that's outdoor billboards. It's all part of a total demand generation approach. And I'll tell you something that I think is really exciting as we look at our business right now heading into 2026. It's the spillover effect of all the media. This social media has no borders to it. And so when you run social media content in the US or the UK, it's being viewed in places all around the world. I mean, we're now tracking influencer content based on what countries viewed their content and engaged with their content. We're getting much more sophisticated in does an influencer only have followership in the United States? Or if we hire them, does the influencer also have followership in Mexico and France and Germany and in other places? So I think the whole approach to our demand generation strategy is getting much, much more sophisticated. The analytics behind it are getting much more sophisticated. That's going to allow us to make sure that we're targeting the right content with the right influencers to the right consumers to drive POS. Andrew Tadora: That's great. Very helpful. Follow-up for Adam, and sorry if I missed this. I think things were cutting in and out a little bit. But can you speak to any gross margins, kind of headwinds and tailwinds that you see for this year? And how would you characterize your ability to grow gross margins in 2026? Thanks for taking the questions. Adam Quigley: Yes, certainly. Thanks, Andrew. And a good piece to hit on. So as we look at 2026, we will be normalizing tariffs as we go into the year and having them come through the P&L in a way that we didn't have last year in the first half. We, of course, didn't really start to see those flow into our P&L until Q3 a bit and then into Q4. And so the first half, we expect a decent gross margin headwind driven by tariffs with slight offsets driven by all the cost optimization efforts that we have talked about before. And we've continued to ramp up. The other piece is that you will continue to see the operating expense leverage from us in the first half and into the second half as well. As we continue to not only optimize across various initiatives and spend areas, but also continue some of the initiatives that we've been doing for years now. So our goal overall remains, and you'll see it obviously in the guidance, is that our goal is to expand EBITDA rate as a percentage of sales, and we're certainly intent on doing just that, and you'll see that in the first half right out of the gate. Operator: We now turn to Phillip Blee with William Blair. Your line is open. Please go ahead. Phillip Blee: Good morning, guys. Thanks for the question. So the fourth quarter was very strong. Domestic growth of almost 16% is very impressive. So how do you think about that momentum flowing through into the first quarter, first half of this year? And then how do you think about lapping any retailer stockpiling ahead of tariffs or potentially some sales lift on the table from inventory constraints last year? And then just want to confirm since we had some sound issues earlier. You mentioned the US growth should be sustainable in the double-digit range, correct? Mark Barrocas: Yes. I mentioned, Phillip, that I think the US should continue to grow at double digits. We saw strong momentum coming out of '25. We feel good about our placement in '26 with retailers. We feel good about the momentum that our D2C site is going to continue to get as we get through the year and we stand that up with additional functionality. Look, I mean, there's always issues that you're lapping or constraints or one-offs or one-times. I mean, that's part of the diversification across the business that we're managing. I mean, it's hard for us to comment on any one specific thing at a quarterly level. I think the more important thing is that our business has multiple pathways of growth. I mean, we're going to enter into two new product categories this year in '26. We've got a really great pipeline of innovation in '26. We're going to be bringing to market with 25 new products. We're building our base business. We're continuing to take share in the base business, not just in North America, but in Europe and Latin America as well. We think there's a lot of continued pathways for international growth. So it's hard to comment on any individual one-time blip quarter to quarter. I think at a macro level, how do we feel about our three-pillar growth strategy? I mean, we feel like it's strong, and we feel like we've got good momentum as we head into '26. Phillip Blee: Okay. Great. Very helpful. And then you've spoken a bit about how you're getting smarter about social spend, how you're paying affiliates. We saw quite a bit of leverage done in the sales and marketing line this quarter. How should we think about the impact of those efforts, both from maybe a marketing effectiveness standpoint, but then also a financial perspective? Should we expect that line to remain more flattish as a percentage of sales for the time being, or how should we think about that? Thank you. Adam Quigley: Yeah. Thanks, Phillip. So as we look at sales and marketing, again, you saw significant leverage in Q4 across that line item. And that's really driven by a number of different factors. It's the media optimization type efforts that Mark talked about earlier. It's allocations between media spend and price and promo, depending on the category, depending on the region. And so that bucket has a lot of different moving pieces within it. But also, as we look ahead and move forward, there's a lot of great optimization efforts that will allow us to continue to leverage that line item. We're at a point of scale now that we can leverage some of these global campaigns. Mark touched on earlier, the F1 movie as an example. Some of the global brand ambassadors that are on board. Those are all assets that appeal across many different markets. So sales and marketing is certainly a line that, while it is a competitive advantage and will remain one that we continue to lean in on via investment for new geographies, new categories, it's also a massive area of leverage. So it's not about harvesting any sort of forced leverage there. It's really about optimizing what is a very large and healthy base of investment. Operator: And our final question today comes from Rupesh Parikh with Oppenheimer. Your line is open. Please go ahead. Rupesh Parikh: Good morning. Thanks for taking my question. So just curious, as you guys think about this upcoming fiscal year, how are you thinking about the consumer category backdrop? Do you expect it to be the same or better than the prior year? And then just any thoughts on whether your category could benefit from stimulus in the US market. Thank you. Mark Barrocas: Look, Rupesh. I mean, I think I've mentioned this. Other than the eighteen months during COVID, I don't remember kind of a frothy consumer time for us. So I would say the consumer is going to be kind of expected to be flat to where we were last year in general. Listen, when there's stimulus in the United States, it does seem like that stimulus does flow through the economy quite fast, and consumers use that money to spend on things that they want. I can't comment until we understand what that exactly looks like, but I would expect the consumer to be flat, and I think it's our job to earn the consumer's hard-earned dollar by making great products and delivering them at a great value and letting them choose as to whether they go out to dinner two times more or they buy a SharkNinja product. I mean, I don't think we're competing against our industry per se. I think we're competing against the pool of consumer discretionary dollars and how do we make sure that we put our best foot forward in making the case as to why they should invest in SharkNinja. Rupesh Parikh: Great. Thank you. Operator: Ladies and gentlemen, that's all the time we have for questions. This concludes our Q&A and today's conference call. I'd like to thank you for your participation. You may now disconnect your lines.
Operator: Welcome everyone. The Vishay Precision Group, Inc. Fourth Quarter 2025 Earnings Call will begin shortly. Hello, everyone, and thank you for joining the Vishay Precision Group, Inc. Fourth Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by 2 on your telephone keypad. I will now hand over to Steve Cantor, Senior Director, Investor Relations at Vishay Precision Group, Inc., to begin. Steve Cantor: Thank you, Claire. Good morning, everyone. Welcome to Vishay Precision Group, Inc.'s 2025 Fourth Quarter Earnings Conference Call. Our Q4 press release and slides have been posted on Vishay Precision Group, Inc.'s website. An audio recording of today's call will be available on the Internet for a limited time and can also be accessed on our website. Today's remarks are governed by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act. Our actual results may vary from forward-looking statements. For a discussion of the risks associated with Vishay Precision Group, Inc.'s operations, we encourage you to refer to our SEC filings, especially the form 10-K for the year ended 12/31/2024 and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and William M. Clancy, CFO. Ziv, I'll now turn the call to you for some prepared remarks. Ziv Shoshani: Thank you, Steve. I will begin with some commentary on our results and trends for the fourth quarter and on our strategy. William will provide financial details and our outlook for 2026. Moving to Slide three. To summarize our Q4 2025 results, Q4 marked our fifth consecutive quarter with a book to bill over one, led by Sensors. While Q4 gross margin reflected a number of headwinds, we expect gross margin to improve in Q1. With sensors ramping and backlog at a multiyear high, we expect higher shipments beginning in Q2 and continued progress on our growth initiatives. Specifically, fourth quarter revenues of $80.6 million were up 11% year over year, and 1% sequentially, reflecting solid execution across the portfolio. We achieved another quarter of positive booking trends as our consolidated orders of $81.3 million grew 2% sequentially. This resulted in a book to bill of 1.01, the fifth consecutive quarter of book to bill of one or better. We continue to make good progress across our business development initiatives, including humanoid robots and semiconductor equipment. These efforts generated $11.8 million in orders during the fourth quarter, bringing total orders from these initiatives to $37.8 million for the full year of 2025, which exceeded our goal of $30 million for the year. Our fourth quarter adjusted gross margin of 37% was impacted by $3 million of headwinds, including unusual unfavorable product mix, inventory reductions, and discrete inventory and manufacturing impact. We expect gross margin to improve in Q1. We are currently ramping production of Sensors products and expect to realize higher sales in the second quarter. I'll now review the business performance by segment. Moving to Slide four, beginning with our Sensors segment, fourth quarter revenue was 4% sequentially, but was 18% higher than a year ago. Compared to the third quarter, continued strength in test and measurement related to semiconductor equipment was offset by softer sales to the AMS and the general industrial market. Booking for sensors continued its positive trend and reached its highest level in thirteen quarters. Sensor bookings rose 4% sequentially, and were 30% above a year ago, resulting in a book to bill of 1.15. The bookings growth from the third quarter was driven by higher orders in general industrial, our other markets for consumer electronics, and AMS. In addition, we are pleased with the demand related to the test and measurement market, particularly for semiconductor test equipment applications. Total sensors orders were up 18% in 2025 compared to the first half. With sensors backlog at the highest level since 2023, we are currently hiring to ramp up production to meet demand which should lead to increased sales beginning of Q2. A key highlight continues to be our growing momentum with humanoid robot developments. In Q4, we received $800,000 in humanoid related orders including a follow-on bookings for our first two customers and an initial prototype order for the third. This new customer is an emerging robotics company developing humanoids to enhance productivity and streamline daily operations in both homes and warehouse environments. In addition, in January, we received follow-on orders from one of our initial two humanoid customers of approximately $1 million. 2026 is expected to be a pivotal year for the overall humanoid robotics market as leading companies move decisively from prototype into early production and real-world deployment. Technical challenges remain, but they play directly to our strength and create strong demand for our high-value, high-performance solutions that solve their problems in advance dexterity, stability, responsiveness, and safety. While the timing and scale of production ramps across the humanoid robot market remain unclear, we expect 2026 to bring continued momentum for Vishay Precision Group, Inc. Our infrastructure and supply chain teams are prepared to support customers' production demands. Moving to Slide five. Turning to our Weighing Solutions segment. Fourth quarter sales increased modestly from the third quarter and grew 7.8% from the prior year. The sequential increase was primarily evident in our industrial weighing market. Weighing Solutions orders were up 14.9% sequentially to $28.2 million resulting in a book to bill of 1.02. Specific areas of strength were in our other markets for precision ag, medical, construction, and e-bike applications. Orders were also higher in the transport for onboard weighing systems for heavy-use trucks. While there are signs that some of these end markets have reached their cyclical bottom, we continue to see mixed trends across our OEM customers. Moving to Slide six. Turning to our Measurement Systems segment. Revenue in the fourth quarter of $22.4 million increased 9% sequentially and 6% from a year ago. The sequential increase reflected a record high sales for DSI R&D tool for the development of new metal alloys. We also had higher sales in AMS for testing new Avionics platforms. Fourth quarter measurement systems orders of $18.1 million declined 16% from the third quarter and resulted in a book to bill of 0.81. Lower orders in our steel market mostly reflected the timing of projects in the middle of a soft global steel market, offset by stronger sales of DTS products used in crash safety testing. Our pipeline remains healthy and given the timing of customers' projects, we expect to return to a positive book to bill in Q1. Moving to Slide seven. Looking at the year, in total fiscal 2025 was a year of transformation for Vishay Precision Group, Inc. While our revenues of $107.2 million grew slightly from the prior year, sales in the second half were up 9% from the first half. In addition, we had a steady improvement in orders through the year, particularly in the sensor segment. Our performance in our business development initiatives of $37.8 million in 2025 exceeded our goal of $30 million for the year. We also delivered $4.5 million of targeted cost reductions as part of ongoing cost efficiency plans. Moving to Slide eight. Most significantly, during 2025, we took steps to position Vishay Precision Group, Inc. for its next phase of accelerated growth. Over the past several years, we strengthened and streamlined our operation to support higher volume opportunities and sharpen how we develop and track our growth initiatives. Those efforts have prepared us to move into the next phase, which involves a fundamental rewiring of our business. As we announced in November, a key component is the creation of two new senior executive positions and corresponding organizations: the office of the Chief Business and Product Officer, and the office of Chief Operating Officer. Each organization has a clear mandate. The CBPO's focus is on accelerating growth by refining our internal sales and product development processes, thus expanding our opportunity set and increasing our conversion rate with both new and existing customers. The COO organization is supporting this accelerated growth by driving improvements in operational efficiency and readiness while also reducing our cost structure. Creating these cross-divisional centers of excellence organizations marks a major shift from the diversified operating structure that defined much of our history. The reason is simple. The opportunities ahead are being driven by large, mainstream market and technology trends and are bigger and more significant than ever. As we enter Q1 transition period, the new organization will work on the core and cross-company processes, redesigning them into standardized, scalable, unified, and up-to-date global processes while also implementing industry best practices. We expect an additional $3 million of SG&A cost. The new processes will be fully placed in Q2 in 2026 to support the new organizational structure as well as new IT platforms. As a result of the new organization, we expect $2 million in savings to cost reduction initiatives. The net effect is $1 million to support the new organization. A key trend driving our long-term opportunities is the emergence of physical AI technologies. Physical AI is the class of AI systems that perceives the real world, makes decisions, and drives physical actions through machine or control systems. It sits at the intersection of AI and machine learning, sensors, controls, and humanoids. As physical AI gains broader adoption, certain types are expected to have a bigger, longer-term impact than others. Vishay Precision Group, Inc. is looking to provide solutions in the humanoids and autonomous logistics. As a result, we are excited about our growth prospects. We have set an internal goal this year to grow our top line in the mid to high single digits as we anticipate a stronger second half reflecting strengthening economic trends and capital investments, as well as continued progress with our ongoing growth initiatives. Given our current pipeline from business development initiatives, we are setting a target of $45 million for 2026, which represents a 20% increase from 2025. Before turning the call to William, I would like to thank our employees for their dedication, their past year, and their embrace of the changes we are making. I want to thank our customers for their trust and confidence as we continue to work hard to exceed their expectations. I will now turn it over to William M. Clancy. William M. Clancy: Thank you, Steve. Referring to slide nine and the reconciliation tables of the slide deck, our fourth quarter 2025 revenues were $80.6 million. Adjusted gross margin of 37% in the fourth quarter decreased from 40.5% in the third quarter and was impacted by $1 million related to unfavorable product mix and $1 million due to inventory reductions. In addition, we incurred approximately $1 million of discrete inventory and manufacturing impacts as well as a $400,000 impact from unfavorable foreign exchange. Sequentially by segment, adjusted gross margin for Sensors of 28.5% declined due to lower volume and unfavorable product mix and foreign exchange rates. The Weighing Solutions gross margin of 33% decreased from the third quarter primarily due to one-time manufacturing fixed costs, a reduction of inventory, and higher logistics costs. Adjusted gross margin for the Measurement Systems of 53.3% increased from the third quarter due to higher volume partially offset by discrete inventory adjustments. Moving to Slide 10. Our adjusted operating margin was 2.3%, which excluded restructuring costs of $697,000 and $110,000 of purchase accounting adjustments. Selling, general and administrative expense for the fourth quarter was $27.9 million or 34.7% of revenues, which was modestly higher than Q3 reflecting hiring for the new organizational structure and higher travel and commission costs. Unfavorable foreign exchange rates impacted the adjusted operating margin in the fourth quarter by $600,000 and for the full year of 2025, by $4.7 million. Our GAAP net loss was $1.9 million or $0.14 per diluted share. Adjusted diluted EPS was $0.07. The GAAP tax rate for the full year was 39%. For 2026, we are assuming an operational tax rate of approximately 26%. Moving to Slide 11. Adjusted EBITDA was $6 million or 7.5% of revenue compared to $9.2 million or 11.5% of revenue in the third quarter. CapEx in the fourth quarter was $3.5 million and was $8.5 million for the full year. For 2026, we are forecasting $14 million to $16 million for capital expenditures. We generated adjusted free cash flow of $1.3 million for the fourth quarter, which compared to $7.4 million in the third quarter. As of the end of the fourth quarter, our cash position was $87.4 million and our long-term debt was $20.6 million. The resulting net cash position of $66.8 million and the unused portion of our credit facility provides ample liquidity to support our business requirements and to fund M&A. Regarding the outlook, for 2026, we expect net revenues to be in the range of $74 million to $80 million, assuming constant fourth fiscal quarter 2025 exchange rate. In summary, quarterly bookings exceeded $80 million for the first time since 2023, resulting in a book to bill of 1.01. We exceeded our 2025 goal for orders from business development initiatives and are targeting a 20% increase in 2026. And we entered into a new phase with key organizational and strategic changes focused on accelerating growth and cost efficiency. With that, let's open the lines for questions. Thank you. Operator: Thank you. To ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from John Edward Franzreb from Sidoti and Co. Your line is now open, John. Please go ahead. John Edward Franzreb: I actually want to start with the revenue guide. I am curious about if to achieve the mid to high single-digit AM guide that you are putting out there, how biased is that towards the Sensors segment given the recent bookings profile? Ziv Shoshani: Well, John, good morning. First, we are fairly optimistic regarding the recovery in the marketplace. We have seen many, many signs. It started with the initial sign in the Sensors, but we are also quite positive about the positive signs regarding Weighing Solutions. Also for Measurement Systems, some of the segments are showing early signs of recovery. The steel market is still fairly soft, predominantly in China. But overall, we are optimistic regarding the business environment. In addition to that, we are also expecting additional book to bill above one in the second quarter. Now regarding execution and revenues, this is correct that while we are working on ramping up production for Sensors, we would expect to see higher revenues mainly in Sensors as of the second quarter. But you are correct. In order to achieve the mid to high single-digit, the second half of this year, we are looking to achieve higher revenues than the first half since we are in a ramp-up mode currently. John Edward Franzreb: Got it. And regarding the gross margin impact, my back-of-the-envelope number was that it was roughly 41% in the quarter. Is that right to assume excluding some of those onetime items, if you will? And I am curious if any of them lingered or are lingering into the first quarter of 2026. Ziv Shoshani: We have identified kind of unusual effects in the fourth quarter at the level of $3 million, as I indicated, which were related to year-end closing and also to launching new RFP systems at one of our sites. Those one-time effects, we do not expect to see in the next quarter. Therefore, we should see an improved gross margin moving into Q1. John Edward Franzreb: Got it. And regarding the restructuring actions, and then I will get back into the queue. You expect $6 million. Is that $6 million expected to be realized in 2026, or is that an exit velocity coming out of the year? Ziv Shoshani: The $6 million of cost reduction is expected to be realized in 2026 and is expected to be in the 2026 P&L. So all the cost reduction initiatives in regards to efficiency, product streamlining of manufacturing locations, and all other related activities would result in a $6 million cost savings which we expect to see in 2026. John Edward Franzreb: Thanks, Ziv. I will get back into the queue. Ziv Shoshani: Thank you, sir. Thank you. Operator: Thank you. Our next question comes from Josh Nichols from B. Riley. Your line is now open. Josh Nichols: Yes. Thanks for taking my question. I want to dive into some pretty significant organizational strategic changes here that you touched on during the call. What does this mean, do you think, for betting on the company's growth prospects overall? And then two, it has been some time, but I think you used to put out some longer-term financial targets about operating leverage and what the company could achieve. With these new changes, could you touch on those two aspects and if you plan to put any updates out on those potentially? Ziv Shoshani: Yes. Absolutely. If you can recall, Josh, in November, we announced organizational changes in the company. The organizational changes were around two main new organizations, the COO and the CBPO. The purpose was to develop a new organization, which is a cross-divisional organization, which would allow us to standardize, unify, and improve and apply best practice processes. So to that extent, we are in the process of implementing the changes which we are going to see starting to take effect in the second quarter. The changes regarding the COO organization would be mainly around procurement, centralized procurement, supply chain, and also a much better organizational focus or operational focus around cost reduction, execution, and supporting our business organization. On the other hand, the CBPO's purpose is to create a centralized sales operation function to optimize centralized marketing and centralized business development to enhance our opportunities. In addition to that, I would like to state that we are launching a data project, an IT project, which would allow everyone to operate on one system. We are going to introduce more advanced BI and AI tools. So all in all, the whole organization focus is on execution from the cost side and to support the business on the other side, support the business in terms of better lead time, better quality, and enhance business development initiatives also from a cross-divisional and centralized marketing perspective. We see already that the new organization from a cost standpoint is building the foundation, and as we are moving ahead with the foundation, we are expecting, as I indicated, the $6 million. We have even a bigger target for the next three years to achieve a certain cost reduction. While also we have set internal goals for business development, for example, a 20% year-over-year, moving to a $45 million business development target for 2026. As you indicated, now we are in the process of changing the model to fit the new cost and the new financial model. So I would say that in the coming weeks, we are going to introduce a new model which will be based on the new organization. Josh Nichols: Good to hear that that is going to be updated. And then, good also, the new third humanoid development customer that you are getting some initial orders from. I know you provided some very high-level detail about using humanoids at home and also for manufacturing. Anything you could tell us about the size of the customer relative to the other two and potential timelines? Are they looking to scale up to larger-scale production in 2026? Or are they still in the earlier stages of development overall? Ziv Shoshani: The only thing I could say since we are under a very strict NDA is that this is a smaller customer than the other two. They are still in the design configuration stage. We are continuing the journey of engineering discussions with this customer to provide them with the best solution. I think that all in all, in the humanoid ecosystem, the ramp-up really depends on the customer commercialization and adoption of the humanoid-related application. We do not know when they are expecting to start reproduction or even ramping up. But I think that the important piece is that our infrastructure and supply chain are prepared to support them once they make the decision. Josh Nichols: Thanks. And then last question for me. This has been a big topic. You see a lot of humanoid CES and other events overall. Is it fair to say that you are in discussions with multiple other humanoid developers also, and potentially, we could see some additional customers now throughout 2026? Or what is your expectation on that front on building out your humanoid customer base? Ziv Shoshani: We do have a list of many humanoid manufacturers with whom we started a dialogue. At this point, we do not report that in our earnings call since they have not requested prototype orders. So the fact that there is a whole list of humanoid manufacturers in different parts of the world, we hope that we will be able to report that we are going to ship or start a more serious dialogue and ship prototypes to others. Yes. But no doubt, they are on our screen, and we are looking at many more humanoid manufacturers. Yes. Josh Nichols: Appreciate it. Thank you. Operator: Thank you. Our next question comes from Jason Smith from Lake Street Capital Markets. Your line is now open. Please go ahead. Jason Smith: Hey, guys. Thanks for taking my question. Just following up on that line of questioning. Beyond humanoid robots, where it seems like you guys are seeing some really nice momentum, can you talk about which verticals in your new business initiatives are exceeding your original expectations? Ziv Shoshani: As you know, in the past, we were looking at the ultra-high temperature ceramics, which is one of our products. We were also looking at some designs of precision resistors in the semiconductors. And very recently, we have also started a dialogue with what we call physical AI applications, which are autonomous logistics based on AI platforms, which some large manufacturers are looking at. That is an adjacent application to the humanoid but also based on AI. So we started a dialogue with one or two customers regarding autonomous logistics. Jason Smith: Gotcha. And then following up on your comments on additional hiring within the Sensors segment, is this to mainly just build out that infrastructure more? Or are you seeing demand pull from specific verticals or end markets that are really driving this? Ziv Shoshani: Hiring people at this point in time, the sensor business's main end sectors that are driving the demand are test and measurement, avionic military in space, and some general industrial applications. Those are the end markets where we did see some signs of recovery. We have seen much stronger order intake, and we are hiring direct employees and ramping up production. We do not believe that this is a short-term recovery. We believe that we should expect to see this recovery in the coming months. Jason Smith: Perfect. Really helpful. Thanks a lot, guys. Operator: Thank you. We will now pause for any questions to be registered. As a last reminder to ask a question, please press star followed by one. We currently have no further questions, and I would like to hand back to Steve Cantor for any closing remarks. Steve Cantor: Great. Thank you, Claire. Before closing, I do want to note that we will be at the ROTH Investor Conference in March. And, of course, we look forward to updating you next quarter. Thank you all for joining the call today, and have a great day. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Unity Software Inc. Q4 2025 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead. Alex Giaimo: Thank you. Good morning, everyone. Welcome to Unity Software Inc.'s fourth quarter 2025 earnings call. Today, I'm joined by our CEO, Matthew Bromberg, and our CFO, Jarrod Yahes. Before we begin, I want to note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends, and expectations for future financial performance, all of which are subject to risks, uncertainties, and assumptions. You can find more information about these risks and uncertainties in the risk factor section of our filings at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements. Finally, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A full reconciliation of GAAP to non-GAAP is available in our press release and on the sec.gov website. And with that, I'll turn it over to Matthew Bromberg. Matthew Bromberg: Thank you, Alex. Good morning, everyone. On behalf of all of us at Unity Software Inc. from across the globe, I'd like to thank each of you for joining us today. When the environment gets noisy, it's always clarifying to tune back into performance and the underlying product and market dynamics that produce it. It's in that spirit that I'll begin this morning by offering some broader context for why we've never been more excited about Unity Software Inc.'s future. Our fourth quarter results once again comfortably exceeded the high end of our guidance, led by exceptional performance from Vector, which experienced its third consecutive quarter of mid-teen sequential revenue growth. Vector revenue has grown 53% in the first three quarters since its launch, and we believe we are still very much at the beginning of the trajectory. This January was Vector's best revenue month ever, larger even than the holiday record set in December, and 72% larger than January. By 2026, we expect the quarterly revenue run rate for Vector to be comfortably more than $1 billion a year. We could not be more optimistic about how this business is scaling and the value it is delivering to our customers. Throughout 2025 and into 2026, this incredible growth in Vector, the sharp decline in the IronSource ad network has at times masked that dynamic, however, is swiftly drawing to a close, which will materially enhance growth rates and profitability in our advertising business as a whole in the years ahead. IronSource ad network will represent less than 6% of total Unity Software Inc. revenue in the first quarter and will become an even smaller component of our financial profile over time. And this isn't just a shift in revenue, it's a shift in quality. We are displacing commoditized lower-margin ad network revenue for deeply differentiated AI platform revenue. The success we're seeing in our advertising business has been mirrored by the return to growth of our software business, where 2025 showcased the fastest year-over-year growth in Create in more than two years. And this growth is truly global in nature. Over the course of the year, our Create business is up nearly 50% in China, the world's largest video game market, driven by our unique interoperability with local operating platforms like Open Harmony and compatibility with popular consumer channels like WeChat. Unity Software Inc. is the global abstraction layer that allows a developer to write once and deploy everywhere, so that no one has to choose, for example, between building a WeChat mini-game and a high-end iPhone release; they can have both at the push of a button. Unity 6 is being adopted more quickly than any version in our history, and as a reminder, it's for around 90% of our active creators completely free to use. Our customers typically only pay us once they've built successful games, which by definition includes wiring a full suite of infrastructure, modernization, and content optimization tools to the Unity Software Inc. platform. Tools which might be developed by us, but because we are an open and extensible platform, might just as likely be offered by third parties or even self-built. This is what we mean when we say we're the assembly point for interactive content creation. And when that creation is ready to meet its audience, the Unity Software Inc. runtime is the universal bridge that connects imagination to execution, ensuring that regardless of the hardware or platform, the experience remains seamless and performant. Our runtime doesn't just display pixels; it serves as the persistent foundation that manages the complex interplay of physics, input, and networking across devices, making Unity Software Inc. not just a tool for building, but the standard for deploying interactive content globally. New creative tools like emerging world models that make it possible to generate high-quality interactive assets from simple no-code prompts are a massive opportunity for Unity Software Inc. and should greatly increase the market for interactive creation. The Unity Software Inc. engine is not an asset generator, and it never has been. Assets have always been created largely outside of our software. We'll transform these new assets, enabling them to be brought directly into Unity Software Inc.'s platform and adding the physics, game logic, infrastructure, and distribution systems to turn them into full-fledged games, making it possible for our customers to run multibillion-dollar live service businesses. As we increasingly integrate native AI into the creation process, Unity Software Inc. will become easier to use, which will draw more customers into the world of interactive content creation than ever before. This explosion of new asset types, new creators, and new games will also drive our advertising business. The primary challenge then becomes discovery. As the amount of content multiplies, how will consumers find the next thing they really want to play? And that's where Vector comes in. As it grows and becomes ever more efficient at understanding consumer preferences, it will become more effective at making high-quality recommendations. We expect this dynamic will be a tailwind for Unity Software Inc. for many years to come. With all that as a context, now let's look ahead to what we're building and delivering to the market in 2026. We'll begin our advertising business with Vector. Last year was about laying the foundation, modernizing our tech stack, and improving our capabilities to customers by delivering both improved install volumes and ROAS across geos, genres, and platforms. 2026, however, will be about taking the next leap forward. Over the course of Q1, we will scale our testing of runtime engine data, with the expectation that it will be live in Vector during Q2. This milestone has been made possible through a great deal of hard work over the last two years, and we're really proud of the team for getting us to the launch threshold. As we've mentioned previously, we don't anticipate that the inclusion of runtime data will produce a lightning strike moment, but rather it's our conviction that the addition of highly behavioral data will result in significant compounding model improvements over time. What makes Vector different isn't just the quality of our AI model; it will also be the quality of the signal. We're moving beyond capturing clicks towards fully understanding how users interact with the game world, what engages them, how they progress, and where they find value. Our runtime will enable us to interpret this unique deep behavioral signal and provide more value to our advertising customers for years to come. As the signal improves, modeling becomes even more valuable. So we're optimistic about marrying these runtime data advances with the long list of planned product improvements to be delivered in Vector over the course of 2026. One of those product improvements already in beta and having a positive impact is our day 28 ROAS feature, which enables customers to manage their campaigns based on longer time horizons. There will be many such improvements over the course of the year, and we expect runtime data will boost the impact of everything we do. In our Create business, we expect 2026 will also be a year of fundamental transformation. While continuing to deliver a roadmap to customers that provides enhancements to the product they depend on every day, we will make fundamental advances in two areas: collaboration and AI authoring, both of which we expect will meaningfully grow our addressable market. Let's take collaboration first. In 2026, Unity Software Inc. authoring work will become largely accessible by web browser, no download required, with project and gameplay views shareable with a one-click URL. This shift will, for the first time, enable software developers, who are currently our only customers, to collaborate seamlessly with the artists, designers, product managers, back-end developers, and executives that comprise the full creative team, massively expanding Unity Software Inc.'s utility and the size of our addressable market. Our first steps in enabling this vision of the future can be glimpsed today in Unity Studio, our recently announced no-code 3D editor that's already in beta for industry customers today. By moving the Unity Software Inc. environment to the browser, we are moving 3D creation out of a siloed local install into a live collaborative workspace, bringing the business and creative stakeholders directly into the heart of the project. For every current Unity Software Inc. developer, there are a multitude of others working collaboratively on each project who will benefit from access. We're excited to drive this expansion of the Unity Software Inc. platform in 2026. AI-driven authoring is our second major area of focus for 2026. At the Game Developer Conference in March, we'll be unveiling a beta of the new upgraded Unity AI, which will enable developers to prompt full casual games into existence with natural language only, native to our platform, so it's simple to move from prototype to finished product. This assistant will be powered by our unique understanding of the project context and our runtime, while leveraging the best frontier models that exist. We believe together this combination will provide more efficient, more effective results to game developers than general-purpose models alone. AI inside Unity Software Inc. will lower the barrier to entry, raise productivity for existing users, and democratize game development for non-coders. When combined with our new web-accessible authoring environment, our goal is to remove as much friction from the creative process as possible, becoming the universal bridge between that first spark of creativity and a successful, scalable, and enduring digital experience. And to better enable these new creators to build their businesses, Unity Software Inc.'s toolset will include our newly enhanced in-app purchase commerce offerings. These also move into early access next week, with general availability in Q2. By integrating monetization and commerce directly into the AI authoring flow, we won't just make it easier to make games; we'll make it easier to succeed with them. When you look at all these pieces together, the compounding intelligence and performance of Vector, the accessibility of Unity Software Inc. in the browser, and the massive potential tailwind presented by AI authoring, the picture becomes clear. We're moving from a world where game development was the province of the few to one where it will be accessible to the many. This is what we've always called the democratization of game development, and it is in our DNA. Unity Software Inc. is the common denominator in this transition. We'll provide the platform to create interactive content, the engine that renders it, the runtime that connects it to players, and the advertising stack that helps consumers discover it. With that, I'll pass over to Jarrod Yahes for an overview of our financial performance. Jarrod Yahes: Thanks, Matt, and good morning, everyone. Unity Software Inc. had exceptional momentum in the fourth quarter, which translated into the fastest growth and the highest margin we've experienced in the past two years. Our execution and ability to hit our targets is improving, becoming more consistent. And as expected, that accelerating organic growth paired with high contribution margins is enabling operating leverage and driving free cash flows. In the fourth quarter, we had strong performance across both Grow and Create. Grow revenue in the fourth quarter was $338 million, up 6% sequentially and up 11% year over year. Revenue upside compared to our guidance was driven by the exceptional performance of Vector. Vector experienced yet another quarter of mid-teen sequential growth, its third in a row, driven in part by a robust holiday season. As a point of context, Vector added more incremental dollars in the fourth quarter than in any prior quarter. January was Vector's best month ever, and we remain extremely confident that our ad business remains in the early innings of a multiyear growth story. In the fourth quarter, Vector represented 56% of Grow revenue, up from 49% just two quarters ago. Grow results in the fourth quarter were impacted by a $7 million sequential revenue decline in the IronSource ad network, which represented 11% of Grow revenue for the quarter. Our internal analysis shows that Vector's ongoing strength is almost entirely coming from incremental advertiser demand and improved conversion performance rather than a shift over from customers who've been reducing spend with IronSource. In Create revenue was $165 million, up 8% year over year. As a reminder, we lapped $10 million in non-strategic Create revenue from 2024. Excluding the impact of non-strategic revenue, our Create business grew an extremely healthy 16% year over year, powered by strength in our subscription business. Revenue growth accelerated during 2025 as customer contract renewals and related price increases took effect. We also exhibited extremely strong growth momentum in our Create business in China this year. Our commitment to product stability and performance, coupled with a successful rollout of annual price increases and an improved go-to-market approach, has now translated into consistent steadier growth for our Create business. Turning from revenue to non-GAAP profitability, adjusted EBITDA for the quarter was solidly above our expectations at $125 million, representing 25% margins, an improvement of 200 basis points both year over year and sequentially. We were able to achieve this despite significant sales and marketing spend in the quarter for our UNITE conference in Barcelona and additional accruals associated with sales commissions and annual performance bonuses. We also experienced elevated R&D spend due to significant increases in cloud spend and additional AI hiring. I would like to touch on some key financial highlights from 2025 that underscore how our strategy is beginning to result in faster organic revenue growth and improved profitability and cash flow. Firstly, organic year-over-year revenue growth has been accelerating in each of Create and Grow as well as Unity Software Inc. in the aggregate. Year-over-year growth has accelerated every quarter throughout 2025. Secondly, our focus on cost discipline and prudent capital allocation has demonstrably benefited profitability and cash flow. In 2025, we increased adjusted EBITDA margins to 22% while converting an impressive 99% of our adjusted EBITDA to free cash flow. As a result, Unity Software Inc.'s free cash flow grew 41% in 2025 to just over $400 million. Free cash flow margins expanded more than adjusted EBITDA margins by 600 basis points, highlighting Unity Software Inc.'s ability to meaningfully scale flow as revenue grows. Cash flow benefited from positive working capital contributions combined with a significant reduction of restructuring charges. In 2025, we also made impressive progress in our path towards GAAP profitability, including reducing our stock comp expense by 19%. As a result, stock comp expense as a percentage of revenues declined from 33% in 2024 to 21% in 2025. And lastly, before turning to guidance, we exited the year with a strong balance sheet. And with that, future obligations using cash on the balance sheet and cash generated from our business. We successfully refinanced $690 million of our 2020 convertible notes, extending those maturities into 2030. And a highly cash flow generative business, we are confident in our ability to pay off with over $2 billion in cash on hand. I'd now like to turn to guidance for the first quarter. We're expecting total first quarter revenues of $480 million to $490 million and adjusted EBITDA of $105 million to $110 million. In Grow, we are forecasting revenue to be flat on a sequential basis, due primarily to seasonality as we come off the holiday-rich fourth quarter and with two fewer calendar days in Q1. Despite these dynamics, we expect Vector to grow 10% sequentially in the first quarter, and we expect Grow to return to sequential growth in the second quarter powered by continued strength from Vector. In Create, we are forecasting double-digit year-over-year revenue growth in the first quarter, excluding the impact of non-strategic revenue. This growth is driven by continued strength across our subscription business. We anticipate a similar cadence of growth throughout 2026, excluding roughly $40 million of non-strategic revenue and one-time items. We expect adjusted EBITDA margins to expand 300 basis points year over year in the first quarter. Similar to our 2025 trajectory, adjusted EBITDA margins should improve throughout the year and drive solid overall margin expansion for Unity Software Inc. in 2026. I would note that we expect healthy margin expansion despite a heavy investment in our product roadmap across Vector and a range of strategic AI initiatives. With that, I'd like to thank you for joining us on Unity Software Inc.'s fourth quarter 2025 conference call, and let me turn the call over to Alex Giaimo so that we can take your questions. Alex Giaimo: Thanks, Jarrod. Nicole, we are ready for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. Your first question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Please go ahead. Matthew Cost: Hi, everybody. Thanks for taking the question. So I guess Grow grew double digits organically for the first time in four years. You know? And you mentioned kind of the consistent mid-teens to over the course of the past couple of quarters. So, you know, really meaningful improvement in the trajectory of this business. I think what the market is wondering this morning is where are we in the process of kind of harvesting the low-hanging fruit for Vector? And how many significant ongoing breakthroughs are there still ahead for Unity Software Inc. ads? And then how much of a drag is IronSource going to be as we move through the rest of 2026? Then I'll follow-up on commerce after we touch on that. Thank you. Matthew Bromberg: Good morning, Matt. Thanks very much for the question. Yeah. As you know, as we laid out during our prepared remarks, we are just thrilled with the continued strong growth of Vector. It continues to meet and exceed our expectations. You know, as I mentioned, January is a business up more than 70%. So it's extraordinarily exciting for us, and as we've indicated before, all of this growth predates any of the impact which we believe will be substantial over the long term, of including our runtime data in our models. I know that there appears to be some consternation of the market about the long-term ability for us to grow this business. I honestly have a difficult time understanding why. As you can see, quarter after quarter, this business is growing and delivering not just in the quality of the model, in the quality of the signal, in the amount of return we are offering to customers, both in the volume of new installs, but also on the ROAS of their spend. And we feel like there is no natural ceiling to what this business can do in the future. And we're incredibly excited about it. I called out at the top of my remarks the trajectory of the IronSource business only because, you know, my sense is that investors are overly focused on the performance of that business, which is a legacy business for us. And as I indicated, it will get smaller and smaller over time and won't be material to our overall picture, which was really the reason why I highlighted it. So I would just say that going forward, it's not going to be an important component of our revenue, and that has really strongly and completely been driven by the growth of Vector. And so that's just a statement of the obvious. Matthew Cost: Great. Thank you. And then just on commerce, you kind of head towards a GA launch, it sounds like, in February. What are you seeing so far in terms of demand and uptake of that business? Is it in certain segments of your client base that are interested in potentially testing it? You know? And how broadly do you think you might see your commerce tools adopted as you go into GA? Matthew Bromberg: You know, we've been extremely pleased by customer reaction to our product. We're, as I think I mentioned, moving into early access next week, and the product will be generally available by Q2. We've been talking to a very wide range of customers, and the interest is extremely strong. And the three primary benefits that we're hearing from customers that they're taking from this product. The first one is it dramatically accelerates the pace in which they are able to take advantage of sort of the changes in the regulatory environment related to storefronts and that enable them to control their own payment layer in their own storefronts. We're also really excited about the potential, continue to be excited about the potential for this, the purchase behavior to enhance Vector models over time, which is going to be great for customers. And because this product is organically integrated into our platform, it's extremely easy for our current and future customers to use in a way which is really streamlined. So we're super happy with the initial response we're getting, and we're really looking forward to launch. Matthew Cost: Great. Thank you so much. Operator: Your next question comes from the line of Alec Brondolo with Wells Fargo. Your line is open. Please go ahead. Alec Brondolo: Yes. Hey, thanks so much for the question. Maybe two for me. First, can you help us understand what you've seen in the market from Meta so far in the first quarter? Has it become meaningfully more competitive on iOS inventory? And has that impacted the growth of Vector at all? That's the first question. The second question, could you maybe talk about CloudX's entrance to the mediation market? How do you think about the trade-off between Level Play potentially losing share relative to the ability to partner with CloudX and have an independent platform to bid through over time? Thank you. Matthew Bromberg: Thanks so much, Alec, for the question. Let me take them in reverse order and start with CloudX. As I think everyone's aware, we are partnering with that team as one of their demand partners. As I think you also know, the founder of that business worked here with us. So we have a close relationship and are wishing him and his team all the best. As you've heard me say many, many times before in this call, we are supporters of any platform that desires to open up mediation and make it more transparent and effective for customers. We think this is going to be good for the industry and the mobile ecosystem, and that's the direction we want to see this go. You've also heard me say many times on this call that mediation is not a central piece of our strategy going forward because we feel comfortable that the first-party connections we have to our customers through our engine and the runtime are all that we need in that regard. As an ad network bidder, we are completely agnostic in terms of what mediation platforms exist and which ones we're bidding into, so long as they're fair and transparent. So that's the short answer there. Our mediation business is not in any way material to the overall result of Unity Software Inc. Not in any way. Second, Meta, I know there was a lot of consternation over the course of the quarter, which as far as I can tell was kicked off by a LinkedIn post. Let me just say this. Unity Software Inc. has and always will compete with some of the largest, most sophisticated companies in the world. It's our advertising business. We do that every day. We always have. Meta, Google, Applovin, and many others. We have nothing but respect and admiration for all our competitors. Meta has been competitive in iOS traffic for quite some time. This wasn't a new dynamic. It did not have a meaningful impact on us in any way. We are laser-focused on the games industry in our business, not e-commerce. Given our strength through Vector and the engine, the understanding we have in that segment, we feel very, very good about our ability to compete with anyone. And as I say, we've seen essentially no impact, and I would, in general, caution investors from overreacting to LinkedIn posts. Alec Brondolo: Yeah. Thanks so much. Operator: Your next question comes from the line of Brent Thill with Jefferies. Your line is open. Please go ahead. Brent Thill: Good morning. I think everyone would love to hear your thoughts on Google Genie and what that means going forward. And that was my question. Thank you. Matthew Bromberg: Thank you so much for the question. Let me start at a macro level. At a macro level, it's our belief that AI is going to be a massive tailwind for the video game industry. The first reason that's true is that leisure time is going to increase massively over time, and that's going to lead to an explosion of time spent in video games. The second thing is that AI is going to make the creation of video games much more efficient and less expensive. As you've heard, I think you guys have heard me say before, our bet is that the impact is going to be much more about what I would call the time to innovation than the time to market. And what I mean by that is the vast majority of time spent building games is spent building out the really complicated, sophisticated systems and features that power these games as live services, but many of which are at the base layer very common game to game. And so to the extent that AI helps to build those underlying systems quickly and to kind of remove some of the drudgery from the work, it will allow creators, which we believe will continue to be human-in-the-loop creators, more time to focus on differentiation and innovation and building new things. And we believe that it's going to have an extraordinarily positive impact on our industry over time. As I said about ten days ago and made a public post about this, I think it's just important for folks to understand what world models are and what they are. We believe world models are going to be a source of inspiration and assets for creators, but that they're not in any way going to replace game engines. They are complementary, not duplicative. The kind of video-based generation that world models are good at is exactly the type of input our AI workflows are designed to leverage. We're going to translate some of that rich visual input, which right now is less than a one-minute video, but will probably improve over time. Those types of 3D assets are going to be integrated into our engine where they can then be refined with the deterministic systems that Unity Software Inc. developers are using today. Interactive, camera-controllable video from world models is just going to enhance that pipeline. We think it's going to be a really meaningful step forward. So basically, we view our role as to operationalize these advancements. Outputs are converted into our real-time engine, where they're converted then into structured, deterministic, fully controllable simulations where creators are defining physics, gameplay logic, networking, monetization, live operation systems, all the things that are needed to provide consistent behavior across devices and sessions. In other words, the things that make something a game. So we see these developments as really complementary. We have a long-term relationship with Google, as well as developing relationships across the space. And I would just again say one thing I think I said in my prepared remarks. We are completely agnostic as to the nature of how 3D assets get created. We're an assembly point for building interactive experiences. We compile the pieces together after those assets are created, and we help creators turn those into real games. Unity Software Inc. is not an interactive video generator; it's a real-time 3D execution platform designed to build once and then run everywhere efficiently and seamlessly. So that's my feeling about Genie. Brent Thill: Thanks, Matt. Operator: Your next question comes from the line of Vasily Karasyov with Cannonball. Your line is open. Please go ahead. Vasily Karasyov: Hi. Good morning. I wanted to follow-up on what you said earlier on cross-platform commerce management solution. Would you mind giving us more details on a couple of points here? Number one, how does the economics generally in general terms work for you with this solution? And for example, your partnership with Stripe. And number two, how should we think about potential tangible and intangible benefits to the other business lines within Unity Software Inc. from this solution? Thank you. Matthew Bromberg: Yeah. We participate in the economics of the e-commerce transactions that have extremely high margin, but very modest. And so our goal here is not to make massive dollars on these transactions. It's really to deliver value to customers and to ensure that their commerce experiences can be built natively in a tightly integrated way with all the rest of the systems that they're building on Unity Software Inc. But to your point, we believe that over time processing and helping customers, most importantly, optimizing and improving their commerce capabilities and optimizing and improving engagement in their games, which leads downstream to more revenue, is going to both fundamentally enhance the operation of Unity Software Inc. itself, will make it more valuable to our customers, and also fundamentally enhance the value of Vector because optimization around engagement and the experiences which lead downstream ultimately to transactions and revenue growth are really important. Part of building a game and a really important part of forming a complete picture of the video game consumer. And as you guys know, our primary strategy here is to have the deepest and clearest and most accurate sense of every one of the billions of gamers globally that move through our product. Last count, more than about three and a half billion every month are in a made with Unity Software Inc. game. And the clearer we can understand those consumers and their behavior both with respect to commerce, but also more generally, the more value we're going to be able to deliver to our customers. Vasily Karasyov: Thank you. Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead. Eric Sheridan: Thanks so much for taking the questions. Maybe one follow-up and then one more bigger picture. But on the follow-up, you gave a number for January growth relative to Q4 growth. And then you also talked about the quarterly growth of the Grow business that you would expect. Can you talk a little bit about what you're seeing in January relative to what you saw in Q4 and how it sort of informs your broader view for the Grow business in the whole of Q1 relative to January? Just want to make sure we sort of got the right messaging on that. And then I had a quick follow-up, if that's okay. Jarrod Yahes: Sure. So, you know, Eric, at the highest level, Vector as a business grew mid-teens in the fourth quarter, which is the third sequential quarter of that kind of growth. So we're extremely pleased about that. January was a record for Vector. That is to say that our January revenues were higher than December, which was also a record revenue for Vector. And we expect 2026 to be an incremental 10% growth, sequentially for Unity Software Inc. Vector on top of the three quarters of mid-teens growth that we've experienced. Such that January on a year-over-year basis is growing in excess of 70%. Suffice it to say we're, you know, elated that our largest business is growing at those extraordinarily rapid growth rates. We knew Unity Software Inc. was going to transform. We knew the underlying growth profile of the business was going to accelerate. I think we just are continually impressed by the success we're seeing in the market, and we're, you know, we're thrilled with the investment that we're making. Eric Sheridan: Great. Thank you for that. And then, just on the Create business, really building on Brent's question and sort of the way you framed Genie going forward. You know, I think there's a lot of investor concern about the long-term strategic positioning of Create. Maybe you just want to address a little bit what you're seeing across the base of customers in Create today relative to the broader narrative that maybe has sort of made its way into the investor conversations just to sort of tee up your view broadly over the longer term. Maybe not just about Genie, but just about what you're seeing across the customer base? Thanks so much. Matthew Bromberg: Yeah. Thanks, Eric, for the question. We are seeing incredible strength in our Create business. As Jarrod mentioned, it's really important to remember that just a few quarters ago, you know, both Create and Grow segments were shrinking. And you know, a year down the line, a little bit more than a year down the line, you know, our largest ad business is growing 70%, and the Create business is up 16%. So the strength in the business is obvious to us. The improvements in quality and stability and the clarification we are making around our investments and our roadmap for our customers have been extremely well received. We are delivering more value more consistently. We still have work to do, but our interactions with our customers and the time we spend with them is just radically more positive than it was when I arrived. It has really been a pleasure. And we're seeing strength across that business. And as I called out, not just in the West, but also in China. The time we spent, you know, I spent answering the Genie question is really nothing to do with Genie. Right? The reason I spent the time was to try to explain the depth of value that our software provides to makers of interactive entertainment. These are, and the distinctions are meaningful and important. So we are, and I also called out, you know, Unity 6, which is our most recent release, is being downloaded and adopted faster than any release ever. So it's, you know, we're seeing really positive results and we're getting really positive feedback on that business in general. I also called out in my prepared remarks that we're incredibly excited about the opportunity that our collaboration-centric enhancements to Unity Software Inc. are going to have. And again, for those maybe less familiar with how the product works, let me take a minute to explain why we're so excited about it. So if you imagine that, you know, at the present time, our only customers are software developers. The rest of the team that makes a game, everybody else, generally does not have access to Unity Software Inc. And making Unity Software Inc. accessible through the browser and moving it away from a kind of closed download-centric environment, everybody can share builds and share progress and work on projects together is going to be a massive unlock for our business. It takes us again from being able to appeal to just one part of the creative enterprise and opening up to everything else. Secondarily, we're incredibly excited about the progress we're making in AI and our product. And maybe it might have gone by a little bit quickly in my opening remarks, but we're really enthusiastic about, for example, in GDC, we're going to show Unity AI product that is where you're able to, with natural language, just prompt a full casual game into existence, but in a way that's inside Unity Software Inc. such that you are then able seamlessly to have the close control and to build the systems around that early prototype, to turn that piece of or the beginning of a project and turn it into a real game, which is what's critical. And then once you finish building that game, you're able to distribute it anywhere on any platform. So these are, you know, it's really funny. My sense of this market is really different from the kind of overall Internet vibe. There are going to be tens of millions of more people creating interactive entertainment, driven by AI making these tools more accessible. Tens of millions more people. We are the leading engine of creating interactive entertainment in the world. Especially on mobile, we are increasing our market share on PC, the leading engine in China, and we feel great about the product enhancements and the way we're moving forward. So as we set and look at 2026 and 2027, in general, we look at the acceleration of our advertising business, which we don't see any natural ceiling for, beginning to experience runtime in the Vector models in the middle of this year, and the likely extraordinary tailwind that both AI and opening up our products to many more potential users is going to have. We feel like the year and the year after especially are set up extraordinarily well for us. Operator: Your next question comes from the line of William Lampen with BTIG. Your line is open. Please go ahead. William Lampen: Thanks a lot. I have two as well. Maybe the first one, I guess, to sort of draw this Genie point out a little bit more. Matt, I think one of the things that the market is sort of wrestling with right now is what the end state of a lot of this ends up being, kind of as Eric alluded to. One of those things, I think, is also what happens from a pricing standpoint. And I'm curious if there is potentially an outcome where tens of millions more individuals are essentially creators here. Is there potential in a world where you have a much larger potential customer base that we either need to have more tiers of the product to appeal to a lower end of that potential new community, or does this, you know, if we also see the commerce business start to take shape and take flight, does that enable you potentially over time to be more competitive from a pricing standpoint? I have a quick follow-up after this, too. Matthew Bromberg: Thank you for your question very much. Yeah. Let me try to answer that in two ways. We do believe that the greater accessibility of our product that is being driven by AI is going to open up opportunities for us to monetize much more effectively the, you know, 90-ish percent of users that we have that don't pay us because we're able to deliver some value-added services to them, whether that be consumption-based or otherwise. And as I said, we also expect the addressable market to grow much larger, which makes that opportunity even greater. The other thing in your question, I think, is a really important point. We are extraordinarily flexible and open-minded about business models here. We are not dug in around a seat-based SaaS model. There's no reason for us to be dug in around it because, as I said, first of all, we have a very large freemium motion. Second of all, to your point, we have in commerce, AI enhancement in our advertising business in Vector, lots of really interesting ways to offer really high-value add products to customers that we can then generate meaningful business around. One of the things that's really interesting if you step back for a minute and think about just think about the tension that exists in our model as it exists right now. We charge for the engine, but the truth is, especially with respect to our commerce products and our ad products, mostly, we just want more people to use the engine. The more people that use the engine, the bigger our ad business is. The bigger our commerce products are, the more value we can deliver around a lot of the individual products we're building. So this is not a transition we're afraid of in any way. By the way, our advertising business is also significantly larger than our Create business. So when we start to see moves in opportunities to evolve business models, we will take them. And I think you've seen with us, we're not afraid of making fundamental shifts, which is one of the reasons why we see this landscape as so incredibly interesting for us going forward. William Lampen: That is very helpful. And maybe if I could just sort of follow-up quickly on IronSource. As part of some of the headwinds sort of drawing to a close, I'm curious if you could help us understand maybe what the derivative consequences might be to direct costs of operation for the ad networks that you're managing right now or, you know, sort of other segments of the enterprise right now? Is that an opportunity or how should we, I guess, in general, think about that and maybe what's baked into guidance? Thank you. Jarrod Yahes: Yeah. Sure, William. I think, you know, Matt partially addressed this in his prepared remarks where he spoke about displacing commoditized lower-margin ad network revenue for deeply differentiated AI platform revenue. We strongly believe that this is ultimately an opportunity over time for simplification of our business, streamlining of our business, and ultimately, this is going to result in a higher-margin business with greater scalability and leverageability. Today, we are spreading resources across multiple networks. As our business evolves and changes, we'll be able to ultimately concentrate those resources, leading to greater operating leverage and ultimately greater gross margins in our business. So I think we feel really good about that. The commentary on EBITDA margins for 2026 should reflect that. We spoke about operating margins improving over the course of the year. We spoke about 300 basis points of margin expansion year over year in the first quarter. And that's up to and including some of the changes that we expect in the mix of our business over time as Vector becomes a much larger piece of the overall portfolio. And really, we're getting to the core growth engines of our business by the end of this year. William Lampen: Thank you. Operator: Your next question comes from the line of Andrew Boone with Citizens. Your line is open. Please go ahead. Andrew Boone: Thanks so much for taking my questions. Matt, you talked about the developer data framework kind of layering that into the model in 2026. Is there any additional help you can provide us in terms of contribution from that or maybe a little bit more on the timing as we think about what that could mean for the ad model? And then you talked a little bit about increasing the collaboration tools across the platform and including more types that come and utilize Unity Software Inc. Can you talk about the opportunity there and the potential monetization as you bring on different types of developers and creators onto the platform? Thank you. Matthew Bromberg: Absolutely. Thank you so much for the question. So on runtime, just as a reminder for everybody, we rolled out the developer data framework first in August. So then we began collecting data on new games that were built with our 6.2 release. We've been really thrilled with the uptake. We've had opt-in rates in excess of 90%. And there are a lot of applications being created there. We also more recently rolled out a streamlined self-service feature that allows customers that are operating games using older versions of Unity Software Inc. to also take advantage of the developer data framework, which is critical. So in terms of testing, we are feeling now that we're reaching critical mass, and we're comfortable that this robust testing that we're seeing is ultimately going to yield meaningful results for us, which is a part of why we're kind of moving into the release of Q2, the runtime data into our models. So again, we plan to do that integration in the second quarter. The precise time will depend on, you know, on the testing and ramping, but we're feeling really good about that. As it relates to your question on collaboration in the model, there's a couple of things going on. So we believe we'll have the opportunity to sell in a more traditional seat model or what we call sort of a collaborator licenses to folks who are not our core software developer customers but sit around that customer. So in the initial instance, that is most likely the way we will monetize that additional consumer base. And around our AI products, we'll expect to, especially for our enterprise customers who are paying us already, they will likely get an allocation of tokens and consumption as part of their offering and then be able to buy additional tokens on top of that to use our product. So we're really excited about dimensionalizing kind of the connects we have with our customers and providing more opportunities for monetization and diversification of those revenue streams. And then, you know, we'll see ultimately over the year what model takes root, but in the near term, we see real opportunity in those two areas. Andrew Boone: Thank you. Operator: Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Please go ahead. Dylan Becker: Hey, gentlemen. Really appreciate all the detail here. Maybe, Matt, just kind of touching on the aggregate Grow business. I think you made some important comments here. I think you said that you're going to fiscal 2026 at $1 billion plus run rate within Vector. You gave us the 11% moving to 6% on IronSource, so maybe that natural attrition will allow Grow to properly reflect the recent Vector momentum. I guess, is that a fair characterization? Just making sure I heard that correctly first. And then second, as we think about kind of the third piece of the pie, the other non-Vector components outside of IronSource and the ability to layer in AI and see improvements in some of those assets, I guess, where we sit kind of on that adoption curve as well too. Thank you. Matthew Bromberg: Yeah. So thanks, Dylan. The answer to your first question is yes. You understood precisely what we were talking about. And the description you had of the growth of Vector and the sort of concomitant smaller piece that IronSource will comprise of the total is exactly right. And as Jarrod mentioned a little bit earlier, not only will that lift growth rates, it will increase profitability because taken as a whole, Vector is a more profitable product and business for us. We'll also drive additional efficiencies. To take your second point, outside of the IronSource ad network, all other Grow businesses actually showcased sequential growth in the fourth quarter and remain meaningful drivers of revenue and profit. So in fact, excluding IronSource, the Grow segment was up double digits sequentially in the fourth quarter. So we feel really well poised for sustained growth as this business develops. Dylan Becker: Very helpful. Thank you. Operator: Your final question comes from the line of Martin Yang with Oppenheimer. Your line is open. Please go ahead. Martin Yang: Hi. Thanks for taking my question. I want to touch on your observation on the mini apps growth in China. Can you articulate how Unity Software Inc. can benefit from the growth both on the Create and the Grow side of it? Matthew Bromberg: Yes, Martin. Thank you so much for your question. As I said upfront, we're really excited about the position we have in China, which is the largest and probably fastest-growing game market in the world. Unity Software Inc. is fully compatible with all the local platforms in that region, and we have really deep and long-standing relationships with that developer community. So we're seeing a lot of growth and expansion of customer revenue there on the Create side. And by the way, that is not just games-related. Our industry business is particularly strong in Asia. We are particularly well-penetrated, for example, in the auto industry in Asia. The majority of companies use Unity Software Inc. for their in-dash display and other things as well as more deeply across that region. So we're feeling very optimistic about that business. The growth of Chinese-built games that are then released in the West, just like with any other game that gets created on Unity Software Inc., that is also an opportunity to have additional customers for our Vector product and additional opportunities for us to integrate other tools, technologies, and products into those games. Operator: This concludes the question and answer session. I will now turn the call back to Alex Giaimo for closing remarks. Alex Giaimo: Thanks, everyone, for joining this morning, and we look forward to connecting throughout the quarter. Have a great day.