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Erkka Salonen: Good day, ladies and gentlemen. I'm Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you to this Q4 2025 Earnings Call. I'm joined by our CEO, Turkka Kuusisto; and our CFO, Pia Aaltonen-Forsell. After the presentation, we have a Q&A session, and you may present your questions either by dialing in or using the chat function of the webcast. But with these words, I hand it over to you, Turkka. Turkka Kuusisto: Thank you, Erkka, and very good afternoon to all of you joining us today. And today, we have shared, in my opinion, very good news earlier when we published our Q4 report that indicated a very strong profitability development, especially driven by the continued strong demand and solid execution. Pia will discuss, in short, the result in detail, but I would characterize it as a sum of multiple factors. Of course, we benefited from the lower than -- lower fuel price. But at the same time, when we added into the equation the increased cost from the environmental compliance, other regulatory charges, I would say that the cost management and effectiveness was extremely well executed with -- among the Finnair team. At the same time, we still saw and we will see a strong demand, especially in the Japanese and European market that performed, in my opinion, relatively well. That led into a close to a 1% revenue growth, but above all or more importantly, our comparable operating result increased almost by 29% versus the compared, that already was actually a significant improvement from 2023. As you recall some months back, mid-November, we announced our long-term financial targets and also the updated strategy. And therefore, I'm also very happy that already now, we start to see pieces of evidence that the strategy execution or implementation has started with good velocity. As a concrete example of regaining the trust after the, let's say, more difficult or disruption shadowed first half, we restored the confidence of our customers and also discuss about the employees, but also the external stakeholders that we have as a concrete example being that with Pia's lead, we did successfully issue a EUR 300 million bond just before the year closing. If and when we will take the regional perspective, as mentioned, our investment in further strengthening the Japanese foothold after the double crisis is paying off. All in all, the Asian markets continued double-digit growth, both in terms of capacity and revenue. And then if I take a deep dive into our foothold or market presence in Japan in the summer season of 2025, we flew 25 weekly frequencies between Helsinki and multiple destinations in Japan. And we are going to actually further strengthen that for the next summer season when we are adding 3 additional weekly frequencies from Helsinki to Osaka. Also, as already mentioned, Europe as a traffic region performed relatively well during Q4, whereas the domestic part was a bit more soft in terms of load factor development. And then Middle East, when we kind of characterize the profile of the business performance, we need to continue to keep in mind or bear in mind that we don't -- didn't fly anymore from Copenhagen or Stockholm to Doha under the Qatar Airways collaboration or umbrella. So therefore, the revenue development and the ASK development is extremely negative. Big question, of course, still related to how will the North Atlantic traffic develop during the forthcoming quarters. Still in Q4, we saw some softness in terms of ASK development and also load factors. But here, we need to continuously also bear in mind that our ASKs, 9% is allocated to the North Atlantic traffic, and we, of course, continue to monitor the development extra carefully. Then speaking of customers, obviously, when the first half of '25 was overshadowed by complex CLA negotiations that led into severe disruptions, we faced, of course, declining NPS. But I'm extremely happy when I started to see already in September that the NPS is recovering very rapidly after we were capable of stabilizing the operation and continue to fly with the kind of recognized Finnair quality and safety and functionality. So therefore, in Q4, which is the most demanding winter season, the NPS among the total customer population of ours graded 33, which is a good result in network carriers global benchmark. And if and when I'll take the core customer perspective, that is the core of our new strategy among the top tiers of Finnair Plus frequent flyer program, we are actually currently trending above 40. And as you can see from the chart on the right-hand side, the number of passengers continue to grow by 2% year-over-year. Then also maybe related to the disruptions that we faced during the first half of '25, it's important to address that we haven't witnessed significant changes in the capacity market share in our core markets. So these 2 charts, in my opinion, provides a lot of information that our stronghold in Helsinki and our stronghold in the Europe-Asia traffic is holding extremely well, and we will continue to develop our market presence accordingly. And then with this slide, I try to capture the highlights of 2025. So basically, the year was split into 2, difficult first half because of the industrial action and associated disruptions that caused directly more approximately EUR 70 million of negative EBIT impact. And then of course, we were not capable of flying the ASK plan that we had planned for the first half, but ever since we got the CLA disruption behind us early July, we were capable of stabilizing the operation very quickly and actually then, started to implement our profitability improvement actions. And then towards -- through Q3 towards Q4, we improved the momentum and velocity and therefore, very happy with the result. Report a full year result of EUR 60 million in form of comparable EBIT. Unflown ticket liability also grew by some 7%, which is a good forward-looking indicator that how the ticket sales did develop during the fourth quarter. Pia will discuss this in more detail. And then on the right-hand side, on the bottom right-hand side, you can see that the Board of Directors yesterday decided to propose a EUR 0.09 capital return to be decided in the AGM held later in this quarter. But maybe with these words, I would leave it for Pia to discuss the financials in more detail. Pia Aaltonen-Forsell: Thank you, Turkka, and good afternoon, ladies and gentlemen. I just want to say a big thanks to our team, to our customers and to our partners. It's a great privilege to be able to present so strong quarterly figures, as Turkka said, on the back of a start of the year that was still very challenging on many fronts. I think we have ended the year on a very strong note. And therefore, I wanted to offer you a few sort of quarterly time series here with some comparisons on some of the key figures, just to sort of have that perspective. I'll start a bit with the top line and the revenue. As Turkka explained, we are in a market momentum in our key markets that's already a bit more positive. So we have seen some growth in the demand have seen some growth in our top line of about sort of 1% on a full year basis, which is pretty much equal to also, if you count in the wet leases, is how much we added to the capacity sort of holistically during the year. Please still keep in mind that due to the earlier strike situation, we did have cancellations, we have paid compensations, et cetera. Those all, of course, impact the top line as well. If I look at the quarter itself and especially, if I think about sort of the different parts of our business, maybe there's a few words still worth sort of mentioning. We have seen growth sort of through our different categories. So the ticket revenues, we've also seen this increase on the ancillary side. Ancillary is very important from our strategic perspective. The growth was not that fast during the quarter. The comparison period a year ago had a very strong campaign towards that end of the Q4 in '24. So that sort of impacts a little bit the comparison here, but we are still continuing on a good path. That is really important for us, I mean, already reaching over EUR 50 million impact per the quarter. And finally, cargo was sort of fairly stable in the period. Maybe those words are enough on the revenue side. Then let's turn our attention to the middle of the page, which is the graph on the operating profit. So the comparable operating profit to be exact. And you see our result was a stellar EUR 62 million for the fourth quarter. This is the strongest fourth quarter on record that we could find using the current accounting methods. And when you compare it to a year ago where we made EUR 48 million, we actually had a bit of strike impact, although it was EUR 5 million a year ago in the figures and none in this period. But from a cost perspective, there were a few external factors that are worth mentioning. I'll say first that we were supported year-on-year in the development by fuel prices and also a weaker dollar, that did bring us on a quarter-on-quarter comparison, maybe EUR 15 million of benefit. On the other hand, we also had higher sustainability regulation-related costs that's added more than EUR 10 million per quarter, as well as higher navigation and landing costs that also added about EUR 10 million per quarter. So the headwinds of these external factors were actually bigger than the tailwinds. Nonetheless, we still had a EUR 50 million uptick, and this came very much from somewhat higher sales, so we were growing, and we were able to do that in a good way also then sort of being able to use the scale benefits, have a good operational performance, and that helped us then to improve the result year-on-year. Finally, Turkka talked about the unflown ticket liability. I think that's a good sign of the momentum that we have right now that keeps on a stronger side, 7% increase sort of year-on-year. Of course, our business has a lot of seasonality. So you do see the quarterly variance here, but we are on a very good path. I have one more slide really from the profitability perspective. And I wanted to talk to you about revenue RASK and CASK, and just give still some perspectives into that development. I'll start on the revenue per available seat kilometer, the RASK key figure here. And many of the things that I mentioned before on the revenues obviously play in here. I think if you look at the sort of year-on-year development, we can say it's a bit of a sort of hanging in there, sort of making the best of the situation in a challenging year with the strikes, et cetera, during the first half. So clearly, there's been an impact out of that holistically. If we look at yields, I think it's worth still picking up on what Turkka also said, showing the geographical areas before. Though we see a positive development holistically year-on-year throughout Asia, particularly Japan has been a very important market for us, as Turkka said, we also see a good development in Europe if we look at the full year. But the North Atlantic traffic, that has been also from a yield perspective under pressure, and that's due to the sort of holistic situation that we face in that market, and I think that put a little bit of a lead or a little bit of a pressure here on our yield development. So kind of keeping all of that in mind, I still think we have a decent development through the year. On the cost side, the lower fuel costs are helping us, but those other higher regulatory costs as well as landing, navigation costs, et cetera, they all come through here. So you can still see that we've done a good job in mitigating some of the impact. And I think just looking from everything, there's also some seasonal variance. I take one example, maintenance cost. I think we managed really good in the fourth quarter. And obviously, sort of between the quarters, there could be a little bit of changes. I think we have also structurally made some changes as we are through '23, through '24, and a little bit in '25 also done some lease buyouts that are, to some extent, then shifting between the lines, the cost of maintenance. That does give me a nice bridge now to my final page, which is more on cash flow and balance sheet. So let's have a look there. Our cash flow was robust. Obviously, cash flow very much built on the operative performance, the result as well in itself. I think there's only one thing that I wanted to pick up from the cash flow side page here that you can see on the slide that you see on the left-hand side, and that is to explain that if you are keen on details, look sort of from our reporting a year ago, we had a bit of a reclass there on the credit card holdback that sort of boosted from a reporting perspective the figure in the year-on-year comparison. But I think sort of operationally, a good performance in this quarter. Let's talk a little bit about CapEx. Going forward, we do expect a CapEx amount, EUR 400 million to EUR 500 million per year. We are also guiding sort of about that midpoint for 2026. You can see that in 2025, we were coming towards a little bit lower figure. Actually, the gross CapEx was less than EUR 200 million. There was quite a lot of buyout still in this. It was a bit north of EUR 100 million, so lease buyouts, and there was also a EUR 64 million of sort of more maintenance-related CapEx and then some investments, for example, into digital, et cetera. So that was really what we were working with in '25. Looking into '26, this will increase a bit, aligned with the communication that we had on our CMD in November. And finally, it's good to end the year with a robust cash position and still with a good leverage, 1.8, and a good cash to sales ratio, as you can see in the chart to the right. So I think we have a good setup for starting to work into 2026. And on that note, Turkka, please, over to you. Turkka Kuusisto: Thank you, Pia. So to some extent, recapping what we said in connection with the Capital Markets update we held in the middle of November. The strategy is pretty much now centered around the customers and more specifically, core customers because the network setup that we have, have, of course, changed because of obvious reasons. But now after 3 fiscal years since the Russian airspace was closed, Finnair has now demonstrated that we can operate a profitable network carrier even though the Russian airspace is and most likely will remain closed for the time being. So therefore, we have highlighted the focus on traveling to and from Finland while continuously keeping in mind that we are still extremely important transfer carrier for international passengers who connect from Helsinki to European destinations, for instance. This Japanese example that I provided you with earlier is a concrete piece of evidence that we are very strong in Europe, Asia traffic even though the Russian airspace is closed. So the strategic priorities that we shared also with you a few months back pretty much now focus on further optimizing this rebalanced or repivoted network of ours and continuously searching for new route openings, for instance. At the same time, of course, taking good care of the safety, reliability and convenience and functionality of the operations that we run, which enables us to monetize on our commercials, providing more choice through modern retailing. And as you can see from our numbers that the revenue received or collected from the ancillary sales was more than EUR 50 million again during the fourth quarter. There was a bit of a hold or pause in the growth rate, but there is an item affecting the comparability because last year around, we did have a very extensive Avios points sales campaign, but what we continue to forecast is a very solid growth on the ancillary side. And then, of course, when we get a more intimate relationship with our customers, we can then extract the full benefit out of the Finnair Plus frequent flyer program. Then taking from the kind of this 30,000 feet to more grassroot level, concrete examples, we are opening 12 European destinations for the summer season 2026. And very exciting news, published a few weeks ago when we communicated that we will be opening a route from Helsinki via Bangkok to Melbourne. And while at the same time, adding this third daily flight from Helsinki to Bangkok, again to kind of strengthen our presence in the Far East Asia market. Of course, we continue to invest in addition to aircraft and the new fleet scheme into other areas as well. AI and digitalization and other technologies will influence significantly that how an airline like Finnair will be run, operated and led in the future. And we do have a lot of initiatives ongoing, where we can utilize the next-generation technology, be it fuel efficiency, route optimization, back-end processes and such. And speaking of digitalization, we will also continue to invest in the, let's say, digital footprint or digital experience of Finnair in form of new mobile applications, for instance, that will be launched later this year. And then as a maybe final remark from my side related to strategy and on the journey ahead. Of course, given the double crisis, maybe even the longer legacy when it comes to an organization undergoing a significant transformation. And then, of course, the CLA spring that we faced, we want to now invest with extra care when it comes to further developing the engagement, cultural development, leadership and also employee well-being at Finnair. And I was extremely positively maybe even surprised at how much our engagement score increased when we measured it last time in the midpoint of November and December. So it, again, gives us a lot of confidence that we have selected a right path. We are on the right journey with our colleagues that represent 5,800 kind of professionals across the entire organization. To kind of finalize the presentation phase, outlook and guidance provided today. We expect that the global air traffic will continue to grow 2026. We estimate that our total capacity measured by ASKs will grow approximately by 5% during 2026. And then, of course, when giving outlook and forward-looking statements, we continuously need to keep in mind the macro volatility, geopolitical tensions and also the fuel price volatility. But given all this, we are today estimating that our revenue for full year 2026 will be within a range of EUR 3.3 billion to EUR 3.4 billion, and the comparable operating result to be within a range from EUR 120 million up to EUR 190 million. So I guess that with these words, we will close to presentation and open for Q&A. Erkka Salonen: Yes, indeed. Thank you, Turkka. So now would be a convenient time for any questions you may have. Please follow the operator's instructions or use the chat function. Operator: [Operator Instructions] The next question comes from Jaakko Tyrvainen from SEB. Jaakko Tyrväinen: Sorry, I didn't hear the early part of the presentation, so if I'm repeating here. But could you give some color where you are about to play the capacity increase in '26? The point that it will be mainly Europe and Asia routes? Pia Aaltonen-Forsell: Yes, Jaakko. And I think maybe some of that was mentioned, but I think it's very well worth repeating. So of course, looking into Asia, we are further strengthening Japan with 3 more weekly routes during -- or weekly during the summer season. And as well, we have launched the Melbourne route from winter season of '26, and that will then also mean that we fly to Bangkok 3 times per day. So that's sort of the Asia part of it. And then when it comes to Europe, I think, for the summer season, we have launched quite a few sort of interesting destinations, if you are interested in Stavanger or Umea or Luxembourg, and there's plenty more there, all in all, 12 of them. So I think we have a plan that has already raised some attention and some interest, and that's what we are up to now. Jaakko Tyrväinen: Great. And then what about the competitive environment at the Helsinki Airport now that given that all the players should have kind of published their route plans for '26, how you're looking the upcoming competition for the start of the year? Turkka Kuusisto: Of course, competition is something that we will face on daily basis. This is a globally competitive business and sector. When it comes to Helsinki Airport specifically, we kind of knew that there might be an opening from Middle East to Helsinki. And therefore, we already actually -- we are one step ahead by introducing this third daily connection from Helsinki to Bangkok to mitigate the impact. And then at the same time, it's extremely important to put this into a context -- into context. Our traffic area, Middle East represents some 3% of our ASKs and revenues, and this specific route from Helsinki to Dubai, we fly it only during the winter season. So I wouldn't like to underestimate the impact, but I would kind of position it there for the time being rather insignificant, especially given the connectivity beyond Helsinki. So should one kind of arrive at Helsinki, 70% of the passengers will continue to somewhere else with our aircraft. Jaakko Tyrväinen: Excellent. Then if we think about the guidance and the EBIT version of it, if we exclude the industrial actions impact in '25, which factors are you seeing being the kind of the most important profit growth drivers for '26? Is it volume, pricing perhaps or costs? Pia Aaltonen-Forsell: Yes. Thanks, Jaakko. I think the volume part, the growth part here is an important driver. I mean we are seeing ASKs growing approximately 5% and you also see that in the top line guidance there, the EUR 3.3 billion to EUR 3.4 billion that we are expecting on the revenue side. So clearly, that's a big driver because that then also helps us to keep kind of spread the cost in many cases over sort of a bigger spectrum. But of course, we will need to keep the cost control, and we will also need to deliver on other parts of the strategy. That includes, for example, the ancillary sales, and that as well includes certain efforts that we are making in digitalization and AI that will also help us on the cost side. But it's more the growth and the revenue sort of in that context. Jaakko Tyrväinen: Good. And then the final one from my side. Did I get it right in your presentation that there will be further material inflation when it comes to traffic charges in '26? Pia Aaltonen-Forsell: At least in my presentation, Jaakko, the point I tried to make was to really describe the impact in '25, which even in the quarter was EUR 10 million per quarter. And I think there was a big sort of pressure sort of following COVID and the losses, of course, of many of these, let's say, national very regulated agencies. So at least sort of as far as I can see right now, many of those really step changes that were needed to sort of cover for history probably occurred during '25, but that doesn't mean that this is without inflation, but probably the big step change has occurred. Operator: The next question comes from Joonas Ilvonen from Evli. Joonas Ilvonen: It's Joonas from Evli. Congrats on very strong earnings. You already talked about the cost side of Q4. But could you elaborate a little bit? I mean when I look at your cost line items, is there anything to highlight there? I mean, lines like passenger and marketing as well as aircraft materials and overhaul? I think they were all like slightly lower than estimated. So would you say that this kind of so-called, as you said, solid operational execution, is it repeatable throughout 2026 as well? Because in my opinion, if you were able to be as successful in terms of cost over 2026, then you would have basically no trouble reaching the upper end of your EBIT guidance. So is there anything to like highlight? Or do you think how repeatable this kind of cost performance is? Pia Aaltonen-Forsell: Thank you, Joonas. I think 2025 saw many sort of particular challenges also when it comes to sort of maintaining the customer satisfaction when we had cancellations earlier and also kind of handling those situations. So I think we sort of came into a more normal environment then during Q4. So maybe there is room to say, yes, there is a bit of a sort of better situation that we have reached. I would, however, point out that when it comes to maintenance, so I see there is a little bit of sort of just timing topics, whether they occur in one quarter or in another. So I don't see that we structurally would have achieved a situation where we have lower maintenance cost. We are, of course, at the moment, still having an aging fleet. So that is one that I just think there were maybe more a bit of sort of quarterly variations. There is a structural change, but it only goes kind of in between lines because when we have bought more of the leasebacks, it means that some of the costs that were previously shown separately under sort of maintenance cost could now go into the depreciation line because some of the bigger overhauls would be treated as CapEx when they are to our own equipment. So there is a slight change, but that, of course, is not impacting the EBIT line as such. Joonas Ilvonen: All right. That's clear. And then about your revenue guidance, you already talked about this a bit. And you say you expect your capacity to grow 5% this year. But overall, I think your revenue guidance is -- I mean you expect quite robust growth. So to what extent beyond higher capacity do you expect passenger load factors and ticket prices to contribute to growth? Pia Aaltonen-Forsell: There is definitely -- just looking at the market environment and then the capacity growth in combination with our guidance, I think we are seeing some improvements in the load factor throughout the yield. And I don't want to comment on the yields in particularly. I just -- I think it's just good to sort of look at the full network that we have and the ability that we still have to boost Asia to some extent. So this sort of a mix thing is a good one to consider. Joonas Ilvonen: So you're basically still following the development of North Atlantic demand closely, but you're quite confident on Asia and Europe going to develop well also in 2026? Pia Aaltonen-Forsell: I think we have seen North Atlantic sort of continue kind of on the same path that we have seen before. But long term, we are still having capacity on those lines. And let's see when's that time for the changes. Operator: The next question comes from Pasi Vaisanen from Nordea. Pasi Väisänen: This is Pasi from Nordea. If I may start with this new route openings. So these new connections you have announced, are they supporting or kind of declining your average yield? I would assume that there are no easy wins available anymore. So how you are making the calculations for these new routes in terms of your kind of economical reasoning of the opening? Turkka Kuusisto: I guess time will tell what the yields will be eventually. But there is, of course, very diligent analysis behind when we are opening a new route. But especially the new openings in the Nordic region, we feel that there is currently a bit of a vacuum when it comes to providing regional flying from many of the Nordic destination to a Helsinki hub that then provides connectivity beyond Helsinki. Then when it comes to the Toronto route, that is a kind of a reopening for the summer season '26. And then this Bangkok-Melbourne route that we communicated, too early to tell. But of course, it's a combination of optimizing your yields and then also capturing new passengers or passenger flows to your entire network. So that's maybe something that we will revert to when we meet you for the next time. Pasi Väisänen: Yes, I see. And secondly then kind of looking at your investment program. So if you're now kind of buying new or kind of used planes in this spring, are these planes already included on your 5% capacity growth guidance on this year or not? Pia Aaltonen-Forsell: So we have a plan for growing capacity, and we have a plan of the CapEx as well, which is somewhere like around EUR 450 million for the year. And this is like sort of including also then the capacity increases. Of course, these are all plans and estimates at this point in time, but this is sort of how they hook together. Turkka Kuusisto: Yes. And it's always a combination of then maybe switching your balance from wet lease operation to your, let's say, new, although secondary acquired or secondhand acquired fleet. So therefore, again, too early to tell. Pasi Väisänen: Yes. But this investment guidance is in line with the 5% estimated capacity growth guidance for this year? Turkka Kuusisto: Yes. Yes, that's correct. Pasi Väisänen: Yes. And were there any kind of one-offs in last year, let's say, coming from the strikes or the accidents, which actually would kind of somehow be on comparable for the 5% increase on capacity on this year? Or is it on comparable basis excluding those one-offs? Pia Aaltonen-Forsell: I think it is on comparable basis. I mean, of course, the strikes impacted holistically the year including the top line. But I mean, we have reported the full figures and we still continue to fly throughout the year. Pasi Väisänen: Yes. And then when looking at your guidance for the full year in terms of operating profit, so kind of the fuel price is already up by 12% year-to-date on this year. So is this peak on the fuel costs also included on your full year guidance? Or have you made the kind of calculation regarding the end of December situation regarding the expected cost for fuel? Pia Aaltonen-Forsell: Yes. Pasi, we are updating a minimum once a week sort of the full view relating to kind of what's the current price, what's the forward curve, what's our hedging ratio. This is kind of the -- one of very important drivers for our profitability. So my answer is yes. I mean we are standing here now today with sort of very recent updates of how we view the year. But obviously, we also recognize that this is a big reason for fluctuation. That is why we have a range in our EBIT guidance. And that is also why we wanted to sort of even specify that, hey, if we see a 10% change in the fuel price, that would be like approximately EUR 34 million delta in the result sort of from where we stand today. Operator: The next question comes from Andrew Lobbenberg from Barclays. Andrew Lobbenberg: Yes, congratulations on good results in this quarter. Sorry, just to repeat, just to make sure I understand correctly from your last question. The 5% growth, that is on what was actually flown in '25? Or is it on what was originally planned? Pia Aaltonen-Forsell: It is what was actually flown, on what was actually flown. Yes. Andrew Lobbenberg: Yes. Good. And are you able to tell us what the percentage capacity changes by region, North Atlantic, Asia, domestic Europe, can you give us that for the year? Pia Aaltonen-Forsell: I don't have the percentages here for you, but based on the route openings and how we have described that, it's clear that there is more focus on Asia and then regionally within Europe. Andrew Lobbenberg: Is there any reduction on the North Atlantic? Or does it go up because you're adding Toronto? Or are you pulling down some of those frequencies that came in this year? Pia Aaltonen-Forsell: I don't think that we have any sort of significant pull-downs. Obviously, we are sort of constantly monitoring the load factors, et cetera. But Toronto is added as we have informed. But really, if I sort of look at the kind of the balanced picture of the world and where we are, there is then much more emphasis on the growth in Asia and in Europe. Andrew Lobbenberg: And that growth in Asia, that's 3 weekly frequencies to Japan, is that what you were saying? Or is it 3 routes? Pia Aaltonen-Forsell: Yes, from weekly frequencies. Turkka Kuusisto: The 3 additional weekly frequencies from Helsinki to Osaka. So after that addition, we have 28 weekly frequencies from Helsinki to Japan. Andrew Lobbenberg: Yes. Cool. And nothing changes otherwise, China, Korea, India? Turkka Kuusisto: No. No big changes. No. Andrew Lobbenberg: Yes. Okay. Then can I come back to the maintenance cost and the lease buybacks? Obviously, I should know this. But can you remind me how many aircraft in the year you bought back and how many were bought back in the fourth quarter? Pia Aaltonen-Forsell: I think there was 3 or 4, but none in the fourth quarter. So obviously, this is a cumulative approach from something that we also did already back in '24. Actually, we did most of the lease buybacks already back in '23. So that shouldn't like bring any more sort of a year-on-year change between '24 and '25, but it's all sort of building into the status that we have. Andrew Lobbenberg: And so there's no onetime effect from lease buybacks in the fourth quarter? Pia Aaltonen-Forsell: No, no, no. I wouldn't say so. But it's a structural change. If you look over time, you would see those sort of shifts from the maintenance to the depreciation, those sort of particular sort of maintenance activities. Andrew Lobbenberg: Yes, yes, yes. Makes sense. But when you did do them, did you have a onetime gain? Because other airlines recorded onetime gains releasing maintenance provisions. You have them, right? Pia Aaltonen-Forsell: So we have released maintenance provisions accordingly, but I don't think that had any significant impact during 2025. Andrew Lobbenberg: Despite doing 4 airplanes? Pia Aaltonen-Forsell: So these were -- if you look sort of across our fleet and the ones that we were doing, then my answer is no. It didn't have a significant impact. Andrew Lobbenberg: Okay. Because like Norwegian had a really big impact from it, but I guess there were newer, shinier planes. Pia Aaltonen-Forsell: Must have been shinier. Andrew Lobbenberg: And then I guess what I'd love is an update, and apologies, I also missed the start of the call and also perhaps, I'm just forgetting from the Capital Markets Day. Can you just remind us of what the status is of the fleet renewal on the mid-haul or short haul? Turkka Kuusisto: So if you are referring to the partial renewal of the narrow-body fleet. Andrew Lobbenberg: Exactly, yes. Turkka Kuusisto: Yes. Thank you. So we're still working with the project or program. And as I said, in connection with the CMU events that we want to run a very thorough and diligent process. And therefore, unfortunately, today, we are not yet in the position of disclosing news, but I would expect that during the weeks to come, we should be over the finish line. So I kindly ask for extra patience. Andrew Lobbenberg: Right. And is anything associated with that in your CapEx guide for this year in terms of deposit payments? Pia Aaltonen-Forsell: I think within that sort of EUR 400 million to EUR 500 million or EUR 450 million range that we have, I don't also have any sort of significant items relating to that. There could be something, but it's really more on this sort of shorter-term buying used or arranging so that we can use, used aircraft, et cetera, that we also spoke about in the CMU. There are sort of more -- that is kind of closer in time. Therefore, it's also including in our plans for this year as well as then the capacity increase for this year. Operator: [Operator Instructions] The next question comes from Kurt Hofmann from Air Transport World. Kurt Hofmann: Regarding Australia, it's quite an interesting move you do and as such, the route is quite an -- I can imagine, quite an investment. What are your expectations on this Australia route? And on the North Atlantic, do you see -- many of your colleagues see some uncertainty on the North Atlantic market. Do you see some overcapacity this coming summer and you have to adjust maybe the North Atlantic network? Turkka Kuusisto: So if I start with the North Atlantic traffic, of course, we follow the booking curve very diligently. And then if we need to react, I think that we are well positioned to fine-tune or optimize the weekly schedule to North America. So let's see. But too early to draw conclusions because we are still in the, let's say, the hot season of selling tickets to the summer season '26. When it comes to the Melbourne route, that is, of course, a new opening for Finnair, and it has received quite a lot of interest. Too early to tell that how the ticket sales or the booking curve will develop. I'm personally actually visiting Melbourne next week to strengthen the relationship. And it's also about the kind of tactics or activity that we wanted to do that we added this third daily connection from Helsinki to Bangkok. So it opens us an opportunity to -- with rather low risk level to test this avenue. And we are, of course, doing it with our oneworld partners to also attract kind of a shared interest. So let's see how it develops, but I find it as a fascinating opening. Kurt Hofmann: Yes, I fully agree. And you're one of only a few carriers, which is doing Australia from Europe. Regarding fleet, as the Qantas A330s, I remember from our last call, they will return in the future. What's your plans on the A330? You need all of them or you maybe phase them out, some of them because on the route network, the range is not enough to do more nonstops with them? Turkka Kuusisto: No, I guess that's, again, kind of a multifactor optimization exercise how the booking curve development will kind of develop towards the summer season. Then of course, A330s, as you know, are very good workhorses and the spare part availability is rather limited for the time being. So we might consider a hot spare. But then if the kind of the passenger volumes are developing according to our plan, then we will utilize it in our own flying. So we have multiple avenues to get benefit from the assets that will be returned from Qantas. Kurt Hofmann: Yes. Okay. And one topic as now you resized your last A350, do you think for a new order on wide-body aircraft for a future fleet, maybe, let's say, A330neos in the future or A350, you have to think about this as well? And when you need new narrow-bodies, how many new narrow-body aircraft you would need actually in the future? Turkka Kuusisto: Time will tell. We will now want to finalize this campaign that we are running when it comes to partial renewal of the narrow-body fleet. And as we've communicated, we have 15 aircraft, 5, A319s; and 10 A320s that are approaching the end of their life cycle. So that is the most urgent need. But then, of course, we need to take into consideration the projected market and passenger volume growth. So that will be kind of the equation through which -- by which we will then eventually decide that what's the size of the narrow-body fleet investment also quantity-wise. Then when it comes to wide-bodies, too early because we still have one incoming A350, which is a fantastic aircraft, especially in the current geopolitical situation. And as you mentioned by yourself, those 2, A330s that will be returned from Qantas to us, I think that we are well off now when it comes to wide-body capacity. Kurt Hofmann: Okay. Final question. If the airspace one day via Russia will open again, and we have for sure no signs at the moment, how fast you can react to restore flights again via Russia? Turkka Kuusisto: That's, of course, very complex question. So if I take the easiest part when it comes to day-to-day operations, that is, I guess, the most -- the quickest activity when you could get back to those 24-hour rotations. But then there are other big questions related to -- over flight rights, insurances and such. So quite a lot needs to happen on the, first, in the political field and then the system level before we can go into the operational level and then landing slots and what have you. But then from the operations standpoint, we are -- we can move very quickly, but quite a few steps must happen before running into the operational questions and the implementation plan. Kurt Hofmann: Thank you very much. That's from my side. And I think I will meet you soon in Helsinki in about 2 weeks. Erkka Salonen: It seems that there are no further questions, so we can conclude the call. Many thanks for joining, and have a nice day. Turkka Kuusisto: Thank you. Have a nice afternoon. Pia Aaltonen-Forsell: Thank you.
William Lee: All right. Good morning, everyone, and welcome to our interim results presentation. It's great to be back here in-person seeing you all. After -- I think, it's been informed -- quite a long gap. It's also very happy to be doing it on the back of a good set of H1 results, which always helps. So let's crack on and have a little look through these. In terms of structure -- actually, I'm going to go through in terms of some of the highlights. Marc is going to talk through the financials in more detail, and then I'm going to give some highlights before we do the Q&A on our progress against some of our strategic priorities. So first of all, positive news in terms of revenue with this real pickup that we saw in Q2. Still underlying quite mixed market conditions, two standby areas probably for us has been the demand from our customers who make the equipment, the semiconductor manufacturing equipment, and that's for our encoder product line and also significant interest from the defense industry, which is a more broader cross sector of products. Real significance, I think, for us, though, is not just the responding to the market conditions and the great job we do there, but it's actually on our emerging businesses and the progress that we are making. So these are the bets that we are placing, the investments that we're making for the future for the long term of Renishaw. And I'm going to go through with you later on some of the progress that we have made there. And thirdly, I just wanted to stress -- clearly, we are an organization. We pride ourselves in our investment in engineering, in R&D for our long-term growth. The output of that is what is key, and we have had some really significant new product launches recently, genuine excitement, particularly from our sales team on the opportunities that they now see for making the most of these. In terms of operating margin, improvements there despite currency headwinds, and we'll look through there. And actually, we're really looking forward to a strong revenue and profit growth for the year ahead, and we released our guidance for that. We have a little look through some of the key performance indicators and some of the themes coming through here. First of all, than the -- very much that strong growth coming through in Q2. As I said, some areas strong. Other areas such as our sales of machine tool sensors, CMM sensors, the machine tool builders, the CMM builders, they're still quite sluggish overall actually. But the -- the one we always talk about is the extreme is the German machine tool market, which is still quite challenging. In terms of operating margin and flow through on to the bottom line, then we have taken actions there to improve to support this. We had a GBP 20 million cost reduction exercise and also the closure of our drug delivery business, which has supported that margin development. Also as a business, we very much are focusing on cash and cash flow conversion of making sure we are making the most of the assets that we've invested in over the last few years. We have seen some pressure on that though. We have had the impact of restructuring costs on that number. And also, we are investing at the moment in working capital as we respond to the production demands of our customers. Okay, that's some of the highlights. I'm going to hand over to Marc now to go through the financial numbers. Marc Saunders: Great. Thank you, Will. So I'm going to start by looking at some of the highlights from our income statement. As well as I said, we've had a record first half with reported revenue growth at 7.1%, rising to 11.5% at constant currency. We've seen growth in all 3 segments, and we've also seen an improving order book in all 3 segments and also all 3 regions. When we look at regional revenue performance, however, the picture is a bit more mixed. So if we look at the Americas first, really strong growth here, 15% at reported rates -- more than 15%, more than 20% at constant currency. And that was driven by strong demand coming through for high-value capital equipment, so things like our additive manufacturing machines or 5-axis co-ordinate measuring machines. So that's been a real success there. This region has also benefited from around GBP 5 million of higher pricing and surcharging to offset tariff duties that were introduced during 2025. When we look at APAC, also a really strong performance here. So growth of more than 10% at reported rates, more than 15% at constant currency. And here, the key positives were rising demand from the semiconductor and electronics manufacturing equipment sector for our position encoders and also really good growth, really good demand for our Equator flexible gauge from the consumer electronics subcontract manufacturers. So that's the story in APAC. EMEA was a bit of a different picture. Here, turnover down around 5% at both reported and constant currency basis. We've been reporting some subdued demand here in the EMEA region for a little while and that continued throughout the first part of the half, but we did see a pickup in demand later in the period, and we ended the period with the order book stronger. We also implemented a new sales ERP system in September in some territories, and that did have an impact during the half. But hopefully, you can see from the Q2 versus Q1 performance, we've seen a real step up here in the region, it's actually the biggest step up of all of our regions from Q1 to Q2. So we're moving in the right direction there. On an operating profit level, an increase of 11.4% to GBP 57.5 million and an improved operating margin by 0.6 percentage points. The moving parts there, as Will has touched on currency in one direction, organic margin improvement and another more of that in just a moment. But when we look at the income statement, perhaps the most notable thing you'll see is an 8.5% reduction in our gross engineering costs, which reflects some of the cost reduction actions that we've taken in the last 6 months. Operating -- sorry, profit before tax grew by a similar amount, 11.5% to GBP 64.1. Effective tax rate in the period was 21.1% at reported rates rising to 21.8% on an adjusted basis, and that's perhaps more representative of what we expect to see coming through in H2. And then finally, our dividend payment remains unchanged at 16.8p. Right, let's take a look at the operating margin evolution, and I'm comparing now the first half of the prior year with the first half of this year. So we're starting with 15.1% that we reported last year. And on the left-hand side of this bridge, you can see the external headwinds that we face largely from currency, but then being offset by the organic margin improvement we've generated through cost reduction and operating leverage. Starting with currency, that's been a headwind for us for some years now. We've seen progressive weakening of the U.S. dollar and the Japanese yen against sterling over several years. And we are exposed, of course, to this currency fluctuations because many of our costs are in sterling. Most of our revenues are in other currencies. And so we seek to manage that through the use of hedging contracts, forward currency contracts over 24 months. And over the last few years, our contracts have done a good job in helping to offset some of the movements we've seen on a year-to-year basis. And indeed, last year, when we looked at the prior year, we saw a particularly strong performance from our contracts and that was as a result of us taking them out at the time when sterling was much weaker than it is today. So they paid out handsomely last year. That has not been repeated to the same extent, but when we look at this year, our contracts have still done a good job, raising about GBP 5 million of revenue to offset roughly GBP 5.2 million of operating margin change as a result of moving exchange rates. But overall, when we wrap that up, we've got GBP 8 million less in currency income, in contract income, GBP 5.2 million of movement in currency, so GBP 13.2 million, 3.6 percentage points of margin. So a significant headwind. With tariffs, that's impacted our revenues by around 1.4%, but had no impact on operating profit, and as a result, has had a small degradating -- degrading effect on operating margin. Moving to the positive side of the equation. Cost reduction. Will mentioned, we ran two cost reduction programs over the last year, a company-wide operating cost reduction initiative aiming to remove GBP 20 million of cost from our run rate on an annualized basis. And we also closed down the loss-making drug delivery aspect of our neurological business, aiming to save around GBP 3 million on an annualized basis. Pleased to say those savings have started to come through. The combined impact of those programs has been roughly a 7% headcount reduction for us at a group level to just below 5,000 employees at the end of December. And we've seen GBP 9 million of savings coming through, so 2.4 percentage points in the first half, and we expect to achieve that GBP 23 million of annualized savings on an ongoing basis here forward. So that's coming through as planned. The other side of it has been operating leverage. So we've generated an 11.5% constant currency growth in the period. That has resulted, obviously, in more gross profit, which is more than offset inflationary pressures that we've seen in our cost base around things like pay benefits, health insurance. All right. So that's the margin story. I'm going to now just walk through each of the 3 segment performances for you, starting with Industrial Metrology, our biggest segment. So here, the story is solid revenue performance growth of 4.3%, rising to 8.8% on a constant currency basis. The growth drivers here were our emerging systems and software businesses. So these are our 5-axis co-ordinate measuring machines, our flexible gauges and metrology software that supports both of those products and helped use us to make the most of them. It's really pleasing to see growth in this area. These are emerging businesses, and we're really targeting top line growth. And here is a key part of our growth strategy. So it's really pleasing to see that coming through. Another success story here is our calibration products. This is an established product line, and we've seen growing demand here, particularly coming from the semiconductor and electronics manufacturing sector. So those machine builders actually use our calibration products in their factories to help them to make and pass off their machines. So we've seen rising demand coming from there as activity levels have risen. By contrast, we've seen flat sales for the sensor part of this segment. So that's our co-ordinate measuring machines, machine tool probes and also the styli and accessories that go with them. So that's been flat overall, some high points in Asia, in consumer electronics, but weaker general demand in -- particularly in Europe and particularly in the automotive sector. So when we look at the operating performance of this business, it's roughly flat in margin terms. We saw essentially currency headwinds being pretty much offset by the combination of cost saving and operating leverage, but we ended up at pretty much the same operating margin. Let's move on to Position Measurements or our other large segment. This did strong growth in the period. So we saw 7.4% rising to more than -- yes nearly 12% sorry, at a constant currency basis. And this was something of a game of two halves. We definitely saw a really notable pickup in this business in the second quarter. And we've got great momentum going into second half. The drivers of growth here were strong performances from our established open optical and magnetic encoder businesses. We've mentioned semiconductor and electronics manufacturing equipment. That's been a key driver. But actually, we've also seen strong demand from general factory automation and robotics, particularly for the magnetic encoded line. By contrast laser encoders have seen a reduction compared to a really abnormally strong period in the prior year. These are used in front-end semi and wafer inspection. And yes, we had an abnormally strong comparator to go against. But we're actually really confident in the long-term future of this business. We think this is volatility rather than a trend. We've seen rising order book, and we've launched new products in this area. So we're really confident about the long-term prospects. When we look at operating performance, we've seen similar effects that we saw in the Metrology business. So currency headwinds offset by cost savings to an extent, but here, the product mix change has been quite significant in this period comparator. So we've reduced by about 4 percentage points up to 23.4%. So still a strong for operating performance here. And I think the more meaningful comparison to take is if you look at the comparison against the whole of last year, which was 22.5%. So the first half really was a bit of an abnormal period. So we've got good momentum here, good top line growth and improving underlying margins. Finally, Specialized Tech. So the smaller segment, but the one that's grown the fastest in this period. So growth of more than 25% at a constant currency basis. So really strong growth. And that has been almost largely coming from our Additive Manufacturing business within here. So we have a strategy here of selling to key accounts, and we've seen many of those adding to their fleet of machines as they ramp up production. But we're also targeting new customers, and we've seen quite a lot of those coming in, in this period, and we've seen particularly strong demand from both new and existing customers in the aerospace and defense sector. That's been the notable change in demand in the period. Spectroscopy down slightly, slightly stronger in America, slightly weaker elsewhere, but we've seen good order momentum on that recently, normally has a stronger H2. So looking forward to that this year. And in neurological, that's the smallest part of this product group, and the key sort of thing here is that we completed the closure of the loss-making drug delivery aspect in the period. So when we wrap all of that up and look at the moving parts on margin, we can see a real step change in performance here, 22 percentage points of margin improvement. We're now just short of breakeven on this segment. The moving parts there, yes, currency, again, slightly less proportionately than the others because of slightly different regional sales patterns. We've seen cost reduction, obviously, coming through with both the company-wide program and the focused drug delivery activity. But the large majority of the margin improvement coming through here is from operating leverage with the growing AM business. So that's been the key driver of margin improvement. Right, lastly from me, just a quick look at return on capital and cash generation. So we focus on return on invested capital to make sure that we're allocating resources to profitable investments. We saw an improvement here to 13.2%, so 0.6 percentage points. We have a target of 15%. So clearly, we have some way to go. And the way we're going to get there is by driving our operating margins, but up to our target range and also keeping a lid on investment in capital. We have had a period of higher investment in recent years in property. That's now behind us, and we're operating at a lower level of CapEx. So in the first half, CapEx was GBP 17 million, and we're expecting to run at a rate of about GBP 40 million for the year as a whole, and that's focused mainly on plant and equipment to support capacity and productivity growth. And that's part of the cash generation story. The other side is working capital. We have ramped up working capital in the period. Obviously, we've seen a bit of an inflection in demand in Q2 and that's triggered us, obviously, to increase our production rate, drawing in more piece balls, more work in progress, et cetera. So that has -- we've seen that during the period. So our cash conversion overall is just below our target at 68%, but we think we're doing all the right things here in terms of keeping a lid on CapEx and making sure we're supporting growth with our balance sheet. Finally, our cash balances, currently just over GBP 240 million at the end of the period, so down compared to the summer, and this reflects the outflows that we've seen on the cost reduction activities, on working capital and on the dividend payment in respect of H2 last year. All right. I think that's enough for me. I'll hand back to Will. William Lee: Lovely. Thank you very much, Marc. So, as I said, I'd like to now talk through some of our strategic priorities and a little bit of a look more into the future. And I'm going to focus on the first 3 of these because I think the cash generation and ROIC, we have already touched on. So the first area here is the key strategy for us, which we've always talked about of long-term growth through product innovation. It's our key overriding strategy. To set the scene for this. I just want to reflect back firstly, on our long-term value creation model, something we've shared and many of you will be familiar with. Just to go through, if we look on the left here, then we can see that the markets that we operate in, that GBP 6 billion addressable market, and really most importantly, the fact that they are favorable markets that we think on average, are growing by more than 5% a year. You can see the drivers in the 4 boxes around the addressable market. What we've seen recently probably is acceleration here, all the news on AI and the data centers there really feels like it's accelerating the growth from the electrification area there. We are certainly seeing, I think, continued acceleration of our customers also looking at the adoption of the automation and so had to automate processes right across from machining to metrology, but for a range of things there. And we're also seeing probably a broader one, which maybe cuts across slightly differently with all these of the expenditure on defense. And it's really how do we help customers there with manufacturing agility, ramp-ups, new technologies to go in there. So positives, some changes going on there from our market. The key bit for us then is how do we outperform. And on the top right, you can see those 3 key themes. So the first is growing in existing markets. This is how do we sell more sensor technology normally to the machine tool -- the machine builders around the world, whether that is semiconductor or machine tool. And we'll also talk -- we'll often talk about this in terms of the number of dollars we get per machine tool spend or sold for the machine tool industry, for example. Next, increasing technology value is about us selling the increasingly complicated systems. So capital goods together with the software to enable them. And then thirdly is looking in terms of moving into new markets. And to be clear, this is very close adjacent to new markets to where we are already operating. With all of these, the innovation side being disruptive, having the USPs is absolutely key for us to succeed and give our sales teams around the world, the strongest advantage that we can. I'm really pleased that actually, despite reducing engineering expenditure, what we are seeing is a really strong pipeline of products that we have recently launched. And also, we've got a really healthy pipeline of products to come through for the future. I just want to highlight a few that are kind of really key for our strategy and for our success. So if we first will look at Industrial Metrology, we've had a really strong reception for the Equator-X and MODUS IM Equator software that goes with it. Equator-X brings very high-speed measurement to the shop floor, and it does it without the need for a master part to compare with. So our customers immediately get the benefit that it brings. The real enabler with it is the software, which dramatically deskills the level of knowledge needed to be able to program the device. So what we have with the combination of these two is, amazing performance on the shop floor, Metrology where you need it at the point of manufacture and also far simpler for our customers to deploy and far more flexible in terms of the range of different parts that they can measure. This is really key for us. You can see there's excitement from our existing sales team all around the world and what they can do with the customers that liked our existing products but need this. But there's also excitement in terms of the new routes to market that we can open up. So people who are selling already a machining and manufacturing solution where this can be a part of it, they can own it and they can sell it. So a lot going on there and a lot to do. From position measurement, Marc talked earlier about -- with our laser encoder product line being sold into the wafer inspection, the great thing here is this is always a market where the challenges of the next generation of wafer technology is getting smaller, these customers always have really tough metrology challenges. And we've really stepped forward with our next generation of laser encoder in terms of the performance that we are now giving to those customers. Again, had a chance to meet some of them recently, really positive on the relationship that we have with them. ASTRiA, we have talked about. So this is actually a new area for us using inductive. Again, it's been really well received by the market in terms of the metrology performance that it delivers. And then finally, from a specialized technology point of view, Strada is our new Raman instrument. And Raman traditionally is an instrument used for the Raman expert in the Raman map who will do things. Strada is designed to simplify. It automates the Raman process from a hardware, dramatically simplifies the software. So it's Raman for the non-Raman person. So if you want to solve a problem, you can do it with this, you don't need to know anything about the technology that is inside. So this has opened up different opportunities, different markets for us with Raman. And finally, LIBERTAS is new software that we have launched to go with our Additive Manufacturing business. So what this does is, when you are making a part additively, you have to put in supports to hold it in place? And what LIBERTAS does is by doing very clever novel scanning strategies dramatically reduces the number of supports that you need. So what this does is it speeds up the cycle time. You don't have to build these supports, you save time. You save waste because you're not processing the material. And you also save post processing time because there's a lot less than the support material to remove after the build. So it's pushing forward the productivity of our machine for our customers. What it also does actually is really improve. The tricky service on additive part is the bottom and the surface finish of that with our new software is really noticeably moved and a step change in performance there. This was really well received by a number of our customers. So a strong healthy product launches there, much more to come in the future. So while we absolutely see that our future is the growth, what we've been clear on and talked to you about is making sure that the business is as focused and as lean as it can be to support that growth. If we look at the initiatives that we have going forward, then in terms of this graph, you can see that, I guess, Marc earlier brought this up in terms of the 15.7% that we ended up with this half year now that we've just announced them. For the rest of this year, we still see continuing to have some currency headwinds, some benefit from the cost reduction program and then actually the flow-through of the margin from the revenue development taking us up to our end of year results. The interesting bit really is going forward, we set ourselves targets on this. Some of that will be achieved by the revenue flow in the future of looking at the growth strategy -- that innovation that growth strategy, but the other bit is on the development on productivity across the group. We're in early stages on this. I guess we've already done some activities, which we talked about, we are very much now in the planning stage of what are the best opportunities that we have as a business going through that and then working on the program to deploy that. So when we're back up here for Capital Markets Day in June, it's going to be a great chance to update you in more detail on those plans and what we intend to do. And thirdly, I want to spend a little bit of time on the emerging businesses. As I highlighted at the start, I think, overall, this is the bit that is the most encouraging for me with the developments that we have seen here. So right across the board on our different reporting segments, we have emerging businesses. What we have looked at here over the last several years, there's quite a bit of work and focus on these areas. And you all have seen, if you've been monitoring for a while that some of these businesses are ones that we have divested or closed. Some of them are ones that we've had for a while, but we've made quite significant strategic changes on them. And those ones, I would classify as the Metrology, CMM and gauging systems and Additive Manufacturing that both had and in some respects, quite a similar of really focusing down, understanding what our differentiators are targeting key customers and making sure we are very clear what we are about. And it's been great to see both of them really starting to do well. Additive, in particular, this time that strategy of focusing on customers with volume opportunity focusing on a highly productive single-sized machine is really starting to pay dividends. And what we're now seeing is a repeat orders coming through, both from actually the customers that we talked about in the past, whether that's of the medical that we talk about, but it's really also being accelerated now with interest and customers in defense, understanding the opportunities that Additive gives for them. Now what we also did when we exited from some of the businesses that we didn't feel were going to meet the criteria for what we wanted for the long term of the business was we did pick out some of the best areas of innovation that we felt we had across the group and tried to accelerate those. And as Marc talked about when he was talking about the position measurement both in closed optical encoders, really starting to go well. But I think that for me, the star here is definitely on the inductive encoders, FORTiS, I talked about it in the innovation. We went -- we've launched this as our MVP of saying we're just going to do one size. We're going to get it out. We're going to really hit the deadlines. The team did a fantastic job of doing it. The feedback from customers, the metrology is superb, the ease of use is superb. And now we have customers saying that they really want to switch over to our technology, design us on the existing platforms and designs us on new platforms. Now this is designed for a broad range of industries. The one at the moment where it feels like it's hitting the sweet spot is on the defense industry. We have actually recently decision that we need to invest more from an engineering and a manufacturing point of view to make the most of the immediate opportunities that we have here. These businesses all take time to come through, but this is one that feels like it is working at a different pace to what we are used to. Really important for us. I mean we're talking through with the team internally, moving these emerging businesses through into established is key. We have a lot of exciting R&D going on for the future, some of which is going to power existing businesses, but some of it is the new emerging businesses of the future. So we need to make space for it to come through so we can invest in it by migrating some at the moment. So lots of positivity going forward. But with us, there's always the uncertainty in the markets that we operate in, but we certainly feel like we have momentum going into H2. And I'm really pleased to give a positive revenue and profit trading guidance for the year ahead. Thank you very much. We now have time for Q&A, which is great to be doing in person. Lacie Midgley: Will and Marc, it's Lacie Midgley here from Bloomberg Intelligence. Just a couple for me. First, I guess, on the China strategy. At the full year, we talked a little bit about the entry-level market there, perhaps kind of looking at lower-priced alternatives to some of your core products. I know we're not quite -- we're not far on from the full year in that description, but is there any update on the strategy there and how that's evolved and any progress you can update us on? William Lee: Yes, certainly. So I think -- I'm just trying to think back to exactly what we said at full year, but certainly, what we are looking at now is, we have certain products which are established, but we can tweak and adjust so that they are limited in performance for an entry-level China market, so where we can target and go after business at a lower price to the customer. We're doing that in a quite a limited way in testing things out. So that's very specific. We're also getting the innovation engine and it's interesting here, particularly probably on some of the more sensor technology side of the business. The innovation engine has come up with some really good ideas on stripping manufacturing costs and simple designs, particularly encoders there is some really quite exciting stuff for the future coming through that allows us to target the entry-level market at a different price point. Now people always worry about this in terms of what does that mean in terms of threat of the different areas. But actually, this is stuff which is designed such that it's only suitable for entry level. What we always see in things like the encoder market is things gradually moving on. So some areas will become more commoditized and as that happens, we'll have new opportunities elsewhere, so... Lacie Midgley: That's really helpful. And on Additive Manufacturing, I mean it's clearly moving in the right direction, which is great to see. I think these are obviously much bigger ticket items for you. So not many are going to be needed to kind of move that specialized technologies aisle. I mean you talked to the defense customers. But in terms of size, are these smaller end users? I'm just trying to think about how significant the move is there? How quickly we get to that becoming an established business? And Is this about kind of expanding AM usage and really embedding the technology with your existing customers? Or is it growing the base and new customers, I think you've talked to both of those, but a bit of extra color on that would be helpful. William Lee: Yes, I think both of those are key. And often, we'll try and say, look, we're focusing on existing customers and repeat business and not doing too much and then new customers will come along. So absolutely, we're targeting existing and new. Size of the customers can range from really large to far more dedicated specialists supplying into industries. I think the most important bit across the board on this is people embracing and understanding the benefits designing for AM and showing them to their customers that this is the advantage you can get and what we can do for you now with this. So it feels like for a long time, and we've had this on machine tool pros, we had it on Equators, we had it on the ballbar product in calibration of us doing the marketing. Once the customer starts saying, this is what it can do, things start to really accelerate. There will, for sure, be ups and downs on that journey. As you say, with big ticket items, it doesn't take that much to change. It's also different for us from a manufacturing point of view, ramping up with encoders is somewhat different to ramping up with the scale and complexity of an AM machine. Mark Jones: Mark Davies Jones at Stifel. A couple of things, please. Firstly, slightly longer-term question, but obviously, it's frustrating in some ways to see all the good organic progress and profitability eaten up by FX and I'm not going to ask you about hedging strategy, but more about the cost space. I mean you are unusual in having so much of your R&D and manufacturing located in the home market rather than pushing that out into the regions. Is there any change in the thinking about that? Or do you think that's caught your ability to sort of control the technology go-to-market? William Lee: Yes. That's a very good question and one that we are considering at the moment. My honest though, is probably the reason that we would be moving any manufacturing would be for geopolitical access reasons. Because honestly, as we have things in terms of single point of manufacture, areas, we feel is extremely efficient. So we are -- this is one of our strategy decision topics of what we should be doing and are there certain products? It could be some of the stuff that was tied in with the question on low cost, which are ones that we decide we make further afield. I don't think we'd be doing this to try and -- the primary reason for doing this would not be to give ourselves more stability from a currency point of view. It would be a nice benefit from it. Mark Jones: Okay. And just a little one. I won't ask you about share buybacks because you can't say anything. And given the strength of the numbers and the strength of the balance sheet, is a flat dividend a bit mean? Is there some sort of reweighting to your thinking around that? William Lee: So we target a dividend cover of 2. And if you look at the midpoint on the profit for the end of the year, then this would give us that with a flat divi. Clearly, I guess we have an optimism around the business, but it is 1 quarter that things have happened, we don't want everyone to get carried away. So just, I guess, that the -- probably the fuller answer to that is on a capital allocation point of view, this is more of a strategic question for us to go through as a Board of thinking of how we want to run the business and use that cash or return that cash. So that's the bigger question for the future, not addressed by a divi really. Richard Paige: It's Richard Paige from Deutsche Numis. Two from me as well, please. On the defense, it sounds as though -- I may have been getting this wrong, but your growth is going to be ahead of the market. There's new applications that -- or new customers you're winning within that. Can you just elaborate on sort of end use within the defense market? William Lee: Yes, really broad. So we will have -- so ASTRiA, we talked about, which will be something that defense customers could integrate. Additive Manufacturing can be something that parts can be made with versus a lot of indirect stuff probably through machine tool, CMM builders and et cetera, which will allow the metrology and the precision of both machine parts needed for going into defense. So direct and indirect, a real mixture there. In terms of where we are on investment curves, I'm not sure that we really know, to be honest. Richard Paige: And the other word that normally goes with defense, aerospace, we haven't spoken about it much here, but obviously, with the industry ramp and so forth, expect that to be a reasonably strong area of demand for you as well? William Lee: Yes, I'm not sure exactly what our aerospace numbers are at the moment, but it's not... Marc Saunders: I would say that's probably we're seeing that coming through with our AGILITY sales, particularly in the Americas. That's -- we've got a lot of key customers that are in the aero engine sector in particular, but also airframe to a lesser extent. So that's been a driver of performance more recently in the nondefense element of A&D, although obviously, there's some overlap there in the engine business, they tend to serve both sectors. William Lee: I think one key when you're thinking about Additive Manufacturing, and I think this is a good thing for all of us. But if you're working with an aerospace, there is an awful lot of checking balances, review. So it's a very long development time that you're working with a customer before you get sales. Defense is far quicker on things that maybe don't have as long a lifetime. Marc Saunders: And perhaps if I could just add as well, I think there's quite a lot of new business formation going on at the moment in some of the later -- the more recent platforms that are being developed for modern warfare. There's new players entering the business, and we're seeing some of that within our customer base as well as repeat business coming from established customers. Bruno Gjani: It's Bruno Gjani from UBS. Just because we were on that defense topic, I just have a small follow-up. When you mentioned on the inductive encoder side that you were winning some customers and you were now being spec-ed in on some new accounts, does that specifically relate to defense? Because if that's the case, I was wondering whether if now you're being spec-ed in, you could actually see a material rise within that product line? Or how are you sort of thinking about that component? William Lee: Yes, this is still small. We have one size of ASTRiA at the moment. And it's great with the customers. They love it. But suddenly, it's okay, I need this size and I need this size and I need this size, which does create some engineering and manufacturing work. So, yes, that's going to be a positive. It's quick in our terms that we think for encoder business development, but it's still not going to have a material impact in the next year or so. Bruno Gjani: Understood. And it reads as if the emerging product line businesses were really strong within the half and the quarter. I was just wondering if there was any way you could maybe roughly quantify the contribution to growth from those emerging products or might not be? William Lee: I think probably at the moment, I think, take the positivity, but probably we're better off keeping it just the reporting segments that we have. Bruno Gjani: Understood. Were there any subtle differences in terms -- the order trends that were really encouraging or sort of read to be really encouraging ahead of revenue growing really well, the order book was growing. Were there any subtle differences within what you observed in order intake, particularly as it relates maybe to Q2? So for example, I'm thinking of you called out machine sensor as being actually quite flat in the half. Did you see any sort of pickup on the order intake side there that's worthy of calling out or not really? It's sort of similar drivers to revenue? Marc Saunders: Not worth calling out, I would say, on the machine tool sensors. Yes, the places that we saw the stronger growth were also the places that the revenue picked up. There's a strong correlation there. So additive and position measurement into semi, those were probably the highlights. But generally, automation demand for the wider position encoder business as well. Bruno Gjani: And just a final one that I was sort of wondering on is on laser encoders in terms of the mix headwind in the first half, what I wanted to get a sense of is whether the mix in the first half is abnormally low within laser encoders and therefore, there's a potential for that to grow in the coming, say, 12 to 24 months? Or was it that the mix in the first half of last year was abnormally high and actually we're at a normal level today? Marc Saunders: No, the latter is more the case. So it was an exceptional period in the prior year. I'd say the laser encoder product line has been a real success story for us over the last sort of 10 years or so. And we have a strong niche position in wafer inspection. And that is obviously tied to front-end semi and the trends in that market look decent at the moment. So -- and we've seen rising order book. So we're optimistic that if you look through the perturbation of the prior year, there's a nice growth story here. Mark Jones: Sorry, can I do a couple more? Defense, I don't remember being in your sort of breakdown of end markets being a big chunk in prior years. So could you give some sort of sense of the scale of that for you? I know it's tricky with your routes to market. William Lee: Yes. I think we normally talk about 5%. It feels like that's creeping up at the moment. And it's probably being quite impactful in certain areas that we've talked about. Marc Saunders: So it normally sits within what we call -- I mean, aerospace normally is where defense sits. We just -- we haven't called it A&D and perhaps we should. But the bulk of that historically has been civil. But yes, the defense proportion of that is rising. And as a share of the total, it feels like it's increasing overall as well as other segments so, yes less buoyant. Mark Jones: Okay. And the other one is you talked about geopolitical considerations in where you put your manufacturing. How about where your customers do? There's been all this talk about kind of reshoring and much less evidence of it actually driving investment. Are you seeing any of that coming through? William Lee: I think it's really hard to say. What we are certainly seeing is some of our customers where we would have shipped product to a certain country now saying, okay, actually, over the next 6 months, we are migrating manufacturing to a different area. Some of that's going the other way. So that's countries moving out actually. So -- and then there's a broadening in other areas. So it's actually quite complicated. We met with some of the electronics equipment manufacturers recently. And I think we probably need to understand a little bit more about why they are going to certain areas and what those trends are going to be. And for us, that doesn't matter much because we'll do the work with the design teams and then it tends to be just where we deliver the products to. Mark Jones: No, I guess I was also looking at the strength in the U.S. And is that -- do you think more product specific than market? William Lee: I think that is -- there's a good capital investment going on there at the moment. Again, probably some of the underlying manufacturing with the component side of it is maybe less. And we see some things going in, some things going out. So clearly, if you're a manufacturer that's going to be exporting, making stuff in the U.S., you may decide you're better off not making it there, which we have seen. Much of the complaints of our U.S. team. They're doing all the work and then moving the business to a... Harry Philips: It's Harry Philips from Peel Hunt. Just one question, please, on the order book. You talk a lot about the order book in the statement, but obviously didn't give us a number. So I'm assuming it's reasonably short cycle. I mean, in terms of the book-to-bill, given the revenue growth you've had in the period, can you at least give us an idea of where the book-to-bill might be against that? And then is it -- would it be right to assume that the order book is reasonably short cycle, maybe Additive Manufacturing apart or is that not? William Lee: It's not and it is. I think the one thing we would always put in as a caveat. So you're right with the Additive. On encoder, what we will see is when our customers start to get more stressed because they really think they've got orders coming through and they often don't find out until the last minute, they will start to put on call off orders and they'll give us a 12-month, 18-month order with predicted volumes, which will go on to our order book. Then they will cancel that extremely quickly if they change their mind, but they will also show it when they want to double that. So it's -- we look at the order book and it gives us a feeling, but you can't rely on it either. Marc Saunders: We know that some of it will be -- will melt away. Harry Philips: I mean just precisely on that point, I suppose twofold is does that heat, if you like, give you a window around pricing? I mean, if you get extreme demands in terms of potential demand -- I suspect you don't want to sort of mess up online, but -- and then the second is how you plan your manufacturing around that? Because clearly, if you sort of responded directly to those order flows, you could load your cost base. And then as you say, if you then get a cancellation, you're left with sort of stranded cost type stuff. So how do you sort of -- what's the very sure way of interpreting that sort of front end into manufacturing curve? William Lee: You say smooth as though it's anything but -- and normally when these things happen. So clearly, we're trying to work on very uncertain data, and we talk about many things, even if there's investment going in, the end customer may not decide on which supplier they want to use. Those suppliers may all be using our encoders somewhere, but they may be using different encoders from us. So you can't even say, okay, we know it's going to come. Let's make this because then this customer gets it and they want something different. With us, it is just trying to make sure as much as possible long-term strategy is migrate customers to our latest technology. That's far more designed for automated assembly, so we can ramp up and then it's supply chain holding up for us to be able to respond. Safety stocks and when we look at it in terms of our invested capital, we are high there because we know this happens in the markets that we operate in, we have to deal with that. So -- and then there's just a lot of panic that goes on to try and make everything happen as quickly as it can. It is on the more commoditized stuff and quite complicated of understanding because often we'll be -- we may even be dual sourced. So it's us and a competitor are both designed into a product and then it may be then who can supply better, quicker and whatever else. Marc Saunders: I'll just add, we are also increasing our use of temporary labor in some parts of the supply chain for things like cables for encoders, which are -- there's a lot of them to be made, and we use more temporary labor in our plants in India. William Lee: Do you want to go first and then you've got... Unknown Analyst: Just have a quick follow-up -- not a follow-up, but a question on ERP. Could you perhaps provide an update in regards to how that's planning out in terms of phasing, strategy, sort of key milestones to come? William Lee: Yes, we can. So it's certainly been a challenge. We have -- having done a small -- our Canadian office, which went relatively smoothly. We've now done our most complicated U.K. center. We experienced an awful lot of challenges. I think it's fair to say we are through the worst of that now, but we still have a number of challenges that we want to make sure it are resolved and working smoothly before we roll this out further with Germany being our next company that will transfer over to D365. So yes, it has not been a pleasant experience and a lot of lessons have been learned. Unknown Analyst: On the tool builder market. It sounds as if Europe has been soft for a while. I was just wondering whether you're seeing any signs of green shoots as it relates to German stimulus spending in '26 and beyond? Or are those not apparent yet? William Lee: The last conversation I had was back at the end of last year with the head of a German machine tool company, and they were talking about this being a 5-year recession like they saw back in the '90s of a really tough time. I didn't think it was going to get any worse. it's really tough over there, domestic market, export market. It's -- and I think as we talked about, we've seen some of them being taken over. So yes, it's tough. Unknown Analyst: Lastly, could we touch maybe upon humanoids? There are some companies in the market, sort of traditional industrial companies with, let's say, less expertise in automation and robotics that have been talking about this quite a lot, and the financial market has rewarded them for it. Do you have a suitable product today that could serve that market? Do you have any existing relationships with humanoid OEMs? And do you view it as a potential opportunity, say, over the next 5 to 10 years? William Lee: Okay. So I thought the first thing is are we going to do a humanoid robot, which would be easy? No, no. We are definitely not going to do that. So the bit we are talking with some people around here is on the encoder, the retro encoder technology. In our view, probably this is going to end up being a quite commoditized low-end market and the price point they'll be looking at is not going to be attractive, and we've got better opportunities to go after. So it's something we look at, we'll monitor, but I don't see it being significant for us. Unknown Analyst: Rich Hill from Jefferies. I just a couple of questions just looking at margins. Looking at Position Measurement, obviously, you had one of the largest margin movements kind of out in the division. Just wanted to ask, you kind of talked about FX and the mix. Just whether there's anything else in there, perhaps more costs falling in there comparatively. And I guess to Bruno's question earlier with it perhaps normalizing, just how you kind of see that in the second half, whether kind of that bit of growth in the order book for the laser encoders will kind of offset it a little bit for the second half? Marc Saunders: I'll take that. Yes. So I mean, I don't think we see anything sort of particularly different in terms of sort of cost base escalation going on in there. We did reduce costs slightly less in the position measurement sort of side of the organization and some of the other areas in the cost reduction process, but that was because we had some areas that we were really seeking to invest in and some of the emerging elements of the product line that we felt we wanted to allocate resource to. So it had a slightly lower proportionate, but we're talking 1% or so. It's not a huge factor in this. So no, the primary driver in the short term was mix, but we're seeing it's well into the 20s in operating margin and I think long term going in the right direction. Unknown Analyst: Okay. And then if I may, just chance to question looking at your kind of emerging products, and we've heard the kind of importance to your strategy going forward. Just in terms of margins, and I appreciate not specifics, but the assumption being that they're lower kind of margin to as they come in, as you gain that market share. But just looking at that kind of profile as they become more developed, I guess, what kind of time frame or any other details you could give us there would be great. William Lee: So do you mean in terms of gross margin, sorry, or bottom line? Unknown Analyst: Bottom line. William Lee: Okay. Yes. So if they're emerging, they are definitely ones that are not hitting our profitability targets. So at the moment, they're at different stages. So we have targets on when different ones should be getting into better stages of profitability. And ones like CMM engaging are far more established than some of the ones that we have just launched. Marc Saunders: Chris, have we got anything online? Chris Pockett: Nothing yet. Marc Saunders: Okay. All right, then closing remarks. William Lee: Yes. So if there are no more questions, I guess in terms of overall, great to be back here in person. As I said at the start, it feels like a really good H1 set of results, still lots of uncertainty as there always is with us going forward in the short term. For me, I think the leading message would be on the medium to long term. If you look at the opportunities we have from the innovation engine and also the progress we're making on those emerging businesses and the focus areas that we have there, that's the excitement that is within the business and the excitement that should be around Renishaw. So thank you all very much.
Operator: Good day, and thank you for standing by. Welcome to the Parsons Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today, David Spille, Vice President of Investor Relations. Please go ahead. David Spille: Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter fiscal year 2025 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair, President, and CEO, and Matt Ofilos, CFO. Today, Carey will discuss our corporate strategy and operational highlights. And then Matt will provide an overview of our fourth quarter and fiscal year 2025 financial results as well as a review of our 2026 guidance and long-term growth rates. We then will close with a question and answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-Ks for fiscal year ended 12/31/2025 and other SEC filings. Please refer to our earnings press release for Parsons Corporation's Complete Forward-Looking Statement Disclosure. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures. Now we'll turn the call over to Carey. Thank you, Dave. Carey Smith: Good morning. Welcome to Parsons Corporation's fiscal year 2025 and fourth quarter earnings call. 2025 was a successful year despite a dynamic federal government macro environment. We delivered 12% total revenue growth and 8% organic revenue growth, excluding our confidential contract. We continue to be one of the organic revenue growth leaders in both of our segments, with 10% organic growth in critical infrastructure and 7% organic growth in federal solutions, excluding the confidential contract. We expanded our adjusted EBITDA by 60 basis points to a company record of 9.6%. This record margin builds on the 50 basis points of expansion we achieved in 2024. Additionally, we delivered free cash flow conversion of 100% and exceeded the high end of our fiscal year 2025 cash flow guidance range. We efficiently deployed capital by completing three acquisitions during the year and increased our share repurchases while maintaining a strong balance sheet with ample capacity for further investments in our growth strategy. From an operations perspective, we won strategic contracts, achieved high win rates of 61%, maintained strong hiring, and had record retention rates. We delivered double-digit total revenue growth at both critical infrastructure North America and Middle East business units. Also, we were named the number one program management firm in the world by Engineering News Record, one of the world's most trusted companies by Forbes, one of the best-led companies by Glassdoor, and one of the world's most ethical companies by Atmosphere. We are proud of our 2025 accomplishments, and I want to thank more than 21,000 employees for their contributions to delivering our customers' most critical missions. The end of 2025 marked the completion of our performance against the three-year Investor Day targets established in March 2023, with a focus on creating long-term shareholder value. I'm pleased to report that we delivered on this strategy that we outlined at this event of investing in integrated solutions to move up the value chain and win larger and more strategic programs. During this three-year period, we exceeded the high end of all of our Investor Day targets: total revenue, adjusted EBITDA, and operating cash flow. From 2023 through 2025, we increased total revenue by 52% or more than $2 billion. This equates to a three-year compound annual organic revenue growth rate of 10%. And excluding the confidential contract, our three-year compound annual growth rate was 9%, nearly double our four to 6% target. We expanded margins by 120 basis points, resulting in an adjusted EBITDA compound annual growth rate of 20% over the three-year period. Additionally, we grew cash flow from operations by over 100% since 2022, equating to a 26% compound annual growth rate. Given our strong operating performance over the last three years, we were able to reduce our net debt leverage ratio from 1.4 times to 1.3 times while deploying over $1.1 billion on eight strategic acquisitions, capital expenditures, and share repurchases. As we look forward over the next three years, we expect to again drive long-term shareholder value by achieving mid-single-digit or better annual organic revenue growth, supplemented with accretive acquisitions. Additionally, we believe we can continue to expand adjusted EBITDA margins over the next three years with the goal of double-digit margins by 2028. This expansion is on top of the 120 basis points of margin improvement achieved over the last three years and on a revenue base that is more than 50% larger than when we initiated our plan in 2023. Finally, we expect a free cash flow conversion rate of 100% or better over the next three years. Moving to our fourth quarter results, we delivered strong revenue growth, adjusted EBITDA margins, and cash flow. Although our fourth quarter revenue was below our expectations, we achieved total revenue growth of 11% year over year and 8% on an organic basis excluding our confidential contract while contending with the impacts from the longest government shutdown in history. These growth rates include 9% organic growth in our critical infrastructure and federal solutions segments, respectively. In Q4, our adjusted EBITDA margin expanded 110 basis points and operating cash flow of $168 million grew 32% year over year. We also closed the acquisition of Applied Sciences during the fourth quarter. In addition to delivering solid financial results for the fourth quarter, Critical Infrastructure now has 21 consecutive quarters with a book-to-bill of 1.0 or greater, and we won four contracts over $100 million in Q4, with three of the four contracts representing new work for Parsons Corporation. All four contracts were within our federal solutions segment, and we had 15 wins over $100 million for the year, matching last year's record. Significant fourth quarter contract wins include a new ten-year $392 million single work contract by a federal customer. On this contract, we will deliver advanced biometric and identity management solutions combining hardware, software, and integration expertise to support federal, defense, and law enforcement missions. Parsons Corporation has deployed over 3,500 mobile biometric solutions that collect and analyze data in real-time, enabling faster identity verification and improved threat detection. We booked $36 million on this contract during the fourth quarter. We were awarded a new five-year single award classified contract with a value of $200 million. We booked $23 million on this contract during the fourth quarter. We were awarded a five-year $125 million single award repeat contract to support the United States Army Combat Capabilities Development Command Army Research Laboratory, High Performance Computing Modernization Program, and Defense Research and Engineering Network. Parsons Corporation will deliver an array of services including research, development, test and evaluation, infrastructure operations, and comprehensive project management. We booked $44 million on this contract during the fourth quarter. Finally, we were awarded a contract valued at over $100 million by NAMMA, to provide design and program and construction management for a new rocket motor manufacturing facility in Perry, Florida. The two-year industrial base modernization contract represents new work for the company. This project directly supports the Department of War's acquisition transformation strategy by expanding the United States' munitions production capacity, strengthening supply chain resilience, and accelerating delivery of critical capabilities to the warfighter. We booked the full value of the contract during the fourth quarter. After the fourth quarter ended, Parsons Corporation was awarded an early $593 million contract extension under the Federal Aviation Administration's technical support service contract to provide program and construction management, engineering, technical services, health and environmental safety, fire protection, equipment installation and testing, and logistics. FAA elected to exercise our three-year option period nearly a year early, underscoring Parsons Corporation's critical role in FAA's nationwide airspace modernization. And finally, after the fourth quarter ended, we received an intent to award notification for a sole source contract from a national security customer. The contract's new work for the company with a ceiling value of up to $500 million. We booked $13 million on this contract for the low rate initial production which was awarded during the fourth quarter. In addition to winning these large contracts, we effectively used our balance sheet to acquire strategic companies with critical intellectual property that strengthen our existing portfolio by generating revenue growth and adjusted EBITDA margins of 10% or more. Parsons Corporation is viewed as an acquirer of choice in the industry, which frequently provides us the opportunity to pursue preemptive M&A. During the fourth quarter, we acquired Applied Sciences Consulting, a Florida-based engineering firm that specializes in water and stormwater solutions for cities, counties, and water management districts across the state. Water is our most profitable and fastest-growing market within the North America infrastructure business unit. This acquisition expands our expertise, strengthens our presence in Florida, and exceeds our financial M&A thresholds. After the fourth quarter ended, we closed on our acquisition of Altamira Technologies Corporation, in an all-cash transaction, valued at up to $375 million, including the $45 million earn-out. Altamira advances high-priority national security missions supporting intelligence community and Department of War customers by providing multi-intelligence technology solutions and performing critical operations. Altamira expands Parsons Corporation's market presence in signals intelligence, missile warning, space, and foreign military exploitation and adds critical customer depth with the National Air and Space Intelligence Center, National Security Agency, and other classified intelligence customers. There are more than 600 employees, 90% of whom hold security clearances, share the same mission focus as Parsons Corporation, and we are already working on revenue including cross-selling to our customers, expanding our Golden Dome offerings, and providing full kill chain solutions from space to operations. Altamira's technologies, including AI/ML, signals and data analysis, cyber operations, and their deep software engineering capabilities will accelerate Parsons Corporation's expansion into the rapidly growing intelligence and multi-domain areas. The transaction is consistent with Parsons Corporation's strategy of completing accretive acquisitions with revenue growth and adjusted EBITDA margins of at least 10%. As we enter 2026, I could not be more excited about our robust and diverse opportunities to continue to grow our company and outpace industry growth rates. Our unique and synergistic critical infrastructure and federal solutions portfolio, which consists of six growing, profitable, and enduring end markets, provide substantial tailwinds for us to meet or exceed our financial objectives. In critical infrastructure, we see strong demand in both North America and Middle East markets. In North America, our focus on hard infrastructure, such as roads and highways, bridges, airports, and rail and transit, is aligned to the administration's spending priorities. The Infrastructure Investment and Jobs Act provided states the confidence they needed to move forward with major infrastructure projects, and discussions on the next surface transportation bill are well underway. This new five-year bill will add more funding for US infrastructure spending. In the Middle East, our business remains well-positioned for decades to come. In the fourth quarter, we had key wins, including Newmaraba, Riyadh traffic management, and Aldar properties. In addition to our legacy transportation and urban development areas, we successfully leveraged our federal solutions capabilities to move into the defense and security markets and drove synergies across it. Infrastructure with the first deployment of our intelligent network PeriNet, advanced traffic management system into the Middle East. This market expansion illustrates the value of our synergistic and diversified portfolio which creates global opportunities. With long-term infrastructure tailwinds and 21 consecutive quarters of book-to-bill of 1.0 or greater, we've delivered double-digit total revenue growth in both North America and the Middle East for four consecutive years. And we expect further growth in both geographies for the foreseeable future. We are winning the largest projects in our company's history, and we've established a distinguished global reputation. In federal solutions, we remain excited about the upward momentum in defense budgets. This includes the reconciliation funding of over $150 billion for the Department of War and over $190 billion for the Department of Homeland Security, the vast majority of which has not been spent, and the potential of a much larger defense budget in 2027. Our purpose-built portfolio has strong alignment to the administration priorities, especially in full-spectrum cyber operations, electronic warfare, air and missile defense, space superiority, counter-unmanned air systems, industrial base modernization, and border security. Through our acquisitions and internal research and development investment, we've developed differentiated capabilities to protect our nation and deter adversaries. In summary, we've been one of the industry growth leaders in both of our segments for the last three years. And we expect this success to continue as we leverage our unique, complementary, and diverse portfolio. Our balanced portfolio and alignment to priority areas enabled us to withstand short-term headwinds that occurred last year. We've demonstrated our ability to cross-sell capabilities, including cybersecurity, critical infrastructure protection, advanced manufacturing, program extraction management, aviation, environmental remediation, and intelligent transportation systems. Our business remains steadfast as we are consistently delivering mid-single-digit or better organic revenue growth while expanding margins and delivering strong free cash flow. Also, we're supplementing our organic growth with accretive acquisitions to further differentiate our portfolio. In addition, our balanced portfolio diversifies our revenue stream as our largest contract is expected to only generate 4% of our total revenue in 2026. Our leading indicators, which include a $55 billion pipeline, strong win rates of 61% in 2025, total backlog of $8.7 billion, of which 73% is funded, and our $11 billion of contract wins that we have not yet booked, gives us confidence that we will continue to outpace market growth rates. As a result, I look forward to what we'll accomplish in 2026 and over the next three years. We have an experienced management team, operate in six end markets that are all growing, a purpose-built national security portfolio that outpaces near-peer threats, unprecedented global infrastructure spending, and a favorable financial outlook with an effective capital deployment strategy. With that, I'll turn the call over to Matt to provide more details on our fourth quarter and fiscal year 2025 financial results. Matt? Matt Ofilos: Thank you, Carey. 2025 financials were highlighted by strong revenue growth, significant adjusted EBITDA margin expansion, delivering free cash flow ahead of expectations. In addition, we continue to effectively deploy capital for strategic acquisitions, internal research and development, and share repurchases to support long-term growth and drive shareholder value. Turning to the details of our fourth quarter results, total revenue grew 11% on an organic basis, excluding our confidential contract. These increases were driven by double-digit growth in our transportation, critical infrastructure protection, urban development, and space and missile defense markets. Total revenue, including the confidential contract, decreased 8% from the prior year period and was down 10% on an organic basis. SG&A expenses for the fourth quarter decreased 2% from the prior year period. The decrease was primarily driven by effective cost management and lower transaction-related expenses, partially offset by the inclusion of recent acquisitions. Fourth quarter adjusted EBITDA of $153 million increased 5% from the prior year period, and adjusted EBITDA margin expanded 110 basis points to 9.6%. These increases were driven by improved execution and growth on accretive contracts, offsetting lower revenue volume on the confidential contract. Total revenue for fiscal year 2025 increased 12% from the prior year period and was up 8% on an organic basis, excluding the confidential contract. The strong organic growth throughout the year was driven by the ramp-up of recent contract wins and growth on existing contracts. Total revenue, including the confidential contract, decreased 6% from the prior year period and was down 9% on an organic basis. SG&A expenses for total year 2025 increased 6% from the prior year period. The increase was primarily driven by the inclusion of three acquisitions completed in 2025, strategic investments to support future growth. Record fiscal year 2025 adjusted EBITDA of $609 million increased 1% from 2024. Adjusted EBITDA margin increased 60 basis points to a record 9.6%. Adjusted EBITDA increases were primarily driven by improved program performance, effective cost control, and accretive acquisitions. It's important to note that despite $1 billion of revenue headwinds in 2025 from the accretive confidential contract, we were able to report record adjusted EBITDA and adjusted EBITDA margins reflecting the strength and breadth of the portfolio. I'll turn now to our operating segments. Starting first with critical infrastructure, where fourth quarter revenue increased by $89 million, 12% from 2024. This increase was driven by organic growth of 9% and inorganic revenue contributions from our BCC TRS, and applied sciences acquisitions. Organic growth was driven primarily by the transportation and urban development markets. Critical infrastructure adjusted EBITDA of $87 million increased 87% from 2024, and adjusted EBITDA margin increased 420 basis points to 10.6%. Both adjusted EBITDA dollars and margins were fourth quarter records for CI. These increases were driven by improved program performance, the ramp-up of recent awards, and accretive acquisitions. For the full year, critical infrastructure revenue increased 15% on an organic basis. The strong year-over-year organic growth was driven by the ramp-up of recent contract awards and existing contracts, primarily within the transportation and urban development markets. This is the fourth consecutive year in which both our North America and EMEA business units delivered double-digit total revenue growth. Critical infrastructure adjusted EBITDA of $328 million for the full year increased 73% from 2024, and adjusted EBITDA margin increased 350 basis points to 10.4%. Both adjusted EBITDA dollars and margins were fiscal year records. Increases were driven by strategic portfolio decisions over the past several years leading to higher margin work and improved program performance. Additionally, we have efficiently managed indirect expenses during a period of strong top-line growth. Moving to our federal solutions segment, where fourth quarter revenue increased 9% on an organic basis, excluding the confidential contract. Increases were driven by growth in our critical infrastructure protection, space and missile defense, and transportation markets. Total federal solutions revenue, including the confidential contract, decreased 22% from the prior year period and 24% on an organic basis. Federal Solutions adjusted EBITDA decreased 34% from 2024, and adjusted EBITDA margin was 8.4%. Adjusted EBITDA was primarily impacted by lower volume on the fixed-price confidential contract and recent execution challenges on a program in a remote region. For the full year, federal solutions revenue increased 9% on an organic basis, excluding the confidential contract. A strong year-over-year organic growth was driven by critical infrastructure protection, cyber and electronic warfare, space and missile defense, and transportation markets. Total federal solutions revenue, including the confidential contract, decreased 20% from the prior year period, and it was down 21% on an organic basis. Federal Solutions adjusted EBITDA for the full year decreased 32% from 2024, and adjusted EBITDA margin decreased 170 basis points to 8.7%. These decreases were driven primarily by lower volume on a fixed-price confidential contract and investments in growth. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q4 2025 was sixty-seven days, a twelve-day increase from the prior year period. This increase was primarily driven by lower volume on the confidential contract and strong growth in the associated timing of collections in the Middle East. During 2025, we generated $168 million of operating cash flow, which was ahead of expectations on strong collections and drove free cash flow conversion to 100% for fiscal year 2025. Capital expenditures totaled $32 million in 2025, and $68 million for the full year. Our full-year CapEx spend was in line with our plan of approximately 1% of annual revenue. Our balance sheet remains strong as we ended the fourth quarter with a net debt leverage ratio of 1.3 times. During the year, we closed three strategic acquisitions totaling $145 million, net of cash acquired. Including the cash acquisition of Altamira in Q1 2026, pro forma leverage would be approximately 1.8 times based on Q4 results. During Q4, we repurchased approximately 856,000 shares, which for $60 million. For the full year, we repurchased approximately 1.8 million shares at an average purchase price of $68.59, for an aggregate price of $125 million. Turning next to bookings, the fourth quarter reported contract awards of $1.5 billion, representing a book-to-bill ratio of 0.9 times on an enterprise basis. On a trailing twelve-month basis, our book-to-bill ratio is 1.0 times, which continues our streak with a trailing twelve-month book-to-bill ratio of 1.0 or greater in every quarter since our IPO. Critical infrastructure, we achieved a book-to-bill ratio of 1.1 times, which is a twenty-first consecutive quarter with a book-to-bill ratio of 1.0 or greater. For the full year, our 1.2 times book-to-bill ratio. Federal solutions, we reported a book-to-bill ratio of 0.8 times for both the fourth quarter and full year. Our backlog at the end of the fourth quarter totaled $8.7 billion, a 2% decline over Q4 2024, mainly driven by the impact from the confidential contract coming to completion. Our funded backlog of $6.4 billion remains the highest since our IPO and increased 8% year over year. At the end of Q4, our funded backlog represented 73% of total backlog, which is also a company record. Now let's turn to our guidance. For 2026, we expect revenue to be between $6.5 and $6.8 billion. This represents 4.5% growth at the midpoint of the range and 0.5% growth on an organic basis. As previously discussed, we have a headwind of approximately $345 million from our confidential contract as we enter 2026 with the program scheduled to complete in Q1. The $345 million year-over-year headwind, $275 million will be realized in 2026. Excluding this contract, the rest of the portfolio is projected to grow total revenue 10.5% and 6% on an organic basis, which is in line with the mid-single-digit or better organic revenue growth we've been communicating. Adjusted EBITDA is expected to be between $615 and $675 million, with a margin of 9.7% at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents adjusted EBITDA growth of 6% and margin expansion of approximately 10 basis points from 2025 at the midpoint. Cash flow from operating activities is expected to be between $470 and $530 million. This represents 4.5% growth at the midpoint of the range and 100% free cash flow conversion of adjusted net income. This includes an increase in CapEx spending to approximately 1.5% of total revenue, which is mainly driven by growing demand for additional classified facilities. Our 2026 guidance ranges contemplate domestic budget uncertainty, a competitive labor market, and best estimates related to the government procurement environment. These macro risks are offset by tailwinds to include unprecedented global infrastructure spend, a federal portfolio that is closely aligned to the administration's priorities, recompete risk of approximately 5% of 2026 total revenue, $8.7 billion of total backlog, including record funded backlog, $11 billion of contracts awarded to Parsons Corporation but not yet booked into backlog. Other key assumptions in connection with our 2026 guidance and our quarterly cadence are outlined on slide 16 in today's PowerPoint presentation located on our Investor Relations website. In terms of our long-term financial targets, our outlook continues to support mid-single-digit or better organic revenue growth with a goal of double-digit margin by 2028 and a free cash conversion rate of at least 100% of adjusted net income. We expect to supplement our organic growth with acquisitions accretive to both top and bottom line. In summary, our core business executed very well in 2025. Delivered strong revenue growth excluding the confidential contract, significantly expanded margins, and delivered strong free cash flow. That cash flow was redeployed to fund strategic acquisitions, internal research and development, and share repurchases to position us for future growth and drive long-term shareholder value. With that, I'll turn the call back over to Carey. Thank you, Matt. Carey Smith: Although 2025 was a dynamic year in many ways, it validated the strength and resiliency of our portfolio. We're fortunate to operate in two large and well-funded segments across six growth end markets, and we're capitalizing on these tailwinds to remain an industry growth leader, expand margins, and generate strong free cash flow. We're optimistic about our future given our team's proven execution, the tailwinds we have in both segments, our strong total and funded backlog, and our robust pipeline of large opportunities. With that, we'll now open the line for questions. Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. Our first question coming from the line of Sangita Jain with KeyBanc Capital Markets. Your line is now open. Good morning, Carey, Matt. Thanks for taking my question. Carey Smith: Obviously, CI margins continue to exceed expectations. Sangita Jain: Just wanted to see if it's safe to presume that the legacy adjustments are behind you. And should we expect this performance as a reasonable run rate going forward? Kinda trying to see if this will be the segment that drives the push to double-digit margins by the end of the planning period. Carey Smith: Yeah. Good morning, Sangita. Thanks for your question. Yes, the legacy programs are behind us. We're in final closeout stages with the customers, but the execution has completed. We still expect continued expansion in margin for critical infrastructure as we look to 2026, and we also expect expansion in the federal market as we look to 2026. 10 basis points for Parsons Corporation, and that's 10 basis points for federal, 20 for critical, and infrastructure. Critical infrastructure will expand more quickly because about 75% of that business is fixed price, time, and material, and 25% is cost reimbursable. And most of the expansion will come from North America. Sangita Jain: Got it. Thanks. And one on Federal Solutions, if I can. Obviously, April had the impact of the shutdown. But just curious on how you're seeing the cadence of order activity since the end of the shutdown and if it still continues to be more of a book and burn environment. Just trying to see because book-to-bill in that segment has been sub one for some time now. Thank you. Carey Smith: Yeah. Thanks, Sangita. Q4 did have the impact of a forty-three-day government shutdown, but I'm really pleased, the six awards that we announced on our call, all of which were greater than $100 million, were all in the federal segment, and a lot of that representing brand new work for Parsons Corporation. As we go into 2026, we're very confident that we will achieve over a 1.0 book-to-bill for Federal Solutions. Starting off in 2026 based on the award activity we're seeing. Sangita Jain: Appreciate it. Thank you. Operator: Thanks, Lisa. Thank you. And our next question coming from the line of Louie DiPalma with William Blair. Your line is now open. Louie DiPalma: Carey, Matt, and Dave, good morning. Matt Ofilos: Morning, Louie. David Spille: Carey, you recently announced a win for your Drone Armor system. How do you view the addressable market in both the US and internationally as there's been a major focus on air defense with drones? Carey Smith: Yeah. Thanks, Louie. So first, I'll say we're really excited about our drone armor solution. We recently achieved technology readiness level nine. And this solution has been proven to protect personnel, bases, and assets from drone threats. It's built on a modular open system architecture. Where we're unique, it really allows for a lot of customization and adaptation to various mission requirements. We also use artificial intelligence and machine learning for enhanced decision-making and to reduce the cognitive workload. And we have a core command and control component. We had the opportunity to demonstrate our drone armor recently when the Department of Homeland Security and all of their components visited our Summit Point facility. We see opportunities not just with the Department of State, which we're currently providing those solutions to, but also with the Department of Homeland Security. And then for protection of FAA sites as well. So broad market area. Matt Ofilos: Great. David Spille: Thanks. And, Carey, you recently visited the Middle East. What are you hearing in terms of the demand for mega projects? There's been speculation that some of the mega projects on the transportation side could convert towards data center build. But what are you hearing on the ground in the Middle East? Carey Smith: Yeah. We had a great visit to the Middle East. We went to Saudi Arabia as well as the UAE in January. And I think, Louie, what you're referring to, Saudi's taking a move, what I would call, towards fiscal discipline, and they're prioritizing projects that are tied to the immediate upcoming global events like the 2030 World Expo and the 2034 FIFA World Cup. And they're scaling back or delaying some of what I would call the more speculative longer-term real estate ventures. Again, in the Middle East, we've had four years of consecutive double-digit growth, so we continue to rapidly expand. And we are on all the giga projects within Saudi Arabia. We're the number one program manager in Saudi Arabia, UAE, as well as Qatar. And there's gonna be a lot of spend there coming up in all of those. We've moved our business not just from doing urban development and transportation as we've historically done, but we've gotten into the defense, the border security, and the tourism and hospitality sectors as well as industrial manufacturing. One thing I will note for us a couple of years ago, we made a very smart decision, which was to focus on programs around Riyadh. So we've been awarded a lot of those such as King Salman Park, King Abdullah Financial District, Riyadh Ring Roads, Riyadh Traffic Management, Qiddiya, King Salman International Airport, and most recently, New Murabba. And that's where, again, they will spend the money. But I will say following Saudi Vision 2030, there will be a Saudi Vision 2040 where they'll go back to looking at some of the longer-term real estate projects, things like Neom or some of their growth like Al Soudan and other tourism locations. We see growth in the Middle East for decades to come. Louie DiPalma: Okay. And merging my first question and second question, with the World Expo and the World Cup, are you able to provide some of your own intellectual property technology solutions to the Middle East as well? Are you able to export drone armor to the Middle East, and are you able to utilize some of your transport modernization solutions such as iNet in the Middle East in addition to being a program manager? Carey Smith: Yeah. We're able to offer quite a few capabilities for the events that are coming up in the Middle East. On the federal side, we obviously have to go through the ITAR and the technical assistance agreement process to get releasability for that. But we are already able to offer the iNet solution, which does not fall under the ITAR, and I mentioned we're using that for traffic management around, and we see that system being further deployed. Given that we did the traffic management for the Qatar World Cup, and it was very successful, we were also involved in Dubai both on the metro as well as overall construction management services, we see potential plays in those areas as well. Then on the federal side, we would look at things like electronic security systems, potentially biometrics capability. And if we have releasability for something like counter-unmanned air systems. Those are all offerings that we could provide. Parsons Corporation has been involved in every world event since the 1996 Atlanta Olympics. We look forward to helping the Middle East as well as the United States and Canada with the upcoming events. Operator: Great. Thanks. Thanks, Carey. Louie DiPalma: Thank you, Matt and Dave. Louie. Thanks. Operator: Thank you. Our next question coming from the line of Gavin with UBS. Your line is now open. Gavin: Thank you. Matt Ofilos: Morning. Gavin: Good morning, Gavin. David Spille: As if I exclude the confidential contract last year, Gavin: you still had to revise Federal Solutions revenue guide down a couple of times? So any common theme you can identify that was driving that, and have you taken any different approach to framing the 2026 Federal Solutions guide? Carey Smith: Yes. I would say on Federal Solutions, we definitely were impacted by the shutdown. There was slower procurement activity leading up to the shutdown as well. Specifically, had two contracts, our air base air defense as well as our joint cyber hunt kit that were delayed, and that had a lot of material volume. As you know, materials can be lumpy. I think what we're seeing right now is a positive procurement environment. The fact that we were able to get six awards greater than $100 million booked for federal between Q4 and early Q1. And as I mentioned earlier, David Spille: strong book-to-bill of Carey Smith: greater than 1.0 for federal as anticipated for 2026. And, Gavin, I'll just add, you know, everything Carey said, but on Matt Ofilos: top of that, I think, you know, when it comes to kinda new new or kinda getting used to the cadence and the amount of time it gets to award. So maybe a little bit more conservatism on timing of new new and a little bit more bullishness on contract growth and things like that. So it kinda nets out a little bit, but the new new is a more difficult environment today than it was prior administration. Gavin: Okay. That's helpful. And appreciate the guidance on color or color on quarterly cadence for the year. It looks like there's a pretty big step up in 2Q from 1Q. What's driving that? Matt Ofilos: Yeah. Biggest driver there, Gavin, is mainly the Middle East. In the Middle East, in 2025, the holidays spanned over Q1 and Q2. In 2026, it's all within Q1. So you'll see, you know, kinda Middle East kinda flattish in Q1 and then almost 20% growth in Q2. But first half is kinda bracketed comp in a balanced way. Thank you. Operator: Thanks, Kevin. Gavin: Thank you. Operator: Our next question coming from the line of John Gordon with Citi. Your line is now open. John Gordon: Hey, thank you for taking my question. I wanted to follow-up a little bit on the margin outlook. There were a few drivers on Slide 15, things like operating leverage, growth in margin accretive contracts, growth in high margin markets. I was hoping you could dig into those a bit more and elaborate. I'm just curious if you think there's potential for upside to margin guidance for the year? Matt Ofilos: Yes. I would say, obviously, we're really happy with over the last two years, 110 basis points of margin expansion, kind of well ahead of our Investor Day targets. So I'd say, again, kinda 2024 and 2025 outperformed. 2026 have about $350 million worth of headwind from that confidential program, which was accretive, of course, to the company margins. And so we're competing against that a little bit. But overall, I think, you know, great news is in 2025, net EAC adjustments was down about 50%, so an improvement of about 50%. So really great performance across the company. So, yeah, I think there is, you know, as we expand on products, as we have additional accretive M&A, and two-point leverages are all great opportunities to continue to expand margin. John Gordon: Okay. Great. And you also mentioned that you're targeting double-digit margins for the enterprise. You're not far away from that. That's not a surprise. I'm just curious, you know, infrastructure is already there, federal isn't. Do you think both segments will be at double-digit margins Matt Ofilos: Or is this going to be more of a barbell where infrastructure continues to move higher and drag the John Gordon: company average out? Matt Ofilos: I suspect for the period, infrastructure will remain higher and kinda north of 10% and, you know, Carey's point earlier, about 10.5% in 2026 at the midpoint. Federal, of course, is always really driven by the mix of work. Cost plus versus fixed price. And so we are seeing faster growth on cost plus in the federal area. The opportunities again on as we expand on products, the product deliveries is a great opportunity to expand margins in federal. But overall, right now, we see federal in kind of high eights, low nines short term and trending toward mid-nines longer term. John Gordon: Appreciate it. Thank you. Carey Smith: Thanks, John. Thanks, John. Operator: Thank you. Our next question coming from the line of Sheila Kahyaoglu with Jefferies. Your line is now open. Good morning, guys, and thank you. I know it's been asked a few ways, but just on 2026, Carey, Matt, any sort of color on the largest program movers that are growing in '26 from whether it's a contract area Carey Smith: or a particular contractor or a specific area. Yeah. Thanks, Sheila. So again, I would kinda go back for the federal side to highlight some of the key wins that we've had. Joint Cyber Hunt kit would be one of those. I we highlighted two classified wins. The $392 million contract was a takeaway from another company, and the $200 million one represents brand new work for us. We're also expecting continued growth on our GSA schedules as well. And then within the Middle East, it would be the contracts that we've won recently, including the airport contract, the Riyadh traffic management contract, the New Murabba contract. Those are all gonna be ramping up. And then within critical infrastructure, North America, it's kind of across the board, a lot of the major contracts like Newark Airtrain, Hawaii rail and transit, and some of the larger programs. Operator: Got it. And then maybe a bigger picture question for you, Carey. Just given one of your competitors preannounced negative this morning, we're seeing sort of a dichotomy between Carey Smith: IT services, CACI at the high end, Leidos kind of there along with it. Operator: And Carey Smith: declines as well in the sector. So where are you seeing areas that are improving in the government budget? And where are you shifting your portfolio to? Clearly, critical infrastructure is good, but within the federal side, maybe any additional color on how you're trying to shift that $11 billion unbooked pipeline to convert into revenues? Yes. I would say we're very fortunate in federal, and that's why we're very bullish on strong book-to-bill as we come into 2026 within federal, and we started to see these large awards go through. We're well aligned with the key areas of focus both under the national defense strategy as well as what's in the reconciliation budget. And those dollars are gonna have to get spent. So whether you're looking at areas like Golden Dome or Border security or counter-unmanned air systems, biometrics, and then cyber operations, and then electromagnetic spectrum, space. We're very well positioned. And if you look at reconciliation alone, we believe that we have about $85 billion of addressable market for Parsons Corporation. So I feel our portfolio is well aligned for 2026 and beyond. Operator: Got it. Thank you. Sheila Kahyaoglu: Thank you. Operator: Thank you. And as a reminder, to ask a question, please press 11. Our next question coming from the line of Andrew Wittmann with Baird. Your line is now open. Andrew Wittmann: Oh, great. Good morning, everyone. So I wanted to ask about the outlook for critical infrastructure's backlog. Specifically, Carey, you just mentioned some of those large, larger projects that you've won over the last year or two, Hawaii, Newark Airtrain. Georgia state route. There's a bunch of them in there that are obviously very significant and have been very powerful drivers. Those are getting into bigger burn stages now. You made a comment on your federal first half bookings, but I was wondering if you think that, with the ramping burn rate, if you think the book-to-bill in CI can still remain over one in the first half or even for the full year, just kinda moving parts as you look at your pipeline there and your recent win rates, please. Carey Smith: Yes. So we have planned for critical infrastructure book-to-bill to remain over 1.0 for 2026. Again, resting on 21 consecutive quarters of greater than 1.0 in the demand that we see both in North America as well as in the Middle East. Andrew Wittmann: Okay. Great. And then just as a follow-up, I guess, maybe I wanted to kinda have you zoom in on a few projects which have been in the headlines or are notable today. One of them is Golden Dome, and you've referenced this. And, obviously, you're one of many, many contractors with a very large contract. I was just wondering what Carey Smith: you're seeing there in terms of your ability to win task orders that's in your backlog today, if at all, and maybe just how Parsons Corporation is or is not affected by the turmoil surrounding the Hudson River Tunnel project, which has obviously been a lot of fits and starts here even here in recent days. Carey Smith: Yeah. Let me take the Hudson River Tunnel question first. So last week, the US district judge ordered the funding restored. And so that would have forced the Trump administration to lift the four-month freeze on federal funding. But then on Monday, she issued an administrative Operator: stay Carey Smith: which basically leaves the tunnel construction on hold until February 12 at 5 PM. And preserving the status quo, while the US court of appeals for the second circuit is considering whether to intervene. So the outcome is if the appeals court grants a stay, the funding freeze would remain in place during the appeal. If it does not, the judge's injunction, barring enforcement of the funding suspension is set to take effect again at 5 PM on February 12, and that would allow federal disbursements to move forward. It's important to note that this contract represents less than 0.5% of Parsons Corporation's revenue. On to your second question, within Golden Dome, I'd say our biggest play there is our role that we have with the missile defense agency. Again, we're the system engineering and integration contractor for the missile defense agency. So we expect and we have been doing some work relative to Golden Dome on that contract. And secondly, I would say nonkinetic effects, the use of cyber and electronic warfare instead of kinetics to kinetics is a growth opportunity for us. Airbase air defense is another one. We're providing protection of airbase air defenses and for the air force base in Europe. And you could think about that as being similar to what's gonna be needed to provide the local area of the defense here within the US and the Golden Dome program. And then I'd say, we also have some cyber efforts. Golden Globe has been starting to roll out. It's been a little slow, but classified architecture has been released. General Line is confirmed and running the program. There's been a four-layer kinda strategy that's defined, which is a layer distributed and software defined. There's been command and control integration, task force worked up, and there's a few small contracts for space-based interceptors. But our key play is really system engineering and integration. Andrew Wittmann: Thank you. Matt Ofilos: Thank you. Operator: Thank you. And, again, as a reminder, to ask a question, please press 11. Our next question coming from the line of Tobey Sommer with Truist. Your line is now open. Tobey Sommer: Thank you. David Spille: I'm curious. What in 2026 do you Andrew Wittmann: expect in terms of changes in revenue and profit from the FAA customer? Carey Smith: Yes. So, we do expect growth on our FAA technical support services contract. And again, they exercise the option nearly a year early, which we were pleased with. For $593 million over the next three years. We've supported the FAA for five decades, and currently, we're on the technical support service contract, $1.8 billion contract over ten years. We have over 500 FAA cleared personnel that support engineering, construction, environmental equipment installation. We're located at over with thousands of FAA sites, it's pretty much all the national airspace sites including nav aids, radar sites, communication sites, and military installations. And then we also have a team that includes over 300 subcontractors. There's a lot of money that's been put in, $12.5 billion to modernize the air traffic control center. And so we look forward to continuing our role as the implementer for that work for the FAA. Andrew Wittmann: Thanks, Carey. And then Tobey Sommer: you did talk about areas of Carey Smith: growth this year within federal. Tobey Sommer: But Carey Smith: was wondering, would your answer be the same for areas that are likely to spearhead the greater than one book-to-bill in the first half? Would they map against CyberKit and, you know, GSA schedules that you commented on earlier? Carey Smith: Yeah. They would be in the same areas. The Joint Cyber Hunt kit program. Obviously, the FAA award will get booked in the first quarter. Those are the two that we announced after the fourth quarter ended. But once again, all of our market areas are growing, whether it's cyber and electronic warfare, space and missile defense market, or critical infrastructure protection. Tobey Sommer: And the last question for me. What's your what's the most area for the company to apply capital to in the form of acquisitions over the balance of the year? Carey Smith: Yes. We'll continue to look in similar areas. I say on the federal side, Altamira is a great example, you know, where they hit a lot of points: cyber, signals intelligence, space capabilities. And then also, they broadened our customer reach, particularly with the intelligence community customer and also, NASIC National Air and Space that's out of Dayton, Ohio. So that's a good example of a federal one, and that builds upon companies that we've bought in the past like, Black Signal, Black Horse, and CTI. And it broadens our all-domain capabilities. Within critical infrastructure, we're gonna continue to look in the water space. We're also gonna continue to double down on transportation engineering. And specifically looking across our six tier-one states: Florida, Texas, California, New York, New Jersey, and Georgia. Tobey Sommer: Let me sneak one more in if I could. Does the company have an interest in expanding and amplifying its ability in critical infrastructure to participate in what looks like a global increase in demand for nuclear energy? Carey Smith: We have a small footprint in nuclear today, and it is expected to grow, as you indicate, both in the United States as well as in the Middle East. We're currently the Department of Energy National Nuclear Security Administration engineering and construction management services contractor. We're also starting to look at some small micro-reactor type of projects. There's a few bids out on those. We also do microgrid work. For example, we have a program in Puerto Rico that's been going quite well. And then within the Middle East, we're having discussions with companies because they're gonna be making a large investment in nuclear. Tobey Sommer: Thank you. David Spille: Thanks. Operator: Thank you. Our next question coming from the line of Gavin Parsons with UBS. Your line is now open. Gavin Parsons: Hey. Gavin: For the follow-up. I just wanted to ask on the medium-term growth targets. First, what are you assuming for the DOW budget growth? Or is that based on reconciliation flow through? And then second, is that mid-single-digit plus just a blend of the end markets? And does that not contemplate any potential for market share? Thanks. Carey Smith: That's the first part, and then Matt will answer the second. But I would say from a budget request, we've got again very strong alignments, the reconciliation budget both for Department of Homeland Security as well as Department of War, and we see about $85 billion and for the FAA. We see about $85 billion of that being addressable for Parsons Corporation. As we look forward to FY 2027, President Trump has Operator: announced Carey Smith: that he would like to have a $1.5 trillion defense budget. That would represent a historic 50% increase over the $1 trillion that was authorized for FY 2026. There's some arguments that you can say it might happen because there's a lot of executive commitment to the priorities such as Golden Dome and Golden Fleet. There is congressional support, particularly coming from the GOP for a higher budget. And then the Republicans are also taking a look at a second potential reconciliation budget that might be, like, $450 billion to $600 billion. On the areas that reasons that FY '27 may not reach full amount. There's obviously fiscal concerns that the increased would add about $5.8 trillion to the national debt over a decade. And then depending on what happens with the upcoming elections. So we're watching that closely, but I would say feel very good about FY '26, the one big beautiful bill at the reconciliation funding starting to flow, and there's clearly momentum towards the larger FY '27. Matt Ofilos: Yeah. Gavin, I would just add, you know, to your point, within our markets are pretty strong, you know, kinda averaging in that 6.5% range. But higher win rates that we have flowing through the plan over the next few years would assume some takeaway as well. Gavin: Thanks again. Carey Smith: Thank you, Kevin. Kevin. Thank you. Operator: And that's all the time we have for our question and answer session today. I will now turn the call back over to Dave for any closing comments. David Spille: Thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to catching up with many of you over the coming weeks. Carey Smith: And with that, we'll end today's call. Have a great day. Operator: Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.
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