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Operator: Hello and welcome to Zillow Group, Inc. Class C's fourth quarter and fiscal year 2025 financial results call. We ask that you hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin. Bradley Berning: Thank you. Good afternoon, and welcome to Zillow Group, Inc. Class C's quarterly earnings call. Joining me today to discuss our results are Zillow Group, Inc. Class C's CEO, Jeremy Wacksman, and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events except as required by law. Please review the cautionary statement and additional information in our earnings release, which can be found on our Investor Relations website. This call is being broadcast on the Internet and is available on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA, and adjusted free cash flow, which we refer to as free cash flow. We encourage you to read our updated investor presentation, shareholder letter, and earnings release, all of which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman. Jeremy Wacksman: Good afternoon, everyone, and thank you for joining us. Q4 capped a year of strong execution for Zillow Group, Inc. Class C, and continued progress on our long-term strategy to make moving easier. We delivered excellent results across the business and achieved all of our reported financial targets for full year 2025, including full-year profitability, and we're carrying that momentum into 2026. This week marks twenty years since zillow.com launched with a simple idea: to give consumers access to clear information in a process that often lacked it. What started as a way to see what homes were worth evolved into the place to search and discover listings for sale and for rent, and is now an integrated ecosystem spanning the entire experience of buying, selling, renting, and financing. Zillow Group, Inc. Class C's evolution reflects two decades of relentless product innovation grounded in consumer advocacy and strong industry partnerships. We're solving problems on behalf of consumers in a category unlike almost any other. Residential real estate is highly regulated, deeply local, and organized around independent licensed professionals operating in hundreds of distinct markets. Transactions are high dollar, high stakes, highly personal, and for most people, they happen only a handful of times over their entire lifetime. That combination makes real estate an especially difficult and vertical for general-purpose AI to disrupt. Success requires trusted partners and systems that reliably support complex journeys that unfold over months, not moments. Zillow Group, Inc. Class C is built for that reality. We're not optimizing for leads alone. Our products facilitate the entire transaction. That means supporting everyone involved: buyers, sellers, agents, loan officers, renters, property managers, and enabling the essential workflows that move people from interest to action and from action to closing. What differentiates Zillow Group, Inc. Class C is the combination of assets we bring together at scale. We have a trusted brand and deeply engaged consumer audience, with roughly 80% of our traffic coming directly to us. And we provide best-in-class software that professionals rely on every day to run and grow their businesses. Agents who use at least one of our products touch an estimated 80% of residential real estate transactions. That puts Zillow Group, Inc. Class C in a unique position to improve outcomes for consumers and partners. Professionals make repeated decisions as they engage with clients every step of the transaction. So even small improvements in workflow, timing, and clarity compound over time. Helping professionals deliver better service, more efficiently helps us reduce friction for consumers throughout their journey. We are rapidly executing on an ambitious multiyear strategy to integrate and digitize the many disparate pieces of the real estate transaction for consumers, and for the professionals who serve them. Our software is deeply embedded in daily workflows and helps agents manage tours, financing, listing strategy, and client communication more effectively. That includes broadly used industry platforms such as ShowingTime, which enables 90% of all tours of homes for sale in the US, and Follow-up Boss, our customer relationship management software that powers daily activity for more than 80% of the highest volume teams in the country. These capabilities reflect years of deliberate execution, building technology that works across hundreds of markets, millions of consumers, and a wide range of professional needs. Zillow Group, Inc. Class C has been applying advanced technology in this category for twenty years. From natural language search and the neural Zestimate powered by machine learning to personalized discovery, to rich media and virtual touring, to workflow automation and coordination, and now generative AI. Our focus is on building what matters most: improving customer experiences, boosting productivity for real estate professionals, and strengthening transaction outcomes over time for them and for Zillow Group, Inc. Class C. It's working. I'll walk through how this shows up in our results now and then I'll share more detail on how our strategy and product innovation play out in real transactions and positions us for continued progress. Zillow Group, Inc. Class C's Q4 and full year 2025 performance reflect excellent execution and meaningful progress across the business. In Q4, total revenue increased 18% year over year, coming in near the top of our outlook range. And I'm proud to share that for the full year, total revenue grew 16%, consistent with our mid-teens growth outlook. We also expanded full-year EBITDA margins by nearly 200 basis points year over year, in line with our outlook. And in an important milestone for the company, we reported $23 million of GAAP net income for the full year, delivering on our expectation of full-year profitability. In for sale, revenue grew 11% year over year in Q4, with 8% growth in residential revenue and 39% growth in mortgages revenue. For the full year, we delivered $1.9 billion in for sale revenue, up 9% from 2024. Our for sale performance continues to outpace industry transaction trends and reflects our ability to convert more high-intent movers already in our funnel and to improve outcomes for agents and loan officers through a more integrated experience. In rentals, Q4 revenue was up 45% year over year, driven by 63% growth in multifamily revenue. For the full year, rentals revenue reached $630 million, up 39% from 2024. Multifamily revenue grew 58% for the full year. Taken together, our results show we're executing a clear strategy, gaining share across for sale and rentals, and building a platform designed for durable growth across market conditions. In for sale, we're creating a more connected experience across search, touring, financing, and agent collaboration, which continues to deliver meaningful growth for Zillow Group, Inc. Class C, and positive outcomes for consumers, agents, and loan officers. Our focus is on reducing friction and uncertainty by helping all participants in the transaction work together more effectively, regardless of whether their relationship begins on Zillow Group, Inc. Class C. Leveraging technology to improve speed, clarity, and coordination while supporting the human judgment and local expertise that ultimately move transactions forward. For sale revenue totaled $1.9 billion in 2025, up 9% year over year. Cumulatively, over the past three years, for sale revenue grew 16%, while the housing market shrunk as existing home sales were down 19%. We continue to expand existing products, broaden our reach, convert more customers already in our funnel, and integrate the experience more deeply. This strategy is clearly working, and we believe we are well on our way to achieving our $1 billion incremental revenue target in for sale. Our success in for sale is largely driven by continuous improvements to our customer experiences and growth in our enhanced markets, where the integrated experience comes to life as we bring together buyers, agents, and loan officers in a more coordinated way. In Q4, 44% of our connections came through enhanced markets, up from 21% a year ago and well on our way to our intermediate target of at least 75%. Across these markets, Zillow Home Loans has averaged double-digit adoption as consumers see value in our offerings. We help buyers understand what they can afford and provide a convenient application with fast loan officer responses, free appraisals to eligible buyers, free access to credit monitoring, and competitive rates. All of which is driving strong growth in purchase originations. As we continue to grow, we are also improving our processes and offerings. In 2025, we saw an 11% increase in loan officer productivity even as we added 40% more loan officers who take time to ramp up. At the same time, we grew total purchase loan origination volume 53% year over year. We also improved transaction conversion rate among Zillow preferred agents in 2025, while expanding the integrated enhanced market experience to more customers and more partners. Throughout 2025, we not only rolled out more enhanced markets, but also rapidly innovated on our products along the way, with a focus on improving connection quality, engagement, and productivity. Viability, a tool from Zillow Home Loans that helps buyers understand what they can realistically afford before they take a tour or make an offer, has enrolled 3.6 million users, up from 2.9 million at the end of Q3. We've more tightly integrated viability with Zillow Home Loans and with Follow-up Boss. In that same vein, we recently rolled out custom preapproval letters directly within Follow-up Boss, allowing agents to generate offer-specific updates and collaborate faster and more seamlessly with our systems. Based on early tests, messaging within the Zillow app, powered by Follow-up Boss, is driving more frequent communication between consumers and their agents, helping them stay aligned at key moments, communicate more consistently, and focus on delivering for clients instead of managing tasks. In 2025, Follow-up Boss Smart Messages scaled from a small pilot to a nationwide feature, with agents sending more than 7 million of these AI-powered messages. Zillow Group, Inc. Class C's in-app messaging is fueling an increase in engagement between customers and agents, which we believe will translate to better conversion and more transactions. All of these agent software improvements build on the solid foundation of unique assets that already put Zillow Group, Inc. Class C at the center of so many real estate workflows. We're also continuing to expand Zillow Showcase, our immersive listing experience that helps agents win listings and give sellers a more compelling way to market their homes. Showcase enhancements like Sky Tour and virtual staging have not only given buyers a better shopping experience, they've made Showcase even more attractive to agents and sellers. And adoption continues to grow. Showcase was on 3.7% of new listings in Q4, up from 1.7% a year ago. And we see significant room to expand from here. Furthermore, in Q4, we announced Zillow Pro, a comprehensive suite of offerings that helps agents manage all of their clients, including those sourced outside of Zillow Group, Inc. Class C, in a single connected system. Over time, we expect it to reinforce Zillow Group, Inc. Class C's role not just as a marketplace, but as a long-term partner helping real estate professionals operate more effectively and grow their businesses. We are currently beta testing Zillow Pro and plan to expand nationwide over the second half of the year. While in its early stages, we're encouraged by the initial feedback from agents and believe Zillow Pro creates exciting future growth potential for the company. All of these efforts reflect a consistent theme: integration improves outcomes. We're helping consumers move forward with more confidence, helping agents and loan officers be more productive, and capturing more of the opportunity already flowing through our funnel. In rentals, we're executing against a significant opportunity and seeing some of our strongest growth, as we deliver clear value for both renters and property managers. The rentals category is highly fragmented, with no single system that brings together comprehensive listings, high-intent demand, and modern transaction tools. As a reminder, our strategy to address this is twofold. First, we're building a comprehensive two-sided marketplace of homes for rent, giving renters a single trusted destination to find every type of property, from single-family homes to large apartment communities. Second, we're modernizing the rental transaction itself, streamlining how renters and property managers connect and manage applications, leases, and payments. This strategy works because it solves real pain points on both sides of the market. Renters get transparency, efficiency, and trust. Property managers get more visibility for their inventory, better-qualified applicants, and higher return on their marketing spend. And because renting is where nearly every mover starts, our progress in rentals continues to expand the top of Zillow Group, Inc. Class C's housing funnel and create durable growth across the business. In Q4, Zillow Group, Inc. Class C had 2.5 million average monthly active rental listings, ranging from single-family homes to large apartment buildings. In 2025, we estimate our share of rental listings increased to 63%, up from 54% in 2024. And because of our relentless focus on the consumer experience, Zillow Group, Inc. Class C rentals attracted 31 million average monthly unique visitors in Q4. Renters rate Zillow Group, Inc. Class C as their number one preferred platform. High-quality audience engagement translates into strong outcomes for our partners. Property managers tell us Zillow Group, Inc. Class C delivers the highest return on marketing investment in our category, which is driving wallet share as more large operators choose to advertise and upgrade their presence on Zillow Group, Inc. Class C. As a result, and 39% for the full year 2025, rentals revenue grew 45% year over year in Q4. Multifamily rentals revenue continues to be a key driver. We're adding more properties as we expand packaged offerings for property managers, encouraging them to list more of their portfolios on Zillow Group, Inc. Class C. As we continue to scale in rentals, we're coupling revenue growth with thoughtful investment, and we see a clear path to a billion-dollar-plus annual revenue opportunity. We're getting there by improving the renter experience, with clearer pricing, more streamlined applications, and more transparency while delivering strong measurable ROI for property managers. It's a winning combination that has allowed us to grow rentals revenue at an average of 32% annually since 2022, significantly outperforming the 14% annual rate we estimate for broader rental advertising demand. Zillow Group, Inc. Class C rentals reflect the same core strengths that show up across Zillow Group, Inc. Class C: a trusted brand, a large and engaged audience, and product innovation that solves real problems for both sides of the market: consumers and industry professionals. The trajectory we're seeing in rentals reinforces why it continues to be one of our most compelling growth opportunities. Before I wrap up, I want to briefly address the legal matters that have been in the headlines recently. We are confident in our positions and approach, and we do not expect these matters to have a material impact on our financial position or long-term strategy. We believe deeply in our strategy, which is guided by a few core tenets. Consumers want an easier, more transparent way to rent, buy, sell, and finance their homes. Industry professionals want to scale their businesses, serve their clients more effectively, and help them get the broadest possible exposure. Our business decisions consistently focus on delivering products and experiences that do both. That focus doesn't change based on market conditions or other external factors. We believe Zillow Group, Inc. Class C will continue to thrive by innovating and delivering what consumers want and industry professionals want and need. We expect to continue growing across our business and further enhance the comprehensive marketplaces that consumers and the broader industry rely on. Our audience and engagement are strong, and consumers and partners keep choosing Zillow Group, Inc. Class C because of the scale, transparency, and experiences we offer. You can see the impact of our steady focus and consistent execution in the results we've reported today. Our multiyear strategy is designed to perform across market conditions, and the momentum we carried through 2025 has set us up well for 2026. As we mark Zillow Group, Inc. Class C's twenty years of building in this category, we continue to shape what's next. We've spent two decades earning consumer trust by investing in technology that brings transparency and efficiency to a complex process. And we are the company focused on delivering sustained value to agents across their businesses. That foundation positions us to lead in the current era and define the next era of real estate. With that, I'll turn the call over to our CFO, Jeremy Hofmann. Jeremy Hofmann: Thanks, Jeremy, and good afternoon, everyone. We delivered strong results in Q4 and are well positioned to continue delivering strong performance as we execute on our strategy in 2026 and beyond. Q4 2025 revenue was up 18% year over year to $654 million, near the top end of our outlook range. Our revenue performance combined with effective cost management delivered EBITDA of $149 million, near the midpoint of our outlook range. Q4 EBITDA margin was 23%, 260 basis points higher than a year ago. Our full-year 2025 EBITDA grew 25% year over year as we continue to scale revenue and control costs. Importantly, as a result of these efforts, we reported positive GAAP net income in Q4 and for full year 2025. For sale revenue grew 11% year over year in Q4, to $475 million, approximately 800 basis points above the 3% residential real estate industry growth as reported by NAR. We estimate purchase mortgage origination volume was roughly flat year over year in Q4, which is noteworthy given a majority of buyers transacting with Zillow Group, Inc. Class C purchase their home with a mortgage. Within the for sale revenue category, residential revenue was up $418 million, up 8% year over year and in line with our growth outlook. Residential revenue growth was driven primarily by our agent and software offerings and our new construction marketplace. Agent offerings include Zillow preferred, market-based pricing, and Zillow showcase. Software offerings primarily include Follow-up Boss, Dotloop, and ShowingTime. Within the for sale revenue category, mortgages revenue increased 39% year over year in Q4 to $57 million. This was better than our outlook for approximately 20% year over year growth, as we saw better than expected conversion rates from customers in our mortgage funnel. Purchase loan origination volume accelerated to 67% year over year growth in Q4, which was the main driver of our mortgages revenue growth. It is clear from our results that Zillow Home Loans has an attractive value proposition for buyers, and we are quite pleased with the strategy and execution. Turning to rentals, Q4 revenue was $168 million, with growth accelerating to 45% year over year. Rentals revenue comprised 26% of our total revenue in Q4, up from 21% a year ago. This growth was driven primarily by our multifamily revenue, which grew 63% year over year. Our value proposition to multifamily property managers and execution by our Salesforce to both win new properties and upgrade to more comprehensive packages is evident in our Q4 results. We increased the number of multifamily properties on our app and sites by 44% year over year, reaching an all-time high of 72,000 multifamily properties as of the end of Q4, up from 50,000 properties at the end of 2024. As a reminder, we measure our multifamily property count as 25-plus unit buildings and do not include our industry-leading long-tail properties, which is a significantly larger property count. When you include these long-tail properties, Zillow Group, Inc. Class C rentals had 2.5 million average monthly active rental listings in Q4, the most in the category. The quantity and quality of high-intent renters on our platform allows us to continue to expand our wallet share with property managers, who tell us Zillow Group, Inc. Class C delivers the highest return on marketing investment in our category. We expect to continue to drive growth in rentals towards our billion-dollar-plus annual revenue target. Q4 EBITDA expenses of $505 million were slightly above our outlook due to higher than expected legal expenses. We drove leverage on total fixed costs, which were flat year over year in Q4 compared to total revenue growth of 18%. This includes the impact of share-based compensation expense, which was down 20% year over year in Q4. The results of our cost discipline were evident in our expansion of EBITDA margins, which were up 260 basis points in Q4 year over year. Our net income margin expanded 990 basis points from Q4 a year ago. Turning to full year 2025, our execution throughout the year translated into 16% revenue growth, consistent with our mid-teens growth outlook and ahead of our expectations at the start of the year. In 2025, the housing market grew by 3% according to NAR, which means our revenue outperformed the housing market by 1,300 basis points. When we evaluate our performance, we focus on our ability to outperform the market over annual and multiyear periods, which we have successfully accomplished in 2025. Our for sale revenue grew 9% in 2025, with residential revenue growing 7% and mortgages revenue growing 37%. Rentals revenue growth accelerated to 39% year over year in 2025 from 27% year over year in 2024. We grew our multifamily properties by 44% in 2025, and property managers chose to expand their investments with upgraded packages, which drove 58% multifamily revenue growth year over year. We combined our strong revenue growth with disciplined cost management. We held our full-year 2025 EBITDA fixed costs to approximately $1 billion, which resulted in fixed costs as a percentage of revenue declining to 41% in 2025 from 44% in 2024. Of note, total fixed costs for the company were up 2% for 2025. While we controlled costs, we continued to invest for future growth. We thoughtfully grew variable costs with additions to our rental sales force and loan officers in Zillow Home Loans. And we expanded rentals demand with our Redfin syndication agreement. This combination of strong revenue growth, disciplined cost management, and strategic investments resulted in 2025 EBITDA margin expansion of 180 basis points year over year. Share-based compensation expense of $390 million was down 13% year over year, which contributed to our net income margin expanding 590 basis points to bring us to GAAP profitability for the year. We made meaningful progress towards our mid-cycle financial targets. As part of those targets, we have a goal of adding $1.5 billion of revenue before any increase in existing homes sold. In 2025, we added $347 million in total incremental revenue, well on our way to achieving the goal. This performance came against the backdrop of a housing market that remains far below normal, with existing home sales flat year over year at 4.1 million homes sold. We continue to expect significant upside to our business when housing market conditions improve. Of note, assuming a more normal housing environment of 6 million existing homes sold, we estimate that we could have generated EBITDA margins in the mid to high 30% range in 2025, compared to our reported 24% EBITDA margins for the year. In 2025, we continued to be active on capital management. We retired the last of our $419 million in convertible debt in Q2 and repurchased $670 million of shares throughout the year, which in aggregate is $1.1 billion of cash returned to shareholders. Our overall outstanding share count was down 2 million shares at the end of 2025 compared to the end of 2024. Total share repurchases through 2025 have been $2.6 billion at a weighted average share price of $50. Going forward, we expect our share repurchase plan will continue to be a core part of our capital allocation strategy, as it has been since 2021. In 2025, we generated $420 million of free cash flow, a 36% increase compared to the same period a year ago. We ended 2025 with $1.3 billion of cash and investments. We also recently secured a $500 million revolving credit facility, giving us more flexible access to capital and strengthening our overall liquidity. Turning to our outlook for Q1, we expect total revenue to be between $700 million and $710 million, implying a year over year increase of 18% at the midpoint of our outlook range. We expect for sale revenue growth in Q1 to be in line to slightly better than Q4, driven by residential revenue growth in the high single-digit range and mortgages revenue growth of approximately 40%. Our guidance reflects our expectation that challenging housing market conditions will continue in Q1. We expect our rentals revenue growth will be approximately 40% year over year in Q1, driven by further multifamily revenue growth. For Q1, we expect EBITDA to be between $160 million and $175 million, representing a 24% margin at the midpoint of our outlook range. This is being driven primarily by a seasonal increase in payroll-related expenses and lead acquisition costs related to the Redfin syndication agreement. Additionally, we are increasing variable costs related to hiring of rental salespeople and loan officers in Zillow Home Loans as we continue to invest for growth. Last, we have ongoing elevated legal expenses. Of note, we estimate year over year increases in legal expenses will result in approximately 200 basis points headwind to EBITDA margins in Q1. Year to date in 2026, we have continued to repurchase our stock as we take advantage of the recent market dislocation to buy back shares at what we believe is an attractive price. Turning now to full year 2026, we expect to deliver mid-teens revenue growth. In rentals, we expect approximately 30% revenue growth in 2026, after growing rentals revenue by 39% in 2025 and 27% in 2024. We expect continued EBITDA margin expansion in 2026 as we leverage fixed costs and invest in variable costs. We expect share-based compensation expense to be down more than 10% year over year and to drive meaningful growth in net income. Before discussing costs, the shape of our margin expansion story for the year, I will discuss our housing expectations for 2026. We are planning for the for sale environment to continue to bounce along the bottom. However, the affordability picture has improved and is giving us some optimism. The share of median household income spent on a newly purchased home returned to 32% in December, down from its peak of 38% in 2023. We will be watching this closely as we expect further improvements will drive a broader housing market recovery over time. With respect to costs, we plan to maintain our cost structure framework, including to continue to control our fixed cost base to drive leverage. We expect our fixed cost base of approximately $1 billion to grow with inflation and believe it is the right investment level as we execute our growth strategy. For variable costs, we plan to continue investing for growth in rentals, as well as additional loan officers in Zillow Home Loans, as we expand our enhanced markets footprint. Thus, we expect our variable cost base to grow ahead of revenue in 2026 and then trend towards in line with revenue growth in 2026. We have consistently said we will be opportunistic with our advertising spend, dialing it up or down depending on where we see opportunities across the business. We see opportunities to grow marketing in 2026 versus 2025. We want to expand our awareness in our enhanced markets and continue to strengthen demand for our rentals offering. As you think about the cadence of our expenses in 2026, note that we expect to incur elevated legal expenses throughout the year, which has an impact on year over year EBITDA margin growth, particularly in the first half of the year. Despite elevated legal expenses that result in approximately 100 basis points of margin headwind, we believe current consensus EBITDA estimates are reasonable for the full year. We know share-based compensation has been on investors' minds. After delivering a 13% decline in share-based compensation expense in 2025 compared to 2024, we expect to deliver more than a 10% decline in 2026. With 90% of our share-based compensation allocated to fixed employees, we are seeing increased leverage as we strive to keep fixed headcount relatively flat. The decrease in share-based compensation expense helped drive positive net income in 2025. We expect it to contribute to further net income growth in 2026. Furthermore, we have used our cash position and operating cash flow to repurchase stock, which has mitigated ongoing equity grant dilution, resulting in ending share count down 2 million shares year over year. As we look ahead, we are confident in our mid-cycle targets for $5 billion in revenue and 45% EBITDA margins in a normalized housing market. 2025 showed good progress towards these targets. We expect to make further progress in 2026 as we continue to execute our strategy, which is for more than 75% of connections to have the enhanced market experience, to increase showcase adoption toward our intermediate-term target of having showcase on 5% to 10% of total active listings, and strong growth in rentals with continued increases in multifamily property count and upgrades in packages. And looking even further beyond 2026, we are excited about Zillow Pro's future prospects to meaningfully expand our serviceable addressable market and help agents serve all of their customers. To close, we are successfully executing on our strategy and are very excited about the opportunity ahead of us. We have the right investments in place to support our strategy, and we are delivering strong growth while maintaining a disciplined cost structure that is driving expanding margins and positive GAAP net income. And with that, operator, we'll open the line for questions. Operator: Thank you. At this time, if you would like to ask a question, please click on the raise hand button which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk. And then you will hear your name called. Please accept, unmute your audio, and ask your question. We'll wait a moment to allow the queue to form. Our first question will come from Nick Jones with BNP Paribas Security Corp. Please unmute your line and ask your question. Nicholas Jones: Great. Thanks for taking the questions. I have two, one on rentals and one on AI. Can you elaborate a little bit on rental trends? You're gaining share on the long tail. You're gaining share with multifamily. Driving 30% annual growth. So, I mean, what are you kind of hearing from the multifamily side as far as product market fit goes? And how much more opportunity or white space do you see there kind of maybe this year and beyond? That's the first question. And the second question is a great slide on your positioning for vertically integrated AI. Partnered with OpenAI today. Can you talk about how you see kind of a vertical AI future in Zillow Group, Inc. Class C's place in it to the extent you can kind of share what you're excited about? Thanks. Jeremy Wacksman: Yeah. Thanks, Nick. Maybe I'll start, and Jeremy add on anything you want. I think on rentals, I mean, the growth you're seeing in the business, it's really just our strategy working. Honestly. It's the as we talked about, we have a pretty unique strategy in rentals in that we're the marketplace that's focused on trying to organize all of the types of supply, not just the big apartment communities, but the long tail single-family listings. And as Jeremy talked about, you know, more than or two and a half million on average in Q4 listings. Jeremy Hofmann: We think that's the most in the category. Jeremy Wacksman: That's what drives the audience. Right? I mean, the 31 million unique visitors per comm score that lead is widening because we're solving their problem. They want to find as much inventory as possible in one place. And they want a digital transaction. Right? Having portable applications, able to sign custom leases, be able to make rent payments, report credit, report rents, to build credit, all those things. Those are tools the renters want. And then once you satisfy and delight the demand, that's when the advertisers really want to get access to that demand. So when you have this high-quality audience, increasingly, multifamily advertisers want to bring more of their portfolios online. That's why you see the building growth. And the revenue growth accelerate. And, you know, as Jeremy talked about, the ROI is really the signal there. You know, we consistently hear we're the highest ROI advertising spend of all their sources of advertising spend, and they spend at a bunch of places. So that's really what's driving the revenue growth you've seen, you saw in Q4. It's why we expect the revenue growth to continue as Jeremy talked about. We feel very confident in our ability to get to that billion-dollar-plus revenue target that we've put out for you all in rentals. And important to remember as we get closer to that target, we don't think that's the end. We think there's a very big rentals opportunity to go after beyond that billion-dollar-plus mile marker. But for now, we're really excited to just make progress towards it. Jeremy Hofmann: And then Jeremy Wacksman: you know, on the AI question, I mean, I think I talked about it in my prepared remarks. You know, I think it's really this is just a unique category and we have a really unique strategy that I think is going to benefit from AI. Right? Residential real estate, it's highly regulated, deeply local, it's organized around millions of independent licensed professionals, and then the consumer experience it's not a one-visit transaction. It's high dollar, high stakes, takes place over months or sometimes years. And the average buyer buys once every fourteen years at this point. So, you know, you're turning to a professional team and you're turning to a vertically integrated experience to really help you with that, that's something that where we think AI is actually an ingredient to us building this vertical rather than a threat or something and why we lean into it. And I think that's also why we're so confident that we're going to be the ones to help deliver that. Jeremy Hofmann: Our strategy Jeremy Wacksman: to build this vertically integrated experience is what we've been doing for years now and we're the ones with deep industry expertise and the proprietary assets and data at scale. Right? So, yes, of course, we have the audience. But the industry software tools, the data, and the transaction workflows and the trust of the professionals to help build this integrated transaction, is what we're focused on. And when AI comes into the category, we think it's going to help make that vertical experience even better. Right? Elevating the professionals, taking away the busy work so they can convert more transactions, they can be more efficient. And delight in our shared customers. That's what we think the end of this rainbow looks like, and we're excited to go deliver it. Operator: Great. Thank you. Operator: Our next question will come from Brad with RBC Capital Markets. Your line is open. Please unmute and ask your question. Bradley Berning: Hi, guys. Thanks. I have two. First, I think we all know kind of Zillow Group, Inc. Class C's stance on listing distribution requirements, but, you know, just curious how you think about maybe any effect from some of this recent consolidation going on in the industry and private listing networks and all that. Does that represent any kind of risk to the business from your perspective? And I have a follow-up. Jeremy Wacksman: Thanks, Brad. I mean, short answer is no. Don't really expect any risk or impact to our business. Despite all the noise and questions, we are talking about a pretty small number of listings overall. I think, you know, 1% or less. And the reason it's small is the vast majority of sellers and agents don't want that. Right? Agents don't want to limit exposure and have a home take longer to sell or not maximize price. And they especially don't want to do that if to do so, they'd have to trade off access to Zillow Group, Inc. Class C's broad audience. Right? What consumers want is more transparency, want to sell their homes fast. They want to sell their homes for the most money. Want to market them broadly. And we hear that from both sellers and agents, and that's why I think you've historically seen these types of approaches be a very small share of listings. There are a very small share of cases where things don't sell broadly on market, and we expect that to continue. Bradley Berning: Got it. And then just a follow-up on the RESPA case. Recognize probably can't comment too much on the case itself. I'm just curious if that's creating any sort of adverse effects or on the ground for you as you go to market with ZHL or even just the enhanced market strategy overall? Thanks. Jeremy Wacksman: Sure. Yeah. I mean, on that, no. It's not. Right? Our long-term strategy here is based on consumer choice and building this integrated end-to-end transaction. And, you know, helping buyers understand what they can afford when they're on Zillow Group, Inc. Class C, providing them a convenient application, giving them great loan officers to work with, and then helping agents see that Zillow Home Loans is a great option for them and earning the loan the agent's trust with Zillow Home Loans so that they want to use it for some of their customers. That's really the strategy here, and you're seeing the results of that play out in the mortgage growth. I mean, really strong mortgage growth in Q4. 37% in 2025, and we're expecting continued strong mortgage growth into 2026. The double-digit adoption rate you're seeing of Zillow Home Loans across our enhanced markets, I think, is a great barometer for continuing to methodically grow the ZHL experience and expose it to more agents and more customers. Operator: Got it. Thanks. Operator: Our next question will come from Ronald Josey with Citi. Your line is open. Please go ahead. Ronald Josey: Great. Thanks for taking the question. Maybe a quick follow-up on Brad's just now. With all the legal challenges that are out there. Maybe Jeremy, talk to us about just is there any change in approach to Zillow Group, Inc. Class C's business strategy that has to happen because of these challenges? Or anything that you feel needs to change just because of, you know, the multiple suits out there? And then maybe for Jeremy Hofmann, just a modeling question. There's lots of moving parts in terms of newer products ramping like rentals and ZSL and mortgages doing better, and then we have newer products launching like the rollout of Pro in the back half of the year. Just talk to us about the framework you were using as we build out revenue throughout '26. Obviously, we have Q1 guidance and we have EBITDA, but would love your thoughts on how you frame sort of the contributions of these newer products and enhanced markets throughout 2026. Thank you. Jeremy Wacksman: Yeah. Maybe I'll take the first one. Don't know if you can take the second. I mean, the answer to your first one is pretty short. No. We don't expect any change. We're not making meaningful change to our business or results in any issues, and we're really confident in our positions and approach. We don't expect the issues to have a material impact on our long-term strategy or our financial position. Jeremy Hofmann: Yeah. And then on guidance from a revenue perspective, at the full company level, we're expecting mid-teens revenue growth. On rentals, we're expecting 30% revenue growth for 2026. And that's on the face of a 39% revenue growth in 2025 and 27% in 2024. So continuing to see great or expecting to see great growth there. With respect to contributions on the for sale front, going to be more of the same, which will be some combination of enhanced markets continuing to grow, Zillow Showcase continuing to roll out, Follow-up Boss getting in the hands of more folks, Zillow Home Loans continuing to nicely alongside, the enhanced markets expansion, then our new construction business continues to grow nicely. That's all coupled with a rentals business that we think is really well positioned, has executed well in the last few years. And we expect it to continue to be the case in 2026. Operator: Alright. Our next question will come from John Colantuoni with Jefferies. Your line is open. Please go ahead. John Colantuoni: Okay. Great. Thanks for taking my questions. I wanted to start with Zillow Pro. Update us on where that rollout stands and any early learnings into how it's impacting lead conversion and agent adoption of your CRM tools. And second, on guidance, you've come in closer to the high end of your guidance in the past couple quarters, which compares to more consistently delivering upside to the high end in recent years. Has your approach to guidance transitioned so you're looking to sort of guide closer to the high end rather than beat the high end? Thanks. Jeremy Wacksman: Maybe I'll take the first and Jeremy can take the second. On Pro, we're really excited about Zillow Pro. It's in beta test now, and we're planning for nationwide expansion kind of second half of the year. And a reminder, Pro is really a membership bundle. It's an offering to help the agents, all agents, not just current Zillow Group, Inc. Class C customers, run their whole business. And help them convert all of their customers, not just Zillow Group, Inc. Class C customers. And that includes, you mentioned our CRM, Follow-up Boss. That includes premium agent profiles with curated media. It includes branding. It includes expanding the my agent feature, which is something of particular interest for agents. Helping the rest of their client database get insights from Zillow Group, Inc. Class C about what those clients are doing and includes all of our AI-powered follow-up tools, and it becomes a pathway to Zillow preferred. Right? So as more agents are on Zillow Pro, that becomes a place where they can raise their hands and try and become eligible for Zillow preferred. And to your question on our CRM, you know, because Follow-up Boss is a key part of the bundle, we expect as more folks eventually sign up for Pro, it will help follow-up across growth and adoption. But I think equally exciting will be for existing Follow-up Boss customers, it's going to help increase the usage and the efficacy of Follow-up Boss. We're going to be bringing more AI and more insights to the part of their business that is not Zillow Group, Inc. Class C customers. And so many of them have great databases, great clients, great lead sources that are off Zillow Group, Inc. Class C, helping supercharge that and improve conversion to your question. We expect that to help them get more efficient and improve both customer service and ultimately conversion of more transactions. So, again, we're really excited about it. I think it's a fantastic next step in helping really grow the SAM of our for sale business. But I will say it's early, and that's why we're in beta. That's why we were really clear on timing that we're going to learn a bunch with our beta customers in the first half of this year, and we're going to march onward in the second half. Jeremy Hofmann: Yep. And then, John, on your question around guidance and what we're trying to achieve there, I think the answer is we've always tried to be as close to the pin as possible. We've gotten better at forecasting conversion in particular in PA, so that's allowed us to get these last few quarters than maybe the magnitudes of beats you've seen previously. But always trying to get as close as possible. And then with respect to Q4, the big difference on the cost structure was really around legal expenses, and that was higher than we anticipated coming into the quarter and was ultimately a 180 basis points of margin drag for Q4. Obviously, we laid out what we think for 2026 from a legal cost perspective as well, and it will be a drag, but it's not stopping us from expanding margins, which we expect to do throughout 2026. John Colantuoni: Very helpful. Thank you. Operator: Our next question will come from Mark Mahaney with Evercore. Your line is open. Please go ahead. Mark Mahaney: Okay. Thanks. Maybe two questions. You talked about getting to 75% of connections coming through enhanced markets. What are the biggest obstacles to going from 44% to 75%? And you talked about that as a medium-term goal, medium, like, two to three years. Is that how we should think about it? And then on Zillow Pro, and that contribution, so we should start to see an impact of that in the second half of the year. And where in the revenue streams would that show up? Thank you. Jeremy Wacksman: Yeah. Thanks for the questions, Mark. Maybe I'll take the first, and Jeremy, you can take the second. On enhanced markets and the connection share, we haven't put a time frame on 75%. I mean, you should expect the rollout will continue to look similar. Right? It's both more geographies and then depth in existing geographies. We did that this year, and maybe think about pacing to be a similar clip of growth to last few years. So, you know, it's on the horizon. And, again, remember, 75% was just kind of a mile marker. We'd like to get it to as many connections as possible. And so once we got from, you know, 20 to 44 last year, we'll keep growing. We're going to find ways to bring that experience to as many customers as possible. Just as we get over half and into more into the future years, it's going to be broader and deeper and even more places. And that's to your question on what the governor is. It's operational lift and scale, and it's training partner teams and making sure our partner agents have the right capacity and quality. And then, ultimately, Zillow Home Loans loan officers. You have to build all those things to go grow. We're really proud of the work we did in 2025. You know, more than doubling that, and you're seeing the incremental revenue that's coming from this strategy coming to life even against the flattish housing market. And that's why we're so confident in the billion-dollar-plus incremental revenue in our for sale business. Just from getting this experience in more people's hands over time. So no explicit time frame, but we feel great, and we're well on our way. Jeremy Hofmann: Yep. And then, Mark, with respect to how to think about it for 2026, I would not expect it to be meaningful even in the second half of 2026 as we are rolling it out more nationwide. I think 2026 is really a year for learning adoption and figuring out, you know, where the key value props are. So I would think about it that way for 2026, not a financial contributor, but one where we really learn a ton. It will sit within residential as the revenue comes in. And today, we're offering it at a monthly subscription that's priced for adoption. Mark Mahaney: Thank you very much. Operator: Our next question comes from Nikhil Devnani with Bernstein. Your line is open. Please go ahead. Nikhil Devnani: Hi, there. Thanks for taking my question. I wanted to ask about margins. So on the last earnings call, you had kind of anchored to the last couple of years, which implied roughly 200 basis points or so of opportunity in margin expansion for 2026. So I just wanted to clarify, is that still how you're thinking about margin expansion this year? And then considering the 100 basis points of headwind you're calling out from legal, does that mean that your underlying margin expansion is actually getting better than what you've seen in the past couple of years as the business scales and you get a stronger handle on the various cost buckets you've already talked about? Thank you. Jeremy Hofmann: Yeah. Sure. It's a really good question. First, I'd say consensus feels right for the year on EBITDA. And that implies, you know, around 200 basis points of margin expansion. We do think the underlying margin profile is better than that, and there's a legal drag associated with the cost there of 100 points. So you're right to point that out that the cost structure and the leverage on the business model is getting better, and then we have those legal costs to contend with. As you think about the shape of the year, you know, the first half of the year, we're going to continue to hold fixed costs flat. With inflation. We'll continue to invest in variable across rental sales, the Redfin syndication agreement, and ZHL loan officers. And then we're expecting variable costs to run closer to revenue growth during the second half of the year as the sales forces mature and we lap the comps on the Redfin syndication agreement. Legal will be a drag. It's a 200 basis points drag in Q1. It's a 100 basis point drag for the year. But overall, we still expect to expand margins similar to what we've done in 2024 and 2025. I'd be remiss if I didn't say stock-based comp will be down, expect to be down more than 10% again, which should drive further expansion in net income. So I think it sets us up for another good year of execution. We're expecting strong revenue growth. Expect EBITDA will grow faster than revenue. And we're expecting net income will grow even faster than both revenue and EBITDA. Nikhil Devnani: Great. Thank you so much. Operator: Our next question will come from Trevor Young with Barclays. Line is open. Please ask your question. Trevor Young: Great. Thanks. On mortgages years ago when you had disclosed segment EBITDA, I think it was approaching EBITDA breakeven when the business was around $250 million in revenue. So a bit bigger than where we're at today. Is mortgages EBITDA profitable today and how we think about margin here in a recovery scenario as we bridge to that mid-cycle 45% EBITDA margin bogey? And then second question, just to clarify, you know, the cadence of EBITDA this upcoming year. It sounds like legal expenses were kind of outsized here in April. Embedding a bit more for the full year, you know, two points hit in January, one point hit for the full year. Should we lap that by April such that, you know, we'll see that uptick in margin really hitting in April? Jeremy Hofmann: Yeah. Thanks, Trevor. I'll take those. On mortgages, we don't break it out. But we love the long-term opportunity in mortgage for growth and profits. You know, we look at a landscape there that purchase mortgage is still very, very fragmented. And we think that in a more commoditized product like mortgage, brand and distribution tend to do quite well, and we have great brand and we have great distribution as well. So we love the opportunity and we're seeing it play out in the results. Mortgages grew 39% in Q4, home loans purchase originations grew 67%. And we're expecting the category to grow 40% in Q1 as well. So feel quite good about all that. Hopefully, that helps give some context on, you know, where we're headed on the mortgage front. Operator: Our next question will come from Dae Lee with JP Morgan. Your line is open. Please ask your question. Dae Lee: Great. Thanks for taking my questions. I have a question on macro. So could you elaborate on the improvements you're seeing in affordability versus your expectations for housing markets to bounce along the bottom? Are you seeing anything that might be curbing some of the optimism warranted by the affordability improvement? And separately, I guess, related, are any of your investment plans meaningfully sensitive to the housing market growth? Or should we expect your expense framework to be less correlated to the housing conditions? Jeremy Hofmann: Yep. I'll take that. So on the macro front, we planned the cost structure. We planned the revenue. For housing to not do much this year. We are starting to see affordability get better. But not necessarily seeing it play out in homes being sold fast or anything like that. We're just pointing out the fact that housing or housing expenses as a percent of total income is down to 32% versus at a high in 2023, it was 38%. So we think that's a good sign that should drive a broader recovery over time. We're just not necessarily planning for it in 2026. And just remind me, your second question was what exactly? Dae Lee: If your investment plans meaningfully sensitive to the housing market growth. Or if your expenses framework should be less correlated to that. Jeremy Hofmann: I would think about the expense framework as consistent regardless of the macro environment. I think macro is a real positive for us. When it comes back, but our expense framework is going to be consistent regardless of what housing does. Dae Lee: Got it. Thank you. Operator: Our next question will come from Lloyd Walmsley with Mizuho. Your line is open. Please go ahead. Lloyd Walmsley: Great. Thanks for the questions. Two, if I may. First, just can you give us a sense of if you're planning to step up enforcement of Zillow Group, Inc. Class C listing access standards to just sort of ensure that broad distribution of listings? And then secondly, when we look at the sort of percent of leads coming from enhanced markets, it was a big sequential step up relative to what you've been seeing this quarter. So can you just help us understand? Like, I think you recognize a lot of the revenue at the time of the lead, but, like, is there a leading indicator component of that at all? And, like, are underlying lead volumes also accelerating as enhanced market scale up? Anything you could say there would be great. Jeremy Wacksman: Yeah. Maybe I'll take the first one and then Jeremy can take the second. Thanks, Lloyd. On the listing access standards, there's nothing to step up. We're enforcing them now. Remember, this is really about education. What we find is when we educate an agent that might have been miseducated, that there's a violation that would result in a listing not being broadly marketed and not being on Zillow Group, Inc. Class C, most folks don't want to do that. And so we end up helping them understand, hey. There's a trade-off to make there, and they want their listing on Zillow Group, Inc. Class C. So that's been working well. It's why you continue to see this be a pretty small thing. Because most sellers and most agents who are helping sellers want the broadest possible exposure for those things to sell their home fastest and for more money. Jeremy Hofmann: Yep. And then on the enhanced markets question, what I would remember or just remind you is the Zillow Home Loans revenue that tends to come alongside the enhanced markets expansion. And when we start to see more mortgages come through, that lags. I wouldn't think about it as one to one as we increase the amount of connections in enhanced markets, it will go one to one with the overall for sale business. Lloyd Walmsley: Okay. Thank you, guys. Operator: Our last question will come from Daniel Kurnos with Benchmark Company. Your line is open. Please go ahead. Daniel Kurnos: Yeah. Great. Thanks. Can we just touch on the opportunity to grow marketing in '26 that you guys called out? Obviously, you've got competitors still spending pretty aggressively, although traffic seems to be accruing to you rather than them. We saw Redfin advertised during the Super Bowl. And so just curious what channels you guys are looking to press and why you think this year is a particularly good year to step up on the marketing spend. Thank you. Jeremy Wacksman: Yep. Dan, I can take that. I mean, I think for what we're doing, which is a modest increase, it's more about being opportunistic. Which is what Jeremy has always said. We'll be opportunistic. We see a little bit more room in enhanced markets and in rentals, and so you'll see a slight increase, which I think is a little different than what maybe some competitors are doing with volumes of spend and where they're spending. And as you pointed out, I think the reason we can do that is actually implied in your question. As the category leader, with such strong, not just brand awareness, but brand preference, we tend to benefit when others in the category advertise. We saw that even this weekend. And we'll continue to find the right places to teach people what we do, help make them aware of our new things, things like enhanced markets, to try and deepen engagement and earn the right with them to offer them more services. That's really what our focus is on our advertising spend. And you'll see us do that this year. So no change in strategy in terms of how we think about advertising. Jeremy Hofmann has always talked about it as we want to be opportunistic with our parts of the business, and that's what we're doing this year is finding the right places to really pour a little bit more gas on because we think it really helps the business. Daniel Kurnos: Does that imply channel shift at all? Jeremy Wacksman: No. Not nothing specific on channel shift. We've been really great, really efficient advertisers at driving both top, mid, and bottom funnel. I mean, our marketing team does a great job of kind of branded response where we're building brand and reinforcing brand preference. While also driving great performance into the funnel and into our businesses, and the team will continue to do that. Daniel Kurnos: Great. Super helpful. Thank you. Jeremy Wacksman: Yep. Operator: This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks. Jeremy Wacksman: Thank you all for joining us today. We really appreciate your continued support. We are excited for what's ahead and look forward to speaking with you all next quarter. Operator: Thank you for joining Zillow Group, Inc. Class C's fourth quarter and full year results call. This concludes today's conference call, and you may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to Consensus Q4 2025 Earnings Call. My name is Paul, and I will be the operator assisting you today. [Operator Instructions] On this call from Consensus will be Scott Turicchi, CEO; Jim Malone, CFO; Johnny Hecker, CRO and Executive Vice President of Operations; and Adam Varon, Senior Vice President of Finance. I will now turn the call over to Adam Varon, Senior Vice President of Finance at Consensus. Thank you. You may begin. Adam Varon: Good morning, and welcome to the Consensus investor call to discuss our Q4 and year-end 2025 financial results, other key information and our 2026 full year and Q1 2026 guidance. Joining me today are Scott Turicchi, CEO; Johnny Hecker, CRO and EVP of Operations; and Jim Malone, CFO. The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q3 2025 investor call, and then Jim will discuss Q4 2025 and full year 2025 financial results, then provide our full year 2026 and Q1 2026 guidance range. After we finish our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on the procedures for asking a question. Before we begin our prepared remarks, allow me to direct you to our forward-looking statements and risk factors on Slide 2 of our investor presentation. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to the risk factors that we have disclosed in our regulatory filings, including our annual 10-K and quarterly 10-Q SEC filings. Now let me turn the call over to Scott for his opening remarks. R. Turicchi: Thank you, Adam. I'm extremely pleased with both the fourth quarter and full year 2025 results. I believe that we've closed the first phase of Consensus' history and look forward to embarking on the next phase, which begins now. At the time of the spin 4-plus years ago, we had $805 million of debt with a leverage of 4x gross debt to adjusted EBITDA, a majority SoHo revenue business, tech debt, core product offerings that were cloud fax only and a thinly staffed company with 450 people. And all of this is before inflation spiked in 2022, adding an additional operational headwind. Material progress has been made on all fronts. Through the hard work of our employees, much of it a grind, Consensus has generated more than $800 million of adjusted EBITDA since spin, resulting in free cash flow of approximately $375 million after investing approximately $150 million in the business. This went to retiring tech debt, enhancing our core fax solutions as well as adding other solutions benefiting primarily the health care sector. The free cash flow has been utilized primarily for the retirement of $243 million of debt, bringing us down to $562 million of debt at year-end and hitting our initial target leverage of 3x total debt to adjusted EBITDA. In addition, given the attractive valuation of our stock throughout most of the past 4 years, we have been able to repurchase $57 million worth of our stock or approximately 2.2 million shares, which represents about 10% of the shares outstanding at spin. We have added about 75 employees to our team over this time frame, and we have shifted the business to its corporate focus. So I want to extend a big thank you to all of our employees who have been part of this transformation. Before turning the call over to Johnny, who will provide you with much detail regarding both the quarter and the full fiscal year, I would like to note a few items. Historically, Q4 is always a more challenging quarter to forecast given holiday closures, vacations and unpredictable weather. I'm highly encouraged that we beat our top line objectives for the quarter, saw sequential growth in revenue from Q3 despite having 1.6 fewer business days in Q4 2025 and saw the corporate channel exit with a 7.3% growth rate, positioning us favorably for 2026. This is the third consecutive quarter of total revenue growth for the company. The SoHo channel also beat our forecast as we saw improvement in customer acquisition in the latter part of Q4, which is continuing thus far in 2026. We remain focused on our cost structure while adding employees into our product and go-to-market operations during the quarter. We produced positive free cash flow in our most challenging quarter and more importantly, hit a record $106 million of free cash flow for the year, up 20% from 2024 on flat revenues. We are well positioned for the next phase of consensus. Johnny and Jim will provide details regarding our guidance for 2026, but I will make a few observations. We see a continuation of the trend for accelerating corporate growth, approximately 9% at the midpoint of our guidance and a similar rate of decline in SoHo as in 2025, approximately a 10% decline. This combination will have us grow approximately 2% at the midpoint of our range for the year in revenues. From an operational perspective, we expect a modest flow-through of the incremental revenue to adjusted EBITDA as we see increases in our cost structure roughly in line with inflation and have additional people investments that we'll make in the business, primarily, again, in product development and go-to-market operations. We do not have any substantial maturities in our debt until 2028. We will monitor the debt markets to see if an opportunistic refinancing can be achieved, but more likely will occur sometime in 2027. We expect free cash flow to approximate the record level of 2025 and look to be more aggressive in our share repurchase program this year, given the free cash flow yield on our stock is more than 3x that of our debt costs. I will now turn the call over to Johnny. Johnny Hecker: Thank you, Scott, and hello, everyone. I want to frame my operational update today, not by starting with a list of numbers, but by highlighting the fundamental transformation of our business composition. We continue to see a decisive shift in how our customers utilize our network. This has been going on for a few quarters and has become an established trajectory, a significant acceleration in the utilization of our services within the corporate channel, showing a year-over-year increase in usage per business day that has remained in the double digits for 5 consecutive quarters. For several quarters now, we have witnessed large health care organizations shift to the cloud. This is coupled with the desire to eliminate manual data entry and to improve workflows in order to increase productivity, reduce costs and accelerate revenue. It is transforming our network from a passive transport layer into an operational contributor, driving notable surge in usage per business day. At the same time, we benefit from our largest customers and channel partners' organic growth. As they grow, we grow. This is not accidental. It is the result of our deliberate strategy to build a highly durable recurring revenue platform. Operationally, we are seeing the continuation of a powerful trend, corporate revenue solidifying its position as a substantial majority of our total top line. To put this in perspective, in Q4 2021, our revenue split was roughly 51% SoHo and 49% corporate. However, by 2024, our corporate revenue represented 60%. In 2025, that figure rose to 64%. And based on our current path, we project it will reach 68% in 2026. This confirms that we have successfully shifted our center of gravity to our highest value asset. The fourth quarter served as a powerful evidence of this strategy. We delivered a record $56.8 million in corporate revenue, representing a 7.3% year-over-year increase compared to $52.9 million in Q4 2024. Sequentially, we drove a notable increase from $56.3 million in the prior quarter despite having approximately 1.6 less business days in Q4. This performance is significant. It breaks a historical seasonal pattern of sequential decline in Q4 and marks our best corporate growth rate since Q4 of 2022. For the full fiscal year, we delivered $222.7 million in corporate channel revenue, a 6.5% growth rate that validates our acceleration path and puts us ahead of the midpoint of the guidance we provided in February of 2025. We drove this growth through 2 primary operational engines, health care and the public sector. In health care, we are successfully executing on our strategy to expand our trusted network, which serves as the critical foundation for our platformization journey. By entrenching our position as the secure transfer layer for sensitive data, we are creating the necessary infrastructure to layer on our advanced interoperability tools, effectively deepening our relationship and future wallet share with existing customers. We are already seeing the strategic logic validated by our deal quality. We're observing a shift where health care clients are moving beyond simple connectivity and beginning to bundle our eFax Clarity AI solution to solve specific workflow bottlenecks. We're no longer just selling a connection. We're tackling a labor problem. This shift in customer conversation from price per page to value per workflow is the leading indicator that our platform thesis is taking hold. In the public sector, ECFax, our FedRAMP High certified eFax offering for the government, is experiencing high demand across the public sector and nongovernment organizations of all sizes mandated to migrate to secure FedRAMP solutions such as contractors supporting the government in claims processing, waste fraud and abuse prevention or to operate government facilities. This surge in demand is translating directly into a robust and growing pipeline, and we're actively investing in the expansion of our dedicated team and go-to-market capabilities to capture this opportunity. The Department of Veterans Affairs, the VA, continues to be a major source of growth and a crucial reference account. It demonstrates our capability to operate securely and at scale, meeting the highest standards. Furthermore, the VA exceeded our 2025 expectations and is projected to contribute in excess of $9 million this year. Additionally, our state, local and education, the SLED business has established itself as a second relevant pillar, growing significantly faster than the commercial space. I'm happy to report that our corporate revenue retention rate stands at 101.3%, continuing our trend of operating well above the 100% target. This compares to 100.5% in Q4 of last year. Our total corporate customer base is approximately 65,000, representing an 11.3% increase year-over-year. To ensure both stability and reach, we're executing a distinct barbell strategy where the quality of this revenue is as important as the quantity. On the enterprise side, the average revenue per account ARPA of our non-eFax Protect cohort has now increased for 4 consecutive quarters and is well above $300 per month, while the account churn for the same cohort is the lowest in 7 quarters. This confirms that our largest customers are finding more value in our platform and expanding their usage. On the volume side, we added approximately 7,000 new paid accounts in the quarter on a gross basis. This was driven significantly by our eFax Protect e-commerce engine. We successfully navigated the search environment shifts and e-commerce headwinds discussed last quarter, stabilizing our subscriber funnel. Turning to our SoHo business. Our operational focus remains on the efficiency and maximizing contribution margin. Revenue for the quarter was $30.3 million, a decrease of 11.1% year-over-year, slightly ahead of our expectations outlined in our Q3 call. For the full fiscal year, we delivered $127 million in SoHo channel revenue, a 10% decline versus 2024. We effectively managed our subscriber base to approximately 638,000 with ARPA holding steady at $15.55. Crucially, we're actively navigating the shifts of the search environment that created the headwinds we forecasted. While the first half of Q4 presented challenges, our operational turnaround plan yielded measurable success by the end of the quarter. Despite the traditionally soft holiday season, we saw sign-up metrics improve, and we're continuing to see those improvements into Q1 of 2026. Most importantly, we have successfully reinvented and are managing this channel as the strategic cash engine. This managed decline in revenue is a deliberate choice acceptable only when offset by increased efficiency or when explicitly funding our corporate channel strategy. This discipline ensures we're maximizing the long-term value of this asset to fuel our broader transformation. Let me close my remarks by looking ahead. We view 2025 as the foundational investment year that has set the stage for 2026 and beyond. As a result of our go-to-market realignment, we are maturing as an organization, moving upmarket and deepening our footprint in our key verticals. You will see our revenue mix continue to shift toward corporate and our advanced product suite. While cloud fax remains a robust growth driver, 2025 showed the first real success with our AI-based eFax Clarity offering. While total revenue contribution is still early, the unit economic multiplier is key for our future growth. We're excited about the green shoots, revenue contribution and expanding installed base, solid exit run rate into 2026, increased number of POCs and a clear go-to-market focus for 2026. While we don't and won't publish line item product revenues, I'm excited to share that we have a clear line of sight to multimillion dollar revenue contribution from eFax Clarity in 2026. The public sector and VA wins are excellent indicators of our ability to grow outside our traditional comfort zone, and we are on track to prove it again with our advanced product suite. We remain laser-focused on our key targets, returning to total growth, setting us up for double-digit growth in the corporate channel and expanding our advanced product footprint. Finally, I want to express my sincere gratitude to our entire team for the execution during this transformative year and to our customers and partners for their continued trust and collaboration. With that, I will hand the call over to our CFO, Jim Malone, to provide the detailed financial update and our 2026 guidance. Jim? James Malone: Thank you, Johnny, and good morning, everyone. In our press release and on the earnings call today, we are discussing Q4 2025 and full year 2025 results plus 2026 full year and quarter 1 guidance. We expect to file our 10-K within the next few business days. Starting with Q4 2025 corporate results. Q4 2025 a record revenue of $56.8 million increased $3.9 million or 7.3% versus prior year, performing better than expectations. It was our highest quarterly year-over-year growth rate in 2025 and broke a historical trend of Q4 sequential revenue declines and also represents the best year-over-year corporate growth rate since Q4 2022. Revenue delivered a trailing 12-month revenue retention rate of 101.3% an improvement of approximately 80 basis points from the prior comparable period. Our corporate customer base of approximately 65,000 was up 11.3% over the prior comparable period. Q4 2025 corporate ARPA of approximately $290, a decrease of approximately $13 from the prior comparable period and approximately $3 sequentially was in line with our expectations. As Johnny mentioned, corporate ARPA, excluding eFax Protect has increased for 4 consecutive quarters and is materially greater than $300 per month. Moving to full year corporate results. Full year corporate revenue of $222.7 million is up $13.6 million or 6.5% versus the prior year and better than the midpoint of our initial 2025 guidance in February 2025. Our corporate revenue has grown at a 7% CAGR from approximately $170 million in 2021 to approximately $223 million in 2025. Full year corporate ARPA ended at a solid $300 compared to $310 in the prior year comparable period and in line with the last several quarters range of $290 to $316. Moving to Q4 SoHo results. Revenue of $30.3 million is a decrease of $3.8 million or 11.1% over the prior year and slightly ahead of expectations, considering a 13,000 year-over-year decline in paid adds. As Johnny mentioned, while experiencing headwinds in the first half of Q4 due to shifts in the search environment, our operational plans have seen measured success with sign-up metrics improving into Q1 2026. ARPA of $15.55 is flat year-over-year. Churn of 3.5% is down sequentially and year-over-year by approximately 21 basis points and 8 basis points, respectively. Full year SoHo results. As a reminder, our SoHo revenue decline is a deliberate choice that we made several quarters ago as we pivoted this revenue channel to a strategic cash engine. Full year SoHo revenue of $127 million is down $14.3 million or approximately 10% versus prior year, which is in line with our original 2025 guidance range in February 2025 of a negative 11.5% to a negative 7.5%. SoHo ARPA of $15.58 is up from $15.39 with full year customer churn of 3.64% versus 3.56% in the prior period. Moving to Q4 consolidated results. Revenue of $87.1 million is the third consecutive quarter of consolidated year-over-year growth, an increase of $0.1 million or 0.1% over Q4 2024. Adjusted EBITDA of $45.2 million versus $44.4 million in Q4 2024 delivered a solid 51.9% EBITDA margin and performed ahead of expectations. Adjusted net income of $27.3 million is an increase of $3.1 million or 12.7% over the prior year, primarily driven by adjusted EBITDA, net interest expense and depreciation and amortization. Adjusted EPS of $1.41 is favorable to the prior year by 13.7% or $0.17, driven by the items I mentioned. The Q4 2025 non-GAAP tax rate and share count were approximately 19.5% and approximately 19.4 million shares. Moving to 2025 full year consolidated results. Full year 2025 revenue of $349.7 million is essentially flat year-over-year near our midpoint of the 2025 full year guidance range. Full year 2025 adjusted EBITDA of $186.9 million delivers a solid 52.4% adjusted EBITDA margin above our original 2025 full year guidance range. Adjusted net income of $109.4 million was $3.8 million or 3.6% favorable versus the prior year comparable period, driven primarily by operational performance and efficient capital management. Adjusted EPS grew to $5.62, up 3.1% or $0.17 from the prior year, primarily due to the items I mentioned. This result exceeded our initial high-end guidance range and was close to the high end of the revised guidance range provided on our Q2 call. The 2025 non-GAAP tax rate and share count was approximately 21% and approximately 19.4 million shares. Moving to our cash -- our capital allocation strategy. Free cash flow. We ended 2025 with $106 million in free cash flow, an increase of $18 million or approximately 20% versus 2024 on strong cash flow from operating initiatives. CapEx ended at $30 million, a decrease of approximately $3 million or 10% versus the prior year. Debt and equity. Q4 2025, we fully retired our 6% bonds due October 2026 at par. Our current debt balance of $562 million consists of 6.5% notes of $348 million, delayed draw term loan, $150 million, revolver $64 million. At December 31, 2025, we met our total debt-to-EBITDA ratio of 3x with a net debt-to-EBITDA of 2.6x. Equity. Q4 2025, we repurchased 344,000 shares for $8 million. For year 2025, we repurchased 1 million shares for $23 million. And program to date, we have repurchased approximately 2.2 million shares for $57 million. Cash and cash equivalents. We ended fiscal 2025 with $75 million in cash, which is sufficient to fund our operations and capital allocation strategies. Now on to 2026 guidance. Our full year guidance as follows: revenue between $350 million and $364 million with $357 million at the midpoint; adjusted EBITDA between $182 million and $193 million with $187.5 million at the midpoint; adjusted EPS between $5.55 to $5.95 with $5.75 at the midpoint. Full year estimated share count and income tax rate are approximately 19.1 million shares and 19.7% to 21.7% with 20.7% at the midpoint for our tax rate. For our fiscal quarter of '26, we are also providing guidance as follows: revenue between $85.4 million and $89.4 million with $87.4 million at the midpoint. Adjusted EBITDA, $43.8 million between and $46.8 million with midpoint of $45.3 million. Adjusted EPS between $1.36 to $1.46 with $1.41 at midpoint. Q1 2026 estimated share count and income tax rate are approximately 19 million shares and 19.7% to 21.7% with 20.7% at the midpoint, respectively. That concludes my formal comments. Now I'd like to turn the call back to Scott. Thank you. R. Turicchi: Thank you, Jim. Before taking questions, I want to draw your attention to an 8-K that we filed last night. As noted, our CFO, Jim Malone, will be retiring this year. He will stay on as CFO through the end of Q1 and then will transition to becoming a special adviser to me through the balance of the year. I want to publicly thank Jim for his more than 4 years at Consensus. He is ending on a high note, and we will miss him. As I noted in my opening remarks, we were leanly staffed in late 2021. Jim came in and built a stellar finance and accounting department, culminating in the earliest investor call and 10-K filing in the company's history. More importantly, he developed his successors internally such that upon him stepping down as CFO, the Board has approved effective April 1 for Adam Varon and our current SVP of Finance, to succeed Jim as CFO; and Karel Krulich, our current SVP of Accounting, to become our Chief Accounting Officer. Adam has 14 years with the business, and Karel is approaching 4 years. I look forward to working with both of them and their respective teams. We will now take questions. Operator: [Operator Instructions] The first question today is coming from David Larsen from BTIG. David Larsen: Congratulations on the good quarter and the continued growth in total revenue and corporate revenue. Can you talk about the demand environment that you're seeing? There's some concern around the Big Beautiful Bill Act, potential declines in exchange enrollment, potential declines in Medicaid enrollment. Is that putting pressure on hospitals budgets or not? And just sort of as an anecdotal point, maybe you could sort of comment on the success of the VA, please. R. Turicchi: Yes. Thanks, David. Good questions. Really appreciate it. So on the BBBA and the Medicaid cuts, what we're seeing right now is hospitals have figured it out. We hear from our customers, they usually budget in the last calendar quarter of the year. They went into a little bit of a halt mode and just monitoring what was happening and figuring that out with their budgets. Obviously, we talked about it in the past, focusing more on OpEx than CapEx, managing their cash. So they're interested in moving into services like ours. It took them a while to work through that process, and we're seeing now increasing engagement from that customer group, which is very encouraging, and we're very excited about. On the VA, yes, I said it on the call, we had a good year. We exceeded the $5 million that we had projected for the year in 2025. And we're expecting probably north of $9 million or around $9 million of revenue in 2026. So that is a significant growth for just a single account. We're continuing the rollout successfully. We're seeing increased adoption within the sites that we have rolled out, and we still have runway within that customer. So obviously, that runway is built into our 2026 projection, but it's a really encouraging progress with that customer. Beyond the VA, we're engaged with other government agencies and interestingly also nongovernment organizations that are mandated to use a FedRAMP or sometimes even a FedRAMP high solution now since one is available on the market. So it's very encouraging what we're seeing in the public sector and with that eFax or ECFax for government product. David Larsen: That's very helpful. And then it's my understanding that Clarity and Harmony to use AI that can actually be very effective in the billing and AR process within the revenue cycle for facilities. Just any color there in terms of your use of AI? And I mean, the hospitals view the purchase of your product as a way to accelerate cash collections? Or is it more of a CapEx purchase? R. Turicchi: So on the -- that's a good question. On the hospital side, we see it being used primarily or more on the referral side. So we're very focused on specific use cases. In that case, it's referrals and orders that for inbound fax traffic, but also scan referrals and those kind of things, just getting sorting through those documents. So the first step is indexing. And then secondly is processing those at a higher pace. So that is helping them cutting down on that administrative burden and on that administrative labor. So that's what I meant by tackling a labor problem is that they're actually freeing up headcount that they so desperately need on the clinical side by using these tools to help on the administrative side. And that's what they're really focused on. On the rev cycle side, you see it, for example, for Medicaid claims management, those kind of things, where we have more in the prior authorization space to meet those CMS requirements of turning around prior authorizations within the 72 hours. The ones that do come in by fax are completely unstructured, right? So you need to pull out data points and accelerate that processing and AI helps to extract those important data points. David Larsen: And just one last quick one... R. Turicchi: No, I was just going to say you addressed the Harmony product suite, right? So with Clarity extracting the data, we still need to translate it into a data format and deliver it on a protocol that the customer requires. So it needs to integrate with their EHR system or with the rev cycle management system, whatever they need. So they need FHIR message or HL7 format. So that's where the Harmony -- where the platform comes in, where we transfer that structured data, that unstructured data into a structured data piece, but then deliver it in the exact format that the customer requires. David Larsen: Great. And then 3 years from now, what percentage of revenue would you expect to be corporate? R. Turicchi: It's a good question. And part of that goes to not only the growth of corporate over the next 3 years, which, as you can tell from all of our remarks, we're very bullish about those trends and they're breaking through double-digit growth. But obviously, it introduces the question of where SoHo will be. But I would say if we're at almost 2/3, 1/3 today in favor of corporate, you're probably going to be around 75-25 within the 3-year time frame. And that will be premised in part on breaking through the 10% for corporate growth and then pulling in that minus 10% on SoHo. But that should be roughly the mix about 3 years out. Operator: The next question will be from Gene Mannheimer from Freedom Capital. Gene Mannheimer: Jim, we'll miss you. And Adam, congrats on the promotion. Good results. I wanted to just dig in a little bit more to Clarity. You indicated you have line of sight in the multimillions in revenue this year. What are the kind of the underlying demand dynamics that is driving that interest from the market? And who's the competition that you face there? And then my follow-up question would be just on the guidance range for 2026. It looks a little wide. And I'm just wondering if that's correct? Or did you provide a similar range for your initial 2025 view a year ago? And what are the variables between the low and the high end of that range? R. Turicchi: Well, I'll let Johnny start with the operational question on Clarity, and then I'll jump in and talk about the guidance and the construction of it. Yes. So go ahead. Johnny Hecker: So maybe to give you a little bit of background on Clarity. As you can imagine, what you hear about all of the AI projects and other verticals as well is I think the first couple of years was everybody was like trying things out and was going very broad. And what we have filtered out for ourselves and where we see most demand is really in that first, what I mentioned on the last question, first, really on the indexing on document classification and then trying to get as much value out of the solution as you possibly can. And with the referral management and the order management that I indicated or talked about, you really have 2 value drivers. On the one hand, you can manage that administrative burden and some of these imaging centers or radiology centers or if you think about other verticals that are -- or sub verticals that are high or very reliant on referrals like infusion management or those kind of things, they have like dozens of people sitting there sometimes just keying in data. So that's a cost driver on the one hand, where they can -- that drives demand, where they can reduce the cost. On the other hand, the acceleration of processing those referrals faster really drives top line for them. So you have a basically a double benefit driving top line, getting the referral faster. One of our customers calls it the race to yes, right? So whoever responds to a referral first, we'll get that patient. And that's what's driving the demand there, and that's what we're focusing on. So we're trying to move away a little bit from everybody wanting like everything to really focusing, and that's what I meant with my remarks earlier when I said we have a clear go-to-market focus for 2026 for Clarity, really honing in on the referral and on the prior authorization piece as a first step, and then we will add additional workflows to that. And yes. Gene Mannheimer: And that's great color. R. Turicchi: So as to the guidance, let me give everybody a little bit of a history on this and our philosophy. And it has been done consistently, Gene, for a number of years and certainly with 2025. So as you can imagine, the focus for us from a financial standpoint and operational is on our budget for any upcoming fiscal year, in this case, 2026. That budget then translates into the midpoint of our guidance of both revenue, adjusted EBITDA and non-GAAP EPS. And this is important because those are also the numbers that are used as it relates to the various compensation programs for our employees. So some have certain bonus participations based on a combination of revenue and EBITDA. In other cases, it's revenue and adjusted non-GAAP net income. So those are all consistent at the midpoint. Then what we do is a while ago, we came up with what I'll call an extrapolation on the top line of about 2%. So that gives you based on the current level of revenue, about a $7 million range on either side. And those are just to account for all the known, unknowns or unknowns, if you will, things that could change in the economy, not catastrophic changes where you would go from, say, a stable economy to a great financial crisis, but what I'd call moderating either headwinds or tailwinds in the economy. There's obviously a number of variables that go into generating the top line. There's going to be some volatility and variability around it. The thesis is that our midpoint, which is the budget, when you combine that with the extrapolation should accommodate most of those current unknowns. Now obviously, if they accumulate in one direction or another, the range may not be sufficient. So that's where we start. That's the philosophy on the range of revenues. And then from there, we bleed down and we look, obviously, most importantly at the margin at the midpoint. And then we say, well, if you're going to have a little less revenue, you're probably going to have a little less margin. Even operationally, you may make some adjustments during the year to mitigate some of your costs given less revenue. Conversely, on the upside, you'll probably flow through a little bit more than at the midpoint, but you'll also introduce the question of additional reinvestment. And then from there, the things below the line are, I'd say, relatively fixed independent of revenues. So our depreciation and amortization is really not going to be a function of where we are in the revenue range. The way we budget our interest expense and interest income is we look at the debt outstanding at the end of the year. So in this case, $562 million. We have the credit facility portion versus the high-yield notes. The high-yield notes are fixed at 6.5%. The credit facilities float, but we're generally getting into a mode where we're locking in the SOFR for 6 months. So that's known. And we assume no debt retirement during the year or equity repurchases. And then we just take our estimated free cash flow and we let it accumulate, and we assume that gets reinvested at money market fund rates. Now -- and then, of course, you have a share count that gets you to the bottom line. Now what will happen, obviously, during the course of the year, something I mentioned in my opening remarks and it's also responsive to a question that we have received via e-mail is we will take that cash and there may be better uses for it. Obviously, marginally better returns would come from retiring debt. In our judgment, more material returns come from retiring equity given the free cash flow yield, which today, the spot free cash flow of $106 million against our equity is about 25% free cash flow yield, whereas when we retire debt, we're retiring it either under 6% or at most at 6.5% if we can get those high-yield notes at par. So that's what will practically happen as we flow through the year. As I mentioned in the opening remarks, given where the stock price is, we have a strong bias towards shifting our cash flow allocations more in the favor of equity repurchases versus debt retirement. Having said that, if we look out over the next 2.5 years to the ultimate maturity of the 6.5% notes, it is our goal to bring the total debt of $562 million down, and that's kind of a question mark. My sense is right now, and of course, these are fluid conversations based on market conditions, not only today, but in the future, we probably want to bring that debt down over time to around $500 million. There may be an argument for going lower, and that's something that we'll be exploring over the course of this year because, as I mentioned, given the uncallable nature of the 6.5% notes until October and then at a premium, it's unlikely we do any refinancing this year. It's possible, but unlikely. So these are probably '27 events. But obviously, we're going to keep our pulse on the market and start looking at that actually right now. So I know that was more than you asked in the question, but I will give everyone a flavor of how we go from the top line to the bottom line. Operator: And the next question will be from Ian Zaffino from Oppenheimer. Isaac Sellhausen: This is Isaac Sellhausen on for Ian. Just one on the corporate channel. Could you discuss your expectations for ARPA this year? Do you believe the eFax Protect will continue to have a dilutive impact on ARPA or any offsets on that for the year? R. Turicchi: Yes. Thanks, Ian. I mentioned it on the call, I think we're looking at ARPA a little bit bifurcated by now, right? Because we have so much traffic and so much volume coming in on the eFax Protect that it really biases that ARPA downwards modestly. And then if we look at the non-EFax Protect cohort, we see that ARPA grow. So I think we -- as we drive more and more eFax Protect customers into our customer base, and we're successful with that program, and we expect it to continue to grow, we will see a little bit downward pressure on that corporate ARPA -- the aggregate corporate ARPA. Isaac Sellhausen: Aggregate example. R. Turicchi: Exactly. The question is if that's really still the right metric to measure that business. We're focusing more and more on the revenue retention rate, which I think is the stronger indicator for how that business develops. Isaac Sellhausen: Okay. Understood. And then just a quick follow-up just on margins. I know you guided to the EBITDA margin. If you could provide any color on gross margin expectations. I know you talked a little bit about modest cost increases in the prepared remarks, but any additional details on that would be great. R. Turicchi: Yes. I'd say most of our cost increases are in OpEx, not up there in COGS. So we have, on a non-GAAP basis, pretty stable margins right around 80%. And there's no reason to believe those will not continue. So we expect it to be in the 80% range this year and going forward. Remember, most of our cost structure, the largest single piece is people, and most of the people are expensed down below. They're not in COGS. They're in OpEx. And so that's where we have the increased salaries that I mentioned, not only for the core employee base in terms of raises year-over-year, but also as we add incremental people, they're coming in at the OpEx because they're in Johnny's group, which is all flavors of go-to-market and our Jeff Sullivan, our CTO, in his product and engineering group. Operator: There were no other questions at this time. I would now like to hand the call back to Scott Turicchi for closing remarks. R. Turicchi: Great. Thank you, Paul. Thanks, everyone, for getting up early, depending on where you are in the country to listen to our Q4 earnings call. We will return to the normal time slot when we report Q1 in May. This was unusual. As we announced, we are at the BTIG conference. So to accommodate their schedule, we did the release last night and did the call early this morning. This is unusual for us, but we appreciate you attending and asking questions this morning. Of course, we're available not only at the conference over the next couple of days, but we'll be available for Q&A. You can reach out to us. And then there'll probably be 1 or 2 conferences over the next several months that we'll attend, and we'll put out press releases over to you to those. Our next regularly scheduled call will be sometime in May to discuss Q1 results. Thank you. Operator: Thank you. This does conclude today's conference. You may disconnect at this time. Thank you for your participation, and have a wonderful day.
Operator: Good afternoon, and welcome to Red Rock Resorts Fourth Quarter and Full Year 2025 Conference Call. All participants will be in listen-only mode. Please note this conference is being recorded. I would now like to turn the conference over to Stephen Cootey, Executive Vice President, Chief Financial Officer, and Treasurer of Red Rock Resorts. Please go ahead. Stephen Cootey: Thank you, operator, and good afternoon, everyone. Thank you for joining today for Red Rock Resorts' fourth quarter and full year 2025 earnings call. Joining me on the call today are Frank Fertitta III, Lorenzo Fertitta, Scott Kreeger, and our executive management team. I would like to remind everyone that our call today will include forward-looking statements under the safe harbor provisions of the United States federal securities laws. Developments and results may differ from those projected. During this call, we will also discuss non-GAAP financial measures. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8-Ks, and investor deck, which were filed this afternoon prior to the call. Also, please note this call is being recorded. The fourth quarter represented another period of exceptional performance for the company. Our Las Vegas operations set new fourth quarter records for net revenue and adjusted EBITDA while maintaining near-record adjusted EBITDA margin. This marked the ninth consecutive record quarter for both net revenue and adjusted EBITDA. For the full year, our Las Vegas operations delivered their strongest performance on record, achieving all-time highs in net revenue and adjusted EBITDA, including producing more than $900 million in adjusted EBITDA for the first time in our 50-year history while maintaining near-record adjusted EBITDA margin. These results mark the second consecutive year of record net revenue and the fifth consecutive year of record adjusted EBITDA, underscoring the strength, consistency, and long-term earnings power of our operating platform. In addition to delivering strong financial results in 2025, we remain very pleased with the continued performance of Durango Casino Resort and the successful revenue backfill at our core properties. Durango continues to expand the locals market and drive incremental play from our existing customer base, reinforcing its position as a meaningful growth driver within our portfolio. On December 15, we completed our latest expansion to Durango, adding more than 25,000 square feet of new casino space, including what we believe is the premier high-limit slot area in Las Vegas, along with a covered parking garage providing nearly 2,000 additional parking spaces. While still early, customer response has been overwhelmingly positive, and early operational results continue to validate our capital investment into high-limit slot and table areas across our portfolio. Building on the success, on January 5, we broke ground on the next phase of Durango's master plan, further advancing the property's long-term growth strategy. Supported by strong market fundamentals and rapid development of the surrounding area, including more than 6,000 new households within a three-mile radius of the property over the next few years, this phase will expand the podium along the north side of the existing facility by more than 275,000 square feet. The expansion will add nearly 400 additional slot machines and Android gaming to the casino floor while also introducing a range of new amenities designed to drive repeat visitation and broaden customer appeal. These enhancements include a state-of-the-art 36-lane bowling facility, luxury movie theaters, a mix of new restaurant concepts, and multiple entertainment venues, highlighted by a partnership with Moonshine Flats, which will bring its signature country-western bar and live music concept to Vegas for the first time. Construction is expected to take approximately 18 months to complete, and the total project cost is estimated to be approximately $385 million. Upon completion of this expansion, we believe Durango will be better positioned to capture additional market share and drive sustained growth in the local market. Now let's take a look at our fourth quarter and full-year results. With respect to our Las Vegas operations, our fourth quarter net revenue was $505 million, up 2.5% from the prior year's fourth quarter. Our adjusted EBITDA was $231 million, up 3.2% from the prior year's fourth quarter. Our adjusted EBITDA margin was 45.8%, an increase of 32 basis points from the prior year's fourth quarter. On a consolidated basis, our fourth quarter net revenue, which includes $3.7 million from our North Fork project, was $511.8 million, up 3.2% from the prior year's fourth quarter. Our adjusted EBITDA, which also includes $3.7 million from our North Fork project, was $213 million, up 5.4% from the prior year's fourth quarter. Our adjusted EBITDA margin was 41.7% for the quarter, an increase of 84 basis points from the prior year. Let's turn to our full-year performance. With respect to our Las Vegas operations, our full-year net revenue was just under $2 billion, up 2.9% from the prior year. Our full-year adjusted EBITDA was $915.9 million, up 4.2% from the prior year. Our full-year adjusted EBITDA margin was 46.2%, an increase of 56 basis points from the prior year. On a consolidated basis, our full-year net revenue, which includes $17.6 million from our North Fork project, was $2 billion, up 3.7% from the prior year. Our full-year adjusted EBITDA, which also includes $17.6 million from our North Fork project, was $848.6 million, up 6.6% from the prior year. Our full-year adjusted EBITDA margin was 42.2%, an increase of 114 basis points from the prior year. In the quarter, we converted 62% of our adjusted EBITDA to operating free cash flow, generating $131.5 million or $1.25 per share. When looking at our 2025 cumulative free cash flow, we converted 55% of our adjusted EBITDA to operating cash flow, generating $466.3 million or $4.44 per share. This significant level of free cash flow was strategically deployed to support our long-term growth initiatives, including our most recent projects at Durango, Sunset Station, and Green Valley Ranch, and returned to our stakeholders through debt reduction, dividends, and share repurchases. In the fourth quarter, we remained focused on our core local guests while continuing to grow our regional and national customer base across our portfolio. Compared to the fourth quarter last year, we saw continued strength in carded slot play across our database, including our regional and national customers. Robust visitation and net theoretical win across our local database, as well as our regional and national customers, helped drive the highest fourth quarter revenue and profitability for our gaming operations in the company's history. Turning to our non-gaming, both hotel and food and beverage delivered another strong quarter, achieving near-record revenue and profitability in the quarter. The hotel operations performed exceptionally well, generating near-record results despite the West and East Towers at Green Valley Ranch being offline for renovation. The food and beverage operations achieved record revenue and near-record profitability for the quarter, supported by higher cover counts across our outlets. In group sales and catering, our teams delivered near-record fourth quarter revenue, and if we exclude the lost room nights from our Green Valley Ranch room renovation, we continue to see positive momentum into 2026. As we start the first quarter, we have continued to see stability in our core slot business within the locals market and across our carded database. While we expect near-term disruption impact from our ongoing construction projects at Durango, Sunset Station, and Green Valley Ranch, we remain as confident as ever in the strength of our business and long-term growth prospects. Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the fourth quarter were $142.5 million, and the total principal amount of debt outstanding was $3.4 billion, resulting in net debt of $3.3 billion. As of the end of the fourth quarter, the company's net debt to EBITDA ratio was 3.87 times, marking the seventh consecutive quarter of deleveraging, demonstrating both the earnings power of our operating platform and the stability of our balance sheet. During the fourth quarter, we made total distributions of $72.3 million to the LLC unitholders of Station HoldCo, including a distribution of approximately $42.4 million to Red Rock Resorts. The company used a portion of the distribution to fund its previously declared quarterly dividend of $0.26 per Class A common share and to repurchase almost 880,000 Class A common shares at an average price of $54.67 per share under its previously announced $900 million share repurchase program, reducing total shares outstanding to approximately 104.9 million. When combining the dividends and the share repurchases made throughout the year, we returned approximately $296.9 million to shareholders in 2025, demonstrating our ongoing commitment to disciplined capital allocation and delivering sustainable long-term value to our shareholders. Capital spend in the fourth quarter was $78.9 million, which includes approximately $64.2 million in investment capital as well as $14.7 million in maintenance capital. For the full year 2025, capital spend was $319 million, which includes approximately $227 million in investment capital, as well as $92 million in maintenance capital, down from our previous guidance mainly due to the timing of capital expenditures. As we look into our capital spend for 2026, we expect to spend between $375 and $425 million, which includes $275 million to $300 million in investment capital, as well as $100 million to $125 million in maintenance capital. In addition to our continued investment in our Durango property, we are making significant investments in our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to make strong progress on our podium refresh. The $53 million renovation will include an all-new country-western bar and nightclub, a new Mexican restaurant, a new center bar, and a fully renovated casino floor. Customer feedback and initial performance from the completed portions of the project have been overwhelmingly positive, reinforcing our confidence in the direction of the renovation and the underlying consumer demand at the property. The project remains on budget, with the remaining amenities expected to continue to come online throughout 2026. Building on this momentum, we are pleased to announce the next phase of Sunset Station, which is designed to further strengthen the company's competitive position and broaden its customer appeal, positioning it to capitalize on the strong demographic trends and continued growth in the Henderson market. Particularly from the master-planned communities of The Sky and Cadence, which are expected to deliver more than 12,500 new households at full build-out. The next phase will continue the comprehensive casino refresh, including expansion and enhancement of the movie theaters, as well as the relocation of the temporary bingo area currently housed in our former buffet space to a new permanent location. Upon completion of the bingo relocation, the former buffet space will be converted into a new high-end steakhouse and high-limit table games room, leveraging a proven strategy of investing in the higher-end value segments of our database that has consistently generated strong returns across our portfolio. Work on this phase is expected to begin in the second quarter, with the remainder of the project commencing in 2026 and extending into early 2027. The total project cost is estimated at approximately $87 million. At Green Valley Ranch, we continue to make progress on the comprehensive refresh of our guest rooms, suites, and convention spaces, aligning the hotel experience with the recently renovated and well-received high-limit table and slot rooms at the property. Renovations to the West Tower are now complete, and the tower has reopened to strong customer reviews and, while still early, encouraging financial performance despite the ongoing disruption on the property. Renovations to the East Tower and the convention spaces commenced during the fourth quarter. We expect the convention spaces to return to service late in the first quarter, while renovations to the East Tower are expected to extend into 2026. Continuing with Green Valley Ranch's long-term redevelopment strategy, we are advancing on the next phase of enhancements at this resort. This phase is designed to further strengthen the property's competitive position as one of the premier resort destinations in Las Vegas and broaden its customer appeal through a fully refreshed casino floor along with upgraded food and beverage and entertainment offerings. These enhancements build on the success we have seen from both the high-limit product at the property and the early performance of the renovated room inventory and are intended to drive increased visitation and deepen customer engagement across the resort. Work on this phase has already begun and is expected to extend into 2027, with total project costs estimated at approximately $56 million. Turning now to North Fork, construction continues to progress very well, with the opening of the project on track for an early fourth quarter 2026 opening. Total all-in project costs remain approximately $750 million and are fully financed. As of the end of the quarter, Red Rock's outstanding note balance due to the tribe was approximately $77.9 million. You may have heard or read about an unfavorable ruling the tribe received from a California court in December on a single remaining legal matter. This is the same case we have discussed in the past, and we do not believe this ruling will interfere with North Fork's right or ability to conduct gaming on its federally trust land. We remain excited about this best-in-class development, pleased with the continued progress of construction, and we look forward to providing further updates on future earnings calls. Consistent with our balanced approach to investing in long-term growth and returning capital to our shareholders, and following the completion of our fifth consecutive year of record adjusted EBITDA, we are pleased to announce that the company's Board of Directors has declared a special cash dividend of $1 per Class A common share payable on February 27 to Class A shareholders of record as of February 20. This action reflects the continued strength we are seeing in our business and the confidence we have in the long-term earnings power of our operating model. In addition, the company's Board of Directors has also declared its regular cash dividend of $0.26 per Class A common share, payable on March 31 to Class A shareholders of record as of March 16. With the fourth quarter behind us, the strong momentum from 2025 has carried into the current year, reinforcing our confidence in the strength and resilience of our business. Durango continues to validate our long-term growth strategy and underscore the value of our own development pipeline and real estate bank, which includes more than 450 acres of developed land in highly desirable locations across the Las Vegas Valley. Combined with our portfolio of best-in-class assets in premier locations, this pipeline positions us for significant long-term growth and enables us to fully capitalize on the favorable demographic trends and high barriers to entry that define the Las Vegas locals market. Looking ahead, we remain focused on executing our development pipeline, maintaining operating discipline, and delivering enhanced shareholder returns through a balanced, consistent, and disciplined capital allocation strategy. We want to take a moment to sincerely thank all of our team members for their continued hard work and dedication. Our success truly begins with them; they are the heart of our company and the driving force behind the exceptional guest experiences that keep our customers coming back time and again. In recognition of their efforts and in addition to the many accolades we have received in recent years, we are proud to share that Station Casinos has been recognized by Forbes as one of America's best large employers for 2026. This meaningful honor recognizes organizations nationwide that go above and beyond to create an outstanding culture for their team members and reflects our continued commitment to fostering a workplace where individuals feel valued, supported, and empowered to grow and succeed. Lastly, we extend our heartfelt gratitude to our loyal guests for their unwavering support over the past six decades. We are deeply thankful for the trust they place in us and look forward to continuing to serve our communities for many years to come. With that, operator, we are happy to open the line for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question today is from David Katz with Jefferies. Please go ahead. David Katz: Hi, good afternoon, and thanks for taking my question. Look, I think we've, you know, we look at the Las Vegas Valley as a whole, and I know we've discussed in the past the connection between, you know, what may go on in the strip, what may go on in other destination pockets within the valley. Can you just talk about what you're seeing in terms of demand levels, you know, as it relates to other areas? Because, candidly, you know, we've heard sort of pockets of weakness and, you know, forward-looking strength. Just give us an update on what you've seen and are seeing. Thank you. Scott Kreeger: Hi, David. It's Scott. Thanks for the question. Probably the best place to start would be in the hotel, and then we can kind of transition into other revenue areas. For the quarter, it's important to note that you have to adjust for the rooms that were out at GVR. When you do that, we performed quite well. So the down in the hotel was essentially the room night that we lost being down at GVR. So if you baseline that from an ADR perspective, an occupancy perspective, and an overall revenue perspective, we did quite well. And we did much better than what is publicly available from a RevPAR perspective compared to the strip. That was really a function of strong sales effort on the part of our sales team and then also Red Rock and Durango from a leisure segment having very high ADR. So we like where we sit in hotel, and we think that our hotel product is differentiated from the strip in that regard. The quality of our assets, the value proposition, and the ease and location of our properties really let us compete at a different level when it comes to the hotel. From a gaming perspective, we continue to see regional and national be one of our strongest performing areas of the database. And as Steve mentioned, we had a record fourth quarter revenue in gaming. And, again, we think that's attributable to a couple of things. One, the investment in our high-limit rooms and our move towards higher net worth customers. As well as the quality of our assets where people are finding from a regional national perspective that our offering is quite compelling versus the strip from a convenience and quality perspective. Stephen Cootey: Ivan, I don't know if you want to add anything. Scott Kreeger: Yeah. I mean, David, I know a lot of what comes to this between the strip and the local. It kind of really does start that, you know, we don't rely on tourism. We don't rely on conventions. We don't rely on hotel-driven revenue, right? We are a locals market, incredibly gaming-centric. We offer a distinct value proposition to our guests. And we rely on our guests to come back multiple times a month. In fact, 50% of our guests come over eight times a month. I think that is a differentiating fact between, I think, us and the Strip. Scott Kreeger: And I think the other thing is if you look at the locations that we have within the Locals market, we have the best locations in the market. Strategically located off the beltways. And where our properties are located is where all the new growth and new housing is taking place. So we feel great about where we are. David Katz: Okay. Thank you very much. Operator: The next question is from Ben Chaiken with Mizuho. Please go ahead. Ben Chaiken: Hey, how's it going? Thanks for taking my question. You know, there's a number of new projects you're working on. Given there's some updated timelines, you know, in coordination with phase two at Sunset and phase two of GVR as well as Durango, which was previously announced. Can you help us with maybe the total construction disruption that you're thinking in '26 and maybe any cadence that would be relevant? Thanks. Stephen Cootey: Sure. I can start. And I know the team can jump in. So if I kind of go back to Q4, Q4, we experienced probably about $5.1 million of disruption, mainly at our Green Valley Ranch property. When I looked at our Sunset Station property, the disruption was minimal. So there's some slight differences we previously announced. Being said, we don't know how much better we could have done if we weren't renovating the casino. It's a bit of a gut feel other than the hotel segment at Green Valley. We know we got 300 rooms now, so we can calculate that, obviously. Frank Fertitta III: Exactly. And so and I think that Frank would echo that same point about Durango where we're just beginning construction. On the North Valley, and we're doing our best in both the Sunset project and the Durango project to mitigate and minimize the operational impact while maintaining construction timelines. So moving into the first quarter, as Lorenzo mentioned, Green Valley Ranch is very easy to calculate because it's all rooms based and we have a history on that. We are going to be in peak construction. On the East Tower and the convention in Green Valley, so we expect disruption approximately about $9 million. And then as mentioned, we're going to continue to manage and monitor the potential impacts at Sunset Station and Durango on those projects as they move forward to what's called a more active basis of construction. But I do want to remind everyone that, you know, while these impacts, all these disruption impacts are very short term in nature, you know, the redevelopment of our properties to ensure that we remain best in class equipped with amenities that keep allowing our guests to return time and time again. That is central to Frank and Lorenzo's strategy. So over the long run, we expect to generate significant return from these capital investments. And further widen our competitive advantage from other locals in the market but also, the strip. Ben Chaiken: Okay. That's helpful. I guess, isn't it is $9 million a good bogey then for the for the year? I mean, that that sounded like just a one Q number. Stephen Cootey: That was the one number. I think you're going to end up maybe, like, $4 or $5.5 million probably in Q2 at Green Valley. And I'm hesitant right now to, as Frank and Lorenzo talked about, the Durango and the Sunset seem more of a gut feel. So not ready to give guidance on that one just yet. Initially, Lorenzo, on Green Valley, you know, that disruption, those rooms should be coming will be coming online. In July, kind of by summer. The, all the rooms should be delivered by then. So that's and the meeting space. So it's it's not far away. We're getting through the brunt of it right now. Ben Chaiken: Thank you. Operator: The next question is from Barry Jonas with Truist Securities. Please go ahead. Barry Jonas: Hey, guys. Generally, I think Q4 to Q1 EBITDA is usually up about apologies, 6% to 7%. Any reason outside of the disruption to think that could bear better or worse this year? Stephen Cootey: Yes, Barry, I think your number might be a little high as I always thought of seasonality between Q4 and Q1. It depends how far you go back. We go back, I go back prior to COVID, so I'm usually about 5.5%. Yeah. But I don't think that there's any reason that we can't achieve those returns. The one note being, that $9 million disruption. And just note, just so there's no confusion, right, that means roughly if I'm going sequentially, as you just did, that would mean really $3.9 million in extra disruption at Green Valley versus Q4. Barry Jonas: Great. And then just at a high level, some type of project. Stephen Cootey: Sorry, Barry. Got it. And then just as a follow-up, you know, as we head towards tax refund season, maybe just give your latest thoughts about expectations for any top line benefits from, the one big beautiful bill. Thank you. Scott Kreeger: Mean, Barry, I mean, I think ultimately, we're looking forward to attach return just started. I mean, the tax return season just started. I think the way these generally trend, if I look at 25% to 24%, about one-third of these refunds are done by sometime, let's call it, late February, and almost 50% of them are done by by mid-March. But, you know, the key measures there include the elimination of the, you know, the federal tax on tips. You're looking at overtime, the new senior tax credit, the reduction in marginal tax rates. And increased child and family tax credits as well as expanded standard deductions. We feel, especially given where our assets are positioned and where where people are moving to and where people currently are, that we are in prime position to take advantage of that excess discretionary income hitting the Las Vegas locals market. Barry Jonas: Perfect. Thank you. Operator: The next question is from Chad Beynon with Macquarie. Please go ahead. Chad Beynon: Hi, good afternoon. Thanks for taking my question. With respect to the GVR and 2027. How does that affect the timing of the developmental pipeline for greenfield projects beyond this year? Thank you. Lorenzo Fertitta: Yeah. This is Lorenzo. It doesn't affect it at all. It's just part of our kind of ongoing strategy. We really believe that you know, the key to our long-term success is investing in our existing properties and keeping them fresh. And like Steve said, it it it helps continue to separate us from from our competition. It also, I think, is allowing us to start the game some market share, grab some market share even from the strip as we're seeing a lot of customers particularly on the high end, that are coming over that historically had stayed in the strip that are now staying with us based on know, the amenities we have and the services that we provide. So listen, anytime that we go out and say that we're gonna invest money in a high limit slots and high limit table games at these properties, believe me, that's a great investment, and that's something that that you guys should be really happy about. We've seen great returns on those investments and it's just part of the process of how we've repositioned the the the properties and the brand coming out of COVID from, you know, all those spaces prior to that were essentially buffets where a lot of those buffets, people coming into the property, they were discounted buffets. They were it was a lost leader, and we've completely flipped that from that being a loss to being now assets that are generating substantial profit. As far as, you know, new builds, I mean, that is really what we believe is our one of the core competencies of our company is being able to go out, identify a piece of property, start from scratch, design the property, first on ingress, egress, and then figuring out what the what the product wants to be and how we're gonna how we're gonna operate it. We're currently working on multiple properties right now, I would say, in kind of full-on design. We have entire we're going through the entitlement process, on them. And, it just takes time. And we'll have an update you know, hopefully fairly soon on exactly what the time frame is gonna be. But the investments that we're making in our current properties will have no effect at all on on new properties and new builds. Chad Beynon: Okay. Great for that, extra color. And then, you know, it sounds like we're hearing some conflicting things in terms of just the the buzz and activity at your properties and and around, you know, the locals market for for the Super Bowl. Think most of the headline media was around, you know, strip prices, but we heard different things in the locals market. Can you maybe just talk broadly around how traffic was this weekend and you know, given the game outcome, if there should be a negative headwind for the first quarter versus, last year? Scott Kreeger: Yeah, Chad, this is Scott. I can tell you I had the pleasure of touring the properties on Sunday and walking with the general managers and want to give them and their team a lot of support for what they did. I can tell you there's no better place to be on Super Bowl week than a Station Casino property. We had every property fully programmed, whether it was the bars, the restaurants, the racing sports book. VIP parties, for our best guests, we were buzzing, and and we had decent results from the Super Bowl from a betting perspective. And and even better results from a from a gaming perspective on slots. Food and beverage. And and if there was any slowdown, I'll it wasn't in our properties. Chad Beynon: Thanks, Scott. Appreciate it, guys. Operator: The next question is from Jordan Bender with Citizens. Please go ahead. Jordan Bender: Hey, everyone. Thanks for the question. I want to hit on the 90% deduction from the one big beautiful bill. From what we can see, it doesn't seem like there's much momentum to revert it back to what it was. So you know, have you guys done any work around how much of a threat that could be, particularly for the high-end business? Scott Kreeger: This is Scott. I'll take it. First from a customer perspective, and then maybe Steve can talk a little bit about what to do about it. For the most part, if there was an impact, it's relatively centered around just education and and our customers trying to figure out what it means. So to the degree we can, we try to help them understand, you know, the language in the bill and how it affects them. Steve could probably elaborate a little more on the mechanics of it and know, what we're doing in conjunction with not only just us, but the whole gaming industry. Industry. In trying to rectify the legislation to get it adjusted back to where it was. Stephen Cootey: Sure. I mean, I'll I'll I'll I want to keep it incredibly high level because I think you you touched on it. I mean, the the rule is incredibly confusing. And so I think that the the main goal here, particularly since legislative seems a little bit tougher to find, is work through administratively through the IRS just to give some clarity around what 90%, than how the 90% rule works. And so and making and then finding a mechanism industry-wide to get that out to our, you know, to our players and our customers. Jordan Bender: Great. Thanks, Steve. And I guess Steve, sticking with you, as we think through your leverage, we kind of run the CapEx numbers through our model and our when our models are spinning out is maybe leverage is gonna stay at the current levels over the next year or so. Can you just remind us, like, where you were comfortable running the business as we think about, you know, if in a way we do get the new a new new build project? Thank you. Stephen Cootey: Yes. I mean, I think in the current leverage position right now, we're we have an incredibly strong balance sheet, ample liquidity, very flexible credit agreement and no long-term maturities. So think at 3.87 times, that's the seventh consecutive quarter of deleveraging. We feel that the balance sheet here will find will provide Frank and Lorenzo a good foundation in which to grow not only their existing capital projects, return capital to our investors, but also position us, for the next greenfield, you know, the greenfield investment. If leverage were to creep up because there was a market opportunity, either that they wanted to accelerate their new projects or accelerate reinvest where they saw that they were gonna generate ample return, feel that we could temporarily move leverage beyond where we currently are and still be very comfortable with the balance of the balance sheet. Jordan Bender: Understood. Thank you. Operator: The next question is from Steve Pizzella with Deutsche Bank. Please go ahead. Steve Pizzella: Hey, good evening and thank you for taking our questions. Just on the promotional environment, can you talk about what you're seeing in terms of promotional activity in the competitive behavior in the locals market? Scott Kreeger: Steve, this is Scott. It's been very consistent. So as we've mentioned on previous calls, you know, there are small single-unit operators that have always been competitive promotionally, it in the grand scheme of things, it's not changed a bit over probably the last couple years. So very stable environment. Steve Pizzella: Okay. Thanks. And then just knowing that it it is a smaller part of your business, but with the strong group calendar on the strip expected this year, a commentary that you believe you are getting some demand that might have gone to the strip before. Do you expect to receive any benefit from the group business as well? Scott Kreeger: Yeah. This is Scott again. I can tell you we had a great quarter. In the fourth quarter as it relates to hotel sales. And the associated catering. We see that moving into the first and second quarter of the year. And then as the booking window opens up for the back half of the year, we're encouraged as well. So we're we're happy with the sales team's effort and the bookings that we have on on the books so far. Steve Pizzella: Okay. Great. Thank you. Operator: The next question is from Dan Politzer with JP Morgan. Please go ahead. Dan Politzer: Hey, good afternoon, everyone. Thanks for taking my questions. First, you guys have talked a lot about the benefits of your hiring rooms. Higher network customers. And as we're thinking about this kind of increasingly bifurcated consumer environment, I don't know. Is there any way to kind of frame out how you think about your portfolio, whether it's, you know, the the EBITDA contribution from the higher-end properties, the Durangos, GVRs, the the Red Rocks of the world. Just to kinda better so we can better appreciate the quality of the customer and the assets that you guys have? Stephen Cootey: Well, mean, generally, Dan, as you know, we're not going to sit there and break down the segments. That's why we're all grouped. We group up by division. But you can be fairly certain that all the assets across the database performing really well. Scott Kreeger: I think it's important to mention that we're A lot of our customers don't just play at one property. We have a lot of crossover play. You know, whether there's a property close to when they're getting off work or, you know, whatever is convenient. So you know, they don't tend to be siloed into one singular property. Lorenzo Fertitta: And some of the other properties too, we've been encouraged just with the amount of higher in play that we're starting to see at places like Santa Fe and and Sunset Station. And even in Palace Station. You know, we're seeing some VIP high-end play. So it's pretty much throughout the system. Obviously, know, Green Valley, Durango, and Red Rock, kinda lead the charge there. But we're we're finding that as we add assets to these different areas assets. Different areas of the valley, we upgrade the assets that it's pulling you know, a higher-end customer overall to even those properties. Scott Kreeger: And growing the market where maybe somebody wouldn't have come to that property before. Now coming to those properties. So part of the market the function of the market is, you know, what's the quality of the product that you provide? And Absolutely. We're seeing that the the service quality and the product quality is growing the market for us. Casting a wider net as far as what we're able to attract at the properties. Dan Politzer: Got it. And then just just for following up, I I know you're not ready to give disruption from Durango phase phase. Know, phase two, phase three here. But, you know, as I think about the $120 million expansion what type of property that was on, now you have a $385 million expansion which I get extends over a fairly long period of time. Mean, is there any way to kind of couch, you know, relative to that $4 million disruption impact you had on on the prior phase just so we can kind of you know, try to try to, you know, tweak our expectations and and have them in the right place there? Lorenzo Fertitta: Listen. A lot of it's a gut feel, but the reality is It's of a Yeah. The reality is with Durango North expansion is that we've seen historically where you see the the bigger parts of disruption is when you disrupt parking. Which which obviously affects convenience and which is all the locals market is all about is convenience. Or you take down hotel rooms like we've done at Valley Ranch because you just don't have the bodies in the building. Look. We we certainly expect we're gonna be disrupted at Durango, as we continue on with this. But, you know, we look at it as that it's short term. We're talking about a eighteen months or sixteen months from now. And then when we open the property with all these entertainment, amenities we're that we're gonna have you know, we're as confident as we've ever been in that property that foot traffic and gaming traffic going through that property is gonna explode Yeah. With the number of bodies that are gonna be there coming to these entertainment assets. So, Steve, I know what you're thinking from a a a disruption standpoint if we're ready to put a number out there. But Stephen Cootey: I don't think we're quite ready. I mean, we're Dan, just I mean, I don't be a apologies. We're literally just one month away from dispensing out the property and kinda getting logistics down. And so while Lorenzo said that, you know, we're it's a short term, about sixteen months away really from completion. Scott Kreeger: You know? You also you also have traffic improvements. Going on around there. That is that is Mike, it's you know, we just we don't really know. Frank Fertitta III: Yeah. Scott Kreeger: We can't quantify it. Maybe after we get ninety days in and see what's going on, you know, with the property, we'll have a better ability to communicate on that. But that's you know, it's just hard to put a number on. We don't know how much better we might be doing so that Lorenzo Fertitta: That's the key. And, look, we as part of the last expansion that we just opened with the VIP, slot or the high limit slots, we opened a new garage. And I can say that every week, increasing the car counts going into the new garage. So about few years. People are figuring it out. They're finding their way. So we're encouraged from that standpoint. But, also, we've done this for a long time, and we know that, you know, you're definitely gonna feel the impact of disruption when you when when parking is disrupted. So Stephen Cootey: And, Dan, if I kinda revert back to the question that that that Barry asked. Barry asked in a effect Q1 guidance. And so and so the way I answered him, I feel very comfortable given the seasonality output and then the, you know, the the the the disruption we gave on to Green Valley Ranch to achieving that. So think that kinda gives me a more perspective on the Durango disruption right now. Dan Politzer: Got it. That's helpful. I appreciate all the detail. Thanks. Operator: The next question is from Joe Stauff with Susquehanna. Please go ahead. Joe Stauff: Thank you. Just one quick follow-up on the Doringo discussion. Is part of the disruption know, as as I understand it, is is from the road work and so forth. Is the state doing that? Or who dictates essentially the the disruption in the roadwork? Scott Kreeger: Yeah, Joe. It's Scott. There's two projects that are going on. One, we have an apartment complex right next to us that's being developed. There is some trenching that's going on as we speak there. We're in tight coordination with them to minimize the disruption but that should be going on for a couple more months here. And then the county and is working on a on-ramp off of the access frontage road onto the freeway. And a widening of the left turn lane coming off of the freeway. Both of which will make ingress and egress much better to our property over the long haul. But that project is gonna probably go through the summer of next year. It has not started yet. You know, the bad the bad news is we have traffic construction, roadway construction. The good news is we wouldn't have it unless the valley was growing. You know? So we look at it as short term pain, long term gain. Joe Stauff: Got it. And just one quick follow-up. What what is the outcome or the effect of the California ruling in December? Does this adjust the the opening date? What what is the effect of that ruling? Stephen Cootey: I think as we indicated in in in the remarks, Joe, you know, we believe, you know, the impact is nothing. And so we believe that the the ruling can well, will not change our ability the tribe's ability to do gaming on federally trust land. Construction is moving incredibly fast. The team out there is doing an amazing job, and, we're looking forward to opening this project in the fourth quarter of 2026 on schedule. Operator: Thanks a lot. The next question is from Steve Wieczynski with Stifel. Please go ahead. Steve Wieczynski: Hey, Good afternoon. So, Steve, if we go back to all the there's been a lot of talk about, you know, the potential disruption this year, and you've given us a ton of helpful color. And some of it seems like you're still not certain in terms of what the overall impact is going to be. So I guess the simple question might be with, you know, with with all this disruption, as we think about 2026 versus 2025, can do do you still think you can grow your Las Vegas EBITDA base this year with with all this disruption? Stephen Cootey: We do. Steve Wieczynski: Perfect. Okay. Second question, Steve, you gave or Scott gave color around the rated play side of things. I guess the word I've you know, we're kinda pick on it sounds like it's very stable. You did you give any color? Did I miss it in terms of what you're seeing right now from a from a nonrated perspective? Scott Kreeger: Yeah. For the quarter, nonrated was up. So you know, we see it both in our rated customer, our nonrated customer. Really a great quarter for the health of the database if you really dig in all the metrics. Lorenzo Fertitta: It's Lorenzo, particular shrink, like I said before, the VIP segment. But also seeing strength in what I'll call kind of our younger segment demographic 21 to 35, up substantially. Once again, I think partially because of the amenities that we've added over the years, are really kinda speaking to the guest. They're appealing to a younger guest. And, you know, look. We've been encouraged because they're finding their way to slot machines and table games as well. So Steve Wieczynski: Okay. Gotcha. Thanks, guys. Appreciate it. Operator: The next question is from Stephen Grambling with Morgan Stanley. Please go ahead. Stephen Grambling: Hey, there. Thanks for taking the question. This is a bit of, maybe a bigger picture question, but how do you generally think about the right level of maintenance CapEx across the portfolio, thinking about you know, maybe some of the bigger properties versus the smaller properties and you know, maybe part of the question, Zippides, is trying to think through the amount of capital you've deployed, maybe even relative to what we're seeing on the strip and if you could be seeing some kind of permanent share gains there. Thank you. Scott Kreeger: We think one of the things that separates us is the fact that we're a wholly owned company. We're not an opcopropco structure. And Lorenzo and I take a long-term view towards the portfolio. And, you know, you have maintenance capital, which means what does it take to maintain where we are where customers are coming in. But we look at some of these repositioning of amenities and what we're doing at Durango. In the next phase is literally investments that cast a wider net and and draw more customers. Look. And we're owner operator. Lorenzo Fertitta: We've been doing this since we were teenagers. And we we walked through the properties, obviously, on a on a regular basis, and we wanna make sure that they are looking appropriate to our customers and that we all the equipment and everything that that is needed for our team members to be able to provide their jobs and their function is provided. And I think as well, it just it it goes back to even historically when you look at what properties have outperformed on the strip. Right? I mean, if you look right now, you've got you know, the properties that have always philosophically invested in their in their assets and even we do the same thing. If we have a restaurant that's not performing, we'll rip it out and put a new restaurant in. I think you see the same thing at the Wynn. You know, they've done that for decades, and it's it's not a surprise that relative to the rest of the competitive set that they continue to outperform. So it's it's a very kind of similar mentality, I think, in a way. Even though Steve's not there, they've kinda carried that on, and I think you see it when you walk through the property. It just looks and feels different, and I think customers appreciate that. And we're committed to continue to operate our businesses like that as well. Stephen Grambling: Maybe one other follow-up. Kind of related here, but historically, I think there's always been this concern that some of the maybe weaker trends on the strip could ultimately spill over into the the locals market. It doesn't sound like that's happening at all, but curious where you would be looking out to see maybe the first signs of that. And should we have already maybe seen some of those to kinda highlight that there could be a decoupling here? Stephen Cootey: I mean, I I'm sorry. Go ahead. Scott Kreeger: I mean I thought it was during the first question. I mean, we're just a fundamentally different business. Right? So we tend to be a bit more recession resistant. I think if you look back since 1984, I believe the the the strip has had 11 times in that instances where gaming GGR was down. The locals market is at six, three of which are related to the the great financial crisis. One is related to COVID, and the other two are related to 2033 and 2014 when local GGR was down less than point 3% versus the strip at the same time period down 2%. Think it just goes back to where gaming centric We're not hotel driven. We're not convention driven. We're driven by local repeat customers that keep coming time and time again. And then going back to what Frank and Lorenzo said, that's why we are continually investing in our properties. That's why we love our locations. And we love you know, we and we we we love our locations because we think we are best positioned to not only separate ourselves from the strip, but best positioned to from the long-term favorable demographic profile. Scott Kreeger: And I think one of the things that you have to remember and look at is while the strip may have some revenue declines, they still are a business that has to fill their rooms. Even if the rates are down. They're filling their rooms, which means you still need guest room attendance. You still need all those employees. To keep those rooms full. And so look. We we love our position on the market. We've been doing this for a long time. And the thing we love most about our strategy that is that we have the right locations in the market. All locations are not created equal. We're in growing markets. We're not on surface streets. We're on the beltways. We're we're all the new rooftops are being built. Lorenzo Fertitta: And I we've we've talked a lot about the VIP and the the high-end gaming play and the higher-end restaurants, but I think we've also positioned the brand and the company such that we also have a strong value proposition. You know? Dollar 99 margaritas. Food specials in the cafes. We don't charge for parking. So we we provide a product that's accessible to people from all different demographic types and at the end of the day, people use our properties as their form of entertainment and getaway. From a local perspective. And we're really leaning into that when you see the type of amenities that we're adding to place to a place like Durango. You know? So Stephen Cootey: Dollar 99 margarita resonates to everyone. Thank you. Operator: The next question is from Brandt Montour with Barclays. Please go ahead. Brandt Montour: Hey, everybody. Thanks for taking my question. The first one is just full year '25 disruption. I think you guys are originally looking for $25 million. Could you just let us know how that came in? The best of your ability to calculate that. Stephen Cootey: Yeah. I think it it we it came in better than we thought. Brent. As I even just alluded to last quarter, I think we gave roughly million dollars roughly $9 million of disruption, almost $9.5 million disruption we expected in Q4 alone. And we came in at 5.1 for that quarter. Brandt Montour: Okay. And then on the new Durango phase, we'll call it phase two, you know, I guess this is the second half twenty-seven opening. Do you foresee opening this in you know, one amenity at a time? Is it gonna be one big grand opening? And then in terms of the breakout, I mean, you're not gonna break out the March, but just when we think about your return thresholds, how much of those how much of that total project spend is gaming versus nongaming? Maybe we could do it that way to help us try and model out the returns on this. Lorenzo Fertitta: This is Lorenzo. I mean, our expectations is that we would get similar returns than what we've seen, on the project so far itself. You know? Kinda low low low teens, growing to mid-teens, and eventually growing to kind of our 20% threshold that we've seen historically. I think well, I know that we will open that property with all of the amenities open but for possibly one of the food and beverage amenities might trail by a a, you know, two, three, four months. Still working on that. But the vast majority call it 90, 9095% of the amenities will open with one big bang. That's what the way we like to do it. We open, you know, our new builds. And then relative to a breakout, I mean, I think when you look at the overall capacity that we have in Durango, we still have capacity even though we're obviously doing incredible business there. So we're adding how many slots are we adding? 400 flower. Hundred additional slots on our batch. Base of about 2,200. And you know, we we feel like with the entertainment amenities that we're adding there and just the sheer traffic and foot traffic that we're gonna have flowing through the building we're gonna get that benefit onto the gaming floor now on both table games and slots. So I can say we're very confident in the prospects for that project. Brandt Montour: Thanks, everyone. Operator: The next question is from John DeCree with CBRE. Please go ahead. John DeCree: Hi, everyone. Thanks for taking my questions. Covered a lot of ground. Maybe two to round it out. At high level, can you guys talk about what you're seeing in terms of new database ads? I mean, you're you're obviously performing quite well. But are you still seeing the database grow? And then, you know, specifically outside of, you first-time visitors to Durango as the rest of the portfolio especially as you make these investments, GVR, Sunset, etcetera, are you seeing your database go to new customers that you haven't had before? Scott Kreeger: Yeah. This is Scott. So even last quarter, I think we mentioned that we saw the database grow from the perspective of actual carded customer count. We grew the database this year. And an interesting it grew in every demographic segment of age. And then the contribution from a net feel perspective of that database grew in in every category of age demographic as well. Year over year. Stephen Cootey: And, John, we continue to grow Durango. We continue to see new sign-ups even around the Durango area. Visits are up, net POs up. Spent per visit is up. So we love our positioning for that property. I'm looking forward to, the next phase opening up. John DeCree: Awesome. I have one last one, Steve, for you. I think an easy one. We're not expecting much but just ask the outlook for OpEx inflation, anything notable this as we think about margins for 2026 other than the disruption, so specifically on any cost buckets? Stephen Cootey: Yeah. I mean, we like where we stand from a margin. This is the twentieth '22. That we've hit above 45% in LVO without really sacrificing service or operational or customer quality. You know, labor is is is is the one notable, as you know. You know, we live in a very competitive environment in the valley, and our guests are and our our our employees are our first line to our customers. So I would expect that to go mid-single digits from a labor perspective. But, ultimately, you know, we're we're managing COGS. We're managing utilities. Insurance expense is really tail wagging the dog. That's slightly up. But for the most part, costs are are being managed. John DeCree: Great. Thanks, guys. Operator: Next question is from Trey Bowers with Wells Fargo. Please go ahead. Zach Silverberg: This is Zach Silverberg on for Trey. Thanks for taking our questions. I first one, I believe last call, you mentioned there would be a handful of taverns opening this year. Could you remind us of the overall tavern strategy and your ability to source new or high-end customers and the return profile of the taverns. Scott Kreeger: Yeah. This is Scott. We have current currently eight taverns. We just opened our third tavern about a week and a half, two weeks ago. The thesis for taverns is relatively simple. It's a micro market strategy where you can get into neighborhoods in areas where maybe we don't have as great a penetration. We have a thesis around our investments in taverns. We'd like to be in high net worth areas. We'd like to be in areas where there's growth. Versus the inner city population. And it's got a unique customer base, from a demographic standpoint. It tends to skew male. It tends to skew sports better. And it tends to skew young. So we like accessing that customer in the hopes that they grow into our, you know, overall platform of larger properties. So we have three more properties coming online in the first half and then the remainder in the second half of this year. But the the strategy from a growth perspective is is highly selective for us. We we wanna make sure that if we do enter into a new Tyvern deal that it fits our thesis and it's accretive. Zach Silverberg: Gotcha. Appreciate that. And then one more. You previously stated the cannibalization backfill from Durango was about three-year process. We're approaching that later this year. Could you kind of update us on the timing and progress and if you're how you guys feel about it? Thank you. Stephen Cootey: I think I think we feel very good about where we are from a cannibalization and from a and for and for more equally as important, the backfill to our core properties. You know, our core properties are growing with low single digits last quarter, which kinda proves out that fact. So we're in line to where we need to be to hit those targets. Zach Silverberg: Appreciate the color. Operator: This concludes our question and answer session. I would like to turn the conference back over to Stephen Cootey for any closing remarks. Stephen Cootey: Thank you, everyone, for joining the call today, and we look forward to talking again in about ninety days. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Victoria: My name is Victoria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata 2025 Fourth Quarter and Full Year Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to hand the conference over to your host today, Chad Bennett, Senior Vice President of Investor Relations and Corporate Development. You may now begin your conference. Chad Bennett: Good afternoon, and welcome to Teradata's Fourth Quarter and Full Year 2025 Earnings Call. Steve McMillan, Teradata's President and Chief Executive Officer, will lead our call today, followed by John Ederer, Teradata's Chief Financial Officer, who will discuss our financial results and outlook. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings. Please note that Teradata intends to file the Form 10-K for the year ended 12/31/2025 later this month. These forward-looking statements are made as of today, and we undertake no duty or obligation to update them. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items such as free cash flow and constant currency comparisons. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. A reconciliation of non-GAAP to GAAP measures is included in our earnings release which is accessible on the Investor Relations page of our website at investor.teradata.com. A replay of this conference call will be available later today on our website. And now I will turn the call over to Steve. Steve McMillan: Hi, everyone, and thanks for joining us. I'm pleased to report another set of strong results for Teradata. In the fourth quarter, we again exceeded expectations for total revenue, recurring revenue, and free cash flow. Our strong earnings per share and continued total ARR growth reflect the actions we took to improve our operating model. 2025 was a year of revitalized execution. We stabilized the business, meaningfully improved retention, and saw customers choosing to expand their use of Teradata with a mix of both traditional and new types of workloads. Engagement with customers remained strong, and the business operated well. We believe we are solidly positioned to continue on a profitable growth path in 2026 with healthy free cash flow generation to deliver value to our shareholders. As we look ahead, we believe that enterprises of the future will be shaped by those who harness agentic AI systems that reason, act, and adapt autonomously 24/7. We remain focused on helping organizations activate the intelligence in their enterprise ensuring AI agents have the enterprise context they need and can act on it in milliseconds to address continuous decision-making at enterprise scale. This requires a new system of intelligence, one that unifies data analytics, enterprise context, governance, and AI agents. We believe Teradata is uniquely suited to provide all of this with our autonomous AI and knowledge platform. As we stated throughout 2025, we saw a resurgence of interest in our hybrid model. We're seeing customers want to leverage both on-prem and cloud deployment options to meet their diverse business needs, driven by data sovereignty and increased regulatory environments around the globe. Our platform is designed to give customers the opportunity to run a Genetic AI at scale wherever that data resides in their business. And we are seeing customers effectively operating across both. Over decades, we have fine-tuned our platform to address massive scale with performance foundational factors for implementing autonomous AI. Throughout 2025, we saw customer engagement across all regions and industries shift towards AI, and elasticity as they explored AI uses and looked to reinvent their Teradata platform for autonomous knowledge capability. Our forward-deployed engineers and AI services consultants executed more than 150 engagements with customers helping them operationalize AI to address high-value use cases. In 2025, we launched a broad set of innovations as we built foundational capabilities to help customers bring AI into real-world use cases that can drive tangible business value. First, our enterprise Vector Store cost-effectively combines structured and unstructured data with the speed needed to deliver information to agents in real-time. Enhanced our model ops capabilities designed to enable models to run directly inside the Teradata ecosystem gaining efficiency. An exciting announcement was our MCP server, It connects AI systems with interactive access to the enterprise data context, and predictive AI capabilities necessary to provide meaningful outcomes. We believe that the MCP server and the AgenTiC AI solutions that utilize it will increase usage of our platform. To further speed AI adoption, we launched Teradata Agent Builder, and introduced prebuilt agents. This broad set of capabilities enables us to deliver autonomous customer intelligence a set of software and services that embed Teradata agents to help improve the customer experience. Also launched Teradata AI Factory, an exciting announcement that brought AI and machine learning capabilities to on-premise environments. It was designed for organizations and regulated industries or with data sovereignty requirements or the one to manage and contain their AI infrastructure costs. And to help organizations transform their AI pilots into production-ready solutions we introduced new AI services. Impressive set of innovations laid a very solid foundation for 2026 and we also have a fantastic set of technology announcements planned throughout this year, We believe these announcements will strengthen our portfolio in order to help our customers get AI agents into action and operationalize autonomous AI. We have kicked off a strong start to the year with our recently released enterprise agent stack. This comprehensive toolkit is designed to help enterprises rapidly transition from pilot AI projects to production-level autonomous agents across diverse environments. Our agent stack integrates tools for building, deploying, and managing AI agents with security, governance, and enterprise data utilization. We believe we're delivering capabilities that set Teradata apart from the competition and we're delivering them across cloud and on-premises environments. Supporting the hybrid goals of our customers. As an AI and knowledge platform company, we are the core of a broad system of intelligence that will enable autonomous actions. To ensure customer choice, maintain our commitment to building and executing partnerships that strengthen our connected ecosystem and extend our capabilities. For example, our new partnership with unstructured.io automated ingestion and conversion of unstructured content meaning documents, PDFs, and images, into analysis-ready structured data. This supports our vision of an end-to-end AI ecosystem helping our customers turn their intelligence in their enterprise into business outcomes. We have multiple proof of concepts underway in all regions and across all industries. We also just announced the availability of our enterprise-grade data analyst AI agent on Google Cloud Marketplace. Giving organizations a secure way to run real-time analytics and agentic AIs directly within their cloud environment. This prebuilt agent reduces the cost and complexity of moving data and provides a scalable foundation for future multi-agent scenarios on Google Cloud. Now let me take you through a handful of examples of the ways organizations are leveraging our AI and data analytics capabilities, many of which represent the early stages of our customers' long-term AI initiatives. A large US telco added a cloud instance to its Teradata estate and now runs a hybrid Teradata environment. It's running specific financial compliance workloads on Google Cloud, with its other workloads on-prem. This customer is also looking to use our OpenTable format to seamlessly share data across its ecosystem. A top US airline modernized a high-impact pricing application by migrating it to our elastic compute platform. This unlocks greater scalability and agility for a program that drives significant annual revenue for the customer. A major UK bank selected Teradata to move its real-time customer experience platform to the cloud, reinforcing our strength in the highly regulated financial services sector. Using our AI-powered marketing applications, the bank expects to speed up campaign launches and simplify operations to drive a competitive advantage in today's digital-first banking market. We're supporting a high-tech manufacturer in EMEA on a strategic AI initiative, helping embed advanced AI and analytics into complex manufacturing models. In doing so, we're enabling automated workflows that drive real-time AI-driven production decisions improving yield, lowering costs, and accelerating innovation. These examples from across numerous industries are representative of the team's strong momentum in 2025 and with our continued focus on helping customers the most out of their AI initiatives, intend to keep up the momentum in 2026. As I pass the call to John, I'll summarize that we are entering 2026 on solid footing following our strong close to 2025. We believe we have capabilities no competitor offers and are cohesive open platform, and our differentiation is resonating with customers partners, and industry analysts. We remain on our clear profitable growth path driving operating leverage, free cash flow growth, and delivering lasting value to our shareholders. Over to you, John, to walk us through the details. John Ederer: Thank you, Steve, and good afternoon, everyone. We closed out fiscal 2025 on a positive note. Demonstrating operational discipline and improved quarterly consistency across our key financial metrics. During the year, we returned total ARR to positive growth of 3% on a reported basis, We continued to improve non-GAAP operating margins to 21%, We drove year-over-year improvement in free cash flow to $285 million which exceeded the high end of our outlook, and we've reestablished a track record of meeting or exceeding quarterly expectations. Our solid execution in 2025 has provided a foundation for continued improvement in 2026 and beyond. We remain committed to profitable growth in the new year which we believe is aligned to driving shareholder value. More specifically, we expect continued growth in total ARR non-GAAP operating margin, and free cash flow while at the same time investing more resources in product development, to fuel future growth. In terms of our detailed financial results for the fourth quarter and fiscal year, total ARR grew 3% as reported and 1% in constant currency, which was an important milestone in stabilizing the business last year. And right in line with the expectations that we set at the 2025. Cloud ARR grew 15% as reported and 13% in constant currency, and cloud ARR now represents 46% of our total ARR. For the quarter, the trailing twelve-month cloud net expansion rate was 100%. Fourth quarter total revenue was $421 million, up 3% year over year as reported and 1% in constant currency. Which was three points above the high end of our outlook due to higher recurring revenue. Fourth quarter recurring revenue was $367 million up 5% year over year as reported and 3% in constant currency, which was four points above the high end of our outlook. The outperformance was primarily due to higher upfront revenue from term license subscriptions. Fourth quarter consulting services revenue was $53 million down 4% year over year as reported and down 6% in constant currency. For the full year, recurring revenue was at the high end of our outlook range at $1.445 billion a decrease of 2% as reported and 3% in constant currency. Total revenue was also within our outlook range at $1.663 billion down 5% as reported and down 5% in constant currency. Looking at profitability and free cash flow, please note that I will be referencing non-GAAP numbers for expenses and margins and a full reconciliation to GAAP results is provided in our press release. For the fourth quarter, total gross margin was up to 62% versus 60.9% in Q4 last year, driven by strong improvement in consulting services margins. Recurring revenue gross margin of 68.4% was down from Q4 2024 due to the increasing mix of cloud revenue. On consulting services gross margin, we made continued strong improvement following cost actions that we took in 2025 driving Q4 gross margin up to 18.9% versus 8.5% in Q3 and 9.1% in Q4 a year ago. Operating margin improved significantly in Q4, coming in at 22.8% versus 17.6% in Q4 last year. On a full-year basis, we continued to demonstrate operational discipline which has resulted in a multiyear operating margin expansion of more than 500 basis points over the last three years. Non-GAAP diluted earnings per share were 74¢, exceeding the top end of our outlook range by 17¢. The outperformance was driven by higher recurring revenue, lower expenses, and a lower effective tax rate. Generated a $151 million of free cash flow in the fourth quarter and finished the year above the high end of our 2025 outlook. At $285 million. This free cash flow performance drove cash and equivalents up to $493 million at the end of the year compared to $420 million at the end of 2024. Finally, we continue to return capital to shareholders repurchasing approximately $38 million or about 1.5 million shares in the fourth quarter bringing our full-year totals to approximately $140 million or 5.8 million shares. During the fourth quarter, we also announced the reauthorization of our buyback program for another $500 million starting in 2026 and we will again target to use 50% of our free cash flow for share repurchases. Before I provide our annual financial outlook for 2026, I'd like to provide some additional context. First, to support investors from a modeling standpoint, we'll be providing guidance on an as-reported basis. Will also continue to call out currency impact as we see it during the year. Second, we do expect to see our typical seasonality for total ARR and cloud ARR. More specifically, Q1 is typically our largest renewal and highest erosion quarter, and as such, expect total ARR and cloud ARR to decline sequentially on a dollar value basis in Q1 followed by stabilization and expansion over the course of the year with the majority of that expansion to occur in the second half. Third, as noted during 2025, we continue to see customers evaluate hybrid deployment options with some incorporating a combination of cloud and on-premise solutions. As they choose the deployment option that works for them, have seen this cause variances in the mix between cloud and on-premise subscription ARR which is why our primary focus is on total ARR growth. Finally, from a recurring revenue standpoint, it's important to remember that revenue recognition standards are different for cloud versus on-premise subscriptions. The cloud revenue follows a more consistent ratable growth pattern, whereas the on-premise subscriptions have a portion of revenue that is recognized upfront and a portion that is recognized ratably over time. The timing of on-premise deals may cause variability in our reported recurring revenue and corresponding growth rates. For example, we saw some benefit from upfront revenue recognition in the 2025 and we expect to see this again in 2026. Now turning to our annual outlook for 2026, which again is on a reported basis, total ARR is expected to be in the range of 2% to 4% growth year over year, which is an improvement versus 1% constant currency growth in FY '25. Recurring revenue is expected to be in the range of 0% to 2% growth year over year Total revenue is expected to be in the range of minus 2% to 0% year over year Non-GAAP diluted earnings per share is expected to be in the range of $2.55 to $2.65 On operating margin, we expect approximately a 100 basis points of expansion in 2026, Free cash flow is expected to be in the range of $310 million to $330 million Regarding free cash flow linearity, we anticipate Q1 to be slightly negative. On the full-year outlook, we expect the majority of the year over year Finally, while we are not providing formal guidance for Growth to occur in Q2 and Q3. Cloud ARR in FY 2026 due to the potential for variances in mix between cloud and on-premise subscriptions. We are targeting growth of a low double-digit percentage for cloud ARR. For the 2026, recurring revenue is expected to be in the range of 6% to 8% growth year over year, Total revenue is expected to be in the range of 1% to 3% growth year over year, Non-GAAP diluted earnings per share is expected to be in the range of $0.75 to $0.79 In terms of some other modeling assumptions, for the first quarter, we expect the non-GAAP tax rate to be approximately 25% and the weighted average shares outstanding to be 96.1 million. The full year, we expect the non-GAAP tax rate to be approximately 24% which is approximately 1.5 points higher on a full-year basis due to a one-time benefit of $5 million in 2025. Also, we expect our weighted average shares outstanding to be 97 million for the full year. Using the currency rates at the December 2025, we expect a slight tailwind to our 2026 revenue outlook However, we anticipate over two points of benefit to our revenue growth rate in the 2026. On recurring revenue, we anticipate upfront revenue to provide more than two points of benefit to the Q1 growth rate. However, for the full year, we expect upfront revenue will be approximately a one-point headwind. To the 2026 growth rate. Also, we anticipate other expenses of approximately $38 million. To conclude, we took important steps to stabilize the business in 2025 and have built a solid foundation to deliver continued profitable growth. In 2026, we will be investing more in product development, to take advantage of the substantial market opportunity in front of us while at the same time driving incremental profitability and free cash flow. Thank you all for your time today. Steve McMillan: Thank you very much, John. Now before we begin Q&A, I'd like to briefly touch on the Board announcement we made this afternoon. The evolution of our Board has always been a focus and we're looking forward to having Melissa Fisher join us in the coming weeks. She's got a great track record within software as an executive and board member, and we think she'll be a strong addition. We're also working through a search process to bring on a new independent director later this year to complement some upcoming director retirements. So from a board refreshment perspective, that was our news. Now operator, let's open the call for Q&A. Victoria: Of course. At this time, I would like to remind everyone in order to ask a question, In the interest of giving everyone an opportunity, we appreciate that you limit yourself to one question and one follow-up. Our first question comes from the line of Erik Woodring with Morgan Stanley. Erik, your line is now open. Erik Woodring: Great. Thank you very much for taking my questions, guys, and congrats on the quarter. Steve, I wanted you to kind of take a big step back and help us understand material you think on-premise AI is today. Meaning, you you kinda get to see both worlds from your seat, cloud instances and non-AI based workloads for large enterprises, many of which have to keep workloads on-prem. And so just wondering what percentage of your workload of your customers are kind of in production today versus going through some proof of concept? How are they thinking about in investing on-premise for GenAI versus the cloud? Would love just your high-level thoughts, then a quick follow-up, please. Thank you. Steve McMillan: Yes. Thanks, Erik. We see potential and capability in terms of delivering AI solutions on-prem as something that's going to be a key growth driver as we move forward. And that's why our next generation of our hardware platform, actually have GPUs built right in. So we are going to see AI and AI on-prem as a growing part of our portfolio. If we look at the POC activity that we executed in 2025, we actually doubled the number of POCs as we come out and a number of those have moved into production on-prem, driving workload and usage of the Teradata platform. So we definitely see it as a key growth driver as we move into 2026. I also have to say we're absolutely focused on expansion. We'll do that expansion in the cloud. Or we'll do it on-prem. And again, that's one of the benefits that we have for customers choose to deploy in cloud, we can do that with them. And if they choose to deploy on-prem, we can also have that as an option. Erik Woodring: Okay. I appreciate that color. Thank you, Steven. And then maybe maybe just a quick follow-up for you, John. I believe you're guiding to a little over 10% year over year free cash flow growth in 2026. If I just take the midpoint of your guide, really strong You're effectively guiding to EPS kind of flattish year over year. Can you just walk through the puts and takes there? Why am I seeing a bit of a difference, a change in free cash flow conversion? Just what's burdening EPS, I guess, in '26 that wouldn't burden free cash? Thank you so much, guys. John Ederer: Sure. Yeah. The short answer is we had some outperformance in Q4, particularly related to a tax benefit, a one-time tax benefit that benefited to us to the tune of about 5¢ in Q4. And so I think if you adjust for that, you'll see a little bit better comparison in terms of the year-over-year growth rate and earnings per share. Then I would say otherwise, when we look at some of the other drivers of free cash flow, particularly around working capital and continuing to improve on collections, We'll get a little bit of tax benefit next year in addition to the performance on the P&L side of things. All of those are drivers for the free cash flow. Victoria: Thank you for your questions, Erik. Our next question comes from the line of Radi Sultan with UBS. Your line is now open. Radi Sultan: Awesome. Thanks, Steph, for taking the question. And, yeah, great to see the growth inflection here. Maybe first for Steve, can you just help us a little bit more, like, what is going on behind the scenes here as you think about sort of this growth inflection? Like, can you just walk through, like, how much you know, is is a better demand backdrop here versus sort of what you've done proactively on the product and go to market side? Maybe just help us piece that together a little bit. Steve McMillan: Thanks, Radi. That's a great question. I think the whole AI marketplace for us is opening up a new TAM. And that's helping us return to growth in 2025. As John has said, it was a year of stabilized the performance of the business, and we certainly executed on that. I think we're also capitalizing on investments that we made through the 2024 and into 2025, certainly improving retention rates as we went through 2025. Our go-to-market teams are doing a great job from that perspective and really driving and returning the company to overall growth for 2025. I think from a product perspective, we had a cascade of product announcements throughout the year be it our enterprise vector store, our AI model ops capabilities, our agent builder capabilities that are really changing the perception of Teradata and really positioning us to take advantage of this autonomous AI knowledge platform. If you think about data and enterprise data, we're probably the custodians of the world's most valuable enterprise data. And that for an AI system is turning into enterprise memory. And we give the best way to access that enterprise memory for agents. So I think we've seen a number of different inflection points. We also took some time to retool our service and are now positioned to deliver a whole set of AI services which we think will drive some ARR growth as we move into 2026. So I think every aspect of the business came together to deliver growth for 2025. And obviously sets a path for us to be confident in continuing growth in 2026. Radi Sultan: Great. And then I guess for John, quick follow-up. Just on the 2026 outlook, as you think about the business mix shifting more towards versus migration, like, does that change your fundamental visibility sort of in in in the And and maybe you could just speak to sort of what what are the biggest areas within the '26 guide that, you know, areas of of uncertainty that you're handicapping there? Maybe just help us think about that. John Ederer: Yeah. Sure. You know, in terms of, I guess, the visibility and talking specifically about migrations versus expansions, there are a few you know, puts and takes there. But I would say in general, you know, when you look at migration those tend to be bigger, more complex deals. And sometimes it's really hard to gauge the timing of those. Expansions by comparison with existing customers a more consistent cadence. And so when you look at an average of that activity across the entire installed base, get a little bit more consistency there. Now will say that our typical seasonality will be at play here in 2026. And so, and we talked about that in the prepared comments. We typically see more erosion activity in Q1, and then we build ARR through the year. And we have a stronger finish in Q4. And we would expect to see that same type of linearity. But, otherwise, I would say between migrations and expansions, a little bit of a trade-off in terms of visibility overall. Radi Sultan: Awesome. Thanks, guys. Victoria: Thank you for your questions. Our next question comes from the line of Yitchuin Wong with Citi. Your line is now open. Yitchuin Wong: Good evening. Thanks for taking my question. Congratulation on the strong close to the year and a solid guidance. I guess, maybe start with fiscal 4Q results. Be sure that you give you a much improved execution with some strong large deal momentum across US telco, airlines, and India bank. Could you give us any incremental colors around the impact of this last year in the quarter? And if there's any other updates around like the improvement in deal cycle or like, erosion that you saw in the last last year and then going towards how AI impact in this performance. Steve McMillan: Yeah. Thanks, Yitchuin. You touched on quite a lot there. I think we are seeing strong strength across industry. If we look at the pattern of our business in terms of where we're deploying some of these advanced AI solutions especially. We've got use cases across the entire industry set. And we saw some really good geographical distribution in terms of our wins and deal set. In fact, in our international markets, we're seeing really good strength in our on-prem capabilities. Just to give you a little bit of color there. Just from a retention perspective, you know, our team is focused on growth. And expansion. And, I think we've been material improvements to our retention rates as we went through 2025 compared to 2024. We expect those improvements to continue into 2026. And that's based on a couple of things. One, great execution by TeamTeradata. I'm very proud of what they've done. But I think it's well, we've got a great product set that's enabling us to deploy in this world of AI some really high-value solutions that make us more sticky and more relevant in our inside our customer base. So that's what we're focused on as we execute that growth agenda for 2026. Yitchuin Wong: Steve. Maybe a quick one for John here. Looks like the services line is getting us strong improvement quarter over quarter. And then with Teradata ramping, I get benefit from AI services as you see more FPE approach. Across the market shift that you're seeing. You would expecting this to be an incremental contributor continue that improvement going into fiscal 2026? John Ederer: Thanks. Sure. Yeah. No. Thanks. I you know, certainly, we've made a lot of improvement on the consulting services side of the business, particularly on the gross margins this year. So we started off the year in negative territory as we had some headwinds on the revenue side. But course corrected through the year, improved in Q3, and then really jumped up in Q4 from a gross margin standpoint. To, nearly 19%. And so I think we've managed through the transition of this business really well. The thing that is still there, I would from a macro standpoint, is that historically what's driven that business has been a lot of migration activity. We're starting we've seen the peak of that activity, and we're on the other side of that bell curve now. And what we expect to take the place of that is the AI services. And so we are starting to ramp that up this year and that will help offset some of the migration activity in 2026. And so I think by and large, you know, we've stabilized that part of the business. I think we've got a good strategy for moving forward. The one last thing I would say just from a margin standpoint, I wouldn't necessarily expect that 19% in Q4 to continue, at quite that high of a rate. If you look back at '23 and '24, I think you'll see a more normalized rate for consulting services. Yitchuin Wong: Great. Thank you. Victoria: Thank you for your questions. Our next question comes from the line of Chirag Ved with Evercore. Your line is now open. Chirag Ved: Hey. This is Chirag. Thanks for taking the and congratulations on the quarter. Great to see the return to positive ARR growth and operating leverage. Steve, you mentioned over, you know, 150 AI and agentic engagement. Can you talk about the typical conversion path from these engagements into revenue? And how you think about the timeline from initial pilot to material ARR contribution. Thanks. Steve McMillan: Yeah. Thanks. Thanks, Chirag. It's a great question. No. As you said, we are seeing a significant growth in AI workloads on the Teradata platform. We're capturing that shift of spend inside the customer base that's moving towards this more sticky, more relevant advanced set of solutions. And so that pivot to AI is something that we're really benefiting from. In terms of operationalizing these workloads, that's something that we do every single day with our customer base. You know, whether it's, you know, a bank in Australia that's utilizing their on-prem system, for, you know, customer sentiment analysis. You're running that AI workload on-prem. Whether it's, you know, a customer in Europe using cloud-based technologies for their AI solution, So I think, you know, we're seeing those AI solutions certainly driving capacity and usage of the Teradata platform. And our sales team is now completely focused on growth. You know, we're not as focused on, you know, cap that headlong migration rush to the cloud. The teams are focused on growth where they can execute it. And I think this is the AI workloads are gonna be key element of capturing that growth as we move through 2026. Chirag Ved: All right. Thank you. Congrats again on the quarter. Steve McMillan: Thanks, Chirag. Victoria: Thank you for your questions. Next question comes from the line of Raimo Lenschow with Barclays. Your line is now open. Sheldon McMeans: Hi. This is Sheldon McMeans on for Raimo. Thanks for taking the question. You certainly discussed some of the newer AI-related solutions on the call, you know, some of which that you launched during your October event. It seems like many of these are gonna be available in 2026, particularly in the back half of the year. And just when considering your positive growth outlook for the year, how much contribution are you baking in from some of these newer initiatives? Steve McMillan: Yes, Sheldon. Thanks very much for the question. Look, think as we've looked at the business and have our executing against the business, you're absolutely right. A lot of the roadmap elements that we have start to come in at the '2. And then into March. That's not stopping our sales teams getting out right now and talking about these capabilities with our customers. We know what the sales cycle is. We know our customer base. We know how they operate. And we're getting a lot of excitement around those capabilities just now. But from a financial perspective, we haven't factored a lot of incremental ARR. From these specific capabilities. Certainly, we see it as the opportunity, and I'm certainly pushing the sales team to use that Those new products that are releasing has some upside to that that we have currently in place. Sheldon McMeans: Understood. And a quick follow-up. Could you give a quick update on the hardware refresh in the current stage that is in and and just, you know, maybe how much work is needed and and do customers right now have enough visibility into the cost and some of the other related considerations to be able to make a decision on that? Today, or is there still some more work to be done before customers fully understand that? And then maybe any model impact that we should consider as a hardware refresh ensues. Thanks. Steve McMillan: Yeah. Thanks, Sheldon. Yeah. We don't expect a new hardware to go GA until, you know, end of second quarter into third quarter. So that refresh activity, although we talk to our customers about it, in terms of how they would like to deploy and utilize these new solutions, it wouldn't really kick in until the last quarter of the year. And then into 2027. But, hey, doing a refresh is always an opportunity to sell more. And especially if these platforms are gonna have GPUs built in, know, some of the announcements we've had about using the NVIDIA AI software stack that's gonna be embedded into that new platform. We are really delivering on that promise of the autonomous AI knowledge from an on-prem perspective. And I think our sales teams are super excited about what they can see and what they can deliver for their customers through 2026. But, again, just from a modeling perspective, we haven't we haven't baked a lot in into the second half of the year. But know, we certainly see it as upside. Sheldon McMeans: Understood. Thanks for taking the question. Victoria: Thank you for your questions. Our next question comes from the line of Derrick Wood with TD Cowen. Your line is now open. Jared Jungjohann: Hi, Steve and John. This is Jared on for Derrick. Thanks for thanks for taking my question. Heading into 2026, I'm curious what types of investments you're going to be focused on from a headcount perspective. Do you intend to ramp up sales hiring as you address this? AI opportunity or maybe lean in with four deployed engineers? Thank you. Steve McMillan: Yeah, Jared. Thanks. That's a great question. You know, we leaned in 2025 in terms of restructuring the sales team and the sales force. And I think the leadership team and our go-to team across the board have done a great job in that. And that also we took the steps to actually refocus investment and current sales head dollars and expense, towards just to as your point, the forward-deployed engineering model. And we see that as a very, very appropriate way to get these advanced AI solutions into our customer. If we think about what we do as a business we take that data layer, for AI and then add value to it every single day. And so that's our forward deployment engineering capability. One of the things that we are investing in and where we have carved out dollars is to spend a little bit more on our product engineering and product development process. That's an exciting time to be in this industry as it transforms and as the importance of AI continues to accelerate, in order for us to continue to have a great product line, we've spotted some key investment areas that we can focus on that are going to make some tremendous differences in terms of the overall product portfolio that we have And our new Chief Product Officer, Sumeet Arora, is doing a great job in terms of marshaling that product vision and we're looking forward to sharing more about that as we move through the year. Jared Jungjohann: Thank you very much. Victoria: Thank you for your questions. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is now open. Wamsi Mohan: Yes. Thank you so much. Maybe one for John. You just talk about the linearity that you're seeing for the year? You obviously gave a Q1 guide and you mentioned sort of the step down in ARR. But do you expect normal seasonality after Q1 and also you think about you know, these new initiatives that you're taking on into at the back half, and I just heard Steve say that not really baking much into it. Into contribution from those in the back half of the year. Should we kind of not be thinking about more of an acceleration as you go over to the back half of the year? And I will follow-up. John Ederer: Sure. Yeah. Just on the seasonality point, I guess I would make a distinction. Between ARR and revenue. And so from an ARR standpoint, both total ARR and cloud ARR, would expect to see our typical linearity, and that's what we laid out in the prepared comments. Where we where we have a bit more on the erosion Side in Q1, and then we build that up over Q2, Q3. And finish with a strong Q4. And so I would expect that like I said, very typical seasonality to exist again on the ARR side. And and with you know, I would say, know, minimal impact from the new products that we're looking to release through the year as as Steve commented. I would I would distinguish that from the revenue side of the picture. And so from a recurring revenue standpoint, we do have some anomalies this year principally due to the the timing of upfront revenue related to the on-premise portion of the business. And so we are seeing outsized growth on recurring revenue in our Q1 guidance. And we talked about, we're getting a couple of points of benefit from currency, and we're getting a couple of points of benefit from upfront revenue recognition. In Q1. We expect that to, switch somewhat as we look at the full year. There'll be maybe a slight tailwind on the currency side for the full year, but a one-point headwind on the upfront portion of recurring revenue for the full year. And so, again, we we have some timing impact principally related to the on-premise side that impacts the recurring revenue piece versus the ARR. Wamsi Mohan: Okay. Yeah. That's helpful, John. Thank you. And and then maybe for Steve, Steve, you mentioned, obviously, some comments in in your prepared remarks about the board refreshment program. You you you know, you have been delivering improving results over the last few quarters. And so in some ways, as we think about the involvement here and this agreement with Linrock Rick to the extent that you can comment about it. What are specific areas or changes at the high level that you think that the board is going to try to implement in in working with you? Steve McMillan: Yeah. Thanks, Wamsi. Yeah. Board refreshment is something that clearly is super important our overall governance process, and it's something that we continue to look at. And we're very happy to work with Cynthia at Lindbergh Lake to identify some candidates and come to an agreement around placing this particular candidate on the board. We're look really looking forward to coming on board. She's got a great skill set, and I think she'll add some great value. And then as we continue the board refresh throughout, the year, we're going to execute a very structured process We declare very in some detail actually what the skill mix is. Of our board members. And, obviously, we're going to continue that process as we execute through that old refreshment. Wamsi Mohan: K. Thank you, Steve. Victoria: Thank you for your questions. Our next question comes from the line of Patrick Walravens with Citizens. Your line is now open. Nick: Hey, guys. This is Nick on for Pat. For taking the question, and congratulations on the quarter. Steve, one for you, then John, I have a follow-up. So Steve, the biggest questions investors are asking right now is are the characteristics of a software company that's gonna make it through the AI transition? If you look back at the transition from on-prem to SaaS twenty years ago, only 40% of those top 20 companies survived. So what do you think those key characteristics are for the next transition that we're seeing from SaaS to AI? Steve McMillan: Yeah, Nick, that's a great question. So, you know, I think about it in terms of Teradata one dot zero to Teradata two dot zero, and that was our cloud transition. Know, in getting over $700 million of our total ARR in the cloud was a key modernization step that we had to take as a company, and we've achieved that over the span of five years, which was absolutely fantastic. We are looking forward to Teradata three dot zero as driving this autonomous AI and knowledge platform. We're not a SaaS company. We are the data layer for AI that system intelligence or enterprise memory And if you look back at how Teradata works with clients, we've always built value on top of that data platform And now we see that that value is being delivered via agents And that's why we are all about enabling these agents to utilize enterprise data at scale. And we think that that's gonna drive significant market opportunity for us into the future. And help accelerate our growth as we launch these new products, which will take advantage of that. And deliver on execution throughout the year. So it's a time of transition but we believe that, you know, the capabilities that we've built up make us more relevant now in this agentic AI space. Nick: Got it. Thank you. And then as my follow-up, John, you guided to an operating margin expansion in 2026. Can you comment on what the main drivers of this expansion will be? John Ederer: Yeah. At a high level, we're continuing our work on the gross margin side, although, as I described earlier, we have some offsetting elements there. And then when we look at the operating expense lines, we are looking to invest in product R&D, but continue to find efficiencies across the G&A and sales and marketing lines. Nick: Great. Thank you, guys. Victoria: Thank you for your questions. Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is now open. Simran: Hey, guys. This is Simran on from Matthew Hedberg. Congrats on the quarter. Just one for me. I'm curious on how increased memory pricing is impacting the business and if it's providing a boost to 2026 ARR. Thing. Steve McMillan: Yeah. Thank you for the question. Yes, our supply chain team has done a great job in terms of protecting us from the P&L impact in terms of increased memory prices. A lot of our contracts are committed capacity that we've contracted a number of years ago. So the actual uplift from that incremental memory cost is something that we're absorbing with our customers. But we're tending to that's tending to enable us to have different expansion conversations with our customers instead of talking about them spending more money on something that they expect to get anyway. We can actually pivot that conversation to, you know, invest in innovation on the Teradata platform. And that's really what our sales teams are doing every day. We're absolutely focused on that from a total ARR growth perspective. Simran: Thank you. Victoria: Thank you for your question. There are no further questions at this time. I will now turn the call back over to Steve McMillan for his final remarks. Steve McMillan: Thank you, operator, and thank you everyone for joining us today. We are really proud of the progress that we've made, and we do believe that we are really very well positioned with our AI and knowledge platform our AI services expertise, and our growing ecosystem of partners. Gonna continue to drive clear and compelling outcomes for our customers, and lasting value for our shareholders. Thank you all very much. Victoria: This concludes today's conference call. You may disconnect.
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Klaviyo, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star 1. Thank you. I would now like to turn the conference over to Ryan Plain, Director of Investor Relations. Ryan, please go ahead. Ryan Plain: Thank you, and welcome, everyone. We appreciate you joining us. Joining me today are Klaviyo, Inc. co-founder and co-CEO, Andrew Bialecki, CFO, Amanda Whalen, and joining us for the first time, Co-CEO, Chano Fernandez. Welcome, Chano. Andrew, Chano, and Amanda will share their views on the quarter and fiscal year, and then we will open up the line for your questions. Our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which can be found on our Investor Relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties, and assumptions, which could change. Should any of these risks materialize, or should our assumptions prove to be incorrect, actual company results could differ materially from those forward-looking statements. A description of these risk factors, uncertainties, and assumptions, and others that could affect our financial results are included in our filings with the SEC. We do not undertake any responsibility to update these forward-looking statements except as required by law. Andrew, that concludes my intro. We are ready to begin. Over to you. Andrew Bialecki: Thanks, Ryan, and thank you all for joining us today. 2025 was a breakout year for Klaviyo, Inc. We grew revenue by 32% to $1.2 billion and delivered a 14% non-GAAP operating margin. We are now serving more than 193,000 customers in over 100 countries, and we saw strong momentum across every part of the business, especially in our enterprise customer base and internationally. The future is autonomous customer experiences, where every interaction between a business or organization and its consumers will be defined and delivered by AI. Every marketing message, every customer service request, every web visitor, mobile session, and even in-person experiences will be designed for the individual consumer and delivered autonomously. To allow any business to deliver autonomous customer experiences, we have built the autonomous B2C CRM. Our technology marries the customer database we founded Klaviyo, Inc. on with our robust marketing info messaging infrastructure with agents for marketing and customer service that will autonomously create, deliver, and optimize customer experiences on behalf of a business. And this agent layer that is designing and delivering experiences to billions of consumers is trained from our deep expertise and the trillions of experiences we have delivered for businesses already. Because of these two things, proven infrastructure for real-time customer data and personalized experiences, and now agents trained to execute marketing and customer service autonomously, we are powering the era of autonomous customer experiences, and our results are showing it. In a year defined by rapid transformation, we drove 32% revenue growth for Klaviyo, Inc., with every quarter growing 30% or more year over year. Klaviyo, Inc. customers are growing too. And in Q4, our 10,000 largest customers grew their revenue, also known as GMV, by 11% year on year, which was roughly twice as much as the broader market's growth. Before I go deeper, three points to keep in mind. First, AI is making it easier to deliver high-quality experiences consumers want. Not generic experiences, but ones that delight and convert. And we will share a few examples of this today. Second, AI is improving the quality of experiences via personalization and training on past performance to meet the ever-increasing bar to wow consumers. We have hit a point where content and experiences generated by humans alone are not enough. Using AI is required to keep consumers engaged. Third, AI is making experiences more accessible. AI has introduced new modalities, like the chat and soon-to-be-available voice capabilities of our customer agent, that offer new services for consumers and businesses to meet. The upshot is that AI is an accelerant and opportunity for our customers and for us. Our customers and our incentives are well aligned. We are an engagement and revenue engine for them, and we sell Klaviyo, Inc. based on engaged consumer relationships and outcomes, not on seats. AI continues to improve the speed, quality, and places consumers and businesses need. This means as our customers around the world look to use AI to meet that moment, we are scaling with them. Our ability to be the agent and the platform of choice finds its roots in how our platform was built. This is our durable advantage. At the core is the database and data infrastructure, specifically built to handle the scale of consumer data, and indexing, enriching through machine learning, and serving hundreds of thousands of requests per second with millisecond latencies. It allows Klaviyo, Inc. to ingest, aggregate, and govern first-party data in real-time so every consumer behavior, transaction, preference, and consent is available to our users and now to our agents to deliver the best possible consumer experience. That foundation is coupled with our marketing platform, which not only provides high throughput, scalable systems to render messages, deliver them with excellent deliverability, and force compliance but also integrates with our customer data infrastructure to make last-mile personalization decisions on content, incentives, timing, and channel at the moment we deliver a message or experience to an end consumer. Speed and scale matter. By keeping consumer profiles continuously updated and queryable, Allego turns real-time consumer activity into tailored messages and experiences delivered instantly. This architecture enables a fundamentally different consumer experience. Here's how it works in practice. When, say, a consumer browses their favorite restaurant's website, books a reservation, uses our chat agent to make a modification to that reservation, buys a gift card for a friend while they are there, and then leaves a review, Klaviyo, Inc. is compiling richer context with every interaction. Who they are, what they browse, products and services they consume, and how they prefer to be contacted. All of this is stored in a single profile. We also expose that progressively built profile at each step, and our system uses that context to deliver the optimal experience. That live context is immediately available to the system, allowing an agentic customer representative to answer the question, recommend the right product, and follow up with a personalized message on any channel. All in real-time and all without switching systems or losing contact. This means the system is compounding its learning. The more our customers use our system, the smarter it gets for them, and the smarter it gets for the entire ecosystem of customers. Last year, Klaviyo, Inc. processed half a trillion customer interactions across 8 billion consumer profiles, translating into 3.7 billion daily signals. All feeding decisions and actions that help our customers engage more precisely and drive stronger outcomes. That same foundation fuels the agent layer. We have launched agents, including our marketing agent and customer agent. We have also designed the platform to be open, meaning that customers can use the agents Klaviyo, Inc. builds or bring their own. Whether it is external models like Claude interacting through an MCP server, or ChatGPT through the Klaviyo, Inc. app, any agent, any model with all the context from one platform. Our own agents are deeply grounded in domain expertise earned from hundreds of thousands of customers and trillions of data points that generate highly specific revenue-driving output. That combination ensures they do not generate generic output. They make impactful decisions that are trained from relevant compliance and effective customer experiences. Bringing this all together, Klaviyo, Inc.'s autonomous B2C CRM is like the central nervous system for AI-driven consumer engagement. Connecting reasoning to real customer context and turning it into actions across channels. The result is clear customer impact. Consumer interactions running through Klaviyo, Inc. generate measurable revenue for our customers. What we call Klaviyo, Inc. attributed value or KAV. In Q4, KAV continued to outpace business revenue, underscoring the value of running consumer engagement on one unified platform. Customers around the world are already putting the autonomous capabilities built into Klaviyo, Inc. to work. Marketing agent is a clear example. More than half of the campaigns created by customers using marketing agent are now generated by AI. With many of our customers' agent-generated campaigns performing as well as and often better than campaigns created manually. While taking significantly less time to launch. A great example is Adelson. They are an online skincare and beauty store where growth depends on frequent relevant communication. Using Marketing Agent, a small team can create and send fully on-brand campaigns in minutes instead of hours. The results have been remarkable. Open rates increased by 50%, and revenue per campaign grew by 40%. While allowing the team to run more campaigns without adding additional headcount. We see the same positive patterns in service. Customer agent is live and handling real customer conversations. Answering questions, resolving issues, recommending products, and increasingly supporting transactions. All using the same integrated data model as marketing. Since launch, resolution rates have increased by 20 points with monthly resolution volume increasing by more than 50% since Black Friday, Cyber Monday. Livestrall is a great example. Using customer agent to resolve customer queries with real-time customer and product data. Livestra achieved a 111% increase in AI-generated sales from agent recommendations and an over 100% increase in average order value and a 75% resolution rate over the last ninety days. Many of these interactions involve technical questions that cannot be handled with scripted responses and require deep contextual understanding of their product catalog. Next, we are expanding what these agents can do and where they operate. Adding more channels with email and WhatsApp in beta and voice coming soon. Along with more skills, and more control. While keeping everything grounded in the same data, delivery, and measurement infrastructure. Marketing agent and customer agent reinforce one another. Service interactions improve marketing decisions, and marketing activity improves service outcomes. As usage grows, that feedback loop is strengthened. This is the foundation we are building on. A system that scales globally, improves with use, and delivers measurable outcomes for our customers. When people think about AI at Klaviyo, Inc., they should think about it in three ways. First, AI is embedded directly into our infrastructure. It uses first-party customer data, like behaviors, purchases, and engagement. To predict how customers are likely to act and makes those insights immediately usable across marketing, service, and other customer interactions. Second, AI sits on top of that infrastructure in the form of agents that do the work of marketing and customer service. Creating campaigns, answering questions, resolving issues, and driving transactions using the same underlying data and execution system. Third, Klaviyo, Inc. is an open platform embedded in the broader AI ecosystem. Providing the real-time customer contact infrastructure LLMs require. Taken together, it gives us a clear view of where customer engagement is headed. Businesses are moving towards more autonomous experiences. As they do, interaction volume and complexity increase. Driving demand for infrastructure that can unify, execute decisions, and measure outcomes in one place. That's the role that Klaviyo, Inc. plays. We built a platform that coordinates data, decisions, and execution across the entire customer life cycle. Making autonomous engagement practical, measurable, and scalable for businesses of all sizes. The next era of customer experience will be autonomous. Powered by unified data, and real-time action. We are making that future accessible to the world's leading consumer brands. I want to thank our customers and our partners for their trust, and I want to thank Klaviyo, Inc.'s around the world for their dedication to our customers. We are excited to continue building, investing, and leading as we bring our autonomous B2C CRM platform to businesses of every size. And with that, turn it over to Chano. Chano Fernandez: Thanks, Andrew. I'm excited to join you, and thank you all for being with us today. One month into the role, it is clear to me that Klaviyo, Inc. is built for where the market is going. Real-time data, intelligence that learns from outcomes, and actions marketing and service that's increasingly autonomous. I've spent my career scaling enterprise technology businesses. And I joined Klaviyo, Inc. because I see a B2C CRM category transition happening. And a team that knows how to win it. Let me start with enterprise. Enterprises are rethinking how they run customer engagement because their customers' expectations have changed. They want personalization, immediacy, and experiences that feel seamless as they move across channels. When I talk to these companies, I hear a consistent need. They want one platform that can power the entire customer relationship. What they have instead are separate databases, separate customer-facing tools, and separate decision engines that weren't designed to work together. The result is slower decisions, inconsistency, and personalization that breaks down as their customers move across channels. The real cause of that fragmentation is yield. When data, decisions, and executions are disconnected, companies leave revenue on the table. This is a massive opportunity for Klaviyo, Inc. One we're already capturing and are laser-focused on expanding by proving that consolidation produces results. A great example is Symbioteka. A natural supplement brand. They leverage segmentation tools during the holiday season to focus on their most engaged audiences. Using Klaviyo, Inc., they reduced their email volume by 31% year over year. While increasing total revenue by 44%. This strategy nearly doubled the revenue per recipient. Another great example is Proper Hotels, which selected Klaviyo, Inc. as Itascalic's luxury hospitality portfolio to gain deeper visibility into its guests' database. A stronger attribution across channels, a more robust reporting than traditional hospitality CRMs could provide. Since migrating to Klaviyo, Inc. in October, Proper has seen overall CRM revenue grow by more than 200% year on year. Stories like this illustrate why momentum is building and why large consumer businesses are relying on Klaviyo, Inc. data, intelligence, and action. Klaviyo, Inc.'s continued investment in AI-driven capabilities, our MCP server, and integrations with LLMs further reinforce our role as a long-term infrastructure partner. Enabling more dynamic segmentation, faster experimentation, and increasingly personalized life cycle messaging. We have our largest enterprise pipeline ever, and it's across verticals and geographies. Importantly, we're seeing this pipeline convert to a more repeatable motion, clearer stage gate, tighter product alignment, and faster time to value proofs. In fact, the number of customers generating at least $1 million of ARR doubled last year. Inside Klaviyo, Inc., our team is ready for this demand. Over the last several months, we have put more structure into how we work larger opportunities. We're aligning product sales, and engineering earlier in the process. This approach is allowing us to scale our motion in a repeatable way. We're also continuing to expand our partner network. This includes an exciting new partnership with Accenture, where we're combining Klaviyo, Inc.'s autonomous B2C CRM with their services to drive faster, and more integrated customer outcomes for some of the largest brands in the world. Like Stanley 1913. We're also strengthening leadership across our go-to-market team. We hired a new global chief revenue officer, Eric Perde, who I know well and who brings significant experience in enterprise deals. Several key sales roles are also now held by sales leadership, with deep enterprise experience. At the same time, we are preserving what makes Klaviyo, Inc. unique, which is a product-led culture and an engineering mindset that moves fast. And solves customer problems. We tell prospective customers you can dream it, you can build it on Klaviyo, Inc. Internationally, it's another area where we're seeing increased momentum. Revenue outside the Americas now represents more than one-third of the business at the '4. During the last quarter, Klaviyo, Inc. partnered with Kiko Milano, Italy's number one makeup brand. Operating more than 1,300 retail stores across over 70 markets worldwide. There is becoming a meaningful contributor in these markets as well. All of these ties to where customer engagement is going. The shift towards autonomous, conversational, and agent-driven experiences is faster than we could have anticipated just a few years ago. And the opportunity that lies ahead is large and exciting. Everything I've seen since joining reinforces my belief that the opportunity ahead is great. And that we're still in the earliest stages. We're building to win. Now I'll turn over to Amanda to walk through our financial performance. Amanda Whalen: Thank you, Chano and Andrew. 2025 was a defining year for Klaviyo, Inc. and a clear reinforcement of our position as the autonomous B2C CRM that powers more valuable customer experiences. We delivered strong growth, expanding profitability, and record free cash flow. Our peak season performance demonstrates that businesses rely on us to understand their customers in real-time and act instantly across channels. For the full year, revenue reached $1.234 billion, up 32% year over year. International revenue growth accelerated to 42%. Our largest customers, those contributing more than $50,000 of ARR, grew over 37%. Our new service category is the fastest-growing product launch in our history. And this broad-based strength drove NRR to 110%, a year-over-year expansion of more than 200 basis points. Q4 was a standout quarter. We delivered revenue of $350 million, up 30% year over year, driving our annualized revenue run rate to $1.4 billion. Q4 was defined by the shift toward autonomy and the validation of our model. Customers increase spend with us because we are the engine of their growth. Customers are leveraging data and AI to move from broad-based volume to precision targeting. Focusing on smaller, higher intent audiences. This shift drove superior outcomes for our customers because an automated flow drives on average over 10 times more revenue per message than a static campaign. We saw particular momentum in mobile, with over 29% of SMB plus customers now utilizing text and WhatsApp. Let's look at our growth engines. We are successfully delivering on our growth strategy by adding more products and channels, more countries, and larger customers. AI acts as a multiplier, accelerating our momentum. In Q4, each of our growth engines delivered meaningful progress. This dynamic accelerated our NRR to 110%. NRR strength was driven by expanded usage of our email and text products, cross-sell of text messaging and WhatsApp, and the scaling of marketing analytics and service. There was also a contribution from the profile enforcement change we made in February. Service is on the steepest adoption curve in our company's history. From $1 million businesses to $100 million enterprises, high ROI personalization and real-time action resonate at every scale. The data confirms the success of our multiproduct strategy. 60% of our ARR now comes from multiproduct customers. With consolidation accelerating, over 15% of our ARR now comes from customers adopting at least three products. This mix continues to shift upwards as brands recognize the strategic value of unifying on a single platform. Half Magic demonstrates this value. By consolidating marketing, service, and analytics on Klaviyo, Inc., this fast-growing beauty brand drove a five times increase in repeat purchase and 110% growth in automation revenue over twelve months. Plus two times higher average order value from orders attributed to our customer. We are aggressively expanding our addressable market. Q4 was a standout period for mid-market and enterprise momentum, highlighted by wins including Kiko Milano and Bayer, and expansions like Taylor Made and Nine West. Our customers with greater than $50,000 in ARR increased by 37% year on year to 3,912. We added 349 new net new 50k customers in the cohort, beating our previous record by over 25%. International is strong with revenue outside the Americas, led by strength in Italy, growing 41% year over year in Q4. Spain, and Portugal alongside traction with global brands like Bayer, and Kiko Milano. Our business model is fundamentally aligned with customer success because we price based on the number of active profiles and usage, rather than seats. Our revenue scales naturally as customers use more data, adopt more tools, and drive more value. As customers integrate AI-driven workflows, interaction volume increases, flowing through our platform and deepening the alignment between customer value creation and our long-term growth. Turning to our financial performance. Non-GAAP operating income for the quarter was $51 million, representing a 15% non-GAAP operating margin. This reflects a 900 basis point expansion year over year or 400 basis points excluding the impact of last year's bonus implementation. We delivered a non-GAAP gross margin of 73% in the fourth quarter, consistent with the anticipated seasonal mix shift toward higher text messaging and WhatsApp volumes. Our underlying infrastructure efficiency is providing increasing operational scale significantly mitigated the margin impact of text messaging and WhatsApp, resulting in a sequential improvement in the year-over-year gross margin trajectory throughout the fiscal year. Operating discipline remains a priority. Non-GAAP operating expenses were 58% of revenue, our lowest level since the IPO. AI is driving meaningful internal productivity, enabling faster development cycles without commensurate headcount growth. Free cash flow surged 61% year over year to $87 million. This was driven by strong flow-through from operating income and record collections, highlighting the high quality of our earnings. For the full year, the strength of our business model is clear. Non-GAAP operating income was $169 million, a 14% non-GAAP operating margin, which was up 170 basis points year over year. We delivered a free cash flow margin of 16%, continuing to outpace operating margins. And we surpassed $1 billion in cash on hand for the first time. Momentum heading into 2026 is strong. And we are raising our full-year 2026 guidance. We now project revenue between $1.501 billion and $1.509 billion, representing 21.5% to 22.5% year-on-year growth. This is driven by high-quality expansion within our install base and the continued scaling of new products. Importantly, our 2026 outlook is derisked. It assumes minimal revenue contribution from our newest AI and service products. We view these innovations as embedded upside that reinforce the durability of our growth runway. We expect continued operating margin expansion. For 2026, we project non-GAAP operating income of $218 million to $224 million, a non-GAAP operating margin of approximately 14.5% to 15%. Our business model enables us to reinvest in growth while simultaneously delivering profitability. We are a growth company that remains disciplined in striking the right balance, leveraging our operational rigor to fuel reinvestment, ensuring we capture the opportunity ahead and deliver growth over the long term. For Q1, we expect revenue of $346 million to $350 million, representing growth of 23.5% to 25%, and non-GAAP operating income of $50 million to $53 million, or a non-GAAP operating margin of 14.5% to 15%. On linearity, we expect revenue similar to 2025, weighted towards the second half due to seasonality and product ramps. Operating income will also follow a similar first half and second half cadence as 2025. As our business continues to grow and our scale increases, our visibility into the core has sharpened. Our outlook reflects high confidence in the baseline while maintaining a prudent approach regarding the timing of upside from new initiatives. In summary, Klaviyo, Inc. is ushering in the era of autonomous consumer experiences with our market-leading B2C CRM. We are the engine helping businesses turn real-time data into intelligence and action. Customer experience is already becoming autonomous, unified, and real-time. And Klaviyo, Inc. is the actionable infrastructure powering that shift at scale. Before I open it up to questions, I want to leave you with three key takeaways. First, AI increases the speed, quality, and reach of consumer engagement. And customers are relying on Klaviyo, Inc. to deliver that engagement. Second, our advantage is structural. Our infrastructure is what allows agents and AI tools to operate consistently as volume and complexity increase. And third, our model is built for this moment. Klaviyo, Inc. is a revenue yield engine. As AI increases the volume and sophistication of consumer engagement, value creation, and our growth, scale together. With that, open it up the call for questions. Operator: Thank you. We will now begin the question and answer session. We also ask you to limit yourself to one question. For any additional questions, please requeue. And your first question comes from Ryan MacWilliams with Wells Fargo. Please go ahead. Ryan MacWilliams: Hey. This is Cyrus on for Ryan. Thank you for taking my question. What was the impact from the portfolio enforcement change in the quarter? I just have one quick follow-up on SMS. Amanda Whalen: Sure. Could you ask the question to portfolio change? Sure. The portfolio and then change. Yeah. Yeah. In NRR, if we take a step back, there's three big impacts or three big drivers of NRR. The first and largest is the impact of growing usage of our platform and across our email and SMS products. The second is increasing cross-sell of our text messaging and newer products, including marketing analytics, and service, and then we did have an impact on or contribution from portfolio or the profile enforcement happened in February. But that was the smallest of the three. What we're really proudest of this quarter is the way that our customers are using Klaviyo, Inc. to drive higher quality outcomes. They're seeing increases in their returns that they're seeing on each message because they're doubling down on automation and doubling down on high-value messages that drive with those automated flows up to 10 times more revenue per message compared to a more static campaign. We're also seeing strong success in that cross-sell. With over 29% now of our customers in the SMB plus category using SMS and our text messaging products. And service, as we've said, is off to a really strong start. So multiple levers contributing there to NRR over the coming year. Ryan MacWilliams: Perfect. Thank you. And on SMS, how did SMS perform in the quarter versus expectations? I know the Black Friday, Cyber Monday, statistics you guys put out were very strong. So how did that compare with your internal expectations, and how can we think about that going into 2026? Andrew Bialecki: Yeah. I could take that. So, as Amanda said, people are getting more out of the profiles. They're building better relationships. You know? So that's calling them to store more for us. But that's enough. Very strong. It's some of the things you cited. You know, one thing that's happening with text messaging is we're undergoing a real transition here from SMS to RCS. Which allows for much better experiences. So you can think about branded accounts, the ability to embed richer media, carousel, even take actions directly from within a text message. So we look at that as there's a lot of upside there. One thing I'm very proud of our team, we've gotten close to customers, and we've really designed some really compelling experiences where text messaging, I mean, not only can you now even say browse entire almost website, a whole catalog, we're getting close to where you can even almost, like, buying decisions directly from RCS and text messaging. So I think there's a lot of upside to that channel. And I in parallel, know, we launched WhatsApp generally in the last few months, and, similarly, what WhatsApp is used more internationally. We're seeing a very similar pattern. The types of experiences that you can build, again, with richer media, you know, allowing people to browse more of, say, products and services directly from a message or from a thread. That's working really well. And then the last thing, you know, we talked about customer agent. And this idea of having this helpful assistant that's always on that's powered by Klaviyo, Inc. Those now integrate directly into text messaging in WhatsApp. So we're also seeing a lot of consumers are asking follow-up questions and that's, you know, that's driving usage of both our customer agents as well as more adoption of those channels. And, obviously, consumers are gonna go where they can get the best experience. So they're we're kinda normalizing this idea that you can have a conversation with a business not just over a chat interface, but also in tech in your text messages or inside of WhatsApp. Operator: Your next question comes from the line of Elizabeth Porter with Morgan Stanley. Please go ahead. Katie Kuser: Awesome. Thanks. This is Katie Kuser on for Elizabeth. Andrew, maybe on the service opportunity, can you give us a little bit more visibility into adoption engagement trends by cohorts, specifically when we're thinking SMB versus mid-market versus enterprise? Is adoption there skewing more towards the agent side relative to the help desk in any of those cohorts? Then maybe just translating that into the model. Amanda, definitely heard you that the guidance is derisked, but just any color you can provide on what level of service contribution is actually embedded within the 26 guide would be great. Thanks so much. Andrew Bialecki: Okay. I'll tell you a little bit what I'm hearing from customers, and I'll only make a comment on the embedding into our model. So the first with service, we talked about customer agent. Our belief is that every business is going to have this digital representative, this customer agent. And we think Klaviyo, Inc. is very well positioned to offer that because of the dataset that we have around who your customers are for the businesses that we work with and our ability to store that data and access it in real-time. And also just the broad set of customer experiences that we've already powered and using that to train and make our customer agent better for each of the businesses that we serve. So mentioned some examples, you know, businesses that are already adopting customer agent. We're seeing adoption from our entrepreneurs and SMB customers all the way up into our mid-market enterprise customers. So just as an example, I was talking with a customer the other day, the high-end, you know, fashion brand. They were telling me a story about how their customer agent closed the sale for an $800 dress. Without anybody, you know, any interaction from anybody on their team. And they're starting to see that as the new normal. So we're very excited about this. I think, you know, adoption when I talk to customers, there's really two rate limiters, and we're working on both of these. The first is they say, hey. They're not sure how to train up an agent. So, you know, we think of a lot of companies are understanding how to do that. We're actually building technology that one, will teach you how to do that, but also will automatically do it. So out of the box, you know, our agents are already really, really good at the especially important if you think about for our entrepreneurial SMB customers and give us a good platform, you know, for our mid-market enterprise customers where they can get a really high-quality agent, you know, in a very short amount of time. And the second one is that they're nervous about, like, hey. The quality of the response. So, again, product that we're building in is the ability to frankly, generate a bunch of, you know, simulated conversation and show those to our customers so they can get comfortable that the quality is really high. So as we continue to push on the product and our ability to deliver that, we're gonna find that everybody's gonna have a customer agent, and, you know, obviously, we want it to run on top of Klaviyo, Inc. Amanda, you wanna comment on the guide? Amanda Whalen: Yeah. In terms of the guide, there is minimal contribution from service built in. The way that we think about it is it's embedded upside in the model. We're seeing the strong traction, the strong customer response that Andrew just talked about. But we'll build that in over the course of the year as we see the results there continue to build and grow. We're just early in that product adoption cycle. So if you take a step back and think about our guide for next year, we're going into fiscal 2026 from a position of strength. Our guide is a strong baseline that reflects the momentum that we're seeing across our core business in international, in mid-market and enterprise, and with new products that we're continuing to introduce. And that has the opportunity to only continue to accelerate as we gain momentum from not only our new service products but also the new AI products that we're introducing as well. Operator: Your next question comes from the line of Gabriela Borges with Goldman Sachs. Please go ahead. Gabriela Borges: Hey. Good afternoon. Thank you. Andrew, I noticed throughout your prepared remarks, there's this theme about context and some of the proprietary context that Klaviyo, Inc. has. My question to you is, what is the limiting factor to LLM or an AI native company spinning up alongside of you and somehow replicating or otherwise accessing that context through API, such that it diminishes your barrier over time. Maybe just a little bit on the limiting factor to someone else abstracting your context. Thank you. Andrew Bialecki: Yeah. Thanks for the question, Gabriela. I guess it's a lot of, hey. You know, how easy is it to rebuild Klaviyo, Inc. or what, you know, what gives you that advantage? So let me say that, like, we've looked at we designed Klaviyo, Inc. to be ready for this agentic era. Or as we talk about this, you know, everybody's building agents and its autonomy. That's gonna sit on top of the, you know, infrastructure that exists. There's two things that give us a lot of confidence here. The first is we already have this great dataset. We talked about half a trillion data points just last year, trillions over the course of 4 billion new signals that we get every single day. And the signals for us are really it's not just data points about what customers are doing. But it's also how they're interacting with the experience that Klaviyo, Inc. powers. So you can think about every message whether it's an email, a text message, a WhatsApp, a mobile notification. Every experience with our customer agent, not only do we have AI that's designing that and tuning it, but it's also learning from that dataset about what works best and then using, you know, reinforcement learning and other techniques to improve itself. So first is the data. The second is frankly, our infrastructure. You know, when you think about our database, we designed it specifically for these real-time use cases. It's very hard not only to store data but to index it and serve it such that every time a page loads, every time a message needs to be sent, you can query specific attributes about a person or specific things that they've done. And make decisions in real-time in milliseconds and integrate that into the experience. That combined that data infrastructure combined within our messaging infrastructure its ability to make sure you're compliant, pick the right channel, embed that personalization all in real-time, I think those two bits, the data plus the infrastructure, are really what set us apart. Operator: Your next question comes from the line of Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Thank you. I'll stick to the one question. It's good to connect again. The one question I got from investors, though, was that, you know, we all know you as kind of co-CEO Workday, etcetera, which is kind of more upmarket enterprise. Can you talk a little bit about, you know, how that fits in here at Klaviyo, Inc., which is kind of more slightly lower and not lower end but you know what I mean? Like, more SMB space. Like, you know, how is the skill set that you bring kind of help here? Thank you. Chano Fernandez: Thank you, Raimo. It's great talking to you again and connected again. Right? I guess there would be two dimensions. Right? One is, obviously, my background is more scaling up in businesses. The second one I would say is operational strength and how we're bringing some better operational cadence in terms of scaling a more predictable business as a whole. Right? So I would say my focus is on both. Right? We commented that on the enterprise. We are really excited about the opportunity. We talk about, you know, our best pipeline ever and also last year, we doubled the number of customers over $1 million ARR. And we're putting the experience in terms of the go-to-market leadership. We're investing in the compliance and the governance to serve and I believe the momentum is very clear. Right? In terms more on the experience itself on the operational side, I would say, first, you know, we're focusing on using AI internally as much as we use externally, and there are some amazing productivity gains that are already seen in some of our numbers. We are focusing on creating much better operational alignment product, engineering, and go-to-market. So we keep the decisions going fast and execution going at the speed of light these days. Right? And as Andrew has mentioned as well, getting up to that enterprise readiness. So all that, hopefully, that contributes. Seeing as my previous, you know, co-CEO experience. Clearly very excited to be part of the journey here on a company that I've been familiar with now from the board for the last few years as well. Operator: Your next question comes from the line of DJ Hines with Canaccord. Please go ahead. DJ Hines: Hey. Thank you, guys. Congrats on the really strong results, and I appreciate all the comments around kind of the infrastructure advantages that you have. Andrew, I was hoping maybe you could talk a little bit about the Accenture partnership and kind of what they see in Klaviyo, Inc. I mean, when I hear of these GSI relationships, I think, you know, their services work. That seems a little bit at odds with kind of your core model. So just talk about kind of what they see in Klaviyo, Inc. and kind of how you can leverage their reach to help build the business. Andrew Bialecki: Yeah. Let me make a couple of comments about with Accenture. Oh, that was a Okay. I really thought that because I'm DJ, could you just mute your line? I think there's some echo. K. Go ahead, AJ. I'll try. So with Accenture and how we're thinking about partners generally, look. This AI era and this building, you know, building out customer experiences that are designed and delivered by AI. We think it's gonna require a whole bunch of new skills and new services that tens of millions of businesses around the world, and it's certainly the largest enterprises in the world are gonna need help adopting. So I'm very excited with, you know, the work that currently, I've had with Accenture about what these new practices will be. And I think it's, you know, when it comes to our marketing agent and designing, you know, sub-agents within that that will help look through your marketing, define gaps, help surface those, then create the right creative all the way to our customer agent, helping that, you know, tune various experiences, you know, maybe based on what's worked in the past. We think there's a ton of new work for all of our agencies and SI partners. But, anyway, Chano's been working closely with Accenture. Chano, do you wanna? Chano Fernandez: Yeah. DJ, great talking to you again. So I would say clearly, Accenture is starting to provide services around marketing reinvention and service reinvention. Some of those services need, you know, a good, powering on AI solutions, and they see us, you know, as a great partner to bring that to market. They see a great opportunity for companies that are looking, you know, to solve more for draft fragmentation. I was talking on my script. In terms of closing the loop for the entire customer relationship. Experience. And they see Klaviyo, Inc. as a great solution to provide that one. And, clearly, as I mentioned before, you know, we're moving up more towards the enterprise. Though, to be clear, we still are fully convinced that, you know, it's gonna be our core business and our SMB business is a great cornerstone for us, and it's gonna keep thriving. But, obviously, enterprise opening us completes new opportunity. We're partnering with the likes of Accenture. It's gonna be instrumental for both of us. So tons of excitement. You know, stay tuned. I guess we'll have much more to share over the coming months. Operator: Your next question comes from the line of Samad Samana with Jefferies. Please go ahead. Samad Samana: Hi. Good evening, and thanks for taking my questions. I guess, Andrew, I wanna maybe revisit Gabriela's question a little bit because I think of what we're all trying to figure out is if the marketer starts increasingly interfacing with Klaviyo, Inc. via ChatGPT or another interface, maybe making a tool call and just how the value will still ultimately be provided by Klaviyo, Inc. But I guess the perceived value question of what the marketer thinks is creating the value for them, how do you contend with that and make sure that the user knows that it's actually Klaviyo, Inc. that you make sure that the economic benefit also accrues to you. I have one follow-up. Andrew Bialecki: Yeah. Sure. So analogy that, you know, we've been using internally in trust using it. When we think about our infrastructure, it's kind of like, you know, how good is the engine underneath that is both understanding who your customers are, and actually provide those experiences, whether it's messaging or some of the conversational architecture that we have now with our customer agent. They're obviously marrying those two together. And I think, you know, we look at our infrastructure. I mentioned how tuned it is for the scale and really the real-time nature of consumer interaction. We just laid it like, we have the engine of, like, an F1 car, and you can't just go you just take any old engine and, like, plug it into something, make it look shiny, and have it work. So you know, with on top of that and then the other thing I did with Gabriela is, like, look. We talk to customers and say, like, would you wanna swap out Klaviyo, Inc.'s system for something that would maybe cheaper to run? And the answer for all of them is no. And the reason is because the ROI for Klaviyo, Inc. is so good. People don't wanna miss out on stunning customer experiences and consumer experiences they don't wanna miss out on the increased engagement and increased revenue that comes with. That's been a very durable pattern. Durable thing that I've seen when I talk to our customers. So if you flip it back then, like, I put this in the prepared remarks, but we actually look at AI as if it's sort of the driver of that car, well, gosh. I mean, how do we get, you know, our agents and potentially other agents using more of, you know, Klaviyo, Inc.'s, you know, underlying engine infrastructure? And that's where we come back to. What we found with AI is and our agents is it's making it cheaper to execute. We're finding a lot of customers who now, because of AI, you know, they have the time, they didn't have the time and space. Now they can get to things because they can take an idea, and turn it into marketing much faster. And it's also increasing the quality. You know, I mentioned how our because our database, our underlying customer data infrastructure is married with the marketing messaging, and we can see what's working. We're able to hint back to agents, both Klaviyo, Inc.'s agents and then in the future potentially other agents what's gonna work best for each consumer. So we're able to inject that personalization, that contact, in at the last moment. And that's having we're seeing that have tremendous uplift. I mean, we talked about these results. The fact that we're seeing open rate increase not by a little bit, by 50%, revenue increasing by a similar amount, this is, I think, the future. I think the idea that you would run either marketing or customer service agents and you wouldn't run them on the best possible infrastructure, just doesn't make sense. Because at the end of the day, like, know, we're trying to help drive, you know, customer experiences that translate directly to, you know, into dollars, you know, in revenue for the business that we. Samad Samana: Very helpful. And then maybe, Amanda, just to follow-up for you on the OpEx growth. It slowed quite a bit. I was just especially R&D. Is that mostly, like, internal efficiencies? Was there anything timing related in terms of timing of hiring? Just how should we think about that both in the quarter, what led to that slowdown, and then how should we think about it going forward. Thank you again. Andrew Bialecki: Yeah. Let me take that just to start qualitatively so and Amanda will get to the numbers. Yep. Look. We've had an initiative internally about working, you know, AI first since last fall. I'll tell you, like, I myself, like, just, you know, building products coding. I mean, the amount that you can do now with AI on two fronts. The first is I you know, the thing we you know, at nine in early days, we moved very fast. We were great builders. But we're able to go much faster and not 20% faster. You know, talking five, 10, 20x faster the early days. You know, it's fun. I can sit down now. And build whole features, whole prototype in an evening that used to take us weeks. And that's an advantage that our entire product and engineering team is embracing. The second thing I'd say is everybody now gets to act as a developer. We have a number of internal systems that, you know, thousands of Klaviyo, Inc.'s rely upon that weren't built by engineers. Or they were built by engineers, but maybe not in the traditional sense. There are other folks at Klaviyo, Inc. that are now doing engineering, thanks to the progress that we've seen with, you know, some of the, you know, the coding agents. Look, we just said that, hey. All of that is stuff that we're really gonna push on and, you know, Amanda knows. Like, our roots were we were, you know, a small handful of folks that had great unit economics, great efficiencies, in our early days, and now we're benchmarking ourselves against what the best AI companies are doing. Looking at that as the new normal. Amanda, anything else you wanna add? Amanda Whalen: Yeah. The only thing that I would add there is we look forward into next year, we're really pleased with the trajectory that we're seeing on our overall operating margin. And I think that is because we are a high-growth company who's delivering expanding profitability while making high-return investments. And the great thing about where we are right now as an era and as an industry is, as Andrew said, we can make those high-return investments and be so much more efficient in how we're building and how we're scaling. So we are bullish about the ability that we have to continue to drive that profitability. While continuing to expand our margins 100 basis points or more over the coming year. Operator: Your next question comes from the line of Tyler Radke with Citi. Please go ahead. Tyler Radke: Yes. Thank you for taking the question. And Chano, congrats on the co-CEO role. Nice to see you again. Question on go-to-market. Just given, you know, some of the leadership changes and go-to-market changes, how are you structuring and incentivizing, go-to-market this year? Any other changes we should be thinking about? And, you know, I guess, Amanda, are you building in any conservatism just given the moving pieces on that front? Thank you. Chano Fernandez: Yeah. Thank you, Tyler. Great catching up. I mean, well, first of all, I'm lucky I found a great foundation here both in terms of, you know, product innovation, customer satisfaction, I would say talent. Obviously, as in any place, there are usually opportunities for improvement, and I think we saw an opportunity for, you know, improving in terms of the go-to-market. Mainly across, you know, tidying up execution and rigor and discipline, and at the same time, potentially, as we say, there are many disjointed experiences that don't provide that full overview in CRM legacy systems that I think are ready to be ripped out. And we wanna capture that opportunity, and we're greatly positioned to doing so. So that's why we're doing some of these changes from a go-to-market perspective. And, you know, me being right, that should show up. Over the next few quarters in terms of increased win ratios. I'm clearly a reacceleration. And that is my expectation that yet to be proved. Right? Clearly, you know, in terms of how we are aligned on incentives, I mean, at the end of the day, we try to align to, you know, what it makes sense for how our customers are seeing the benefits that we're bringing. So, obviously, as we've said before, we're more a consumption we're more an outcome-based. So that is as well how our teams incentivized. So we're very focused on this Klaviyo, Inc. attributed value, Klaviyo, Inc. attributed revenue that last year came up to close to $80 billion, you know, that we're driving to our customers and very focused on those outcomes, you know, that it would matter. Right? Clearly, that as well should manifest if we're doing our homework, that even the ratios being okay today in terms of having 60% of our ARR becoming multiproduct, in that case, it is two or more products. I believe that the opportunity for ourselves and cross-sell, we're doing our homework, is much better than that one. And I think we're having the right thing to execute on it. Amanda Whalen: Thanks. And, Tyler, as in regards to the model, we have the benefit that Chano has been involved in the business both on the board side as well as getting ramped up to speed as supporting us on an interim basis last fall. So he is coming in as a strong leader with clear plans, and we have strong visibility into the places where we're gonna be making those changes and continuing to improve over the course of the coming year. So the main thing that I would point to as you think about the investments that we're making in go-to-market over the coming year is that they're going to be continue to be with the strong focus on unit economics that we've always had as a business. Right? It goes back to Andrew and edge, we tend to look at our tech paybacks now as we're expanding into the mid-market and enterprise. We look at the LTV to CAC, but we see great opportunities ahead and we see strong returns from those investments that we're making. And they're baked into the outlook that we have for the year of continuing to expand our operating margins. Operator: Your next question comes from the line of Matthew VanVliet with Cantor Fitzgerald. Please go ahead. Matthew VanVliet: I guess as we look towards what the customer and marketing agents that you're offering could feed into the model whether it's this year or into the next several years? Curious if you can share any sort of metrics around adoption by your customers just you know, how many are using it in any capacity? Where do you expect that sort of percentage of your customers to at least be piloting and testing it out to be over the next several quarters? Andrew Bialecki: Yeah. Awesome. I could take that. So, while we're not sharing the percentage of customers yet, I can tell you it's growing rapidly. And I mentioned some of the things that we're solving, especially for our entrepreneur and SMB customers, to help them adopt faster. In a lot of cases, it boils down to hey. You know, how do I train a model, and how do I trust it? Again, these are things we're really, really good at. If you go back to Klaviyo, Inc.'s early days, you know, we had to teach people how to do, you know, more personalized messaging, marketing, and make that, you know, almost out of the box. And now we're doing the same thing, you know, with agentic capabilities. You know, I'll reference back to, you know, the data point we watch a lot, which is, like, for people that are adopting, our agent products. Whether it's, you know, our marketing agent or our customer agent, how often are they coming back? And, you know, I'll go back to the data point we shared around our marketing agent where for folks that try it and adopt it, we're finding that they're using it repeatedly. In fact, it's starting to really eat into their share of how they, you know, generate and create marketing overall. So that it very much leads me to believe that, like, in the near future, gonna have a large percentage of our customers who aren't going through and pointing and clicking and, you know, sort of doing creative design all on their own, they're going to do it in large part with AI. You know, just an example from, you know, just this week, you know, talking to a customer that's playing with our marketing agent, you know, product, and, you know, he's telling me about how he was designing a campaign in his brand has a big, you know, Spanish-speaking, you know, audience. And the marketing agent actually understood that and generated versions that were not in just English but in other languages as well. I mean, these are the kinds of things that are now happening agents that are running on top of our platform. And because we have the customer contact to say, you know, what geography or locale somebody's in, you know, their preferences, maybe, you know, things that they told us. You know, in this case about language. We're able to just automatically inject those. Our agents are able to pick up on that. So I think you're gonna see a great increasing percentage of our customers are starting to really rely even for the majority of their usage of Klaviyo, Inc. on our agents. And then, also, we're gonna see a, you know, it's a growing percentage, even give it a shot. You know, become full-time adopters. Chano Fernandez: Yeah. I think just to add on that one, we provided a couple of data points, like, you know, customers that have taken or adopted market engaging. 50% of their campaigns, they're doing it with the marketing agent and seeing better results, some examples back on, you know, the live the L2 resolutions and service. For customers like LifeStraw. 74% of those coming up. Or Harvey and so on, like, 77% with autonomous within six fifty days of adopting service agents. So there has already some great data points that, of course, you know, as product keeps maturing, will go to market teams keep cranking on it. You know, very exciting what's coming ahead. Operator: We have time for one more question, and that question comes from Derrick Wood with TD Cowen. Please go ahead. Cole: Hi. This is Cole on for Derrick. Thanks for taking our question. The, you know, large customer ads were super strong. Could you just talk a little bit more about the strength there? And then specifically, you know, how much of this is cross-sell versus actually going in landing new customers of this size? Thanks. Chano Fernandez: Yeah. Great question. Most of those customers tend to be net new land. In terms of the large size customers. Some day, you know, clearly, they expand over time, but it's more on the net new logo. I think it comes to two points. Right? It's clearly how we're changing some of the practices in terms of focus more on the leading indicators, like pipeline, qualification, and strength of that pipeline. Same as I said before, how we're tidying up those agencies as well with, you know, beyond cells themselves with articulating the value proposition with product and engineering teams altogether. Getting onto it. And, clearly, I would say it's the, you know, it's the teams that know too and to understand how to liaise and learn customers in terms of the complexity of the sales cycles. But I think, you know, as I said before, qualifying the cycles is very important, I think, that we are on the right opportunities, and we those that we are into, and we are winning, and we're just creating the sales place, increasing the activity. And certainly, as well starting to come with partners like we mentioned before Accenture and some others. Which are great. Right? I think it's important to highlight as well that that is becoming a multi-verticals, and we're seeing customers now in Europe, like Bayer or Lindt. It's very international as well, Taylor Made and some others that are, you know, tremendous Marquis names that are starting trusting us. And I think that will create a hopefully, create to them, you know, flywheel effect in terms of we're building our brand as we are ready now for enterprise with the investments we're doing in compliance and governance plus, you know, some data centers for some of the international customers, still very strong about the value proposition of where we're going. So yeah. Krista: And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, everyone. My name is Kehaylani, and I will be your conference operator today. At this time, I would like to welcome you to the Q4 2025 Rapid7 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, if you have joined via the webinar, please use the raise hand icon which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Matt Wells, Vice President of Investor Relations. Thank you, operator. Matt Wells: And good afternoon, everyone. We appreciate you joining us. Today, we will be discussing Rapid7's fourth quarter and full year fiscal 2025 financial results. We've distributed our earnings press release over the wire; it can be accessed on our investor relations website. With me on the call today are Corey Thomas, our CEO, and Rafe Brown, our CFO. As a reminder, all participants are in a listen-only mode, and a question and answer session will follow our opening remarks. Before I hand the call over to Corey, I want to note that certain statements made during this conference call may be considered forward-looking under federal securities laws. Such statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include our outlook for the first quarter and fiscal year 2026, any assumptions for fiscal periods beyond that period, our positioning, strategy, business plan, operational improvements, and growth drivers. These forward-looking statements are based on our current expectations and beliefs and information currently available to us. While we believe any forward-looking statements we make are reasonable, actual results could differ materially due to a number of risks, including those contained in our filings with the SEC. Reported results should not be considered indicative of future performance. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. Further information on these forward-looking statements and risk factors are included in the filings we make with the SEC, including the section titled "Cautionary Language Concerning Forward-Looking Statements" in our earnings press release. Additionally, over the course of this call, we'll reference non-GAAP measures to describe our performance. Please review our earnings press release and filings we make with the SEC for a rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition to a replay of this call, will be available on Rapid7's investor relations website. And with that, I'd like to turn the call over to Corey. Thank you, Matt. Corey Thomas: And welcome to everyone joining us on the call today. I'm excited to be joined by Rafe Brown, our new CFO, who joined Rapid7 in early December. Rafe will offer some initial impressions on Rapid7 and the opportunities he sees in his prepared remarks. Rapid7 exited fiscal 2025 delivering outperformance against our Q4 ARR, revenue, and profitability guidance. We ended 2025 with ARR of $840 million and total revenue of $860 million, both ahead of guidance. In Q4, we saw sustained new deal activity for our industry-leading MDR offering and encouraging growth within our exposure command platform. Throughout 2025, more specifically during the second half of the year, we made strategic investments across key product growth initiatives to strengthen our position as a leader in AI-enabled security operations. We did all of this while continuing to generate significant cash flow, exiting 2025 with $136 million of operating income and $130 million of free cash flow. These investments enhance our security offerings with AI and machine learning capabilities, consolidate customer environments on a unified platform with our managed AI SOC, and enable our team to scale operations globally. Additionally, we just concluded our sales kickoff with the broader go-to-market team. It was our most impactful SKL in years and a great opportunity for Chief Commercial Officer Alan Peters and his team to outline their priorities to reenergize the Rapid7 Growth Engine. We expect to see tangible benefits of this organizational change throughout 2026 as we develop muscle memory with these new processes. Before I turn to business updates, I want to take a moment to address the broader landscape because I think context matters for how investors evaluate our business. We are operating in a period of significant disruption across the software sector, driven by a fundamental reevaluation of what AI means for software businesses. I understand why investors are asking hard questions. The rapid advancement of AgenTik AI capabilities has created real uncertainty about the durability of many software business models, particularly those built around per-seat pricing. Then workflow layers are point solutions that can be replicated or disintermediated. I want to be direct. Not all software businesses are positioned equally in this environment. And cybersecurity is fundamentally different. Let me explain why we believe Rapid7 is on the right side of this divide. The security operations market is defined by three characteristics that make it structurally resilient and, in many ways, a direct beneficiary of the AI transformation happening across the enterprise. First, the threat environment is accelerating, not simplifying. AI is enabling attackers to move faster, at greater scale, and with more sophistication than ever before. This is not a theoretical risk. It's happening right now, and it's driving an urgent reevaluation of security postures across the enterprise. The regulatory environment is simultaneously becoming more complex and more fragmented around the world. This combination means that the need for comprehensive, expert-led security operations is growing, not shrinking. Second, security operations cannot be reduced to software alone. Unlike categories where an AI agent can trigger an API call or bypass the user interface, effective security operations require the integration of broad telemetry, proprietary intelligence, real-world expertise, and, yes, human judgment, particularly during incidents where the stakes are the highest. This is a market where outcomes depend on the combination of technology and deep domain expertise, not one or the other. And third, our business model is anchored on outcomes and value delivered, not seats. Our pricing is tied to the scope of environments that we protect and the outcomes that we deliver, which positions us well as the industry evolves towards outcome-based and usage-based models. This is the lens through which I ask you to evaluate Rapid7. We're not a wrapper over a generic model. We're not a point solution. We're a platform built on the broadest proprietary security data foundation in our market, continuously enhanced AI-driven productivity and innovation, and delivered through deep services and technical expertise that customers depend on to navigate an increasingly complex world. Now turning to the evolution of our business. The cybersecurity market is changing, and that presents us with phenomenal opportunity. AI-driven attacks are escalating in both pace and sophistication, stretching security teams thinner than ever. At the same time, regulatory requirements continue to expand and fragment globally, from the EU's evolving framework to new compliance mandates across Asia Pacific, and the growing patchwork of US state-level requirements. This is driving a reevaluation wave across enterprise security. And the winners in this market will be the vendors that can deliver on three things simultaneously. First, a broad proprietary data foundation that provides complete situational awareness across the attack surface. Not just what you connect latively, but the ability to integrate, normalize, and contextualize data from across a customer's entire environment. With over 500 integrations, our command platform provides the broadest data foundation in our market, and this data advantage compounds over time as we train our AI capabilities on real-world security operation data that no competitor can replicate. Second, AI-powered productivity and innovation that continues to improve the speed and accuracy of detection, prioritization, and response. Our expert-trained AgenTiC AI workflows are built on years of SOC expertise, trained online playbooks, and redefined through real-world analyst feedback. These are not generic models. They are purposeful engines that improve outcomes in real time. And, critically, we view AI innovation as a continuous engine, not a one-time product release. We're accelerating our pace of AI development and expect this to be a sustained to Virginia. And last, deep services and human expertise that help customers navigate complexity that software alone cannot address. With a decade of experience managing our own 24 by seven global SOC and that of our customers, we have built an expertise layer that is essential, not optional, for effective security operations. As attacks grow more sophisticated and regulations grow more complex, this expertise becomes even more valuable, not less. Our managed services don't just monitor, investigate, respond, and remediate with the context and judgment that only experienced security professionals can provide. The convergence of these three elements, data, Matt Wells: AI, and expertise, is what defines the durable security operations platform of the future. Corey Thomas: And this is precisely what we're building. The framework guiding our investment and innovation is underpinned by a shift from reactive to proactive security postures, combined with outcome-driven service offerings. We are working to introduce more AI capabilities into our MDR and exposure offerings and evolving our platform to help customers get ahead of threats rather than simply respond. And throughout 2025, and particularly during the second half of the year, we made strategic investments across key product growth initiatives to accelerate our transformation into a leader in AI-enabled security operations. One that enables customers and organizations to take a preemptive posture towards security operations. These investments augment our existing security offerings with AI and machine learning enhancements, consolidate customer security environments under a common UI, and our leading managed AI SOC. And position our team to drive scale across our global footprint. In detection and response, we have a significant opportunity to continue leading our MDR offering. We made strategic investments to evolve, enhance, and scale our solutions while building on our expertise as one of the only providers in the market with a decade of experience managing our own stock. In 2025, we expanded our MDR coverage to enable management of third-party alerts in a vendor-agnostic fashion. Streamline analyst workflows with our AI sock for MDR incident command, and we start to expand our adjustable market to larger enterprises leveraging our AI-powered services. We're also continuing to build on our partnership with Microsoft. Just last month, we launched closer integrations such as MDR for Microsoft that provides 24 by seven expert monitoring and native response across the entire Microsoft Defender Suite. This collaboration also extends to exposure management by unifying Microsoft telemetry with Rapid7's command platform to proactively identify and close security gaps before they can be exploited. In exposure management, our evolution is anchored around up leveling our exposure command platform with AI tools, native telemetry, and open data integration curated intelligence, and automation to deliver a unified system for risk remediation. Differentiated features such as AI-generated vulnerability scoring, and active risk scoring combined technical severity real-world threat intelligence enabling security teams to begin patching zero-day threats before competitors who typically wait for official industry scores. Attack path analysis visualizes primary attack vectors and allows security teams to focus on patching critical vectors rather than low-risk issues. And our remediation hub provides a single destination for remediation across both exposure management and detection response, reducing meantime to the tech, respond, and remediate. When we combine our leading detection response and exposure management solutions with outcome-driven AI-enhanced service offerings, we address the core issues customers are facing in the market today. And when we do this, we're playing offense. In this quarter alone, a leading offshore drilling company selected Rapid7 as their SIM provider of choice. After being unable to achieve business outcomes promised by a competitor, this return customer saw real benefits from the investments that we've made in our product over the last two years. Our ability to effectively deploy, coupled with the service level capabilities such as MTC and vector command, made this 6-figure competitive win back stand out. One of the largest sovereign tribal governments in the country became a Rapid7 customer after a competitive deal cycle and displacement in which we showcased the benefits of consolidation and the integration into our MTC offering. This high 6-figure deal underscores the unique value proposition we can offer. Delivering service outcomes on top of leading technologies. A strategic MSSP provider selected Rapid7 as they continue to expand within the state, local, and education vertical. Our detection response solution provided the features and confidence they needed to deliver outcomes for their clients. We are consolidating a mix of competitive solutions and in-house monitoring onto the Rapid7 platform. These wins share a common thread. Customers are choosing Rapid7 not just for the technology, but for the combination of technology, data breadth, and expert-led services that deliver measurable security outcomes. This is our differentiation and it's durable. Turning to our go-to-market priorities. We're focused on operationalizing our strengths to accelerate growth. We just concluded our sales kickoff with the broader go-to-market leadership team and it was our most impactful in years. Allan, having completed his leadership team build-out, has crystallized his vision of a unified market approach across global sales, marketing, partners, customer success, and sales operations. With new leaders and plans in place, the team is executing a more focused sales motion with tighter alignment between marketing and sales to improve demand quality and conversion. And a refined customer success strategy designed to improve retention. Refresh incentive structures are better aligned to drive net new growth renewals, and cross-sell. These initiatives are still early stage, and our growth flywheel will take time to build momentum. However, the groundwork is in place to improve execution and drive sustained performance across product, marketing, and go-to-market and become a share taker in the medium term. In detection response, AR growth of 7% was driven by MDR ARR growth in the high single digits. As we drive product transformation to deliver increased value through our AI-enhanced SOC, We are positioning to take share as the MBR market evolves. We believe this market has significant runway and the combination of AI-driven efficiency, with deep human expertise creates a compelling and defensible offering that is difficult to replicate. In exposure management, we're focused on simplifying the migration of our core vulnerability management base to our exposure command platform. By removing friction from the upgrade engine, we are helping our core VM customers migrate to a unified AI-powered view of the attack surface, a move that replaces fragmented tools with integrated contextualized risk visibility. I want to spend a moment on how we're thinking about growth because this is where the AI transformation of our industry creates real opportunity for Rapid7. And I want to be transparent about the work underway. We're actively pursuing three parallel initiatives that we believe will drive both near-term efficiency and medium-term growth acceleration. First, we're shifting significant portions of our operational services work to our AI layer and redeploying our expert talents towards higher-value customer engagement. Today, many of the repetitive pattern-based tasks within our SOC operations, alert triage, initial investigations, and enrichment are being systematically transitioned to our authentic AI workflows. This is not about reducing our commitment to service. It's about freeing our experienced security professionals to focus on what they do best. Helping customers navigate increasingly complex threat and regulatory environments. Providing strategic guidance during incidents, delivering the kind of expert judgment that no AI model can replace. The result is better outcomes for customers, improved unit economics for Rapid7, and a services model that scales more efficiently as we grow. Second, we're strategically redefining our portfolio of solutions. By proactively integrating advanced AI models into our core offerings, we're ensuring our solutions remain at the cutting edge of efficiency and performance. Rather than maintaining the status quo, we're choosing to prioritize innovation over legacy. Making the deliberate decision to shift resources towards high-growth future-ready product areas. We believe this is the right trade-off. Accepting near-term headwinds in parts of the portfolio that face structural pressure while concentrating our investment and energy on the areas where we have a clear differentiation and durable growth potential. Third and most importantly, our core growth engine is the extension of our AI-enhanced services layer. This is where we see the most durable opportunity. Customers need a partner who can bridge the gap between the rapid pace of technology change and the operational reality of securing complex distributed environments under growing regulatory pressure. Our ability to deliver AI-driven efficiency alongside expert-led services integrated on a single platform with the broadest proprietary data foundation on the market is what sets us apart and what we believe will drive share gains over the medium term. At the core, our growth will come from extending this AI services layer. Delivering AI to help our customers keep pace with technology change, paired with the expertise to navigate a complex and rapidly evolving security landscape. Our anticipation is that the investments we made last year will begin to yield dividends in our AI orientation this year. But just as importantly, we're fundamentally transforming and upgrading our engagement models this year to ensure that both our business and our customers are resilient in the face of regulatory and the threat environment we face today. In closing, I want to leave you with this perspective. The increase in pace and sophistication of attacks is driving a meaningful shift in how security budgets are allocated. Customers are looking for vendors who can deliver measurable business outcomes, not just technology, but a combination of data, AI innovation, and expert services that actually make their organization more secure. We believe this plays directly into Rapid7's strengths. Our business is built on proprietary data that becomes more valuable as we scale, and our capabilities that continuously improve through real-world operations and a services layer that builds lasting trust and partnerships with security teams. This combination, data, AI, and expertise, is the foundation of a durable cybersecurity business. It's what differentiates us in a market that is increasingly skeptical of software-only approaches. Rapid7 is investing across our platform to deliver security operations that give customers the ability to stay ahead of attackers. Our long-term strategy of integrating exposure management with detection response is proven to be where the market is heading. Our command platform data mesh integrates more complete security data, including third-party sources, into our AI engine for true scale and efficacy. And our services layer allows us to build lasting trust and partnerships with security teams, supporting them where they need us most. We're confident in this strategy. We're moving with urgency, evidenced by our recent leadership additions and organizational changes to improve our execution and capitalize on the significant opportunity in front of us. I look forward to sharing incremental progress throughout the year. I'd now like to pass the call to Rafe to discuss our financial results and guidance in more detail. Rafe Brown: Thank you, Corey, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers except revenue and balance sheet items mentioned during my remarks today are non-GAAP. I want to begin by sharing how happy I am to have joined Rapid7. This is a great company doing incredible work to protect its customers around the world. And moreover, I believe there is tremendous opportunity to build shareholder value in the coming years. In this fourth quarter earnings call, I'm pleased to report that we exceeded our guidance across revenue, annual recurring revenue or ARR, and operating income. For the quarter, we generated total revenue of $217.4 million, growing 0.5% year over year. This brings us to a total of $859.8 million of revenue for the full year 2025, growing 1.9% year over year. For the quarter, we recorded product revenue of $209.1 million, growing at 1.4% on a year-over-year basis. Professional services revenue for the quarter totaled $8.2 million, compared to $9.9 million in 2024. Our year-over-year results reflect an intended shift in our operating model toward a greater utilization of our partners for professional service delivery, allowing Rapid7 to remain focused on its core offerings. Our ending ARR of $839.9 million was approximately flat year over year as the business digests a mix shift towards our faster-growing detection response business, which currently constitutes just over 50% of our ending ARR. On a year-on-year ARR basis, our DNR business grew at approximately 7% in total, with the MDNR portion of the business growing in the high single digits. We continue to believe that the managed detection and response market is a significant opportunity for us, and we are focused on unlocking the value in this market with our AI-enabled approach to preemptive security. Within our exposure management business, there are encouraging signs that our investments in modernizing and upgrading our offerings are taking hold. For example, our Exposure Command offering saw rapid adoption in Q4 by both new and existing customers. Turning now to profitability. Our Q4 non-GAAP operating income of $30.1 million or a margin of 13.9% was incrementally ahead of expectations. The sequential downtick in margin reflects a continued ramp of 2025 investments discussed in prior earnings calls. Across our global capacity center in India, our go-to-market teams, product teams, and new organizational leadership. It is worth noting that we will carry this higher Q4 expense base into 2026. However, as the investments take hold and the efficiencies they bring materialize, we expect operating margins to expand as 2026 progresses. I will provide more context in a moment when we discuss our 2026 guidance. For the fourth quarter, we posted non-GAAP earnings of 44¢ per diluted share at the high end of our guidance range. For the full year, we delivered non-GAAP operating income of $135.7 million or an operating margin of 15.8%. And drove non-GAAP earnings of $2.08 per diluted share. Our fourth-quarter free cash flow was $32.3 million, bringing us to a total of $130 million of free cash flow for the full year 2025. We finished the year with over 11,500 customers with an average ARR per customer of approximately $72,000. From a balance sheet perspective, we ended 2025 with over $659 million in cash, cash equivalents, and government securities. In addition to these resources, we have a $200 million undrawn revolver in place. Thus, our balance sheet position, strong free cash flow from operations, and available undrawn credit capacity give us confidence in our ability to settle our March 2027 convertible debt upon maturity. Before we turn to our 2026 guidance, I would like to share some initial observations. It has been an energizing first two months with Rapid7. The security market is in the midst of a dramatic change. Likewise, Corey and the leadership team are focused on taking Rapid7 to new levels, ensuring we meet our customers' increasing demands for excellence, as we protect their businesses from an ever more dangerous threat environment. As such, Rapid7 is well-positioned to take advantage of a growing market opportunity. Within the company, there are a number of areas where we must continue to improve. Both in terms of focus, and execution. In addition to the go-to-market efforts Alan is spearheading and which Corey discussed, we have the opportunity to improve our focus across our portfolio of offerings and in particular, to prioritize investments in the products and revenue streams that are core to our future. In my role as CFO, I'm focused on the following key objectives. Improving financial forecasting, driving measurement and accountability across the organization, focusing and shifting our resources to align with our core products and growth strategy, expanding non-GAAP operating margins as we move across 2026 and into '27, and focusing on free cash flow as a core operating metric across the organization. As we turn to guidance, I would like to begin by sharing that we have been refining our financial projection models over my first few weeks with the company. Our philosophy for providing guidance works to ensure transparency with investors while setting realistic, meetable expectations for company performance. I would like to note that while we continue to provide full-year revenue guidance for 2026, we've decided at this time to not give full-year ARR guidance. While we have a clear view of current trends across our business, we have several new leaders in place, and we are implementing key improvement initiatives across sales, marketing, and our customer success and support organizations. As such, we believe visibility into ARR is best reflected on a quarterly basis at this time. This brings us to our first quarter 2026 guidance. In the first quarter, we expect ARR of approximately $830 million or down 1% on a year-over-year basis. While we are optimistic about the leadership changes in strategy that have been implemented in our go-to-market organization, we do not anticipate the benefits of these changes will impact Q1. The total first-quarter revenue is expected in the range of $207 to $209 million or down 1% year over year at the midpoint. We expect non-GAAP first-quarter operating income in the range of $19 million to $21 million or a non-GAAP operating margin of 9.6% at the midpoint. As previously mentioned, margins in Q1 will be pressured by a higher expense envelope entering the year in addition to seasonal expenses such as our global sales kickoff. Non-GAAP earnings per share is expected in the range of 29¢ to 32¢ per share on approximately 77 million fully diluted shares. Turning to full-year 2026 guidance. In fiscal 2026, we expect total revenue in the range of $835 to $843 million or a decline of 2% year on year at the midpoint. Non-GAAP operating income is expected to be in the range of $108 to $116 million or a non-GAAP operating income margin of 13.3% at the midpoint. As stated earlier, we made a number of investments during 2025. As we move into 2026, we expect these will yield improvements in the efficiency and operation of our business, moving our non-GAAP operating margins into the mid-teens. Non-GAAP earnings per share is expected in the range of $1.50 to $1.60 per share on approximately 78 million fully diluted shares. Free cash flow for the year is expected in the range of $125 to $135 million, flat with prior year performance at the midpoint and a margin of approximately 15.5%. As a reminder, the company is focused on free cash flow as a core KPI in 2026. Please refer to our earnings release and SEC filings for any additional details regarding the presentation of our results and guidance metrics. And with that, I'd like to turn it over to the operator for Q&A. Operator: We will now move to our question and answer session. If you have joined by the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. When you are called on, please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up. We will now pause a moment to assemble the queue. Your first question comes from the line of Mina Marshall with Morgan Stanley. Please unmute and ask your question. Great. Thanks, and I appreciate the question. Mina Marshall: I guess just in terms of some of the changes that you were mentioning, in terms of tighter marketing and sales, refined customer success, refreshed incentives. Just how would you measure or kind of expect where some of those changes should be seen first and kind of what milestones are you holding yourselves to see evidence of those changes? Corey Thomas: Yeah, great question. Look, I think there's a number of different areas, but I think one of them we're looking at is sort of increased sales and marketing productivity efficacy. We think we can actually grow faster while doing it more efficiently. We have to clear that's a clear-cut one that actually stands out and we could. That's a pretty opportunity. And that aligns across, frankly, product marketing and the go-to-market teams. And the overall engagement. Specifically, when you think about the customer side of the house, look, one of the bigger opportunities we have is customers are frankly looking for more services, more customization, more depth, not less. And so scaling that leveraging both technology, but also people and the expertise is a big focus area for us so that we're actually able to do more work at greater levels for our customers, while still frankly maintaining or improving our gross margin profile. That's one of our bigger pieces of focus we've had over the last year. Customers have not been looking for less services, less engagement. They've been looking for partners who can do more with less. And that requires both technology and some of the people, talent, and expertise. Thank you so much for the question. Operator: Your next question comes from the line of Jonathan Ho with William Blair. Please unmute and ask your question. Jonathan Ho: Hi. Good afternoon. Can you hear me okay? Matt Wells: Yes, Peter. Just my job. Jonathan Ho: Okay. Perfect. So I just wanted to understand in terms of the segments of the market that you're prioritizing, can you talk a little bit about what you see as sort of the core growth businesses going forward? And know, what are, you know, some of the changes or areas of focus that you can implement, you know, to sort of drive that acceleration? Thank you. Corey Thomas: Yeah. Look. I think our biggest growth area is still gonna be detection response, which is still growing. We think it has the capacity to grow faster. That said, as you think about like our core adjustable market is that mid-sales or mainstream enterprise, think about, like, employees from organizations that have employees from a thousand to 20,000 employees. For there, we're focused heavily on making sure we can provide the depth and quality of the service experience. We think we're only addressing part of the total addressable market there. Our big focus right now is unlocking the full addressable market. Now, let's say it lots of competitors we have are especially a private are actually doing it at lower total gross margins, and we're very focused on delivering quality service and quality experience at the right gross margin profile. So that's the first one, is that detection response market. Of which does include AI services. But exposure management is an important part of the puzzle there. And so I would just say that's another core focus area. We do think about that being an integrated part of the stack. Not a standalone focus. And so if you think about where our focus it's about how do we actually bring together security operations that bring together exposure management and detection response. So we think about that flowing into a single integrated offering. Some of the things that we're less focused on are some of the legacy on-prem, much of which has been upgraded to our command platform. But we're still working through the upgrade of those technologies and capabilities to the command platform. When you look at the core market that we're focused on title, it's that mainstream enterprise that is, frankly, our historical base. We have I would just say, moved slightly out of that over time. And I think one of the things that Alan and the team are bringing back in is a tight focus on our core customer and our core customer profile. Which we think is a good thing for both acceleration and win rates. Jonathan Ho: Got it. And then just as a quick follow-up. So when we know, take a look at your decision to not offer the full-year ARR guidance, can you maybe walk through the rationale for that? And what maybe has to happen for that visibility, for you to be comfortable to bring that back? Thank you. Rafe Brown: Yeah. Thanks, Jonathan. You know, as my prepared remarks mentioned, you know, the first and foremost, we thought it's really important to put out guidance that is meetable and clear to align everyone. And so that's why we have confidence in the near-term ARR. For the longer term, we felt that revenue was the best metric for the current time. You know, and this is largely because of all of these changes that are underway in our business, you know, across whether it's the sales organization, marketing, customer success, and support. And so, you know, with the total of all of those factors coming together that led us to this decision. You know, there's a number of us that are new, including in the organization, as we see the trends establishing themselves, as we see these investments begin to bear fruit, we will reconsider giving full-year ARR at that time. Corey Thomas: Yeah. I would just say we decide. Look, this is not a moment where we can be slow. So we decided that we had to actually move fast. But what we didn't want to do was attempt to be overly precise when we're actually have a new team that's actually coming in driving execution fast. We're holding ourselves accountable for driving improvement. Both in growth and in the cost structure as we go across the year. You know, the cost structure is a little bit easier to focus on, especially when you look at free cash flow. I would just say the growth piece of it that because of the last couple of years, we were just really focused on actually starting out with where we have clarity. And then as we actually show the improvements, we'll update you, of course. And then as the new folks that are on board get situated in place, my expectation is we'll be able to continue to provide commentary and visibility. Thank you so much for the question. Operator: Next question comes from Rob Owens with Piper Sandler. Please unmute yourself to ask your question. Rob Owens: Great. Good afternoon, everyone, and thanks for taking my question. I guess I'll pick on the guide a little bit too, and I can appreciate that there's a tremendous amount of uncertainty both with the changes that are going on within Rapid7 that you talked about, Corey, but also just where the market is. But the Q1 ARR guide does lend to significantly more churn, I think, than you've probably been seeing. And so we just love a frame. And I realize it's hard to commit to an ARR number given all the moving parts right now. But when would you hope that some of these investments that you've put in place will start to bear and you can see some stabilization in that number. And I know that historically, you do see some seasonal weakness here in the first quarter, but obviously, you're giving us accelerated churn in the numbers here. So appreciate the thoughts. Thanks. Corey Thomas: Yeah. It's a very fair question. Look. I think part of what you're seeing, I think you're referring to, both the net AR, which sort of indicates that churn is going faster than the new. What you see there is that, look, we clearly you look at DNR it is a positive contributor in the environment. We need that to grow faster, frankly. There are some aspects of the business we've broken down before in the other category. That are negative. We've had pressure on parts of the traditional VM business. We need the DNR business to grow faster, the biggest thing that we're actually doing on that is we're actually focused on the growth being in line with our gross margin expectations. And we're taking a fairly disciplined approach to that. Which means that we have to be gated somewhat still, even though we're starting to take in and increase our adjustable part of our TAM. We are unlocking that now. So we started unlocking that late last year. And we expect that to improve over the course of the year. And for that to actually flatten out the exposure management piece we are in the middle of an upgrade cycle. What I would just say is we saw good unit trends exiting Q4. We were very slow last year overall, but we did not want to throughout the whole year. Straight line some improvement that we saw in Q4. But I would just say we have positive indicators there. To answer your question, Rob is DNR. We actually have pretty strong confidence that you'll see that continue to improve over the course of the year. So we'll have a good mid-year check-in. On the DNR side, where we'll provide commentary and discussion about what's happening overall there. The exposure piece was definitely slower last year. Did improve in Q4. Just to be clear, I think that was in some of the early comments. But it's not where we wanted to be. And so again there we don't want to actually straight line of the early improvements that we saw in Q4. I hope that helps with a little bit of how we're thinking about how we're. Rob Owens: It's very fair. No, that doesn't I appreciate the color. And, you know, obviously, given the software magedon or whatever we want to call it that we've seen recently, I appreciate your comments earlier around the defensibility of cyber and the domain expertise and couldn't agree more. That being said, I'm curious, what are conversations with relative to AI, the potential threat of AI? And what are they asking of Rapid7, if anything? And thank you. Corey Thomas: I mean, look, that's the one that's actually the clearest, and this is where this is also the time where on one hand, you never love, as you're seeing some of the growth things that we have, last year for us to make an investment. That's it. In retrospect, I feel great about the investment because we are moving on the AI. The number one thing that customers are for us is they want us to do more to help them do more with less. Like, we think about AI crowding out budgets, but it's also crowding out staff. And as customers are dealing with increasingly complex environments, they're absolutely demanding that their providers be able to tackle more and to do more with less. So that's why I say that they're looking for us to actually leverage AI. Now, there are a lot of customers that want to actually they want transparency in the AI. So part of what we're working with our team on is not just solving the problem, it's showing your work on how you solve the problem, because security folks are skeptical. And so we're not mission complete until we actually both deliver the AI velocity to customers well, but that we actually do it in a way that's trust. So that's one thing the customers want. But then they actually want you to actually do more. So we have lots of customers that are looking for us to actually take on more of their operational workloads. And frankly, we can't quite address all of that right now. That's why we are upgrading and investing in getting richer, deeper expertise even as we deliver more AI solutions. To take on part of the work that actually some of our people used to do. Customers want to scale their security operations, and it's not just their technology, but that they're trying to figure out how to get the most out of. They also, for their teams, are being asked to do more with less. Next for the questions, Rob. Operator: The next question comes from the line of Brian Essex with JPMorgan. Please unmute and ask your question. Brian, please unmute to ask your question. Corey Thomas: We can come back to Brian in a second when he goes back home. Operator: Alright. The next question comes from Joseph Gallo with Jefferies. Please unmute to ask your question. Grant Darling: Hi. This is Grant Darling on for Joe Gallo. Thanks for taking the questions. I wanted to ask first just about, you know, outside of AI customer consolidation trends. How are those impacting your win rates and deal sizes? And then in the conversations with customers, what is most important for you to be a beneficiary of this trend? Corey Thomas: Yeah. It's a great question. It's interesting. So we are benefiting from it. I would just say we do have to actually improve the delivery of how we actually simplify that for customers. And so we see this as an area it's our biggest area of winning. It's also one that we actually have some improvement to go. I think one of Alan's big focus areas is to simplify the proposition, the storytelling, and the packaging about how we actually deliver the consolidation story. Look, Rapid7 has traditionally been because we're a security company, we tend to believe in not overpromising. And so we tend to under-promise over-deliver, which isn't always the greatest thing. In a hyper-competitive sales cycle. And so part of that is how we actually tell the story. The thing that we're focused on the more substantive level, though, when it comes to consolidation is how do we actually be the best at actually integrating into the rest of people's technology and security stacks. Look, if you look today, we're able to essentially integrate the four biggest parts of security operations in. Which is a big deal. People are asking us also to actually take on even more of that work. And we're doing that increasingly through partnerships. So we announced not just a partnership with Microsoft, we announced a partnership with another company that extended some of our capabilities. You'll see several more of these key partnerships coming up a little bit later this year. As a key part of our strategy that allows us to stay tight on our R&D focused budget, which is somewhat know, in some in the past, we will just actually spend on teams to do that. So it allows us to stay focused but it also allows us to apply best-of-breed technology deeply integrated within our security stack. To get more of that share of wallet for the budget, and that's a big focus that we have as we move through the year. That said, we are not assuming in our initial guidance that Rick gave, any material improvement there. Will say we are managing to that. With the strategy of both expanding our addressable market in exposure and DNR and demand services that go along with it. And we're quite aggressively investing in embedded partnerships that deliver the consolidation experience and budget that folks are looking for. Grant Darling: Got it. That's very helpful. And then maybe going back to MDR, like, when does that get big enough to drive growth acceleration, and maybe how do we think about that dynamic there? Corey Thomas: So I think it's pretty close. It's actually it is actually big enough. We need to be ungated in our ability to actually go sell it and drive it. I do think we crossed that threshold this year. To be clear, we were one of the most profitable, highest quality MDR businesses. But that does mean that we are pretty clear about what we do and don't do. And we are actually increasingly unlocking that business that does require technology. That does AI, and it requires us to shift where the services go. But I think that we're on the track this year to be able to unlock that. Then that really compensates for the growth. I think this is part of our Raphael's comment earlier is that look, we don't want to be over-precise in predicting timing. We're unlocking it this year, then alright. How fast can as we unlock that, can we actually take that to market, tell the story in a noisy market? That's where we are actually just, you know, being very direct and open with you. But we do see us unlocking that this year, which we think the profile improves over the course of the year. Grant Darling: Very helpful. Thanks again. Thanks. Operator: Your next question comes from the line of Adam Tindle with Raymond James. Please unmute and ask your question. Adam Tindle: Okay. Thank you. I just wanted to kinda circle back to Rob's line of questioning and just double click on what's driving the ARR decline in Q1 based on guidance. It's just a little bit more meaningful in the past, down $10 million or so on net new ARR. And I wouldn't think Q1 is necessarily a big renewal quarter, so I was confused at the churn comments. Just maybe double click on why that is happening in Q1. And then if you could tie in the color on investments and strategy to potentially reverse this decline in net new ARR. For example, if it's a churn issue that you're seeing, are you creating, you know, or investing in a retention team? Just a little bit more, Corey, some qualitative comments on the strategy as well. Corey Thomas: Yeah. No. So one Rob went to one that framed it as a churn thing. But, you know, to be clear, I do think that the if you look at the biggest driver, DNR is growing, but it's not enough to compensate for the negative for the rest for the other parts of the business that aren't growing. But I will answer your churn questions too about what we see around churn is we see you know, if you think about DNR, and you think about exposure exposure was stable last year, so it was in line with expectations. We think it can be better. We have a number of major releases coming out make it easier to do the VM to bond with the vulnerability management. Exposure upgrade until we think we have upside there. But again, was slower last year. And so we're not baking that into the core assumptions and outlook. And it's not that's not a true one thing either. And so that is something that we're actually looking at in the middle of the year. But we actually have good visibility there. The DNR one, we're actually doing great in DNR. I would just say that for customers to say we love what you're doing, we need you to do more, or we want more services, we want more customizations, not set up right now to fully unlock that right now. And so that does cause more complex customers to come out in the near term. That one we have a lot more confidence in clearing and visibility in. Because we've been specifically retooling around that. And that, we actually think, improves both on the addressable market TAM side but our ability to say yes to customers as we go forward. So again, the biggest driver is DNR growth isn't enough to compensate for the other, but I also want to make sure explicitly address your questions on churn dynamics. Did that get to your core questions? Adam Tindle: Yeah. That's helpful. Thanks. Sure. Maybe just a follow-up for Ray. I was curious in looking at the guidance here. You do have that improving EBIT margin I know you talk about, but in dollars, it's also improving $20 million or so. In Q1, and EBIT dollars has to go to 30-ish to hit the annual guide on EBIT. And I'm noticing that, revenue growth is not accelerating, so it's not necessarily an operating leverage dynamic going on here. What's driving the improvement, in EBIT? I know you talked about investment I wonder if maybe there's also some cost-cutting restructuring or something that drives that trend of EBIT dollar improvement on revenue declines. Thanks. Rafe Brown: Yeah. Thank you. As we move across here, part of where we're at is we have been investing throughout 2025. We you know, of course, our run rate comes into the early parts of the year, but those investments start to bear fruit. Right? Some of the things that I called out in my prepared remarks you know, are investments that help us build efficiency, whether it's investments into the product, investments into the India team. It gives us greater capacity as we move through the year, and that bears some fruit for us. That will help us build those margins as the year goes on. Operator: Your next question comes from the line of Shrenik Katari with R. W. Baird. Please unmute and ask your question. Zachary Schneider: Hey, guys. This is Zach Schneider on for Thanks for taking the question. So I just wanted to follow-up to some previous questions. If you could just help us understand where are we really in the monetization curve for exposure command. And incident command and maybe which upsell levers offer the highest probability of lifting net retention meaningfully maybe without relying on broad pricing increases over the next twelve months. Thanks. Corey Thomas: Yeah. I'll hit both on the chart. So one, incident command is relatively easy. We haven't we haven't we launched initially last year. I will say the primary focus initially was on the AI managed services around it. And to support some of the customer demand again because we have not addressed the full addressable market there. So, I would just say, listen, we're in the first inning of incident command, and frankly, it's not even a big priority right now for our sales team. It will be a later priority as we actually go through the year. But we actually think there's plenty of upside there. Especially with what's happening in the sale market. So it's something we're prepping for and looking at. There's a couple of things that we wanna do to make it plain dead, easy, and simple. For folks to do. And so we expect to actually do that. But think we're in a good position, but that's not a core focus. I would just say first inning but it's something that we're looking at. And I think that upgrade does not require a lot of complexity in terms of pricing there. On exposure command, would just say, listen, that was a big disappointment last year. Because we did not really sort of like get that going to Q4. That said, in Q4, we actually saw a unit up starting to get the upgrade motions. And if that continues, and even in Q1, we're starting to see a little bit of continuation of that. Then we feel quite good about what that means for both growth of expansion and what that means for retention over the course of the year. As that goes along. But this is a classic one where we missed the timing last year, and so that's where we're not baking that into the it's not in the core Q1 assumption. It's not there. But I do think that that is one that I feel like we're in the I would just say, fourth or fifth inning. I hate to keep using baseball analogies. But we're further along. We see it. We know what we've gotten good feedback there. We just wanna see the uptick do think more of this is operational and so I feel more confident that will continue to see it and we've already seen some of the initial progress there. Zachary Schneider: Very helpful. Thank you. Corey Thomas: You're welcome. Operator: Your next question comes from the line of Kingsley Crane with Canaccord Genuity. Please unmute and ask your question. Kingsley Crane: Hi. Thanks for taking the question. Entering last year, I think we felt like we had a stronger pipeline at the beginning of the year than fiscal 2024. You know, of course, this has been somewhat of a challenging year. In retrospect, I mean, was the quality of the pipeline lower than original valuations? Just how do you feel about evaluation methodology and just the quality of the pipeline heading into '26? Thanks. Corey Thomas: Yeah. I mean, look. I mean, clearly, you look last year, our assumptions on deal cycles, especially in the pipeline, or off significantly, which is why we've actually revised we look at things, how we think about things. As we actually come into this year. These were conservative, would just say we have a much more thoughtful approach around the learnings from last year and how they apply coming into this year. Way that I would frame last year's pipeline is that on the DNR side, we actually built a backlog of larger deals faster than we could actually consume them and deliver them and execute them in the market. And I think that's fine, but it represents customer demand. And so we have a lot of urgency on responding to that sort of like customer demand that we actually see there. I do think that this year will match up the demand and supply capabilities to actually do the more customized accounts. I think it's the right thing to be gated on that, but to be clear, I do think that'll be more matched and in line this year. Look, we also just need lots more transactions in singles and doubles. Was the other quality. So one of the big things that Alan's focused on is not just doing the big deals, but also getting, you know, I hate to keep using baseball in Nashville, singles and doubles. But that matters hugely. Now, again, this is one of the things that kind of worked well coming out of last year. We did start to see that mentalities of these singles and doubles starting to hit. Need to see that systematized across a few quarters. But if you look at the recipe for growth acceleration, which is what we all want, is it is the singles and doubles. Think about that as the mid-market AI MDR. It's the incident command, it's the exposure command, which includes the upgrades of those, which we have plenty of capacity and room for. It is continuing to deliver the pipeline then actually being able to convert and service the, I would just say, the larger deals. When I say larger deals, those are the customers that are with somewhere between five and twenty thousand employees, which is sort of in our core sweet spot. And unlocking that. And I think that that is a big focus area. Those are the things that actually unlock growth as we come in. When we look at how we're actually looking at the pipeline in the planning assumptions this year, is one, look, we're factoring in that we need a multiple of the coverage ratios that we actually did last year. So we actually are taking the learnings from last year and applying them in to this year as we actually think about the pipeline overall. And certainly, as we actually think about how does that relate to guidance. But again, there's a couple tailwinds that I would just say our team's ability to go get the singles and doubles, which should, in things over the course of the year. But we wanna see that evidence done, and they will actually communicate that and we'll give you updated guidance. Kingsley Crane: That is really helpful, Corey, and I do appreciate the baseball analogies. Maybe one for Rave. Are you thinking about the net debt balance moving forward? And then just the general philosophy around cash balance uses of cash as you wrap your hands around the business? Thank you. Rafe Brown: Yeah. Thank you. Well, first, we've been very, very focused as I touched on in my prepared remarks, about making sure we're in a strong position for that maturity, that comes in March 2027. You know, on our balance sheet, a lot of our investments, are still classified as long term, but all of those treasuries, government securities mature before the bond does. So, you know, what we anticipate as next quarter, the bond maturity moves from noncurrent to current. So too will the investments. It really just lay out for everybody. First and foremost, we're in a very strong position to be able to take care of that debt maturity with, with the cash and the investments we have on hand. Think beyond that, you know, we're looking to make certain we have the liquidity to obviously, fund the business, make sure we've got good headroom there. But also, you know, we need to be liquid enough to take advantage of any opportunities that come up. Know, through the course of the year. So very much evaluating that now and continuing to have discussions around that. But first and foremost, we wanna just share with everybody our strong position to take care of the debt maturity. Take that off the table for everyone, and then we'll go forward from there. Corey Thomas: Thank you very much. Operator: Your next question comes from the line of Mike Kikos with Needham. Please unmute to ask your question. Corey Thomas: You may have to unmute. Operator: To unmute while you're on the phone, it's just star six. And it looks like we're not getting a response from Max, so we'll go next to Rudy Kessinger. Please unmute. To ask your question. Rudy Kessinger: Hey. Great. Thanks for squeezing me in, Rafe. Kinda back to Adam's question and some other questions on just the ramp in op income. I guess on gross margin, you know, was down sequentially in Q4. Should that tick lower for the full year here? And, again, just so I if I'm modeling it right and assume a gradual ramp in that op income. I've gotta take OpEx down by, like, $10 million a quarter by Q4. So do we have that right? And, you know, you're saying it's driven by efficiencies, but you know, what are you guys planning to cut hedge or anything, or how do you get to that level of improvement on operating income side? Rafe Brown: So I think, first and foremost, remember that we did touch on Q1 inherently has some extra expenses that just hit Q1, right? Not only do you have the usual stuff like all the tax rates resetting and that always hits Q1, but also sales kickoff falls in Q1, and you know, we as Corey called out, you know, we got the whole team together. We really had a great chance to get together with the new leadership and really set that strategy for the year. So that is one unique aspect that obviously shows up in our Q1 guidance. You know, across the board, you know, these investments that we're making that the gradual shift to MDNR does come with a little bit lower margins. We still think they're very good margins. You know, we've talked about in the past maintaining those margins in the low seventies. We feel good about that. But as that mix shift continues, it does pressure cost of goods sold a little bit. But, again, you know, these investments are around AI, investments across the business and all the different changes we've called out, I think that will bring efficiency as we move through the year. Corey Thomas: Yeah. I mean, keep in mind, I think yeah, I do wanna reflect one thing. I think it's a core part of it is that one, race completely right about the managed the MDR that customers are looking for. Just to clear, it's a big demand driver. Also, you can see why because the gross margins profile why we have to do it in a technology-oriented way. And so that's the first thing. The second thing I remind you is that this was planned for year. You know, what we committed to you all last year that we were gonna make an investment but we were planning out the investment such that the benefits of it would sort of like peak at the end of the year. But then come down. I would say we're completely aligned with the plan. So yes, I think that you're right on the profile of how it flows but this profile and this investment structure was planned out last year, and we are on the plan. And so it's not a major derivation of the plan. Now, again, Q1 is probably not the right baseline to think about the Q1 expenses. But the efficiency gains that we have we're playing out as we actually went through the increased investment last year. Operator: Trevor Rambo with BTIG. Please unmute to ask your question. Trevor Rambo: Great. Yeah. This is Trevor on for Gray Powell in squeezing me in here. Just one quick one for me. You touched on it a bit earlier, but can you just talk more to the mix of enterprise versus mid-market deals you saw in the quarter and how that compared to Q3? And then where are you seeing the most traction between these deals heading into 2026 and then the next there? Any color there would be helpful as well. Thanks. Corey Thomas: In pipeline I don't have the specific numbers off hand right. But in pipeline over the course of the year, we saw, I would just say, a pretty significant shift towards larger ASP deals in pipeline. Which is frankly, again, a little bit ahead of our capacity to deliver on all of those. And so that ended up being a pressure, which why say, listen, we have to have the singles and doubles mixed in there. I do think it'll be more balanced this year. Now, I can't comment about where the current pipeline sits. I just look at it. Don't have the enterprise and it's not really enterprise versus mid-market. It's more the deal size and complexity. And customization that really that drives it more than anything else. I am expecting, based on conversations with Alan and the go-to customer team and the go-to-market team, that we'll see a more balanced mix this year coming in. We'll still get a reasonable share of the larger deals, but we are planning for it to be a more balanced mix. We think that was one of the things that we just did not quite nail the execution on last year. So we do want to be more balanced, even as we actually continue to now convert some of those larger deals. Just to be clear, that is the goal, that is the focus, in both our customer orgs for our existing customers that are asking for more, and for new business. Lots of customers are looking to upgrade their capabilities. And get partners on how they actually scale their street operations. But we can say yes to more of those, but we do want more of the singles and doubles, so to speak. I do think the mix is gonna shift to be more balanced this year. Trevor Rambo: Alright. Thank you very much. More questions at this time. I would now like to turn the call over to Corey Thomas for closing remarks. Corey Thomas: Alright. Well, thank you so much for joining us on the call today. And I really do appreciate the folks that are actually on the journey with this Rape and I look forward to updating you on the next call. Operator: Thanks.
Henry Harrison: Good afternoon, and welcome to MasterBrand's Fourth Quarter and Full Year 2025 Earnings Conference Call. During the company's prepared remarks, all participants will be in a listen-only mode. Following management's closing remarks, callers are invited to participate in a question and answer session. Please note that this conference call is being recorded. I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis. Thank you and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand, and Andrea H. Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our fourth quarter and full year 2025 financial results. This document is available on the Investors section of our website at masterframe.com. I would like to remind you that this call will include forward-looking statements. In either our prepared remarks or the associated question and answer session. These forward-looking statements are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2024 Form 10-K and updated as necessary in our subsequent 2025 Form 10-Qs, which are available at sec.gov and at masterbrain.com. The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements, except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables which are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrain.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our fourth quarter and full year 2025 financial results from Andrea H. Simon, along with our first quarter 2026 financial outlook. Finally, Dave will make some closing remarks before we host a question and answer session. With that, let me turn the call over to Dave. Dave Banyard: Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. Our fourth quarter and full year 2025 results were shaped by ongoing demand pressure and a complex trade backdrop. Despite these pressures, our teams remain focused on supporting customers, advancing our integration efforts, and maintaining financial flexibility through targeted cash management. While near-term results remain under pressure, we made meaningful progress on the priorities within our control to navigate ongoing volatility while ensuring MasterBrand remains positioned to capture meaningful upside when demand returns. In the fourth quarter, we generated net sales of $645 million, a 3.5% decrease compared to the same period last year. Our performance reflected a mid-single-digit year-on-year market decline, partially offset by the continued flow through of previously implemented price and tariff-related pricing actions. Adjusted EBITDA for the quarter was $35 million compared to $75 million in the prior year period, and adjusted EBITDA margin was 5.4%. The variance in our results versus our implied fourth quarter outlook was primarily driven by a sharper than expected late quarter slowdown in new construction, which pressured price and mix and reduced factory utilization and operating leverage. Free cash flow for the quarter was $53 million compared to $69 million in the same period last year. While cash generation declined year over year due to lower profitability and deal-related expenses, we remained focused on preserving liquidity and financial flexibility. Looking ahead, we continue to expect full-year free cash flow to exceed net income on an annual basis, reinforcing our long-standing commitment to disciplined cash conversion across cycles. Turning to our end markets, 2025 marked the third consecutive year of market contraction, with elevated interest rates, ongoing affordability concerns, and lower consumer confidence continuing to constrain activity across new construction and repair and remodel. U.S. single-family new construction declined high single digits in the quarter and mid-single digits for the full year, with the fourth quarter slowdown sharper than expected. Builders remained under pressure, driven by tighter financing conditions, lower consumer sentiment, and greater uncertainty around input costs. However, consistent with prior quarters, MasterBrand's new construction sales again outperformed the broader market, driven by our exposure to production builders, the breadth of our portfolio, and our continued focus on service reliability and execution. We expect current headwinds in the new construction market to continue in 2026, as affordability and uncertainty around trade and pricing continue to influence buyer behavior. In repair and remodel, demand was uneven throughout the fourth quarter, reflecting a consumer that remains pressured. The U.S. Cabinet R&R market declined mid-single digits in both the quarter and the full year, with demand constrained by low existing home turnover, which historically underpins larger discretionary kitchen and bath remodel activity. Elevated interest rates, affordability concerns, and uncertainty in the job market continue to weigh on consumer confidence. Across our portfolio, we continue to observe trade-down behavior. Stock customers shifted towards our opening price point offerings, while in our premium tier, demand migrated towards semi-custom and value semi-custom options, reflecting a continued focus on value even in traditionally less price-sensitive channels. Looking into 2026, we anticipate U.S. Cabinet R&R demand will remain subdued and closely tied to financing conditions, consumer confidence, and housing turnover. We are helping offset these pressures with our broad refreshed portfolio and continued technology investments that enhance the end-to-end experience, making ordering, fulfillment, and support more seamless. Until affordability improves and housing turnover normalizes, demand is likely to remain below historical levels. But we remain confident that the long-term structural drivers of R&R are intact. In Canada, market conditions remain challenging in the fourth quarter, driven by the same affordability and turnover dynamics we saw domestically. The Canadian market declined mid-single digits in the quarter and for the full year, with new construction and R&R demand both down mid-single digits. We expect the Canadian market to remain pressured in 2026, with demand continuing to be constrained by consumer sentiment and low resale activity. As in prior periods of subdued demand, our focus remains on disciplined execution and targeted commercial actions to remain competitive and effective. Stepping back, we view 2026 as a continuation of the industry's extended period of muted demand, with end market conditions expected to remain soft and decline roughly mid-single digits across most categories as affordability pressures persist. Following multiple years of market contraction, and with tariff-related costs still continuing to flow through, expect competitive discounting to be elevated across the industry. In that environment, our ability to pass through additional pricing could be more limited. Where tariff mitigation actions require incremental pricing, those moves could further weigh on demand in select value-oriented categories, particularly stock cabinetry, adding uncertainty to near-term demand elasticity. At the same time, historically low existing home turnover is expected to continue to suppress cabinet repair and remodel activity. Looking ahead, we expect market conditions to stabilize and modestly improve in 2027, supported by historically low comps, improving affordability, easing financing conditions, and a gradual normalization in housing turnover. As a reminder, because cabinets are typically purchased later in the cycle, we expect a modest lag between a general market recovery and when the momentum is reflected in MasterBrand's results. In the meantime, we are maintaining rigorous cash discipline, pursuing targeted cost reductions, and preserving financial flexibility so we are well-positioned to capitalize on an eventual recovery as conditions improve. As part of these actions, we are implementing $30 million of planned cost reductions in 2026, which Andrea H. Simon will discuss more in detail in a few minutes. Turning to the trade environment, which remains an important and dynamic input to our planning and operations. As a reminder, in October 2025, new Section 232 tariffs on timber, lumber, kitchen cabinets, vanities, and related wood products went into effect, introducing meaningful additional duties across our materials and imports. While the scheduled 01/01/2026 tariff rate increase was deferred, the current 25% tariff on cabinets, vanities, and related products remains in place throughout 2026, with a 50% tariff rate now scheduled for 01/01/2027, absent further developments. Although timing has shifted, the trade environment remains challenging. Existing tariffs continue to pressure costs across the system and require ongoing management across sourcing, operations, and pricing. As we discussed last quarter, the impact of these measures is not limited to direct costs. It also has the potential to influence housing affordability and consumer behavior over time, effects that tend to emerge gradually rather than immediately. In response, we are continuing to a coordinated mitigation strategy across the organization. This includes enhancing sourcing flexibility and supplier engagement to reduce exposure, making targeted manufacturing footprint and operational adjustments to better align with demand and cost dynamics, adjusting product component design to lower overall tariff exposure, and maintaining consistent surcharge methodology where appropriate to provide transparency and predictability for our customers. These actions require careful sequencing and disciplined execution, and they remain a key focus for our teams. We are closely monitoring ongoing trade and macroeconomic developments and have incorporated the updated tariff timeline into our planning assumptions. We expect the benefits of our tariff mitigation and cost reduction to phase in over the course of 2026, supporting stronger profitability towards the later part of the year. Andrea H. Simon will provide additional details in her remarks. Operationally, we stayed focused on execution in the fourth quarter and throughout the year, keeping service levels strong, aligning production with demand, and continuing to build capability across the organization, even if the external environment remains pressured. Turning to Supreme, 2025 represented our first full year operating as an integrated organization. We made strong progress capturing the cost synergies we targeted, with benefits coming through across procurement, network, and logistics efficiencies, and overhead alignment. Just as importantly, we have been able to do this while maintaining critical operational continuity and customer service. As we look ahead, we remain on track to realize our target of $28 million in annual run-rate cost synergies by year three post-close, and we continue to see additional opportunity to expand the benefits of the Supreme combination over time, particularly on the commercial side as end markets recover, through broader portfolio access, cross-selling, and channel expansion. As for the pending American Woodmark transaction, we continue to advance our planning and are encouraged by our progress to date. Our teams remain focused on the integration planning and readiness work so they can move quickly following close while protecting customer service levels and maintaining continuity. We are excited about the strategic and financial opportunity the combination represents for customers and shareholders, and we anticipate closing the transaction early this year, subject to remaining customary regulatory approvals. Importantly, we continue to expect approximately $90 million in run-rate cost synergies by the end of year three post-close. Finally, turning to our continuous improvement efforts and capital allocation priorities. Our continuous improvement efforts remain a core enabler of operational excellence and long-term value creation. Our programs again outperformed plan, helping to partially offset volume pressure and tariff-related cost impacts. Importantly, continuous improvement broadened and deepened across the organization, gaining traction not only in production but also in back-office functions. Collectively, these actions are strengthening productivity, enhancing cost and performance visibility, and enabling more consistent decision-making, positioning the organization to sustain and build on these gains over time. From a capital allocation perspective, capital expenditures were in line with expectations in 2025, and we remain focused on operational execution and flexibility, consistent with the MasterBrand way. Our balance sheet and liquidity position remained healthy, providing the flexibility to support integration activities and long-term shareholder returns. In closing, while near-term market and trade challenges persist, our strategy remains intact and guided by the MasterBrand way. We have a resilient operating model, a strong portfolio, and a proven integration playbook. As industry conditions stabilize and demand recovers, we believe MasterBrand is well-positioned to emerge stronger and deliver longer-term value. With that, I'll turn the call over to Andrea H. Simon for a detailed review of our financial results and outlook. Andrea H. Simon: Thanks, Dave, and good afternoon, everyone. I'll start with a review of our fourth quarter financial results followed by a brief recap of the full year. Then I'll share more details on our guidance for 2026 and provide some perspective on the full year ahead. Now turning to our fourth quarter results. Net sales were $644.6 million, a 3.5% decrease compared to $667.7 million in the same period last year. The continued softness across our addressable market, which was down mid-single digits, was partially offset by the anticipated flow through of prior pricing actions, including tariff mitigation price actions. Gross profit was $167.5 million, down 17.6% from $203.3 million in the same period last year. Gross profit margin was 26%, down 440 basis points year over year, primarily reflecting lower volume mix and the related unfavorable fixed cost leverage, tariffs net of supply chain mitigation, and restructuring-related expenses. These headwinds were partially offset by higher net average selling price improvement from prior pricing actions, including our tariff mitigation actions, our continuous improvement efforts, and Supreme integration synergies. Tariffs had a negative impact of nearly 300 basis points to our gross margin in the quarter, though we were able to offset approximately one-third of this impact through mitigation. SG&A expenses totaled $186.9 million compared to $152.3 million in the same period last year. This was primarily driven by a $17 million one-time provision for bad debt related to a specific customer, personnel costs, and inflation, acquisition-related costs, restructuring-related costs, and depreciation costs, and continued investments in our strategic initiatives, particularly around digital, technology, and marketing, partially offset by lower commission and freight costs following volume decline. Interest expense declined to $17.6 million from $19.3 million in the same period last year, reflecting progress as we continue to pay down our debt. Net loss was $42 million in the fourth quarter compared to net income of $14 million in the same period last year. Net income margin was negative 6.5% compared to positive 2.1% in the prior year, reflecting the items I just outlined, partially offset by lower interest expense and lower income tax expense. Adjusted EBITDA was $35.1 million compared to $74.6 million in the prior year period. Adjusted EBITDA margin was 5.4%, a decline of 580 basis points year over year due to lower volume and the related unfavorable fixed cost leverage, tariffs net of supply chain mitigation, and material freight and personnel inflation, partially offset by continuous improvement savings, the flow through of our prior pricing actions, and Supreme integration synergies. As Dave mentioned, the variance in adjusted EBITDA relative to our implied fourth quarter guide was primarily driven by a late quarter slowdown in new construction. The late quarter demand change created a more unfavorable mix and lower price realization than we had embedded in the outlook we shared in November. At these lower volume levels, mix has a greater impact on our bottom line. The shift reduced factory utilization, resulting in a mid-single-digit increase in down days versus our plan, which drove fixed cost under absorption and contributed to manufacturing inefficiencies. Given this dynamic, we expect continued margin pressure if trade-down behavior persists across the portfolio or if mix shifts further unfavorably. Diluted loss per share was $0.33 in the fourth quarter of 2025, based on 126.8 million diluted shares outstanding. This compares to earnings per share of $0.11 in 2024, which was based on 131.2 million diluted shares outstanding. Adjusted loss per share was $0.02 in the current quarter, compared to earnings per share of $0.22 in the prior year period. Moving to our full-year results, we delivered 2025 net sales of $2.7 billion, up 1% versus the prior year, driven by the contribution from Supreme and improvements in net average selling price despite a market that we estimate declined mid-single digits year over year. Supreme contributed approximately 5% to full-year net sales, consistent with our expectations, and pricing contributed to offsetting underlying market pressure. Gross profit was $827.6 million, down 5.6% compared to $877 million in the prior year. Gross profit margin declined 220 basis points year over year from 32.5% to 30.3%. The full-year margin decline was due to lower unit volume and the related unfavorable fixed cost leverage, inflation, and tariffs. This was partially offset by net average selling price improvements and the full-year inclusion of Supreme and its related synergies. Notably, tariffs had a negative impact of approximately 115 basis points to our gross margin throughout the year, and we were able to offset over half of this impact through mitigation actions. SG&A expenses were $667.8 million compared to $603.1 million in the same period last year. This increase was primarily driven by the addition of Supreme's SG&A expenses, the same one-time bad debt provision impacting the quarter, digital and technology investment, and freight inflation, partially offset by lower volume-related variable SG&A costs. Income tax was $19.6 million for the year, or a 42.3% effective tax rate, compared to $42.4 million or a 25.2% rate in 2024. The increase in effective tax rate was driven by non-deductible expenses and a jurisdiction valuation allowance driven by the tariff impact on products sourced internationally. Without these items, our effective tax rate for the year would have been approximately 23.5%. Net income was $26.7 million compared to $125.9 million in the prior year. The decrease was primarily related to lower gross profit and higher SG&A, partially offset by lower income tax expense. Adjusted EBITDA was $298.2 million in 2025, down 18% compared to $363.6 million in the prior year, and adjusted EBITDA margin declined 260 basis points to 10.9% for the full year compared to 13.5% in the prior year. These results were driven by lower volume and the related unfavorable fixed cost leverage, inflation, tariffs, net of supply chain mitigation, and incremental strategic investments. This was partially offset by net average selling price improvements, including tariff-related pricing and Supreme contributions and integration synergies. Diluted earnings per share were $0.21 in 2025, down from diluted earnings per share of $0.96 in 2024, based on 129.2 million and 130.9 million diluted shares outstanding, respectively. Adjusted diluted earnings per share were $0.91 compared to $1.4 in the prior year. Despite a soft end market in 2025, we believe our long-term financial targets remain attainable, although delayed as we enter our fourth year of market decline in 2026. As discussed at our 2022 Investor Day, these targets were based on some level of annual market growth. While we continue to execute operationally, position the company for future growth, and augment our growth through acquisitions, market growth will be necessary to fully realize the benefits of these efforts and achieve our stated long-term financial targets. Turning to the balance sheet, we ended the year with $183.3 million of cash on hand and $441.9 million of liquidity available under our revolving credit facility. Net debt at the end of the fourth quarter was $791.2 million, resulting in a net debt to adjusted EBITDA leverage ratio of 2.7 times. Despite a sequential reduction in net debt, our leverage ratio increased due to a lower trailing twelve-month adjusted EBITDA. Net cash provided by operating activities was $195.7 million for full-year 2025 compared to $292 million in the full year 2024, driven by lower net income, increased restructuring-related cash outflows, and deal costs. Capital expenditures for the full year 2025 were $78.2 million compared to $80.9 million for the full year 2024, in line with our plan and driven primarily by the Supreme integration. Free cash flow was $117.5 million for the full year 2025, compared to $211.1 million for the full year 2024, reflecting lower net income. Our merger agreement with American Woodmark share repurchase activity until the transaction closes. Before turning to our outlook, I want to take a moment to address recent tariff developments and the implications for our business. Since our third quarter call in early November, the trade backdrop has become more volatile, with actions announced, revised, implemented, and postponed in quick succession, directly impacting our industry and increasing near-term uncertainty around cost and timing. As Dave noted earlier, in late 2025, the planned Section 232 tariff rate increase on finished wood products, including kitchen cabinets and bathroom vanities, was postponed. To be clear, existing 25% Section 232 tariffs remain in place throughout 2026. In addition, Mexico announced tariffs on Chinese imports, reflecting further uncertainty in the global trade environment. Finally, countervailing and antidumping duties on hardwood and decorative plywood imports were delayed from 2025. The countervailing duties went into effect on January 12, and the antidumping duties are now anticipated to be fully implemented later this month. We are actively managing tariff impacts through targeted price adjustments, supplier renegotiations, alternative sourcing, and manufacturing optimization. As I've noted previously, these efforts take one to twelve months to fully materialize. As we prepare for the potential combination with American Woodmark, we are also intentionally sequencing certain actions and deferring select decisions to avoid implementing standalone changes that could prove disadvantageous post-close. In parallel, we are continuing to monitor potential trade measures, including the antidumping duties of plywood. Above all, we remain focused on minimizing disruption, protecting customer value, and sustaining our competitive position. Given the dynamic nature of the recent trade we just discussed, the related ongoing macroeconomic uncertainty, and actions deferred ahead of the anticipated American Woodmark merger, our visibility into key performance drivers, cost inputs, and near-term demand has become more limited. While we have a clear plan and are actively executing mitigation actions, the timing and magnitude of their impact can vary significantly as the trade environment shifts. As a result, MasterBrand is taking a measured approach to its outlook and transitioning to providing quarterly guidance until longer-term visibility improves. We believe this is the most transparent way to communicate our expectations in the current environment and provide stakeholders decision-useful updates as we navigate these changing dynamics. Our financial outlook includes those tariffs currently in effect and the anticipated antidumping plywood duties. It does not reflect potential implications from other proposed or future trade changes. Further, our outlook does not reflect any anticipated financial benefits from the pending merger with American Woodmark, nor does it include expected transaction or integration-related costs. With those assumptions in mind, for the first quarter, our end markets are expected to be down mid to high single digits year over year. Against that backdrop, we expect first-quarter 2026 net sales to be down mid-high single digits versus the prior year. To help manage near-term pressure on profitability, we are taking action to reduce costs and align our cost structure with current demand levels. We are implementing $30 million of planned cost reductions in 2026 and anticipate we will begin to realize savings in the first quarter, with full realization expected by year-end. We believe these steps, in combination with our mitigation strategy, will help offset margin pressures, preserve liquidity, and position MasterBrand to remain resilient through this period of elevated uncertainty. Given these considerations, for the first quarter, we expect adjusted EBITDA in the range of $23 million to $33 million, representing an adjusted EBITDA margin of 3.9% to 5.3%. We expect first-quarter adjusted diluted loss per share of $0.06 to $0.00. This outlook primarily reflects the impact of lower expected volumes on fixed cost absorption, as well as the timing of our tariff mitigation and cost rationalization actions. Notably, this outlook also reflects our typical fourth quarter to first quarter seasonal step down. Based on our fourth-quarter performance and expectations around the first quarter, net debt to adjusted EBITDA leverage at the close of the pending American Woodmark transaction is no longer expected to be sub-two times, reflecting the current trade environment and our decision to sequence certain mitigation and integration actions to avoid standalone changes ahead of closing. We remain focused on disciplined cash generation and deleveraging post-close and continue to expect leverage to trend down towards the end of the year as mitigation actions and synergies are realized. On the full year, as Dave mentioned, we continue to expect our addressable market in 2026 to be down mid-single digits year over year, with continued variability across end markets. For 2026, we expect decremental margins to remain elevated, driven by year-over-year volume declines, mix, and the timing of tariff mitigation. We anticipate that our decrementals will improve in the second half as our tariff mitigation and cost rationalization actions phase in further. For the full year, we also expect interest expense to be flat to down as we continue to pay down our outstanding debt. Our effective tax rate is expected to improve year over year, primarily due to the absence of certain one-time costs. Additionally, we continue to expect free cash flow for 2026 to be in excess of net income for the year. Finally, based on our current sourcing profile and product mix, the trade policies currently in effect, and the anticipated antidumping duties on plywood, we estimate that our unmitigated gross tariff exposure for the full year is approximately 5% to 6% of 2026 net sales. We anticipate tariff pressures to be partially offset by the benefits of our mitigation efforts, which will take time to fully materialize. As such, we expect more than 85% of the full-year net negative tariff impact to be reflected in 2026. Importantly, we expect to fully offset 100% of tariff dollar costs on a run-rate basis by 2026 through our mitigation initiatives. We will continue to closely evaluate the impact of tariffs and remain committed to executing our comprehensive mitigation strategy, providing quarterly updates as we navigate these dynamics. In closing, while the industry has worked through a prolonged period of soft demand over the past three years and near-term conditions remain challenging, we are using this period to strengthen the business and position it for the next upcycle through thoughtful execution of our strategic initiatives. As we progress toward the pending combination with American Woodmark, we remain focused on maintaining continuity for customers while preparing to capture the value of the transaction. By leveraging our complementary capabilities and realizing the expected synergies, we are confident that the combined enterprise will be primed to emerge stronger and better positioned to deliver enhanced value to customers and shareholders as demand returns. Now I would like to return the call back to Dave. Dave Banyard: Thanks, Andrea. As we close out 2025, we recognize the operating environment remains challenging, with demand softness, affordability pressures, and an evolving trade landscape continuing to shape near-term outcomes. At the same time, we are encouraged by the progress we have made in advancing integration initiatives, maintaining strong customer relationships, and preserving the flexibility needed to navigate uncertainty. Looking into 2026, we expect the year to be transitional for the industry, as market trends persist and tariff mitigation efforts continue to work their way through our business. Our focus is clear: execute with discipline, support our customers, manage cash and liquidity thoughtfully, and continue strengthening the business so we are positioned to capitalize as conditions improve. We continue to expect a more meaningful recovery to take shape in 2027 as affordability improves and housing activity normalizes. The MasterBrand way continues to guide how we operate, driving consistency, accountability, and execution across the organization. And it's the same approach underpinning our readiness for the proposed combination with American Woodmark. Planning continues to progress well, and we remain on track to close in early 2026, subject to remaining customary regulatory approvals. With a strong portfolio, a resilient operating model, and a talented team, we believe we are well-positioned to deliver long-term value for customers, associates, and shareholders. Thank you to our associates for their continued dedication and to our customers, partners, and shareholders for their trust and ongoing support. And with that, I'll open the call up to Q&A. Operator: Thank you. If you'd like to register your question, please press 1. And if you are using the speakerphone, please lift your headset before entering your request. And then, ladies and gentlemen, as a reminder, to request to register a question, press 1 on your telephone at this time. Our first question comes from the line of McClaran Thomas Hayes with Zelman and Associates. Please proceed with your question. McClaran Thomas Hayes: Thanks. Yes, starting with the full-year outlook for the market to be down mid-single digits. Just wondering if you could maybe help us break that down by end channel, talk to what you're assuming for the builder market broadly this year versus home improvement? Dave Banyard: Yeah. I think thanks for the question, McClaran. I think they're both about the same. The builder may be a little worse in the beginning, but then I think you're gonna catch up with easier comps. I think the R&R market, which is what we consider retail, is kind of down mid-single digits fairly consistently throughout the year. It's our best guess at this point. I think part of the reason that we've gone to quarterly guidance is it's a little unclear still what the spring season is going to look like. So that's going to guide a bit of what the full year ends up being, but we wanted to at least signal that we believe the year to be down. And a lot of that, you know, in the near term is being driven by the pace of starts, which we saw declining last year. McClaran Thomas Hayes: Got it. Thanks. And then on pricing, it looks like price realization sequentially decelerated about 100 basis points from 3Q to 4Q. Any way you could split out maybe how much of that was driven by the channel headwind from weaker builder sales that you spoke about and how much was maybe tied to that step up in promotions or competitive behavior? Dave Banyard: Yeah. I think it's a combination of several things, one of which is mix. There's more trade down occurring. So we've seen higher volumes in the low, you know, opening price point than we anticipated in the fourth quarter. And then, you know, it is a combination of the pace at which we can capture price to mitigate tariffs. I think if I was looking at price, we were effective by the end of the year of pricing for the liberation day tariffs, but then we got additional tariffs later in the year, and now there's more, at least with the plywood side of things, coming in this year. And we've tried to place pricing in a controlled sort of organized fashion and not constantly changing price. We've tried to bake all these things in, but all the changes that require, you know, constant maneuvering of that over time. So but generally speaking, in the fourth quarter, the bigger impact on results in general was overall volume in the business, but then tilting the business a lot more towards the opening price point trade down. McClaran Thomas Hayes: Awesome. Thank you. Andrea H. Simon: Thank you. Operator: Our next question comes from the line of Garik Simha Shmois with Loop Capital Markets. Please proceed with your question. Garik Simha Shmois: Hi. Thanks. Thanks for all the color. I wanted to follow-up to some of the residential construction weakness that you saw late in the quarter. I think your sales actually exceeded your prior guidance if I remember correctly. So just kind of wondering if you could provide a little bit more detail on how sales during the quarter progressed and some more color on what you saw at the end of the quarter, on the residential side? Dave Banyard: Yeah. That piece actually behaved in some ways similar to the prior year where we saw a pretty big drop off in late November, which we weren't expecting this year. In order to cover that, there was other volume that was stronger, as I just mentioned. It was opening price point in different parts of the business. In all, we did miss what we thought we could do from a forecast standpoint internally, so we were off to that as well. Overall, but I think that it was primarily a mix shift that you're seeing in terms of the end result. So we were able to get to, you know, down a couple percentage points, but it was not through, you know, there were certain factories that just were very inefficient in the quarter, which is the results in our, you know, bottom line outcome. Garik Simha Shmois: Okay. On the cost side, you could go into a little bit more detail on the restructuring actions. And just to be clear, the $30 million in expected savings, to be realized in '26. Is that an exit rate, or is that the dollar amount you're expecting to? Dave Banyard: That's the dollar amount in the year. So, you know, in annualized, it's a little higher than that. It's broad-based, you know, adjusting our cost structure for the pace of demand. And it's mainly structural costs. Garik Simha Shmois: Okay. And then just lastly, the tariff mitigation efforts. Just given the more challenged pricing environment, can you go into a little bit more color to what gives you confidence in your ability to offset the dollar cost impacts associated with the tariffs? Dave Banyard: I think the challenge that the pricing environment presents to us is the timing of that. And so I think that, you know, as we've said many times in the past, price doesn't happen overnight for us. It takes time to work through. I think that the current pricing, what we're flagging that in the current pricing environment because it may take longer. I think we're still aiming to cover that cost throughout the year. But again, price is one of the levers. It is a fairly large lever, so I'm not gonna say that it's not important. It is. I think it's really more gonna affect the timing of when we're able to cover the cost of tariffs. Also is, you know, our current plan and actions cover the cost of tariffs. So it does diminish profitability a bit because we're not covering that piece of it yet in the plans that we have. So teams are continuing to work on operational actions, you know, the switch from 50% back down to 25% kind of negated a few of the actions that we were considering. So, you know, it's a constantly changing plan, but, you know, the actions we've taken so far are working. We saw that in the fourth quarter. We're gonna continue to work the problem. But it is a, it's the kind of thing you're working daily. Again, we're gonna continue to push the teams to go further on both execution on the price we have put out to the market and additional operational actions to cover a broader part of the P&L. Garik Simha Shmois: Okay. Thanks for all that. Best of luck. Operator: Thank you. And ladies and gentlemen, this does conclude today's question and answer session. And this also concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Rebecca: Afternoon, everyone, and welcome to Gilead Sciences, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Rebecca, and I'll be today's host. In a moment, we'll begin our prepared remarks followed by our Q&A session. To withdraw your question, press 2. Now I'll hand the call over to Jacquie Ross, Senior Vice President of Treasury and Investor Relations. Jacquie Ross: Thank you, Rebecca. Just after market closed today, we issued a press release with earnings results for the fourth quarter and full year 2025. The press release, slides, and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day, our Chief Commercial and Corporate Affairs Officer, Johanna Mercier, our Chief Medical Officer, Dietmar Berger, and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q&A, where the team will be joined by Cindy Perettie, the Executive Vice President of Kite. Let me remind you that we will be making forward-looking statements. Please refer to slide two regarding the risks and uncertainties relating to forward-looking statements that could cause actual results to differ materially. With that, I'll turn the call over to Dan. Daniel O'Day: Thank you, Jacquie, and good afternoon, everyone. I'm pleased to share another very strong set of results for Gilead Sciences, Inc. Closing out a remarkable year for the company with clinical, commercial, and operational achievements that set the stage for a very promising 2026. Starting with our full year results, our HIV business grew 6% year over year, driven by 7% growth in Biktarvy and 47% growth in our HIV prevention portfolio. This was despite an estimated $900 million headwind in 2025, associated with the Part D redesign. Absent this headwind, our HIV business growth was 10% in 2025. YES2GO, our twice-yearly HIV prevention injectable, has already exceeded our coverage goals and is rapidly gaining market share in addition to expanding the reach of HIV prevention to new users. With its unique potential to bend the curve of the HIV epidemic, YES2GO is a transformative medicine that we expect to drive durable, steady, and long-term growth in our HIV prevention business in the coming quarters and years. Our liver business grew 6% in 2025, compared to 2024, largely driven by the rapid adoption of Libelzi for primary biliary cholangitis. And in oncology, Trodelvy also grew 6% in 2025, driven by momentum in metastatic triple-negative breast cancer following positive phase three updates. And cell therapy was down about 7% year over year, largely in line with our expectations, and reflecting continuing competitive headwinds. Moving to clinical progress, following a very productive year in 2025, we have a catalyst-rich year ahead, including phase three updates from Island One and Two trials evaluating islatrovir plus lenacapavir, a potential first once-weekly oral treatment for people with virologically suppressed HIV. Two phase three updates for Trodelvy, including the EVOQUE-03 trial in metastatic non-small cell lung cancer, and the ASCENT GYN-01 trial in advanced endometrial cancer. Lastly, we expect an update on the phase three IDEAL study evaluating libdalzi in second-line primary biliary cholangitis with only incomplete response to UDCA. The strength and the pace of progress in our clinical pipeline is driving a steady cadence of product launches. And on the heels of libdalzi in 2024, and YES2GO in 2025, we are targeting four commercial launches this year. Including Trodelvy for first-line metastatic triple-negative breast cancer, extending beyond second-line treatment for which Trodelvy is a standard of care, following positive results from the phase three ASCENT-03 and ASCENT-04 studies. A new daily oral combination of bictegravir and lenacapavir for HIV treatment, following positive updates from the phase three ARTISTRY One and ARTISTRY Two trials, Anidocel, our potential best-in-disease BCMA CAR T, for fourth-line or later relapsed or refractory multiple myeloma, and bruleviratide in the US following approval in the EU for treatment of chronic hepatitis delta. These commercial and clinical milestones reflect the success of our diversification strategy that has been shaping Gilead Sciences, Inc. over the last six years. We have up to 10 ongoing and potential new launches through 2027 and the strongest pipeline in our almost forty-year history. At the same time, we remain committed to operating expense and M&A discipline, continued delivery of exceptional operating results, and growing returns to shareholders. With many of the policy-related uncertainties behind us, and no major product LOEs until 2036, Gilead Sciences, Inc. is entering 2026 in a position of strength. With that, I will hand it over to Johanna. Johanna Mercier: Thanks, Dan, and good afternoon, everyone. 2025 was another strong year of commercial execution, with base business sales up 4% compared to 2024, or nearly 8% excluding impact from Medicare Part D redesign. This underscores the durability of our base business and our sustained launch momentum with up to 10 ongoing and potential new launches through 2027. Beginning on slide seven, fourth quarter total product sales, excluding Vecluri, were $7.7 billion, up 7% year over year and 9% sequentially, primarily driven by higher sales across HIV and livdelsi. Including Vecluri sales of $212 million, fourth quarter total product sales were $7.9 billion, up 5% year over year and 8% sequentially. Turning to the full year on slide eight, total product sales excluding Vecluri were $28 billion in 2025, more than $300 million above the high end of our full-year guidance range, driven by outperformance in our HIV business and partially offset by lower cell therapy sales. Including Vecluri, total product sales were $28.9 billion, up 1% compared to 2024, or 5% excluding Medicare Part D redesign impact highlighting the strength of our overall business. Moving to slide nine, our HIV business delivered record sales of $5.8 billion for the fourth quarter, up 6% year over year, driven by higher demand for Biktarvy and Descovy as well as the launch of YES2GO. Sequentially, HIV sales were up 10% primarily driven by seasonal inventory dynamics and higher average realized price, due to favorable channel mix, in addition to demand. For the full year, HIV sales of $20.8 billion were up 6% year over year driven by strong underlying demand growth. Our exceptional commercial performance and higher than expected average realized price exceeded our updated guidance of 5% growth. Excluding the estimated $900 million headwind, associated with the Medicare Part D redesign, our HIV business grew 10% year over year. Looking at HIV treatment in more detail on slide 10, Biktarvy fourth quarter sales were $4 billion, up 5% year over year, full year sales were $14.3 billion, up 7% year over year, both driven by higher demand, partially offset by lower average realized price. This demand-led growth reflects 2% to 3% treatment market growth annually and continued Biktarvy share gains. In the US, for example, Biktarvy share is more than 52%, with year over year gains every quarter since launch. It's clear Biktarvy continues to set the bar for HIV treatment and remains the number one prescribed regimen for both treatment-naive and switch across major markets. We are rapidly advancing towards the launch of Viclen, our investigational once-daily oral combining bictegravir, the most prescribed integrase inhibitor, with our breakthrough capsid inhibitor, lenacapavir, in virologically suppressed people with HIV, including those on complex regimens. Viclen could further expand our lead in the switch market following potential launch in the second half of this year. This regimen represents the first of up to seven potential HIV product launches through 2033. Now moving to slide 11, we've had another exceptional quarter for our HIV prevention business, which grew 53% year over year driven by favorable access, strong commercial execution, and continued US market growth of approximately 13% year over year. Our fourth quarter sales of Descovy were up an impressive 33% year over year. For the full year, Descovy sales were $2.8 billion, up 31% year over year, driven by increased demand in HIV prevention and higher average realized price. Descovy's performance in HIV prevention, accounts for roughly 80% of its sales, continues to exceed expectations with record US market share greater than 45%. Similarly, YES2GO continues to perform strongly across several key launch indicators. YES2GO fourth quarter sales were $96 million and full year YES2GO sales were $150 million in line with our guidance we shared in the third quarter. Building upon this early success, we recently launched our YES2GO branded direct-to-consumer campaign highlighting YES2GO's dosing schedule and efficacy and reflecting the broad diversity represented in our purpose trials. We expect this DTC campaign to broaden awareness of YES2GO and contribute to a consistent build in YES2GO sales in the coming quarters. Coverage for YES2GO continues to grow and I'm thrilled to share that we have achieved our goal of 90% coverage well ahead of our one-year target. This includes all major payers. Additionally, approximately 90% of covered individuals can access YES2GO with $0 co-pay. We continue to work on an account-by-account basis to support pull-through as quickly as possible. While we have more to do, we are making great progress here as we support clinicians and their offices, navigate the new logistics associated with a twice-yearly injectable regimen. Given our expectations for a steady, durable, and long-term build in sales, we expect full-year 2026 YES2GO revenue of approximately $800 million compared to $150 million in 2025, highlighting that YES2GO is well on its way to achieving blockbuster status. We continue to offer the most compelling HIV prevention portfolio available, including the six-monthly YES2GO injectable with its transformative potential on the HIV epidemic, in addition to Descovy for PrEP, the current market-leading branded oral. Our goal this year is to continue to drive rapid adoption of HIV prevention, and we expect both brands to demonstrate robust growth in 2026. For 2026, we expect total HIV sales including both treatment and prevention, to grow approximately 6% compared to 2025 as shown on slide 12. Looking at quarterly trends, and as a reminder, we expect our normal HIV seasonal inventory drawdown in the 2026. As announced in December, there are manageable headwinds associated with the drug pricing agreement with the US government to lower Medicaid pricing for some of our products, including Genvoya and Odefzi. Additionally, our guidance reflects some potential shifts into lower price channels associated with proposed changes to the Affordable Care Act. In total, these headwinds are expected to impact HIV growth by about 2% in 2026 compared to 2025. Absent these headwinds, our HIV business is expected to grow 8% in 2026, highlighting the underlying strength of our HIV business. Turning to liver disease on slide 13. Full year sales of $3.2 billion were up 6% year over year, primarily driven by higher demand, and partially offset by lower average realized price. In the fourth quarter, liver sales were $844 million, up 17% year over year and 3% sequentially, driven by another quarter of continued strength for Libdelzi in primary biliary cholangitis or PBC. Libdelzi grew a remarkable 42% sequentially to $150 million driven by strong patient demand, further accelerated by the withdrawal of a competitor product in the US. With much of this switching activity now behind us, we are pleased to start 2026 as the US market share leader with more than 50% in second-line PBC. Moving to Trodelvy on slide 14. Full year 2025 sales increased 6% to $1.4 billion primarily driven by higher demand in metastatic breast cancer treatment, which more than offset the expected impact from the bladder cancer withdrawal in the US at the end of 2024. In the fourth quarter, Trodelvy sales were $384 million, up 8% both year over year and sequentially driven by higher demand. Building on Trodelvy's strong 2025 performance, we shared back-to-back positive phase three ASCENT-03 and ASCENT-04 readouts. These results contribute to the strong body of evidence for Trodelvy across lines of therapy in metastatic triple-negative breast cancer, and continue to drive demand growth. In both these studies, the investigational Trodelvy regimens demonstrated a highly statistically significant and clinically meaningful progression-free survival benefit over the standard of care. These potentially practice-changing data have now been published in New England Journal of Medicine, and have been recognized by the NCCN in their updated breast cancer guidelines. Trodelvy is now the only antibody-drug conjugate to be recommended by the NCCN for first-line PD-L1 positive and PD-L1 negative as well as second-line metastatic triple-negative breast cancer. As the leading regimen in second-line, Trodelvy is already well established with oncologists, and these updates build momentum for Trodelvy ahead of potential first-line launches expected later this year. Moving to cell therapy on slide 15, and on behalf of Cindy and the Kite team, full-year cell therapy sales were $1.8 billion, down 7% year over year reflecting ongoing in and out of class competition. For the fourth quarter, cell therapy sales were $458 million, up 6% sequentially due to higher than expected patient treatments in advance of holidays, in addition to one-time pricing adjustments. Year over year, fourth quarter cell therapy sales were down 6% consistent with the trends we have discussed throughout 2025. For 2026, we continue to expect these competitive headwinds including in several countries outside the US, where we expect new entrants this year. Additionally, cell therapy volumes are being impacted by a growing number of clinical trials, which is exciting for our industry and for the patients who could benefit from innovative new therapies from Kite and others. That said, this represents another near-term headwind. Overall, we expect Kite revenue to decline approximately 10% in 2026 compared to 2025. Looking to the second half of the year, the team is preparing for the potential launch of Anidocel in fourth-line and later relapsed or refractory multiple myeloma. We believe Anidocel's potential best-in-disease profile combined with Kite's exceptional manufacturing capabilities, and industry-leading turnaround times, puts us in a favorable position ahead of a potential commercial launch. Wrapping up our fourth quarter and 2025 on slide 16, I'd like to highlight the exceptional strength of our existing commercial portfolio as well as our robust launch pipeline with the potential for four launches later this year. We are committed to remaining focused on our ongoing launches of Libdelzi and YES2GO. In addition to ensuring that we are prepared to have an immediate impact with the potential launches of Anidocel in multiple myeloma, Trodelvy in first-line metastatic triple-negative breast cancer, Viclen in HIV treatment, and bruleviratide in chronic hepatitis D. The addition of these potentially transformative therapies to our portfolio is incredibly energizing for our teams. We look forward to extending the reach of Gilead Sciences, Inc. therapies to many more patients who can benefit from them in 2026. And with that, I'll hand the call over to Dietmar. Dietmar Berger: Thank you, Johanna, and good afternoon, everyone. I'd like to start by reflecting on 2025 and thanking the research and development teams and partners for an exceptional year of clinical execution. As shown in our 2025 milestones on Slide 18, we received regulatory approvals for lenacapavir, our first-in-class capsid inhibitor, for HIV prevention in the US, EU, and 12 other countries. Additionally, we provided updates on seven Phase III or pivotal Phase II trials, including positive updates for bictegravir plus lenacapavir, Trodelvy, and Anidocel. Looking ahead to 2026 and beyond, we are well-positioned to progress our clinical programs across our three core therapeutic areas. Starting with HIV on slide 19, we continue to advance a comprehensive pipeline with lenacapavir as the backbone. Our HIV pipeline could support up to seven additional daily, weekly, monthly, twice-yearly, or yearly HIV product launches by 2033. In the fourth quarter, we announced positive top-line results from our ARTISTRY I and II, evaluating once-daily bictegravir, the most prescribed integrase inhibitor, with lenacapavir, our breakthrough capsid inhibitor. We expect to share detailed results from our positive Phase III trials at the CROI meeting in February with a potential FDA decision by the end of the year. Looking at our long-acting programs, we plan to share Phase III updates from our ILN-One and ILN-Two trials, evaluating islatrovir plus lenacapavir in 2026 and for our twice-yearly treatment program, we plan to initiate our Phase III trial evaluating lenacapavir plus broadly neutralizing antibodies in the second half of the year. Further, we have now completed our evaluation of the Phase I data for our long-acting INSTI candidates GS-3242 and GS-1219 as well as GS-1614 and islatrovir prodrug. Consistent with the timeline shared during our HIV analyst event in December 2024, we have identified GS-3242 as the most promising program with lenacapavir and prioritized its development as a potential twice-yearly HIV treatment. As a result, and as a reminder, we have discontinued the development of a twice-yearly regimen with GS-1219, and a quarterly regimen with GS-1614. Turning to liver disease on slide 20. We remain committed to further evaluating Libdelzi to potentially improve the standard of care for more patients with PBC. At the liver meeting in November, we presented late-breaking real-world data showing that Libdelzi is an effective and well-tolerated alternative for PBC patients switching from obeticholic acid. Later this year, we expect to provide an update from our Phase III IDEAL study evaluating Libdelzi in patients with ALP levels between 1 and 1.67 times the upper limit of normal. Patients typically excluded from Phase III studies. If positive, these data could support the expansion of Libdelzi to incomplete responders to UDCA and potentially enable even more second-line PBC patients to achieve better biochemical and symptomatic control of their PBC. Moving to oncology on Slide 21. Trodelvy has demonstrated clinically meaningful survival benefit in two Phase III trials establishing it as a leading regimen in its approved indications. Most recently, Trodelvy has demonstrated highly statistically significant and clinically meaningful progression-free survival benefit across first-line metastatic triple-negative breast cancer patients. Full data from the Phase III ASCENT-03 and ASCENT-04 trials were published in the New England Journal of Medicine in October 2025 and January 2026. We expect FDA decisions for Trodelvy in first-line metastatic TNBC patients who are not candidates for PD-1 inhibitors, and for Trodelvy plus pembrolizumab in first-line PD-L1 positive metastatic TNBC in 2026. Ahead of the FDA decisions, the NCCN updated their breast cancer guidelines to reflect the changing nature of these results, reinforcing our confidence in Trodelvy's clinical profile. We also have four Phase III studies that continue to evaluate Trodelvy's potential in additional tumor types. Notably, we expect updates from two of the Phase III trials this year, including ASCENT GYN-01, evaluating Trodelvy in second-line metastatic endometrial cancer in the second half of this year, as well as EVOQUE-03, exploring Trodelvy plus pembro, in first-line metastatic PD-L1 high non-small cell lung cancer. Moving to cell therapy on Slide 22 and on behalf of Cindy and the Kite team, I will touch upon some of our updates on our Anidocel program. Notably, we have filed Anidocel based on our update from the phase II IMagine I trial in fourth-line or later relapsed or refractory multiple myeloma at ASH in December. Anidocel demonstrated clinically meaningful efficacy with 96% overall response, including 74% complete response, and 95% measurable residual disease negativity. Additionally, Anidocel demonstrated a predictable and manageable safety profile with no delayed or non-ICANS neurotoxicities and no immune effector cell-associated enterocolitis. Based on these exciting data, we are energized to potentially bring Anidocel to patients in the second half of this year. Longer term, we see additional opportunity for Anidocel with our Phase III IMMAGINE-03 study in second, third, and fourth-line relapsed or refractory multiple myeloma enrolling in record time. We are also planning a pivotal program in newly diagnosed multiple myeloma. With our broader and rapidly advancing clinical development program, we expect Anidocel to potentially reach more patients earlier in the treatment paradigm. Wrapping up on Slide 23, our key milestones for 2026 include five Phase III readouts as well as five FDA decisions for bruleviratide for chronic hepatitis delta, Viclen for virologically suppressed people with HIV, Trodelvy in first-line PD-L1 positive and negative metastatic breast cancer, and Anidocel in fourth-line and later relapsed or refractory multiple myeloma. While these pipeline milestones reflect some of our later-stage catalysts, I would like to remind you we have 53 ongoing clinical programs and will continue our progress across our portfolio, including KITE-753, our next-generation CD19, CD20 bi-cistronic CAR T enrolling for its pivotal trial for third-line large B-cell lymphoma GS1427, a once-daily oral L inhibitor for inflammatory bowel disease, and it is cecertib, our IREC4 inhibitor, for cutaneous lupus erythematosus. And with that, I'll turn over the call to Andy. Andrew Dickinson: Thank you, Dietmar, and good afternoon, everyone. Starting on slide 25, full-year 2025 total product sales of $28.9 billion were up 1% from 2024, above our $28.4 billion to $28.7 billion guidance range driven by demand-led HIV sales growth, that more than offset the $1.1 billion headwind related to Part D redesign and $900 million lower Vecluri revenue. Excluding the Part D redesign impact, our total product sales grew nearly 5%. Base business revenue which reflects total product sales excluding Vecluri, was $28 billion up nearly $1.2 billion or 4% from 2024 exceeding our $27.4 billion to $27.7 billion guidance range. Excluding the impact of the Part D redesign, our base business grew 8%. Our strong revenue results reflected HIV growth of 6%, or $1.1 billion, to $20.8 billion driven by strong growth for Biktarvy and Descovy, which grew 731%, respectively, from 2024 as well as the launch of 6% to $3.2 billion reflecting growing demand primarily driven by Libdelzi. Full-year 2025 Vecluri revenue $911 million, a decline of $900 million or 49% from 2024, and mostly in line with our expectations given lower COVID-19 related hospitalization trends. Moving to our full-year non-GAAP results on slide 26. Product gross margin was 86.4%, in line with our guidance of 86%. R&D expenses of $5.7 billion were down 1% compared to 2024. And in line with our guidance of R&D flat on a dollar basis for 2025. Acquired IPR&D expenses were approximately $1 billion, in line with our expected annual investment in earlier stage opportunities, that are part of our normal course of business development. And SG&A expenses of $5.6 billion were down 5% compared to 2024, within our guidance range, reflecting lower general and administrative expenses, partially offset by sales and marketing investments to support YES2GO's launch. Overall, our operating margin for full-year 2025 was 45%. Excluding acquired IPR&D, and the $400 million nonrecurring other revenue related to the IP asset sale in the third quarter, our operating margin was roughly 48% for the full year. This underscores our ability to continue expense discipline, while increasing investment in new and ongoing launches. The non-GAAP effective tax rate was 18.3%, roughly in line with our guidance of approximately 19%, and down from 25.9% in 2024 primarily driven by the prior year nondeductible acquired IPR&D charge for the acquisition of Simbae. And finally, non-GAAP diluted EPS was $8.15 in line with our 2025 guidance of $8.5 to $8.25 and driven by lower acquired IPR&D expenses higher revenues, and lower SG&A expenses. Excluding the approximately $3.14 per share impact related to the Simbae transaction, non-GAAP diluted EPS increased by 40¢ compared to 2024. To quickly recap the fourth quarter on slide 27, total product sales were $7.9 billion up 5% year over year, with base business growth partially offset by the expected decline in Vecluri sales. Excluding Vecluri, total product sales were $7.7 billion up 7% from the same period in 2024, primarily driven by higher sales for our HIV and liver disease products. Moving to the fourth quarter P&L on slide 28. R&D expenses were $1.6 billion down 3% relative to the same period in 2024, and SG&A expenses were $1.7 billion down 9% year over year primarily due to lower G&A expenses. Overall, our non-GAAP diluted earnings per share was $1.86 in 2025, compared to $1.90 in the same period in 2024 primarily due to higher acquired IPR&D expenses partially offset by higher product sales and lower SG&A expenses. Looking at our full-year guidance on slide 29, we expect 2026 total product sales between $29.6 and $30 billion. We expect total Vecluri sales of approximately $600 million highlighting a $300 million headwind that we expect to more than offset in our base business. We therefore expect base business sales between $29 and $29.4 billion, growth of 4% to 5% compared to 2025. Moving to the non-GAAP P&L for the full year 2026, we expect product gross margin of approximately 87%, R&D expenses to increase a low single-digit percentage from 2025, acquired IPR&D investments of approximately $300 million reflecting known commitments associated with prior collaborations and partnerships. Consistent with our approach in 2025, we will highlight incremental acquired IPR&D expenses as we announce new transactions throughout the year. And SG&A expenses to increase by a mid-single-digit percentage relative to 2025, reflecting higher investments in sales and marketing to support our commercial launches, offset in part by lower G&A expenses. We expect full-year 2026 non-GAAP operating income of between $13.8 billion and $14.3 billion a tax rate of approximately 20%, and non-GAAP diluted EPS in the range of $8.45 and $8.85 per share. As Johanna mentioned, and as shown on slide 30, we expect an approximate 2% headwind to growth in 2026 primarily associated with the impact of the drug pricing agreement announced in December 2025 and the expected impact of updates to the Affordable Care Act. I'll note that absent these updates, our full-year growth would be in the range of 6% to 7%. Additionally, we expect HIV to grow approximately 6% in 2026. And within HIV, we expect 2026 YES2GO revenue of approximately $800 million. In cell therapy, we expect full-year 2026 revenues to decline approximately 10% compared to 2025, reflecting continued competitive headwinds related to our Kite portfolio. On slide 31, we returned $5.9 billion to shareholders in 2025, we remain committed to returning on average, at least 50% of our free cash flow to shareholders. In 2025, this included $1.9 billion of share repurchases primarily intended to offset equity dilution at a minimum, in addition to opportunistic repurchases. Combined with our dividend, we returned approximately 63% of our free cash flow to shareholders in 2025. In terms of business development, we are confident that we have built a robust and diverse portfolio that can support Gilead Sciences, Inc.'s growth. At the same time, we are carefully strengthening our early-stage pipeline to position Gilead Sciences, Inc. well for the long term, typically investing about $1 billion annually in smaller licensing deals, partnerships, and acquisitions. Additionally, we are proactive and disciplined in our approach to later-stage acquisitions that support our strategic goals, and add new growth opportunities. Overall, we are pleased with Gilead Sciences, Inc.'s consistent strong performance, highlighted by our clinical and commercial execution, and supported by our disciplined operating model. We continue to be well-positioned for near-term and long-term growth and we remain focused on delivering on our strategic commitments. With that, I'll invite Rebecca to begin the Q&A. Rebecca: Thank you, Andy. At this time, we'll invite your questions. Please be courteous and limit yourself to one question so we can get to as many analysts as possible during today's call. Again, to ask a question, press 1. And to withdraw your question, press 2. Our first question comes from Chris Schott at JPM. Chris, go ahead. Your line is open. Chris Schott: Great. Thanks so much. Just wanted to kick off with a question on YES2GO. Can you just elaborate a little bit more on the assumptions driving the $800 million guidance? And maybe as part of that, as we start to think about patients now needing to be redosed on the drug, what type of refill rates are you anticipating as we think about kind of going through 2026 and beyond? Thank you. Daniel O'Day: Yeah. Thanks, Chris. It's Dan O'Day. Welcome to the call. I'd invite Johanna to cover that point. Thank you. Johanna Mercier: Thanks, Dan, and thanks, Chris, for the question. So, yeah, so one, let me start with how excited we are with YES2GO. I think as we closed out 2025 and really building momentum coming into 2026, all of our key launch indicators are basically tracking or exceeding our expectation, and that includes, of course, access, which is where it starts, with about 90% payer coverage, so all major payers are now covering YES2GO. About 90% of those with $0 co-pay, so that's really important for people that want to have access to this medicine. I would just remind everyone that as we pull through this great access, it takes a little bit of time, right, because you do it by account by account, and you're basically navigating logistics for HCPs and their clinics around an injectable versus a very oral market to begin with. So that scheduling, coordination, administration, so that just takes a little bit of time. And the teams are working diligently to make sure that happens as quickly as possible. We also launched, you may have seen, a very campaign. Our whole campaign is One to PrEP, campaign, which is really meant to increase awareness for HIV prevention and, of course, brand recognition for YES2GO as it really differentiates itself from its efficacy as well as its dosing and really intended to appeal to a much broader audience than past HIV prevention campaigns and hope folks are seeing that. It's a very consumer-friendly campaign and we expect that to kind of pull through as well. And make sure that people are talking to their physicians about potential opportunities of YES2GO. So all of our indicators, intakes, access, 2026, continued growth and momentum quarter on quarter will build on that. But also well beyond 2026 as we expand the HIV and normalize HIV prevention for everyone. To your point around persistency, we don't have an assumption at this point in time because it's still really quite early. As you think about a late launch in June, with very little access as we launched and building access into Q3, there's really only a small number of individuals that are eligible for that second dose or second injection. But we're really quite encouraged by early data. We're tracking it closely and continue to focus on ensuring that individuals return for their second injection. And then well beyond that. We have a lot of activities planned that are ongoing and have started ever since we started the launch of YES2GO around making sure HCPs are thinking about that auto refill script making sure that our specialty pharmacy partners are reaching out proactively to all of their individuals that are on PrEP and making sure they're reminding them as well as the work that we do here at Gilead Sciences, Inc., both with digital reminders as well as proactive outreach with our access program. So more to come on that, but we're excited about what YES2GO has to offer. For individuals looking or wanting to need HIV PrEP. So more to come. Our next question comes from Louise Chen at Scotiabank. Louise, go ahead. Your line is open. Louise Chen: Hi. Thank you for taking my question. I wanted to ask you what type of share gains you expect for Anidocel in the fourth-line setting if you're approved, especially in light of competition from entrenched players. Thank you. Daniel O'Day: Thanks, Louise. Dan here. I'll turn it over to Cindy who's with us here. Cindy Perettie: Thanks, Louise. Just as a reminder, our expectation is that we would be launching this second half of next of this year. And once we have approval, there's a period of time where we turn on qualified, authorized treatment centers so that they're able to treat. So there's that component right after approval. The market for fourth-line multiple myeloma is a $3.5 billion market. We expect because the launch is the second half of the year, and we need to turn on our authorized treatment centers, modest contribution in 2026. However, in 2027, we will have a full year of sales. We expect over time to become the market leader given our excellent efficacy profile and differentiated safety profile, in particular with the delayed neurotoxicity in enterocolitis. Think the last piece I would add is that we are bringing forward our world-class manufacturing and so we are ready for launch. We will have the ability to serve the market at launch. With 99% reliability and sixteen-day turnaround time, which, again, is very differentiated from the existing products on the market today. Rebecca: Our next question comes from Tazeen Ahmad at Bank of America. Tazeen, go ahead. Your line is open. Tazeen Ahmad: Okay, great. Thanks for taking my questions. On YES2GO, how should we be thinking about the growth outlook? Are you expecting to begin to see cannibalization of Descovy PrEP sales as early as this year? And then connected to that, how should we be thinking about the evolution of net price for YES2GO throughout the launch? Should we expect to see a decay over time like we've seen with other HIV therapies? Thanks. Johanna Mercier: Sure. Hi, it's Johanna again. Thanks, Tazeen, for the question. So we do expect as we come into 2026, we have strong growth momentum already. So Q1 will be we'll start with modest growth and then kind of build on that quarter after quarter in light of all the different pieces including access, including the DTC awareness campaign, including a lot of the work that we're doing in the field to drive YES2GO awareness. So all of that will build on that growth momentum. And in addition to that, we're also doing it market expansion strategies as well with very targeted communities. And so we do believe that YES2GO is going to be the strong performer. And over time, we believe that YES2GO will be the market leader in HIV prevention just because of the incredible profile that it offers for folks. Having said that, in 2026, we believe that Descovy continues to grow through in 2026, As you saw, in 2025, we had the highest performance share for Descovy we've ever seen. This is driven by many factors, namely commercial execution, really strong market, of course, but also access. So all the pieces are coming together, and all the boats are rising, and it has a lot to do with the awareness in HIV PrEP because of the purpose one and purpose two trials for YES2GO really building up the market. We believe Descovy will continue to grow through 2026 and over time, of course, that will erode as YES2GO takes a leading share in HIV prevention. I think the final point you were asking about was gross to net, We obviously don't discuss gross to net, for our products, but I would say that YES2GO's value proposition is quite differentiated and we feel strongly that that is being recognized and that's in line with the 90% access in less than six months that we've been able to achieve. So really pleased so far with what we've been seeing and making sure that value continues to get recognized for HIV PrEP users. Rebecca: Our next question comes from Michael Yee at UBS. Michael, go ahead. Your line is open. Michael Yee: Great. Thank you, guys. Maybe a question for Dietmar or the team. Your long-acting Q six-month treatment drug, which I guess could be a super big tegger for your long-acting 3242. I think you said entered phase two. Can you tell us a little bit about the profile of that drug and what you're seeing in Phase one to get you excited? Is that going to be at CROI, I guess, up in a week or two? And how do you compare that to, I think, Shionogi's product, or their investment in Viveve? I'm sure you're aware that they're also excited about their Q six-month as well. So maybe compare and contrast and what gets you excited about your product. Thank you. Dietmar Berger: Yes. Thank you, Michael, for the question. I mean, first of all, I really want to say that I'm excited about the breadth of the program that we have, not only the Q six months, also the upcoming, for example, weekly treatment that we have with rovir and lenacapavir, and really the options, you know, between the daily, weekly, monthly, and then every six months treatments that we're developing. Specifically for the once every six months, I also want to point out that we have two programs in development. One is for lenacapavir plus broadly neutralizing antibodies, Obviously, that is an infusion and comes with, you know, everything that you need to do from an infusion perspective. However, there's a real unmet need, the study the interest in the study is really high, so we feel that will be an important addition. And that will even a little earlier than the 3242 based combinations. Now 3242 is obviously a long-acting INSTI. We firmly believe that an integrase inhibitor is important in this combination, and think that also sets it apart from some of the other options that are out there. And you know all the benefits of the indices, you know, starting with, for example, the tolerability, but then also really the resistance profile and the forgiveness, and then we feel that that translates also into once every six months treatment. Then obviously, the combination with the lenacapavir, so you the INSEAD again, plus the capsid inhibitor, which we feel is a really important combination. So yes, you will see more data, more information about 3242 during the year. And we're really looking forward to detail that. I don't want to go too much into the comparison to the competitors. But please keep in mind that they cannot face once every six months treatment on one product only. They all need a combination. So we need to look at the overall development program that they have and that they'll put together to then really bring their products forward as compared to the two options that I've laid out that we have in development. Rebecca: Our next question comes from Brian Abrahams at RBC Capital Markets. Brian, go ahead. Your line is open. Brian Abrahams: Hey, guys. Congrats on the quarter. Thanks for taking my question. You give us a little bit more detail on your once-yearly injectable lenacapavir for PrEP on slides today. And I was wondering if you could maybe just talk about what you need to show, out of purpose 365 in order to support approval, and how you're planning to position that the market if successful? Thanks. Daniel O'Day: Thanks, Brian. Go back to Dietmar. Dietmar Berger: Yeah. I'll start with the profile. And really what is so great about lenacapavir is that it's such a versatile product. Right? And we do understand pharmacokinetics and the target coverage and some of the scientific you know, underpinnings of lenacapavir for prevention, really well. So the study, PURPOSE 365, is a PK-based study. It's a smaller study, It has been recruiting very well and continues to recruit very well. But it's a smaller study where we basically need to demonstrate target coverage and the right pharmacokinetics thing, peak levels, trough levels, etcetera, so that we can demonstrate effective prevention. That's how the study has been designed. Obviously, we're looking forward to see the data. By looking at PK, looking at safety, it will be an intramuscular injection, which is also an important differentiation that we're looking forward to demonstrate. But we feel it can really bring in a very important benefit with a longer-term interval to patients. I'll hand over to Johanna for the market. Johanna Mercier: Yeah. Thanks, Brian. I would just add to what Dietmar was saying. Is the fact that it's twelve months. We've been very clear with the market research that we've seen that frequency or less frequency in the HIV PrEP setting specifically is the most important, and that's why YES2GO being such an important innovation to this marketplace every six months, let alone the potential of going to every twelve months, really would potentially attract a larger population if you were thinking that you just had to go to the physician's office once a year for that injection. So I think there's an opportunity to broaden the addressable population, as well as there are some folks as well that might have unstable housing or situations that once a year would also be ideal for them. So it's a real market expansion opportunity for us as we see this with that potential with 365. Daniel O'Day: Great. And Brian, would just remind what we've already stated, which is this could be available as early as 2028. The trial is recruiting well. Rebecca: Our next question comes from Umer Raffat at Evercore. Umer, go ahead. Your line is open. Umer Raffat: Hi, guys. Thanks for taking my question. I was quite intrigued by your mention of the Trodelvy Phase III in endometrial perhaps in the second half of this year, which makes me wonder it's probably an interim analysis. You're effectively guiding to. Well, can you speak to your confidence overall heading into this interim? And is it fair to say that the size of the indication is generally similar with triple-negative breast? Thank you. Dietmar Berger: So let me just talk about the study and then later on Johanna can chime in. Thanks for the question, Umer. Obviously, we are primarily intrigued about endometrial because of the earlier study, right, because of the phase two tropics three study, basket trial that we did, where we saw a median OS of fifteen months, in that population. That data was published at ESMO 2024. We feel, you know, with data like that, this would be a really important addition to the treatment options for second-line endometrial cancer patients. We're not providing details regarding the exact evaluation that we're going to do, but we're really looking forward to seeing the data later this year. I want to say second-line endometrial cancer is of course more of an incremental opportunity, but I'll hand over to Johanna if she wants to comment on that. Further. Johanna Mercier: Yeah, sure. So I think you're right. It's basically in line with second-line metastatic TNBC, so more or less about five thousand or so. Addressable population in the US. So small opportunity, but very important unmet medical need as well for us. So this is where the focus and just the breadth of data for Trodelvy just expands. In addition to the ASCENT GYN that Dietmar was talking about, we also have a potential with EVOQUE-03 earlier this year. In our PD-L1 high non-small cell lung cancer. Setting as well, which would be a much larger market expansion for Trodelvy as well if that was to play out. So we're excited about what's to come for Trodelvy. Rebecca: Next, we have Geoffrey Meacham at Citibank. Geoffrey, go ahead. Your line is open. Geoffrey Meacham: Great. Hey, guys. Afternoon. Thanks so much for the question. Had a bigger picture one for Andy or Dan. You guys have done a ton of phase three cards that turnover this year and also some launches. Know, you haven't done a larger scale deal in a while. So I guess I wanted to get a sense from you guys as to what voids you think you need to fill. Is it further diversification of, say, therapeutic areas? Is it a new product cycle? Looking to the maybe mid-twenty thirties? Or is there no real BD urgency from you guys at this point? Thank you. Daniel O'Day: Thanks a lot, Geoff. I'll start and certainly invite Andy to add. I think we've all been reflecting here at Gilead Sciences, Inc. about the progress that's made over the past five or six years, and I think some of the greatest evidence of that is the fact that, you know, we have up to 10 launches now either ongoing or to be introduced over between now and 2027. That includes four additional launches that year that have already been articulated and five phase three readouts. And importantly, back to your question, Geoff, that's across really all therapeutic areas, which is exactly the design. So we're building this very robust internal portfolio that's been built through original research, early-stage partnerships and collaborations, and M&A. So yeah, what I would say is that as we approach additional partnerships and M&A, there's two pieces to that, of course. The first one is that we have to stay active in what we call earlier stage transactions, sometimes referred to as normal course. And we spend roughly around a billion dollars every year on that. Again, we can be agnostic to the three therapeutic areas and go for the most interesting science. And that's what we've been doing to build this portfolio that is now coming through to us. And as we approach later-stage acquisitions, we do it in the context of the fact that we have the most robust clinical and launch pipeline in our company's history with no major LOEs until 2026. So we're uniquely positioned. We're very ready. We're very proactive and disciplined. But we may not have the urgency of other companies in this sector we're gonna be disciplined around that. But I would say that we very much want to continue to add to our pipeline with appropriate M&A over the course of the coming years as well. If I haven't said everything, Andy, would you like to add anything? Andrew Dickinson: I think you covered it well. I mean, if you look at the growth that's ahead of us and the cycle that we're entering with all of the launches that are underway or the additional launches that are coming, you know, a reasonable portion of that is driven by our development activities historically, and we continue to want to supplement both, as Dan said, the early-stage, late preclinical, early clinical pipeline to more of the ordinary course deal. And we would like to add synergistic derisk late-stage assets that will further, you know, I define it as turbocharge our top-line growth, and drive even more outsized bottom-line growth. And we will be disciplined in that, but we've been very active in this space. We'll continue to be active and I'm confident that we'll add exciting new products over time when we find the right ones. Rebecca: Our next question comes from Daina Graybosch at Leerink Partners. Daina, go ahead. Your line is open. Daina Graybosch: Yeah. I went on Anidocel for me. I wonder and maybe I'm being presumptuous. But what gives you confidence in a second-half launch? Does that assume priority review for FDA? For Anidocel? And then for your 2027 filing from Imagine Three, is that gonna be on the MRD endpoint? Or on a survival endpoint? Thank you. Cindy Perettie: Thanks, Daina. It's Cindy. So for the confidence in an Anidocel launch, we can't say today if we have priority review or not. Obviously, that would come with the BLA acceptance, and we'll be sure to let you know as soon as we can on that. But we have confidence in our conversations with the agency around the filing and look forward to being able to share more soon. The second component you asked about around Imagine Three, We have a dual endpoint, which is both MRD and PFS. On the Imagine Three study. And that's in line with the guidance that you heard from the FDA, not too long ago. Rebecca: Our next question comes from Tyler Van Buren. Tyler, at TD Cowen. Tyler, go ahead. Your line is open. Tyler Van Buren: Great. Thanks so much. For Trodelvy, are you guys starting to see off-label use in the frontline in advance of formal approval given the very positive readouts and the NCCN recommendation in particular? And what do you expect the opportunity in the frontline to be versus the current indication? Johanna Mercier: Sure, Tyler. I'll take that one. It's Johanna. Yeah, so post ASCENT-04 presentation at ASCO last June, that's when we started actually seeing a little bit more spontaneous use of Trodelvy, both in the first-line setting but also strengthening our position, our leadership position in the second-line setting as well. So that's been kind of building. Obviously, spontaneous use, there's no promotion against first-line. There's only education from our medical field teams. Around the data publications in the New England Journal of Medicine and you highlighted as well the NCCN guidelines. Trodelvy is now the only ADC that is recommended both in first-line PD-L1 positive and PD-L1 negative metastatic TNBC as well as second-line setting. We're excited about that and the impact it can have on patients because this disease is such an aggressive form of breast cancer. To your market opportunity, it's about double or so if you think about second-line setting into the first-line setting, there's about ten thousand or so women in the first-line setting that are looking for care and really an opportunity for Trodelvy to have an impact here both in PD-L1 negative and PD-L1 positive with pembro. The other opportunity, of course, if you think about it is DOT. The duration of treatment basically doubles, right? Second-line setting because of the aggressiveness of this disease is four to five months and so therefore, as you think about first-line, it's about double. It's nine to ten months, which gives a little bit more hope to these women. So, definitely an important advancement. In triple-negative breast cancer with Trodelvy at the lead. Rebecca: Our last question comes from Courtney Breen at Bernstein. Courtney, go ahead. Your line is open. Courtney Breen: Hi, Gilead team. Thanks so much for squeezing me in at the end. I'm going to point us back to YES2GO again and just kind of really trying to get our arms around the 2026 guide. By our calculations, you have to believe that there's no growth in new patient starts compared to what we've seen kind of through January. For the rest of this year. And a more than 10% price cut year on year to kind of get to that $800 million guide for 2026. Given that, should we be thinking about the $800 million as a floor or as kind of a guide for 2026? Thanks so much. Johanna Mercier: Thanks, Courtney, for your question. I'm not sure I'm tracking your modeling. Because we are definitely assuming continued strong momentum for YES2GO. I know all of you are looking at weeklies. We're obviously looking at weeklies, but we're also looking monthlies and making sure that we're creating new growth numbers month to month. And so we do see that as an acceleration of growth as we go into 2026. A lot of those pieces are supported by making sure that we're adding new patients on YES2GO, new individuals on YES2GO, and also bringing back people for their second injection. So those two pieces are considered in that guidance, and I think we're excited thus far about where we stand today with YES2GO and all the pieces are coming together. We are just making sure that as much as the access is strong right now, and I'm really proud of the team that pulled that through, We also need to pull it through at an account level. So we're doing that account by account and making sure people are navigating the logistics of an injectable in an oral market, and all of that takes a little bit of time. But the intent is we expect strong, consistent, durable growth for the long term for YES2GO. So we're excited about what's to come, and I guess DTC will also have a pretty big impact we believe, to bring people in asking and talking about YES2GO. That completes the time that we have for questions. I'll now invite Dan to share any closing remarks. Daniel O'Day: Thanks, everybody. First of all, let me thank the Gilead Sciences, Inc. teams again. It's such a pleasure to work with them and to see deliver these really strong full-year performance measures and reinforcing that this is a time of impact and growth for the company. Our performance from last year gives us a really strong foundation for the coming year. We have a lot to deliver for the patients and communities we serve. Coming off of a year where we had just a really strong YES2GO launch as Johanna mentioned, several key launch indicators that have exceeded our expectations. We're firmly committed to continuing to drive that launch. But in addition, we have four potential launches this year and five pivotal Phase III readouts across all three therapeutic areas HIV, liver disease. So you can expect us to show the same strong commercial and clinical execution you've seen in the past and disciplined focus on expense management as you've seen from us quarter after quarter. And with no major LOEs until 2036, the next ten years, a really proactive approach to business development. Gilead Sciences, Inc.'s business is secure, growing, and with the potential for much more to come. So thanks again for your time today. We look forward to keeping you informed on our progress. As usual, if you have any follow-up questions, our investor relations team is very happy to support you with the answers to your questions. Thank you, everybody. Have a good rest of your day.
Operator: Good afternoon. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs, Inc. Common Stock Q4 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After management's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the call over to Leslie Green, Investor Relations for Astera Labs, Inc. Common Stock. Leslie, you may begin. Leslie Green: Thank you, Carly. Good afternoon, everyone, and welcome to the Astera Labs, Inc. Common Stock fourth quarter 2025 earnings conference call. Joining us on the call today are Jitendra Mohan, Chief Executive Officer and Co-Founder; Sanjay Gajendra, President and Chief Operating Officer and Co-Founder; and Mike Tate, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward-looking statements regarding, among other things, expected future financial results, strategies and plans, future operations, and the markets in which we operate. These forward-looking statements reflect management's current beliefs, expectations, and assumptions about future events, which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and in the periodic reports and filings we file from time to time with the SEC, including the risks set forth in our most recent annual report on Form 10-K. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward-looking statements or the extent to which any factor or combination of may cause actual results to differ materially from those contained in any forward-looking statement. In light of these risks, uncertainties, and assumptions, the results, events, or circumstances reflected in the forward-looking statements discussed during this call may not occur, and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today, and the company undertakes no obligation to update such statements after the date of this call except as required by law. Also, during this call, we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with US GAAP. A discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed through the Investor Relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs, Inc. Common Stock. Jitendra? Jitendra Mohan: Thank you, Leslie. Good afternoon, everyone, and thanks for joining our fourth quarter conference call for fiscal year 2025. Today, I'll provide an overview of our Q4 and full year 2025 results followed by a discussion around the current trends within the AI infrastructure market. I will then turn the call over to Sanjay to walk through Astera Labs, Inc. Common Stock's near and long-term growth profile. Finally, Mike will give an overview of our Q4 2025 financial results and provide details regarding our financial guidance for Q1 2026. Astera Labs, Inc. Common Stock delivered strong results in Q4 with revenue at $270.6 million, up 17% from the prior quarter and up 92% versus Q4 of last year. For full year 2025, revenue was $852.5 million, up 115% versus the prior year. Growth within the quarter and for the year was broad-based, across our signal conditioning, smart cable module, and switch fabric product portfolios as we continue to diversify our business profile with several new design wins across multiple customers. Secular trends remain robust within the AI and cloud infrastructure space, supported by exceptionally strong spending commentary coming from the top US hyperscalers, with Google and AWS alone guiding nearly $400 billion in total CapEx spending for 2026. We are benefiting from this increased spending both in the near term and long term. Furthermore, the market opportunity for our intelligent connectivity platform is substantially larger than we initially anticipated, encompassing multiple product lines, physical media types, form factors, and protocols for both standard and custom applications. Starting with Scorpio, our PCD family continued its volume ramp at our lead customer, with growth coming from both existing and incremental platform designs. For the full year, Scorpio P Series exceeded our target of 10% of revenue and remains the only PCIe six fabric shipping in volume in the market. Looking into 2026, we anticipate continued growth for Scorpio P Series at our lead customer, as well as commencing shipments into at least two additional major hyperscalers on the next generation AI platforms. Moving to Scorpio X Series, we expect to incrementally grow revenue in 2026 followed by a transition to high volume production in 2026. We continue to make excellent progress with additional engagements looking to leverage PCIe for scale-up networking. As previously communicated, we are engaged with 10 plus customers for Scorpio X family, and our current expectation is that we will ship initial quantities of Scorpio X Series to support new customer platforms in 2026 with volume ramps set for 2027. Solid traction continues to develop with respect to UE Link, with a vibrant ecosystem including product announcements, broad IP availability, and compliance methodologies being finalized. Recent public roadmap announcements from AWS and AMD along with other ongoing engagements indicate a broad adoption. UA Link remains the highest performance, lowest latency, fully open solution for AI scale-up connectivity, and we will be ready to intercept the initial customer platform ramp in 2027. Our Ares portfolio continues to perform well, with PCIe six solutions contributing robust growth during the quarter, and the overall portfolio growing nearly 70% year over year in 2025. The demand for Ares is driven by increasing deployments of custom AI accelerators at large hyperscalers. Our Ares Gen six products are the industry's only PCIe six DSP retimer solution shipping to customers in high volume today, and we are well positioned to maintain our leadership role in the market. We remain very early in the PCIe six transition cycle and anticipate additional customers will launch PCIe six capable AI accelerators and systems throughout 2026 and into 2027. As a result, we expect our Ares product line to continue growing in 2026 and beyond. Taurus was our strongest performing product family during 2025 as new programs began shipping in volume to support Q4 designs across both AI and general-purpose systems. In 2025, we saw Taurus revenue grow by more than four times year over year, driven by a breadth of 400 gig designs that will serve as a baseline for continued growth in 2026. We look for the transition to 800 gig switching platforms to be the next catalyst for market expansion, driving further growth opportunities for Taurus. Finally, we made good progress with our Leo CXL memory expansion products in 2025 and look to build upon that in 2026. We are excited to announce our partnership with Microsoft, Intel, and SAP to enable customers to evaluate CXL memory expansion capabilities for their specific workloads within Microsoft Azure M Series virtual machines. This program represents the industry's first publicly announced deployment of CXL attached memory, and we expect initial production volumes to commence in 2026. Overall, we are proud of the progress we have made in 2025. We added new product lines to service more sockets and address custom applications, increased the dollar content per accelerator, diversified our customer base with new design wins, and scaled our operations. This progress and a strong track record of technology and operational execution has helped us forge tight relationships with key AI and cloud infrastructure providers. As an example, an update on our relationship with Amazon can be found in our 8-K filing today. Looking ahead, the combination of growing AI infrastructure deployments and the increasing complexity of high-speed interconnect architectures is poised to drive significant growth for the AI connectivity space. We estimate our served addressable market opportunity will expand by more than 10 times over the next five years to reach $25 billion. This market opportunity spans our existing and announced copper-based product families, including Ares and Taurus signal conditioning solutions, Scorpio AI fabric switches, USCXL memory controllers, and our recently announced custom solution for scale-up connectivity. While these numbers and opportunities are substantial and exciting, there is a significant amount of work that needs to be done. Astera Labs, Inc. Common Stock is deeply committed to building an A-plus team with an execution mindset and capabilities essential to support our customers' technology roadmap and maximize our share of the large market opportunity ahead of us. Therefore, we are strategically investing in the expansion of our team and capability to execute against a broadening set of revenue opportunities generated by our customers. We took an exciting step in this direction this week with the announcement of a significant expansion in our global engineering operations through the establishment of an advanced design center in Israel. Our investment in this talented ASIC engineering team substantially increases our resource pool and will help accelerate the development of cutting-edge high bandwidth and custom AI fabric and emerging AI inference technology. I would like to take a moment to thank our global team of Astera Labs, Inc. Common Stock employees, our partners, and our vendors who worked tirelessly in 2025 to deliver world-class AI connectivity solutions to the market. Their steadfast focus and effort have placed Astera Labs, Inc. Common Stock in a position of strength heading into 2026 as we continue solving next-generation AI connectivity challenges. Finally, we announced today that Mike Tate will transition from the CFO role into a full-time role as a strategic adviser reporting to me. Mike has been instrumental in Astera Labs, Inc. Common Stock's growth and development since inception, and we are very grateful for his many contributions. We are also very excited to announce Desmond Lynch will join Astera Labs, Inc. Common Stock as our new CFO effective March 2. Desmond brings great semiconductor financial experience to the company, and we look forward to drawing on his expertise as we enter our next phase of growth. We are also thankful that Mike will continue to work full-time in his new role to support the company and ensure a smooth transition to Desmond. With that, let me turn the call over to our President and COO, Sanjay Gajendra, to outline our vision for growth over the next several years. Sanjay Gajendra: Thanks, Jitendra, and good afternoon, everyone. Today, I want to provide an update on our recent execution followed by an overview of the meaningful market opportunities that will fuel our growth over the next several years. Astera Labs, Inc. Common Stock's mission is to deliver a purpose-built intelligent connectivity platform with a portfolio of solutions including silicon, hardware, and software for rack-scale AI deployments. Over the past several years, we have been building our portfolio, expanding our capabilities with foundational IP, growing our talent pool, and demonstrating the technical and operational execution which has helped us to establish multigenerational partnerships with leading AI platform and cloud service providers. Looking ahead, we plan to deliver technology enhancements to our core portfolio of AI fabric, signal conditioners, and memory controllers while also expanding our breadth of capabilities to new categories including custom connectivity solutions, products to address memory bottlenecks in inference applications, optical engines, and other optical solutions for scale-up and scale-out networks. Let me now provide an update on our future product strategy. Starting with AI fabrics, we have been thrilled with the initial traction of Scorpio P Series and X Series for the last eighteen months. Looking into 2026, we are poised to see diversification with our P Series solutions for head node connectivity at new hyperscaler customers in addition to the volume ramp of our X Series solutions for scale-up networking. Exiting 2026, we expect Astera Labs, Inc. Common Stock to continue being the market-leading provider of PCIe six switching solutions and will become a leading provider of merchant, scale-up AI fabrics. Our early engagements have been crucial to our understanding of the nuances of deploying complex AI fabrics at scale while also identifying new and innovative approaches to expand our roadmap. Furthermore, hyperscalers are demanding flexible, connectivity solutions optimized for their unique architectural approaches and application needs. IE, one size does not fit all. These requirements lend themselves to our software-defined architecture for silicon products which will now extend to wider Redis configuration, multi-protocol support, in-network computing, and ultimately, incorporation of photonic switch to axle return links. These new requirements coupled with larger XPU cluster sizes are expanding the merchant scale-up switching market opportunity, which we believe will grow to roughly $20 billion annually by 2030. Our current roadmap across PCIe, UA Link, and platform-specific scale-up topologies put us in full position to service at least half of this market merchant silicon opportunity in the near to medium term with aspirations to address the entire market opportunity for the next several years. Going to our signal conditioning portfolio, we saw tremendous growth in 2025 with both Ares and Taurus. Looking into 2026, we anticipate strong additional growth fueled by robust secular trends and technology evolution. Across the portfolio, we are well positioned to benefit from forthcoming protocol specification upgrades for PCIe and Ethernet that will double bandwidth capabilities and therefore drive additional reach extension content. Given the market size and growth rate, we'll continue to heavily invest in these portfolios with current development stretching out to PCIe Gen seven, UV link 200 gig, and 1.6 Ethernet applications. We remain well positioned as market leaders in both arenas and we look to leverage our AI fabric engagements to drive additional opportunities within these categories. During Q4, we announced an expansion of our product portfolio to include custom connectivity solutions to address next-generation AI infrastructure featuring heterogeneous compute resources. Our initial prospects in the custom solution space will help to enable NVIDIA's NVLink fusion scale-up architecture for hybrid racks, and we are seeing opportunities to support additional hyperscalers to provide interconnect flexibility and optionality. Through close collaboration with hyperscaler customers and leveraging a broad range of foundational technologies and operational expertise, Astera Labs, Inc. Common Stock is well positioned to provide a broad set of solutions tailored to custom applications. Next, we are working closely with key customers to define, develop, and build optical connectivity engines for scale-up networking. These silicon photonics solutions will ultimately help to enhance both our AI fabric and signal conditioning portfolios as XPU cluster density scales. We believe that transition to optical connectivity for scale-up applications will be additive to the overall AI networking market size, with copper and optical link coexisting from a system standpoint. This could more than double the merchant scale-up switching opportunity. Additionally, the discrete high-density connectors added through our XScale acquisition are seeing strong interest and are being qualified for scale-up applications. Along with our expanding portfolio of AI solutions, we continue to make meaningful progress towards further diversifying our cloud infrastructure customer base. In 2025, we are seeing customer activity and engagement accelerate across all product categories as AI and cloud providers look to Astera Labs, Inc. Common Stock to help solve their next-generation infrastructure challenges. Many of these engagements have converted to design wins and will meaningfully broaden revenue across multiple hyperscalers as we exit 2026. In conclusion, Astera Labs, Inc. Common Stock has arrived at a critical inflection point. Strong fundamental momentum has been generated over the past several years with solid execution helping to build mature, multigeneration customer relationships. Robust secular trends within large-scale AI infrastructure and the criticality of intelligent connectivity solutions are catalysts for a material expansion of our market opportunity. These factors give us the confidence to reinvest in ourselves, our customers, and our partners to drive the deployment of AI infrastructure. We look forward to scaling our team with the continued strong emphasis on execution and investment to deliver on our rack-scale vision throughout 2026. With that, I will turn the call over to our CFO, Mike Tate, who will discuss our Q4 financial results and our Q1 outlook. Mike Tate: Thanks, Sanjay. Thanks to everyone for joining the call. This overview of our Q4 financial results and Q1 guidance will be on a non-GAAP basis. The primary difference in Astera Labs, Inc. Common Stock's non-GAAP metrics is stock-based compensation, acquisition-related costs, and its related income tax effects. Please refer to today's press release available on the Investor Relations section of our website for more details on both our GAAP and non-GAAP Q1 financial outlook as well as a reconciliation of our GAAP to non-GAAP financial measures presented on this call. For 2025, Astera Labs, Inc. Common Stock delivered quarterly revenue of $270.6 million, which was up 17% versus the previous quarter and 92% higher than the revenue of 2024. During the quarter, we enjoyed revenue growth from our Scorpio, Ares, and Taurus product lines supporting both scale-up and scale-out PCIe and Ethernet connectivity for a wide range of AI rack-level configurations. Scorpio P Series demand for PCIe Gen six switching applications was robust during Q4. Scorpio X Series shipped preproduction quantities during the quarter. Ares demonstrated growth during the quarter with Ares six revenue growing strongly as we began shipping PCIe Gen six SEMs for scale-up topologies in high volume. Taurus displayed strong growth during the quarter driven by the ramp of new 400 gig programs for scale-out connectivity for both AI systems and general-purpose platforms. Q4 non-GAAP gross margin was 75.7%, down 70 basis points from the September levels primarily due to a higher mix of hardware sales. Non-GAAP operating expenses for Q4 were $96 million, up $16 million from the previous quarter due to the continued expansion of our R&D organization including the XScale acquisition that closed during the quarter. Within Q4 non-GAAP operating expenses, R&D expenses were $70.7 million, sales and marketing expenses were $11.1 million, and general and administrative expenses were $14.2 million. Non-GAAP operating margins for Q4 were 40.2%, down 150 basis points from the previous quarter. Interest income in Q4 was $12 million. Our non-GAAP tax rate for Q4 was 13%. Non-GAAP fully diluted share count for Q4 was 181.2 million shares and our non-GAAP diluted earnings per share for the quarter was $0.58. Cash flow from operating activities for Q4 was $95.3 million and we ended the quarter with cash, cash equivalents, and marketable securities of $1.19 billion. Now turning to our guidance for 2026. We expect Q1 revenues to increase to within a range of $286 million to $297 million, up roughly 6% to 10% from the fourth quarter levels. For Q1, we expect Ares growth to be driven by a variety of AI platforms across both scale-up and scale-out connectivity. Taurus growth is expected to be driven by an increase in volumes of 400 gig designs for AI scale-up connectivity. Scorpio growth will be primarily driven by the continued deployment of our P Series solutions for scale-out applications and initial volumes of our Scorpio X Series for scale-up switching. We expect Q1 non-GAAP gross margins to be approximately 74%, with the increased mix of our hardware-based solutions in the quarter. We expect first-quarter non-GAAP operating expenses to be in the range of approximately $112 million to $118 million. As previously outlined, our customers continue to present us numerous large revenue opportunities for AI connectivity solutions. The planned increase in operating expenses will enable us to capitalize on these opportunities. This guidance includes expenses related to an AQUI hire transaction we closed this quarter, which helped us rapidly scale our recently announced Israel design center. Interest income is expected to be approximately $11 million. Our non-GAAP tax rate should be approximately 12%. Our non-GAAP fully diluted share count is expected to be approximately 184 million shares. Adding this all up, we are expecting non-GAAP fully diluted earnings per share to be approximately $0.53 to $0.54. Lastly, I would like to welcome Desmond as our new incoming CFO. I believe he's a perfect fit for the company at this exciting stage of the company's growth trajectory. I look forward to continuing to support the company in my new role while also ensuring a smooth CFO transition. This concludes our prepared remarks. And once again, we appreciate everyone joining the call. And now we will open the line for questions. Operator? Operator: Your first question comes from Blayne Curtis with Jefferies. Blayne Curtis: Congrats on the results and congrats, Mike, on the new role. I just want to ask you, obviously, this $6.5 billion is a huge number. I might already know the answer, but I wanted to ask you about what seems like one of the biggest debates still is the acceptance of UA Link for these next-gen designs. You mentioned two lead customers mentioning it. I'm just kind of curious as people think about your UA Link switch opportunity, particularly at your largest customer versus the custom connectivity and then maybe them using NVLink? I'm kind of curious with this deal, is there any better visibility you can kind of think about, you know, that mix between hybrid boxes and native UA Link for these Azure lead customers? Jitendra Mohan: Thanks, Blayne. Maybe let me start and then Mike can chime in on the warrant itself. So, yes, clearly, AWS announced at re:Invent that the Phranyon four, which is slated to ramp in 2027, will support UA Link, which was a very positive endorsement of UA Link, as well as support for NVLink fusion. Subsequently, AMD has also announced that their MI 500 series will also support UA Link, again in 2027. So these are two very good public announcements in support of UA Link, and there are several other discussions that are ongoing. The UA Link ecosystem is coming. We've got great availability of IP, a lot of vendor announcements, and so on. And so we will be ready with our UA Link solution to intercept the ramp that happens in 2027. Now for NVLink fusion, this also represents a meaningful opportunity for us. And before we jump into what the opportunities are, I do want to call out the fact that both Amazon, the hyperscaler, as well as NVIDIA have chosen Astera Labs, Inc. Common Stock as a partner. And that's a very important statement in terms of the trust that they place in Astera Labs, Inc. Common Stock. So the opportunity itself is to take the native protocol that the XPU or the ASIC speaks and translate that into NVLink. This is a sophisticated function, and we have a solution that we will deploy to address this. And given the fact that the solution attaches to the XPU on a one-to-one basis, we anticipate the overall revenues to be in line with the switch opportunity where we might be selling a UA Link switch. So all in all, the exact mix of how much NVLink fusion would be deployed versus a native solution would be deployed remains to be seen. But for us, the opportunity is roughly the same for both. Mike Tate: And just to point out, we did file under an 8-K a warrant agreement with Amazon today. So it demonstrates our strong relationship with Amazon. Under the terms of the warrant agreement, we're issuing 3.3 million warrant shares that are based upon the achievement of performance conditions comprising specified tranches of payments to purchase up to $6.5 billion of our smart fabric switches, signal conditioning products, and also our optical engine solutions. Blayne Curtis: I actually wanted to ask you on that last part. I thought it was interesting you've been talking more about optical. You know, it's part of that warrant agreement. Can you maybe just talk about you talked about it doubling your TAM, maybe timing on that? Jitendra Mohan: So we think that when we that the optical for scale-up, the timing should be somewhere in 2028. We do believe that the initial deployment for optical technology CPO might happen with scale-out, and that might precede the deployment of scale-up. Blayne Curtis: Thanks, guys. Congrats. Operator: Your question comes from Joe Moore with Morgan Stanley. Joe Moore: Great. Thank you. You talked a little bit about the OpEx increase. I guess it's a pretty big step function up. Can you talk about was the acquisition a part of that? I know it's small. And then, you know, as you look out to these optical scale-up aspirations, I assume that's expensive. Just kind of any incremental sense of why the OpEx is coming up so much so quickly? Mike Tate: Yeah. Joe, over the last couple of quarters, we've been having a lot of advanced dialogue with our customers, and they're presenting us with significant revenue opportunities that, you know, we really feel now is the time to really invest in. You know, as we spoke on the call, the TAM is much bigger than we originally expected just, you know, when we measured it, just twelve, eighteen months ago. So we are increasing our investments to pursue these opportunities. Last quarter in Q4, we did close the XScale acquisition, so now we have a full quarter in Q1. And then just recently in this quarter, we closed another AQUI hire. We got a very sizable capable team to help us scale up our new Israel design center where we just also brought in very exciting, capable leadership as well. So this is all to pursue these opportunities that our customers are pushing us to develop for them. Joe Moore: Okay. Thank you. And then you talked about UA Link. I know there's also a fair amount of noise over the course of the quarter about ESON, Ethernet scale-up. Can you just kind of talk about the handicapping of those two technologies and how you see those technologies coexisting going forward? Jitendra Mohan: Yeah. So the scale-up networking, Joe, that remains a very large market, and it'll include proprietary approaches such as NVLink or Google's API. And we'll also include the merchant and standard approaches such as PCIe, UA Link, Ethernet, and ESON. What we are seeing is that hyperscalers are going to leverage the type of solutions that their software stack is designed for. So, for example, if a customer is using a memory-centric protocol, like NVLink or like PCI Express, they are likely to continue to use that and transition to UA Link as those solutions become available. At the same time, the customers that are using Ethernet are likely to stay with Ethernet and then maybe move to Ethernet when Ethernet becomes available. This is overall a very big market, and there is a lot of room for different solutions to coexist. And we do indeed think that these solutions will coexist. We are primarily developing solutions where our customers are asking us to, which happens to be PCI Express, UA Link, and now increasingly on NVLink fusion. Joe Moore: Great. Thank you. Operator: Your next question comes from Vivek Arya with Bank of America. Vivek Arya: Thanks for taking my question. On Scorpio, I'm curious if it achieved that 20% of sales. I think, Mike, that you had set in Q4. And if it did, is this kind of $200-ish million run rate, where do you see the outlook for Scorpio, you know, at a high level for 2026? Mike Tate: Yeah. Yeah. Scorpio continues to perform very well. You know, it just launched for the first time in Q2 of this year, and it did break above our 15% for the year. And it grew very nicely in Q4. This is all on the Scorpio P primarily, which is scale-out switching. We did say we just started to ship initial volumes here in this Scorpio X, and then that will have increasing volumes as we enter into 2026, with a much more material ramp in the back half of the year. So, you know, Scorpio, like, is our biggest TAM right now, so it's growing at a very fast clip as a result of that. Vivek Arya: Okay. And for my follow-up, Jitendra, how do you see your content as NVIDIA moves to the Vera Rubin generation versus the Blackwell generation? Right? And how do you see whatever the NVIDIA racks are deployed in the Vera Rubin, do you think, you know, they let them capture more of their proprietary content, or do you still see enough opportunity for Astera wherever Vera Rubin is installed? Thank you. Jitendra Mohan: Yeah. It's a great question. So as we have now, the opportunity for Astera arises when our customers do custom deployments of the Grace Blackwell or in the future, Vera Rubin reference design. We have very minimal opportunity with the reference design itself. The initial ramps that Mike has referred to were happening in part of these customized deployments of the Grace platform by our lead hyperscaler customer. And as the hyperscaler customer announced at the public event, they want to continue to deploy Vera Rubin also as a custom deployment. So we will certainly do our best to make sure that we are part of that solution as well as the design transition from Grace Blackwell to Vera Rubin. Vivek Arya: Thank you. Operator: Your next question comes from Tore Svanberg with Stifel. Tore Svanberg: Yes. Congratulations on the results and, Mike, congratulations on your new role. I had a follow-up question for Sanjay. Sanjay, when you talked about the SAM by 2030, $20 billion, you know, you'll be able to get half of that today. But you said, you know, PCIe, UA Link, and then platform-specific scale-up topologies. And I'm just curious, is the world changing a little bit where, you know, there's less reliance on standards and there's more platform-specific scale-up initiatives? And is that also why you are stepping up your OpEx as much as you are this quarter? Sanjay Gajendra: Yeah. So if you think of a scale-up topology, you're interconnecting accelerators. And to that standpoint, you know, the accelerators could be a merchant silicon or could be an internal custom ASIC. And because these are homogeneous planes, and everyone is trying to eke out the maximum amount of bandwidth and performance on the connectivity side. So in general, what you will expect is quite a bit of customization that will be needed. Now with Astera, we are unique in the sense that our fabrics are designed to be software-defined. In the sense that they can be updated to do certain things that are custom and optimized for specific scale-up topology. So what we have tried to do is not do one silicon for every opportunity, but to be able to leverage the same piece of silicon but to be able to customize that in many different ways. In some ways, we are making sure that the investment that we do is managed, and the differentiation comes from software rather than keep doing a unique silicon for everyone. Now having said that, the thing that we are seeing is a tremendous influx of opportunities. And that's largely coming from the fact that, you know, we spent about twelve to fifteen months sort of being in the scale-up domain, and we have learned a lot. There's a lot of unique things that become critical when you're designing scale-up fabrics. And that learning has enabled us to better present our solution as well as the feature set that we're incorporating in our new product line. And those are gaining, you know, interest and support from several new customers. And to support that is where we see a need to step up our R&D. Meaning the time to invest is now. And this will help us as we think about the longer-term growth of the company as well as our position in the scale-up market. Tore Svanberg: That's great color. Thank you. And as my follow-up for you, Jitendra, just to clarify, I think you said Scorpio X. So pre-production still first half of this year, then you start the ramp with your lead customer second half. But I think you also said that you expect to have some pre-production with additional customers beyond your lead customer in the second half with ramps in '27. Just want to make sure that I got that right. Jitendra Mohan: Yep. That's correct. Yeah. There is a lot of traction for the Scorpio X family. For customers who are trying to use PCI Express memory-centric protocol for their scale-up. We are filling so many different calls, we expect some of those to get qualified towards the end of this year and then ramp in 2027. Tore Svanberg: Very helpful. Thank you. Operator: Next question comes from Ross Seymore with Deutsche Bank. Ross Seymore: Hi, guys. Thanks for asking the question. And Mike, congrats on the new role. You'll be missed. I guess my first question is on the OpEx side of things. Basically spending about $100 million run rate more than you were prior. I get that the revenue opportunity is larger, but can you give us a little bit idea on what the time to revenue would be in this when you say now is the time to invest? I know the 2030 numbers are big, but is that when today's investment pays off? Or should we expect things sooner than that? Just any more color on the OpEx would be helpful. Mike Tate: Yeah. There's a range, but, you know, the technology that we're developing does have a longer lead time there, but there are new opportunities that could be turned into silicon in relatively short order, and then you have the qualification process with the customers. But you could see, you know, from start to revenues in eighteen, twenty-four months on the earlier side. But also keep in mind, you know, we've been looking at optical, you know, from the inception of the company knowing that, you know, at some point, it was going to be very important as a connectivity supplier. So we've been putting the pieces together internally and then including the new acquisition that we had last year. But, you know, we're building something internally that, you know, other companies, you know, are paying billions of dollars for, you know, to get externally. So and by doing this, we're doing it the right way, and we're building it the Astera way along with the input from our customers. So our development is closely aligned with input from our customers as well. Ross Seymore: For that, Mike. I guess as my follow-up on to the Scorpio family, I believe you said it crossed 15% of sales in 2025. So I just wanted to clarify if that was true. But perhaps more importantly, any sort of bogeys as far as the growth rate this year? I believe in the past, you talked about it would cross over and become your biggest product line at some point this year. Is that still the case? Any updates on those sorts of timing and magnitude? Mike Tate: Yeah. So, yeah, so we originally set out for a 10% bogey. We did cross above 15% for 2025. And, again, that's all just P Series. X is for scale-up is a much bigger, larger TAM for us, and that, you know, we're starting to ship initial volumes in the first half, but the more material step up in the back half. So the combination of those two will put us on a trajectory for it to be our biggest product line. But, you know, Ares and Taurus and Leo are all growing as well. So it's hard to know exactly when to cross over. But, you know, definitely, at some point, it will. And it will, you know, it's going to drive, you know, very good revenue growth for us. Ross Seymore: Thanks, Mike. Operator: Your next question comes from Sebastien Cyrus Naji with William Blair. Sebastien Cyrus Naji: Great. Thank you for taking the question and congrats on the results. Just in terms of the more customized solution that you're building, is it right to think that your average ASP for the solution or the content opportunity should go up meaningfully versus some of your existing products? And is there anything to call out in terms of maybe a different margin or different profitability profile for those solutions? Jitendra Mohan: And to confirm, you're referring to the Scorpio X? Sebastien Cyrus Naji: That's right. That's right. Although the custom. Sorry. Didn't hear the first part. Jitendra Mohan: Yes. For the customized solutions that you're building for some of your hyperscaler customers. Yeah. So the custom solutions that we build, like, for example, the NVLink fusion that we noted. So the engagement model, of course, tends to be different. But the attach rate will also tend to be higher. So I think from a volume standpoint, it will be at a certain rate. But the ASPs there will be some considerations that have to be applied because there will be blocks that come from, you know, the partners that we work with. So at the end of the day, I think, like, it's not a highlight that when it comes to our revenue content, both based on a native switch versus a custom solution, the things sort of even up. Where on the native switches, it tends to be one switch being shared across, you know, a few accelerators. Whereas in the custom solution type of products, you're doing it one per accelerator. Which means that you'll have a higher attach rate although the ASP might not be at the same level. And, yeah, Sebastien, in general, a helpful thing that we found is every generation of XPU, our content has grown up so far. And we continue to head in that direction by having more dollar content for XPU generation. Sebastien Cyrus Naji: Got it. Okay. That's really helpful. And maybe as a quick follow-up just on the Taurus line. Is there a way to think about how much of the strong growth you're seeing there is coming from just strong underlying market growth versus Astera's ability to gain share in that market? Jitendra Mohan: Yeah. So it's I want to say both, but definitely, the speeds have gone up from 400 to 800 gig. The need for active components, whether it's onboard or within cable, in the form of AEC is growing. So that fact is not changing. Our business model is slightly different as probably you're aware. We don't do the whole cable. We do the modules that go inside the cable assemblies and rely on our cable partners to provide the at-scale deployment with multiple vendors supporting the same opportunity. So to that standpoint, what I would say is that, you know, we are seeing that transition happening. You can see that with some of the numbers that we shared today. Our total revenue has gone up Q4. And, generally, for the whole year, it's about four times. So we expect that trend to continue. Again, we won't be called in on day one because of the business model that we have, but as volume picks up even for 800 gig, what we're expecting is that Astera will come in strong. With multiple cable suppliers using our module to support the high volume band. Sebastien Cyrus Naji: Great. That's really helpful. Thank you. Operator: Your next question is from Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Good afternoon, guys, and thank you for letting me take the question. I have the question, and congrats on nice results. And Mike, congrats on your retirement and hopefully, a little bit of an easier new role at the company here. Wanted to ask on the warrant agreement and maybe get some background on sort of one, you know, there's a period of exercise to 2033, I believe, and then, you know, there's a dollar amount associated with it to the extent that you're able to talk about sort of what drove the, you know, the two companies to reach the agreement? And is this should we think about this as maybe, like, incremental to what you already had expected to be doing with that customer over that time frame? And then anything you could give on linearity that'd be great. Thanks. Mike Tate: Yeah. We I can't go into much more detail than what we publicly disclose. You know, in the 8-K, we did file the full warrant agreement, so you can, you know, kind of get some of the more material terms out of that filing. It does demonstrate the strong relationship that we have with Amazon. This is a follow-on warrant. We've had a previous warrant agreement in place, you know, and what happens is the warrants are earned as revenue milestones are achieved, which is the $6.5 billion that we outlined. To account for the warrant, you do take a non-cash charge for the value of what vests, and that goes directly against revenue and effectively directly against gross margins as well. So as the warrants are achieved, we are kind of modeling a non-cash hit to gross margins of about two points a quarter starting kind of in the Q2 time frame. But, you know, the warrants have a life like airline for seven years. Sean O'Loughlin: Great. Thanks. And if I could ask another unfortunately, financial follow-up. On the NVLink Fusion agreements and whether it's with Amazon or whether it's with, you know, any other hyperscaler that might adopt that topology. What is the what does that financial arrangement look like? Is that a license that the hyperscaler is paying directly to NVIDIA? And they sort of grant you the IP, or is that something that gets incorporated into the ASP and the margin profile of that product? Jitendra Mohan: Yeah. And we'll just maybe can't answer that question just given all the NDAs and other things that we need to be respectful of. In general, what I would say is that it opens up a completely new set of opportunities for us to play in the NVLink ecosystem, which we did not have a place so far. So to that standpoint, this is additive to everything that we're talking about. In terms of the exact business model, I think we'll let hyperscalers or NVIDIA provide more color. Sean O'Loughlin: Okay. Great. Thanks again, guys. Operator: Your next question comes from Karl Ackerman with BNP Paribas. Karl Ackerman: Yes. Mike, you know that some of the increase in OpEx is being driven by your investments in optical and followed through acquisition of AIX Scale. Do you anticipate your customer opportunity for integrating your optical eyeglass cover technology is larger for a switch portfolio than your serial conditioning and SEM products? And I have a follow-up. Jitendra Mohan: Yeah. I mean, I would maybe let me take that and then Mike can chime in afterwards. I would say that the opportunity for including optical into scale-up is actually a very large opportunity. Probably larger than the signal conditioning opportunity that we have. Of the order of, you know, what we are saying for scale-up connectivity. We have not quite sized it up exactly, but it is a very large opportunity. And we are working very closely with our customers to understand what their requirements are and what their time frames are, and we'll be ready for those. We believe for scale-up in particular, that's likely to be in 2028. Karl Ackerman: Got it. Okay. Sorry. Go ahead. Jitendra Mohan: Also, just to maybe add to that. Right? Now I know optical is an important area for us to invest, and we are doing that with some unique architecture and capabilities. I'd also say that the increase in investments we're doing, like Mike outlined, these are also servicing opportunities on the fabric side, which are much more based upon existing engagement and as customers are seeing the value of what we offer, they're coming back with requests for, you know, additional lane count or Vedic configurations or features and things like that. So the investment that we're talking about, including the Israel team that we set up, which will focus on AI fabrics, it's all being done in a way that, you know, we get the near term, midterm, and long-term growth setting us up nicely for, you know, building on the momentum we have and getting to a different scale from a revenue standpoint. Karl Ackerman: Got it. Very helpful. You indicated that you have Scorpio P design wins now with three hyperscalers, two of which are new. Are your Scorpio P designs based on custom compute designs, or are they also being designed on custom GPU racks as well? And then, clearly, you're having traction here, so you can perhaps address the, you know, the opportunity that you see with Scorpio P extending into 2026. I know there's a lot of focus on Scorpio X, but perhaps you could spend some time on engagements you have as well as the opportunity that you see on Scorpio P into '26. Thank you. Jitendra Mohan: Yeah. No. Scorpio P has been really I mean, it's mostly going into scale-out use cases. Now that we have, you know, ramped the chip in reasonable volume over the last three, four quarters, you know, we are seeing additional customers, specifically, like you called out, two new hyperscalers that have adopted it. Go into production a little bit later towards the end of this year. These design-ins are supporting platforms that are both merchant GPU-based as well as custom accelerators. And we do expect these to add meaningful revenue for us in 2027. But beyond this, again, these are the ones we called out just given the significance of these design wins. But in general, I want to say for the P Series, ever since we announced, it's been attracting a lot of customer interest and traction, and we do have several design wins on that in different lane count configurations and so on. So that continues to be a device that has been, you know, I want to say at this point, we are probably still the only one that's in high volume production with our Gen six switches. So it is serving many customers and use cases. Karl Ackerman: Thank you. Operator: Your next question comes from Srinivas Pajjuri with RBC Capital Markets. Srinivas Pajjuri: Thank you. And let me echo my congrats, Mike. Look forward to, I guess, continuing to work with you, but it's been a pleasure over the past twenty plus years. My question, you know, there's been a lot of skepticism about the growth of Ares retimers, and you continue to show that, you know, this segment continues to grow, and you're projecting growth for this year as well. If you could talk to us about what's driving that growth? Is it primarily the units? Or is it PCIe six transition? And then or is it new customers? And then as we go into '27, '28, how should we think about any potential implications as the market goes from copper to optical? Jitendra Mohan: Yeah. So the, you know, if you think about PCI Express, Express is really the nervous system inside of a server. All of the significant components, whether it's a GPU or a CPU or a NIC card, they talk to each other over PCI Express. And we established an early lead in PCI Express with PCI Express Gen four, Gen five, and now extending that into PCI Express Gen six. We see not only the continued growth in the, what we call, the chip down applications, but we also see more growth of PCI Express in cabled applications where we set our smart cable modules. That does give us an uplift in the ASP. These devices are used in scale-up applications. And again, as we all understand, scale-up is a very rich opportunity where we have multiple connections and a lot of them. So we are definitely benefiting from that trend with PCI Express going from Gen five to Gen six. Now your question about transition from copper to optical. So most of our customers will continue to stay with copper for as long as they can. That has been their preference all this time. We will reach a stage where, you know, maybe the reach or the bandwidth is just high enough and is not able to be supported by copper. And in those cases, we do expect a transition to optical, but copper and optical will continue to coexist for a long period of time. The transition to optical will likely come in the form of first like, pluggable optics maybe followed by a new package optics and eventually the holy grail, which is the co-package optics, which, you know, all of us are working towards. But we expect to see the first deployments of co-package optics for scale-up sometime in the 2028 time frame. Srinivas Pajjuri: Okay. Got it. And then the other debate, Jitendra, is obviously UA Link versus ESON. I guess, hypothetically, if the market, you know, moves more toward ESON, I'm just curious. I mean, you have the capability to pivot to ESON? And if so, how quickly can you do that? And I'm just curious because, again, this is a debate that we can't, you know, answer, you know, sitting here because it's something that's going to happen in the future. But just wondering if the market were to go to ESON, how do you see your, you know, position? You know, what kind of role do you anticipate playing in that market? Jitendra Mohan: Yep. So I would say that we are much closer to the action. So we understand who's doing what largely for the initial deployments of the new scale-up protocols, whether it's UA Link or Ethernet or ESON. From a capability standpoint, it's definitely within reach. We can, if you choose to design an ESON-based solution, we can. However, as has been the trend with Astera, we listen to our customers very closely. And so far, everybody is telling us to focus on UA Link, and that's what we are focusing on. As you say, if things were to shift towards ESON, we certainly have the capability. And with the addition of the, you know, additional resources that we are deploying, we can definitely go in the direction of additional solutions. As a matter of fact, I would say, our aspiration really is to address the full connectivity TAM and not just limit to any one particular protocol. Srinivas Pajjuri: Got it. Thanks, Jitendra. Operator: Your next question comes from Quinn Bolton with Needham and Company. Quinn Bolton: Hi. This is Robert on for Quinn. Thank you for taking the questions. First, wanted just to double click more onto the AEC product offering. Can you maybe discuss how qualification for your 800 gig AECs are progressing? And do you expect to be shipping 800 gig AECs to multiple hyperscalers this year? Jitendra Mohan: Yeah. So 800 gig is obviously starting to ramp up right now. And to that standpoint, what I can say is that we're very closely engaged with that from a qualification process standpoint. Given our business model, which is slightly different like I highlighted early on, we come in as the volume starts expanding. So to that standpoint, you can expect a similar transition happening to our business as well with more deployments for 800 gig. Major gig, like you highlighted before, is broad-based, meaning there are multiple customers that are using AEC for 800 gigs. And those are opportunities that we expect to gain from a revenue standpoint. Robert: And then just quickly on Scorpio P. Just wanted to double click a little bit more into that color. You expect these additional P Series customers to reach kind of the size and scale, I guess, down the line as volume ramps with them. Of in the second half of the year and beyond? I guess, can these new customers be as big as your main hyperscaler there? Jitendra Mohan: Yes. There is a potential for that. Robert: Thank you. Jitendra Mohan: At least the ones that we called out now that are, like, noted many P Series opportunities and design wins we have. But specifically to the hyperscale opportunities that we called out. These are mainstream use cases. So we do expect them to have a revenue impact like what we've had so far. Thank you. Operator: Your final question comes from Tom O'Malley with Barclays. Tom O'Malley: Hey, guys. Thanks for sneaking me in. Just had a quick one and then a longer-term one. So you announced two new hyperscalers, PCIe late in '26, you're saying revenue '27. Are those US hyperscalers? Are those Chinese hyperscalers? Jitendra Mohan: US. Tom O'Malley: Thanks. And then on the longer term, I think you mentioned on the call about the MI 500 series supporting UA Link. Obviously, the 400 series supports UA Link, but it's over Ethernet. Are you saying that the 500 series will be native UA Link? Is it still going to be Ethernet supporting UA Link? Obviously, that's a big difference in what switches you're using. Thank you. Jitendra Mohan: Yeah. Tom, so I don't want to speak for, you know, AI customer. But if you look at some of the publicly released information, they have said that they will continue to support both. But they've also said that they believe UA Link native is the highest performance scale-up protocol. Operator: There are no further questions at this time. I'll now turn the call back over to the presenters for any closing remarks. Jitendra Mohan: Thank you, Carly, and thank you, everyone, for your participation in questions. Please refer to our Investor Relations website for information regarding upcoming financial conferences and events. Thanks so much. Have a great day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, welcome to the Hinge Health Fourth Quarter 2025 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand. And 6 to unmute. I will now hand the conference over to Bianca Buck, Head of Investor Relations. Bianca, please go ahead. Good afternoon, and welcome to Hinge Health's Bianca Buck: fourth quarter and full year 2025 earnings call. I'm Bianca Buck, head of investor relations. With me on the call are Daniel Perez, our cofounder and CEO, James Pursley, our president, and James Budge, our CFO. I want to thank everyone for joining us today. We'll be walking you through our Q4 and 2025 annual performance, sharing updates on our product innovations and commercial momentum, and providing expectations for our Q1 and full year 2026 revenue and operating profit. As a reminder, this conference call is being recorded. All relevant materials are available on the investor relations section of our website. Today's discussion will include forward-looking statements that are subject to various risks, uncertainties, and assumptions. These statements reflect our current views and expectations regarding future events, including expected performance of our business, future financial results, and growth strategies. While these statements represent our good faith judgment and beliefs, actual results may differ materially from those projected or implied. We undertake no obligation to update any forward-looking statements except as required by law. For a detailed discussion of the risks, please refer to our SEC filings, including our most recent quarterly report on Form 10-Q filed on 11/07/2025, and our annual report on Form 10-K will be filed in the coming weeks. All financial measures discussed today are non-GAAP, except for revenue, which is GAAP or as otherwise indicated. These measures should be viewed in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are included in our earnings release appendix available on the Investor Relations section of our website. With that, I'll turn it over to Dan. Daniel Perez: Thanks, Bianca, and good afternoon, everyone. I'm excited to share our fourth quarter and full year 2025 results and provide an update on our overall progress. 2025 was an exceptional year that demonstrated the power of our vision to automate health care delivery through technology. We delivered outstanding financial performance while making meaningful advancements in our AI-related investments and expanding our market reach to nearly 25 million contracted lives in the best year we've ever had. Today, we will walk you through the following areas. First, I'll give you a high-level recap of our financial performance for the fourth quarter and full year, highlighting the continued momentum in our core metrics and strong finish to 2025. Second, I'll share some exciting product updates, particularly around our AI initiatives that are transforming how we deliver care to our members, as well as an update on Hinge Select, our high-performance provider network. Third, James Pursley will discuss our commercial progress, including the tremendous success of our sales season and some encouraging market developments. Next, James Budge will walk you through the detailed financials and our outlook for 2026. And lastly, I'll wrap up with thoughts on why we're so bullish about our business and our future before we open up to your questions. Let me start with our financial results. We delivered $171 million in revenue for Q4, representing 46% year-over-year growth. For the full year 2025, revenue reached $588 million, up 51% compared to 2024. Our last twelve months calculated billings reached $671 million, up 44% compared to the same period in 2024. These results demonstrate the growing demand for Hinge Health from our clients. Our operational efficiency remains strong as well. Gross margin was 85% in Q4 and 83% for the full year 2025, reflecting the scalability of our technology-driven care model. With a full year 2025 operating margin of 20%, operating margin reached 28% in Q4, demonstrating the impact of our investments in automation and how far along we are in achieving our target of 25% plus operating margin, representing a free cash flow margin of 36%. Perhaps most notably, we generated $62 million in free cash flow in Q4. For the full year, we generated $180 million in free cash flow for an annual free cash flow margin of 31%, reaching the target free cash flow margin we shared at IPO much sooner than anticipated. In 2025, our performance on the rule of 40 metric, which combines revenue growth and free cash flow margin, was 81 for the full year and 82 in Q4, more than double the 40 standard. We anticipate significantly exceeding the rule of 40 again in 2026. To put our numbers into context, in the last ten years, I think there's only been less than 10 other public tech companies with over $500 million of revenue, over 50% growth, and 30% free cash flow margin. We're a very unique company and still on the first page of our story, poised to significantly expand our platform market presence in 2026. Before I dive into our product updates, I want to emphasize what drives everything we do at Hinge Health. We're using technology to automate health care delivery, starting with musculoskeletal conditions. This quarter, we surpassed 100 million lifetime member activity sessions, with 41 million of those sessions completed in 2025 alone. Every session generates data that helps us improve our programs, making our care more effective for the next member. We build around the triple aim: delivering better health outcomes, creating a superior experience, and reducing overall health care costs. The more members we serve, the smarter our platform becomes, and the better we can deliver on all three of those goals. This quarter, I want to highlight two key areas where we've made significant progress. First, our AI-powered tools are transforming the efficiency of our delivery while also improving our member experience. We've rolled out improvements that help our clinicians work more effectively and handle more members without compromising care quality. The results have been remarkable. In 2025, we served 47% more members while keeping care team costs flat. One major driver of this improvement was our successful rollout of automated AI-powered communications for routine messaging, freeing up our care team to focus on higher-value human interactions where they can make the biggest difference. This led to the average time our care team spends in asynchronous sessions supporting members falling by 28% in just one quarter from 03/2025. A key contributor to both our care team efficiency and member satisfaction has been Robin, our AI care assistant. While still early in the rollout, members engaging with Robin are giving it a 92% positive rating, and we're seeing higher response rates compared to interactions with our human care team, an early indication of the trust and comfort members are building with these AI-driven experiences. While we're driving these efficiency gains, our member NPS scores are at an all-time high. This shows we can deliver better care at a lower cost. Moreover, given our tech investments, we're currently planning to keep the size of the care team flat once again in 2026. This will allow us to invest more in the member experience, such as increasing the percentage of members who receive an Enso. Notably, when a member receives an Enso, they have 70% more exercise therapy sessions because it's hard to do your exercises when in pain. Second, Hinge Select, our high-performance provider network, was available to several hundred thousand eligible lives in the fourth quarter. Multiple ecosystem partners have recognized Hinge Select's potential and included the offering in our co-selling agreements, and we have major momentum with our health plan and PBM partners, with one of the largest five national plans by self-insured lives already approving Hinge Select to be sold into their self-insured client base. And while it's still early in our launch, the data is promising. We're seeing a mix of member experiences. Some do in-person physical therapy only, some do one or two in-person sessions then transition to our digital platform, and most excitingly, we've had members who thought they were heading for surgery but were able to avoid elective surgeries altogether after consultations with our orthopedic specialists. Notably, about 85% of Hinge Select members were able to move forward with a conservative care plan, most often digital physical therapy. This demonstrates Hinge Select can bend the cost curve. When you compare our data to commercial benchmarks, members that have used Hinge Select on average have more good spend, such as non-surgical orthopedic evaluations and physical therapy, and less low-value spend, such as imaging, procedures, and surgery. As a reminder, we're building what's essentially a two-sided marketplace, connecting members with high-quality providers. These take time to build, but once built, they create a lasting moat through network effects. We're not expecting much revenue impact from Hinge Select until at least 2027, but we firmly believe that once scaled, it will become one of our most enduring competitive advantages. With that, let me turn it over to James Pursley to discuss the outcomes of our sales season. James Pursley: Thanks, Dan. As a quick reminder, our sales cycle aligns with corporate benefits planning, with most new contracts signed during the second half of the year as companies finalize their employee benefits packages. These newly contracted clients typically go live in the first half of the following year, creating the predictable cadence that underpins our billings and revenue growth model. I'm thrilled to report that our 2025 sales season was exceptional. We added 4.8 million net new contracted lives to end the year at approximately 24.6 million contracted lives across over 2,800 clients. This represents 25% year-over-year growth at the client level and 24% year-over-year growth on a contract live basis. That breaks down to 22 million self-insured lives and 2.6 million lives across fully insured Medicare Advantage, federal employee programs, known as FEP. Within the non-self-insured segment, we saw a 130% increase from the 1 million lives we had at the end of 2024, with the largest growth coming from fully insured and FEP. For many of our fully insured Medicare Advantage and FEP clients, we take a staged approach to roll out targeting partial populations similar to a land and expand model. In 2025, due to our success and the strong ROI outcomes we delivered, we were able to unlock several existing fully insured and Medicare Advantage clients, bringing with them hundreds of thousands of lives and expansions. On the enterprise side, our clients now represent 53% of the Fortune 100 and 45% of the Fortune 500. This demonstrates the scale of trust we've earned from leading organizations nationally, representing an enviable asset from which to bring our future products to market. Moreover, it shows the scale of white space remaining. Given our roughly 25 million lives under contract, it's but a fraction of the 215 million people in our current markets. We end the year with an overall head-to-head competitive win rate at an all-time high, which speaks to both the strength of our value proposition and our team's execution. While the majority of our wins continue to come from organizations that are adopting a digital MSK solution for the first time, in 2025, we also saw a meaningful number of competitive conversions, clients chose to move to Hinge Health from an existing provider. One notable example was a large enterprise with over 200,000 lives that made the decision to leave a competitor and partner with us in the final month of the year, reflecting the strength of our product breadth and demonstrated ROI. Combined with our annual client retention rate of 97% in 2025, we believe this underscores the long-term value we deliver to our clients. This success is a testament not only to our product but also to our partners. We added additional partners in 2025 and now have more than 60 health plans, pharmacy benefit managers, third-party administrators, and ecosystem partners. These partnerships provide validated distribution channels, reduce the complexity for prospects to purchase Hinge Health, and position us as the incumbent to win their other lines of business. Notably, three out of five of the largest national health plans by self-insured lives now also offer Hinge Health to their own employee populations, two of which were won in 2025. This is a powerful validation of our platform's effectiveness and demonstrates our partners' confidence in our ability to deliver meaningful outcomes for their most important stakeholders, their own employees. Finally, this quarter, we published our twenty-first peer-reviewed research study, an Outcomes Analysis. This study showed that participants in our chronic back program had 60% fewer imaging visits, such as X-rays and MRIs, for low back pain at three months, compared to a similar control group. This peer-reviewed study, published in the Journal of Health Economics and Outcomes Research, reinforces our value proposition of reducing unnecessary medical interventions while improving outcomes. With that commercial update, let me turn over to James Budge to walk through our financial results and outlook. James Budge: Thanks, James Pursley. Let's dive into our fourth quarter and full year 2025 financial performance. As a reminder, our billings model is built on three key drivers. Lives represent the number of people eligible for our program. Yield is the percentage of those eligible people who actually enroll and engage with us. And price is what we charge per engaged member. When you multiply these three factors together, the result is our calculated billings, which is the foundation of our revenue model. For the fourth quarter, our LTM calculated billings reached $671 million, representing strong 44% year-over-year growth compared to $468 million at the end of Q4 2024. Q4 revenue came in at $171 million, up 46% year-over-year from $117 million in the prior year fourth quarter, and well ahead of our guidance range of $155 million to $157 million. For the full year 2025, revenue reached $588 million, representing 51% year-over-year growth over the $390 million in 2024, also coming in well above our guidance range of $572 million to $574 million, and representing a cumulative 15% beat above analyst expectations at IPO. This revenue outperformance demonstrates the continued strength in our underlying business fundamentals. The revenue beat was driven by better than expected billings, stemming from stellar yield improvements of over 50 basis points year-over-year from 3.4% as of the end of 2024 to 3.9% as of the end of 2025. We ended the year with 20.1 million LTM average eligible lives. This resulted in over 783,000 members as of the end of the year, a 47% increase from 2024. On the pricing side, our average selling price stayed essentially flat as expected. As of Q4, about 50% of our eligible lives had moved to the new engagement-based pricing model. Our high client retention that James Pursley spoke to, combined with our strong yield improvements, were the main contributors to our net dollar retention being well above 110% for 2025. As a reminder, on net dollar retention, we believe anything above 110% is the measure of success for our industry. Moving to our operating efficiency, our gross margin reached 85% in the fourth quarter, up from 82% in Q4 2024, and 83% for the full year 2025 compared to 78% in 2024. This improvement was driven by continued care team gains enabled by our AI-powered tools, offset partially by the increase in the percentage of members that received Enso. We saw strong leverage across all operating expense categories. Total operating expenses were 57% of revenue in Q4, down from 64% in Q4 2024, and 63% of revenue for the full year 2025, down from 84% in 2024. Operating leverage translated to strong profitability and cash flow. We generated $48 million in income from operations for Q4, which came in well above our guidance range of $34 million to $36 million, with an operating margin of 28% compared to 18% in Q4 2024. For the full year 2025, we generated $119 million in income from operations with an operating margin of 20%, a substantial improvement from negative 7% in 2024. Free cash flow performance was exceptional. We generated $62 million in free cash flow in Q4, representing a free cash flow margin of 36%. For the full year, we generated $180 million in free cash flow compared to $45 million in 2024, with an annual free cash flow margin of 31% compared to 12% in 2024. For all of 2025, we generated $2.12 of free cash flow per share using our Q4 diluted weighted average shares outstanding of 85 million. I'll remind you, as Daniel Perez did, that on our May IPO, we set a target model for ourselves for a 30% free cash flow margin, and we've already achieved it only seven months after becoming public. We ended the quarter with $479 million in cash and equivalents, compared to $497 million at the end of Q3. Our strong cash flow generation was offset by the amount deployed through our share repurchase program announced in Q4. As a reminder, in November, our board authorized a share repurchase program of up to $250 million that we expect to execute as market conditions warrant. In Q4, we repurchased 1.4 million shares for $665 million. And speaking of shares, as we move beyond our IPO year and diluted share counts normalize in 2026, we will now also begin reporting earnings per share. Our diluted net income per share in Q4 with now normalized share counts was 49¢, which we believe highlights the earnings power of the business as we head into 2026. The overall trend in our financial results reflects the scalability and efficiency of our business model. As we continue to grow our member base and deliver outstanding member outcomes and cost savings to our clients, we are delivering top and bottom line performance. Looking ahead to 2026, I'm pleased to provide our guidance for the first quarter and full year, which reflects the strong foundation we've built and our continued confidence in the business. For Q1 2026, we expect revenue to be in the range of $171 million to $173 million, representing 39% year-over-year growth at the midpoint. For non-GAAP income from operations, we're projecting $30 million to $32 million for Q1, or an 18% margin at the midpoint. As a reminder, our margins are typically lowest in the first quarter of the year and dip down from Q4 given the costs incurred to launch new clients while the full revenue benefit has yet to be realized. For the full year 2026, we expect revenue to be in the range of $732 million to $742 million, which represents 25% year-over-year growth at the midpoint and is $39 million higher than the current sell-side estimate consensus. For full year non-GAAP income from operations, we expect $151 million to $156 million, or a 21% margin at the midpoint, which is $18 million higher than the current sell-side estimate consensus and represents a 100 basis point improvement over 2025 despite all the meaningful investments we expect to make in 2026. Several key factors are driving our 2026 outlook. We currently expect average LTM eligible lives for full year 2026 to be 24.4 million lives. This forms the baseline for our financial guidance, with the growth coming from the new lives we already won. While our guidance today assumes a flat yield, we have a clear road map to continue driving incremental improvements over time. We remain well below the roughly 9% of US adults who see a physical therapist, which we view as a realistic long-term benchmark with an opportunity to close and potentially surpass over time, with our easier to access and lower cost to members solution. On the pricing side, we expect our average selling price to stay essentially flat. We're viewing 2026 as a year to incrementally invest, given the strong margins we achieved in 2025. These include headcount investments in research and development to accelerate our new product initiatives, as well as targeted investments in sales and marketing to support Hinge Select expansion and accelerate our growth in the small and medium business markets. These investments position us to capture the significant long-term opportunities we see ahead. At the gross margin level, any further improvement we see from our AI efficiency tools for the care team will likely be mostly offset by broader Enso deployments. Given this, we anticipate around a 100 basis point improvement in 2026 over 2025. As we move beyond our IPO year, we will transition to discussing GAAP-based weighted average diluted shares, rather than the total diluted shares granted and outstanding. For 2026, we expect our GAAP-based diluted weighted average share count to be in the range of 85 to 87 million shares, excluding the impact of any additional buybacks. And a further word on GAAP, we believe GAAP profits are important and expect to be GAAP profitable in 2026 as we were in 2025. Our annual dilution from stock grants has declined each of the last three years, and we expect to manage to a further decline again in 2026. Before I turn it back to Daniel Perez, I want to highlight an exciting opportunity for our analysts and investor community. We are hosting our annual client conference, Movement, in Chicago in June, and we're launching our inaugural investor track. You'll hear from some of our leaders and mingle with those who make Hinge Health a success: our clients, members, and partners. Please reach out to Bianca after this call to express your interest in attending. The combination of our commercial momentum, robust cash generation, and strategic investments positions us well for continued growth and market leadership, and we look forward to sharing more results in the coming quarters and at the investor event at Movement. With that, let me turn it back over to Daniel Perez for some closing thoughts. Daniel Perez: Thanks, James Budge. Looking at our results this quarter and the trajectory of our business, I couldn't be more excited about what lies ahead for Hinge Health. 2025 was an exceptional year that demonstrates the power of our vision. 25 million people across over 2,800 clients, spanning every industry you can imagine: manufacturing, retail, hospitality, tech, public sector, and more. And, of course, we began trading on the New York Stock Exchange, embracing the high standard of public accountability that comes with it. The momentum we're seeing across every aspect of our business reinforces my conviction that we're executing on a generational opportunity. Our platform is becoming more intelligent with every interaction, powered by the proprietary data we've built across more than one and a half million members and over 100 million sessions. Insights that allow us to deliver a complete, clinically proven offering that now extends from software and connected hardware into high-quality in-person networks. At the same time, we've spent more than a decade building deep, trusted partnerships across the health care ecosystem, embedding ourselves with health plans and employers who value working with a proven market leader in a highly regulated, outcomes-driven space. The compounding impact of these investments is clear: higher member satisfaction, stronger clinical outcomes, and durable client retention, all working together to drive long-term growth. As we look ahead, I'm energized by the breadth of opportunities in front of us. We have a clear road map to expand our impact, the financial strength to continue investing in innovation, and a team that's proven we can execute at scale. The health care system needs what we're building, and we're just getting started. Thank you for joining us today and for your continued partnership. With that, I'll turn it back to Bianca to open up the call for your questions. Bianca Buck: Thanks, Daniel Perez. Operator, you now may open the call for questions. Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 to raise your hand. And 6 to unmute when called upon. Please stand by while we compile the Q&A roster. And your first question comes from the line of Ryan Powderly Grove Gross with Barclays. Your line is now open. Ryan Powderly: Okay. Great. Good evening, team. Ryan Powderly on for a sec. Barclays. Thanks for taking the questions, and congrats on the strong finish to the year. Dan, maybe for you just to start off, we've seen a lot of software stocks responding negatively to fears around AI potentially being able to replicate what these companies can do. How do you think about Hinge's moats, and how would you respond to that view these days? Daniel Perez: Great question. Thanks, Ryan. Since the start of our existence, we always had potential new entrant threats, either large tech companies, incumbent health care companies, or new startups. But we've thwarted those off and thrived because our competitive advantages go well beyond just a code base. Those advantages include our proprietary data, our distribution channels, a product experience that extends beyond software, and our clinical validation. Start with our product proprietary data. Even if OpenAI and Gemini scrape the entire Internet, they have not conducted 100 million treatment sessions like we have. Simply put, we may have the largest and most granular dataset for MSK conditions in the entire world. Two, is our distribution channels. We've spent a decade building deep relationships with health plans, PBMs, employers. This requires not just work on our end, but substantial work on their end. And three is that our product experience extends beyond software to also include hardware and in-person care. When it comes to automating health care, you won't do it with software alone. You're going to need hardware as well as in-person care elements. And fourthly is our clinical validation. You could build some apps in a day or build some apps in a weekend, but a two-year outcome study still takes two years no matter how much AI you put into it. Look, we're incredibly excited about AI and believe we have meaningful entry barriers that extend well beyond software development. Ryan Powderly: Excellent. That's super helpful perspective, Dan. James, maybe my follow-up for you. Very helpful color around half the base using the new engagement-based pricing model. Since a bigger portion of the base is now utilizing this, can you just recap for us when you typically see engagement levels hitting their highest billable milestones and how the shape of revenue recognition differs from the old model, if at all? Thanks. James Budge: Yeah. Thanks, Ryan, for the questions, and we're delighted it's gotten to 50%. We think it aligns interests between us and our clients really well. We see that 50% ticking up a little bit as we move throughout 2026 as well. So to your question, the upfront model, obviously, on the billing side, you would get paid mostly upfront. Maybe there's some delayed billings occasionally, but you would have gotten billed out the door on day one. Now the bills are going out as the usage happens, which as you can imagine, someone who has something ailing them, they want to solve it as quickly as possible. So it usually extends over a two to three-month period instead of billed upfront. So a minor difference in when the cash or when the bill goes out and the cash comes in. From a revenue record perspective, the revenue starts on day one of the treatment. So under either method. So it makes no difference on the revenue side. Ryan Powderly: Very helpful. Thanks, guys. James Budge: Yep. Operator: Thank you. Your next question comes from the line of Jailendra Singh with Truist. Line is now open. Jailendra Singh: Thank you and thanks for taking my questions. Congrats on a very strong quarter and end of the year. I want to ask about yield, which was one of the key drivers for the outperformance in 2025. You guys are expecting it to remain flat in 2026. Maybe talk about puts and takes there. You did say that you have a clear road map to drive incremental improvements. But maybe talk about some initiatives you're putting in place which could drive upside to the metric. Daniel Perez: Great question. Thanks, Jailendra. And you're right. In our go-forward forecast, you could see that lives have been inputted into that we've been we're assuming a flat year-over-year yield. But we had a great Q4 and that and particularly with regards to our member enrollment or our enrollment yields. And two key drivers worth talking about. One was our continued investment in product-led growth, which has helped us very efficiently enroll, engage, and retain members. We have evergreen investments in product-led growth that are constantly landing singles, doubles, and the occasional home run, which we hope to talk about maybe in our next earnings call. But second was targeted enrollment efforts. These are enrolling members based on their prior claims history. And that ended 2025 up over 160% year-over-year. And our target enrollment also helps us substantially improve the ROI we deliver for our clients and partners because these are what we call ROI-rich members. So we view yield improvements overall, Jailendra, as a continuous long-term investment rather than the results of any single initiative. And so the progress will continue to be driven by a portfolio of efforts, and that creates a more durable and resilient system. Our strategy designs that overall performance doesn't depend on any one initiative. A lot of these initiatives to deliver results, you saw in Q4, came together very effectively. You could bet in 2026, we've got, you know, several dozen additional things we're working on again to improve our resilience in this regard. Jailendra Singh: Great. That's helpful. And then my follow-up is around your, you know, recent developments around industry consolidation. I mean, you guys called out some competitive wins last selling season, but do you see the consolidation among your competitors impacting the landscape in any ways for Hinge Health? And if you can stay on M&A topic, maybe talk about your focus in terms of M&A, where do you think the opportunities are there. Daniel Perez: Great question. And so we briefly looked at the Kaya acquisition and ultimately declined to proceed. And we've been fortunate to see many customers from both of them switch over to Hinge Health in the past twelve months, and our head-to-head competitive win rate is actually up strongly year-over-year. In fact, with the customers switching over to Hinge Health, some of their largest customers have switched over to Hinge Health. So our revenue remains multiples larger than both of them combined. So we're just gonna focus on continuing to widen our lead by remaining focused on our clients, new prospects, and our road map. But I don't know. James Pursley, anything to add? James Pursley: Yeah. I think that's right. And I think when you look at the outcomes that we're delivering both clinically, the ROI, you look about the product innovation that we brought out. We don't think that the recent merger will have any material bearing on our business. And, yeah, I remain really excited about 2026 and beyond. Daniel Perez: And your question as well about M&A opportunity. So you know, we get several inbound opportunities a week, maybe two to three. On an average week or so. We try to look after all of them. And our robust cash flows just give us a lot of optionality for tuck-ins. Our main focus is organic growth. But we're always interested in entrepreneurs who built innovative products that could help achieve our vision of automating health care delivery. We've historically focused on, like, smaller acquisitions, we've acquired a kernel of technology and a potent team, particularly an R&D team, and build it out from there. So, you know, I'd say, unlikely many entrepreneurs listen to earnings calls, but if you're an entrepreneur, that's building something that's relevant to us, we'd love to chat. And we do look at every opportunity that comes by our desk. Jailendra Singh: Great. Thanks, guys. Operator: Thank you. Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open. Craig, your line is open. You may have to unmute. Craig Hettenbach: About that. Following up on the competitive backdrop, and James Pursley, you mentioned that the displacement of a large enterprise, 200,000 employees, just maybe give a little bit more in terms of that discussion and process and kinda what got you over the hump to kinda win that business? James Pursley: Sure. Sure. I know, I think most of our the strength of our competitive win rate and our competitive conversions is around a couple of key themes. You know, first, as you think about Hinge Select and this move into unified care, this ability to elegantly integrate the physical and digital in powerful ways to deliver a great member experience and deliver even better and bigger cost savings. In an environment where cost savings is really critical. I think this concept of unified care is really resonating both with our existing clients, prospective clients, and our competitors' clients. And so that, you know, that's one element. You know, a second, I would say, the product experience. If you think about all the investments Daniel Perez mentioned, dozens of little innovations every year. That just delivers a better experience, whether it's bring your own device, whether it's unification of multiple programs into a single app experience, whether it's our Enso, the delightful transformative impact Enso has. Can add all those up in totality, and you have a really compelling offering. And then lastly, I would say it's our clinical outcomes and our ROI. We start to build results at scale year after year, client after client, industry after industry, I think it starts to, again, paint a very compelling picture that's very attractive to a lot of our competitors' clients. And so if you put those three things together in aggregate, you know, that would give you some good sense of what our prospective clients are thinking about when they make the decision to switch. Yeah. And just to add to that as well, just one quick thing is you know, when clients test our product, and actually take it for a first spin and actually trial our program and trial our competitors, our win rate actually goes up. And so we actually encourage that because we're so confident in our product experience. And when we when a client has made the unfortunate past decision to not select Hinge, then years later, they do trial our program. I compare it to their existing solution. We're in a very, very good position to win that client over to our end. And that's what you're seeing here. Our engagement is our enrollment is typically much higher. Our engagement on a per member basis is much higher. And then, of course, our ROI that we're able to deliver flows from that. Craig Hettenbach: Got it. And then just as my follow-up, the fully insured MA and FEP markets tend to get overlooked just by the sheer size of the members today, but just, you know, it is an important driver of kind of the durability of growth. So just wanted to touch on kind of what you're seeing in those markets, what's resonating, and anything from kind of a go-to-market to catalyze further growth there? James Pursley: Yeah. Yeah. Thank you. Thanks for the question. You know, as you heard us say, non-ASO grew over 100% this past year. I think that's driven on a couple of things. You know, one is the strength of those relationships. Fully insured and Medicare Advantage specifically. Really all three and federal, have a health plan component to it. And so as we continue to do a really great job for our health plan partners, we service their clients well as we deliver fantastic results. We build trust. Those relationships become a key lever. And then secondly and related, is exactly that. Those outcomes, you know, those organizations are oftentimes influenced heavily by actuaries and underwriters, and they're really looking at cost savings with a very critical eye. As we continue to deliver great outcomes for those clients, we're seeing growth in fully insured, in Medicare Advantage, in our federal employee program. So it is, as you noted, it's going to be an important part of our future growth. We're really excited by the progress we've been in 2025 and feel like we're just getting started, though, in those markets for 2026 and beyond. Craig Hettenbach: Got it. James Pursley: Thank you. Operator: Your next question comes from the line of Elizabeth Anderson with Evercore ISI. Line is now open. Please go ahead. Elizabeth Anderson: Hi, guys. Good afternoon, and thanks so much for the question. I would maybe just to piggyback off of Craig's question a little bit further, like, one thing that we hear sometimes from investors is sort of just better understanding the TAM expansion story. Some others in the market have gone into multiple products and so seeing that the pathway. Can you just talk about and remind some of us again how you see that TAM expansion folding up besides self-insured and then the fully insured populations. Thank you. Daniel Perez: Sure. There's a couple ways to slice the TAM. And so one key thing is just so that, you know, you could start at this global health care spend. About 50%, 45% or so percent of global health care spend is spent in the United States. If you lose the United States, you're in a you're in a pretty bad spot when it comes to winning your category. Another way of slicing it is, you know, what is the indication you address and how big is that? So for us, even focusing on physical therapy, out physical therapy is about a $60 billion market. Or more just in the United States. About $600 million of revenue. We have got just a sliver of the overall physical therapy market. So just focusing on this, we have a massive amount of runway ahead of us to capture physical therapy here in the United States, and we want to make sure we capture that opportunity. And at the same time, we are starting to already develop, and we've been developing for quite some time, our next product. That will come after that that will allow us to chip off another portion of health care spend because physical therapy is $60 billion overall spend. That's about 11.2% of total health care spend. And so we chip off another half a point of health care spend, will be, you know, another $30 billion TAM, and then we're able to upsell our existing customers because we drove so much trust in them to these new products that we launched. We're continuing to peel away aspects of care using software and connected hardware to automate portions of that care, we can transform outcomes, experience, and costs. And so that's how we see TAM expansion as both adding new lives, but adding new indications and then upselling our customers to those. We want to be very thoughtful with anything we bring to market. We want to, you know, have confidence that we'll be number one or number two over time. We've built enough reputation with our customers that they know that anything we bring will be very high quality. James Pursley: Yep. And, Elizabeth, just to add to that too, you know, as you heard Daniel Perez mention, the size of the physical therapy market, that's within the context of a broader MSK market as well. So you think about all the challenges that the market faces in a complex landscape that includes imaging and surgery, other non-surgical orthopedic care, it's a huge TAM, and we've always started to scratch the surface within digital physical therapy. So we think the best way to deliver value to our clients and to the market is to really focus on big problems that have a lot of room and a lot of complexity for us to have an impact. And we think MSK is a really, you know, is a market that fits that definition. While we, I think, judiciously look at things that are adjacent and leverage our strengths beyond MSK, but I think that gives you some sense of how we think about it. But you'll see a feature test. We're gonna we're moving with haste, but focus matters. James Budge: You can see with our results the impact that focus has had on our business. Elizabeth Anderson: Yep. That makes a ton of sense. And maybe just as a follow-up, we've talked a little bit about in the response to the first about sort of AI and the potential impact in your business. Can you elaborate on how you see AI in terms of the R&D function? Do you see that as efficient to drive or does that allow you to do more? In another way? How can you talk about sort of the internal R&D functionality of that? Daniel Perez: Great question. So, you know, when it comes to R&D and the overall product, we see it as, you know, maybe I could break it down in three key ways. One is, like, the consumer experience and the product we're able to deliver to our end user. The second is, you know, with our care team efficiency, and the third is just how we build product. Let me walk you through each one of them. So first is the actual product experience. The core of our product experience is driven by AI. When you first sign up, we use a we personalize the program to each one of our members. Our computer vision is actually a subfield of AI, and human pose estimation is a subfield of computer vision. And I'll remind you all listening we moved into computer vision AI well before the chat GPT craze. So we were not just following some bandwagon here. We've been investing in AI for many years, but that is a core aspect of our product experience, and we're lateralizing to also having our AI care team assistant, Robin. But it is fundamental to how we deliver care is AI. Secondly is with our care team. So we have used AI to substantially increase the throughput of our care team, and you saw that in 2025. Our member base grew by just under 50, a 47% increase in members served, and yet our care team costs were flat in 2025. And so that just gives you a sense of just the incredible efficiencies we've been able to drive in the delivery of our care team via AI. Now the third bit is how we build our product. Now we're not unique in this. I think that the industry has shown that the most mature applications of AI right now are in software development. And we operate at the speed of a startup, and we have implemented my cofounder's been leading this charge himself. As CTO of the business, AI adoption across our engineers, data scientists, product managers, and designers, and just use the largest headcount of those are engineers. Their throughput, which is grouply measured with pull requests per engineer per week, is up 2x, basically, in 2025. And so we had doubled by that metric the efficiency and the output of our R&D team. It's one of the reasons we are moving so much faster than ever before, and it's only increasing over time. Thanks to the use of it. Last thing I'd add, which you didn't ask, but I'll give it to you anyways, is we've also weaved AI throughout the rest of the business. Finance, HR, operations, you know, supply chain, and you see that in that in 2024, operating cost as a percentage of revenue was 84% and in 2025, it dropped to 64%. That's a 2,000 basis point improvement, and that's thanks to a lot of the efficiency gains we're realizing from AI across the business. Elizabeth Anderson: Super helpful. Thank you. Operator: Thank you. Your question comes from the line of Ryan MacDonald with Needham and Company. Your line is now open. Ryan MacDonald: Congrats on a great quarter and very close to a fiscal year. Dan, James Budge, much has been made about the current model shift towards the usage-based pricing model and the potential impact that may have on member usage in ASPs over time. Now your guidance assumes flat ASPs in 2026, but I think based on some of the commentary from the call, the 41 million sessions in '25 over 783,000 active members. You're averaging 52 sessions per member per year at this point. So can you speak to your confidence in the flat ASP assumptions for '26? Any potential for upside in if you're whether you're seeing any material differences in the average number of sessions for a member across the usage model versus the upfront model? Thanks. Daniel Perez: Great. Great question. So we actually structured the model to give customers pricing clarity. So they wouldn't, they wouldn't see us at an increase in the first year of adopting the model. And so that's actually fundamental to how we transition customers to the model. We wanted to give them pricing clarity, particularly year-over-year pricing clarity, their first year as they were transitioning to the model, and that was just baked into our forecast. And so you're right. As we continue to improve engagement, it will continue to improve ASP over time, and it gives us headroom to do that. James Budge: Yeah. I might just add there, Ryan. For sure, everything Daniel Perez just mentioned, and that's why you saw our ASPs largely flat from 24 to 25 as we look forward. The engagements are so strong right now. There is potential for it to creep up a little bit. I wouldn't consider it growing much more than just a little bit each year over the next several years. Daniel Perez: And I would say we're at we're essentially all-time highs for member engagement and member satisfaction. And we expect that to continue as we keep rolling out new capabilities like our movement analysis and Robin. As well as just making those incremental improvements to singles and doubles to our experience. And ultimately, our ultimate aim for all of these investments is to improve member experience, improve outcomes, and lower cost for our customers. Ryan MacDonald: Super helpful. And then maybe as a follow-up, curious about in terms of TAM expansion. You know, CMS is launching the access program later this year, which I think it happens the opportunity to open up the Medicare population or core Medicare population for Hinge, you know, which is an area you haven't focused too much on historically. Can you just talk about how interesting, you know, this access program is? Any intent to sort of apply or have you been accepted to the program yet? And if so, sort of when, you know, should we expect any sort of contribution from this? Is this more of a back half of '26 or more of a '27 and beyond opportunity? Thanks. James Pursley: Yes. Thanks for the question, Ryan. As the market leader in digital MSK care, we're absolutely excited and to be considered for the program. Applications are currently being received, and no news has come out yet. But the potential scale of traditional Medicare with roughly 30 million addressable lives is clearly an attractive long-term opportunity for us. You know, that said, the process is still evolving. Applications are coming in. Medicare CMS has not issued the price and structure yet of the offering. And so while rates get to be finalized, yeah, we would assume that if the pricing makes sense, we're gonna participate. I wouldn't expect a meaningful contribution in '26. I think this would be more of a 2027 and beyond contribution. Ryan MacDonald: Awesome. Thanks again. Operator: Thank you. Your next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets. Your line is now open. Scott Schoenhaus: Hey, team. Thanks for taking my question. I wanted to dive more into Hinge Select. So you've outlined that this year will be a year of incremental investment and expansion of this product. How are you looking at the opportunity and strategy here? Are you targeting certain populations in your eligible lives, specifically higher acuity patients, expanding into geographic densities with more imaging centers, orthopedic specialties, clinics, etcetera? Maybe just walk us through the strategy. Daniel Perez: Great question. So it's a lot in your question right there, and it goes to building a two-sided marketplace is a hard problem. But solving hard problems are themselves key entry barriers and key moats. And so we are targeting our existing customers as well as prospects to upsell them to Hinge Select, and we are aiming to build our provider network in selected geos, both from customers who buy up to Hinge Select as well as from where our existing customer base is, and they're pretty much covering most large geos. And we're focusing especially on physical therapy clinics, imaging, outpatient orthopedic specialists, and in the coming quarters, we'll be expanding into other specialists within musculoskeletal care as well. But, yeah, I mean, if we close a customer and they have a high density in a particular metro, we then focus on that metro to make sure that we could build the provider density that we need. What's helpful is that we do not need nor are we trying to approximate the provider density of our health plan partners. This is very much complementary to a national plan or a health plan partners in that this is a precision network. And if you wanna go to the PT around the corner, you could use your main health plan. If you're willing to drive, say, five to ten minutes, you could go to the Hinge Select physical therapist, and we're able to waive your co-pay and give you a priority selection in terms of your appointment time. And same thing for imaging. So it's giving members that additional choice and nudging them towards these high-value providers that isn't gonna be as dense in a given metro. There's a financial incentive for them. And we've got thousands of clinics now that we've closed. Scott Schoenhaus: That's great color, Dan. And maybe a follow-up here is then how should we think about the incremental revenues attached here, not just in terms of incremental utilization, but maybe down the road, potentially taking higher take rates, by providing more volumes to these clinics. Or just the overall higher contributions on the same take rate on the higher cost like an MRI scan or specialist visit. Daniel Perez: Thanks. Good. Good question. So we're being conservative overall in our revenue forecast and not assuming really any revenue from Hinge Select in 2026. And so this is a we anticipate you we just start seeing meaningful impact in 2027. Still dwarfed by the impact of our digital physical therapy solution, but given our free cash flow, this is a solution that we knew would take several years to build but that once built would be one of our most enduring moats for the business. And we're willing to be patient on planting the seed. We know it's gonna take a few years for this seed to become a sapling and then to become a big tree. But we're able to be patient. We're being we're also being disciplined in terms of the spend. And we're not going too crazy, but we really like the market momentum. Scott Schoenhaus: Thanks. Operator: Thank you. Next question comes from the line of Jessica Tassan with Piper Sandler and Company. Your line is now open. Jessica Tassan: Hi, guys. Thanks for taking the question and congrats on the really strong selling season. I was hoping maybe you could talk about the relative difference in yield at clients who are new to Hinge or in their first year of deployment versus those in maybe years two or three. Just interested to know, you know, is there a saturation point, or are you still tending to see kind of steady improvements in yield at tenured clients over time with new clients coming online. Slightly lower and ramping over time. James Budge: Yeah. Hey, Jess. This is James Budge. Thanks for the question. So we actually saw some incredible progress in 2025 on that exact question. Before 2025, our typical first-year cohort that would come in would land around 1.3% engagement by the end of six months and up to about 2.5% at the end of the year. The 2025 cohort ended at 3.3%. For their first year. So that gives us a tremendous amount of confidence that when that continues to climb, like every year has climbed over the last five to six years, we're gonna see yield momentum continue into 2026 just like we saw in '25. Jessica Tassan: That's really helpful. And then just I wanted to ask about the targeted enrollment efforts. Can you just elaborate on what types of conditions you all targeted to generate some of the yield upside in '25 and then any new conditions that you might be rolling out in '26 that you wanna give us a preview on. Thank you. Daniel Perez: Great. Great question. So, I can't go into too much specifics around some of the algorithms we use, as we are ingesting so much data. I would say we are investing very meaningful resources, and it's and we're having a really good output. From those investments and the resources, as you could see in both the members enrolled as well as the impact on ROI, it's something that a lot of digital health companies and you know, others in our space have been trying to do for a long time. We now have the scale where we're learning a lot from our data, we're also getting multiple data sources. The most common data source we're getting from our employer and health plan partners is claims data. We're also getting pharmacy data, we're getting prior auth and pre-auth data. We're trying to increase the overall coverage from those. But it's multiple different data sources, it's allowing us to identify people who we think are in an active MSK care episode or at risk for becoming a high-cost claimant and giving them an opportunity to take part in our digital physical therapy program so we could both improve their outcomes and give them a great experience, but steer them away from low-value, high-cost care. And we're seeing that. Jessica Tassan: Thank you. Operator: Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is now open. Wonderful. Thanks, guys, for taking my questions. Nice to see continued strength and outperformance in the business. Two for me, if I may. Firstly, I want to maybe take a step back and think about, you know, we're talking about TAM and some of the expansion opportunities, and, look, I appreciate that you're focused on TAM expansion, thinking about, you know, things conservatively. I'd have to imagine given your value proposition where you are, you know, making physical therapy more accessible to people who may not otherwise have the time or access. Is there an opportunity to, you know, go beyond just kind of this reactive physical therapy paradigm that we've been in where it's, you know, someone has an issue. They have a pain. You know, they're trying to avoid surgery, that's what we do. Physical therapy versus maybe something that's a little bit more proactive. That even the health plans themselves may incentivize to prevent future problems from appearing down the line. And, you know, I'd imagine insurers and your own corporate customers will be really well aligned with that. Maybe how should we just be thinking about that on a long-term basis? And I have a quick follow-up. Daniel Perez: I think that's a great question. And so kind of like stepping back and thinking about, like, lifestyle medicine generally, movement is almost never contraindicated. It is, you know, whether you're a knee pain or not, moving your joints is it moved your knee joint is good. You know, cartilage doesn't actually it's avascular, and so there's not actually blood flow to your cartilage. So when you move your joints, you're actually exchanging waste and bringing in nutrients. And so, you know, we should always be moving about not just when we need it, and so you're absolutely right there. And we want in child for movement to become a lifestyle choice for a lot of our members overall. And so we are focused right now on capturing more and more of the outpatient physical therapy market. Again, it's a $60 billion market ahead of us. Even without leaving physical therapy, which, again, we're developing new products that are PT adjacent right now, which we hope to talk about in the coming months. But we don't want to lose and, you know, we could talk about TAM expansion all we want. We don't want to lose sight of the TAM capture. And that the capture of our existing TAM a $60 billion market. We're at about $600 million of revenue from in 2025 or 05/1988, and we want to make sure we capture the hell out of the $60 billion market ahead of us. And then start capturing lateral markets next to it and then start, you know, making itself more of a more of a lifestyle choice. Now what makes health care price points achievable in many ways is that you are treating an actual condition that ends up being very expensive, and once you start moving beyond that, you have to think through what the impact could be on ROI when it becomes more of a prevention solution. And ROI and prevention, I think, is very real. But it could be more difficult to attribute it could take a bit longer. And so we remain focused on physical therapy and folks who have a real clinical need. I don't think that's perfect because you're right. You know, we don't want just sick care. Many ways where you're only treating folks, but we do feel like we're intervening early enough in their care journey that we're preventing a lot of downstream costs. Now you could always intervene even earlier, you know, get people to just live a healthier lifestyle. Those are harder to get reimbursed for. But we're trying to intervene as early in the condition as possible while still being reimbursed. That answer your question? Rishi Jaluria: Yeah. Yeah. Absolutely. No. That's really helpful. And then one for James Budge. Look. I appreciate you talk about maybe targeting stronger GAAP profitability, thinking about things in GAAP terms. Putting aside, obviously, the mismatch between revenue and expenses in a SaaS model with the GAAP income statement, you know, I think, especially in this environment, it's increasingly becoming appreciated. Maybe what's kind of your mental model that we should be thinking? Not necessarily in terms of the guide for 2026, but in terms of just we should be thinking about SBC and dilution going forward, is there kind of a target dilution rate, target SBC as percent of revenue? And any of this can be like over the several years. Again, not holding anyone to it, but just a mental model would be helpful. Thank you. James Budge: Yeah. Yeah. Let me speak to both those points. As we mentioned in the prepared remarks, our dilution has come down each of the last three or four years. We were below 3% in 2025. We expect that to be even lower in 2026. So from a shareholder dilution, we're pretty committed to that, and I think we've demonstrated that with the amount of shares that we push out to our employees. From an SBC side, you saw sort of in that range of around $20 to $25 million in this past quarter. That's fairly reflective of what you'll see in the coming quarters. Obviously, there was that big giant amount that we had in the second quarter and a little bit of trickle effect into the third quarter from all of that pent-up stock-based comp that was waiting for us to go public. But the fourth quarter is a pretty decent representation of what you should expect on a quarterly basis. Going forward for probably at least the next four to eight quarters. Daniel Perez: And but I just tack on, like, we view SBC as a real expense. And, you know, we are committed to GAAP profitability. And you could see from our share repurchase program as well, we look at total shares outstanding. And that's something that we're looking at, and we're managing the business towards, you know, or a metric that we look at internally is free cash flow per share. And we want free cash flow per share to continue to go up. And it's gonna go up both by improving the numerator as a free cash flow, as well as reducing the denominator, that is the total shares outstanding. And we want to continue to work on both the numerator and the denominator. Rishi Jaluria: Alright. Very helpful. Thank you so much. Operator: And your final question comes from the line of Stan Berenstain with Wells Fargo. Line is now open. Yes. Hi, thanks for taking my questions. First, on the sales pipeline, you mentioned moving into this midsized employer market. How much of your sales pipeline do you expect this midsized employers to account for? And do you anticipate more competitive takeaways here or is there more greenfield opportunity? James Pursley: Yep. Stan, thank you for the question. While we don't break out or provide specifics in our pipeline by market segment, we do think that if you think about our position in the Fortune 500, having almost 50% of the Fortune 500 as clients. We think that that penetration rate can absolutely be achieved in other markets beyond just Fortune 500. So we see a lot of what we consider under penetration in the large in the midsized market SMB. And a bunch of others that we're currently playing. So we see a lot of growth there. And think that, again, we can bring some more penetration rates to those other markets beyond just Fortune 500. And the majority of Americans work for smaller employers. So that's actually where the majority of people that you'll be able to access are is in smaller employers. Stan Berenstain: Appreciate that. And then for the follow-up, on Hinge Select, so some incremental economics for you. But curious, if we think about your platform, is there any difference in utilization rates among members that use Hinge Select versus members that don't? Thank you. Daniel Perez: It's too early to tell right now. Some of those trends. What we are seeing is that very strongly trending towards we're able to reduce steer people towards lower cost, that is high value, lower cost care and away from lower value, higher cost care. And one of the key capabilities is, you know, you would get connected with an orthopedic specialist in house. We could quickly shift you between in-person and digital care and we hope to continue to scale up, Hinge Select, so we could get so we could share more of the specific slices of the data that you're asking for. Stan Berenstain: Alright. Thanks so much. Daniel Perez: Thanks. Great question. Operator: Thank you. This now concludes the question and answer session. I will now turn the call back to Daniel Perez for closing remarks. Daniel Perez: Good. Well, thank you, everybody, for dialing in and for taking the time to learn more about our company. And how we performed in 2025. I just want to leave you with just saying that just putting again our 2025 performance into context, in the last decade, there has been less than 10 companies have delivered over $500 million of annual revenue still growing at over 50% with a 30% free cash flow margin, and we're, you know, number nine or number 10 of that. Just to see just how unique our print was in 2025, and we stand in pretty elite company. And we're not done yet. This is a generational opportunity ahead of us to automate health care delivery. I think digital health in many other ways, hasn't delivered, and we're gonna show you that Hinge is an n of one company we are different. Thank you very much, and see you next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Advanced Energy fourth quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Edwin Mok, Senior Vice President of Strategic Marketing and Investor Relations. Please go ahead. Edwin Mok: Good afternoon, everyone. Welcome to the Advanced Energy fourth quarter 2025 earnings conference call. With me today are Steve Kelley, our President and CEO, and Paul Oldham, our Executive Vice President and CFO. Edwin Mok: You can find today's press release and earnings presentation on our website at ir.advancedenergy.com. Before we begin, let me remind you that today's call contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees of future performance. Information concerning these risks can be found in our SEC filings. All forward-looking statements are based on management's estimates as of today, February 10, 2026, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as guidance. On today's call, our financial results are presented on a non-GAAP financial basis unless otherwise specified. Detailed reconciliation between our GAAP and non-GAAP results can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelley. Steve Kelley: Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. We finished a very successful 2025 with a strong fourth quarter. Revenue of nearly $490 million was at the high end of our guidance. Strengthening demand in the semiconductor, industrial, and medical markets drove the outperformance. As expected, we also had another record quarter in data center. Gross margin came in just shy of 40%, our best performance in five years. Earnings per share of nearly $2 also beat guidance. For 2025, we grew total revenue over 20%, increased earnings per share by over 70%, and significantly improved our gross and operating margins. We also delivered record operating cash flow. Our strong financial performance underscores the benefits of our diversification strategy, our focus on execution, and the leverage in our model. We deploy our best-in-class technologies across multiple high-value markets, allowing us to deliver healthy revenue, profitability, and cash flow through market cycles. In 2025, we grew revenue in two of our three target markets. Data center computing revenue more than doubled year on year and increased sequentially every quarter of 2025. Hyperscalers have adopted our customized power solutions in a variety of AI rack applications. Semiconductor revenue grew 6% year on year, to the second highest level in company history. New products began contributing incremental revenue in 2025 as some of our design wins moved into early production. Although industrial medical revenue declined year on year, we were encouraged by three quarters of sequential revenue growth after reaching a bottom in the first quarter. We expect growth to continue in 2026 as many customers and distributors have worked through excess inventories. We also think that our design win pipeline will drive share gain moving forward. In 2025, we maintained a solid cadence of new product introductions with 26 new product launches across our markets. In addition, we spun off many custom products. In semiconductor, we continue to receive very positive feedback on the best-in-class performance of our Everest, EVOS, and NavX technologies. At the leading edge, these technologies are delivering meaningful improvements in yield and throughput. In addition to our many confirmed design wins, there are a number of development projects currently underway which should convert to wins in 2026. In addition to our success in plasma power, we have also made progress winning key system power slots for semiconductor equipment, with multiple wins ramping to volume this year. In data center, our 2025 wins are going into volume production this year. Working closely with key customers, we are developing new technologies and products for next-generation AI data centers. We are also engaging with a second wave of cloud and enterprise customers largely with modified versions of our standard technology platforms. The prolonged inventory correction in the industrial medical market, we continue to invest in new products, customization capabilities, digital marketing, and distributor partnerships. Now that the market is recovering, we can leverage those investments to gain share. In operations, we expanded capacity in The Philippines and in Mexico, enabling us to support the continued growth in data center demand. We also completed the fit-up of our new Thailand factory, which is expected to deliver more than $1 billion in annual revenue-generating capacity once it's fully built out. Through solid execution, including the closure of our last China factory, we expanded gross margin by 240 basis points. Despite ongoing tariff headwinds, we are well-positioned to move gross margin above 40% in 2026. Now let me provide some fourth-quarter commentary. In semiconductor, fourth-quarter revenue grew sequentially well ahead of plan. In data center computing, fourth-quarter revenue increased sequentially to a new record driven by AI data center investment. In industrial medical, revenue grew 10% sequentially and returned to year-over-year growth after multiple quarters of decline. Bookings, backlog, and resales were up, and channel inventory was down. We believe that the market environment for Advanced Energy has largely normalized. We secured important design wins in factory automation, medical imaging, and electrosurgery applications. Now I'd like to provide our view on 2026. Entering the year, we see positive demand trends across all of our target markets. In addition, we expect that multiple new wins will ramp to production in 2026, driving growth across the portfolio. In semiconductor, stronger customer forecasts are increasing our confidence in a strong second half. In addition, we expect new product revenue to grow over the course of 2026. These forecasts are underpinned by downstream investments in advanced logic and memory capacity. In data center, we now project full-year revenue to grow more than 30%. Our modular technology blocks, strong design team, and development speed are key enablers of growth in this market. In the industrial and medical market, we expect demand to continue to improve over the next few quarters. Production revenue from several wins in factory automation and defense should enable us to outgrow the market. In total, we project that our 2026 revenue will grow in the high teens after 21% growth in 2025. Let me finish with some closing thoughts. Advanced Energy designs and manufactures precision power solutions for demanding, high-value applications across multiple markets. Our market diversification strategy, coupled with aggressive investment, is enabling us to capture upsides across our markets and deliver more consistent financial results. We've steadily increased our R&D and marketing spending over the last few years, building a strong portfolio of new products, gaining new customers, and growing our design win pipeline. We have more than doubled the output of our Philippines and Mexico factories. In addition, we've built a new flagship factory in Thailand. Finally, with a strong balance sheet, we will continue to pursue inorganic growth to improve scale and to broaden our technology portfolio. With market tailwinds in 2026, strong demand for our new products, expanding margins, and a solid balance sheet, we are confident that we can meet or exceed the long-term financial goals presented at our 2024 Analyst Day. Paul will now provide detailed financial information. Paul Oldham: Thank you, Steve, and good afternoon, everyone. 2025 was very successful for Advanced Energy. We delivered double-digit year-over-year growth for both revenue and earnings throughout the year, led by record data center revenue in every quarter. We executed on our gross margin improvement plan, exiting the year approaching our initial target of 40% despite the impact of tariffs. Disciplined spending helped drive operating margin to its highest level since 2022. Cash flow from operations was a record $235 million. The year finished on a high note with fourth-quarter results beating our guidance. Fourth-quarter revenue of $489 million increased 6% sequentially and 18% year over year. Semiconductor revenue was $212 million, up 8% from Q3 and ahead of our guidance as customer demand strengthened. Through solid execution, we were able to respond and capture upside. Data center computing revenue was a record $178 million, up 4% sequentially and 101% year over year. Overall, demand remained very strong, and we were able to quickly adjust to meet changes in product mix within the quarter. Industrial medical revenue increased 10% sequentially to $78 million and grew 2% year over year, the first increase in two years. I&M demand continues to trend positively, with total backlog and distribution metrics improving over the last several quarters. Telecom and networking revenue was $22 million, down slightly for the quarter and the year mainly due to program timing. Fourth-quarter gross margin was 39.7%, up 60 basis points sequentially primarily due to higher volume and favorable product mix. We continue to deliver improved gross margin despite the impact of tariffs and factory ramp costs. Operating expenses were $107 million, up 4% from last quarter, driven by higher sales and incentive-related expenses. Operating margin for the quarter was 17.8%, up 100 basis points from last quarter and 430 basis points from last year, highlighting the leverage in our financial model. Depreciation for the quarter was $10 million, and we achieved our second-highest adjusted EBITDA of $97 million. Other income was $1.3 million, down slightly quarter over quarter. Our non-GAAP tax rate for Q4 was 14.7%, below our guidance of around 17% due to favorable mix of earnings and discrete items. Fourth-quarter earnings were $1.94 per share, up from $1.74 in the previous quarter and $1.30 a year ago. Turning now to the balance sheet. Total cash increased by $33 million to $791 million, with net cash of $224 million. In the fourth quarter, we delivered cash flow from continuing operations of $80 million. Inventory days came down by three days to 125 on higher sales, and inventory turns improved to 2.9 times. Looking ahead, we expect inventory to increase to support growth in the coming quarters and for strategic supply. DSO increased to 60 days from 58 days largely due to timing of revenue. DPO improved from 62 to 68 days. As a result, net working capital decreased sequentially from 124 to 117 days. During the quarter, we invested $38 million in CapEx and paid $4 million in dividends. Finally, we spent $6.7 million to repurchase 33,000 shares at $205.38 per share. Let me review our full-year 2025 results. In 2025, we delivered $1.8 billion of revenue, up 21% year over year. Growth was primarily driven by revenue in the data center computing market, which increased 1007% year over year to $587 million. Semiconductor revenue increased 6% to $840 million, which was our second strongest year following the peak in 2022. Industrial and medical revenue decreased 11% for the full year. However, after a trough in Q1, revenue increased sequentially each quarter on improving supply-demand dynamics and lower inventories. In 2025, we optimized our manufacturing footprint by exiting our last manufacturing facility in China while adding new capacity in The Philippines and Mexico. In a dynamic environment, we managed the tariff impact on gross margin to less than 100 basis points. Combined with leverage on higher revenue, gross margin improved 240 basis points to 38.7%, the highest level since 2020. Operating expenses increased 7%, well below our target of half the rate of revenue growth. Operating income increased 89%, and operating margin improved 560 basis points to 15.8%, the highest level in five years. 2025 non-GAAP earnings increased by 73% to $6.41 per share, while adjusted EBITDA increased by 68% to $324 million. Combined with improved days of networking capital, we achieved record operating cash flow. This cash flow funded investments in production capacity and capability to meet strong customer demand and growth ahead. As a result, 2025 CapEx was $107 million or 6% of revenue. Turning now to our first-quarter guidance. We expect Q1 revenue to be approximately $500 million, plus or minus $20 million. The sequential growth is expected to come primarily from the semiconductor market. We expect gross margin to remain around Q4 levels in the 39.5% to 40% range on similar volume. We also expect Q1 operating expenses to be flattish quarter over quarter, with higher investments in R&D and lower SG&A. We expect other income to be in the $1 million range and are now modeling our tax rate to be in the 16 to 17% range looking forward. As a result, we expect Q1 non-GAAP earnings to be about flat at $1.94 per share, plus or minus 25¢, on higher operating income but a more normalized tax rate. Due to the strong performance of our common stock and the dilutive effect of our convertible note, our non-GAAP EPS guidance is based on 39.7 million shares. Let me provide some concluding comments. First, we see strengthening demand across our markets in 2026. In semiconductor, we are entering the year with increased customer demand, which we expect to further strengthen in the second half. For data center, we expect Q1 demand based on timing of product transitions to be similar to Q4. However, we expect revenue to strengthen through the rest of the year on higher demand and production ramp of our new programs. Overall, we are raising our data center revenue growth outlook to more than 30%, up from 25 to 30%. In industrial and medical, we expect continued growth over the next several quarters on more normalized inventories and new product adoption, paced by overall economic conditions. As a result, with improved industry conditions across our markets and growth from new products, we are currently modeling high teens revenue growth for 2026. Second, exiting 2025, we increased gross margin by 450 basis points relative to first-half 2024 levels. Our initial target of 40% is within striking distance, and we expect to achieve this goal within 2026, with timing dependent on volume and product mix. Looking forward, we believe that improved efficiency, a growing mix of new products, and higher revenue will enable us to achieve our long-term gross margin goal of 43%, despite the impact of tariffs and higher data center mix. Third, increased capital investment enabled us to double the capacity in The Philippines and Mexico and to complete the initial fit-up of the Thailand factory. We expect 2026 CapEx will continue at or around Q4 levels, which will enable over $2.5 billion of revenue-generating capacity within our existing footprint. The complete build-out of Thailand should enable an additional billion dollars of capacity. Longer term, we expect CapEx to revert to historical levels of around 4% of sales once we complete these investments. Lastly, our diversification strategy enables us to balance growth across our markets, generating more consistent cash flow that we can reinvest into our business. We will continue to develop power technologies that can be shared across our product portfolio and drive organic growth in each of our markets. In addition, we will continue to look for acquisition opportunities to further expand our scope, especially in industrial and medical, and leverage our scale to drive further growth in revenue and earnings. With that, operator, we'll take your questions. Thank you. Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our first question is from Brian Chin with Stifel. Brian Chin: Maybe firstly, I was curious how you are thinking about your semi cap growth this year in relation to the industry WFE is expected to grow at least in the mid-teens year-over-year kind of growth rate? And also, did I hear you correctly that you do anticipate more acceleration in the back half of the year? Steve Kelley: Yeah, Brian. This is Steve. Let me take your question. Maybe give you a more expansive answer. Maybe the first point I'd like to make is that I think we're better positioned now as a company than we have ever been in the history of Advanced Energy. And I say that largely because of the broad acceptance of EVOS, Everest, and NavX across a broad customer set. And so what that is doing is setting the company up for structural share gain over the next five years in three areas: in dielectric and in deposition. The reason we're doing so well there is that customers are encountering problems as they go below two nanometers at these advanced nodes. Our technologies help solve those issues, taking the issues with throughput and yield. So if you take those design wins that we have achieved, couple that with increased etch and depth intensity at the leading edge, I think it sets up very nicely for share gains for Advanced Energy in the semiconductor area. But we have some other factors that are in our favor as well. One is a larger installed base of AE boxes that are installed in fabs. What we're seeing right now is a surge in demand for advanced logic capacity as well as DRAM capacity. Since we're strong in conductor etch, we expect to see a fair amount of business as those capacity build-outs take place in the coming twelve to twenty-four months. So we think we're in good shape there. Our service business continues to grow. We have a large number of boxes installed throughout the world that require service and other added value functions. A new area for us is system power. We had pretty much ignored this in the past, but over the past few years, we have focused on system power solutions for semi equipment and semi tester companies. We've achieved some success there. Those programs will ramp in 2026. So there's a lot of growth factors in play for us. We don't know exactly how much we're gonna grow in '26, but I think we'll be happy with the growth once the dust settles. Brian Chin: Okay. Appreciate that. It sounds like some of those design wins maybe start to give you some visibility there in the second half. On the data center, maybe to switch over there, I guess, you discuss what you're embedding in your greater than 30% revised growth outlook in terms of new customers? And then the second part of that for existing customers, are you pretty optimistic that volumes and activity should further strengthen as we go through the year here given that the sheer magnitude of CapEx increase that big hyperscalers are guiding to, which I think is sort of like a 70% increase or so on average? Steve Kelley: Yeah. So let me answer the question about the forecast. Our forecast of over 30% growth this year only comprehends our existing customer base. It does not comprehend any pull-ins of demand from second wave customers. But what we're seeing right now in the market is pretty bullish. I think you've seen the announcements from the hyperscalers about their capital spending plans, which are up into the right. We've seen very bullish forecasts as well. So we're preparing for a strong year in '26 to meet our existing customer demands. To that end, we have spent a fair amount of money, as Paul described, on expanding capacity in The Philippines and in Mexico to support this growth and demand from the hyperscalers. In addition, we have brought Thailand to a place where we can basically start that factory up this year if need be and absorb any demand that we can absorb into Mexicali or The Philippines. So I think we're in very good shape from a capacity standpoint. I think another positive is activity on the development side. We're fully engaged with our customers, including on a number of 800-volt projects. For us, rapid change is a good thing because we are technology leaders, and it makes it harder for the other guys to catch up essentially. So we're pretty excited about data center in '26. Brian Chin: Great. Thanks, Steve. Operator: Our next question is from Krish Sankar with TD Cowen. Krish Sankar: Thanks for taking my question. Steve, just to follow-up on the previous question on data center. I'm curious, what is your visibility into these projects? Because clearly, over 30% growth, it seems like that basically implies mid-single-digit growth sequentially from Q2 onwards. But you've kind of healthily overgrown that number over the last several quarters. So I'm just kind of curious, is that greater than 30% conservatism baked in, or is it more lack of visibility into the projects? And then I had a follow-up. Steve Kelley: I would say this. I think there's definitely upside to our number. I think one of the issues we face, Krish, is on the supply side, and we've seen this play out in '25, and we expect to see more of it in '26. I think what we've seen in '25 are various constraints on processors, whether it's GPUs or ASICs or some other type of processor product. That has dictated, in some cases, the number of boxes that we need to deliver to our customers. I think as we move into '26, additional constraints, namely in memory. Most of the memory makers have announced that they're sold out. So you've got allocation situations in both processors and memory, which will limit some of the growth we believe in 2026. That's why we're a little conservative. That said, supply chain issues have not limited our ability to build products for the data center and certainly not in '26. We do anticipate that we'll see some supply chain issues moving forward. So we're putting our thumb on the scale when it comes to building inventory. We're trying to push strategic inventory in place where we see weaknesses in the supply chain. Krish Sankar: Got it. Very helpful, Steve. And then just a quick follow-up on the semi side. You mentioned the second half is better. Is it just more a revenue commentary for your semiconductor sales? Or is that more an inflection commentary? I'm just wondering because if you look at ICO last night, they're beginning to see an inflection in the semiconductor sales to the old semi cap OEMs already happening. I'm just wondering that, you know, since you're a supplier of components, you should start seeing it either in the March or the June quarter. So I'm just wondering, is the second half commentary for semis more just half or half revenue? Is it more of an inflection commentary? Steve Kelley: And that's what drove our Q4 outperformance. Yeah. I think we saw a material change in customer outlooks in Q4. We saw that demand go up. Originally, we were concerned it might be a pull-in from Q1, but then we've discovered no. The Q1 demand also went up, as did Q2. Our customers have also told us to expect further increases for the second half. So we're getting a lot of positive comments from our customers and improved forecasts, which lead us to believe that the second half will be stronger than the first half. That will lead into a pretty healthy '27 as well. Krish Sankar: Great. Thanks a lot, Steve. Very helpful. Thank you. Steve Kelley: Thank you, Krish. Operator: Our next question is from Mehdi Hosseini with SIG. Mehdi Hosseini: Yes. Thanks for taking my question. I have two. The first one for Steve. As you ramp the Thailand facility and get it to revenues of $3.5 billion, how should we think about that revenue mix between semi, data center, and the rest? Steve Kelley: Yeah. So just to review, what we said today was that we would have more than $2.5 billion in revenue-generating capacity in our existing factory network, and then we brought on Thailand that would add another billion or more. So that, by the end of next year, I think you're looking at $3.5 billion, assuming we build out Thailand. So it's more than enough capacity to achieve our goals over the next couple of years. So that's the important thing. The exact mix, we haven't really gone into that. I think we're seeing growth in all of our markets. I think initially in Thailand, we're looking at data center because it's a high volume, low mix type of product. It's probably the best way to start up a factory. But I think we're also gonna see our plasma power products being built in Thailand in the near future as well. I think the third category of products that go into Thailand will be the industrial medical products. But this is our biggest factory. It's a half a million square feet. It was built to accommodate all of our products. It's the first time we've had such a factory in our network. Mehdi Hosseini: So should I assume that if on the semi side, the market were to exceed well over $150 billion, you have no constraint capacity. You can reallocate internal capacity to meet your OEM's demand above and beyond a $150 billion WFE? Steve Kelley: Yes. Definitely. In fact, that was the original impetus for us to build Thailand was as a business continuity factory for semiconductor. So our customers are fully bought into Thailand as a second factory to back up our operation in Malaysia. Mehdi Hosseini: Great. Thank you. And my second question has to do with the data center and migration to 800 volts. I'm under the assumption that there would need to be a redesign. What I wanted to better understand from you is would there be ASP uplift for premium associated with the redesign of these power sources and you're also increasing your content. So I know some of my peers are fixated with a data center CapEx, but I want to better understand the details. So the question is, would there be ASP uplift as you start supporting the 800-volt AI data center rack? Steve Kelley: Yeah. Interesting question. We've spent a fair amount of time looking into that. We're engaged with multiple marquee customers on 800 volts because we have some pretty interesting technology that makes InterVolt possible in a relatively small space. So I would say that based on our analysis of the market, our total dollar opportunity goes up with 800-volt solutions relative to what we're generating today. So in addition to having the right technology, I think it's also good for our business to mix some of these newer technologies into the mix. It's very good for Advanced Energy. Mehdi Hosseini: Got it. Thank you. Steve Kelley: Yeah. Operator: Our next question is from Steve Barger with KeyBanc Capital Markets. Steve Barger: Hey, good morning or sorry, good evening. Steve, for data center, your comments on processor and memory constraints make sense. But if you grow the 30% for existing customers and the second tier does come in, do you have capacity now to support upwards of 50% growth? Or what can your factory support if everyone else in the supply chain delivers? Steve Kelley: Well, that'd be a great situation, Steve. I hope you're right. But that's the reason we built Thailand. Right? So, we will likely qualify our first products in Thailand this year. The purpose of that would be to be able to ramp those products as soon as Q4 of this year. That would likely be data center, whether it's with our existing hyperscale customers or some new second wave customers, that remains to be seen. But I don't see factory floor space or equipment being constraints for Advanced Energy. I think our attention is more focused on bill of materials and parts and ICs and discretes and those types of items. That's why you're seeing our inventory move up a little bit because we're trying to take some insurance that we don't get caught short on the parts. Steve Barger: Yeah. Understandable. In semi equipment and your comments on really strong customer forecast and a strong back half, what are they saying about their desire to hold buffer inventory? Is there some restocking built into your expectation, or are you just currently selling through to current demand? Steve Kelley: You know, it's a difficult question to answer, Steve. But I could tell you, I think for much of the past two years, the demand has been pretty close to equilibrium. So they're ordering what they need, keeping reasonable inventories. It's been pretty stable, I would say. I think there's certainly a change as we move into '26 and '27, where our customers see more upside from their customers. So, yeah, I think that we'll see them holding more safety stock because we all have memories of what happened back in '21. Some of the supply chain shortages, and we don't want that to happen again. Steve Barger: Got it. Thank you for the detail. Appreciate it. Steve Kelley: Thank you, Steve. Operator: Our next question is from Joe Quatrochi with Wells Fargo. Joe Quatrochi: Maybe just kind of in that line of questioning, I guess then as I think about or we think about just your semiconductor equipment growth kind of opportunity for '26, and then you layer on top of that the new products, I mean, why are we not to consider that that business could grow upward to 20% this year? Steve Kelley: Joe. You know, I think it could. You know, I think there's an upside to what our forecast is in right now. But we're not ready to forecast that. We just want to see how the market develops. A lot of timing issues with the wafer fabs and exactly when the clean room space is available to accommodate new equipment. So I think that will all become clear in the coming months. Joe Quatrochi: Okay. And then as a follow-up, I'm wondering if you just kind of give us some of the puts and takes of the gross margin guide. I guess I would have thought it may be a little bit better just given it seems like mix being a little bit stronger on semi might have been a benefit for this quarter. Paul Oldham: Yeah. So we did see gross margins increase this quarter from last quarter by, you know, 60 basis points or so. The one thing I would note that if you recall, we had a tariff headwind. We had pretty favorable tariffs in Q3. So that was pretty significant that we overcame that. But you're right. We had a little bit better mix, certainly a little bit better, you know, higher volume, which we're able to absorb. So we were pleased with where we ended up. I would say if you excluded the impact of tariffs, we are clearly well over 40% gross margin, which was certainly a goal exiting this year. I think if you look forward, largely on a pretty similar mix, we see gross margins flattish in Q1. Revenue's up a little bit. But I think the opportunities for us in gross margin come to continuing to improve manufacturing efficiency. We are still carrying a fair amount of ramp costs as we've ramped up data center, and the mix in that business continues to be pretty dynamic, including in the fourth quarter, and we expect some of that in Q1 as we go through some product transitions there. So we certainly see opportunities to improve gross margins. We're very comfortable or confident that we'll see over 40% in 2026. When we look forward and we have more tailwind from mix within the new products that we're bringing out, certainly, semi mix will help us. Even in industrial and medical, there's opportunities to see improvements as our new products take play a bigger role. To see gross margins continue to improve. We said in our prepared remarks that we believe we still have line of sight to 43%, which is our long-term goal as volumes grow, as our mix improves, and as we continue to improve our manufacturing efficiency. Operator: Our next question is from Jim Ricchiuti with Needham and Company. Jim Ricchiuti: Paul, just a follow-up on the gross margin question. With the continued ramp growth in the data center business, I'm just wondering how we should be thinking about gross margins in that area of the business. Can we see further improvement from here? Or to what extent does mix play a factor in this? Paul Oldham: Well, mix will play a factor, but it plays a smaller factor than certainly it has historically. I think if you look at 2025 in particular, we grew gross margins pretty significantly despite our data center mix growing from sort of the low twenties to close to 40% by the time we exited the year. As data center continues to grow, there could be some headwind there. But the margins there continue to approach corporate average. Certainly, as we bring out new products in data center and we become more efficient in manufacturing, we think we can largely offset the impact of that mix. So we're not backing off our goals overall. Based on what we see today, we believe we can largely accommodate that within the sort of plus or minus 50 basis points, you know, kind of net mix impact that we've discussed. Jim Ricchiuti: Could you say what the new products have Evos and NavX contributed in 2025? I'm just wondering, Steve, when you talk about potential upside in the semi business in '26, do you see the new products being a big driver to that? Or just strengthen the existing portfolio? Paul Oldham: Yep. Jim, I'll take a cut at that, and then maybe I'll let Steve give some color. But we did meet the goals that we laid out for those new products, you know, seeing double-digit millions of revenue for those new products. Remember, these are largely still in the early pilot or early production stage. The ramp of these is largely tied to sub-two-nanometer process ramp. We're excited because we're seeing a lot of qualifications. We're seeing pull for products to get in those qualifications. We would expect to see revenues in '26 higher than '25, certainly. As we see production ramp of these next-generation nodes and those get on more and more process steps, we'll see really the pull-through of these new products. Steve Kelley: Yep. Jim, let me just add a few comments. I think one of the interesting things that we're seeing is as customers realize the benefits of these new Everest, Evos, and NavX products at the leading edge, they're starting to think about incorporating those products at non-leading edge processes. Once we get into a customer and show what we're capable of with this technology, we're seeing a lot more opportunities beyond the initial opportunity. So I think what we're gonna see in the coming years, maybe not in '26, but in '27, '28, '29, we're just gonna see the usage of these products multiply, and it's gonna be basically a share gain driver for the company. Jim Ricchiuti: Got it. And one final question. Didn't hear a whole lot about the M&A pipeline. I'm just wondering if you guys got a lot of things going on. How active is the pipeline right now? Steve Kelley: Yeah. We're still on the hunt. I would characterize the pipeline as active. We did do an acquisition of Arity not so long ago. The technology from that company has played a critical role in some of our new products. I characterize that as a success. But we also see opportunities on the industrial medical front. We think with the market normalizing, it'll be easier to reach agreement with potential targets on the valuation of their assets. So we're optimistic. Jim Ricchiuti: Thank you. Operator: Our next question is from Rob Mason with Baird. Rob Mason: Yes, good evening. Thanks for taking the question. I was curious, Steve, around the second wave of data center customers. As those customers begin to ramp, what would you view as the gating factors around those ramps and maybe even the potential pull-in if that was to happen around that set of customers? What would be some of the major influences? Would some of the supply constraints you mentioned have an outsized impact on those customers' ability to ramp? Steve Kelley: Yeah. So one of the things we like about the second wave customers is they don't require a lot of engineering work on our part. With the hyperscalers, it requires a lot of work. So that's where we spend most of our time on the engineering front. I think you're correct. I think as the contention for processors and memories heats up, I think the hyperscalers have an advantage there. So it may impact some of the ramps of the second wave customers. That said, I don't know that for a fact, but I would think it's gonna be somewhat challenging this year to get as much memory and processors as you really want. Rob Mason: Understood. Just as a follow-up, maybe a point of clarification. Paul, you talked about Industrial and Medical continuing to grow for the next couple of quarters. I just wanted to confirm that that's off the fourth quarter as kind of a jumping-off point. You were inferring growing sequentially? Paul Oldham: Yes. I think if you look at our guidance on balance, we said the Q1 growth would be driven primarily by semiconductor. So that infers kind of a flattish quarter generally for industrial, medical, and data center, but for different reasons. In industrial medical, we're seeing all the vectors point the right way, so we're encouraged about that. We also acknowledge there's typically a little bit of Q1 seasonality, so we think sort of flattish would actually be sort of improvement, if you will, all things else being held equal. Certainly, we would expect to see growth over the course of the year as those vectors continue to improve. The one thing that's the wild card there is just the broader macro economy. There's certainly some sectors in industrial and medical that are doing better than others. If the economy stays steady and maybe some of the uncertainty comes out of it, we could see that growth accelerate. In data center, I think we talked about flattish in Q1, mainly on product transitions as new products come in, get qualified, displace the older products. We expect to see a flattish quarter with solid demand and ramp after that. Rob Mason: Understood. Thank you. Operator: Our next question is from Scott Graham with Seaport Research Partners. Scott Graham: Hey, good evening. Thanks for taking the question and congratulations on your print and your high teens sales thinking for '26. That's pretty neat. I wanted to understand a little bit more about a comment you made, Steve, about market growth in industrial and medical. You said you're positioned to outperform the market. What is the market growth in your definition in those businesses? Steve Kelley: Yeah. So the reason I said that Advanced Energy is positioned to grow and to outgrow the market is the investments we've made over the past four years. Despite the fact the market was down, we continued to pour money into new product development, into digital marketing, into channel development, and all the areas that you need to invest in your business. What that created was a very healthy design win pipeline. It takes a few years on average for these design wins to go to revenue. I think based on the design win pipeline and what we're seeing right now, we can grow faster than the industrial and medical market in '26 and '27 and '28 too. We're gonna keep growing market share in that market because we have invested heavily and been successful in winning some pretty high-volume designs. Scott Graham: Understood. Thank you. Just a follow-up question is with Thailand coming up the capacity curve here and equipment being installed. Curious that your gross margin aspirations don't appear to have changed. I'm wondering though, if operating expenses, where your goal is to increase those by half of sales or less, is that still doable in 2026 with Thailand coming online? Paul Oldham: I think they're kind of separate. The vast majority of the costs for Thailand are going to be in cost of sales. Certainly, there's gonna be administration. We have accounting people there and other things that would fall into OpEx. That is contemplated in our projected growth. Maybe just to clarify a couple of things. First of all, on the margins, the Thailand factory has always been contemplated in our 43% goal. So that's not new. Basically, the question was when do we have the volume and the demand to support it? With the growth in data center and now semiconductor really heating up, that growth time frame's pulling in. So we're really glad we made those investments, and we're positioned to be able to fold that into the portfolio. On the OpEx side, as we mentioned, we performed really well in 2025. I think we grew OpEx only 7% and revenue over 20%. So that's well ahead of our model. If we look at 2026, we'd expect to continue to make investments. Spending is about flat in Q1, but after that, we'll have salary increases, targeted investments that we're making, including in places like Thailand, there'll be variable costs that go with revenue growth. So we do project that we're probably going to see OpEx grow through the year, probably to a run rate of around $120 million by the end of the fourth quarter, which probably puts OpEx in the $450 million to $460 million range. We do think we can accommodate the outfit of Thailand in the operating expense envelope for what would be in there. Scott Graham: Very helpful. Thank you. Steve Kelley: You bet. Operator: Our next question is from David Duley with Steelhead Securities. David Duley: Yes. Thanks for squeezing me in. I was wondering, typically, at the beginning of a semi equipment ramp, you would grow a little bit faster than your big customers just because they're gonna replenish inventory. Do you think that's the case this time? Steve Kelley: Well, you know, I think if we look at '25, we grew semiconductor 6%. We had our second highest revenue year in our history. So I think our customers had a decent amount of inventory in place going into '26. But I think what we've seen is an acceleration in demand. We saw that in Q4. We're seeing it in Q1, and we'll see it throughout 2026. I think at the end of the year, we'll take a look and see if we've grown faster than the market, but it's pretty difficult to tell right now exactly what's gonna happen from a demand standpoint. Paul Oldham: I'll just add to that. I mean, it's just short memories. But if you recall, we expected Q4 to be a down quarter based on everything our customers were telling us. At the end of Q3, we expected to be down 2% or 3%. We actually ended up growing 8%. So that's a 10% swing. I think we're already seeing a little bit of that, David. We'll see how that progresses through the year. As Steve said earlier, our confidence around a really strong second half continues to grow based on the signals that we've seen from our customers, and we'll see how the timing plays out. David Duley: Yeah. I think in your previous slide deck, you've talked about being able to outgrow the WFE market. Whatever the market growth is, you can grow, I think, by 30% more. I guess whatever the WFE market growth rate or size tends to be in '26, do you think you can outgrow that market growth? Steve Kelley: Yeah. I think there are a lot of issues that determine your growth from quarter to quarter, from year to year. So what we do is we take a look at a little bit longer time frame. In our case, we look at three-year and five-year CAGR, essentially. When we look at that versus our peers, yeah, we're definitely growing significantly faster than WFE. But there are definitely variations from year to year, where we're gonna be either much better or a little bit worse than others, but that's due to tactical factors. David Duley: Okay. And just a clarification from me, Paul, I think you mentioned in your prepared remarks that you were going to strategically increase inventory levels just to make sure that you can meet future demand from your customers. What sort of increase in inventory should we expect over whatever time frame that you're referring to? Paul Oldham: Yes. It depends on where revenues come out, David. But we ended the year around 2.9 turns. I think we'll probably see a little bit of a haircut on that at the beginning of the year, maybe down a tenth of a turn or two, but then recapture that as time goes on and revenues grow. I think the key thing is we want to make sure we've got strategic parts. So that's not buying everything, but it's making sure we're looking at items that have been problematic in the past to make sure we've got good strategic levels of inventory. We're positioning ourselves for the ramp that our customers have talked about is coming. David Duley: Okay. Yeah. So it sounds like, I think you already said this, but I just want to double-check. You're not gonna be the gating factor in your customers' ramps. Paul Oldham: That's right. That's our goal. David Duley: Okay. No. We don't expect to be the gating factor. David Duley: Great. Thank you. Steve Kelley: Thanks a lot, David. Paul Oldham: Thank you. Operator: There are no further questions at this time. This does conclude today's conference call. You may disconnect your lines at this time. We thank you again for your participation.
Operator: Good day, and welcome to the Electromed, Inc. Second Quarter Fiscal Year 2026 Earnings Conference Call. All participants will be in listen-only mode. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Mike Cavanaugh, Investor Relations. Please go ahead. Mike Cavanaugh: Good afternoon, and thank you for joining the Electromed, Inc. earnings call. Earlier today, Electromed, Inc. released financial results for 2026Q2. The press release is currently available on the company's website at www.smartvest.com. Before we get started, I would like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements, including statements about the company's future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place any undue reliance on those forward-looking statements, and the company does not undertake any obligation to update or revise forward-looking statements whether as a result of new information, future events, or otherwise. Please refer to the company's SEC filings for further guidance on this matter. Joining me on the call today are Jim Cunniff, Electromed's President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer. As on previous calls, Jim will provide operational highlights from the quarter, Brad will then review the financials, and we will close with a question and answer session. With that, I will now turn the call over to Jim Cunniff, President and Chief Executive Officer of Electromed, Inc. Jim Cunniff: Good afternoon, everyone, and thank you for joining our call today. I'm thrilled to share impressive results for the quarter ended December 31, 2025. Before diving into the numbers, I'm excited to announce that this marks our thirteenth consecutive quarter of year-over-year revenue and profit growth. An achievement that showcases the strength of our business model and the growing recognition of our best-in-class SmartVest airway clearance solution. Let me now share some of our financial highlights for fiscal Q2. We achieved record revenue of $18.9 million, representing robust 16.3% year-over-year growth compared to the same period last year. Growth in the quarter was powered by consistently strong performance in our core Home Care business, which surged 18.4% year-over-year, and our distributor channel, which delivered a 12.1% increase year-over-year. These results reflect the effectiveness of our sales strategy and growing demand from our valued home medical equipment partners. The hospital channel experienced a 9.4% year-over-year decline in the quarter due to strategic prioritization of shipments to high-demand home patients and the unpredictable timing of capital orders. We believe hospital demand will rebound in the coming quarters. Complementing our top-line growth, operating income of $3 million in the quarter represented a stout growth rate of 42.4% year-over-year. Operating income as a percentage of sales reached an impressive 19% as we continue to deliver operating leverage with earnings per share of $0.32 on a fully diluted basis compared to $0.22 per share in 2025. Our balance sheet continues to be strong with $13.8 million in cash on hand and no debt. As previously reported, our board approved a $10 million stock repurchase authorization in Q1, reflecting our confidence in Electromed, Inc.'s future and our commitment to delivering shareholder value. Now let me highlight our strategic initiatives and market opportunities. As most of you know, the primary strategic opportunity for Electromed, Inc. lies in addressing the vastly underserved bronchiectasis market. Today, approximately 923,000 patients in the United States are diagnosed with bronchiectasis. Yet only 16% are currently benefiting from high-frequency chest wall oscillation therapy. This presents an incredible untapped opportunity to help nearly 800,000 diagnosed patients who could experience life-changing benefits from our SmartVest system. Even more exciting, it is estimated that there may be over 4 million additional individuals with undiagnosed bronchiectasis, highlighting the tremendous need for education and raising awareness of the massive health problem that is bronchiectasis. To seize this opportunity, in calendar 2025, we successfully launched our innovative "Triple Down on Bronchiectasis" campaign promoting a powerful three-pronged treatment paradigm. Number one, clear airways first with SmartVest to effectively remove mucus, which is the fuel for future infections. Second, treat the patient's infections with antibiotics. And third, help reduce inflammation. This three-pronged approach helps break the vicious vortex where chronic infection, persistent inflammation, and damaged airways continuously worsen, leading to progressive lung disease and reduced quality of life for patients. We continue to pursue additional opportunities to raise awareness. During Q2, our marketing team participated in three national trade shows, numerous regional pulmonary medical events, and co-promoted three virtual continuing education units hosted by respiratory associates and attended by 655 individuals to showcase our technology and reinforce the critical importance of airway clearance and bronchiectasis management. We also completed an important manuscript based on data from the NTM Bronchiectasis Research Registry, which revealed that 58% of qualifying patients were not prescribed HFCWO therapy despite meeting clinical criteria, even though they were significantly sicker than those who didn't meet criteria. This represents a clear near-term opportunity for early intervention, and our dedicated team is making excellent progress in closing this gap. Moreover, to expand the ability for patients to benefit from our technology, we executed 25 payer contracts in the first half of our fiscal year and added 2.9 million covered lives to the over 270 million covered lives we currently have under contract who could benefit from SmartVest. To help capitalize on our marketing efforts, we continue to strengthen our highly productive sales organization. We now have 58 talented direct sales representatives. Our plan is to expand this number to 61 representatives by the end of this fiscal year. Adding sales reps is a key component of our growth strategy and will enable us to reach more clinicians and patients with our innovative technology. We're also making tremendous progress implementing our Smart Order e-prescribe solution, which is improving how prescribing clinics submit orders to our fulfillment team. As I've mentioned on past calls, this digital solution replaces outdated fax-based processes, providing complete prescription documentation that enables us to deliver SmartVest to patients faster and improves a clinic's workflow. In Q2, over one-third of the orders we received came through this platform, a testament to the platform's value. The CRM system we launched in Q1 is already delivering fantastic benefits, including improved field sales productivity, enhanced market insights, and seamless communication with our fulfillment team. All of this results in improved sales productivity and a better patient experience through faster and more efficient order fulfillment. We also successfully completed and implemented our manufacturing optimization plan at the beginning of this fiscal year. Specifically, we redesigned our manufacturing layout to improve production efficiency and provide ample capacity to support our future growth. And speaking of manufacturing, I'm incredibly proud to emphasize that Electromed, Inc. is a US-based company with all of our operations and product assembly located in the US. Moreover, 99% of our net revenues are generated domestically. This positions us to maintain our track record of on-time delivery to customers while sustaining our mid-70% or better gross margins. Tariffs continue to be in the news, and we remain vigilant about potential challenges with our primarily domestic suppliers who may have tariff exposure within their upstream supply chains. We're confident that our U.S.-centric operations help shelter us from the impact of tariffs and provide us with a competitive advantage. In conclusion, our Q2 results demonstrate that Electromed, Inc. continues to perform extremely well in our growth strategy. We're rapidly expanding our market reach, enhancing operational capacity, and delivering outstanding financial performance, all while helping patients breathe easier and enjoy an improved quality of life. With that, I'd like to turn the call over to Brad Nagel for a review of our financials. Brad, over to you. Brad Nagel: Thanks, Jim. All amounts I'm about to discuss are for the three months ended December 31, 2025, or Q2 fiscal year 2026, and compared to the three months ended December 31, 2024, or Q2 fiscal year 2025. Net revenues grew 16.3% to $18.9 million, up from $16.3 million. Revenue in our direct home care business increased by 18.4% to $17.3 million, up from $14.6 million. The increase in revenue was primarily due to an increase in direct sales and higher net revenues per sales representative. Throughout Q2, we averaged 58 home care direct field sales representatives. The annualized home care revenue per weighted average direct sales representative in Q2 was $1.2 million, exceeding Electromed, Inc.'s target range of $1 million to $1.1 million per rep. Non-home care revenue was $1.6 million. Home care distributor revenue grew 12.1%, totaling $900,000 for the quarter. Hospital revenue of $700,000 decreased 9.4%, and other revenue of $100,000 declined 52.3%. Gross profit increased year-over-year to $14.8 million or 78.4% of net revenues from $12.6 million or 77.7% of net revenues. The increases in gross profit dollars and gross profit percentage were primarily a result of increased overall revenue and higher net revenues per device. Selling, general, and administrative or SG&A expenses were $10.8 million, representing an increase of $1 million or 10%. The increase in the current period was primarily due to increased salaries and incentive compensation related to the higher average number of sales headcount and higher overall compensation cost. Operating income was $3.6 million or 19.2% of net revenues compared to $2.5 million or 15.6% of net revenues. The 42.4% increase in operating income was primarily due to the increases in revenue and gross profit. Net income increased by 40.3% to $2.8 million or $0.32 per diluted share compared to $2 million or $0.22 per diluted share. As of December 31, 2025, Electromed, Inc. had $13.8 million in cash, $26.3 million in accounts receivable, and no debt, achieving a working capital of $36.2 million and total shareholders' equity of $45.4 million. The cash balance reflects a decrease of $1.5 million for the six months ended December 31, 2025, compared to an increase in cash of $200,000 in the six months ended December 31, 2024. The decrease in cash for the six months ended December 31, 2025, was driven primarily by $3.2 million of positive operating cash flow, offset by share repurchases of $3.8 million of Electromed, Inc. common stock. In conclusion, we're excited by the strong performance in the first half of our fiscal year and continue to see opportunities to deliver on our objectives of double-digit top-line growth and expanded operating leverage, both in the coming quarters and full fiscal year 2026. With that, we'd like to move to the Q&A portion of the call. Operator, please open the call to questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Kyle Bauser with ROTH Capital. Please go ahead. Kyle Bauser: Hi, Jim and Brad. Great results here. And thanks for taking my question. Maybe first, it looks like the home care Medicare segment was particularly strong this quarter, up significantly sequentially. Anything to call out here? Jim Cunniff: No. I think, you know, we're just really executing on our strategy, Kyle. And thanks for the question, by the way. You know, we've, as you know, improved our sales force over time, and I think we're starting to see the results relative to our revenue in the home care segment. I would also tell you that, you know, as we discussed on previous calls, there's just a lot more awareness about bronchiectasis in the space. And a consequence of that is I think that more of the prescribing physicians are starting to identify patients who could benefit from high-frequency chest wall oscillation technology. And, when you couple, you know, our sales reps calling on those accounts, helping to identify patients who could benefit from our technology, and our clinician base that I think is more attuned that some of their patients might have bronchiectasis. It's kind of a winning combination. And, yeah. So we feel great about our results really for not only Q2 of this year but really for the first half of this year as well. Kyle Bauser: Yep. Got it. Makes sense. And related to that, in terms of building awareness around bronchiectasis, you know, as you know, Brent Supri sales in the first full quarter were $145 million, which is pretty remarkable. I think one of the best launches in the respiratory space ever. Can you talk a little bit about how this is impacting your business and helping to kind of build awareness around HFCWO? Jim Cunniff: That's a great question. And I think everybody was wondering what was the impact of bransupri when it got launched on this space because it's the first drug that's been approved by the FDA to treat bronchiectasis. But the way we look at it is it's really an adjunct to airway clearance. You know, as you know, Kyle, you know, if you have bronchiectasis, unfortunately, it's chronic. It's irreversible. And part of the challenge that these patients have is that they have mucus that builds up within their airways, and they need to relieve that mucus. And the drug, brensoapri, for those on the call who aren't familiar with it, is really to address part of that vicious vortex, which is inflammation. But again, once you have bronchiectasis, it's chronic and it's irreversible. And you need to have something to clear the airways. And that's really where SmartVest comes into play. So our perspective is that, you know, they've done a terrific job in educating and bringing awareness to this horrible disease. And a consequence, as you mentioned in your question, you know, they had an incredible Q4 on their drug. But so did we. So we feel like, you know, the story we've been telling around this being complementary is really starting to play out in the results. Kyle Bauser: Got it. And I think you mentioned in your prepared remarks, registry data showing 58% of patients who qualify for HFCWO therapy not receiving it. So those who have had a CT scan or and daily productive cough for six months and tried and failed something else. That haven't been prescribed. In your sense, given the new drug that hit the market, do you think more people are being properly diagnosed? Or do you think, you know, for bronchiectasis or are the people who are being diagnosed being properly fitted for that? Or is it a combination? Just trying to understand, you know, how this could impact kind of usage of HFCWO, you know, across the industry. Jim Cunniff: I think you've nailed it. I think, you know, one of the challenges has been for this patient population is all of the reimbursement criteria that you just outlined, you know, daily productive cough, CT scan, tried and failed, something else. I think part of the challenge has been not only, a, the awareness of bronchiectasis as a disease, and, you know, identifying that with the patients, as you mentioned, Kyle, but also getting on the technology sooner in that patient's clinical journey versus later. And that 58% that I referenced in our notes really speaks to the fact that here's a cohort of, you know, this is a study that was retrospectively done on over 5,000 patients, and, you know, these patients had bronchiectasis, but yet they and they met treatment guidelines. But yet they weren't given the technology. And so, you know, part of our job and part of what we're gonna be promoting, you know, with our clinicians is those results because I think it'll illuminate the opportunity for us to get more patients on our technology sooner rather than later. Kyle Bauser: Got it. And then maybe just one more. I think you, let's see. If you average 58 home care direct reps, and I think that's across 61 territories. Correct me if I'm wrong. But is 61 still a good number? And, you know, how do you envision this trending? Jim Cunniff: Yeah. Yeah. Yeah. I think we had just an outstanding quarter relative to our productivity, you know, $1.2 million per rep on an annualized basis. As we get to 61 reps, and you're correct, that's what we're promoting for this fiscal year. I think our productivity per rep is gonna probably mediate within that million to million 1 that we've been guiding on. Because, obviously, when you hire a new rep, we've gotta train them. They've gotta come up to speed in the market. They've gotta build relationships. And so, you know, there's always a lag in that productivity when that happens. And the math will just pour out that I, you know, we feel very comfortable staying within that million to million one for our sales rep productivity, which is a vast improvement. Kyle, you've been covering us for quite some time. From where we were, you know, even several years ago. Kyle Bauser: Yes. Agreed. And it's been impressive. So congrats again on the results. And thanks for taking my question. Jim Cunniff: Thank you so much. Appreciate it. Operator: The next question comes from Ben Haynor with Lake Street Capital Markets. Please go ahead. Ben Haynor: Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, just following up on the rep productivity. I mean, obviously, $1.2 million was quite a performance. But as you do go to, you know, 61 reps, I mean, that's, you know, 5% growth of the rep headcount, is there a reason why we should expect, you know, more than 5% decline from the $1.2 million level to, you get down into that million to million 1, or is it, you know, just an area that you're more comfortable at the moment? Brad Nagel: Yeah. Thanks for the question, Ben. And, yes, there are a number of factors that play into that productivity rep. And one of Kyle's questions kinda hit on it. We see things like our payer mix that can impact the amount of revenue that we get per referral, that can drive that number up a little bit more. So in a quarter like Q2 where we saw higher growth in Medicare, which is our sort of top payer value, we'll see a bit higher rep productivity. Obviously, on the efficiency side, we've talked a lot about the fact that we haven't implemented the CRM, and we do wanna continue to lean into those gains that we've gotten from the system and continue to see the efficiency out of the rep. But some of those pricing dynamics can factor in too, which is why we continue to guide to the million to million one per rep. Ben Haynor: Okay. Got it. And then, you know, just kinda on the mix, I mean, you've seen fantastic growth really the first half of the fiscal year amongst government payers. Is there anything relative to commercial payers? I mean, it looks like, you know, just eyeballing it, you know, twice or even three times the rate. Is there anything special that's kind of occurred with commercial payers or government payers that is worth highlighting? Brad Nagel: Not really. So, obviously, when we're out selling, we are not looking for a payer mix as we're selling. We're out there trying to drive referrals. And we've seen over time there's volatility there. Sometimes the Medicare is growing a bit faster. Sometimes those commercial payers are growing faster, but there aren't significant trends that we would point to, looking forward. To continue to see sort of outsized growth from one versus the other, as we look out at the coming quarters. Jim Cunniff: I think the only thing I would add to that, Ben, is the fact that, you know, in our prepared remarks, we indicated that we executed 25 contracts, and those contracts are with private pay. And, you know, that's gonna add about 2.9 million potential patients to our roster. Now not every one of them obviously has bronchiectasis, but, you know, in areas where we haven't had payer coverage in the past, as Brad had mentioned, you know, our sales reps are really focused on identifying patients who have this disease, who could benefit from our technology. And it's, you know, it's challenging when we get a referral for those patients, but they're out of network. And so, you know, our opportunity is really to see if we can close that gap where we are out of network so that we can get more patients on the technology sooner rather than later. Ben Haynor: That makes sense. I mean, obviously, going back a couple of few quarters, it was the other way where commercial is growing faster than the government pay. And then lastly for me, just curious on how often the share buyback, sizing, and rapidity of repurchase gets kind of revisited by the board. Brad Nagel: Yeah. So if you look back at what we did last year, we authorized two separate tranches of $5 million over the course of the year. But really, we saw the full $10 million get repurchased fairly evenly over the course of the year, a little bit of volatility quarter to quarter. And the same is true this year. We authorized the full $10 million in Q1 and are always continuing to monitor both our cash position, the pricing of the shares, and looking at an opportunistic way to make sure that we're getting the most value for our cash and for our shareholders. Ben Haynor: So with the five and five last year, should we expect ten and ten this year? Brad Nagel: Yeah. So we did authorize $10 million at the beginning of this year. Ben Haynor: But that's open at coming after the June. Right? Brad Nagel: We can't promise that. Again, we're always looking at our options for uses of cash, but excited to be in our second year where we've authorized another $10 million this year. Ben Haynor: Okay. Great. Well, thanks for taking the questions, guys, and congrats on the quarter. Jim Cunniff: Thanks, Ben. Appreciate it. Operator: This concludes our question and answer session. I would like to turn the conference back to Jim Cunniff for any closing remarks. Jim Cunniff: Well, thank you all for joining us today as we conclude our fiscal 2026 second quarter earnings call. I want to emphasize how truly excited I am about Electromed, Inc.'s trajectory and prospects. We delivered our thirteenth consecutive quarter of year-over-year revenue and profit growth and improved operating leverage. Our strategic initiatives are yielding excellent results as we address a large underserved population of BE patients in the United States. With $13.8 million in cash, zero debt, and our stock repurchase authorization, we're not just investing in growth, but also delivering value to our shareholders. I want to thank our exceptional team for their dedication, our customers for their trust, and our shareholders for their continued support. Look forward to building on our momentum in the quarters ahead. Thank you, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to Edwards Lifesciences Fourth Quarter 2025 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note that this conference is being recorded. I will now turn the conference over to your host, Jerrianne Sarte. Thank you. You may begin. Jerrianne Sarte: Good afternoon, and thank you for joining us. This is Jerrianne Sarte, I am the incoming Senior Vice President of Investor Relations. With me on today's call is our CEO, Bernard Zovighian, and our CFO, Scott Ullem. Also joining us for the Q&A portion of the call will be Daniel Lippis, our global leader of TAVR, and Daveen Chopra, who has global responsibility for TMTT Surgical and IHFM. Just after the close of regular trading, Edwards Lifesciences Corporation released fourth quarter and full year 2025 financial results. During today's call, management will discuss the results included in the press release and accompanying financial schedules, and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements speak only as of the date on which they are made, and Edwards Lifesciences Corporation does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause these differences can be found in today's press release and Edwards Lifesciences Corporation's other SEC filings, all of which are available on the company's website at edwards.com. Unless otherwise noted, our commentary on sales growth refers to constant currency sales growth, which is defined in the financial results press release issued earlier today. Reconciliations between GAAP and non-GAAP numbers mentioned during this call are also included in today's press release. Quarterly and full-year growth rates refer to continuing operations. With that, I'll turn the call over to Bernard for his comments. Bernard Zovighian: Thank you, Jerrianne, and welcome, everyone. I am pleased to introduce Jerrianne Sarte as our new Head of Investor Relations at Edwards Lifesciences Corporation. Jerrianne has an extensive background in medtech and as a leader in our global finance organization, prior to moving to this new position. You will be seeing and hearing from her going forward, and I know she looks forward to getting to know you. Now let me turn to discussing Q4 and 2025 results. We delivered a strong quarter growing at 11.6% and a strong full year 2025, growing at 10.7%. This is the result of our differentiated strategy. With a clear vision around three key elements: focusing solely on Structural Heart, solving large, urgent, and very complex patient needs, and pursuing unique opportunities to innovate and lead. This is only possible due to our deeply experienced teams, their excellent execution, and their commitment to patients worldwide. With our achievement in 2025, we are entering 2026 with strength and momentum globally. With many growth catalysts in each area across the company. Starting with TAVR, there is a renewed focus on SAPIEN across the healthcare ecosystem. Led by the seven-year Partner 3 and the ten-year Partner 2 data, which confirm the long-term durability and proven valve performance of the SAPIEN platform. This data presented last October at TCT reinforces the confidence physicians and patients have in Edwards Lifesciences Corporation's TAVR, and sets a new clinical benchmark for safety, efficacy, durability, and lifetime management of patients. In addition, the practice-changing early TAVR trial is resonating with the clinical community starting with the guideline changes in Europe. Together, all of these will have a lasting impact on the continued expansion of the SAPIEN platform globally. Continuing with TMTT, growth is fueled by a comprehensive portfolio of repair and replacement therapies, and strengthened by new options for patients. These include the launch of SAPIEN M3, the scaling of EVOQUE, the upcoming introduction of next-gen PASCAL in Q4 this year, and the introduction of PASCAL for U.S. Tricuspid patients also in Q4. Together, these are significant advancements for mitral and tricuspid patients and represent large opportunities to achieve our $2 billion revenue expectation for TMTT in 2030. Overall, for Edwards Lifesciences Corporation in 2026, we have increased confidence in meeting our 8% to 10% sales growth guidance as well as EPS guidance. We are looking forward to an updated national coverage determination for TAVR, which may present a potential tailwind later this year. Recognizing that our impressive results in 2025 have set a higher bar for 2026, especially in the second half. Long term, we are well-positioned to execute our compelling growth strategy. And specifically over the next three years, we will be pioneering new therapies, launching next-generation existing technologies, as well as expanding indications to impact more patients. Our talented team of 16,000 employees creates, develops, and enables treatment of patients globally with a highly differentiated and complete portfolio of therapy to address aortic, pulmonic, mitral, and tricuspid valve diseases. We take very seriously the responsibility of investing in the development of safe and effective valve therapies with proven long-term durability. Valve technology requires dedicated focus and generation of world-class clinical evidence. That will continue to differentiate Edwards Lifesciences Corporation. I am confident that our technology will remain the first choice of clinicians to transform the care of their patients. Leveraging our experience, we are extending into structural heart failure and aortic regurgitation or AR. For the many patients who are not well served today. This will create additional growth opportunities and extend our Structural Heart leadership. In 2027, and beyond, we continue to expect average annual sales growth of 10% with constant currency operating margin expansion as we continue to address patients in need by advancing novel therapies to extend lives, improve quality of life, and provide greater impact and efficiency for health systems. Now, I will provide an overview of Q4 sales performance by product group. TAVR overall procedural growth in the quarter remained in the high single digit. And for Edwards Lifesciences Corporation, TAVR fourth quarter global sales of $1.16 billion increased 10.6% over the prior year. And slightly sequentially over a high Q3 which was inconsistent with typical summer seasonality. The Q4 performance reflected clinicians' elevated focus on SAPIEN therapy and proactive disease management of patients suffering from severe aortic stenosis. Edwards Lifesciences Corporation's TAVR procedural growth was comparable across the U.S. and OUS. And our average price and competitive position were stable on a global basis. While early TAVR studied severe AS patients without symptoms, we are encouraged by the impact this study has had on increasing the sense of urgency for the treatment of patients who have symptoms. A timely referral, evaluation, and treatment of patients with severe aortic stenosis is fueled by a large and growing body of evidence on the long-term outcomes of SAPIEN valves. Our position as the only TAVR therapy with an asymptomatic indication will provide additional benefits. Along with the potential of an updated TAVR NCD in the U.S. and Japan guideline evolution. These additive catalysts provide multiple layers of durable growth. In addition to the long-term data presented at TCT, more than 30 distinguished physician thought leaders published the first-ever AS global consensus document. This validates the movement away from the outdated practice of watchful waiting. And further supports the importance of guideline-based management of severe AS patients. Let me turn to some U.S. We saw intentional and urgent treatment of severe aortic stenosis patients. Fueled by a large and growing body of world-class evidence on the SAPIEN platform and the increased adoption of SAPIEN 3 Ultra Resilia. We are pleased that CMS formally opened the process to reconsider the NCD for TAVR. This decision has the potential to improve timely and equitable access to life-saving TAVR therapy. The initial thirty-day public comment period closed on January 14 and we look forward to the process continuing. In Q4, we expanded our partnership with the American Heart Association as the founding sponsor of the Heart Valve initiative. This new initiative is focused on timely diagnosis and treatment to save lives and improve care for millions living with heart valve disease. It is a multi-year program to elevate heart valve disease as a critical focus area for hospital systems. Through adherence to specific quality metric-based care. Expanded data collection, enhanced healthcare professional education, and patient engagement. In Europe, fourth-quarter results reflected healthy underlying TAVR procedure growth. As well as our consistent execution across the region. Updated guidelines from the European Society of Cardiology, and the European Association for Cardiothoracic Surgery are reshaping clinical discussions around proactive disease management, and reinforcing the role of TAVR for a broader patient population. We also continue to see modest year-over-year share improvement in several key countries. Strengthening our leadership position in the wake of a competitor's exit. In summary for TAVR, we are pleased with our strong Q4 results. And full-year 2025 performance. SAPIEN's growth globally was supported by rising clinical urgency for intentional proactive disease management. And long-term evidence demonstrating the proven durability and valve performance of SAPIEN. As we look ahead, we are well-positioned to continue the momentum and remain focused on driving our patient access strategy. Generating additional clinical evidence and delivering on our innovation pipeline to address the growing patient needs across the world. These strengths reinforce our confidence in Edwards Lifesciences Corporation's TAVR as a durable growth engine and a meaningful contributor to long-term value creation. Now let's turn to our TMTT product group. Our comprehensive portfolio of repair and replacement therapies offers meaningful opportunities to physicians, to best treat their mitral and tricuspid patients. This drove another strong quarter. With TMTT growing over 40% to $156 million. We were also pleased that for the full year, TMTT sales exceeded half a billion dollars. Continued global adoption of PASCAL and EVOQUE contributed to overall growth. Physicians continue to provide positive feedback on PASCAL's differentiated benefits for the treatment of their patients who need transcatheter edge-to-edge repair. With EVOQUE, we are expanding the number of centers and training more physicians while focusing on excellent patient outcomes. The recent FDA approval of SAPIEN M3 expands our mitral portfolio in the U.S. and represents the first transcatheter replacement option suffering from mitral disease. Similar to our other therapy launches, the strategic introduction of SAPIEN M3 is leveraging our proven high-value support model and focusing on outstanding clinical outcomes. We are initially opening sites that were previously in our ENCIRCLE pivotal clinical trials. And physician interest in this technology is growing. With PASCAL and EVOQUE growing globally, and now with the introduction of SAPIEN M3 in the U.S. and Europe, Edwards Lifesciences Corporation continues to deliver on our vision of offering a portfolio of therapies to treat more mitral and tricuspid patients. Overall, PASCAL adoption globally is delivering differentiated outcomes for patients. The introduction of NextGen PASCAL in Q4 will further distinguish this important therapy for patients who need edge-to-edge repair. The upcoming U.S. approval of PASCAL for Tricuspid patients will provide an enhanced therapy alternative. And the scaling of EVOQUE and launch of SAPIEN M3 will further advance treatment for tricuspid and mitral patients. This represents multi-layer growth opportunities, starting in 2026 and contributing to achieving $2 billion of revenue in 2030 and additional growth beyond. Finally, this year, we continue to expect sales in the range of $740 million to $780 million. In our surgical product group, fourth-quarter global sales of $254 million increased 2% over the prior year. The underlying fundamentals of our surgical product group remain strong while growth in Q4 was impacted by end-of-year distributor inventory adjustments in one country. Full-year surgical sales grew 4.3%, and for the first time exceeded $1 billion. We continue to expect mid-single-digit sales growth rate in Surgical in 2026 driven by continued adoption of our RESILIA therapies that offer extended durability of our surgical therapies. Including Inspiris, Connect, and Mytris. We were encouraged by new data presented at the recent STS meeting including strong one-year data from the MOMENTYS study. MOMENTYS is studying long-term durability for the Edwards Mitra system for surgical mitral valve replacement. And one-year results from the study demonstrated 100% freedom from SVD, impressive stable hemodynamic performance, and excellent safety. This specifically designed surgical valve customized for mitral patients will advance and improve care. We are also pursuing multiple new innovations to advance surgical solutions for patients. Including left atrial appendage closure, or LAAC. This is a new therapeutic area that is a complementary solution to specific valvular procedures and we are planning on a preliminary introduction of our new surgical LAAC technology later this year. In summary, we still expect to deliver our mid-single-digit sales growth rate guidance in 2026. And finally, we are looking forward to seeing ten-year data from our COMMENTS trial at the AATS conference in May. Studying long-term durability of our best-in-class resilient tissue. And now, Scott will cover the details of the company's financial performance. Thanks, Bernard. Scott Ullem: Today, I will provide a wrap-up of 2025 including detailed results of our fourth quarter and guidance for the first quarter and full year 2026. We were pleased with our better-than-expected Q4 sales performance with strength across all product groups. Total sales of $1.57 billion grew 11.6% year over year. Our adjusted earnings per share was $0.58. This lower-than-expected EPS was driven by higher spending on patient access initiatives at a higher-than-expected tax rate. It is important to note that we have increased confidence in our 2026 earnings per share guidance of $2.90 to $3.05. Our GAAP EPS for the quarter was $0.11, which included one-time charges related to the GennaValve acquisition that did not close as well as litigation expenses. A full reconciliation between our GAAP and adjusted EPS for this and other items is included with today's release. And now I'll cover additional details of our P&L. For the fourth quarter, our adjusted gross profit margin was 78.3%, in line with our expectations. Compared to 79% in the same period last year. This expected year-over-year change was driven by additional manufacturing expenses related to the FAST expansion of new therapies. We continue to expect our full-year 2026 adjusted gross profit margin to be within our original guidance range of 78% to 79%. Selling, general, and administrative expense in the quarter was $603 million or 38% of sales. Compared to 35% of sales in the prior year. We increased SG&A spending in the fourth quarter to fund strategic investments in order to amplify patient access to therapy such as early TAVR education, investment in field resources, and the heart valve initiative. Some of this strategic spending was delayed from previous quarters in the year. Research and development expense was $268 million in the fourth quarter or 17.1% of sales. Compared to $271 million or 19.6% of sales in the same period last year. This decrease in R&D as a percentage of sales reflects our strategic prioritization of investments in our expanding structural heart portfolio. We continue to expect 2026 R&D as a percentage of sales to be approximately 17%. Fourth-quarter adjusted operating profit margin of 23.7% was aligned with our previous guidance of 20%. Our full-year 2025 adjusted operating profit margin of 27% was within our original expectations for the year. For 2026, we expect approximately 150 basis points constant currency operating margin expansion which includes less spending related to removing GennaValve from our operating plans for the year. We continue to plan for 50 to 100 basis points of operating margin expansion annually on average in 2027 and beyond. We continue to plan to deliver leveraged earnings per share. Turning to taxes. Our reported tax rate this quarter was 29%, or 17.9% excluding the impact of special items, which was above our expectation for the quarter driven by Pillar two impact and country income mix. We continue to expect our 2026 tax rate excluding special items, to be between 16% and 19%. Turning to the balance sheet, We continue to maintain a strong and flexible balance sheet with approximately $3 billion in cash and cash equivalents as of December 31. Edwards Lifesciences Corporation currently has approximately $2 billion remaining under its share repurchase authorization. Average diluted shares outstanding during the quarter were 582 million. We continue to expect average diluted shares outstanding for 2026 to be between 580 to 585 million. Foreign exchange rates increased fourth-quarter reported sales growth by 170 basis points or $20 million compared to the prior year. FX rates had minimal impact on our fourth-quarter gross profit margin compared to the prior year. Relative to our October guidance, FX rates had a nominal impact on fourth-quarter earnings per share. At current rates, we now expect FX to have an approximately $40 million upside to full-year 2026 sales compared to the prior year. I will finish with comments related to our outlook. We have increased confidence in meeting our 2026 full-year sales growth rate guidance of 8% to 10%, and earnings per share guidance of $2.90 to $3.05. The product group sales guidance we provided at the investor conference remains unchanged. For the first quarter, we are projecting sales of $1.55 billion to $1.63 billion. We expect slightly higher growth rates in 2026 following unusual summer seasonality that benefited 2025. We are expecting adjusted EPS in Q1 of $0.70 to $0.76 representing mid-teens growth at the midpoint of that range. With that, I will pass it back to Bernard. Bernard Zovighian: Thank you, Scott. In closing, we finished 2025 strong. And achieved many lasting catalysts, We have increased confidence in our top-line and bottom-line guidance for 2026. Our strategy of focusing on structural heart is demonstrating impactful results for the company, and the patients we serve. And is positioning us for long-term sustainable growth and value creation. With that, I will turn it back over to Jerrianne. Thank you, Bernard. Jerrianne Sarte: We're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow-up to allow for broad participation. If you have additional questions, please re-enter the queue and management will answer as many participants as possible during the remainder of the call. Operator: Thank you. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys. Our first question comes from Robbie Marcus with JPMorgan. Please state your question. Robbie Marcus: Great. Congrats on a good quarter. Thanks for taking the questions. Two for me. First, maybe just on TAVR 10.6%, another very strong quarter. I would have to imagine you're taking some share even excluding the Boston Scientific exit. So maybe just speak to the strength you're seeing, the confidence in it, and any regional differences. And just one thing, if you can talk to volumes versus sales, I imagine the Delta's price. But had some questions on that. Bernard Zovighian: Thanks. You know, Robbie, good afternoon, everyone. Yes. You know, one is, you know, we are very pleased about the quarter overall in the year for Edwards Lifesciences Corporation. With regards to TAVR, very pleased about the quarter. Like you said, you know, growing 10.6% year over year. And what we see is really the result of our strategy here, where last year, we brought, you know, very compelling evidence. Early TAVR, Partner 3 seven years, Partner 2 ten years, And all of this gave confidence. All of this also enabled a renewed focus on, you know, TAVR as a category and specifically, you know, the SAPIEN platform. So this is creating, you know, physicians to talk more about TAVR, talk more about SAPIEN, You know, this is enabling physicians to treat, you know, their patients a little bit, you know, early. This is also, you know, enabling providers to prioritize TAVR. So it is all of that together I'm going to ask you, Daniel, you know, to give you some more, you know, specific details about the quarter. Daniel Lippis: Yeah. Thanks, Bernard. And, Robbie, you're spot on. Right? Like, the overall procedural growth rate in the quarter was in the high single digit. And so there is a gap, and you're absolutely on the money as far as share gain and pricing contributing to that gap. Largely on the share perspective, I mean, the share gain that we had from the Boston Scientific exit contributed a big chunk of that. We are pleased to see the stickiness of that share gain from quarter three to quarter four. We took our piece of that, but most of the competitors in Europe also benefited from Boston's exit. I would say that we benefited about in line with our competitive position in the market. But if you look at globally, like, overall, our competitive position remains relatively stable, I would say. I mean, you know, for sure, we're not weaker, in Q4 than we were in Q3. Another piece of this is S3 UR penetration. Right? And we continue to see very strong adoption of this outstanding platform. A lot of positive feedback from physicians. And so this is also contributing, like you mentioned, a little bit on the price side. Robbie Marcus: Great. Maybe, Scott, just if you could talk to the increased spend on market access you highlighted. In the fourth quarter, the step up in SG&A was roughly $100 million which is pretty substantial. So maybe just dig into that, where'd the spending go, and how should we think about that? We rolling in is we think of that as a one-time cost? Thanks. Scott Ullem: Yeah. Thanks, Robbie. I appreciate the question. We had planned a step up in the fourth quarter spending, and we decided to be aggressive in light of the reception we were getting to the things Bernard mentioned earlier. The asymptomatic trial that seven-year results, the ten-year results. And so we intentionally upped the spending in the fourth quarter. A $112 million year over year. We were still in operating margin terms in the area that we had expected for the fourth quarter. So we had said mid 20% and that was sort of in the range of where we came in. We invested more aggressively in patient access. So asymptomatic amplification, Bernard mentioned the American Heart Association partnership. We've also been reinforcing our field force in THV and also in TMTT. Some of the spending was delayed from earlier quarters in 2025. So we are, you know, following this elevated level of spending in Q4, planning a more moderated operating expense growth and SG&A expense growth in 2026. Which is how we get to the operating margin guidance of the high end of our original 28% to 29%. The other benefit in that margin increase or margin expansion is the exclusion of the original spending that we had planned for GennaValve. Maybe, Daniel, you wanna talk a little bit more about some of these initiatives? Daniel Lippis: Yeah. I think, like, a couple of big ones here. Right? So with the change in the European guidelines, this is the biggest shift that we've seen in over ten years, and it's a real important shift from watchful waiting to intentional and urgent treatment of severe aortic stenosis earlier in the disease pathway. This is a big shift. It involves change management. And change of behavior, particularly at the referral level. And so we see an opportunity here to bend the curve of adoption of these guideline changes. And so we have a number of significant amplification programs that we have started and started to implement in Europe. This is a big one. Second one, as Scott and Bernard mentioned, our partnership with the American Heart Association. This is an important one, and this is a multiyear partnership. And it's designed to do the same thing, democratize and educate on the importance of treating earlier in the disease pathway for aortic stenosis. And so this is all designed to improve diagnosis and treatment of severe AS, through guideline-based care, through extended data collection, but also heavy on education. And so these are two big ones. We also invested further in some of the sort of short-range pilot stage marketing programs to improve treatment rates and patient and referral education in The United States. And like Scott said, there are some field relay you know, we're very much a high-touch field clinical field force, and with volumes increasing, we need to get ahead of those resources in the field. They take time. They take time to train and get people certified. So we got ahead a little bit of that, but also a big chunk we got behind early in the year, and a lot of that caught up with us in Q4. So they're the big items. Operator: Thank you. And your next question comes from Travis Steed with Bank of America. Please go ahead. Travis Steed: Congrats. Just wanted to maybe focus on for TAVR and total company growth, anything to kind of call it for cadence over the year? And wasn't clear on an organic basis what Q1 was to me since I didn't have the FX impact in Q1. And then any comments on kind of like the January trends you've seen so far to give you confidence in the guide? Then I had a follow-up. Scott Ullem: Thanks, Travis. Yeah. So I mentioned that we expect about $40 million of tailwind from FX to sales. This is changed since our investor conference. A lot of that falls in the first quarter. And so we're expecting Q1 sales growth on a reported basis to be about 300 basis points higher than the underlying growth that we are expecting in Q1. Now remember, the first half growth rates in Q1 in 2026 should be higher than the second half growth rates. And maybe Daniel will ask you to talk a little bit more about that. Daniel Lippis: Yeah. Thanks, Scott. And hi, Travis. Yeah. It's true. The growth rate in our guidance moves down a little bit over the course of this year. As previously, we guided that the front half will be stronger than the back half in '26, and this is because we have much tougher, much higher year-over-year comps in the second half. We also applied classical seasonality and other assumptions to the year. That weren't the case in 2025, that makes it a little bit more of a challenge. But the Q4 results that we had in 2025 give us increased confidence in our 6% to 8% guidance. And this is really important. On top of that, we have these meaningful tailwinds and catalysts later in the year. That give us confidence in the mid to high single digit beyond 2026. Travis Steed: Got it. Then I have a follow-up on the TAVR NCD. You called it a potential tailwind later this year. Just wanted to kind of think about how you're seeing that help growth more centers, faster patient pathways and if you read the public comments, it's they're all mostly positive on expanding the indication, but there's a bit more debate on the care team. So curious if you think how that shapes up in the final and how it might impact the different scenarios you're thinking about. Daniel Lippis: Yeah. So I'll take this one. I think obviously, it's very, very important. The first phase first of all, it's important that the process was formally reopened. That was really important. That happened right before the end of the year. And the first phase is now over, as Bernard mentioned. So we expect the initial draft around the June time frame. There'll be a second round of public commentary at that point. And then assuming that the normal CMS process, follows the final determination could be in the Q4 time frame. So if you think about impact for 2026, negligible, but probably important and more relevant in 2027 and beyond. Now the key priority areas for us is to ensure timely and equitable access care for patients. Right? And the big win for patients would be coverage to label, and any changes that may reduce procedural complexity or help improve equitable access to care. So that's what we're focused on. But, you know, we need to see what the draft looks like, and we look forward to the process continuing. And like you mentioned, we're also pleased that most of the commentary was positive and largely in line with our thinking. Operator: Thank you. Your next question comes from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Two for me. I wanted to just ask about the LAA opportunity. How big is that market today a competitor that has a device with sales of I think, over $200 million. How is yours differentiated, and how do you want us to think about you know, your LAA sales ramp over the next few years? And I had a follow-up. Bernard Zovighian: You know, we apply, you know, always, you know, the same filter. When we decide to get into a new space, it is all about, you know, is there a big unmet patient needs? Can we have an impact? Can we bring differentiated technologies? And so we look at this one, we say yes, yes, and yes. So how big it is? We don't know where, you know, very well, you know, this segment yet. But we believe there is some technology out there. We believe there is still unmet patient needs. And long term, believe we can have an impact here. But I'm going to ask you, Daveen, which is very close to this one, to add some comments. Daveen Chopra: No. Thanks, Bernard. Thanks, Larry, for the question. Yeah. Obviously, as we mentioned, we're looking to enter the market later this year. And if you look at existing technologies out there, we think there's still unmet patient needs. And that's where we believe, obviously, that we can come out with the technology in this new therapeutic area for Edwards Surgical we can come out with a solution that can really help patient care. And we see this as a complementary solution to our specific valvular procedures that we're already in. So as a result of that, we kind of see kind of, you know, a measured commercial rollout an opportunity to be a growth driver in the future, for Edwards Surgical. Larry Biegelsen: That's super helpful. Bernard, you know, we saw the long list of catalysts, in '26 in your press release today. And I think people will notice that you didn't mention moderate AS. So can you talk about why you left that out and how you're thinking about the moderate opportunity today? Thanks for taking the questions. Bernard Zovighian: Thanks, Larry. I'm glad you saw you have a long list, and indeed, it is a very long list. And let me first, you know, talk a little bit about, you know, why all of these catalysts? And then we get to your question about moderate. The list is very, very long because of our very unique strategy. Where we invest early. We are very committed. We have a flawless execution. I'm sure you have seen that. The kind of result we have had in 2025 is pretty spectacular. Financially, having all these catalysts, you know, new technologies, you know, new evidence, you know, lasting evidence. You know, lasting impact. All of them are, you know, basically, in play, you for this year. With moderate, for sure, you know, moderate is a big category. You know, we know that, you know, the moderate prevalence is bigger than the severe one. We know it is big, but at the same time, we don't know what the study result will be. So we are waiting, you know, to do more about, you know, progress, you know, the progress trial, which will be presented at TCT to talk more about it. What you'll believe what you have seen is but where we know for sure when it is coming and the type of impact, you know, we are going to have. Progress and moderate big opportunity. We don't know yet. You'll have a study of results. Thank you. Operator: Your next question comes from David Roman with Goldman Sachs. David Roman: Thank you. Good afternoon, everybody. I was hoping you could go into a little bit more detail on the comments regarding lifetime management for TAVR and maybe more specifically talk about what you think the implications will be to valve and vendor selection balloon expandable versus self-expandable? And how that might end up being a contributor to incremental market share gains as you think about the TAVR business here in 2026 and beyond? Bernard Zovighian: I know that, you know, Daniel has a lot of passion about this one. So I'm going to let Daniel, you know, talk about this. Daniel Lippis: No. You're on the right point, David. I mean, look. The evidence and when I say evidence, I'm talking the early TAVR evidence, the subanalyses from early TAVR, the evidence that, the likes of Philippe Genreau has published now on acute valve syndrome. And then you've got Partner 3 and Partner 2 long-term data on top of this all pointing to the fact that you know, you're gonna get a better clinical and economic benefit if you treat earlier in the disease pathway. This is a huge shift and it changes the conversation between doctor and patient. So if you can imagine a year ago or a little bit more, you might have it might have been something along the lines of, let's see if we can eat this out another six months or twelve months or maybe a patient would want to thinking that they're trying to time their treatment and trying to figure out how to make their valve last as long as possible to avoid secondary or tertiary procedures. And this conversation has completely shifted because the evidence says that you know, the benefit of doing that is not there's no upside to that. Right? There's no upside to waiting anymore. And so this brings in to the very important conversation and concept of lifetime management. This is very, very important because you gotta get the first procedure right to make sure you've got options and the right options for patients for their second procedure, whether that be another valve and valve or whether that be coronary artery access you know, PCI or what have you. And so you know, we think our platform is uniquely positioned both acutely and with lifetime management options, whether that be secondary or tertiary procedures. And I think that's gonna be one of the key value propositions that we have not only immediately, but in the years to come. David Roman: And maybe just a clarification there. So in that scenario, is it reasonable to expect that just a significant percentage of patients receiving TAVR either in the asymptomatic or call it the sub-seventy-five population, that creates a unique opportunity for SAPIEN? And maybe just my follow-up, I'd ask you on capital allocation. You've obviously pulled the GennaValve deal did not end up coming to fruition. You bought back a good amount of stock last year, but you've also made some key hires to the business development team. Maybe just talk to us about your latest thinking here on capital allocation. Daniel Lippis: Yeah. So as far as the look. Whether it be younger patients or whether it be elderly patients, there's a good chance now with modern medicine and the way that this is going that patients will outlive their first valve. I mean, it's, I think lifetime management considerations is not just now for youthful patients. And in fact, more and more, we see we find ourselves in scenarios where certain valve platforms were chosen with the idea that the patient would not outlive that valve and then you know, finding the options for that patient limited at that time point, which is really disappointing. So this lifetime management thing getting the first procedure right, upfront is a big thing. It is a conversation that everybody is focused on in the clinical community. Now as far as strategic allocation, look. We think valve and valve and whether you throw in leaflet modification or other types of things associated secondary procedures, We think this is going to be very real. It's small now, but it will be growing. It's all about the denominator, right, and the numerator. And so you know, we're looking at ways as we always do to lead in this space and that's something that we're looking at very, very closely. The other thing that obviously we do is we look at how we apply our field force here and how we invest in our field force and what kind of value that we bring with our service model as these conversations and these types of procedures evolve, in terms of how to get the best outcome for a patient at any given time. Scott Ullem: And on capital allocation, David, our priorities have not changed. Our first priority is investing in the business to support our growth. And that comes in the form of making sure we've got sufficient production capacity and we mentioned at the investor conference, we're increasing our production capacity to keep up with the growth in TAVR and TMTT and surgical. It also involves making external investments. And so we've got a number of different activities underway. We've always been active in M&A. As you know, most of the things that we invest in or purchase tend to be smaller in size because we're focused on structural heart. But that's gonna be a continual direction for allocation of capital. And then share repurchase is one of our best ways to return capital to shareholders. And we continued our share repurchase activities in the fourth quarter. We bought back about $40 million bringing the total repurchase in 2025 to just under $900 million. We still have about $2 billion of authorization remaining, and you should expect that we're gonna continue to look for opportunistic times to repurchase more shares. Operator: Thank you. And your next question comes from Joanne Wuensch with Citibank. Please state your question. Joanne Wuensch: Good afternoon and thank you so much. Could you give us a little bit of a state of the union on how M is being taken up in The United States and any or what impacts are going outside The United States? And then if you could just sort of flesh out and give a little bit more color on the guideline changes that are happening in Europe? How to think about those impacts for the remainder of the year. Thank you. Daveen Chopra: Hey. Thanks, Joanne. It's Daveen. I appreciate the question. Talking a little bit about the SAPIEN M3 Launch, We're Just Starting In The U.S. Right? We got approval, obviously, right before the end of the year. And it's kind of scaling in line with our expectations here in The U.S. And we're just starting to open up centers, really focusing on centers who are in our ENCIRCLE pivotal clinical study first. In Europe, we're scaling in line with expectations as well. But it's still pretty early in the process. I think what we like that we're seeing is that we're getting really high procedural success and we're getting really great patient outcomes. Remember, I was with a patient just the other week, who had previously had mitral valve surgery and then needed an M3 because his surgery had failed. And for him, hearing about the difference his life made when he had no other tear or surgical alternatives with mitral regurgitation really hurting his life, and how he just got so much better. Just it warmed my heart so much to kind of hear that. So because of that, we're seeing this physician excitement, because there's a group of patients who didn't who don't really have tear or have great surgical options. For which M3 really becomes a good opportunity. So for us, we're continuing to appropriately kind of scale up, open up new centers, and bring this therapy to new patients. So that's kind of SAPIEN M3. And maybe moving on to kind of European guidelines, you start with TAVR guidelines? Or the European guidelines. So I can talk about the FMR guidelines a little bit. So yeah, so on the and the European guidelines with FMR, they're now class one for functional mitral regurgitation for reduction of heart failure hospitalizations. So we're seeing, I think, increased awareness specifically in mitral and tricuspid, increased awareness for these two diseases. And increased kind of referrals happening with these guideline shifts. So we see it as a helping continue that double-digit tier market growth that we've been seeing. And maybe passing on to TAVR for a comment on the guidelines, Daniel. Daniel Lippis: Joanne, as you may recall, the guidelines on the TAVR side changed in a meaningful way on two fronts. One is they reduced the age recommendation TAVR. Going from 75 to 70. Right? That's one big element of the change. And then the other element was you know, this whole concept of recommending corrective disease management regardless of symptom or heart function. So this is you know, basically taking you know, changing the dogma of watchful waiting in Europe, and so this is a huge shift. Now that is a that requires a lot of education. You can imagine, We're seeing definitely, we did see healthy procedural growth in Q4 in Europe. And some of the large countries, contributed that in a meaningful way. But the way that we look at this is the guidelines won't be a light switch whether it be in Europe or The U.S. or Japan. But give us an opportunity as those get disseminated, as those get democratized, and then, put into practice. It's just layers and layers of durable growth, for us. And so that's kind of how it's playing out. Not a light switch, but definitely momentum. Operator: Thank you. Your next question comes from Matt Taylor with Jefferies. Please state your question. Matt Taylor: I wanted to dig into the better performance we've seen in TAVR especially in The U.S. the last couple of quarters and just ask you what you thought was causing that. You're not benefiting from Boston there, really. Are you gaining share? Can you estimate how much early TAVR has been contributing? Or are there other factors? What's really caused the increase in growth in The U.S. in the last couple quarters? Daniel Lippis: So, yeah, thanks for the question. And I think, you know, without trying to be on repeat here, but this data, this very, very compelling data, not just on the early TAVR and the asymptomatic side, and not just clinical, but also economical economic data. I mean, I can't stress how important the economic data benefit of economic of the economics, treatment of patients and the hospital economics earlier in the disease pathway is having an effect as much as the clinical data. So these two things tied with definitive durability data is creating a wave of confidence in the community to have a different conversation. It is also forcing, if you like, the aortic stenosis patient, the TAVR patient, to be prioritized differently and to be treated with urgency. Alright? Typically, you might see a little bit more rearranging of the patient list to bring more sick patients to the front of the list, and the more healthier patients towards the back of the list. Rather than just getting through the list. And this conversation is completely different now. And people are focusing on this intentional and urgent treatment of symptomatic AS. So this is regardless of whether the patient is asymptomatic or not. This is the impact that it's having on symptomatic aortic stenosis is what we see largely driving our growth. When we look at the claims data, we don't see asymptomatic patients coming in in waves through the claims data, and that shouldn't be a surprise because the NCD doesn't cover asymptomatic indications at the moment. So you know, right now, that's not a huge surprise. What we do see, though, since the indication in The United States, we do see an increase in the number of echos. We do see an increase in the number of referrers. Referrals. We do see a decrease in time from referral to CT, which the heart team evaluation. And interestingly enough, we do see a relatively sharp increase in stress tests. For patients and nobody typically likes to do stress tests. And so that's also an interesting finding that we see in the data. And so, definitively, this is all positive momentum. And it's driving a lot of growth. But as I mentioned before, the other thing that is supporting and contributing to the performance in Q3 and Q4 is the success of SAPIEN 3 Ultra Resilia. That's making a meaningful contribution, you know, to our performance. And we're pretty happy with that. Bernard Zovighian: And big picture here, if you process, you know, all of this that Daniel, you know, talk about, This is what gives us confidence. In our guidance for the year for 6% to 8%. And our guidance beyond 2026 for TAVR from mid to high single digit. You know, all what we are doing right now, you know, all of the things we have been doing, all of these catalysts are impacting you know, severe symptomatic patients. And so, you know, the asymptomatic patient still in front of us, and it is why we are so confident as to have either a or a durable growth opportunity for Edwards Lifesciences Corporation. Thank you. Thank you. Thank you. Operator: Your next question comes from Vijay Kumar with Evercore ISI. Please state your question. Vijay Kumar: Hey, guys. Thanks for taking my question. My first one was quick housekeeping. Scott, I think you called out Sabre was impacted by some distributor adjustments. Could you quantify what that is? And is the Q1 guideline a 10% TAVR growth? Scott Ullem: Sorry. Vijay, could you say that the first part of your question one more time, please? Vijay Kumar: Sorry. On Sabre, you called out a distributor impact in Q4. Could you quantify what the impact is? Are those sales coming back in Q1? And just curious on what gets us to Q1 sales guidance? Is it Sabre are we modeling TAVR of 10% growth? Scott Ullem: Yeah. Sure. Thanks for the question. Yeah. The surgical inventory adjustment was in one country. It was end of the year, and it was really adjusting inventories in the distribution channel. You know, in China, we go through distributors and we work very carefully on managing inventory levels. And so this is just something that we did at the end of the year. We still expect mid-single-digit growth from surgical. In 2026 and beyond. So think of this as a one-time event. Vijay Kumar: No. Sorry. Q1. Scott Ullem: Yes. So Q1, the guidance implies, I mentioned before, on a reported basis, about 300 basis points higher than the underlying growth guidance. We haven't broken out specific underlying growth guidance, but know that the growth in the first half of the year is higher than the growth in the second half of the year. And overall, we're increasingly confident about the 6% to 8% full-year growth guidance for TAVR. Vijay Kumar: That's helpful. And then maybe one on the Moderate AS. What is, I guess, a great way to think about moderate AS? You know, when these patients are untreated, right, do they look like, low-risk TAVR patients? Is this asymptomatic, you know, TAVR? What's the right way to think about Moderate AS, and what's the underlying mortality rate in untreated moderate AS patients? Bernard Zovighian: Maybe, you know, let me start with Vijay and first, you know, when we decide to start a big pivotal study, randomized study, multiyear randomized studies like this one, It is because we believe you know, we can show the benefit to patients. It is because we believe it is a big opportunity. It was because we believe in that case, you know, SAPIEN 3 will have a big positive impact on these patients. So that's just to make sure that you feel our confidence and our belief you know, behind you know, progress in the moderate AS patient population. Having said that, we know the importance of highly scientific clinical studies and as a company relying a lot on world-class evidence you know, we are trying not to talk a lot about, you know, before having seen the results. We know the importance of it. But it is why, you know, some studies are more, you know, like, you know, market studies, you know, marketing studies. So people, you know, have a freedom to talk about it. And here, you know, we want to have a very high bar in terms of clinical evidence. So we have confidence belief, it's the large patient population, and we are going to wait, you know, TCT to share more about it. Now Daniel, do you have anything that you want to share in addition to what I said here? Daniel Lippis: Yeah. The only additional color that I would say is we learned a ton from our asymptomatic early TAVR trial about how unpredictable the nature of the disease is. And you know, this whole idea of that it's a progressive predictable disease is being thrown out the window even on early TAVR. And you know, this is not an asymptomatic trial. Right? PROGRESS is not asymptomatic. Moderate. Right? So we're talking about a symptomatic patient population and we don't know the results of the trial. We don't know, what it looks like. What we do know is it enrolled very fast. Right? And that's usually a bit of an indicator, of things. And so you know, we're excited to sort of just learn more about how this can inform you know, this patient population and how, you know, transcatheter therapies may fit into this. But until we see the data, until we get past TCT, there's not a lot more to add. Operator: Thank you. And ladies and gentlemen, we have reached the end of the question and answer session. So I will now hand the floor back over to Bernard Zovighian for closing remarks. Thank you. Bernard Zovighian: Yes. Thank you so much. Thanks for your continued interest in Edwards Lifesciences Corporation. Scott, Jerrianne, and myself. Welcome any additional questions by telephone. Thank you so much, and have a great rest of your day. Operator: Thank you. And this concludes today's conference. All parties may disconnect. Thank you.