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Operator: At this time, I'd like to welcome everyone to the Coca-Cola Company's Fourth Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to remind everyone that the purpose of this conference is to talk with investors and, therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations Department if they have any questions. I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin. Robin Halpern: Good morning, and thank you for joining us. I'm here with James Quincey, our Chairman and Chief Executive Officer; Henrique Braun, our CEO-elect and Chief Operating Officer; and John Murphy, our President and Chief Financial Officer. We've posted schedules under Financial Information in the Investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to results as reported under generally accepted accounting principles. You can also find schedules in the same section of our website that provide an analysis of our gross and operating margins. This call may contain forward-looking statements, including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports. [Operator Instructions] Now I will turn the call over to James. James Quincey: Thanks, Robin, and good morning, everyone. Before I get started, I'd like to thank all of you for your support and collaboration over the years, from the analysts on the call to the investors who are listening to the many employees and other stakeholders who are joining us as well. Today will be my last earnings call. It's been a tremendous honor to be the CEO of this remarkable company. Coca-Cola gave me the opportunity to serve consumers, customers and communities around the world and work alongside incredibly talented and dedicated colleagues and friends. Our company has achieved a lot over the last decade. Looking back to CAGNY 2017, we set 4 strategic priorities: accelerating our consumer-centric brand portfolio, strengthening our system, digitizing the enterprise and unlocking the power of our people. And I think we've done a good job meeting those priorities. We've added 12 billion-dollar brands to our total beverage portfolio, bringing our total to 32 billion-dollar brands. 75% of our billion-dollar brands are outside our sparkling soft drinks. And while we've expanded our portfolio to offer consumers more choice, we've also reinvigorated growth of our legacy sparkling soft drink brands. Trademark Coca-Cola retail sales grew by over $60 billion, and the brand is the highest valued food and beverage brand in the world according to Kantar with a long runway ahead. Alignment with our bottling partners is better than ever, and we have a clear line of sight into completing our refranchising strategy. This work created a virtuous circle for our system with higher returns, additional investment and further value creation. We've also taken foundational steps to digitize our system. We've made good progress connecting with consumers and customers on a more granular and personalized level. And lastly, we've built a culture that prioritize our willingness to take risks, learn through iteration, push each other and scale successes. Our people and our growth mindset remain 2 of our biggest advantages. As a result of delivering on these 4 strategic priorities, we've had a 7% average organic revenue growth since 2017, above our long-term growth algorithm. After years of being stuck at around $2 comparable earnings per share, we inflected our earnings, overcame ongoing currency headwinds and have achieved a $3 comparable earnings per share in 2025. We also created more than $150 billion of market value for our shareowners and outperformed the consumer staples industry. Our foundation today is as strong as it's ever been. No matter how you slice it by category, by consumer, by channel, we have immense growth opportunities ahead of us. Henrique will bring new energy to ushering our next chapter of growth, and he's particularly passionate about our brands, franchise operating model, digital engagement and our people. We both started at the Coca-Cola Company in the same year over 30 years ago, and he's been an invaluable partner to me over the past decade. He's worked across many functions and has created value for our system on every continent where we do business. The best days for our system continue to be ahead of us, and I'm confident we'll capture these opportunities under Henrique's leadership. So without further ado, I'll pass the call off to Henrique Braun, the next Chief Executive Officer of the Coca-Cola Company. Henrique Braun: Good morning, everyone, and thank you, James. I'd like to take a moment to thank you for your leadership during your tenure as CEO and for your incredible contribution to our system. You leave a legacy of returning our business to growth. It's a privilege to be the next Chief Executive Officer, and I look forward to partnering with you in your ongoing role as the Chairman. Now I'd like to discuss our 2025 performance. Despite a complex external environment in 2025, we delivered on our initial top line and bottom line guidance set last February. We also continued our streak of gaining value share for the last 19 quarters. Organic revenue growth was in line with our long-term growth algorithm. While unit case volume was flat in 2025, we ended the year with better momentum as volume improved each month during the fourth quarter. If you take a step back, we have a long track record of navigating complex external dynamics to hold or grow volume each year. Over the past 50 years, annual volume declined only once, and that was during the pandemic. Rounding out the P&L, ongoing efficiency and effectiveness initiatives drove strong comparable operating margin expansion in 2025, which contributed to 4% comparable earnings per share growth despite 5 points of currency headwinds and a 2-point increase in our comparable effective tax rate. During the fourth quarter, we grew volume despite cycling a tougher comparison versus the prior year. We continue to invest to build our system for the year ahead as well as for the long term. Starting with North America. We delivered strong results despite continued macroeconomic pressure on lower-income consumers. We gained both volume and value share and grew volume, revenue and comparable operating income. We had broad-based strength across our total beverage portfolio as trademark Coca-Cola, Sprite Zero, Fresca, Dasani, fairlife, BODYARMOR trademark and Powerade each group volume. Innovation contributed to our growth as Sprite Chill and Coca Holiday Creamy Vanilla had strong performance. Across our portfolio, our system focused on accelerating cold drink equipment placement, expanding availability of value offerings and winning share of visible inventory. In Latin America, we are lifting and shifting learning from across our markets and leveraging our systems capability to navigate a challenging external environment. During the fourth quarter, we managed to gain value share and grow volume, revenue and comparable currency-neutral operating income. Both Coca-Cola Zero Sugar and Sprite Zero Sugar had strong performance. In Santa Clara, our value-added dairy brand in Mexico, became another addition to our stable of billion-dollar brands. To drive consumer demand, we tapped into key passion points by linking Fanta with Halloween. We also continue to focus on refillable packaging, value offerings and attractive absolute price points across our portfolio. In EMEA, we gained value share and grew volume and revenue. In Europe, volume declined as the quarter started slowly before recovering. To drive transactions, we activated several campaigns focused on the holiday and the upcoming Winter Olympics. In the U.K., we leveraged our English Premier League partnership to engage consumers with customized product offerings. In Italy, to kick off the Winter Olympics Torch Relay, we launched a music festival in Rome. And our Coca-Cola truck followed the Olympic flame across key towns and cities ahead of the games. In Eurasia and the Middle East and in Africa, we grew volume in both operating units. We tapped into key innovations grounded in local consumers in sites like Sprite Lemon & Mint in the Middle East and had impactful marketing campaigns like Schweppes Born Social 2.0 and Cherry Coke in Nigeria. Our efforts to highlight the localness of our system and sharpen our revenue growth management capabilities led to volume growth in both operating units in 2025. Lastly, in Asia Pacific, we gained better share and had flat volume. However, revenue and profit declined during the quarter. Volume growth in Japan was offset by declines elsewhere, driven primarily by softer consumer spending, weaker industry performance and cycling a strong growth in the prior year. We are continuing to invest in long-term growth opportunities across Asia Pacific, and we are implementing granular channel execution plans and tailoring our brand price pack architecture with a focus on attractive absolute price points and value offerings. In summary, we are responding to different dynamics across our markets by adapting faster, leveraging our portfolio power and investing for growth. As I prepare to step into the CEO role and think about what's next, there will be a balance between continuing what's working, evolving where we can to become more effective and efficient. While we are proud of what we have accomplished, future success is never guaranteed. We must remain discontented. Every day, our system needs to focus on being a little bit better and sharper everywhere to drive transformational impact. We have enduring strength, which includes an incredible foundation of $32 billion brands and unmatched system reach. Our mission is both to increase this number of billion-dollar brands and to turn today's billion-dollar brands into tomorrow's multibillion-dollar brands. To drive product quality leadership, I'm excited about 3 key areas. First, we will aim to step-change recruitment, especially with the young adult consumers, by better integrating our marketing campaigns with commercial execution at the point of sale. We already have a good starting point. In the U.S., for example, we have 10 of the top 20 beverage brands for young adult drinkers, including Coca-Cola, which is the #1 beverage brand. Second, we need to get closer to the consumer and improve our speed to market. While we have made some progress with our overall success rates over the past several years, our innovation today is not where it needs to be. We are striving to better anticipate the next growth opportunity in beverages and shape what comes next, driven by our deep consumer insight. Third, I am energized about steering our future RAD system. We must be intentional about putting digital at the core of every connection with consumers, customers and across the system. The better than ever alignment that we have today with our bottling partners is simply the starting point. Putting all together, we'll look to continue expanding our horizons and shape our future. We have a durable strategy and our runway is long. I'm confident we will deliver on our 2026 guidance and capture the vast opportunities available. I look forward to sharing more details on how we are thinking about evolving our culture and our enterprise to fuel a new decade of growth next week at CAGNY. With that, I will turn the call over to John to discuss 2025 performance and guidance for 2026. John Murphy: Thank you, Henrique, and good morning, everyone. First, I'd like to recognize James and congratulate him for his tremendous career and amazing leadership as our CEO. It's been an absolute honor working alongside him. I'm also confident in the company's future as Henrique steps into the CEO role. Looking back at 2025, we remained agile and focused on improving execution of our strategy to deliver on our guidance. During the fourth quarter, we grew organic revenues 5%. Unit case growth was 1%. Concentrate sales grew 3 points ahead of unit cases, driven primarily by the timing of concentrate shipments and an extra day in the quarter. Our price/mix growth of 1% was primarily driven by approximately 4 points of pricing actions, offset by 3 points of unfavorable mix, which was driven by an unusual combination of business mix, category mix and timing of a number of items. Comparable gross margin and comparable operating margin both increased approximately 50 basis points. Both were driven by underlying expansion, partially offset by currency headwinds. Putting it all together, fourth quarter comparable EPS of $0.58 was up 6% year-over-year despite 5% currency headwinds and an increase in our comparable effective tax rate. Free cash flow, excluding the fairlife contingent consideration payment, was $11.4 billion in 2025, which is an increase of approximately $600 million versus the prior year's free cash flow, excluding the IRS tax deposits. Growth was driven by underlying business performance and lower tax payments versus the prior year. Adjusted free cash flow conversion in 2025 was 93%, in line with our long-term targeted range for the third consecutive year. Our balance sheet remains strong with our net debt leverage of 1.6x EBITDA, which is below our targeted range of 2 to 2.5x. We'll continue to judiciously manage our balance sheet as we await a court decision related to our ongoing dispute with the IRS. Enabled by our all-weather strategy, we have demonstrated our ability to navigate local market dynamics to deliver on our global objectives. Our 2026 guidance builds on the results we've achieved over the past several years. We expect organic revenue growth of 4% to 5%, which is in line with our long-term growth algorithm. We also expect growth in comparable currency-neutral earnings per share, excluding acquisitions and divestitures, of 5% to 6%. We continue to focus on investing behind our brands to drive balanced top line growth with volume as a key priority. Notwithstanding volatility in certain commodities and evolving global trade dynamics, we expect the overall impact on our class basket to be manageable. Divestitures are expected to be an approximate 4-point headwind to comparable net revenues and an approximate 1 point headwind to comparable earnings per share. This assumes the pending sale of Coca-Cola Beverages closes subject to regulatory approvals during the second half of 2026, and includes the impact of divesting CHI, which was our juice and value-added dairy finished product operations in Nigeria. Based on current rates and our hedge positions, we anticipate an approximate 1 point currency tailwind to comparable net revenues and an approximate 3-point currency tailwind to comparable earnings per share for full year 2026. Our underlying effective tax rate for 2026 is expected to be 20.9%. All in, we expect comparable earnings per share growth of 7% to 8% versus $3 in 2025. We also expect to generate approximately $12.2 billion of free cash flow in 2026 through approximately $14.4 billion in cash from operations, less approximately $2.2 billion in capital investments. Driven by our free cash flow generation, we have an unwavering commitment to reinvest in our business and grow our dividend. Approximately 25% of our expected 2026 capital investments related to company-owned bottlers and the remaining capital investment is primarily growth oriented, which includes building capacity for our concentrate and finished goods businesses. For the past 63 years, we've grown our dividend. In 2025, dividends paid as a percentage of adjusted free cash flow was 73%, which is relatively in line with our long-term payout ratio of 75%. With respect to acquisitions and share repurchases, we'll stay both flexible and opportunistic. On acquisitions, while our track record has not been perfect, we have created a lot of value in aggregate. Just over half of our portfolio of $32 billion brand was created inorganically. Most of these were bolt-on acquisitions that we never scaled ourselves. On share repurchases, we'll continue to repurchase shares to offset any dilution from the exercise of stock options by employees in the given year. Putting it all together, our capital allocation policy prioritizes both discipline and agility to drive the long-term health of our business and create value for our stakeholders. Finally, there are some considerations to keep in mind for 2026. First, due to a calendar shift in the first quarter, where we'll have 6 additional days, we expect approximately half of the benefit to be offset by concentrate shipment cycling and timing. Also, the fourth quarter will have 6 fewer days. Additionally, we will have lost equity income due to divesting our interest in Coca-Cola consolidated in November 2025. Lastly, assuming the pending sale of Coca-Cola Beverages Africa closes during the second half of 2026, subject to regulatory approvals, we expect the impact from acquisitions and divestitures to be back-half weighted. To sum it all up, we're focused on continuing what's working and transforming where needed to deliver on our 2026 guidance and create enduring value for our shareowners. We believe we're well positioned to drive top line growth, margin expansion, cash generation and returns over the long term. Next week at CAGNY, I'll elaborate further on how we will do this. And with that, operator, we are ready to take questions. Operator: [Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: First, best wishes, James, after a remarkable run under your stewardship, and congratulations to Henrique. I just wanted to get into the nitty-gritty of the 4% to 5% organic sales growth outlook for 2026. I was just hoping to get some perspective on the balance between price/mix and volume in 2026. First, obviously, the Q4 price/mix result was dragged down by geographic mix and timing, as you mentioned. What's the more normalized price/mix run rate as you build up the geographies and look forward to 2026, particularly in a tough consumer environment and relative to what you view as a more underlying run rate on price/mix coming out of Q4? And then just on the volume side, impressive 1% result in the quarter against the tough 2% comparison, but you do have an extra drag on volume from taxes in '26, perhaps some concentrate timing, still difficult consumer environment. So I just wanted to get perspective on volume prospects also for '26 and just, again, the balance between volume and price/mix that's implied in the organic sales growth guidance. James Quincey: Well, thanks, Dara. And I was slightly worried there you're going to try and cram in all the questions for the next few years in your last opportunity to ask me one. Let me unpack a little, particularly, as you mentioned, 2025 price/mix, and then roll into '26. And again, I'll take this opportunity on my last call to make an exhortation to people, particularly as it relates to price/mix and inventory, given our position in the supply chain, to always try and take a 4-quarter view. What do I mean by that? In the fourth quarter, pricing came in at 1%, but actually, it was really 4%. Underlying pricing, as John mentioned, was really 4%. There was this 3% negative mix, partly with [ BIG ], partly with some geographies and categories. In previous quarters, it's been plus 2 or plus 3. If you look across the last 4 quarters, that mix number is even. So it's always useful to take a 4-quarter view on the mix component. If you take that, what you see is 4% underlying price and 1% volume. So you see the fourth quarter in simple terms as a 5% of revenue growth quarter, which is very much what we've been delivering through '25 and back into the previous year. So I think that's super important to bear in mind. And then if we talk historically, as we've -- as inflation has moderated as we have stabilized -- seen some of the economies around the world stabilize, we have been expecting our go-forward guidance to see a more balanced mix of volume and price. And so I think that's what you kind of see for 2026, is a view that we still are going to be top line driven. We see strength in everything we're doing. And I know Henrique and John will unpack that in CAGNY. But we are just being a little more realistic as we always are on where we need to improve to get that volume in '26 and being a degree of prudence, some of the weaknesses would need to resolve themselves and bounce back, India, China, some of the Aseana countries in Europe, and then we've got the kind of the Mexican tax headwind starting now. We have just been what we believe to be realistic and prudent, but still super important, we are leaning into growth. We believe we have all the strategies and execution to drive top line growth well into the future. Operator: Our next question comes from Steve Powers of Deutsche Bank. Stephen Robert Powers: Congrats again, both to you, James, on your past accomplishments, and Henrique, on the accomplishments to come. I guess following up on Dara's question related to the 4% to 5% call for '26. James, a few months ago, you talked about some steady, [ you expressed ] as light drizzle in the macro environment that seems to be trending worse for consumers. I guess, how have you assumed those general operating conditions trend in the year ahead? And as we think about the balance of that 4% to 5% growth that in '26, from a different perspective, you talked about volume versus price, I guess the contributions that you're expecting from emerging versus developed markets in the year ahead, would be helpful as well. James Quincey: Sure. Yes, I think light drizzle was the December phrase, which I still think is true relative to what people were expecting. And look, and I think this mix between volume and price also -- look, we believe we will get back to a balance, so call it 50-50. What is important this year is to know that the places that need to get better are contributors of long-term volume growth. India is a long-term contributor to volume growth. That needs to build back, and we would expect that to ramp up during the year. Similarly, China was a little weaker in the fourth quarter than it had been during the year, and we're looking to see that build back up through the year. And a couple of other ASEAN and European market. So the bit that will -- and obviously, the Mexican tax headwind is more likely to be impactful at the beginning of the year in the first quarter and then, to some extent, mitigate as we execute the actions to try and offset the impact. All of that would lead you to conclude that we need to see the actions executed and see that volume start to build back in some of the volume-driving countries through the year. So therefore, you might see a little more price at the beginning of the year and a little more balanced towards the end of the year, if that makes sense. But in the end, we're looking, and the guys will talk about it in CAGNY next week, to get more growth, more brands and more markets. Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: I wanted to talk a little bit about profitability. North America operating margin expansion, another strong year and now at 30% margins for the first time in this operating unit. I think, one, I've asked John, I've asked you about it in the past, you were like, "Oh, it's a one-off. Don't get too excited about profitability in North America." But it does look like there's been structural change. So I just wanted to talk about now maybe long-term view of that. Is this an appropriate level of margin? Is there more incremental reinvestment you need to do? Do you feel like you're kind of over-earning in some way profitability-wise? Is there more work to do and more expansion that can happen? John Murphy: Lauren, I'd answer it in 2 parts, take the opportunity to talk about it at the total company level. We have, I think in the last 8 years, have averaged about 60 basis points a year operating margin expansion. We have talked frequently about the fact that it's not a fluke. There's lots of levers that we have in the supply chain, marketing investment, how we run the business. And North America has been our, I guess, our performer over the last few years in tapping into all 3 sources. And they expect, and we expect there, our folks running North America, and we expect them to continue to sort of lead the way because there's still tremendous opportunity to, as Henrique said earlier, just get a little bit better every day. We'll talk again next week on a sort of a deeper dive into some of these levers and how they have been and will continue to help us deliver on our long-term algorithm, which, as you know, implies modest expansion on a going-forward basis. Operator: Our next question comes from Chris Carey with Wells Fargo. Christopher Carey: I wanted to bring the discussion back to some of these markets in 2025, which caused a bit more volatility for the business. Some are getting a bit better, I think India. China still has opportunities to get better. Mexico will be implementing the excise tax, so there could be some volatility around volume. I wonder if we just take a step back, can you perhaps comment on some of the markets which have been a bit more challenging or more volatile perhaps than usual in 2025 and how we should be thinking about overcoming those challenges into 2026? Both because the compares get easier, but also some of the actions that you'll be driving in these markets. James, you had mentioned a few in a prior comment. But I wonder if we could just focus in on this concept and talk a bit more strategically about the sequential development and some of the actions that you're thinking through. Henrique Braun: Chris, it's Henrique here. I'll take this one. So first of all, I think it's important to look at the numbers on Q4 because it tells a lot about what you mentioned in terms of how we got puts and takes all over the world, in stronghold markets that continue to have the momentum, in others that we expect to do better and, for different reasons, they were on ups and downs during the year, as James had mentioned, China, Indias of the world and Mexico this year with the headwind that's coming with the taxes. But I'll cover how we're going to actually leverage the whole world performance to continue to deliver towards our outlook, okay? But the all-weather strategy has been working for us because we leverage not only the ones that have the momentum to offset these other markets. If you go specifically into the 3 that we mentioned, in APAC, when we have China, for instance, being a big market for us, volumetrically speaking, but it has been also a market that we have seen the consumer sentiment and the spend being below pre-pandemic days. Nevertheless, we continue to gain share in the market. We took a strategy there to build this for the long term, and we continue to have good inroads on the quality leadership on the core, and we continue to win in that. So it's more of a long-term market, and we expect on our plans to continue to drive that next year, but with some volatility in that. With India, we had last year different impacts from industry dynamics, weather. It was a market that we continue to invest also ahead of the curve, and we believe that we can get back on track in 2026. Finally, the other market Mexico. We have to look at the context of Latin America. We have had headwinds in the past in different markets and the system together was able to build the right capabilities and address it through very good foundations on RGM. That's exactly what we're doing in Mexico, and leveraging the other markets that have the right momentum to get that algorithm going. So in a nutshell, we believe that we have plans to continue to navigate well and the all-weather strategy should put us in a good shape to deliver against the LTGA. Operator: Our next question comes from Filippo Falorni with Citi. Filippo Falorni: Congrats from me as well to both James and Henrique as you step in a role. Maybe first, just a little bit of expansion on the expectation for the North America business into 2026, especially around a few points. Obviously, you have incremental fairlife capacity coming in early in the year. So maybe give us a sense of how you're thinking that would play out throughout the year and the growth for the brand that you're expecting. And also as we get into the summer, you obviously have the World Cup and a lot of activation around that event. Any expectations around potential uplift there? And then lastly, last year in Q1, you had the negative temporary issue with Hispanic consumers around the video. So anything that you can think there to potentially see some more benefit in the first part of the year in North America? Henrique Braun: Filippo, I'll take that one as well. Look, North America 2025, remember that we started the year with the challenge that you mentioned, on some fake news that impacted part of the portfolio. And then we started to go on a sequential basis improving quarter on quarter. We finished, as you see the numbers down in Q4, on a positive note, and with good momentum across the portfolio. We continue to grow on the core, on sparkling, especially on Coca-Cola Trademark. And then we look at also fairlife continue the momentum. We have also very encouraging news on our dual strategy on sports with Powerade and BODYARMOR, not only gaining share, but volume in the market. smartwater continues to do well as well. So from a portfolio basis and a consumer resilience, we believe that we have the good momentum and the plans to continue to build on an environment that didn't change so far in terms of the low-income consumer being pressured and also allowing us to continue to drive this across the different parts of the country to continue to grow and do better every day with our bottlers executing that strategy. So in a nutshell, we believe that we have good plans to continue the momentum that we have, and we expect North America in 2025 to continue the momentum that we built in 2025 -- in 2026 with the momentum we built in 2025. Operator: Our next question comes from Rob Ottenstein with Evercore. Robert Ottenstein: Please let me echo everyone's congratulations. So maybe moving in a slightly direction, over on the FX side. Could you maybe remind us your approach to currency? It's a little complicated, different than some other companies. What the guidance entails and how that is, where I think I'm seeing a 1% tailwind to the top line, but 3% on the bottom line, if I read that correctly? So what is driving that? And then what is your philosophy in terms of currency benefits, whether you'll be investing that into the business or dropping it to the bottom line, perhaps making up for some of the, as James mentioned before, being stuck at $2 for a number of years due to currency. Is this a chance to catch up on that? And then if I may, just kind of looking out, given your hedging policy multiyear, based on where we are today, do you see currency being a similar tailwind to '27 or greater or less than the '26 guidance? John Murphy: Robert, indeed, it's been a while since we've talked about FX and even longer since we talked about FX tailwinds. So good to just anchor any conversation on FX to our broader growth equation. And at the root of that equation is a focus for us to win in each of our markets over time. And for that to happen, we have got to be able to invest in a consistent manner, which, among other things, allows us to price appropriately against both the local macros and the competitive backdrop. So that's part one. Hence, sort of fighting that, part two is, at the total enterprise level, we are committed to growing our U.S. dollar earnings as we've demonstrated over the last few years. And so our hedging program is an enabler to manage both of these tensions. So on the one hand, it removes the burden of sort of nonmarket-driven fluctuations at the local level. So that local market's kind of focus on winning. And secondly, it provides clarity to us at the enterprise level to the task at hand to grow U.S. dollar earnings. So that's sort of the strategic rationale as to why we hedge. And question for any given year is, okay, how are we going to execute optimally against that? And for 2026, we've taken advantage today of some uncertainty regarding the U.S. dollar, to lock in benefits. The tailwinds that we reflected in our guidance today is driven largely by a weaker dollar in some of our larger emerging markets, most notably in Latin America and South Africa. And on the point about how far we [indiscernible] well-hedged against the G10 currencies. Decisions on emerging market currencies are very much linked to the economics of doing it. As you all know, the further out you go, the more challenging the economics become. So we're well-hedged to '26 under G10 and we're as hedged as it makes sense economically on the emerging markets. So all of that's incorporated into the guidance, 1% NSR, 3% of net income. And we feel good about that being our going-in position for the year. As I say, it helps local markets focus on what they need to focus on, and it certainly gives us our homework here at the enterprise level to deliver the U.S. dollar earnings growth. Operator: Our next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: So James, congrats on your amazing run as CEO and now as Chairman, and wishing Henrique continued success now as CEO. My question is on the impact of SNAP changes in the U.S. And then a clarification regarding the Mexican tax, an initial read from the trade, and did that inform your conservative stance for organic sales growth in 2026? James Quincey: Sure. Andrea, I'll do SNAP and then Henrique can talk about the strategy in Mexico. Look, overall, SNAP, I think, is going to end up being manageable. It's a relatively small number from -- seen from a global basis, and we think it's manageable at the U.S. level. Clearly, we think that consumers should be allowed to choose, but regulation is regulation. What we think will happen is people will choose to spend the cash they got on certain things and they'll use the SNAP credits where they're applicable. And at the end of the day, what that all boils down to is we have to make them the brands and the beverages that they want to have and want to be able to spend their disposable income on. And that just puts the challenge on us to give them the category, the beverage, the brand, the pack size, the price point, the most works for them. And net-net, we see it as a manageable impact in the U.S. and overall globally. So I'll let Henrique comment on how we're approaching the Mexican tax situation. Henrique Braun: Yes. On the Mexico one, yes, clearly, it is a headwind that came to us in the beginning of the year, already implemented. But this is a market that you know as well that we have a system that has been for years working tremendously aligned, building the foundations of RGM and allowing us to play that impact of the taxes across the different packages, prices and channels in a way that optimizes how we actually go and try to be in front of our consumers and our customers with an impact that continues to be accepted, right, by the consumer and the customers moving forward. There is another point that helps us as well in 2026, is the fact that Mexico will host the World Cup event. It's the biggest event on earth in terms of engagement to its consumers and customers as well. And we are dialing up our campaigns. They're up from day 1, from Jan 1, we already had the campaign in place. On top of that, we celebrated 100 years of the system in Mexico as well. All of that helps us to go and navigate through what is a headwind. But with all the tools that we have in place as a very focused system, to navigate that throughout the year. Remember that as well we have other tax increases in the past, which we learned from the mistakes and the right movements that we made in 2014 moving forward, and we apply those learnings this time as well to navigate these in the best way. Operator: Our next question comes from Peter Galbo with Bank of America. Peter Galbo: John, I was hoping, just from your prepared remarks, to dig in on a couple of topics. I know we've talked about the mix impact. But maybe you could just give a little bit more detail. I think you specifically called out some timing of investments and there was a bit commentary more focused on EMEA and Asia Pac. So just any additional detail there? And then just the second part, John, in your remarks, I think you talked about maybe a headwind at the equity income line, not only related to some of the refranchising but some other initiatives. Just how much of a hit that is to the EPS for the year would be helpful as we try to think about bridging operating income down to EPS. John Murphy: On the first question, yes, maybe just a little bit more detail. There were 3 primary drivers and each them roughly worth about the same, about 1 point each. So we've had the impact of some of the emerging markets growing faster than the developed markets. And typically, the emerging markets are slightly lower margin. Secondly, in a couple of the developed markets, we've had some categories that in the fourth quarter, of a lower-margin nature, not dramatically up, but still lower, performing better than the higher ones. So that's another point. And then the third point relates primarily to just some of the timing of marketing investments, primarily to both factor in the end of the year and the fast start programs we have in place around the world. So it's very -- it's the first time that I can remember going back, gosh, many quarters, to have 3 of those types of effects hitting us in the same quarter. So it's a one-off, more than something to think of as a trend going forward. And as James said earlier, take a step back and look at the full year and the way we've built our guidance for '25 and reflects more full year view, and that's been a good benchmark in which to guide for next year -- sorry, for this year. James Quincey: I'm sorry, the second -- you had a second question? Yes. So as I said, the primary driver that I alluded to is the sale of the consolidated shares towards the end of the year. And there's a lot of puts and takes that go into the equity income line, so I won't get into all of that detail. But the primary driver is the last equity income on consolidated. Operator: Our next question comes from Peter Grom of UBS. Peter Grom: Congratulations to you both as well. I had a cash flow question. So just maybe with a much stronger year expected on cash flow front in '26, would love to [indiscernible] on your capital allocation strategy and specifically whether you would consider leaning further into any of your 4 strategic priorities in the year ahead. John Murphy: Great topic. I think the starting point here is to get -- is to look at the underlying drivers over the last few years. We've had some unusual items, the IRS tax deposit and the fairlife contingent consideration, which I know on a year-to-year basis has been a little confusing perhaps. But for me, what I look at is the underlying momentum coming from the business, and we see that having had a positive impact on a steady basis. As I mentioned in my prepared remarks, there's a very clear picture as to how we want to best utilize the cash that is coming in. When you go to the top 2 line items, we are investing in the business as the business needs. About 1/4 of our capital investments this year and last year goes towards the franchises that we still own in Africa and India. We have highlighted investments we're making in our finished goods businesses elsewhere in the world, notably with fairlife. And we also have the opportunity in a number of parts of the world to shore up capacity for our concentrate business as it continues to be challenged in some areas to supply market needs. So that's been a priority, will continue to be, and there's no -- there's not a lot of controversy about it. Secondly, with regards to the dividend, we continue to be very proud of the 63-year track record of growing the dividend, and we are supportive of that trend continuing. And then last, less longer term is the idea of being both flexible and opportunistic when it comes to any inorganic opportunities and share repurchasing. For 2026 in particular, the idea going into '26 is to have as much optionality as possible to manage some specific variables, one of which is the outcome of the tax case that we have had with the IRS for many years, which we expect to certainly have a have a significant milestone towards the end of this year, early next year. And it's important for us to feel good about whatever outcome happens either on that or in other areas, that we have what we need to deal with it. So '26, very clear on the flexibility needed. And in the meantime, we'll continue to focus the rest of the company on the core business, driving cash so that those longer-term priorities, as I just outlined, can get the attention that they deserve. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I'd like to maybe step back to maybe we started on the questions of the call, which is just sort of understanding the direction of travel for 2026. It looks like from an EPS perspective, you grew 4% with a 5% hit from FX. This year, you're expecting 7% to 8% with a 3-point benefit. So making adjustments there, it looks like quite a slowdown. So just curious what your -- what's underneath that? Is it investment? Are you just being conservative because it's the beginning of the year? Or is there something else in there? John Murphy: Yes. Let me take that and complement the comments already made. The starting point is what do we think the top line can deliver. And when you look at the guidance we've provided, the 4% to 5%, it reflects the sum of many parts around the world. We have momentum in some markets and we've had challenges in other markets coming out of '25. And we expect to be able to continue in the markets going well, and over the course of the year to have the kind of recoveries that this guidance deserve. So that's part one, really important. Secondly, we've had a long-standing conversation on staying ahead of the curve when it comes to investing in our brands, in our markets with our bottling partners and also in how we run the company. Henrique will talk next week about some of the priorities we have to continue to build capabilities. And so there is a bias going into next year to invest somewhat ahead of the curve. And then the third area, just to keep in mind, is that we have -- we've called it out, but it's important that there some structural cycling as well as some of the below-the-line items that I mentioned earlier regarding Coke. So we're being -- I think we're being prudent going into '26 given the dynamics at the top line level and given the work that's underway in a number of key markets to get momentum, particularly to get volume momentum to where it needs to be. Operator: Our next question comes from Charlie Higgs of Redburn. Charlie Higgs: And yes, just echoing congrats, James, Henrique and Robin on your new roles. All the best of the future on your great innings. James, I just wanted to ask about your move into the role of Executive Chairman. It sounds slightly more involved than the traditional Chairman role. Is that interpretation correct? And could you maybe just outline what your key priorities are in the role? And then I was just curious, Henrique, on your comments on more to do regarding innovation, I'm sure we'll hear more next week, so I don't want to jump the gun too much, but could you perhaps just give some high-level views of where you see the most opportunity and how to execute on those in the context of a slightly weaker global consumer environment? James Quincey: Charlie, I'll share a few thoughts and then pass the baton figuratively and literally to Henrique to talk about the innovation question. I think Executive Chair is clearly more than just a full-on independent nonexecutive chair [indiscernible]. The easiest way to understand it is that there are 2 buckets. One, which is things that the executive chair can do basically at the asking of the CEO to help him operate the business. There's a whole load of stakeholders and people and things, it's -- he has a very full agenda being CEO, he has a very full agenda at the Coca-Cola Company, notwithstanding there's a large team [ to helm ], and so there's an opportunity to help bridge that transition by continuing to carry the can on a set of things. But let's be clear, the person running the company is the CEO. The Executive Chair is there to help on certain issues where the CEO needs it, and that's part of the transition. The other piece of the puzzle is the Chair is involved because the Board is involved. I mean, the Chair is also the representative in a way of the Board. There are a set of issues around capital allocation, risk, long-term talent, where the Board is obviously interested. And there I can help work with Henrique and the team on making sure that we have the best possible dialogue at the Board level on those issues. That's the simple equation. Henrique Braun: Charlie, and you're spot on, we're going to share more next week at CAGNY, very excited about it. But let me give you a hint here about what I meant by that on the earlier remarks. Look, we're definitely making great progress on innovation over the years. You remember that we went from 400 brands to about 170, pruning those brands to continue to accelerate the pace on bigger and better brands connected to consumers. And part of that was to improve our batting ratio there out of the park on innovation, which we have been doing. We've been very disciplined about getting that success ratio better than the past. And we believe that now, just looking at the insights on the different markets, that the world continues to be really open and the consumers looking for more innovation at the local level as well. And that's where we believe that we can make a bigger difference. When I say that we want to be closer to the consumer, is to understand them from a local point of view and not miss that opportunity to start in a local market, something that can turn into a $1 billion brand later and then scale. We have put a lot of efforts in discipline on how to grown the brand, learn how to grow them, and leverage scale. Now it's about bringing more of those localness opportunities into the family and then accelerate. To that extent, you know that we announced today as well 2 more billion-dollar brands to the family, so innocent and Santa Clara from Mexico. That's a great example of something that started locally. And then we've invested behind it. Now the bigger brands and a lot of the learnings from that can be turned into other places to bring more brands to that family. So more next week, but that's the idea. It's an evolution for where we are with an acceleration of innovation being more accretive to the LTGA. Operator: Our next question comes from Carlos Laboy with HSBC. Carlos Alberto Laboy: James, John, Henrique, thank you for the focus, clarity and the growth. You previously said that you reinvest capital you raised from refranchising back into those markets. Should we expect a step-up in marketing and innovation investments in India? On a related basis, can you discuss for India the extent of the digital investments that you've been able to make in B2B platforms and advanced analytics and so forth for the purpose of more granular execution by point of sale before you refranchise? And what's your vision for how the demand fulfillment capability is going to evolve there? Henrique Braun: Carlos, great to hear for you. So let me step back here because it's not only about India. I think it's a strategy that has been working for us. And John mentioned 2 questions before that this idea of investing together, bottlers and us, ahead of the curve. It's, number one, showing the belief that the system has in this industry. And on top of that, that we invested that same idea in every market we operate in. That's very unique from the core. Every market has one mission and it's important. So India, specifically speaking, we not only have been investing with our bottling partners ahead of the curve. I think we mentioned a few quarters back the level of investment that we had on new lines in India that has been unprecedented. That's just to give you an idea about that investment. And we will continue to invest because this is a market for the future. We're still building the industry in there. And that's why we need to continue to invest ahead of the curve, because it's more -- almost on the model that build and will come, right? Because really on this market, you can actually continue to push forward. Digital, it's part of it. It continues to be an opportunity in India. Why? Number one, because digitally speaking, the country infrastructure is pretty high, as well as being an acceleration across the whole India in the last few years. And we also invested behind it with a lot of focus on not only engaging with the consumer through data, tech and AI, but also from a customer point of view, developing a platform that we call Coke Buddy, which is a platform that connects the bottler to the customers through a digital platform that has been growing from day 1. We're still at 1/4 of the entire outlet base that we can reach in India, but we think that we are already deploying digital ordering, AI, agentic AI, to determine the next best SKU. And the next phase of that growth will be an end-to-end digital platform that will connect not only the consumer, the customers, but the experiences, to translate that engagement into transactions. So India, for those reasons, is a market that, on that space, it's going to continue to be ahead of the pack as well. James Quincey: Great. Thanks very much, everyone. To summarize, we are well positioned, I think, to achieve our objectives both in 2026 and the long term. It's a great foundation that's been set. As we've talked, this is the time for a seamless leadership transition and I have every confidence Henrique is the best person to help lead the Coca-Cola Company, the team and the system on our next chapter of growth. Thank you very much for your trust, your investment in the company and for joining us this morning. Henrique Braun: Thank you, James. James Quincey: Yes. Operator: Ladies and gentlemen, this concludes our conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Philips' Fourth Quarter and Full Year 2025 Results Conference Call on Tuesday, February 10, 2026. During the call hosted by Mr. Roy Jakobs, CEO; and Ms. Charlotte Hanneman, CFO, all participants will be in a listen-only mode. [Operator Instructions]. Please note that this call will be recorded, and the replay will be available on the Investor Relations website of Royal Philips. I will now hand the conference over to Ms. Durga Doraisamy, Head of Investor Relations. Please go ahead, madam. Durga Doraisamy: Thank you. Good morning from London, everyone. Today, we will start by reviewing our fourth quarter and full year 2025 results, followed by a short Q&A session. Then at 11 a.m., our Capital Markets Day webcast will begin and run until 4:00 p.m. You will hear from Roy, Charlotte and our Chief Business Leaders as they share how we're driving profitable growth to deliver sustainable value. The program continues with a North America-based Philips customer panel, providing real-world customer insights. Roy will wrap up the day with closing remarks and key takeaways. The press release for both events was published on our website this morning. The replay and full-time script of the webcast along with the presentation and transcript for our Capital Markets Day will be posted within the next 24 hours. As always, I want to draw your attention to our safe harbor statement on screen. With that, over to you, Roy. Roy Jakobs: Thanks, Durga, and good morning, everyone. Thank you for joining us today. We have consistently delivered on our commitments in every quarter this year, including a strong fourth quarter, and we are entering 2026 with momentum. This reflects the impact we are making for our customers and consumers, delivered through disciplined execution by our passionate teams. I want to start with the key highlights for Q4. Order intake was strong, up 7%, reflecting sustained improvement over the past year as we continue to expand and grow our order book, strengthening visibility into 2026 and beyond. Comparable sales growth of 7% year-on-year and was broad-based across all businesses and geographies and strong contributions from Personal Health and Connected Care businesses continued. Adjusted EBITDA margin improved by 160 basis points to 15.1% despite the impact from tariffs. For the full year, we delivered strong order intake of 6%. Comparable sales growth as per outlook and adjusted EBITDA margin of 12.3%, exceeding our outlook, and that's despite the impact of incremental tariffs. These results reflect margin accretive innovation, productivity gains and disciplined execution, translating into strong operational performance and cash generation delivered through a performance culture and highly engaged team. As we enter 2026, we are moving from a strengthened foundation and margin improvement focus into the next phase for Philips, one of profitable growth acceleration with a clear path to mid-single-digit sales CAGR and mid-teens margins by 2028. Now let's look at our fourth quarter and full year 2025 performance in more detail. Starting with orders. Equipment order intake grew 7%, reflecting sustained momentum over the past year. Growth was broad-based across D&T and Connected Care, driven by sustained double-digit growth in North America. We achieved a solid full year performance with D&T order intake up 5% and Connected Care up 7%. Order book grew 5% year-on-year with inherent quarterly unevenness. Within D&T, Image-Guided Therapy achieved strong order intake growth and Precision Diagnosis returned back to growth. Results were driven by strong demand for our high end Azurion 7 interventional platform, the EPIQ CVx ultrasound for cardiovascular imaging and continued successful ramp-up of our CT 5300. In Image-Guided Therapy, we expanded our relationship with Bon Secours Mercy Health, one of the largest U.S. health systems into a 10-year collaboration, spanning 80-plus interventional labs and reinforcing our role as a long-term partner in cardiac care delivery. You will hear more about this during our North America customer panel discussion at our CMD this afternoon. Turning to Connected Care. Demand for our monitoring and enterprise informatics solutions was strong. North America remained our strongest growth driver. Integrated delivery networks and large health systems continue to invest in enterprise patient intelligence and cybersecurity, increasingly through our enterprise monitoring as a service model in order to improve the clinical, operational and economic outcomes. During the quarter, we signed multiple strategic partnerships with leading U.S. health systems, including Atrium Health and UNC Rex. In Enterprise Informatics, we secured a landmark radiology partnership with a large health system in the U.S., standardizing our cloud-based imaging informatics platform hosted on Amazon Web Services across 27 hospitals. This will support more than 4 million imaging studies annually and enable scalable, efficient diagnostic workflows. Turning to Personal Health. We delivered another quarter of sustained broad-based growth across geographies and businesses. Importantly, this growth was driven by healthy sales trends across markets, supported by underlying category growth, resulting in continued market share gains. Demand was particularly strong for our OneBlade shavers and premium portfolio, including high-end shavers and IPL hair removal devices in Grooming and Beauty as well as the DiamondClean series in oral health care. In 2025, we accelerated execution of a multiyear road map centered on AI-enabled, patient-centric and scalable innovation platforms across our portfolio. In Q4, this momentum was [Technical Difficulty]. In December, we launched the world's helium-free 3T MRI. Verida, the world's first AI detector-based always-on spectral CT system; and LumiGuide, the first real-time AI-enabled light-based 3D navigation solution integrated with Azurion. These innovations are expected to support demand, improve mix and contribute to gross margin expansion over time. In Image-Guided Therapy, we closed the acquisition of SpectraWAVE in January, and I want to welcome the SpectraWAVE team to Philips. Their expertise and leadership in high-definition intravascular imaging and angio-based physiological assessment strengthens our innovation leadership in cardiology interventions, the largest value pool in interventional procedures. For consumers, at the China International Import Expo, Philips debuted new oral care, grooming and health care innovations, including the Sonicare Prestige 9900 and Norelco i9000 Prestige, reinforcing our commitment to meaningful locally relevant innovation in China. As a result, we enter 2026 well-positioned with strong innovations to drive profitable growth over the next 3 years, supported by a stronger pipeline and innovation platforms designed for scale. We will go into more detail during today's Capital Markets Day. This year, we continue to make a lot of progress also on our execution priorities, enhancing patient impact and quality, strengthening supply chain resilience and simplifying our operations. Patient impact and quality remains our highest priority, embedded across our businesses, innovation and culture. We delivered tangible improvements in quality performance, including CAPA time lines, significant progress in managing corrections and removals, and we continued year-on-year reductions in nonconformances, complaints and field call rates. We also continue to address the consequences of the Respironics recall and relentlessly work towards resolution of the FDA warning letter issued last October. We integrally designed new innovations and act fast and comprehensively when improvement opportunities arise. At the same time, we advanced innovation through close regulatory engagement, more than doubling our 510(k) clearances over the past 2 years. Together, this reflects simpler, more standardized quality system that embeds patient impact and quality at design stage, enabling high-quality innovation to support patients at scale. Turning to our supply chain. We delivered a step change in execution in 2025, building on the stability achieved over the last 2 years. Service levels are at all-time highs and lead times are back to competitive levels despite a significantly more complex global trade environment. Through decisive disciplined actions, our teams more than offset the impact of incremental tariffs by leveraging productivity improvements, cost discipline and active mitigation measures in the supply chain. With cross-functional teams fully engaged, we continue to strengthen our footprint in North America, our supplier network, but also drive productivity and pricing initiatives as we look ahead to 2026. We are focused on driving disciplined commercial execution with a strong innovation portfolio increasingly oriented towards attractive performance and premium segments, strengthening the order book and accelerating growth over time. Turning to the regions. We continue to see healthy supportive fundamentals across the markets we serve, particularly in North America, where hospital demand remains strong, but the landscape increasingly is segmented. Rising costs and workforce shortages are reinforcing consolidation among larger health systems. This, in turn, is driving the demand for secure, productivity-enhancing platforms as hospitals face constraints on people and costs, rising data volumes and increasing care complexity. This positions Philips well to continue to capture growth, reflected in sustained double-digit order intake growth in 2025, following double-digit growth in 2024, and we expect North America to remain a key growth engine in 2026 and into the midterm. In China, tender activity gradually increased throughout the last year, albeit from a low base, supported by stimulus measures. At the same time, the continued expansion of centralized procurement has led to longer processing times and tougher competition, negatively impacting the translation of higher bidder activity into meaningful market growth. As a result, we remain cautious on the near-term outlook for China, while continuing to see attractive long-term growth potential, also in innovation and in sourcing. As a result, we remain cautious -- sorry, going to Europe. In Europe, capital spending remains stable, while select international regions continue to increase investment in health care and digitization as reflected in strong wins in Indonesia and India. In Personal Health, sellout dynamics in 2025 remains strong across Europe and most growth geographies. Demand in U.S. proved resilient. In China, cautious consumer sentiment persisted and demand was subdued, although slightly improved from the prior year. As we move into 2026, we will continue to closely monitor consumer sentiment and market conditions across all regions. Overall, we expect comparable sales growth between the 3% to 4.5% range in 2026, led by North America and international regions. China sales growth is expected to be stable. Charlotte will now discuss our fourth quarter performance in more detail and also our outlook for 2026. Charlotte Hanneman: Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales improved sequentially, in line with our expected phasing, increasing 4% year-on-year in the fourth quarter and remaining flat for the year. Within the segment, Image-Guided Therapy continued to perform particularly well, delivering double-digit growth in the quarter. Performance was driven by continued momentum in our flagship Azurion platform and strength in coronary intravascular ultrasound. Precision Diagnosis sales were stable. Adjusted EBITDA margin in Diagnosis & Treatment declined by 30 basis points to 11.8% in the fourth quarter. This reflects incremental headwinds from tariffs, which were partially offset by improved gross margin from innovation and productivity measures. For the full year, adjusted EBITDA margin increased by 10 basis points to 11.7%, reflecting solid margin performance despite the impact of tariffs, supported by improved gross margin from innovation and productivity measures. Connected Care closed the year with strong momentum, delivering comparable sales growth of 7% in the fourth quarter and 3% for the full year. Fourth quarter performance was driven by double-digit growth in Monitoring and mid-single-digit growth in Enterprise Informatics, driven by robust order book conversion in North America. Adjusted EBITDA margin in Connected Care expanded 150 basis points to 16.5% in the fourth quarter, driven by operating leverage, improved gross margin and productivity measures, partially offset by higher tariffs. For the full year, adjusted EBITDA margin increased by 110 basis points, crossing the double-digit mark to 10.7%. As part of our ongoing portfolio simplification and focus on scalable, higher-margin platforms, we completed the sale of the Emergency Care business in Q4, in line with the time line previously communicated. In Personal Health, comparable sales growth improved sequentially, growing 14% in the fourth quarter and 8% for the full year, with all 3 businesses contributing. Growth was broad-based across geographies. China benefited from an easier comparison base following the impact of inventory destocking last year, which concluded in the second quarter of 2025, with channel inventory at appropriate levels at the end of 2025. Adjusted EBITDA margin in Personal Health improved 500 basis points to 23% in the fourth quarter, driven by sales growth and productivity measures, partially offset by tariffs and cost inflation. For the full year, adjusted EBITDA margin increased by 130 basis points to 18%. Now turning to our group results. Comparable sales growth accelerated to 7% in the fourth quarter, with broad-based growth across business segments and geographies, led by strong performance from North America. For the full year, comparable sales growth of 2.3% was in line with our outlook. In the fourth quarter, adjusted EBITDA margin expanded 160 basis points year-on-year to 15.1% and for the full year, increased 80 basis points to 12.3%. We are particularly pleased with the continued strength of our margin performance this year, driven by sales growth, gross margin improvement from innovation, favorable mix effect and productivity. This performance more than offset incremental tariff headwinds, which came in slightly better than our expected EUR 150 million to EUR 200 million range after substantial mitigation. As planned, our proactive and extensive mitigation actions delivered results with measures such as inventory management, specialty programs, supplier network optimization and selective regionalization efforts reducing the tariff impact. We continue to actively work on further mitigating measures, including further targeted localization, and we are confident in our ability to fully mitigate these headwinds through disciplined execution by 2028. In Q4, we delivered EUR 248 million in productivity savings, bringing total savings to EUR 815 million for the year, in line with our outlook. Since 2023, our cost management and productivity initiatives delivered more than EUR 2.5 billion, exceeding our original outlook of EUR 2 billion by the end of 2025. There is more we can and will go after. Adjusting items were EUR 179 million in the quarter compared with EUR 286 million in Q4 of last year and EUR 531 million for the full year, in line with our 300 basis points outlook. This compares to approximately 640 basis points last year or 410 basis points, excluding litigation provision net of insurance income, reflecting our strong commitment to reducing adjusting items over time. Income tax expense declined by EUR 376 million in the quarter, mainly driven by the comparative impact of the derecognition of deferred tax assets in the U.S. in Q4 2024 and the recognition of deferred tax assets in other jurisdictions in Q4 2025, partially offset by higher income before tax in Q4 2025. Net income increased to EUR 397 million in the quarter, primarily reflecting improved income from operations and lower tax charges. Adjusted diluted earnings per share from continuing operations were EUR 0.60 in the quarter, representing a year-over-year increase of 20% and up 15% for the full year. Despite significant volatility in major currencies, particularly the U.S. dollar, the impact on our adjusted EBITDA margin and EPS was flat, reflecting disciplined hedging and optimized currency footprint and targeted commercial actions in markets most exposed to currency fluctuations. We generated EUR 1.2 billion of free cash flow this quarter. This was EUR 85 million lower year-over-year, reflecting a tougher comparison base as Q4 2024 included a EUR 367 million Respironics insurance receipt. For the full year, free cash flow was ahead of our outlook, driven by higher earnings, reaching EUR 512 million after the payment of approximately EUR 1 billion in cash related to U.S. medical monitoring and personal injury settlements in the first quarter of 2025. We maintained a disciplined focus on working capital, delivering a strong year-over-year improvement in inventory as a percentage of sales despite ongoing tariff mitigation initiatives. Moving to the balance sheet. We ended the quarter with approximately EUR 2.8 billion in cash and net debt of approximately EUR 5.3 billion. Our leverage ratio improved to 1.7x on a net debt to adjusted EBITDA basis from 2.2x in Q3 and 1.8x in Q4 2024, driven by higher earnings and stronger cash balances. We remain firmly committed to maintaining a strong investment-grade credit rating. Our balance sheet remains strong, and we are pleased to offer shareholders the option to receive dividends in shares or cash while continuing to invest in profitable growth. Now turning to the outlook. We entered 2026 from a position of strength with sustained order intake momentum, improved execution and structural margin, cash and balance sheet improvements, we are well positioned to accelerate profitable growth in 2026 and beyond. We expect comparable sales growth to accelerate to 3% to 4.5%, driven by order intake momentum, innovation and improved commercial execution with all businesses contributing to 2026 growth. Adjusted EBITDA margin is expected to improve to 12.5% to 13% despite the impact from currently known tariffs and building on the strong margin expansion delivered in 2025. The margin improvement will be driven by growth, continued operational improvements and further productivity, partially offset by the incremental impact of tariffs. In 2026, tariff costs will be fully annualized, resulting in a net impact of EUR 250 million to EUR 300 million, net of substantial mitigations. This assumes that the current tariff levels remain in place throughout 2026. On quarterly phasing, we expect a relatively balanced growth profile in 2026. As a result, all 4 quarters are expected to be within our full year comparable sales growth range of 3% to 4.5%, with Q1 at the lower end, consistent with normal seasonality and following a very strong finish to 2025. Adjusted EBITDA margin is expected to slightly decline in Q1 2026 as operational improvements are more than offset by the incremental tariff headwinds, which were not in effect in the first quarter of the prior year. Building on the EUR 2.5 billion productivity program successfully delivered in the last 3 years and continuing to focus on what we can control, we are launching an additional EUR 1.5 billion productivity program for the 2026 to 2028 period. Adjusting items are expected to be around 200 basis points in 2026, down from 300 basis points in 2025, and we remain committed to further reducing them over time. Restructuring costs are expected to be roughly 80 basis points and relate to initiatives to drive cost competitiveness, unlock R&D capacity, enhance supply chain agility and enable central functions to operate at best-in-class cost benchmarks. Other charges estimated at around 120 basis points, mainly related to the Respironics consent decree, field actions, other quality-related and acquisition-related charges. We expect free cash flow in the range of EUR 1.3 billion to EUR 1.5 billion, driven by higher earnings and lower adjusting items. This is expected to be partially offset by a disciplined increase in capital expenditure, supporting growth and regionalization and higher income tax payments associated with improved profitability. This outlook reflects an uncertain macro environment and incorporates currently known tariffs. It excludes any effects of the ongoing Philips Respironics-related proceedings, including the investigation by the U.S. Department of Justice. Now over to Durga. Durga Doraisamy: Thank you, Charlotte. Before we move to a brief Q&A session, just a quick request. Please keep questions focused on our Q4 and full year 2025 results and our 2026 outlook. We will be discussing our midterm plans and outlook in more detail at our Capital Markets Day later today. Operator, we are now ready for questions. Operator: [Operator Instructions] We will now go to our first question. And our first question today comes from the line of Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I have a couple, please. So firstly, Charlotte, for the last couple of quarters, you've been vocal on the gross margin improvement in the business and specifically D&T, owing to a better mix in the order book converting. Can you help us understand how this unfolded in Q4 and how much of a driver you view the mix benefit as a tailwind to your 2026 margin profile? Secondly, order intake for the full year for D&T was 5%. It would be great if you can help us understand how this differs by modality in Q4 and how you can reconcile this with the expected slower revenue performance for 2026 and whether this could be an element of conservatism in your guide? Charlotte Hanneman: Thank you, Hassan. Let me take your first question on our gross margin improvement. We are indeed -- and I indeed have been vocal about that for many quarters, we are very happy with the way our gross margin is developing across Philips. We really see an increase across the board driven also by innovations and productivity as well. And let's keep in mind that gross margin, of course, that's also where our tariffs hit, so that is impacting that as well. So we have been very disciplined in executing across the board. So if I look at 2026, what I think will -- what we see from a 2026 perspective also in D&T, we see continued margin expansion despite the tariff impact. So that gives you a good sense of that. We also think that underlying gross margin strength will continue to be strong. So there are a few factors in the bridge for 2026 to think about. First of all, of course, we have the annualizing tariffs. That's a headwind. Then we have continued productivity, and I will talk more about that later. And then the third component, as you say, is also the gross margin of innovation impact. So all 3 factors contribute. And then for the second question, maybe over to Roy. Roy Jakobs: So if you look to the D&T profile, Hassan, and of course, we were happy with the 5% order intake and the acceleration that we saw towards that 5%. We also see actually order intake momentum continuing. As we said, that's on the back of a very strong North American market that is actually continuing to grow for us double digit in orders. Then we see that if you look to underlying which are the contributors, of course, we have very strong IGT contribution in that mix. We see an acceleration in MR and also ultrasound was a good contributor because we have launched some great new innovations there that have really started to yield very well, including in China. So if you look at the kind of the contribution, you had IGT double digit, then you had the PD business we saw the acceleration as well, but at a lower pace. Now that's something that then also when you look into the sales contributes into your sales conversion. Now, as you know, of course, these are businesses with a bit longer conversion cycles than some of the orders that we have in Connected Care, which were also very strong, but you have more book and bill in that business. So that's kind of where you see that phasing coming into sales a bit slower. Now that builds into 2026, we will continue to see strong order momentum, and that will also underpin the build of sales into the year. So we will see -- and that's what guided and also what Charlotte guided for and that we will start a bit at the lower end of the range, and we see that strengthening in due course of the year as the order intake momentum that we have also been building up to 2025 really lands well into the rest of the year. Hassan Al-Wakeel: Very helpful. And if I can just follow up on the '26 guide, but also beyond. Roy, looking back to 2023, your '25 range was conservative and wide, and you've clearly landed at the top end of this and meaningfully outperformed this year's guidance. What buffers have you built into the guide for '26 and also beyond that, particularly on the margin, given the journey from here is going to be a lot harder than the journey from 7.5% in 2022? Roy Jakobs: Yes. So 2 part of answer, Hassan. Of course, we will go in full detail, right, at the C&D into kind of our plan underpinning '26 to '28. So you'll have extensive views on that later today. The short answer for today is what we learned in the first plan was that indeed, we are living in a dynamic world. So the dynamic world requires that you need to be, on one hand, very diligent in executing your own plan, focus on what you can control. Therefore, productivity is another important contributor. But as we really started to drive innovation and we have that strong foundation now that we can build on, growth will be a big contributor as well to margin, bigger than in the first period. So actually, that will start to kind of really kick in. And then we keep an eye on an uncertain or dynamic environment where tariffs, for example, in '26 is something that, a, we still will have the full year impact of what is currently known, but you also don't know what could happen next, right? But we have adopted and adapted our organization to a much more agile and leaner one where kind of we are building resilience we adopt fast or we adapt fast if we see something happening. And that's also on the growth side, right? When we see growth happening in a certain part of the world, we can faster route to that piece so that we capture that opportunity. And if we see actually an event popping up somewhere, we can also address that faster. So I think that is where we kind of will share a bit more later today and this afternoon. But we are kind of taking an outlook that takes the world into account. Operator: Your next question today comes from the line of Richard Felton from Goldman Sachs. Richard Felton: Two, please. The first one, within D&T, I think Precision Diagnostics was flat in the quarter. I suppose given better order intake across MRI and CT earlier this year, I was surprised it was a little bit stronger than that. So any color on Precision Diagnostics in the quarter and how to think about momentum into 2026, especially as you're bringing new products and new innovation to market? And then the second one, you referenced that Q1 is going to be at the lower end of the full year '26 growth guidance range. I suppose despite the easier comp, any sort of other phasing or things to be aware of on that Q1 comment specifically? Charlotte Hanneman: Richard, thanks for your question. So first on your PD question within D&T. So what we've seen play out in Q4 was in line with expectations. Orders returned to growth in Precision Diagnosis. And then from a sales perspective, we improved sequentially. And let's not forget, of course, from a sales perspective, we have a higher exposure to China, which is also impacting the sales in the fourth quarter. And if I then take a step back from a PD perspective, as you know, we have really rebuilt the foundation from a quality, from a leadership perspective, we reduced SKUs. You will hear from Jay, our business leader, later today on, well, what we've done and also very importantly, the plan going forward. So then from a PD perspective, from a margin perspective, you will have seen the progression. We went from mid-single digit to high single digit. And later today, we'll explain that there is much more to come. And also the innovation that we spoke about and that Hassan asked about earlier is accretive and now turning into a tailwind, particularly related to the RSNA innovations that Roy mentioned on the call earlier. That, in combination with stronger commercial and service execution makes us feel very good about 2026 and will also drive a stronger funnel and order intake in 2026. So that is on your first question. Your second question was on the Q1 phasing that you asked if there were any impacts there. So as I said in my prepared remarks, our growth phasing is much, much more balanced than in 2025. We have a very balanced progression in 2025. And actually, all quarters are in the 3% to 4.5% range, which is a significant improvement from where we were last year. So we're pleased about that. Now Q1, indeed, as you said, starts at the lower end, a couple of reasons, nothing out of the ordinary there. On the one hand, it's just seasonality. Q1 is typically our lowest quarter, as you know. And then, of course, we had a strong finish in Q4 as well. So that's from a sales perspective. From a margin perspective, as I also said in the prepared remarks, look, the tariffs continues to be a significant headwind, and that is particularly impacting us in Q1 because the operating leverage from stronger sales really only kicks in at the end of the year primarily. So Q1 from that perspective is a little bit lighter, and that's where our tariff kicks in strong. But as I said on the prepared remarks as well, we are very committed to margin expansion. Our guide also includes a margin expansion of 20 to 70 basis points. So we go very hard at driving that. Operator: Your next question today comes from the line of Julien Dormois from Jefferies. Julien Dormois: Congratulations on a strong quarter and a very nice landing to '28. I have 2 questions, if I may, as well. The first one relates to Personal Health, which obviously was super strong in Q4 and accelerating sequentially. And this is despite tough comps in the quarter. So just curious whether there is any kind of stocking effect into that? Or is it just the very strong demand you highlighted for Europe and elsewhere? And the second question is more broad. It's just whether you have an update and a stance on the Section 232 investigation that's been running by the U.S. government? Any thoughts you might want to share on that side, please, would be helpful. Charlotte Hanneman: Thank you very much, Julien. And let me take your first question on Personal Health. We were indeed very pleased with our strong Personal Health performance in the quarter, 14% in Q4, actually not on a very tough comp, though. So what has been driving this strong growth, a few different things. First of all, we saw market share gains really across all businesses. Second of all, and this is very pleasing to see, we see very healthy sell-out trends across most geographies and also a very resilient demand in North America. And that is where the combination of our innovations that Roy also mentioned, combined with our strong commercial execution really, really saw great momentum in Q4. And then particularly on your stocking question, I also said it in the prepared remarks, we have, as we promised we would do, derisked the China trade inventory. And it is now roughly at 3 months, whereas a year ago, it was at 6 months. So that means we're now in line with market averages on that. So nothing further to add there. Roy Jakobs: Let me take the second question on the 232. So actually, the 232 investigation has not been concluded nor any outcome shared. How we look at it is that, in essence, it's equal to tariffs, but a different way of going after it, right? So I think this is a potential measure that could replace tariffs. So we don't think this will worse the situation. It could potentially actually improve the situation, but we don't speculate on that. How we look at it is that in essence, they've got to hit the high court who's going to take a different tariff stand. They have a different mean of kind of still securing or putting from some tariffs on imports into the U.S. So we are, of course, actively engaged. We also are part of the discussion. We also know they are looking into measures that potentially could be beneficial. But as I said, we don't want to speculate on any outcome. Operator: Your next question today comes from the line of Veronika Dubajova from Citi. Veronika Dubajova: Excellent. I'll keep it to 2 and also short term. First, I just want to get your flavor for China. Obviously, we've had you guide to flat China in '26. Healthineers has done the same. GE Healthcare, arguably whose mix is closer to yours, have expressed some more cautiousness. They expect China revenues to decline in '26. So just if you can more build -- talk a little bit to the building blocks of that assumption and what you're seeing in that market at the moment. That would be my first one. And then, Charlotte, if I can come back on that PH margin in the fourth quarter. So I've followed your stock for a very long time. I went back through the history. And I think the best margin you ever achieved in PH in the fourth quarter was 21%. So the 23%, especially with tariffs, is highly unusual. Can you maybe talk to some of the structural changes that have happened in the business that are enabling you to drive this substantially better margin dynamic that we have seen in PH versus what we have seen in PH in the past? Roy Jakobs: Thank you, Veronika. Let me take the first one on China. So on China, so we see the following, and as I also highlighted in my remarks. So actually, we see China stabilizing in 2026. So of course, it was a headwind in the last plan period and also in 2025, with stabilizing. So actually, we expect contribution from China, but we are remaining cautious on it. We see 2 different trends. One in PH, where actually we have seen step-by-step some improvement in the sell-out, and we expect that will also kind of result in improvement in sell-in and therefore, sales in the China market. Now on the health systems side, we remain more cautious because the outlook on tenders and how they convert into real orders is still less predictable. And therefore, kind of we are counting for a growth, especially on the health system side, much more on a very strong North America and also the other parts of the world. So that's kind of where we remain cautious overall. We still remain committed to it. We see a slightly differentiated picture between PH and D&T, but we do see kind of China contributing to growth, although to a lesser extent than any other region. Charlotte Hanneman: Yes. Thanks, Veronika. Let me take your second question on the PH margin in Q4. Of course, we are very pleased with that strong margin. And in Q4, particularly also driven by the operating leverage on the back of 14% sales. But if you think about the more structural drivers, I would call out a few and also Deeptha will explain more later today. So that is something to look forward to as well. But the key drivers, first of all, innovation. I mean, Roy spoke about the innovations. We have, for instance, the new platform for Sonicare. We have OneBlade that is doing extremely well. Those innovations, they come at a higher margin, and they also drive premiumization, which also helps to drive higher margin and also drive higher prices. The second component is really around commercial execution, which has been very, very strong in Personal Health. We, of course, win with the winners, the Amazons of the world and the JDs of the world, and that continues to be a very strong force for us as well. And then thirdly, and this goes for all of Philips, we really focus on productivity, on disciplined execution, on controlling the controllables. And all those 3 factors really, really helped us also in Q4 2025. And as I said, Deeptha will explain later how we are confident that we will also further improve over the next 3 years. Veronika Dubajova: That's very helpful, Charlotte. And if I can maybe just quickly follow up. I think originally, at the third quarter, you talked about sort of high single-digit growth in PH. It's obviously come in almost at twice the pace that I think many of us expected. Anything you'd call out? Is there a specific region or a specific category that helped drive this meaningful surprise on the revenues? Charlotte Hanneman: Yes. Thank you, Veronika. I would say it's pretty broad-based overall, both from a business and a geographical perspective. We just saw very good momentum across the board as there's really a lot of demand for our products. So we saw a really good performance in grooming, where -- and I spoke about the OneBlade platform just now. We see very, very good traction across the board. And just as a reminder, in Q4, we, of course, benefited from the lower comparable due to China because last year, we were still in full destocking mode. So that has helped absolutely as well. So -- but also, excluding China, the numbers are still very, very strong. Operator: We will now take our final question for today. And the final question comes from the line of Hugo Solvet from BNP Paribas. Hugo Solvet: Congrats on the [ prints ]. Two, please. First, on the drivers for D&T and CC, Connected Care demand. Patient volumes in the U.S. was not mentioned in the Q3 slide deck. So just wondering what magnitude of pickup you're seeing and how sustainable do you think it is? And on the Q1 margin comment, you expect to decline slightly. Is the decline that we've seen in Q1 2025 would be a good proxy for Q1 2026? Just trying to think about where we should land. Roy Jakobs: Yes, thank you. Let me take the first one in terms of strong demand in terms of the U.S. We see a few drivers, especially big investment in infrastructure in health care systems in the U.S. is driving significant uptake and demand for platforms. So if you look some of the CapEx spend and even if you look kind of the demand forecast on CapEx really highlights that they are strengthening monitoring, they're strengthening cybersecurity as a big priority, which, of course, also plays to our informatics business, both in imaging and again, in monitoring. And therefore, we have seen significant kind of momentum in North America on the Connected Care side. We expect that also to continue into 2025. Now that, of course, is also driven by strengthening of the financial health of the health care systems in the U.S., not all, as we know. So the stronger systems are getting stronger. They are consolidating and actually absorbing some of the smaller systems. But again, that then plays to our platform play because that actually is why they like us because we can provide the core infrastructure for interventional, for cardiac, for monitoring. So those are really key drivers for us that actually have been helping us in 2025. And actually, we see prolonged strong demand on that in '26 and beyond. And actually, I think what will be very helpful today is the customer panel as well because they will talk exactly about their needs to drive more reliability in their operations. So therefore, investing behind that because with the staff shortages, they need to make sure that they have actually systems that support the staff in the best possible way so that they can deal with patients because patient volume is actually strong and good. Also procedures are expanding, what we did also with SpectraWAVE, bolstering our cardiology play is because we see that procedure momentum in cardiology and the patient volume in cardiology especially continuing to grow. And that actually we are very well positioned to capture that across our portfolio with also the imaging part, the monitoring part and the interventional suite. Charlotte Hanneman: Thank you, Roy. Let me take your second question on the Q1 margin, Hugo. I would say it's not a bad proxy to say to take the decline that we saw in Q1 2025. So that's roughly right. Operator: That was the last question. Mr. Jakobs, please continue. Roy Jakobs: Yes. Thank you all. Let me close. We delivered our outlook in 2025 consistently across all 4 quarters. Order intake was healthy. Sales growth improved sequentially, margins expanded and cash generation was strong despite ongoing tariffs. These results demonstrate our strengthened foundation, improved resilience and disciplined execution in a challenging macro environment. This is how we deliver our innovations to consumers and customers across the globe where we see demand for them strengthening. Above all, I also really want to thank all our employees globally for very hard work, delivering these strong results whilst making a meaningful difference through our impact with care culture and delivering better care for more people. With sustained order momentum, robust innovation pipeline, clear focus on accelerating profitable growth and the continued dedication of our teams worldwide, Philips is well positioned to meet our outlook for 2026 and beyond. We look forward to sharing many more details at today's Capital Markets Day starting at 11 a.m. I really invite you to be there. Thank you so much. Looking forward. Operator: Thank you. This concludes the Royal Philips' Fourth Quarter and Full Year 2025 Results Conference Call on Tuesday, February 10, 2026. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Organigram Global Q1 Fiscal 2026 Earnings Call. [Operator Instructions] I will now hand the call over to Max Schwartz, Director of Investor Relations. Please go ahead. Max Schwartz: Very much, Kaira, and good morning, everyone. Thanks for joining us today. As a brief reminder, this call is being recorded, and a replay will be available on our website within 24 hours. Today's call will include forward-looking information, forward-looking statements, and actual results could differ materially due to a number of risk factors outlined in our filings and the cautionary statements included in our Q1 fiscal 2026 press release and MD&A. We'll also reference certain non-IFRS measures such as adjusted EBITDA, adjusted gross margins and free cash flow. Definitions and reconciliations are available in our disclosed materials. Unless otherwise noted, market share data is sourced from Hifyre, Weedcrawler, provincial boards and retailers and our own internal sales tracking. Discussing results today are James Yamanaka, CEO of Organigram; and Greg Guyatt, CFO of Organigram Global. And as a reminder, any investor inquiries not addressed on today's call can be directed to investors@organigram.ca. And with that, I'll now turn the call over to James. Please go ahead, James. James Yamanaka: Thank you, Max, and good morning, everyone. Thanks for joining us today. This is my first earnings call as CEO of Organigram, and I've been encouraged by what I've seen so far. The scale of our operations, the quality of the team and the depth of capability across the business make it clear why Organigram has grown into Canada's leading cannabis company. Over the past month, I focused on understanding where Organigram is genuinely strong and where processes can be fine-tuned. I've traveled to our key facilities, met with colleagues across the organization, and I'm learning a great deal while also noting where my 20 years of experience in global strategy within highly regulated markets can be applied. Being part of a leading company in a developing industry is genuinely exciting for me. Unlike in more mature industries where the market dynamics are less fragmented and tend to be -- tend to move more gradually, cannabis is still very much taking shape. Canada sits at the center of that evolution with global leadership in research, product development, cultivation science, quality and export activity, areas where Organigram has built meaningful strength, while thoughtfully managing the risks associated with maturing markets, regulatory uncertainty and fragmentation. I'm optimistic about the long-term growth of the cannabis industry, and I'm confident in Organigram's ability to compete and lead as that growth continues. With that, let's turn to some of the developments since last quarter. In Canada, we continue to hold the #1 market share position with 11.3% total share in Q1 and 11.7% over the past 12 months. Compared to last quarter, we saw market share decline of approximately 500 basis points, largely due to the impact of the 8-week BC General Employee Union strike, which ended on October 26. After a brief period, brief inventory restock period, our recovery in BC is now complete, and we've regained historical distribution levels. Competition in vapes and IPRs also contributed to the fluctuation in market share, partially offset by growth in flower and concentrate. Nationally, 3 of our brands, SHRED, BOXHOT and Big Bag O' Buds maintained their top 10 brand status in Q1, generating over $67 million in retail sales. In Canada's largest markets, we continue to compete strongly, holding the #1 position in Ontario, British Columbia and Alberta. In Quebec, we moved up to the #3 position with 9.9% market share for the quarter, exiting December at 10.1%, driven by the success of our vape launches. We also continue to outperform in most other provinces in Q1. Notably, we held 33.1% market share in New Brunswick, 21.9% in Newfoundland, 30.4% in Saskatchewan and 12.2% in Nova Scotia. Category performance varied during the quarter compared to the prior year period. Vapes and IPRs remain the most competitive segments. We maintained the #1 position in overall vapes with a 20.4% market share, while in overall pre-rolls, we moved to the #2 position at 7.7%, primarily reflecting increased competition in IPRs. In beverages, market share increased 80 basis points year-over-year to 5.9%. In concentrates, BOXHOT Whipped Diamonds and Organigram Innovation became the #1 dabbable concentrate in Canada, contributing to a 15.5% category share. In edibles, we gained 2.4 points year-over-year to reach 17.9% share with SHRED becoming the #2 gummy brand in the country in December. Finally, in whole flower, market share increased 90 basis points year-over-year to 7.3%, driven by continued strength in our Big Bag brands. Our new innovation pipeline is beginning to reach distribution in the second quarter. This includes new competitive coated IPRs and the launches of SHRED Soda and SHRED Shots, powered by a fast-acting soluble technology developed in the product development center. A key differentiator for SHRED Shots relative to comparable products is our on-package claim of a 15-minute onset. We believe this meaningfully lowers the barrier to trial for consumers, supports retailer decisions around shelf space and with a smaller liquid format paired with a fast predictable dose, positions shots as a discrete and convenient option that competes effectively with other ingestible categories, including gummies. Turning to operations. Operations, we continue to make progress in plant science and scale. In Q1, we harvested over 28,000 kilograms of flower, representing a 43% year-over-year increase. This growth was a result of improving yields driven by our LED lighting conversion project, which was partially funded by opportunities New Brunswick as well as ongoing refinements to our nutrient programs. Alongside these gains, continued progress in our breeding efforts drove average flower THC levels to a quarterly high of over 29%, achieving that level of potency at our operating scale is meaningful. In addition, 38% of lots tested in Q1 exceeded 30% THC. Today, we are also announcing a proprietary breakthrough in powdery mildew resistance. Our plant science teams have identified a genetic marker that can be screened in early seeding population, allowing us to avoid investing time and capital in plants that will never express this resistance trait. Previously, confirming mildew resistance required approximately 90 days. With this discovery, screening can now occur within 10 days, enabling a total -- enabling early removal of out-of-spec populations and reducing downstream crop loss and waste. This screening tool is proprietary and applicable across a wide range of genetics, unlike existing markers that are limited in scope. When combined with our seed-based breeding initiatives, which represent approximately 30% of harvest in the quarter, these advances support more stable genetics, higher realized yields and improved cost efficiency, contributing to our expected margin expansion over time. On the manufacturing side, we continue to optimize our hydrocarbon extraction and pre-roll production. 100% of our extraction is now hydrocarbon-based with capacity up 87% year-on-year and lower associated COGS. Focusing on hydrocarbon extraction allows us to meet increasing derivative needs internally, while expanding B2B opportunities. In Winnipeg, we have completed commissioning of our beverage line and are beginning in-house production for a portion of our beverage portfolio to support its expansion. As we move further into fiscal 2026, the benefits of these improvements should begin to flow more meaningfully through our P&L, as lower cost inventory moves through a more efficient distribution due to the ongoing optimization of our recent ERP upgrades. Moving to our international business. In Q1, we generated $5 million in international sales, up 55% from Q1 fiscal 2025. We did see an unanticipated sequential decline in the international volumes during the quarter. This was primarily driven by higher-than-expected proportion of flower that did not meet international specifications. While some level of out-of-spec product is expected, we've taken steps to remediate this temporary issue, return to normal operating parameters and reduce the risk of future variability. We remain optimistic about international momentum and continue to expect meaningful international sales growth in fiscal 2026 as demand remains elevated. Regarding our expected EU GMP certification, we are preparing follow-up responses and information from the regulator in response to feedback received in January 2026. Following provision of this information, the company expects to await confirmation of certification or any required next steps. On international branded sales, we continue to make progress. In Australia, we shipped input materials for vape production and distribution in December, completing the first production run in January and now are in the process of launching. In the U.S., we launched Collective Project and Fetch in Illinois and Wisconsin through new distribution partners, expanding our retail footprint to 11 states. We are also continuing to pursue marketing and distribution expansion for our happly gummies. In both cases, our penetration in the U.S. has been slower than anticipated, reflecting a rapidly evolving market with increasing competition and ongoing regulatory developments. With Collective Product, Fetch and happly products collectively available in over 20 states through DTC and retail channels, we do anticipate the incremental growth in line with the market, but we are not relying on the U.S. market for growth. We continue to closely monitor regulatory changes in the U.S. and are closely following recent efforts from lawmakers to amend or extend existing limitation on intoxicating hemp products. So overall, we are pleased with our year-over-year growth and despite sequentially lower international sales, typical seasonality and the impact of the BC labor strike, we maintain adjusted gross margins in line with our record-breaking Q4 and fiscal 2025. As the year progresses, we remain confident in our ability to deliver against our previously issued guidance. With that, I'll turn over the call to Greg to walk through our financial performance. Greg? Greg Guyatt: Thank you, James. Great to have you on board for our first earnings call together. Good morning, everyone. Before getting into the numbers, I'll briefly frame Q1. Results reflected strong year-over-year revenue and adjusted EBITDA growth alongside the usual seasonal reset from Q4 as we discussed last earnings call, with some incremental pressure from the operational and market factors James mentioned. Importantly, none of these dynamics change our expectations for the rest of the year. Our business has historically delivered stronger fundamental performance in the second half of the fiscal year, particularly in Q3 and Q4. Based on our recent visibility and execution -- based on our current visibility and execution plans, we remain on track to deliver against our full year guidance. With that, let's turn to the quarter. In Q1, net revenue increased 49% to $65.3 million from $42.7 million in the same prior year period, primarily due to growth in our Canadian business, the integration of Motif and higher international sales. International sales for Q1 were $5 million, up 51% over Q1 last year. Sequentially, net revenue decreased 21%. The decrease was primarily due to our seasonally lower Q1. As James mentioned, Q1 was also negatively impacted by the BC employee strike, increased competition in vapes and pre-rolls and sequentially lower international sales. Adjusted gross profit for the quarter increased 67% to $23.9 million versus $14.3 million in Q1 last year due to our significantly higher revenue base, international sales growth and incremental efficiency gains. We are pleased to report that despite seasonal and competitive impacts on revenue as well as lower levels of high-margin international sales, adjusted gross margin remained stable sequentially at 38%, an increase of 500 basis points over Q1 last year. Adjusted gross margin was supported by higher yields, lower cultivation costs and Motif synergy realization as we started to sell through lower cost inventory. This demonstrates that our investments in efficiency are having a positive impact on cost per gram and margins, which we anticipate continuing to expand as international volumes scale throughout the year. In Q1, G&A costs were $15 million versus $11.2 million in the prior year period. The 33% year-over-year increase in G&A is primarily associated with the consolidation of Motif's costs for the full quarter, incremental ERP and professional fees, higher depreciation and amortization, but partially offset by cost savings initiatives. As we're in the final phases of ERP implementation, we expect the associated costs with that project to roll off after the second quarter. As a proportion of net revenue, G&A costs represented roughly 24% of net revenue in Q1, which was down approximately 200 basis points from the same prior year period. Sales and marketing costs were $9 million versus $5.8 million in the same prior year period. Similar to G&A, the year-over-year increase is primarily attributable to supporting the addition of Motif and Collective brand project -- Collective Project brand portfolios. Sales and marketing costs represented 14% of net revenue, up approximately 500 basis points year-over-year. Overall, SG&A declined by 200 basis points year-over-year as a percentage of net revenue, reflecting continued scale and operating leverage, partially offset by higher trade investment to support competitive activity. Our expectation remains that SG&A costs will continue declining incrementally relative to net revenue as the year progresses, all else being equal. Total operating expenses for the quarter were $26.7 million or 42% of net revenue, a year-over-year decrease of 600 basis points, primarily due to lower proportional G&A costs and lower R&D spending. Adjusted EBITDA in Q1 was $5.3 million, up 273% from $1.4 million in the prior year period, driven by increased scale, higher international sales and proportionately lower operating expenses. Sequentially, adjusted EBITDA declined primarily due to our lower international sales, the now resolved revenue disruption in British Columbia and as previously mentioned, our normal seasonal dynamics. Net income for the quarter was $20 million compared to a net loss of $23 million in the same prior year period. The $43 million year-over-year improvement was primarily due to changes in the fair value of derivative liabilities and top-up rights associated with our follow-on BAT investment. From a cash flow perspective, in Q1, cash provided by operating activities before working capital changes was $0.3 million compared to cash used of $6.3 million in the prior year period, demonstrating improved cash generation from the core business, supporting our full year guidance of positive free cash flow. Cash used by operations after working capital changes was $16 million versus cash used of $4.2 million in Q1 last year. The increase in cash used was driven by investments in working capital related to higher inventory levels as we completed the migration of our new ERP enhancements and the timing of excise duties and Health Canada licensing payments that occurred in the first quarter. Finally, as of quarter end, we held total cash and short-term investments of $63 million, including $7.6 million of unrestricted cash. We are confident in our ability to generate cash from operations and free cash flow in the near term and are assessing nondilutive sources of capital to support liquidity and financial flexibility. To wrap up, in Q1, we delivered strong year-over-year growth in revenue and adjusted EBITDA, maintained stable sequential margins at 38% and continue to demonstrate operating leverage as the organization continues to scale. Our margin performance this quarter underscores the progress we're making on efficiency, cost structure and Motif integration, and we expect these benefits to become increasingly visible as higher-margin international volumes scale through the back half of the year. While working capital weighed on cash usage in the quarter, cash generation from the core business continues to improve, and we remain confident in our ability to deliver positive free cash flow for the full year. We remain on track to deliver against our full year guidance of revenue exceeding $300 million, supported by improving fundamentals, expanding margins and a disciplined approach to capital and liquidity. With that, we'd be happy to open the call for questions. Max Schwartz: Sorry all, we'll get to questions in a moment. Our moderator just having an issue on their end. Just give us one moment to resolve. Unknown Executive: This is Devin from Q4. I'm going to sub in for Kaira right now. She's just having some technical difficulties. So going ahead with the Q&A, we have Aaron Grey currently on stage. Aaron, if you're muted locally, just please unmute yourself. You're still on stage. Aaron Grey: Can you guys hear me, okay? Unknown Executive: There we go. Yes, we can hear you. Aaron Grey: Okay. Perfect. All right. Fantastic. James, welcome aboard. Great to have you back in the industry now. So I guess first question for me is, now that you've kind of started to get your feet, I know it's still early days, but it sounds like you've been growing a lot of facilities and getting a better feel for the business. It would be great to kind of hear in terms of where are you seeing some of the lower-hanging near-term opportunities versus some of the initiatives that might be more long-term in nature? And how we should think about maybe how your level setting prioritization of those initiatives? James Yamanaka: Sure. First of all, thank you. It's great to be in here. And like you said, it's been about a month since I've actually gotten into the role. And what I have been doing is looking -- is visiting a lot of the facilities, meeting with the people and the observation to me is it's a very strong company, good people, good capabilities and a strong ability to grow into the future. In terms of the priorities, overall, look, I don't think it's a massive change after my first month. It will always be focused on consumers, on the innovation and on international expansion in the future to grow the business. In terms of the short-term priorities and the things that I think we need to focus on in the short term, it really is about operational execution, making sure that we really have a focus on executing with precision, focusing on the cost base, improving the margins and make sure we deliver to the market. In the longer term, I think one of the reasons I was brought into the role was that over 20 years of international experience I've had. In fact, my entire career has been in international markets. And it's really looking at what are those future opportunities, balancing off sort of the risk, not overextending ourselves, but making sure we take advantage of the growth opportunities in the future. But to sum it up, the fundamentals don't change. The biggest focus is about execution and making sure we deliver on the numbers and improve our margins over time and also focusing on the cost base. Longer term, it's about -- mid- to longer term, it's about expanding into those international markets prudently and making sure that we are able to grow the business sustainably. Aaron Grey: Okay. Great. I appreciate that color. Second question for me, just... Unknown Executive: Our next question comes from the line of Kenric Tyghe with Canaccord Genuity. Kenric Tyghe: James, congrats on the appointment. With respect to international volumes, could you provide some insight on perhaps a little more color around what happened? And second to that, also on any indications of what was left on the table on the back of those flower issues. Essentially, what actions have you taken to address and perhaps what did it cost in the quarter? James Yamanaka: Yes. I think the first thing to note is that the requirements on international flower and the process that you can take in terms of processing the product are far more stringent in a lot of the international markets and particularly in Germany, which is the fastest-growing and largest of the international markets at the moment. What has happened is, as we mentioned, we had a fantastic increase in yields over the past year, which has meant we've had a lot more flower on hand, which has caused some issues in microbial growth. We have identified what we believe are the core drivers. We're working on it to fix it. I do believe it's a temporary issue, and we should get back to supplying the market in the future. So that's what it is today. You asked as well about the exact effect. I might have to refer over to Greg for that, if there is an answer for that, Greg? Greg Guyatt: Yes. Sure, James. Kenric, we think that the impact of that was probably about $3.5 million on revenue of international. So if you think about the fact that we hit $5 million in Q1, which is a 50% improvement over last year, if we sort of had the normal on spec for flower, it would have been a pretty significant improvement relative to last year. Kenric Tyghe: Appreciate the granularity. Operator: We have a question again from Aaron Grey with Alliance Global Partners. Aaron Grey: I'll ask a second one here. So I appreciate the color on the international market now. So just a follow-up on that real quick, and then I'll go into my second question. Can you then utilize potentially that product? Can you reallocate it? I'll ask it that way. And then kind of turning towards the Canadian market, do you feel a bit more confident in terms of the snapback? It sounds like it was twofold. Number one, obviously, you guys had BC. So it sounds like that was more of a snapback. But then second, we talked about more of the competitive nature -- increased competitive nature of vapes and pre-rolls. Could you maybe talk about those 2 issues and how we should think about the recovery within the Canadian market? James Yamanaka: Sure. I'll take those in different orders. So in terms of BC, yes, I think we're back -- we are back up to the traditional distribution levels. So you would expect the sales to snap back in BC. In terms of the micro -- I mean, the non-spec international. As I said, we've identified what we believe are the core drivers of that, which is very much about the good work the team has done on the yield has created some issues. We are working on it. It's a top priority, and we expect that we will be resolving this issue. We don't think it's a proven issue. And finally, as I mentioned in my statement in terms of the increased competitiveness, we do have new launches. We're fighting -- we will fight back with new innovations and try to get there. But this is a very competitive part of the market. So I would say this would be one where we balance out the amount of investment we want to put in to get that share back, balancing off the margins and making sure that we make the right decisions to get back to some growth there. Greg Guyatt: Aaron, Greg here. May I'll just jump in with a little bit of extra color on your question about the international flower that was out-of-spec, and can it be reallocated to other markets? Absolutely. So we have taken that flower and repurposed it towards the Canadian market. And there's no issues with it. It just didn't meet the needs for our international customer. So we're not expecting any inventory write-offs as a result of that. Aaron Grey: Perfect. Operator: Our next call comes from Brenna Cunnington from ATB Capital Markets. Brenna Cunnington: So just regarding the pending EU GMP certification, it's good that you got like some feedback, some news is better than new news, right? We know that it's hard to predict, like as we all know, regulators are unpredictable at best. But what type of time line might we see for this coming through? James Yamanaka: Yes. Where we are in the process right now, we've received some feedback back from the regulators in January where they had some additional questions. We're working closely with them to resolve those issues and to answer those questions. In terms of time lines, we're working forward the fastest we possibly can in conjunction with them. But like you said, these are regulators. So all we can do, we are doing our best to get it done as quickly as possible, but I can't give you a hard time line at the moment. But we are working on the specific concerns they had and not concerns, but questions they had and clarifications they asked for, and we will -- we're working with them to try to get it as quickly as possible. Operator: Our next question comes from the line of Pablo Zuanic from Zuanic and Associates. Pablo Zuanic: Can I ask a question regarding route-to-market in Europe? I understand you work obviously with Sanity Group in which you have an investment, BAT also has an investment in them, but you also work with other distributors. So I'm just trying to understand going forward, as you enter other markets, do you go direct? Do you go through Sanity? If you can just expand in terms of how you think about that. James Yamanaka: Okay. I'll start off with that, and maybe I'll hand over to Greg, who obviously has more time in the business than I do. I think the answer is that it will be a mix. Some of it, obviously, we sell to Sanity Group, which we do have an investment in. But as opportunities arise, there will be other models in different markets. So sometimes it will be direct sales. sometimes it will be to Sanity. And it will just depend on what the regulations require and what the best option, the most cost-effective way and sustainable way depending on the market it is. So I don't have a direct answer that would be consistent across all of them. Greg, do you have any comment on that? Greg Guyatt: Yes. I mean -- thanks, Pablo. I mean we ship direct to Germany, obviously, through our partner, Sanity. We also ship directly to the U.K. at the moment. I think as far as other markets in Europe, such as look at the likes of Czechia, Poland and some of the others that are opening up, we have the ability to ship there directly. But we also -- we've got a great relationship with Sanity Group. So we're always in discussions about what the best way for us to go-to-market is. But at the moment, we ship direct to whichever markets we're competing in. Pablo Zuanic: Okay. And then just a quick follow-up regarding the U.S. I know it's hard to predict how the regulatory environment will evolve there, but you are one of the few Canadian LPs that's actually operating in the Canadian -- in the U.S. market indirectly, right, through the 2 brands that you mentioned. In my opinion, the U.S. market would consolidate very quickly. So how do you get ahead of that? I mean, can you make investments? Can you set up guardrails to do that and preserve your NASDAQ listing? Just trying to understand, again, how do you think about accelerating M&A in the U.S. market? And how do you protect your NASDAQ listing as you do that? James Yamanaka: Well, I think, first of all, the NASDAQ listing does not allow us to do full investment in the U.S. across all of the categories because of the state-by-state nature and the lack of federal regulation around it. So that would be a constraint on what we could invest in the U.S. as a start. In terms of the current regulations, first of all, remember that the U.S. is actually a relatively immaterial part of our business today. I think it's less than 1% of our revenues, and it's not crucial to the growth plans for Organigram. In terms of the regulatory situation, your guess is as good as ours. We -- under the current legislation, which is meant to go into effect in November, we're speaking with lawmakers as are other parties, and we're hoping that we find a good resolution to this. But at the moment, we're creating different plans to make -- how we protect our current business in the U.S. and set it up for -- make sure that we're there should federal regulation change at some point in the future. Again, Greg, do you have any other comment on that? Greg Guyatt: Yes. Thanks, James. I think you hit most of the key points there. The one additional thing I would add is given the regulatory uncertainty; we're not investing really heavily in the U.S. right now. We're kind of waiting to see what happens. We're continuing to support the existing business, investing in sales and marketing and so forth. But really until we start to see some clarity around regulation, I think we're going to be prudent as to how much capital we deploy in that market, particularly given the size of that business for us today. Obviously, we hope that things get clarified in the coming months. But right now, I think we just need to kind of wait and see what happens, and we'll continue to focus on other international markets where we see the bigger growth opportunities for us in the short term. Operator: [Operator Instructions] Our next call comes from Kenric Tyghe from Canaccord Genuity. Kenric Tyghe: Apologies for the follow-up. Just with respect to the increased competition that you called out in pre-rolls, did that also translate into increased promotional intensity in the quarter? And was that increased competition across all markets and pretty broad-based? Or was it pretty narrow and only in specific markets? James Yamanaka: On this one, Greg, can you provide some color? Again, I apologize, it's been a month in. Greg, do you have any color on that one? Greg Guyatt: Yes. No problem, James. Yes, Kenric, I'd say it's a competitive space in general, like all the categories have pretty intense competition. I think when it comes to pre-rolls and IPRs, we're seeing the value proposition really evolving across the entire industry. Similar to what we've seen in prior quarters, the potencies are increasing, pricing has become more competitive. We're confident that we have great offerings coming and in the pipeline that are going to address those challenges, but that's sort of what we're seeing across the category, pricing coming down and potency being the key challenge. The rest of the industry, I mean, we're seeing sort of similar levels of competition across vapes versus what we had in the prior quarter. Flower is always competitive. We think we've got a really great foothold there. And then in the beverage space with the shots coming out, we're very optimistic about that and the current product portfolio. We think there's some good growth opportunities there. So really looking forward to the new offerings coming and higher potencies in -- across pre-rolls, which I think will position us really well to compete effectively in all of those categories. Operator: There are no further questions at this time. I will now turn the call back to James Yamanaka, CEO, for closing remarks. James Yamanaka: First of all, thank you for joining the call today, and thank you for the questions. I'm looking forward to more of these going forward. And as I get my feet on the table a bit more to be able to give you a little more clarity on some of the future of the business. So thank you very much for your attendance today, and I'll pass it back over to the moderator. Operator: Thank you. This concludes today's call. Thank you for attending. You may now disconnect.
Matthijs Storm: Good morning, and welcome to the Wereldhave webcast for the full year 2025 results. I'm here today with our CFO, Dennis de Vreede; and I'm Matthijs Storm, the CEO of Wereldhave. We'll take you through a presentation, which you can also find on our website. Already during the presentation you can type your questions in the textbox at the bottom of your screen. Towards the end of the presentation, we will deal with all your questions as usual. So let's get started. Let's start with some key messages of the 2025 results. Direct result per share, EUR 1.86, which is well above the initial guidance that we provided about 1 year ago and also above the latest guidance with Q3 of EUR 1.80 to EUR 1.85. Zooming in on the results, and we'll give you some more color later, of course, during the presentation, but we see improving occupier markets. Costs have been relatively stable, which I think is also a good achievement of the company with a growing portfolio. And last but not least, we also see growth in what we call other income. We'll get back to that later. Occupancy rate at 98%, we had to dive into quite some older annual reports to find a number like this. That was in 2013. That was actually before the big wave of a lot of bankruptcies in retailer chains in the Netherlands and in Belgium and I think also in other European countries. So it's nice to see that we're back at this high level. Like-for-like rental growth, plus 6%. Improving Dutch retail market is helping a lot with that, but also the other income I just mentioned. We'll zoom in on the breakdown of this later. We sold the Dutch Full Service Center Sterrenburg at EUR 60 million book value in December 2025, which I think is an interesting achievement because this is the first full service center we are selling with some compelling KPIs. Dennis will talk about that later. Stable cost base, I've mentioned. Total shareholder return last year of plus 51%. The dividend per share, we proposed EUR 1.30 for 2025, that will be decided on the AGM of May 2026. It's an increase of 4%. With that, we remain quite conservative. It's a payout of 70%, a little bit below the targeted payout range. But as long as our loan-to-value is above 40%, Dennis will talk more about that later, we think we should remain conservative. Outlook for 2026, EUR 1.85 to EUR 1.95. Zooming in on some of the key numbers of 2025. The direct result, I've already mentioned. The indirect result, unlike last year, was slightly negative. We'll zoom in on that later. We saw slightly negative valuations in the Netherlands and in Belgium. It's more asset specific. We'll talk more about it later. On the LTV side, you see a slight increase over the last year from 41.8% to 42.5%. Again, I want to stress, it is our priority to reduce this below 40%. The French disposals, equity-funded acquisitions, but also JVing existing Dutch assets, for example, will all help to reduce the LTV ultimately below 40%. We're now at 16.4% mixed use, so we also made nice progression on that side. The like-for-like rental growth, I'll zoom in on the callout box on the top right of your screen, 6.3%, driven first and foremost, by indexation, logical, other income. Thirdly, a reduction of property expenses, which was a key priority already in '24, but also in '25, which is yielding some very nice results, amongst others, recouping some older bad debt, I think a very nice performance of our finance team. Leasing, plus 0.6%, combination of positive leasing spreads, slightly positive leasing spreads of about 3%, but also some sales-based rent. Occupancy, a small increase with 20 basis points, contributing to the like-for-like. Then zooming in on what we call other income, which is becoming a more and more important revenue driver. When we talk about other income, we're not talking about rental income from the shops we are renting out or from the parking. For us, it's important to mention that in the definition, parking income is not other income, it's real estate. So it's real estate income, it's rental income. We talk about ESG income, for example, solar panels, EV chargers on the parkings. As you know, we own -- in most of the cases, we own the parkings, either underground, but in Belgium, for example, mostly outside. And those are interesting opportunities. Think about Ville2, we bought in Charleroi with about 2,500 parking spaces, all outside ground floor level, very interesting opportunity to roll out EV chargers. Marketing and media, digital screens, we signed an important deal in September last year with Ocean Outdoor for the Netherlands, boosting our direct result per share by at least 3% per annum. We'll be working on Belgium and Luxembourg this year. We signed our first joint venture with Sofidy for Stadshart Zoetermeer in June 2025. The management income from that JV is included in the other income. Of course, we also have a profit share in the entity where we are investing in Zoetermeer. But here, we're talking about the management fees. Self-services, for example, vending machines in our centers, and lastly, specialty leasing, I think that is a well-known concept, but that is also increasing. So let's talk about some numbers. In 2025, we had EUR 6.7 million other income and we think we can increase to EUR 10.1 million in 2027. Of course, this number does not yet include additional joint ventures. If we're able to sign and we're working on several projects -- in the Netherlands, if we're able to sign more joint ventures, of course, the figure will increase. Then we focus on the results itself. Operations, we're very happy with the results, particularly with the Netherlands, finally, a positive leasing spread. You'll see more about that later. If I focus on the core portfolio, Netherlands, Belgium and Luxembourg, you can see an MGR Uplift of 2.7%, which I think is compelling. but also the occupancy rate of 98%, as mentioned before. France is still a negative figure, but less negative at least than last year. And we also think that our NRI from France will be relatively stable to slightly up in 2026 despite, as you probably know, the very low inflation and indexation forecasted for '26 for France. The LifeCentral strategy, we already have about 4, 5 years of track record. So we thought it would be nice to show you some aggregated results. Footfall, full service centers, nicely above traditional shopping centers, also tenant sales, but also the total property return. Our key indicators, I think many of you know this, but I think the charts speak for themselves. Then we also published a table with some detailed result. I'm not going to mention it all. As you might know, in the first half of '25, we had about an EUR 8 million write-down on our Tilburg asset because we extended some leases. We chose for longer lease maturities that had some impact, of course, on the valuation results of the full service centers. But other than that, if you focus on the bottom of the slide, you can see some nice outperformance. Dutch leasing market, I mentioned it already. We see it improving. 2013, '14, '15, '16, a lot of bankruptcies, as we've mentioned previously. Then came the COVID period, which was also tough, of course. But now we see an improving market. What you can see here on the chart is, first of all, the leasing spread, new rent versus old rent, has been negative for a lot of years, that has now turned positive to plus 4%. And also the occupancy rate of the portfolio at 97.4% is actually at the highest since 2013, which is not even on this chart. We see an improving market. I'd also like to mention, for example, the vacancy of Blokker and Casa, the reletting of the units that took place in the first half of '25 [ rent ] pretty quick and occurred in total at a slightly higher rent than the previous rent. We could choose amongst several concepts, and that was a while ago. So we're quite positive and constructive on that. The footfall, I think you can see here in all the 3 charts that in the Netherlands, Belgium, Luxembourg, our core markets, we're nicely outperforming the market. Tenant sales plus 2%, a little bit slower growth than last year, particularly in Belgium. You can see, for example, in the Shoes segment in both countries actually, but in Belgium, that is a bigger segment in our portfolio, that dragged down the sales growth a bit. What's also impacted is the bankruptcy of Lunch Garden, the larger F&B concept, in 2024. Some of those units were vacant in '25. So that, of course, impacts the like-for-like sales growth in Belgium. In the Netherlands, plus 3% is above inflation indexation, which I think is a good result, except for multimedia and electronics, minus 5%. We had a tougher year, although the COVID years and the post-COVID years were a little bit stronger in this segment. Daily life, as you know, we use this as a gauge for the resilience of our revenue stream. We now have 65% daily life exposure, convenience, retail, nondiscretionary. It's a little bit lower than last year, and this is all because of -- and you can see that in the callout -- because of the acquisitions in Luxembourg, but also Ville2 in Charleroi. Of course, these shopping centers will also be turned in full service centers. And once that is completed, the daily life exposure will go up again. Then on the commercial update, first of all, Belgium, we signed about EUR 11 million of MGR, 8% above ERV and slightly above old rent. It's a little bit lower than the last couple of years. That is also because we did a lot of leases in Genk, which is in the north of Belgium in Flanders. It is a more difficult location, a city with higher unemployment and tougher economics and demographics. There was a lot of leasing activity in that city in '25, that's why the leasing spread was a bit lower. I think for '26, we expect a higher figure than plus 2% for leasing versus old rent. Luxembourg, it's only the start, of course, because these assets were acquired in 2025, but we've leased some units at 8% above ERV. We've extended, for example, Medi-Market, which is a very strong parapharmaceutical concept in Belgium that we've actually also now brought to the Netherlands. Medi-Market signed their first lease in Zoetermeer in our assets that we jointly own with Sofidy. In the Netherlands, very important lease signed in Tilburg with TK Maxx for 2,000 square meters. This was after the first half results, so that had a small positive impact again. It's a very strong anchor and I think also a very suitable tenant for a city like Tilburg, which already had some positive impact on the footfall on that part of the city. International leasing, I already mentioned the example of Medi-Market coming from Belgium to the Netherlands, but we also have some other examples, for example, Bestseller Group, which is becoming one of the largest tenants in our portfolio with brands like ONLY, ONLY & SONS, Jack & Jones, Vero Moda, that we have in all countries and is expanding rapidly and is showing very good turnovers in our portfolio. Before I hand over to Dennis, lastly, on the occupancy cost ratio. In the Netherlands, relatively stable. That is logical because the sales growth was in line with the rental growth. In Belgium, we see a slight increase. We had about 1% retail sales growth, but we also noticed in Belgium a small uptick in the service cost. And as a result, the OCR is up from 14% to 15%. I still believe that is a very sustainable level. OUR sales productivity per square meter in Belgium is higher. So this is a level we should maintain. And as I commented earlier already, we forecast for '26 a more positive leasing spread in Belgium than in '25. With that, I'd like to hand over to Dennis. A. de Vreede: Thank you, Matthijs, and also a warm welcome from my side. My first slide is showing our cost reduction efforts over the past 6, 7 years. As you can see here, we've been reducing and stabilizing our direct Genex. And at the very same time, we've also been focusing very much on our other cost buckets. And that results in a 20.6% EPRA cost ratio in 2025 and I think we have a stable cost basis, meaning that if we grow the portfolio further, if we grow our top line further, I would expect our EPRA cost ratio to go even below the 20% mark. On the direct result side, Matthijs mentioned already the EUR 1.86 per share, which is equating into EUR 101 million of direct results, a 10% growth, a nice growth. I think, if I would exclude the acquisitions and disposal effects of 2025, it would come down to close to 3% growth. But if I would also mention, and you can see that on the very right-hand side of the chart, the tax bucket, the -- this is the first year that we have been paying corporate income tax in the Netherlands, almost EUR 4.5 million. That would equate into another EUR 0.09 to EUR 0.10 direct results per share. So all in all, I think a very stable and a very solid year this year on our direct result side. Here again, a little bit of a color over the past few years. On the left-hand side, we are looking to grow the direct result per share to EUR 1.85 to EUR 1.95 in 2026. That is -- again, that is another 3% to 4% growth, if I would take the EUR 1.90 as the midrange of that. For 2025, Matthijs just mentioned, we will be proposing EUR 1.30 per share for dividends, and we would see that going into EUR 1.35 for 2026 as a forecast, as a guidance for our dividends. Moving on to the relative performance, I would say, we announced our LifeCentral strategy back in 2020, to be exact, almost 6 years ago. And as you can see here, we have achieved -- on the very right-hand side, we've achieved an 80%, 81% total return over those 6 years. So again, I think a very nice achievement if I compare ourselves to the 6 other peers, which are closest to us. We are #1, #2, as you can see on this chart. Also for this year, for 2026, I think year-to-date, we are already at a 16% return as per now. Moving into a few of the transactions which we haven't mentioned already in the first half or the third quarter of the year. I think the 2 most important ones in Q4 are the disposal of our full service center Sterrenburg in Dordrecht, a very important one for us. I think this was one of our nicest assets and one asset where we have been, I think, demonstrating that the full service center strategy really works. All in all, we have been realizing almost 10%, 9.3% IRR on the transformation and the disposal of this asset. At a 6% net initial yield, we have been able to sell this asset. And I think it also demonstrates the fact that the full service center strategy is working. I mean the values are real, as you can see here, proving by this first transaction of a full service center. Moving on to one of our latest acquisitions as part of our capital rotation strategy, we have acquired the Ville2 shopping center in Charleroi in Belgium. We are very happy with this asset. Again here, we have been able to raise quite some equity in Belgium to partly finance this transaction. And we believe this asset will be a very good contribution to the Belgium team and to, of course, to Ville2 as a group. Net rental income, almost EUR 10 million. We bought it at a net initial yield of 8%. So I think there's quite some work we can do there to further enhance the value of this asset. Demonstrated on this slide, we will be pushing Ville2 into the full service center to the LifeCentral strategy. We've been already scanning through the asset, what can we do, what can we add to enhance the value. And on the right-hand side, you see all the different buckets that we're looking at to make sure that we are increasing the value of this property. Moving back to Matthijs. Matthijs Storm: Yes. Thank you, Dennis. On the LifeCentral strategy, and Dennis already gave some examples for Ville2 in Charleroi. As you can see the bottom right of this chart, our mixed-use percentage is continuing to increase 15% to 16% this year, and we forecast another increase to 17% for 2026. And with that, I think it's also good to talk about the completions for 2025. Nivelles in Belgium, we've mentioned this earlier in October when we celebrated the opening of the redevelopment of Nivelles. It was fully let, first and foremost, I think the most important metric, but also some nice new concepts, for example, in F&B. In Arnhem in the Netherlands, we've completed the first phase of the transformation, Phase 1, also fully let with a new Jumbo supermarket. I'm looking at the pictures, but difficult to see here, but we have some on the website. It's another strong anchor to this center, but also the Eat & Meet Square that you can see on the top left of the pictures, is working very well with some interesting turnovers from the first month of operations. So we're happy with the first phase, and we're now working actually on the plans for Phase 2 of Kronenburg. 2026 will be a year of study and desktop work. And then I think in 2027, we can commence the works on Phase 2 of this center. A launch for transformation is Cityplaza. We already did some smaller things in this shopping center over the past years. On the top right-hand side, you can see several elements. We're adding a health and fit zone. The operator, a larger health care operator, Roerdomp has already signed the lease. That's done and dusted, and at the moment, we're doing the works. We already included a new gym with Basic-Fit on the right-hand side. In the middle, you can see the new Eat & Meet Square for which several tenants have already signed up. We communicated on that already, a fresh street every.deli on the left-hand side and also a little bit of rightsizing. We sold some units to a residential developer who will build housing on that part, which is, I think, beneficial for both because, again, the LifeCentral strategy is not only about turning retail into mixed-use. Sometimes it's also about rightsizing the retail. In Luxembourg, we have started to work on the transformation of Knauf Schmiede. That's one of the 2 centers we bought back in February 2025. Also here, there will be some rightsizing. We're adding mixed-use, for example, a fitness on the first floor. We're improving the visitor flows through a new layout of the center. And then we're adding several life central elements. You can see some examples like the point, our service desk on the top right-hand side, but you can also read some other examples that we will be adding in 2026 to turn Knauf Schmiede into a full service center. Polderplein, that's an asset we acquired in Hoofddorp back in 2023. It was the missing part of the shopping center Vier in Hoofddorp, that we added back then. Now we own the complete shopping center for 100%, and we've now started the works to also turn the acquired part into a full service center. You can see some examples on the bottom left-hand side of the slide. Hoofddorp is one of our best locations in the Netherlands from an economic and demographic point of view. So we're happy with the results so far. Stadshart Zoetermeer, we acquired in June '25. We already communicated on that. And also Stadshart Zoetermeer will be turned into a full service center. Even though this asset is in a joint venture, we are the manager of that asset. And also this asset, you can see it in the map on the top right-hand side of this sheet, will be turned over the coming years into a full service center with, amongst others, addition of health, a fresh cluster and self-expression. Then some numbers on Knauf Pommerloch and Schmiede. We bought those in the beginning of 2025. For example, in Pommerloch, we signed a new lease with Jack & Jones in the former Casa unit. When we acquired this center, we already talked with analysts and investors about reversionary potential. Well, you can see here plus 54% versus old rent. I'm not sure if this is indicated for all the leases we will be doing in Pommerloch, but I think it's a nice example. In Sweden, we've extended with Medi-Market and Veritas. And last but not least, we realized a very nice valuation uplift in '25. Dennis will tell you more later. Then on the CapEx, we changed this slide a little bit. Until now, we always showed you the initial, about EUR 300 million CapEx program for the LifeCentral strategy, as Dennis said, starting in 2020. But most of those transformations, the original ones have been completed. What you can see in the dark blue bar on the left-hand side, the EUR 25 million, that is the last part of the original EUR 300 million program, but we've added about EUR 36 million for the acquired assets in the meantime, that is Polderplein, that's the 2 centers in Luxembourg, and that is also Ville2 in Charleroi. And this is why the number has gone up a bit to EUR 61 million. But you can see over the coming years, it's nicely spread and most of it is still uncommitted. So if something -- if a big event happens in the global market or in the global economy, we're well prepared to scale down the CapEx. Capital allocation. Our IRR framework, which we base on the Green Street unlevered European retail IRR, which now stands at 7.1%. We still set the bar at 8%, almost 100 basis points above that threshold. What you can see is that most of our assets, also the acquired assets, of course, tick the box. We have one asset on hold. One asset is at the moment in the sell bucket that is in Genk because it's not reaching the required IRR. So we're working hard on that. The yield shift, as you can see, most of the assets, most of the completed full service centers have outperformed the market in terms of yield development. And then lastly, on residential profits, yes, this is, as we've mentioned earlier, it's the icing on the cake, a little bit of icing on the cake. Last year, we realized a payment of EUR 3 million for the building rights in Tilburg, as you can see on the right-hand side. So that is a nice achievement. In the coming years, we expect the payments for Nivelles, which is a larger one of about EUR 7 million to EUR 8 million, which will be coming. And also, of course, Kronenburg, which is our biggest project, I just mentioned, Phase 1. With that, I'd like to hand over back to Dennis. A. de Vreede: Thank you, Matthijs. Valuations to start with. As you can see here, a positive valuation result for the full year for our core portfolio of about EUR 11 million, mostly driven by Luxembourg in this case. as Matthijs already mentioned before. I think we mentioned already where the negative -- the slightly negative numbers came from the Netherlands, that was already mentioned in our first half year deal where we did this Tilburg deal. We secured a nice 10-year lease extension, but we were faced with an EUR 8 million write-off on that specific asset. In Belgium, again, there also almost stable. The negative valuation is mostly part of one single asset. Matthijs mentioned that already, Genk, which is a more difficult asset and which we are holding now in the sell bucket basically, as demonstrated on the slide before. All in all, stable yields, EPRA net initial yields in the Netherlands, slightly up in Belgium. But all in all, we look back at a nice year. The net LTV and the net LTV target, I'm not going to spend much time on this. I think we mentioned this already. We want to push this down still to the 35% to 40% mark. We have plans to do so in '26 and '27, very concrete plans. You could see on the right-hand bottom side, what steps we will be taking to get it down to the -- below the 40%. And as we are working our way through that, we will be cautious on the dividend side. So a slight increase next year for the dividend, as mentioned, but below our 75% dividend policy. Our debt profile was a busy year on the debt side for 2025. You could see that our net -- our interest-bearing debt increased, obviously, following the acquisitions we had in Luxembourg and in Charleroi, mostly. The average cost of debt slightly up really because we have been looking to acquire quite some new long-term debt, which was used PP, but also our first -- we mentioned that before, our first European PP in the Netherlands and at the very end of the year, also a European PP in Belgium. So I think we're happy with that to extend the maturities of our debt. You can see that on the bottom. It went up from 3.4 to 3.7 years. And as we are working our way towards refinancing our big corporate RCF, EUR 250 million RCF, which I am expecting to finalize this quarter, we will be moving up that 3.4 average maturity -- 3.7, I should say, average maturities up well above the 4 years. A nice debt mix, as you can see at the right-hand side for 2025. So again, mostly 49%, driven by the USPP, but you could also see that EUPP starts to get hold in our debt book. The rest is mostly bank loans. One bond, which is a Belgium bond, is the -- that is the 3%. We are on our way to refinance that. That is maturing in the second quarter of 2026, but we're almost there to have that also refinanced. This gives you a little bit of a view over the past 7 -- 6, 7 years of the maturities. That's the average debt maturity. We started off around 4 years. That went down to about 3.3 years, 2 years ago. We're back at 3.7. And if we are pushing the RCF, EUR 250 million RCF over the finishing line this quarter, we should be well over 4 years. And I think that is an important metric also for our credit agency, which is requesting us basically to focus on that and push that more towards the 5 years. On the ESG side, also a busy year. I've been putting a number of our projects here on this slide. I'm not going to read them all out to you, but focus points for us have been to keep increasing the solar panels. We also included last year the first -- or we signed the first leasing deal on our solar panels, which was with Jumbo. EV charging points, certainly in Belgium, we are rolling out at a very fast pace. You see the numbers right there. But also we are trying to make sure we copy the efforts in Belgium, in the Netherlands and enhance our other income with that. Green leases, which is part also of the interest of our RCF. So basically, we get a bonus and malus on our RCF with some green KPIs. This is one of them. We've been pushing that towards the 79%, which is also demonstrating the willingness of our tenants to help us on that part, and we keep focusing on that for the next number of years. So all in all, if you look at a number of projects on the bottom side, Paris-proof projects, we've been insulating and renewing new roofs in Cityplaza and Kronenburg. And again, also on Presikhaaf, our full service center in Arnhem, we are replacing the roof right here, a glass roof, and that should be expected to reduce the lease -- the heat loss by 54%. Moving on, I would say, to the final part of this presentation, I hand it over to Matthijs. Matthijs Storm: Thank you, Dennis. Let's go to the management agenda, and then we can go to the Q&A. I already see some questions coming in. Thank you for that. Creating scale, I think we did quite some work last year, but we have a lot of interesting projects in the pipeline. Of course, I cannot be concrete at the moment, but -- as I said also during the last road shows, there's quite some product on the market in the Netherlands and in Belgium that is interesting for us. Again, in Belgium, we would acquire full equity. In the Netherlands, it would be through a joint venture, like we did in Zoetermeer. Total return, slightly below the target last year, also driven by slightly negative valuations. I also see some questions about this. I think Dennis already commented on Genk and Tilburg specifically, but there are also some indirect expenses like deferred taxes. We'll get back to that. Capital reallocation, speaks for itself, finalizing the last transformations. But of course, we've started new ones like Schmiede. We have completion scheduled for 2026. ESG, Dennis focused on it already, phase out France, we're targeting to sell, of course, the last 2 French assets. We see some slight improvement in the French transaction market. There have been some deals. So hopefully, that is helping the momentum to finally dispose these. Last phase of the balance sheet derisking, LTV below 42.5%. Dennis already mentioned the 4 different streams that we are working on in order to get there. And lastly, other income, as I mentioned earlier, we now have EUR 6.7 million other income and the target is to grow that to EUR 10.1 million in 2027. With that, we go to the questions. Matthijs Storm: And I think Dennis, first question you could answer is a question from Steven Baumann from ABN AMRO ODDO. He is asking what are the key components of the indirect general cost for 2025? A. de Vreede: Yes. Okay, Steven, thank you for asking. Obviously, well, you could see the components are typically the same. These are the valuations. Obviously, we have the indirect Genex. The indirect Genex is the one-off Genex hits that we're taking slightly above last year. We've been spending quite a bit on acquisitions and the disposals, which we have been writing off on some of the projects which did not go through. But also this year, we have seen a big number, which is the indirect tax, which is part of the indirect expenses, obviously, and that is mostly driven by the value increases in Luxembourg. You've seen a EUR 22 million value increase there. But also on the Dutch side, on some of the assets, we've seen a value increase, and we have been taking the deferred tax liability on that value increase. So -- those are the elements driving the indirect expenses. Matthijs Storm: Okay. Second question from Steven is the key components of the other income in '25, this EUR 6.7 million, Steven, in '25 is mostly for the moment coming out of the Belgian market, where this has already been a larger figure for years, mostly driven by specialty leasing, a lot of the kiosks and pop-up stores, but also in Belgium coming from the point, our service desk, where we take and deliver parcels from several operators, but also sell several items. It's coming from ESG income in Belgium. So that country is the largest contributor, but the Netherlands is growing rapidly, as you noticed on the slide. The Ocean Outdoor deal will start this year 2026. So that's not yet a contributor to '25. And of course, the management income from the joint venture with Sofidy, which is counting for about half a year in '25 because we commenced in June '25. And of course, we'll have a full year contribution in '26. Steven is also asking what you can expect from these items in '26. I think the growth, Steven, is coming from a full year contribution of the Sofidy deal, the Ocean Outdoor deal on the digital screens, but also several smaller initiatives like the specialty leasing and the kiosks in the Netherlands, additional the point desks, but also additional solar panel and EV charging projects. That's all contributing to the income in '26. Steven is also asking if we assume acquisitions or disposals within that number? Answer is no, Steven, because we're -- the disposals we are working on is in assets, for example, the Belgian offices or the French assets where there is no other income. So that will not have an impact. And we're not assuming new acquisitions. Of course, if we acquire new assets, the figure could go up. Then Steven is also asking about the full year 2026 outlook, the EUR 1.85 to EUR 1.95, what are our key assumptions behind this? Like-for-like rental growth, indexation, well, to go into this, Steven, we assume indexation of about 1.75% for 2026, which I think is quite conservative. Property expenses will be relatively stable and the occupancy rate, we also believe will be relatively stable. The last question from Steven is about the average cost of debt. So maybe Dennis can give some views on that. A. de Vreede: Yes. Yes. Steven, average cost of debt is 3.62% at the end of '25, as mentioned before. I think a few large things will be happening in '26, as I was just mentioning, that is the refinancing of our corporate RCF, the EUR 250 million corporate RCF. And I can -- I would expect, let me put it like this, that we will be looking at a lower margin -- a substantial lower margin than we were paying before. So that will be driving our cost of debt -- average cost of debt down a little bit. On the other hand, we are still looking to refinance some USPP maturities this year, which is, I think, about EUR 40 million this year. And in Belgium, we are also looking to include or increase the long-term financing a little bit. So that will be driving up the cost of debt a little bit. So all in all, I would expect it to be stable for '26, maybe slightly lower depending on how much we draw from the RCF. Matthijs Storm: Maybe important for you as well, Steven, the refinancing -- the expected refinancing of the bonds in Belgium and the U.S. is more expensive. That is included in the outlook. But the potential reduction in the cost of debt coming from the new RCF is not yet in the EUR 1.85 to EUR 1.95. So that would be driving some additional growth if that were to be signed. Lastly, your expectation about like-for-like rental growth, I think we should still be in the 5% range. The components behind it, I've already mentioned, but with the growth in other income, we should certainly achieve a number in that territory. Then we go to Francesca Ferragina from ING. Guidance, what are the hypothesis about like-for-like in cost of debt for '26? I think we've answered that. Can we expect more partners and more JVs for '26? Yes, that is our expectation, Francesca. We certainly want to do at least one more joint venture like Zoetermeer in the Netherlands this year, potentially also JV-ing one or 2 of our existing Dutch assets, but continuing to manage it. Of course, nothing of that is included in our guidance. Are you open to new joint venture partners? Certainly. Can you make a comment about the asset valuations in H2? Yes, I think Dennis already mentioned that with Genk Stadsplein and Tilburg, we had some write-downs, also in the Belgian offices in [ Ville2 ], our more difficult office location outside Brussels. If you would take those out, the valuations would be relatively flat. Of course, they have an impact, but it is more asset specific. I think also it's logical that valuators increase the ERVs, but also the yields have gone up slightly. You can see that in an increased EPRA net initial yield. We've been buying Ville2 at 8%. We've been buying Zoetermeer at almost 10%. Then of course, the valuators move out their yields a little bit. So that's Belgium and Netherlands. You talked about little competition among buyers in the Benelux regions. I see there's more in this. What type of assets do you see on the market? Yes, we mostly focus on the larger shopping centers. So I think the criteria for us is at least 20,000, 25,000 square meters in terms of size in order to establish a full service center concept. We have more criteria that you can find in the materials online. Of course, there should be the potential to transform into a full service center. Again, there are several assets on the market in Belgium and the Netherlands that we think are interesting. We're working on that. A lot of activity at the moment. So we'll talk more about that later for sure. Do you notice any difference versus 12 months ago in the transaction market? No, I think it's still a buyer's market. Could you provide an update on the French assets? I think we did that. We're working on the disposals, but nothing concrete to mention as we speak. Do you expect more write-offs? No, not for now. Of course, if we did expect some write-offs, we would have taken them in the full year 2025 results. I think going forward for this year, we expect a continuous improvement in the ERVs. We keep leasing well above ERV. I don't have any assumption about the yields, to be honest, so let's see. In the past, you talked about entering new countries. That is true, Francesca. I think in the long-term, that will happen eventually. But again, there's so much interesting product on the market in our core markets, there's no need to do that this year. Do you expect other disposals? I think Dennis already mentioned the type of disposals we are working on. So for example, the Belgian offices, some equity out of Dutch assets through JVs and the French disposals. Right. Then I need to go back. Yes, there we go. Then we go to a question of Amal Aboulkhouatem from Degroof Petercam. Thanks for the question. Congratulations on these impressive results. Thank you for that, Amal. A few questions on my side. Could you comment on the negative revaluation in Belgium and the Netherlands? I think we did that. What is your outlook for the cost of debt in '26? Dennis answered that. And how do you intend to continue the expansion strategy? Would that be in existing markets or in the new markets? Yes, sorry, Amal. I think we've dealt with your questions, but again, still, thanks for answering -- asking them. And again, a new market is not something we are working on at the moment. It's something for the longer term. Then we have a question from Rahul Kaushal from Green Street. Congrats on the great results and thank you for the presentation. Thank you, Rahul. Can we expect further acquisitions this year? Certainly, we're working on, again, a lot of projects. So you can expect that. Are you looking at markets outside the Benelux? We've answered that. That is at the moment a no. In terms of disposals, can we expect further divestment in the Netherlands? The answer is no, if we talk about entire assets. We only consider this with existing assets and then selling part of the equity in a joint venture. And could you provide a timeline for the disposal of the French assets? Yes, I'd love to, Rahul. At the moment, it's not concrete enough to talk about this. I have mentioned that we see some transactions in the French retail market also in more secondary cities. Hopefully, that will continue and will allow us to sell one or 2 French assets finally this year. I'm going through the list. I don't see any additional questions for the moment. So with that, I'd like to thank you. I'd also like to thank our CFO, Dennis de Vreede, who, as most of you know, is unfortunately leaving Wereldhave as per the AGM of 2026. It's been a great ride, Dennis. Thank you for that. And we all know Dennis did a fantastic job in reestablishing Wereldhave, particularly financially. If you look at the balance sheet, if you look where we stand today, if you look where the share price is, yes, I think Dennis did a great job. And I'm very grateful on behalf of the management team, but basically all the stakeholders for Dennis for this fantastic work. This will be Dennis last webcast, but you will certainly see him in the future, and of course, he will be attending our AGM. So thank you, Dennis, for that. It's been a great ride. And as most of you know, Marcel Eggenkamp will be proposed to the AGM as our new CFO. You'll see him in the coming webcast. Thank you so much... A. de Vreede: Thank you. Matthijs Storm: For listening. Thanks for your questions, and see you with the first half results on the roadshow. Thank you.
Operator: Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the AECOM First Quarter 2026 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Will Gabrielski, Senior Vice President, Finance, Investor Relations. You may begin. Will Gabrielski: Thank you, operator. I would like to direct your attention to the safe harbor statement on Page 1 of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a year-over-year basis unless otherwise noted. Any references to segment margins or segment adjusted operating margins will reflect the performance for the Americas and International segments. When discussing revenue and revenue growth, we will refer to net service revenue or NSR, which is defined as revenue excluding pass-through revenue. NSR growth rates are presented on a constant currency basis unless otherwise noted. Today's remarks will focus on continuing operations. This morning, we announced the completion of the review of strategic alternatives for the Construction Management business. We have concluded that we will continue to own and operate the business. Both our reported results and financial guidance are inclusive of construction management. Also, as a reminder, our year-over-year growth rates were impacted by fewer workdays compared to the prior year first quarter. Accordingly, our discussion will include adjustments to improve comparability of results. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and our outlook for the business. Lara Poloni, our President, will discuss key operational successes and priorities; Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session. With that, I will turn the call over to Troy. Troy? W. Rudd: Thank you, Will, and thank you all for joining us today. As our first quarter results demonstrate, we are off to an exceptional start to the year. We exceeded expectations across every key financial metric, including record first quarter NSR, adjusted EBITDA, margins and backlog. Backlog increased 9% to a new all-time high, fueled by 1.5 book-to-burn ratio, even while managing through an unprecedented 43-day U.S. federal government shutdown. I should note that we expect award activity in the U.S. to pick up with the recent passage of all critical federal funding bills. As a result, our visibility is high, and we are increasing our full year financial guidance, which I will discuss shortly. Across the business, our focus remains on extending our competitive advantages. We have a strong moat that is built on our scale, technical leadership, trusted client relationships and domain expertise. Our target investments in program management advisory services, AI and technology position us to unlock greater value for our clients and deliver on our multiyear financial targets. Underscoring our confidence in the long-term value creation opportunity, today, we also announced an increased share repurchase authorization to $1 billion. We repurchased more than $300 million in the first quarter and expect to continue to deploy our strong free cash flow to deliver greater value to our shareholders over time. Turning to financial performance. Net service revenue increased by 5% when adjusted for fewer billable days in the period. The segment adjusted operating margin increased by 100 basis points to 16.4%. This is a new first quarter record and reflects the ongoing benefits of our strategy and high-returning investments. These investments include key hires to drive growth in our advisory business, to build on our technology teams and capabilities and in business development to capitalize on strong demand. Reflecting this outperformance both adjusted EBITDA of $287 million and adjusted EPS of $1.29 exceed our expectations. As I mentioned earlier, we ended the quarter with a record backlog and our book-to-burn ratio has been above 1 for 21 consecutive quarters. This consistent performance is a function of the value we bring to our clients. Our win rate remains strong in this quarter, especially on large pursuits. I would like to highlight two key wins that provide greater insight into how we are advantaged in the marketplace. First, we were selected as a delivery partner for the 2032 Olympic and Paralympic Games in Brisbane, Australia. Our selection is a testament to the trust and credibility we've built with clients in delivering complex infrastructure projects on a worldwide stage. It also underscores the benefits of combining our leading technical expertise with programmatic delivery capabilities. Further, this win builds on our proud history as a critical infrastructure partner to the Olympic Games across the globe, including our ongoing role as the infrastructure delivery partner for the LA '28 games. Another great example is our selection to provide the engineering services for Scottish Water's multiyear capital investment program, which represents one of the largest capital programs in the world. This win demonstrates several key advantages. For one, we're the world's #1 ranked water firm. In addition, our rapidly expanding technology road map was key to our selection as we were able to demonstrate a tangible value opportunity from AI and technology over time. Our emphasis on bringing best-in-class technology-led solutions and the overwhelmingly positive client response is a growing trend in our business, and we believe this win serves as a blueprint for the value we expect to deliver from our investments. Turning to a discussion of our end markets. In the U.S., market conditions are strong. The recent passage of all key federal funding bills for fiscal '26 provides greater certainty for our clients and for us. Additionally, over half of the IIJA funding remains to be spent and progress is accelerating for the multiyear surface transportation authorization. Our expectation is for another sizable investment that will build on this momentum and support a growing U.S. economy. Investment in the private sector is also gaining momentum. This is evident in the booming data center market where we benefit both directly and indirectly from the infrastructure opportunities. This includes water, facilities, energy and environmental services, all sectors where we lead our industry. Additionally, incentives in the one big beautiful bill and ongoing resharing initiatives are creating new opportunities with several years of visibility ahead. Turning to international. Near-term trends remained varied, but strong long-term demand for infrastructure investment is undeniable. In the U.K., we had the significant Scottish Water win and the AMP8 water cycle is underway. In the Middle East, we are successfully navigating the reprioritization of funding with substantial wins in the first quarter that underpin our outlook for this year and beyond. This includes our new leading design role on the Dubai Metro and ongoing growth opportunities in the UAE and across Saudi Arabia. In Australia, our backlog reached a new multiyear high and included strong wins in the quarter, notably in the transportation sector. Offsetting this in the near term are pockets of weakness resulting from geopolitical and funding uncertainties. Importantly, our efforts to reposition across international markets are paying off as our 25% backlog growth and record pipeline demonstrate. As a result, we expect revenue trends to improve as the year progresses and into fiscal '27. Globally, national defense budgets are meaningfully increasing. This is a key driver for our business as defense represents approximately 10% of our NSR. The U.S. Department of War is our largest client and spending is set to increase for the next several years. Further, our other key clients are also ramping investment, including the U.S. Coast Guard and the broader DHS. President Trump also reaffirmed the U.S. commitment to the AUKUS trilateral defense pact with Australia and the U.K. and we are pursuing a substantial pipeline. Before turning the call to Lara, I want to provide an update on two strategic initiatives. Beginning with technology and AI. We've completed the integration of our September acquisition. We have already doubled the size of our team and engineers are deeply engaged and collaborating to extend our capabilities. The technology is now live on our projects and the initial performance results achieved have matched our expectations. Our confidence in these investments and the potential positive benefit of the business is getting stronger. Every day, we're uncovering fresh use cases and new opportunities. We're deploying our resources to tackle new problems. And in doing so, we are creating significantly more value for our clients. All of this rests on the foundation we've built, namely our technical leadership, the deep trust we've earned with our clients over many years and the domain expertise we have at scale. As it relates to the construction management business, we've completed our comprehensive review of strategic alternatives. We concluded we will continue to own and operate the business and believe it is exceptionally well positioned for the future. Backlog is strong and the pipeline continues to reflect a robust set of opportunities. As we look ahead, our confidence is underpinned by our successes and growing backlog. We increased our adjusted EBITDA and EPS expectations for fiscal '26, which includes operational outperformance in the first quarter and the benefits from capital allocation. We also reaffirmed our long-term value creation algorithm, which includes expectations for annual revenue growth of 5% to 8%, achieving a 20% margin exit rate by fiscal '28 and delivering mid-teens compounded earnings and free cash flow growth per share. With that, I will turn the call over to Lara. Lara Maria Poloni: Thanks, Troy. Echoing your sentiments, our teams are proud of our many accomplishments to date, as well as how we are redefining the future of infrastructure delivery. Demand for infrastructure has never been greater. Rapid urbanization has pushed 45% of the world's population into cities today with projections showing dramatic further growth, even in advanced economies, aging and inadequate systems are under severe strain. The U.S. alone faces a $3.7 trillion investment gap over the next decade. Meanwhile, Energy Systems face mounting pressure from data center expansion and widespread electrification. These dynamics are intensifying, and we're deliberately positioning the clients to capitalize on this demand. This includes our ongoing investment to expand our higher-margin advisory practice attacking what we believe to be a $50 billion addressable annual spend. Our advantage is that we combine our deep infrastructure domain expertise and technical leadership with superior strategic advice to deliver greater value for our clients. This is a distinct offering and fills a large gap in the market. We have made substantial progress on our goal to double this business. The team is growing and hiring activity is expected to continue to accelerate through the year. Importantly, our pipeline is also expanding rapidly, and several recent wins demonstrate our value to clients and how our addressable market is expanding. Let me highlight two examples. First, in the U.K., we were selected to advise the water industry to advance business plans for the AMP9 water cycle. This is an important win and a great demonstration of how we are positioning to help shape our clients' investments. Second, through advisory, we are positioned to support the trillions of dollars of private capital seeking to invest in infrastructure. For these clients, we can accelerate and derisk their investments and achieve better outcomes. This is a valuable benefit that also extends to our public clients who are increasingly partnering with private investors. As is evident, we are expanding the value we can deliver for clients, which is driving strong performance across the business. With that, I'll turn the call over to Gaurav. Gaurav Kapoor: Thanks, Lara. As first quarter operational outperformance and financial guidance demonstrate, we continue to extend our track record of exceeding our expectations and creating a more valuable company. A few highlights from our performance bear repeating. First, we overdelivered on the financial expectations we provided for the first quarter, and we are raising our guidance for the full year as a result. Second, we saw strong increases in both our NSR and margins. This serves as clear evidence that we are scaling our advantages and expanding our operating leverage. Third, our backlog and pipeline are both at an all-time high. This reflects our competitive advantages, the strength of our end markets and continued expansion of our addressable market. And finally, we continue to execute our returns-based capital allocation priorities. After investments in high returning organic growth and efficiency initiatives which are expensed through our margins, we returned nearly $350 million to shareholders in the first quarter and over $3.3 billion over the last several years. We're also pleased to announce an increase in our share repurchase authorization to $1 billion. Going forward, we'll continue to deploy capital thoughtfully while maintaining a nimble balance sheet so we can maximize the benefits of our strong operational performance for our shareholders. Turning to our segment performance. In the Americas, NSR increased by 9%. Growth was broad-based, but stronger in the Eastern states and Canada, where budgets and visibility are best. The adjusted operating margin was 19.9%, up 120 basis points from the prior year. This includes the operating leverage created by strong growth, mix shift to higher-margin services and the benefits from deploying technology to deliver efficiencies. Turning to International. NSR was essentially flat after adjusting for fewer billable days. This was materially consistent with our expectations, as we've discussed now for several quarters, the slower level of activity in areas, including U.K., Australia Transportation and in Hong Kong. While International segment growth will likely remain subdued in the second quarter, consistent with the expectations we had at the start of the year, the successful repositioning of the business to growth areas resulted in a 25% backlog increase in the quarter, and we expect growth to pick up in the second half of the year as a result. Turning to details of our guidance. We are increasing the midpoints of our adjusted EBITDA and adjusted EPS guidance ranges for the full year and now expect adjusted EPS of $5.95 at the midpoint of our range as compared to $5.75 previously. This increase reflects the operational outperformance we delivered in the first quarter. The benefits of our capital deployment strategy, a lower expected tax rate and the strong visibility from our record backlog. I want to share a few details on phasing to help with modeling. We expect second quarter NSR and adjusted EBITDA to approximate 24% of our full year guidance. We also expect the second quarter tax rate to be approximately 12% to 13%. With that, operator, we are ready for questions. Operator: [Operator Instructions] Your first question comes from the line of Sabahat Khan of RBC Capital Markets. Sabahat Khan: Great. Just before I get into kind of the fundamental stuff, maybe you can just share some thoughts. I want to get some color on the decision made to sort of keep the CM business. Obviously, you guys kind of put up strategically one on that. And then just a follow-up question. If you can just talk about sort of compared to last year, the evolution of -- sort of the demand environment in the U.S. given some of the stability, I would say, at this point relative to last year and the priorities of the U.S. government. So maybe just kind of the broad outlook and sort of any synergies, et cetera, there from keeping the CM business. W. Rudd: Thank you. And I'll take the first question with respect to construction management, and then I'll turn the second part of this question over to Gar. So first, just we said that we would evaluate options last quarter, including the sale, but that also always included ways that we would drive more value in the business and see in the business and the combined AECOM business in general. As we went through that process, a couple of important factors were key to our decision. One is recognizing the construction management business is a high-quality business. In fact, I'd consider a strong industry leader and it does have a great backlog on opportunities in front of it. It also has a great cash flow profile that creates the ability for us to invest. But most importantly, we see substantial opportunities resulting from a closer connection between the construction management team and the rest of AECOM. That alignment and collaboration, we think, will give substantial opportunity beyond where we see those businesses operate in today. And a couple of examples that are the work that we're doing together on the LA '28 games, and now we'll begin that work on the Brisbane 2032 games. So we see great opportunities for the business to work together, and we were pleased to get to that process quickly and get to this decision. Gaurav Kapoor: Sabahat, this is Gaurav. Thanks for the question. I'm glad you raised it. We're seeing continued strength in our Americas market, particularly across our design business. All of our end markets from transportation, water facilities continue to deliver very strong growth, including what we reported in the first quarter, which was 9% for our design business. And if you look over the last 2.5 years, our organic growth has been very strong, leading to enterprise at high single digits. And when we continue to dive deeper into the markets, our pipeline continues to be very robust. It's up 20% year-over-year at end of the first quarter. And in fact, the early stage pipeline for us is up 34% over that same time frame, while IIJA funds, as you guys are all aware, less than 50% is still unspent. And what sometimes get lost in some of the numbers that we report is, in our business, we do have and have positioned ourselves in this very healthy environment, funding environment on MSAs and IDIQs within our transportation, our water and our environment business lines. And these IDIQs, MSAs, they're not generally part of our awarded or contracted backlog because it's call off task order work and provide a lot of support, book-to-burn support just during the quarter. At any given point in time, we have between 35,000 to 50,000 contracts ongoing across the globe. So given that backdrop, we have a lot of confidence as we look forward into the near term, not just FY '26, but going beyond that the growth drivers continue to be well in place for our Americas business. Operator: Your next question comes from the line of Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Troy, just regarding how to think about AI's impact on AECOM, I'm just trying to understand a little more what you're saying today. So to be clear, in your opinion, does a new value model shaped by AI not lead to shrinking revenue for AECOM? And then when you look at that EBITDA to employee calculations, it's up as you said, I think, 50% over the last 5 years. Does that rate of improvement now shift up substantially. So for instance, you could gain 15% or more productivity in the year fromAI? Any thoughts on all that? W. Rudd: Yes, Andy, that was a pretty broad question. And let me sort of start at the top, which is I think you sort of have to step back and look at the construct, which is our clients are always expecting more value from us. And when we can provide more value they've always been willing to pay us for that -- for more value. And so if you sort of look at the underpinnings of what we talked about in our investment of AI, it's really no -- it's no different than any of the other investments we've made in the business and -- or in technology or in delivery. And so it's just simply an extension of that. So again, what we're experiencing is, is when we have these conversations with clients, when we can demonstrate that we can provide more value to them, they're happy to ultimately reward us for providing that value and that can be in fees, but that can also be an additional work because we can help extend their funding. And when you dig a little bit deeper on that, to think about it this way is the attributes that you are required to win in this business remain unchanged. And I want to describe that, that it starts with clients that you've built a long-standing trusted relationship with. And then secondly is you have to have great technical leadership, which we believe we have the industry's best technical leadership in what we do. And then you need domain expertise, and that's broad and deep domain expertise. And so that remains unchanged. And then when you layer on top of that the fact that technology has always been supporting our industry's development and evolution. AI is just another step in that technology evolution that we've invested in. And so we think that, that adds to those underlying attributes and creates much better and longer-term opportunity for us. And then I will say that we are seeing across the business, some really great acceptance by our clients. And I think it was referred to by Gar in his comments about Scottish Water. And in that, we had a client that we didn't have a long-standing deep relationship with, but we built a relationship through a process, including a bid process for the work that we're going to perform for them. But we also demonstrated that we had those underlying attributes, but more importantly, we demonstrated that we brought something new, which was the ability to use AI to transform the way they think about it and the way they design over the coming years and decades. And so again, I think we're very positive on what we've done in terms of the investment, but I think -- think about it this way, is if you create more value ultimately for your clients, you're rewarded for that. Andrew Kaplowitz: I appreciate all the color there, Troy. Maybe just shifting gears, can you give more color how your private-facing business is doing in the U.S. I'm sure as you know, one of your large peers seem to get relatively sizable amount of, let's call it, advanced facilities work in areas such as data centers. And you mentioned your strong positioning in data centers and maybe it's offshoots. But can you remind us of AECOM's positioning, do you expect to see an inflection in this private work here over the next few quarters? W. Rudd: Andy, I'm going to -- I'm going to let Lara answer that question. Lara Maria Poloni: Yes. Thanks, Andy. We have one of the larger global data center practices in our industry. And in fact, we grew the business 50% in FY '25, and we -- we see a lot of very positive trends for this high growth to continue. As Troy said in his earlier remarks, we have -- we're a direct beneficiary of the growth in this segment through the work that we do, serving the entire digital ecosystem and the electrical engineering and the infrastructure, but also, we're seeing growing opportunities in terms of the indirect work, the associated work. So that includes some of our advisory services, the work that we do around due diligence, and we're performing this work for all of the major hyperscalers around the world, but it also includes some of the associated water and power studies, which are obviously critical to getting these projects moving. So we remain pretty positive about our continued growth in the sector. Operator: Your next question comes from of Adam Bubes of Goldman Sachs. Adam Bubes: Can you update us on integration of the acquired AI technology across your workflows? Which workflows and end markets are you targeting to scale via AI in 2026? Just trying to get a sense of what milestones we should be tracking as the investments progress. W. Rudd: Yes. So Adam, I'll let Gar talk you through the integration. Gaurav Kapoor: Adam, thank you for that question. Specific to the integration question that you asked, we're 3 months into our road map and it has actually gone exceptionally well compared to our initial expectations. Integration is complete investments that we will make as we laid out beginning of the year will ramp up as we go through the year. And as a result, there's a lot of great deal of momentum and excitement across the organization that we have because, as Troy alluded to earlier, clients are reaching out to us to better understand how we will deliver value for them through this process as it has happened in our industry for multiple decades, anytime there has been a technological inflection. It has created a higher TAM for everybody. Profitability has always gone up when things like that have happened in our industry, let it be when we went from going from paper to CAD designs to BIM modeling and like that happened about a decade ago. And so when you break that down into what business lines are we focused on, what milestones are we focused on? I think your question is correct in terms of looking at the workflows. So specifically, our focus is on the facilities market. Because, again, as we had laid out back in November, our initial road map is focused on disciplines and asset types that our clients have already good existing commercial structures that would be advantageous to everybody. But at the same time, as we go through and create these solutions, these workflow operating leverage efficiencies, it is impacting all of our business lines to some extent. And from a metric standpoint, I think a key metric that we have now started sharing is employee NSR and employee EBITDA profitability by headcount. These are similar to what Troy alluded to earlier in the initial response. When we step back and look at what we have accomplished over the last 5 years, it has been making investment in differentiating ourselves in that competitive edge platform. That is investments in our clients, investments in our professionals, and it continues to drive better profitability, better NSR growth, and this will be no different than it. Adam Bubes: Great. And then really strong bookings performance in international. Can you just expand which regions drove the acceleration in bookings? And how much you attribute that performance to project timing versus this being a clear positive inflection in the demand backdrop? W. Rudd: Let me sort of -- let me kind of give a little bit of background on the international markets, and then I'll have Lara answer this specific question. And I just sort of want to take you back to the way we describe what was happening in the international markets, more than 18 months -- about 18 months ago, and that there was a substantial amount of elections going on around the world, and particularly in the international markets. And when that happens, there's always changes of agenda. There are certainly changes in governments, but even when a government remains in places a change in agenda. And so we recognize that with all that change, we needed to figure out how we were going to reposition the business, so that we took advantage of those changes in agenda. And we've seen that over the last 18 months. Now we're seeing the agenda is being fixed. The funding come to market for what are the priorities, the infrastructure priorities for those foreign governments. And as a result of that, our repositioning, we're winning and building very significant backlog so that we can fuel the future of the business in '26 and well beyond that. And so Lara, I'll turn it over to you. Lara Maria Poloni: Yes. I think as Troy just explained, one of the examples for the quarter was the Sydney Metro win in ANZ, which goes to Troy's point about we're now -- last year was characterized by the end of the sort of 10-year infrastructure cycle. Wins like that highlight that we are now seeing the uptick in the next wave of infrastructure investment. So -- and that is particularly focused in Sydney and also in Brisbane. So the wins in the quarter really demonstrated that upturn. And the rest of the wins, to answer your question, were pretty balanced, the wins such as Scottish Water in Europe, the Middle East wins, such as the Dubai Metro -- so there was good balance in terms of those ongoing infrastructure investments. And importantly, that were beyond transport, they were balanced across other segments of our business as well. Operator: Your next question comes from the line of Jamie Cook of Trust Securities. Jamie Cook: Troy, not to continue on the AI topic. But just as you've been communicating with customers and given the Analyst Day that you had or customers coming back to you and looking for opportunities to sort of renegotiate projects? Or is that more so on stuff that's up and coming. And I'm wondering if that could be an incremental positive to numbers over the longer term as both you and customers understand better how to extract value on both sides? And then my second question, Gaurav, just on the cash flow in the quarter. The cash flow in the quarter was a little weaker than I thought. And then I'm just trying to understand was there anything to that and just your confidence level in the cash flow for the year? W. Rudd: So Jamie, we certainly expected some questions on AI. When we're having these discussions with our clients, they really are focused around -- sort of what we bring in terms of the customer, the increase in customer value through deploying it on projects. And I wouldn't characterize this as a renegotiation. I would actually characterize this as our clients trying to seek out ways that they can employ us to actually deploy something that is more valuable. So it's not necessarily negotiation. It's more of a discussion about how can we find ways to do more work with you and your teams because you're bringing something that is clearly a value to us. What we also are seeing is that in some of those discussions, our clients are recognizing that we might not have a contracting -- way of contracting that make sense. And so they're bringing up in the dialogue, how they would like to move to a method of contracting that recognizes that value. So moving away from something like cost plus to something that looks more like a fixed fee because it is in their interest and of course, it is in our interest to do that. And that really just focuses around the value discussion. So I said this a little bit earlier in the call is if you bring something of value to clients, they want you -- they want to pay you for it, and they certainly want to do more of it. And that's what we're finding in our discussions with customers. Gaurav Kapoor: Jamie, this is Gaurav. So specific to your question on cash, cash was quite consistent with our expectations. If you look at historically, especially over the last 5 years, that's when we've really phased our cash properly. You go prior to that, we used to have negative cash flow in the first half of the year. So if you look at the last 5 years, first quarter is approximated about 10% of our outlook. And that's what this quarter was very consistent. And I'm sorry, first quarter has been 10% and first half is approximately 30% when we look over that time frame, and that's very consistent with our expectations. So there is a ramp consistent with our historical experience and our actual delivery in the second half of the year because our first half does have some meaningful large disbursements related to compensation matters, 401(k), bonuses, a lot of large vendor software payments that we go through in the first half of the year as well, but that's normal for us. Operator: Your next question comes from the line of Sangita Jain of KeyBanc Capital Markets. Sangita Jain: So maybe sure, now that you've decided to keep the construction management business, do you have any plans of running it maybe differently? I know it's just 8% of the NSR today, but do you think it can grow more as you synergize this with your design business more? W. Rudd: So the answer is yes, we're going to look to actually, run it differently. And when I say run it differently. We're going to look to get an even closer alignment and find the opportunities we think are in front of us to collaborate across the rest of our business. If you think about our program management offering and the construction management offering, those two being more close to the line creates a very significant opportunity. And ultimately, they provide value to customers that is much greater than just a traditional program management offering. So we view that as actually a competitive advantage, which we think is more valuable for customers. And so -- there are some other things, but I'll point that out is what we're thinking about is how we bring it together and we actually operate differently and drive more value for customers. Sangita Jain: Great. And then maybe following up on the design backlog for fiscal 1Q. You guys highlighted the federal shutdown, but can you talk a little bit more about what you're seeing in the state and local level because that is kind of a much bigger portion of your NSR? Gaurav Kapoor: I'll take that question. Yes, the shutdown impacted, as we said, our fourth quarter because that's when we would normally see high level of awards. And then any time there is shutdown events, usually the following quarter, you kind of see that come back up. It's always a timing issue. And what we saw this time around was because there was noise about it shut down again in February, that timely pickup that we were expecting really didn't come through. So there was some impact related to it. And we now expect now that there's been a resolution. Second, third quarter, we should see that pickup we're expecting in the Federal award activity to come through. Now what we are seeing on the federal side, and then I'll answer your question on the state and municipal side as well is, we expect in the spring, based on all the information we have and discussions we're having with the parties is there's probably going to be a new bill, federal bill in this spring that is in discussion for national highways. And that's going to continue to provide positive momentum for our transportation business and ancillary business lines that provide services like environment. When we look at our state and our municipal budgets, they're quite healthy, especially when you look at the larger markets in California, Florida, and Texas, the tax projections -- state tax projections for FY '25 collections are better than what they had expected 6 months ago, 12 months ago for a variety of reasons. And we're seeing that level of funding that confidence continue through the various state departments and municipal organizations and departments as well. Operator: Your next question comes from the line of Michael Dudas of Vertical Research. Michael Dudas: Troy, as you've indicated, we've talked about the strong book-to-bill and the pipelines and such. Maybe in this quarter or the last few quarters, maybe -- how has the mix been relative your historical business of design with some project management and burgeoning advisory to a more balanced? Are we seeing tangible evidence of that? And then back to your comments on contract pricing, is there any significant in your incoming orders of fixed fee versus cost plus versus timing of materials? Any meaningful change there? Is there any meaningful change we can expect maybe in the next few quarters as the book-to-bill stay, we're hopefully relatively strong. W. Rudd: So I'm going to answer the second question first, which is, at the moment, we haven't seen any material changes in terms of the pricing or the discussion with our customers. Again, I think it's -- when you're talking about long, large programs, it's a little premature to be thinking about how that might change. But again, as I said, what we have been noticing is that what we're bringing to customers is being very well received and being received as being more value in that equation. And so ultimately, what it does is it's going to help our positioning, help our win rates. And then over time, as we improve our delivery through the use of technology, we will ultimately improve our margins regardless of a change in the profile of our actual contract makeup. And your first question? Michael Dudas: Design project management advisory, the mix of those services and some of the newer bookings and going forward. W. Rudd: Yes. So we are very intentionally trying to drive a transition so that we have a broader base of business between advisory program management design, all rooted in the underlying knowledge and expertise we have in our people around our design work. And so that transition is taking place. We are actually seeing our program management business continue to grow at a slightly faster rate than our design business. And our advisory business, well in its second year infancy is also growing at a higher rate. So we are slowly seeing that shift in mix over time with a long-term objective of getting to where advisory and program management represent about 50% of our business. Operator: Your next question comes from the line of Judah Aronovitz of UBS. Judah Aronovitz: I wanted to ask about international. Given some of the improving trends you talked about in Australia and the Middle East, should we expect a continued trend of book-to-bill greater than one? And then in terms of the margins embedded in those bookings, I'm just curious if we should expect the margin step-up in international from some of these bookings? Or should we expect kind of a similar margin profile? Gaurav Kapoor: Judah, this is Gaurav. I'll take that question. So in regards to international, it's a very good question. If you look at over the last 6 months, we've delivered a very strong book-to-burn. And one would think, with that strong book-to-burn, valid question is, how does the pipeline look? Well, the great news is our pipeline is still up. And not only is it up it's up double-digit percentage, again, on the early stage. So overall, the pipeline is up. Early-stage pipeline is up. It all bodes well for what Lara had explained earlier that we are seeing early signs of a good inflection point coming in our Australia and our Middle East business. Now at the same time, just to make sure we're consistent in the information we're sharing with you guys, we are expecting headwind from working days in Q4. So we expect the second half will be inflection point for international, and you just have to look out for that adjustment on the Q4 workdays. When we look at from a margin profile, we've always said we manage the business from an enterprise standpoint. And what we have signed up for in the current year is gross margin expansion of somewhere around 90 to 100 bps at the enterprise level. Once you net the investments we're making on technology in the current year, expect 30 bps of margin expansion. And our expectation is both Americas and International will continue to deliver good strong margin expansion net of those technology investments that we have laid out beginning of the year because that's just the culture of continuous improvement that has percolated throughout the organization. We always try to deliver better than what we have signed up for. Judah Aronovitz: Okay. And then where do you think we are in the bigger picture of Americas? Is there any acceleration potential here? Or should we just expect a steady growth? W. Rudd: Sorry, Judah, is that a question specific to margins or just organic top line organic growth? Judah Aronovitz: Top line organic growth. W. Rudd: Yes. We're seeing -- as I mentioned before, we're seeing very good trends in our Americas business especially when you look at our backlog, it's up 3% year-over-year. Our pipeline is up 20% overall. Early-stage pipeline is up 34% IIJA funding including the matching that state governments are doing on the transportation projects to take advantage of the funds that are available at the federal level from IIJA, all these pretend really strong to drive growth. And as we've laid out, it gives us a lot of confidence that we're going to be delivering growth consistent with what we signed up for, which is on constant currency, organic delivering 6% to 8% in the current year. Operator: Your next question comes from the line of Nandita Nayar of Bank of America. Nandita Nayar: So I was just hoping if you could -- so I was just hoping if you guys could just provide a bit more color around the 1.5x book-to-bill in the quarter, particularly the 2.3x in international. You mentioned some impressive wins there earlier in the call. But just high level, if you could break it down, how much would you say that was like the overall market? And how much would you say was secured by kind of leveraging your AI capabilities? Gaurav Kapoor: Yes, Nandita, this is Gaurav. I'll take that question for you. So yes, we delivered very strong backlog growth on back of what we delivered in Q4, which was also exceptionally strong in our international business. And as Lara pointed out, Outside of our Asia business, every other region, UK&I, Australia, New Zealand and Middle East, all drove to that very healthy exceptional backlog growth and book-to-burn that you see. And the drivers of it are many, many drivers to it. Our clients, as Troy mentioned out, they were dealing with a lot of geopolitical questions. Over 60-plus election cycles that our clients were going through. So they were looking for some level of stability, which occurred. And you always have to take a step back, and this is going to also delve into your second part of your question as to how much is technology AI driving the outcomes of this. We operate in an industry where the demand for our services far outstrip the funding that exists, right? There's -- if you look at the stats that I've shared previously, approximately 30% to 40% of the world's population lives in metropolitan cities over the next 3 decades. Estimates are, it's going to double in size where the infrastructure that we currently have in these cities need significant upgrade replacement and new construction. So once you start laying it out, it kind of build support to what we see on the ground and what our clients are telling us. Then when you piggyback our technical expertise, our resume of delivering world-class solutions to our clients with the domain expertise, our clients are always asking us, and they're reaching out to our teams as we've laid out our technology road map, okay? How will you drive a better return on their CapEx on their investments? How will we deliver assets on a concrete firm deadline for them? How will we reduce delivery risk for them? So when you combine all these things into a solution for the client, clients are willing to discuss how to drive symmetry in commercial terms. So all parties drive value from it. And again, I'll revert back to a great example, which is part of this exceptional book-to-burn we've delivered in our international business. It's for the Scottish Water win. This is a client that we had practically no exposure for. In fact, as we were positioning ourselves for the RFP response, there was already an incumbent. And by the way, this is the largest contract this client has led out in their history. It's a decade-long program that only two contractors were selected for to deliver. And every single competitor of ours was pursuing this contract. Everybody brought their best game to the table. And during that process, the client asked us, they're willing to sign an NDA to understand what we have developed and what we will be developing over the next quarter, the next few years. And clearly, we were one of the two, including the incumbent that were successful in securing this 9-figure contract over a 10-year period. And this will -- this is a very early proof point, but a clear proof point that clients are looking for that complete solution for the value, for the age-old problems that they've always had. So it gives us a lot of confidence as we continue to make these investments and arm our teams with better solutions in the marketplace to create value for their clients. Nandita Nayar: Got it. That's super helpful. And also, we've been hearing a slight change in the tone like regarding the reauthorization bill with some conversations around CR potentially entering the discussion. Just curious like what's the latest you guys have been hearing on the ground? And what would you say could be like the best case, worst-case scenario here? I'll pass it over. W. Rudd: Okay. I think the answer is that we now have, at least in terms of the federal government, we now have, for the most part, all of the funding put in place through the end of the year. And what we do here is that there are some key long-term authorizations that need to be put in place as you move into '26. And those discussions are positive, and they're moving forward. Beyond that, of course, it's virtually impossible to predict the U.S. federal government legislative agenda. But in terms of the tone, I agree with what you described, it's certainly a positive tone in Washington. Operator: With no further questions, that concludes our Q&A session. I will now pass the call over to Troy for closing remarks. W. Rudd: Yes. Thank you, operator. And let me just conclude with two things. First of all, thank you, everyone, for joining us today and appreciate the questions and the dialogue. And second and very importantly, I want to thank all of our professionals and our AECOM folks around the world that have done such an outstanding job this quarter and continue to do an outstanding job delivering value for their clients. It proves it shows up in our results. Thank you very much. Operator: This concludes today's conference call. You may now disconnect.
Matthijs Storm: Good morning, and welcome to the Wereldhave webcast for the full year 2025 results. I'm here today with our CFO, Dennis de Vreede; and I'm Matthijs Storm, the CEO of Wereldhave. We'll take you through a presentation, which you can also find on our website. Already during the presentation you can type your questions in the textbox at the bottom of your screen. Towards the end of the presentation, we will deal with all your questions as usual. So let's get started. Let's start with some key messages of the 2025 results. Direct result per share, EUR 1.86, which is well above the initial guidance that we provided about 1 year ago and also above the latest guidance with Q3 of EUR 1.80 to EUR 1.85. Zooming in on the results, and we'll give you some more color later, of course, during the presentation, but we see improving occupier markets. Costs have been relatively stable, which I think is also a good achievement of the company with a growing portfolio. And last but not least, we also see growth in what we call other income. We'll get back to that later. Occupancy rate at 98%, we had to dive into quite some older annual reports to find a number like this. That was in 2013. That was actually before the big wave of a lot of bankruptcies in retailer chains in the Netherlands and in Belgium and I think also in other European countries. So it's nice to see that we're back at this high level. Like-for-like rental growth, plus 6%. Improving Dutch retail market is helping a lot with that, but also the other income I just mentioned. We'll zoom in on the breakdown of this later. We sold the Dutch Full Service Center Sterrenburg at EUR 60 million book value in December 2025, which I think is an interesting achievement because this is the first full service center we are selling with some compelling KPIs. Dennis will talk about that later. Stable cost base, I've mentioned. Total shareholder return last year of plus 51%. The dividend per share, we proposed EUR 1.30 for 2025, that will be decided on the AGM of May 2026. It's an increase of 4%. With that, we remain quite conservative. It's a payout of 70%, a little bit below the targeted payout range. But as long as our loan-to-value is above 40%, Dennis will talk more about that later, we think we should remain conservative. Outlook for 2026, EUR 1.85 to EUR 1.95. Zooming in on some of the key numbers of 2025. The direct result, I've already mentioned. The indirect result, unlike last year, was slightly negative. We'll zoom in on that later. We saw slightly negative valuations in the Netherlands and in Belgium. It's more asset specific. We'll talk more about it later. On the LTV side, you see a slight increase over the last year from 41.8% to 42.5%. Again, I want to stress, it is our priority to reduce this below 40%. The French disposals, equity-funded acquisitions, but also JVing existing Dutch assets, for example, will all help to reduce the LTV ultimately below 40%. We're now at 16.4% mixed use, so we also made nice progression on that side. The like-for-like rental growth, I'll zoom in on the callout box on the top right of your screen, 6.3%, driven first and foremost, by indexation, logical, other income. Thirdly, a reduction of property expenses, which was a key priority already in '24, but also in '25, which is yielding some very nice results, amongst others, recouping some older bad debt, I think a very nice performance of our finance team. Leasing, plus 0.6%, combination of positive leasing spreads, slightly positive leasing spreads of about 3%, but also some sales-based rent. Occupancy, a small increase with 20 basis points, contributing to the like-for-like. Then zooming in on what we call other income, which is becoming a more and more important revenue driver. When we talk about other income, we're not talking about rental income from the shops we are renting out or from the parking. For us, it's important to mention that in the definition, parking income is not other income, it's real estate. So it's real estate income, it's rental income. We talk about ESG income, for example, solar panels, EV chargers on the parkings. As you know, we own -- in most of the cases, we own the parkings, either underground, but in Belgium, for example, mostly outside. And those are interesting opportunities. Think about Ville2, we bought in Charleroi with about 2,500 parking spaces, all outside ground floor level, very interesting opportunity to roll out EV chargers. Marketing and media, digital screens, we signed an important deal in September last year with Ocean Outdoor for the Netherlands, boosting our direct result per share by at least 3% per annum. We'll be working on Belgium and Luxembourg this year. We signed our first joint venture with Sofidy for Stadshart Zoetermeer in June 2025. The management income from that JV is included in the other income. Of course, we also have a profit share in the entity where we are investing in Zoetermeer. But here, we're talking about the management fees. Self-services, for example, vending machines in our centers, and lastly, specialty leasing, I think that is a well-known concept, but that is also increasing. So let's talk about some numbers. In 2025, we had EUR 6.7 million other income and we think we can increase to EUR 10.1 million in 2027. Of course, this number does not yet include additional joint ventures. If we're able to sign and we're working on several projects -- in the Netherlands, if we're able to sign more joint ventures, of course, the figure will increase. Then we focus on the results itself. Operations, we're very happy with the results, particularly with the Netherlands, finally, a positive leasing spread. You'll see more about that later. If I focus on the core portfolio, Netherlands, Belgium and Luxembourg, you can see an MGR Uplift of 2.7%, which I think is compelling. but also the occupancy rate of 98%, as mentioned before. France is still a negative figure, but less negative at least than last year. And we also think that our NRI from France will be relatively stable to slightly up in 2026 despite, as you probably know, the very low inflation and indexation forecasted for '26 for France. The LifeCentral strategy, we already have about 4, 5 years of track record. So we thought it would be nice to show you some aggregated results. Footfall, full service centers, nicely above traditional shopping centers, also tenant sales, but also the total property return. Our key indicators, I think many of you know this, but I think the charts speak for themselves. Then we also published a table with some detailed result. I'm not going to mention it all. As you might know, in the first half of '25, we had about an EUR 8 million write-down on our Tilburg asset because we extended some leases. We chose for longer lease maturities that had some impact, of course, on the valuation results of the full service centers. But other than that, if you focus on the bottom of the slide, you can see some nice outperformance. Dutch leasing market, I mentioned it already. We see it improving. 2013, '14, '15, '16, a lot of bankruptcies, as we've mentioned previously. Then came the COVID period, which was also tough, of course. But now we see an improving market. What you can see here on the chart is, first of all, the leasing spread, new rent versus old rent, has been negative for a lot of years, that has now turned positive to plus 4%. And also the occupancy rate of the portfolio at 97.4% is actually at the highest since 2013, which is not even on this chart. We see an improving market. I'd also like to mention, for example, the vacancy of Blokker and Casa, the reletting of the units that took place in the first half of '25 [ rent ] pretty quick and occurred in total at a slightly higher rent than the previous rent. We could choose amongst several concepts, and that was a while ago. So we're quite positive and constructive on that. The footfall, I think you can see here in all the 3 charts that in the Netherlands, Belgium, Luxembourg, our core markets, we're nicely outperforming the market. Tenant sales plus 2%, a little bit slower growth than last year, particularly in Belgium. You can see, for example, in the Shoes segment in both countries actually, but in Belgium, that is a bigger segment in our portfolio, that dragged down the sales growth a bit. What's also impacted is the bankruptcy of Lunch Garden, the larger F&B concept, in 2024. Some of those units were vacant in '25. So that, of course, impacts the like-for-like sales growth in Belgium. In the Netherlands, plus 3% is above inflation indexation, which I think is a good result, except for multimedia and electronics, minus 5%. We had a tougher year, although the COVID years and the post-COVID years were a little bit stronger in this segment. Daily life, as you know, we use this as a gauge for the resilience of our revenue stream. We now have 65% daily life exposure, convenience, retail, nondiscretionary. It's a little bit lower than last year, and this is all because of -- and you can see that in the callout -- because of the acquisitions in Luxembourg, but also Ville2 in Charleroi. Of course, these shopping centers will also be turned in full service centers. And once that is completed, the daily life exposure will go up again. Then on the commercial update, first of all, Belgium, we signed about EUR 11 million of MGR, 8% above ERV and slightly above old rent. It's a little bit lower than the last couple of years. That is also because we did a lot of leases in Genk, which is in the north of Belgium in Flanders. It is a more difficult location, a city with higher unemployment and tougher economics and demographics. There was a lot of leasing activity in that city in '25, that's why the leasing spread was a bit lower. I think for '26, we expect a higher figure than plus 2% for leasing versus old rent. Luxembourg, it's only the start, of course, because these assets were acquired in 2025, but we've leased some units at 8% above ERV. We've extended, for example, Medi-Market, which is a very strong parapharmaceutical concept in Belgium that we've actually also now brought to the Netherlands. Medi-Market signed their first lease in Zoetermeer in our assets that we jointly own with Sofidy. In the Netherlands, very important lease signed in Tilburg with TK Maxx for 2,000 square meters. This was after the first half results, so that had a small positive impact again. It's a very strong anchor and I think also a very suitable tenant for a city like Tilburg, which already had some positive impact on the footfall on that part of the city. International leasing, I already mentioned the example of Medi-Market coming from Belgium to the Netherlands, but we also have some other examples, for example, Bestseller Group, which is becoming one of the largest tenants in our portfolio with brands like ONLY, ONLY & SONS, Jack & Jones, Vero Moda, that we have in all countries and is expanding rapidly and is showing very good turnovers in our portfolio. Before I hand over to Dennis, lastly, on the occupancy cost ratio. In the Netherlands, relatively stable. That is logical because the sales growth was in line with the rental growth. In Belgium, we see a slight increase. We had about 1% retail sales growth, but we also noticed in Belgium a small uptick in the service cost. And as a result, the OCR is up from 14% to 15%. I still believe that is a very sustainable level. OUR sales productivity per square meter in Belgium is higher. So this is a level we should maintain. And as I commented earlier already, we forecast for '26 a more positive leasing spread in Belgium than in '25. With that, I'd like to hand over to Dennis. A. de Vreede: Thank you, Matthijs, and also a warm welcome from my side. My first slide is showing our cost reduction efforts over the past 6, 7 years. As you can see here, we've been reducing and stabilizing our direct Genex. And at the very same time, we've also been focusing very much on our other cost buckets. And that results in a 20.6% EPRA cost ratio in 2025 and I think we have a stable cost basis, meaning that if we grow the portfolio further, if we grow our top line further, I would expect our EPRA cost ratio to go even below the 20% mark. On the direct result side, Matthijs mentioned already the EUR 1.86 per share, which is equating into EUR 101 million of direct results, a 10% growth, a nice growth. I think, if I would exclude the acquisitions and disposal effects of 2025, it would come down to close to 3% growth. But if I would also mention, and you can see that on the very right-hand side of the chart, the tax bucket, the -- this is the first year that we have been paying corporate income tax in the Netherlands, almost EUR 4.5 million. That would equate into another EUR 0.09 to EUR 0.10 direct results per share. So all in all, I think a very stable and a very solid year this year on our direct result side. Here again, a little bit of a color over the past few years. On the left-hand side, we are looking to grow the direct result per share to EUR 1.85 to EUR 1.95 in 2026. That is -- again, that is another 3% to 4% growth, if I would take the EUR 1.90 as the midrange of that. For 2025, Matthijs just mentioned, we will be proposing EUR 1.30 per share for dividends, and we would see that going into EUR 1.35 for 2026 as a forecast, as a guidance for our dividends. Moving on to the relative performance, I would say, we announced our LifeCentral strategy back in 2020, to be exact, almost 6 years ago. And as you can see here, we have achieved -- on the very right-hand side, we've achieved an 80%, 81% total return over those 6 years. So again, I think a very nice achievement if I compare ourselves to the 6 other peers, which are closest to us. We are #1, #2, as you can see on this chart. Also for this year, for 2026, I think year-to-date, we are already at a 16% return as per now. Moving into a few of the transactions which we haven't mentioned already in the first half or the third quarter of the year. I think the 2 most important ones in Q4 are the disposal of our full service center Sterrenburg in Dordrecht, a very important one for us. I think this was one of our nicest assets and one asset where we have been, I think, demonstrating that the full service center strategy really works. All in all, we have been realizing almost 10%, 9.3% IRR on the transformation and the disposal of this asset. At a 6% net initial yield, we have been able to sell this asset. And I think it also demonstrates the fact that the full service center strategy is working. I mean the values are real, as you can see here, proving by this first transaction of a full service center. Moving on to one of our latest acquisitions as part of our capital rotation strategy, we have acquired the Ville2 shopping center in Charleroi in Belgium. We are very happy with this asset. Again here, we have been able to raise quite some equity in Belgium to partly finance this transaction. And we believe this asset will be a very good contribution to the Belgium team and to, of course, to Ville2 as a group. Net rental income, almost EUR 10 million. We bought it at a net initial yield of 8%. So I think there's quite some work we can do there to further enhance the value of this asset. Demonstrated on this slide, we will be pushing Ville2 into the full service center to the LifeCentral strategy. We've been already scanning through the asset, what can we do, what can we add to enhance the value. And on the right-hand side, you see all the different buckets that we're looking at to make sure that we are increasing the value of this property. Moving back to Matthijs. Matthijs Storm: Yes. Thank you, Dennis. On the LifeCentral strategy, and Dennis already gave some examples for Ville2 in Charleroi. As you can see the bottom right of this chart, our mixed-use percentage is continuing to increase 15% to 16% this year, and we forecast another increase to 17% for 2026. And with that, I think it's also good to talk about the completions for 2025. Nivelles in Belgium, we've mentioned this earlier in October when we celebrated the opening of the redevelopment of Nivelles. It was fully let, first and foremost, I think the most important metric, but also some nice new concepts, for example, in F&B. In Arnhem in the Netherlands, we've completed the first phase of the transformation, Phase 1, also fully let with a new Jumbo supermarket. I'm looking at the pictures, but difficult to see here, but we have some on the website. It's another strong anchor to this center, but also the Eat & Meet Square that you can see on the top left of the pictures, is working very well with some interesting turnovers from the first month of operations. So we're happy with the first phase, and we're now working actually on the plans for Phase 2 of Kronenburg. 2026 will be a year of study and desktop work. And then I think in 2027, we can commence the works on Phase 2 of this center. A launch for transformation is Cityplaza. We already did some smaller things in this shopping center over the past years. On the top right-hand side, you can see several elements. We're adding a health and fit zone. The operator, a larger health care operator, Roerdomp has already signed the lease. That's done and dusted, and at the moment, we're doing the works. We already included a new gym with Basic-Fit on the right-hand side. In the middle, you can see the new Eat & Meet Square for which several tenants have already signed up. We communicated on that already, a fresh street every.deli on the left-hand side and also a little bit of rightsizing. We sold some units to a residential developer who will build housing on that part, which is, I think, beneficial for both because, again, the LifeCentral strategy is not only about turning retail into mixed-use. Sometimes it's also about rightsizing the retail. In Luxembourg, we have started to work on the transformation of Knauf Schmiede. That's one of the 2 centers we bought back in February 2025. Also here, there will be some rightsizing. We're adding mixed-use, for example, a fitness on the first floor. We're improving the visitor flows through a new layout of the center. And then we're adding several life central elements. You can see some examples like the point, our service desk on the top right-hand side, but you can also read some other examples that we will be adding in 2026 to turn Knauf Schmiede into a full service center. Polderplein, that's an asset we acquired in Hoofddorp back in 2023. It was the missing part of the shopping center Vier in Hoofddorp, that we added back then. Now we own the complete shopping center for 100%, and we've now started the works to also turn the acquired part into a full service center. You can see some examples on the bottom left-hand side of the slide. Hoofddorp is one of our best locations in the Netherlands from an economic and demographic point of view. So we're happy with the results so far. Stadshart Zoetermeer, we acquired in June '25. We already communicated on that. And also Stadshart Zoetermeer will be turned into a full service center. Even though this asset is in a joint venture, we are the manager of that asset. And also this asset, you can see it in the map on the top right-hand side of this sheet, will be turned over the coming years into a full service center with, amongst others, addition of health, a fresh cluster and self-expression. Then some numbers on Knauf Pommerloch and Schmiede. We bought those in the beginning of 2025. For example, in Pommerloch, we signed a new lease with Jack & Jones in the former Casa unit. When we acquired this center, we already talked with analysts and investors about reversionary potential. Well, you can see here plus 54% versus old rent. I'm not sure if this is indicated for all the leases we will be doing in Pommerloch, but I think it's a nice example. In Sweden, we've extended with Medi-Market and Veritas. And last but not least, we realized a very nice valuation uplift in '25. Dennis will tell you more later. Then on the CapEx, we changed this slide a little bit. Until now, we always showed you the initial, about EUR 300 million CapEx program for the LifeCentral strategy, as Dennis said, starting in 2020. But most of those transformations, the original ones have been completed. What you can see in the dark blue bar on the left-hand side, the EUR 25 million, that is the last part of the original EUR 300 million program, but we've added about EUR 36 million for the acquired assets in the meantime, that is Polderplein, that's the 2 centers in Luxembourg, and that is also Ville2 in Charleroi. And this is why the number has gone up a bit to EUR 61 million. But you can see over the coming years, it's nicely spread and most of it is still uncommitted. So if something -- if a big event happens in the global market or in the global economy, we're well prepared to scale down the CapEx. Capital allocation. Our IRR framework, which we base on the Green Street unlevered European retail IRR, which now stands at 7.1%. We still set the bar at 8%, almost 100 basis points above that threshold. What you can see is that most of our assets, also the acquired assets, of course, tick the box. We have one asset on hold. One asset is at the moment in the sell bucket that is in Genk because it's not reaching the required IRR. So we're working hard on that. The yield shift, as you can see, most of the assets, most of the completed full service centers have outperformed the market in terms of yield development. And then lastly, on residential profits, yes, this is, as we've mentioned earlier, it's the icing on the cake, a little bit of icing on the cake. Last year, we realized a payment of EUR 3 million for the building rights in Tilburg, as you can see on the right-hand side. So that is a nice achievement. In the coming years, we expect the payments for Nivelles, which is a larger one of about EUR 7 million to EUR 8 million, which will be coming. And also, of course, Kronenburg, which is our biggest project, I just mentioned, Phase 1. With that, I'd like to hand over back to Dennis. A. de Vreede: Thank you, Matthijs. Valuations to start with. As you can see here, a positive valuation result for the full year for our core portfolio of about EUR 11 million, mostly driven by Luxembourg in this case. as Matthijs already mentioned before. I think we mentioned already where the negative -- the slightly negative numbers came from the Netherlands, that was already mentioned in our first half year deal where we did this Tilburg deal. We secured a nice 10-year lease extension, but we were faced with an EUR 8 million write-off on that specific asset. In Belgium, again, there also almost stable. The negative valuation is mostly part of one single asset. Matthijs mentioned that already, Genk, which is a more difficult asset and which we are holding now in the sell bucket basically, as demonstrated on the slide before. All in all, stable yields, EPRA net initial yields in the Netherlands, slightly up in Belgium. But all in all, we look back at a nice year. The net LTV and the net LTV target, I'm not going to spend much time on this. I think we mentioned this already. We want to push this down still to the 35% to 40% mark. We have plans to do so in '26 and '27, very concrete plans. You could see on the right-hand bottom side, what steps we will be taking to get it down to the -- below the 40%. And as we are working our way through that, we will be cautious on the dividend side. So a slight increase next year for the dividend, as mentioned, but below our 75% dividend policy. Our debt profile was a busy year on the debt side for 2025. You could see that our net -- our interest-bearing debt increased, obviously, following the acquisitions we had in Luxembourg and in Charleroi, mostly. The average cost of debt slightly up really because we have been looking to acquire quite some new long-term debt, which was used PP, but also our first -- we mentioned that before, our first European PP in the Netherlands and at the very end of the year, also a European PP in Belgium. So I think we're happy with that to extend the maturities of our debt. You can see that on the bottom. It went up from 3.4 to 3.7 years. And as we are working our way towards refinancing our big corporate RCF, EUR 250 million RCF, which I am expecting to finalize this quarter, we will be moving up that 3.4 average maturity -- 3.7, I should say, average maturities up well above the 4 years. A nice debt mix, as you can see at the right-hand side for 2025. So again, mostly 49%, driven by the USPP, but you could also see that EUPP starts to get hold in our debt book. The rest is mostly bank loans. One bond, which is a Belgium bond, is the -- that is the 3%. We are on our way to refinance that. That is maturing in the second quarter of 2026, but we're almost there to have that also refinanced. This gives you a little bit of a view over the past 7 -- 6, 7 years of the maturities. That's the average debt maturity. We started off around 4 years. That went down to about 3.3 years, 2 years ago. We're back at 3.7. And if we are pushing the RCF, EUR 250 million RCF over the finishing line this quarter, we should be well over 4 years. And I think that is an important metric also for our credit agency, which is requesting us basically to focus on that and push that more towards the 5 years. On the ESG side, also a busy year. I've been putting a number of our projects here on this slide. I'm not going to read them all out to you, but focus points for us have been to keep increasing the solar panels. We also included last year the first -- or we signed the first leasing deal on our solar panels, which was with Jumbo. EV charging points, certainly in Belgium, we are rolling out at a very fast pace. You see the numbers right there. But also we are trying to make sure we copy the efforts in Belgium, in the Netherlands and enhance our other income with that. Green leases, which is part also of the interest of our RCF. So basically, we get a bonus and malus on our RCF with some green KPIs. This is one of them. We've been pushing that towards the 79%, which is also demonstrating the willingness of our tenants to help us on that part, and we keep focusing on that for the next number of years. So all in all, if you look at a number of projects on the bottom side, Paris-proof projects, we've been insulating and renewing new roofs in Cityplaza and Kronenburg. And again, also on Presikhaaf, our full service center in Arnhem, we are replacing the roof right here, a glass roof, and that should be expected to reduce the lease -- the heat loss by 54%. Moving on, I would say, to the final part of this presentation, I hand it over to Matthijs. Matthijs Storm: Thank you, Dennis. Let's go to the management agenda, and then we can go to the Q&A. I already see some questions coming in. Thank you for that. Creating scale, I think we did quite some work last year, but we have a lot of interesting projects in the pipeline. Of course, I cannot be concrete at the moment, but -- as I said also during the last road shows, there's quite some product on the market in the Netherlands and in Belgium that is interesting for us. Again, in Belgium, we would acquire full equity. In the Netherlands, it would be through a joint venture, like we did in Zoetermeer. Total return, slightly below the target last year, also driven by slightly negative valuations. I also see some questions about this. I think Dennis already commented on Genk and Tilburg specifically, but there are also some indirect expenses like deferred taxes. We'll get back to that. Capital reallocation, speaks for itself, finalizing the last transformations. But of course, we've started new ones like Schmiede. We have completion scheduled for 2026. ESG, Dennis focused on it already, phase out France, we're targeting to sell, of course, the last 2 French assets. We see some slight improvement in the French transaction market. There have been some deals. So hopefully, that is helping the momentum to finally dispose these. Last phase of the balance sheet derisking, LTV below 42.5%. Dennis already mentioned the 4 different streams that we are working on in order to get there. And lastly, other income, as I mentioned earlier, we now have EUR 6.7 million other income and the target is to grow that to EUR 10.1 million in 2027. With that, we go to the questions. Matthijs Storm: And I think Dennis, first question you could answer is a question from Steven Baumann from ABN AMRO ODDO. He is asking what are the key components of the indirect general cost for 2025? A. de Vreede: Yes. Okay, Steven, thank you for asking. Obviously, well, you could see the components are typically the same. These are the valuations. Obviously, we have the indirect Genex. The indirect Genex is the one-off Genex hits that we're taking slightly above last year. We've been spending quite a bit on acquisitions and the disposals, which we have been writing off on some of the projects which did not go through. But also this year, we have seen a big number, which is the indirect tax, which is part of the indirect expenses, obviously, and that is mostly driven by the value increases in Luxembourg. You've seen a EUR 22 million value increase there. But also on the Dutch side, on some of the assets, we've seen a value increase, and we have been taking the deferred tax liability on that value increase. So -- those are the elements driving the indirect expenses. Matthijs Storm: Okay. Second question from Steven is the key components of the other income in '25, this EUR 6.7 million, Steven, in '25 is mostly for the moment coming out of the Belgian market, where this has already been a larger figure for years, mostly driven by specialty leasing, a lot of the kiosks and pop-up stores, but also in Belgium coming from the point, our service desk, where we take and deliver parcels from several operators, but also sell several items. It's coming from ESG income in Belgium. So that country is the largest contributor, but the Netherlands is growing rapidly, as you noticed on the slide. The Ocean Outdoor deal will start this year 2026. So that's not yet a contributor to '25. And of course, the management income from the joint venture with Sofidy, which is counting for about half a year in '25 because we commenced in June '25. And of course, we'll have a full year contribution in '26. Steven is also asking what you can expect from these items in '26. I think the growth, Steven, is coming from a full year contribution of the Sofidy deal, the Ocean Outdoor deal on the digital screens, but also several smaller initiatives like the specialty leasing and the kiosks in the Netherlands, additional the point desks, but also additional solar panel and EV charging projects. That's all contributing to the income in '26. Steven is also asking if we assume acquisitions or disposals within that number? Answer is no, Steven, because we're -- the disposals we are working on is in assets, for example, the Belgian offices or the French assets where there is no other income. So that will not have an impact. And we're not assuming new acquisitions. Of course, if we acquire new assets, the figure could go up. Then Steven is also asking about the full year 2026 outlook, the EUR 1.85 to EUR 1.95, what are our key assumptions behind this? Like-for-like rental growth, indexation, well, to go into this, Steven, we assume indexation of about 1.75% for 2026, which I think is quite conservative. Property expenses will be relatively stable and the occupancy rate, we also believe will be relatively stable. The last question from Steven is about the average cost of debt. So maybe Dennis can give some views on that. A. de Vreede: Yes. Yes. Steven, average cost of debt is 3.62% at the end of '25, as mentioned before. I think a few large things will be happening in '26, as I was just mentioning, that is the refinancing of our corporate RCF, the EUR 250 million corporate RCF. And I can -- I would expect, let me put it like this, that we will be looking at a lower margin -- a substantial lower margin than we were paying before. So that will be driving our cost of debt -- average cost of debt down a little bit. On the other hand, we are still looking to refinance some USPP maturities this year, which is, I think, about EUR 40 million this year. And in Belgium, we are also looking to include or increase the long-term financing a little bit. So that will be driving up the cost of debt a little bit. So all in all, I would expect it to be stable for '26, maybe slightly lower depending on how much we draw from the RCF. Matthijs Storm: Maybe important for you as well, Steven, the refinancing -- the expected refinancing of the bonds in Belgium and the U.S. is more expensive. That is included in the outlook. But the potential reduction in the cost of debt coming from the new RCF is not yet in the EUR 1.85 to EUR 1.95. So that would be driving some additional growth if that were to be signed. Lastly, your expectation about like-for-like rental growth, I think we should still be in the 5% range. The components behind it, I've already mentioned, but with the growth in other income, we should certainly achieve a number in that territory. Then we go to Francesca Ferragina from ING. Guidance, what are the hypothesis about like-for-like in cost of debt for '26? I think we've answered that. Can we expect more partners and more JVs for '26? Yes, that is our expectation, Francesca. We certainly want to do at least one more joint venture like Zoetermeer in the Netherlands this year, potentially also JV-ing one or 2 of our existing Dutch assets, but continuing to manage it. Of course, nothing of that is included in our guidance. Are you open to new joint venture partners? Certainly. Can you make a comment about the asset valuations in H2? Yes, I think Dennis already mentioned that with Genk Stadsplein and Tilburg, we had some write-downs, also in the Belgian offices in [ Ville2 ], our more difficult office location outside Brussels. If you would take those out, the valuations would be relatively flat. Of course, they have an impact, but it is more asset specific. I think also it's logical that valuators increase the ERVs, but also the yields have gone up slightly. You can see that in an increased EPRA net initial yield. We've been buying Ville2 at 8%. We've been buying Zoetermeer at almost 10%. Then of course, the valuators move out their yields a little bit. So that's Belgium and Netherlands. You talked about little competition among buyers in the Benelux regions. I see there's more in this. What type of assets do you see on the market? Yes, we mostly focus on the larger shopping centers. So I think the criteria for us is at least 20,000, 25,000 square meters in terms of size in order to establish a full service center concept. We have more criteria that you can find in the materials online. Of course, there should be the potential to transform into a full service center. Again, there are several assets on the market in Belgium and the Netherlands that we think are interesting. We're working on that. A lot of activity at the moment. So we'll talk more about that later for sure. Do you notice any difference versus 12 months ago in the transaction market? No, I think it's still a buyer's market. Could you provide an update on the French assets? I think we did that. We're working on the disposals, but nothing concrete to mention as we speak. Do you expect more write-offs? No, not for now. Of course, if we did expect some write-offs, we would have taken them in the full year 2025 results. I think going forward for this year, we expect a continuous improvement in the ERVs. We keep leasing well above ERV. I don't have any assumption about the yields, to be honest, so let's see. In the past, you talked about entering new countries. That is true, Francesca. I think in the long-term, that will happen eventually. But again, there's so much interesting product on the market in our core markets, there's no need to do that this year. Do you expect other disposals? I think Dennis already mentioned the type of disposals we are working on. So for example, the Belgian offices, some equity out of Dutch assets through JVs and the French disposals. Right. Then I need to go back. Yes, there we go. Then we go to a question of Amal Aboulkhouatem from Degroof Petercam. Thanks for the question. Congratulations on these impressive results. Thank you for that, Amal. A few questions on my side. Could you comment on the negative revaluation in Belgium and the Netherlands? I think we did that. What is your outlook for the cost of debt in '26? Dennis answered that. And how do you intend to continue the expansion strategy? Would that be in existing markets or in the new markets? Yes, sorry, Amal. I think we've dealt with your questions, but again, still, thanks for answering -- asking them. And again, a new market is not something we are working on at the moment. It's something for the longer term. Then we have a question from Rahul Kaushal from Green Street. Congrats on the great results and thank you for the presentation. Thank you, Rahul. Can we expect further acquisitions this year? Certainly, we're working on, again, a lot of projects. So you can expect that. Are you looking at markets outside the Benelux? We've answered that. That is at the moment a no. In terms of disposals, can we expect further divestment in the Netherlands? The answer is no, if we talk about entire assets. We only consider this with existing assets and then selling part of the equity in a joint venture. And could you provide a timeline for the disposal of the French assets? Yes, I'd love to, Rahul. At the moment, it's not concrete enough to talk about this. I have mentioned that we see some transactions in the French retail market also in more secondary cities. Hopefully, that will continue and will allow us to sell one or 2 French assets finally this year. I'm going through the list. I don't see any additional questions for the moment. So with that, I'd like to thank you. I'd also like to thank our CFO, Dennis de Vreede, who, as most of you know, is unfortunately leaving Wereldhave as per the AGM of 2026. It's been a great ride, Dennis. Thank you for that. And we all know Dennis did a fantastic job in reestablishing Wereldhave, particularly financially. If you look at the balance sheet, if you look where we stand today, if you look where the share price is, yes, I think Dennis did a great job. And I'm very grateful on behalf of the management team, but basically all the stakeholders for Dennis for this fantastic work. This will be Dennis last webcast, but you will certainly see him in the future, and of course, he will be attending our AGM. So thank you, Dennis, for that. It's been a great ride. And as most of you know, Marcel Eggenkamp will be proposed to the AGM as our new CFO. You'll see him in the coming webcast. Thank you so much... A. de Vreede: Thank you. Matthijs Storm: For listening. Thanks for your questions, and see you with the first half results on the roadshow. Thank you.
Operator: Thank you for standing by, and welcome to the Evolution Mining Limited FY '26 Half Year Financial Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Lawrie Conway, Managing Director and Chief Executive Officer. Please go ahead. Lawrie Conway: Thank you, Cameron, and good morning, everyone. I'm joined on the call today by Fran Summerhayes, our Financial Officer; Nancy Guay, our Chief Technical Officer; and Rocky O'Connor, our GM, Investor Relations. Today, we released our FY '26 half year financial results along with announcing the approval of 2 key projects at our Cornerstone operations being E22 at Northparkes and Bert at Ernest Henry. The call today will reference the presentation we released this morning. The forward-looking statement details are provided on Slide 2, and people are encouraged to take note of these. I'll be starting on Slide 3. I personally think today is a milestone day for Evolution. The work we have done executing our strategy since we formed in 2011 has demonstrated to be the right one. Today, we have a portfolio which is of the highest quality and are embarking on the next phase of growth while at the same time, delivering high returns for our shareholders, including record dividends. We've always said that by focusing on margin, we will make sure that our shareholders benefit. We will bank the cash, invest it wisely and reward you along the way through share price appreciation and dividends. Today shows that we are meeting that commitment. The record financial performance has been built up over the past 2 years of safely and consistently delivering to plan and capturing the benefits of a rising metal price environment. The business is in great shape, probably the best it has ever been, and it is right to be reinvesting in the high-margin suite of assets that we have. As you will see shortly, the returns on these investments will generate are some of the highest in the sector. From a portfolio perspective, our operations are set to take advantage of the current environment. Cowal continues to be a material cash generator while investing for mine life extensions via the OPC project. Mungari has successfully transitioned back to being a major cash contributor for the group. Ernest Henry and Northparkes reliable cash generators and the projects announced today will enable us to lift returns through utilization of latent processing capacity and increasing our gold and copper production. Red Lake is showing what it is capable of doing, having delivered over $200 million of cash in the last 18 months, and Mt Rawdon continues to contribute while we work through the final stages of the options to move to a renewable energy project. Moving to Slide 4. The consistent performance is delivering high returns. Our underlying profit more than doubled to $785 million, while our group cash flow was 123% better at $608 million. The benefit for our shareholders is a record dividend of $0.20 per share, up 186%. Fran is excited to be going through the full details of the financials shortly. We have continued our discipline in terms of capital allocation and only investing in projects if they demonstrate they can generate high rates of return. It is the right time now to be investing in the projects at Northparkes and Ernest Henry. The E22 and Bert projects will utilize excess processing capacity to increase production. At Northparkes to extract maximum value from the asset, the role of the stream that Triple Flag had needed to be sorted. The collaboration and positive intent of the Triple Flag team has facilitated greater flexibility in evaluating the multiple ore bodies at Northparkes. The updated agreement allows us to move forward with E22 block cave and start studies on expanding production, including the potential development of the gold-rich ore deposit. It also provides a pathway to develop additional gold-rich deposits. We will receive a payment of $120 million in December and receive a materially higher proportion of the metal from the potential E44 deposit. Full details of the updated agreement are provided in the appendix of this presentation and a separate release. I do thank Sheldon Vanderkooy and James Dendle, who worked closely with Kirron Schmidt and our corporate development team to finalize the amendment. On Slide 5, you'll see a summary of our disciplined approach to capital management. We have the right mix in terms of returns for our shareholders, investing for organic growth and acquisitions and having a balance sheet that underpins our strategy. Shareholders are receiving record dividends with over $400 million to be paid in April. We have lifted our planned total capital investment for FY '27 to '30 to between $900 million and $1,100 million per year. The driver to the change in outlook is only linked to the scale and scope of the projects or the new projects such as the coarse particle flotation and the expansion study at Northparkes. It is not due to any project overruns or the like. For FY '26, our group major capital is updated to between $500 million and $605 million associated with starting investing in the projects announced today and the fact that the Cowal OPC project is ahead of schedule. We have now commenced development of the E46 pit brought forward from FY '28, the work on the southern bund and will increase our work on the integrated waste landform given the availability of more waste material. The overall project capital at the OPC remains unchanged at $430 million. Overall, this is good capital investment, and I will show you why on the next slide. We also announced today an expansion of our Canadian footprint with 2 quality exploration targets in British Columbia. Our discovery team believe these targets have the potential to become evolution scale projects. We'll be extensively drilling these over the next 12 to 15 months. Our balance sheet is in great place. We're on track to move to net cash by the end of FY '26 and the balance sheet can support all components of our strategy. Turning to Slide 6. And to me, this is the most important slide of the whole presentation. It clearly shows the quality of our portfolio and the discipline of our investments. The projects in execution or those just approved are all going to improve the group average rate of return as these projects are all above the 18%. Significantly at conservative gold and copper prices, the range of returns are 23% to 77%. These returns improved to 38% to 128% at a gold price that is 10% below today's price. At Northparkes, the return from E48 could be as high as 128%. When we acquired the operation, we made a deliberate decision to take advantage of the installed infrastructure at E48, which bought us time to a fully assessed E22 and the Triple Flag agreement. This is a great example of how to allocate capital. Further highlighting the benefits of our capital allocation is the Cowal OPC project. We are 1 year into the project and is tracking ahead of schedule. Cowal delivered over $130 million of operating cash flow in January alone. This is an annualized rate of $1.6 billion and was delivered while utilizing some lower-grade stockpile material and is more than enough money to fund the OPC project. Overall, we're investing in the right projects at the right time so as to improve the returns and the quality of the portfolio. With that, I'll now hand over to Fran. Frances Summerhayes: Thank you, Lawrie, and good morning, everyone. At my first results presentation with Evolution, it is a pleasure to be talking to a set of record financial results and rewarding our shareholders while we continue to invest in our quality assets. On Slide 8, underlying EBITDA achieved $1.6 billion, up 59%. And record underlying profit after tax at $785 million, up 104%. These financial outcomes were driven by stable and safe performance on plan and consistent production, benefiting from the higher metal prices whilst protecting our margin with strong cost control. Highlighted by our record underlying EBITDA margin, which has improved by 14% to 57%, we are banking the benefits of high gold and copper prices with our sector-leading all-in sustaining costs with record group cash flow at $608 million, up 123%. Declaring a record interim dividend, this is 3x higher than the FY '25 interim dividend of $0.20 per share fully franked. Both operating and net mine cash flow for the half were all-time records. As the Slide 9 shows, net mine cash flow is up 151% at $1.1 billion. delivering on our operational performance where we continued investing in our long-life, high-margin operations like the open pit continuation project at Cowal that is ahead of schedule and on budget. Mungari operation net mine cash flow is up almost 240% following the successful commissioning during the period on schedule and the low-budget mill expansion project. Group operational cash flows -- sorry, operating cash costs and sustaining capital spend was in line with prior periods. As our underlying EBITDA margin increased from 50% to 57%, highlighting the quality and strong operational performance. These strong margins are expected to continue with our improved all-in sustaining cost guidance for FY '26. We continue to bank the upside from the higher prices through consistent, safe on-plan delivery, in turn, leading to a very favorable step change in our balance sheet, which was already at investment grade before. Our balance sheet is in great shape, as the charts show on Slide 10. Since December 23, over the last 2 years, our gearing has significantly reduced from 30% to only 6%. During the half period, we've repaid all bank term loans with the final $280 million, which was repaid during the half. Now only remaining debt is our U.S. private placement. This is long tenure and low cost with an average fixed interest rate of 4.47% with our next payment not due to FY '29. Our cash balance is $967 million. Net debt has significantly reduced from $1.6 billion to $362 million in the last 2 years. With the revolver credit facility remaining undrawn at $525 million available. Our total liquidity is at $1.4 billion. As cash generation and balance sheet strength has improved, shareholders are seeing this reflected in higher returns without compromising high value return on investment in our quality assets or balance sheet flexibility. As we have said before, as gearing comes down, dividends are increasing. The chart on the top right of Slide 11, clearly illustrates that. In times when gearing reduces dividend increases. Gearing peaked in FY '23 following various acquisitions to establish a high-margin asset portfolio that is now generating significant cash flow. Gearing has reduced rapidly while dividends have picked up. The chart shows what it may look like if the final FY '26 dividend was the same as the interim dividend. Bearing in mind that the current gold spot price is around 23% higher than the half average gold price achieved. This could be up to $500 million in extra cash flows in half 2. Our dividend policy remains unchanged. We are targeting an annual average 50% payout group cash flow. Following record financial performance, with strong group cash flow with the outlook on half 2 FY '26 with expected production guidance to be achieved, continue investment in the business and improved revised all-in sustaining costs, the Board has approved a fully franked dividend of $0.20 per share. This is 186% higher than the FY '25 interim dividend. We have been and we are disciplined through the cycle dividend payers. This is the 26th consecutive dividend. And in a 6-month period, this interim dividend of $406 million represents almost 20% of the total dividends declared over a 13-year period, clearly shows that we are honoring our commitment and rewarding our shareholders. Aligned with our shareholders' feedback, the dividend reinvestment plan will continue to be on offer with no discounts. With current spot prices, we are on track to be net cash by the end of FY '26 and while continuing to invest in our long-life, high-margin assets, which I will hand over to Nancy to share with you Thanks, Nancy. Nancy Guay: Thank you, Fran. Today, we are pleased to outline the significant progress we are making as we continue to advance our assets and build long-term value for shareholders. The timing is highly favorable. Metal prices are trending, and we are exceptionally well positioned to leverage our growing copper portfolio at a time when global demand for copper is accelerating. As Lawrie highlight, the Board has approved projects, both central to our strategy of investing in high-quality assets that generate sustained value. We have the E22 block cave at Northparkes, which will underpin production for the next decade and the Bert project at Ernest Henry is a near-surface high-grade deposit that enhance mine life, optionality and cash generation. On Slide 13, before we move into the detail of this project, I want to briefly reaffirm that we have a clear, disciplined strategy for every asset in our portfolio, and it is an exceptional portfolio. Ernest Henry and Northparkes are 2 standout example of that strategy at work. We continue to operate a high-quality, well-balanced suite of assets with defined pathway for growth. The approval of E22 and Bert reinforce our disciplined capital allocation approach, investing in the asset we know best, increasing our copper exposure and positioning Evolution to capture value in this trending market. Slide 14. Northparkes' growth strategy is anchored by 3 major investment streams, each designed to unlock the long-term potential of this highly scalable ore system. We are now progressing the next chapters of Northparkes with the development of E22, the next major underground production source. The project carries a capital estimate of approximately $545 million on the evolution share. Northparkes has a long successful track record in block cave development, supported by highly experienced operating teams and strong underground infrastructure. This foundation positions us extremely well to deliver E22 efficiently and with a high level of technical confidence. The E22 project is fully approved with first production planned for the end of FY '30 sustaining mill feed at approximately 7.4 million tonnes per annum. Slide 15. We are also progressing with the addition of a modular coarse particle flotation, CPF, circuit to the existing mill, a low impact, high-return upgrade design to deliver a 2% increase in copper recovery. This enhancement improved overall operational expenses and strengthened our financial performance. The coarse particle flotation project is a $75 million investment Evolution share. Over the past year, we have assessed several long-term growth path. The Board has now approved a full expansion study with a budget of 14 million Evolution share. This study will evaluate the optimal future processing scale, access mine-to-mill integration option and define the development sequence required to unlock the next phase of Northparkes' growth potential. Slide 16, outlines the scope of the expansion study, but more importantly, it highlights the substantial upside embedded within this world-class copper system. We see Northparkes as much larger asset than it is today. This study is a critical step towards that future. The work on the way is evaluating options to materially increase mill throughput while assessing new open pit opportunities alongside the next generation. In summary, this expansion study defined a sustainable processing envelope for Northparkes and position us to quantify and ultimately capture the full potential of a copper system capable of supporting significant higher production for decade. Slide 17. Turning to Ernest Henry. The Board has approved the Bert project with a capital budget of $160 million. Bert is a near surface high-grade deposits that integrates seamlessly with our existing operations. It is a well-defined and well-driven deposit advanced by our discovery team. If geometries support efficient extraction through sublevel stoping with backfill, enabling us to bring the ore online with minimal disruption to the current operation. Commercial production is scheduled to begin in FY '29. Bert is a meaningful addition to the Ernest Henry long-term plan, enhancing both copper and gold exposure at the time when demand and market fundamentals remain highly supportive. In closing, it is a very exciting period for Evolution. This project enhances production visibility, increase our exposure to a favorable commodity cycle and continue to build long-term value for our shareholders. Cameron, I will hand back to you for Q&A. Lawrie Conway: Sorry, that's to me, Nancy. So Slide 18 provides a good summary of the business. There's opportunities to deliver meaningful high returning growth from Northparkes and Ernest Henry which further upgrades the quality of our existing portfolio. I acknowledge we haven't spent much time on the call around the Triple Flag amended agreement. For the analysts, this will no doubt take a bit of time to unpack and Rocky, Fran and Kirron will make themselves available to provide further details in the coming days. However, we do believe it's been a genuine win-win for Evolution and Triple Flag and I do acknowledge that both teams who work closely to achieve that. Finally, we're proud of the results we've released today which were only made possible by the teams across all of our sites, who continue to deliver safely to our operating plan. We're banking the benefits of the high metal prices through record cash flow, which enables us to reward shareholders with record dividends, de-gear the balance sheet and fund the next phase of growth. I generally believe that Evolution has not been in better shape than it is today. Thank you. Cameron. Please open the line for questions. Operator: [Operator Instructions] Your first question today comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Lawrie, Fran, Nancy, congrats on a strong half year. First one for me, just in terms of Northparkes and the study there. I think Triple Flag highlighted sort of the study to 10, but you guys haven't put sort of a capacity number on that. I guess how should we think about sort of the sizing there in terms of the plant relative to some of the mine works that would be needed to do to get to sort of 10 or whether it's a full replication in terms of going to 14? Lawrie Conway: Yes. So Hugo, I mean the reason there's no fixed rate is as we previously talked about, it can be anywhere from 7.5% to a full replication to 15. What the study needs to work out is what's the right size and scale of the plant that matches the different ore bodies that will come through over the next 10 to 20 years. So our view is we think 10 is a minimal achievable one, but we'll go through that part in terms of the study. Nancy, do you want to talk on the ore bodies? Nancy Guay: No, I think that's the thing we have all the ore bodies. So it's really a question of sequence to make sure we can fill the mill. Hugo Nicolaci: And just to clarify there, I mean, what's sort of the earliest you could bring deposits like MJH or things forward just to then think about from our side whether that's a progressive expansion or whether that's a big expansion in one go relative to the mine sequencing? Lawrie Conway: I'll let Nancy talk to the mine sequencing. But effectively, our approach is that when the study is done, it would be a one upsize of the plant. We wouldn't be seeing us doing it in stages. When you look at it, you've got E22, E26. Then E22 would come online in FY '30, '31 and ramp up. Those production sources give us enough to certainly go above the nameplate and above the permitted of 8.6%, what the scale is, is what the study needs to work through in the next 12 months. Nancy was just going to add a couple of comments. Nancy Guay: Yes. I think the ramp-up will be done progressively. But as soon as possible to go to 10, 11, 12, but MJH will be like the same sequence that we talked initially. So it's the same sequence. It's more accelerating and as some maybe other open pit source to complete. Lawrie Conway: And that's where -- Hugo, that's where the work on E44 has a role to play. It's open pit and able to provide into the plant without the pressure on the undergrounds. Hugo Nicolaci: Got it. That's helpful color. And then another one, if I could, on Cowal. I appreciate a number of projects across the portfolio progressing, but just on Cowal, you permitted there to 9.8. Obviously, you accelerate sort of the waste movements, the southern wall move, you potentially unlock a number of open pits that could potentially provide a bit more flexibility on feed. Could you just remind us what works on the plant need to be done to potentially get you to that permitted capacity and how we should think about the timing of those potential works? Lawrie Conway: So you've moved on quick, Hugo. We only just said today that we're getting the Southern coming forward and E46 is ahead. I think the plant one is -- that's a little bit off in time frame. Our focus really is getting the 3 pits operating, the underground ramped up so that then the constraint becomes the plant. So the short answer is that's not in the horizon at the moment to go above the 8.8. Operator: Your next question comes from Levi Spry at UBS. Levi Spry: Yes. Lawrie and team, so maybe sticking at Northparkes. So FID sometime FY '27, that was what I heard for the expansion? Lawrie Conway: Yes. By end of FY '27, the expansion studies will be finished. Levi Spry: Yes. Got it. And then I guess just in terms of the amended agreement with Triple Flag over 44, how can we think about the process that would happen as part of that? What have we learned from the updated agreement today in the context of potential expansion? Lawrie Conway: What we've learned there, Levi, is that Triple Flag knew they had a role to play in unlocking all the opportunities at Northparkes because under the original agreement, E44 wouldn't have been developed in our lifetime because it was gold only, and we had to bear 100% of the cost. What it has done and what Kirron and the team have been able to work through with them is, it's put in principle how these things can be assessed. But rightfully from Triple Flag side, they need to know what is the ore body, what's the method of mining and everything that would be in the -- and the metal that would be attributable to it before they would commit to what their involvement would be. Levi Spry: Got it. Okay. And then just a technical question on the flotation. So good news there. Can I just confirm it's an extra 2% on what number? Is it 84 to 86? What's the absolute number now for the copper recoveries? Lawrie Conway: Yes, it's a 2% improvement from current performance. Operator: Your next question comes from Daniel Morgan at Barrenjoey. Daniel Morgan: First question just on the E22 project. If you look at Slide 14, and the other news you provided, you've got a twin decline configuration that comes up from E22 to surface. Just wondering what is the ore haulage capacity, which is included in the capital of the project explicitly? And then what option exists for greater numbers than that, that have been contemplated to just preserve option value at site? Nancy Guay: So the capacity, that 6 million tonnes per annum. So the conveyor and all the system will be able to handle this 6 million tonnes per annum. Daniel Morgan: So it will be able to do 6 million tonnes per annum as in the scope of the project, but is there the potential that you could widen the belts, increase the power and get more than the 6 million tonnes under the scope? Nancy Guay: Yes, we have. But the design right now -- and we have a 4 tipping point as well. So that will give us more flexibility. So we think we can do more than 6. But right now, the design is for 6 million tonnes. Lawrie Conway: Yes. So in short there, Dan, one, we have allocated capital. If you look at the full $680 million, there's probably around $50 million allows us extra optionality to go above that 6 million tonne per annum. But when we build it, the things that will go in other than as Nancy said, the quad tipping and the like, we'll work at the 6. So it's built for that optionality. Daniel Morgan: Yes. So I guess that takes you in principle to 12.5 of haulage from underground, if I've got the site correctly in my mind, and you could potentially do more than that if you upgraded the conveyors further. Is that accurate? Lawrie Conway: That's a good assessment. Daniel Morgan: Okay. And then what is the potential for other gold-dominant open pits across the property to be potentially brought into that -- into -- are you going to do a body of work to explore more the open pit potential across the site? And if there are highly gold-dominant ore bodies, is that something for the future negotiations that this E44 agreement provides a pathway for? Lawrie Conway: Yes. Look, Dan, it's exactly that. So E44 is that first one that we knew based on the previous studies that we could look at now. We were never going to do any drilling on that under the previous arrangement. So that provides us. And when you look at E28 pits and a couple of the others that are more gold dominant, we'd look at drilling those, looking at the size and scale of those pits. And Glen and the team, I have no doubt now have a little bit more freedom to look at their drilling programs to say, gold dominant ones aren't excluded and if they identify any, then Kirron is going to go back to work and work out a new amendment. But I think the benefit that we've got there is by having the discussions with Triple Flag is there's an understanding of how it works for both of us and the mechanics of how we can go through that, have sort of been laid out now with E44. Daniel Morgan: Yes. And then if I just refer to Slide 16, where this is at Northparkes you've got a number of potential future ore sources laid out. So E22, obviously, you've got now -- well, you will be moving to execution now and that's sanctioned, a bunch of PFS level studies. So it looks like Major Tom E51, E44 and MJH, I guess the most advanced things that would be sequenced. A, can I just confirm that that's accurate? And b, on MJH, is that a block cave? Is that a sublevel cave? And would you just use -- can you use existing crushers -- crusher capacity used to do MJH? Lawrie Conway: Yes. I'll hand that over to Nancy. But just in short, the ones that the PFS level studies are the ones that are into the expansion studies that we've approved today. So they're the ore bodies that will be assessed plant expansion. Nancy, on MJH? Nancy Guay: Yes. MJH is looking to be a block cave at this stage, and we are looking at different options for the crusher material handling system. But it's still open, and that's going to be a review in the next coming months. Operator: Your next question comes from Mitch Ryan at Jefferies. Mitch Ryan: Fran, it's an impressive looking Slide 10. I hope you're not letting the old CFO take any credit for that. Firstly, can you just talk to some of the metrics around that. Mining rates, grade profile? Is it relatively homogenous through the planned time frame. Can we get some more metrics around Bert, please? Lawrie Conway: Yes. So, Mitch, I'll just get you to ask a bit on Bert again. It was very hard to hear what you were saying. Mitch Ryan: Yes. Sorry. Hopefully, this is better. I was hoping you can give us some more metrics around Bert, please. Can you give us mining rates, grade profile, operating costs, some of the key metrics that we should be thinking about for modeling that? Lawrie Conway: Yes. Look, I'll hand that to Nancy to talk broadly around Bert and the metrics and then Rocky will certainly be able to provide more information off-line on that. Nancy Guay: Okay. So for Bert, we have ramping up, like we said, we're going to start production in '29. '30 will be, I will say, full production for almost 4.5 years. So we're going to go to produce 700 million tonnes of core going from this deposit -- 700,000 of production. Lawrie Conway: And the grades are more or less double what the cave is. Nancy Guay: Yes, 0.9, yes, double. Mitch Ryan: So it's a 0.9% copper and gold? Nancy Guay: The gold is 0.82 as well. 0.8. Mitch Ryan: And the operating costs, the cost per ton of mining or development meters. How should we think about some of the breakdowns there? Lawrie Conway: Yes. Look, Mitch, I'll get Rocky to follow all of those up with you. I mean the operating costs are pretty well in line with normal stoping operations. There's nothing different at Bert to any of the others. Mitch Ryan: Okay. Yes. Perfect. And then -- looking forward to that information? And then secondly, exploration spend, how should we think about it now that you bought these Canadian properties into the portfolio for sort of FY '27 and beyond? Do we think that there's an increase in exploration costs or is it going to just sort of be a reallocation between what has been some of the spend in the other projects? Will they ramp down? Lawrie Conway: No. So these projects will be -- our assessment drilling will be done by the end of the FY '27. The amount of drilling going in there will be incremental to what we're doing because we're not going to redirect it away from Mungari, Cowal or any of the existing operations. You're probably talking upwards of $10 million to $15 million over in those projects, depending on how successful the program goes. Operator: Your next question comes from Matthew Frydman at MST Financial. Matthew Frydman: Can I ask a couple, please? Firstly, on Cowal, just following on from some of those earlier comments on the OPC. Obviously, a pretty reasonable driver for value in the business in the near term at least. So can you expand on the fact that it's running ahead of schedule? I guess, what does that mean for timing of transition to open pit feed from E46, can you sort of quantify how far ahead of schedule it's looking? And also any impact or benefit not just from the open pit feed perspective, but any impact on the underground. Does that allow you to access particular underground early -- areas earlier than perhaps you'd planned? Yes, just wondering what the sort of quantity of that running ahead of schedule looks like. Lawrie Conway: Yes, Matt, it's only a couple of months. It's not significant in that regard. So it doesn't impact on the underground over the next couple of years. What it does do is that as the lake is drying out. As I said, we'll do the Southern end work. And then in E46, we will start to ramp up there as we finish in Stage H. The Stage H now will go out into the last quarter of this year because of weather that we've had in the last few months in the E42 pit. So that's allowing us to start work on E46. So in terms of next year, you'll still see almost the whole year on stockpile ore toward the back end of the year is when you get anything sort of out of E46, which previously was scheduled for the start of FY '28. Matthew Frydman: Great. That's really helpful. And then secondly, in terms of the sort of incremental CapEx you've guided to, I guess, particularly over sort of FY '27 and onwards, can you kind of break down what projects or particular aspects of the projects weren't included in your sort of prior medium-term guidance around CapEx? I guess wondering where do I need to add CapEx versus what was already in that medium-term outlook, particularly given that you mentioned that the overall CapEx budget for the OPC is unchanged and actually part of the FY '26 increase is pulling that forward? So yes, just wondering outside of OPC where the CapEx is getting added versus your prior medium-term outlook? Lawrie Conway: Yes, sure. So I mean, look, if we look at the 4 years, the main ones are at Northparkes, Ernest Henry and Cowal. And so if I look at Northparkes, E22, the scale and the future optionality that we're building in, and I mentioned to Dan, is one of them at E48, we're now getting 20% more metal. We've got 5 levels versus the study had 4. We approved the coarse particle flotation and the expansion study. There's another one that's going on that around regrind capacity at Northparkes. And so when you look at all of those, you're talking in the order of $250 million to $300 million for all of those. Those items that weren't previously in there. And then similarly, when you look at Ernest Henry, Bert, as Nancy mentioned, the mining rates are going to be higher because we're basically getting about 50% more tonnes, which is then obviously doubling the metal, and we're also getting that. And we're obviously doing some studies of below the 775 that we're now bringing into plan. So you're probably looking at around $120 million to $150 million there at Ernest Henry. Then at Cowal, while is going to go ahead of schedule, and we're doing the southern one earlier, that does open up an opportunity for us to bring mine development from FY '31 and '32 into '29 and '30. And then we have also acquired a secondhand village, which saved us about 50% on the capital cost at Cowal. So in that one, you're probably talking 20 -- sorry, $120 million to $140 million going at Cowal, and that will make up almost the major -- actually almost all of what we're talking about over that 4-year period. Operator: Your next question comes from David Radclyffe with Global Mining Research. David Radclyffe: So if I could start on Northparkes and maybe ask Dan's question another way. On the last site visit, there was a discussion of the potential to operate E22 at up to 9 million tonnes. So just wondering what drove the decision here to keep it at the 6 and not go to the higher rate given the discussion around the mill upside does sound positive? Lawrie Conway: Yes. Look, Dave, I'll have to just go back and sort of refresh myself on the one a couple of years ago. But essentially, that was certainly predicated on the basis that you didn't have all the other ore sources that could be available to you. And so what we've looked at is what's the right size of the E22 cave. We believe that if we go, as I said, between 7.5 million to 15 million tonnes per annum, running that at anywhere between that 6 million to 7 million tonnes per annum or even a bit higher, makes the right sense for the asset and for the capital that we're going to invest into it now. David Radclyffe: Okay. Maybe if I can follow up on the sequencing questions and just think about the open pit ore sources, given the current shaft can do 6.5%, so you're kind of limited in the near term. I'm not really clear about when you bring back open pit ore. It does sound like maybe E44 is now ahead of E51 on Major Tom. So what could the timing be on a new open pit? Lawrie Conway: Yes. Look, I wouldn't say that E44 comes ahead of the others. I mean we've got the drill results and the outcomes on major Tom and E51 and we'll advance those through the study period. I think what it does do is that E44, you wouldn't be seeing that coming in until about FY'30 into the plan. But what it does provide is the opportunity for us to look at the alternative ore sources that Nancy and the team are going to study through FY '27 to enable the plant expansion. David Radclyffe: Okay. No, that's helpful. Maybe if I could just sneak one last one in. Obviously, at current gold prices Red Lake is on track to generate significant surpluses, it does owe the group, but it does have obviously significant optionality still. So is there any thoughts or studies underway to increase the spend at Red Lake? Or given that you've got so many projects you've talked about, we'll just deploy the capital to those? Lawrie Conway: I think it's fair to say that the Red Lake team is starting to get a little bit of interest in asking for capital, having delivered about 6, 7 good quarters. I think the thing is that we've got a mine life that's 15-plus years there. It's going to need some investment, it has to compete and I think the returns need to demonstrate that. But I think it's earning that right. We'll look at studies around tails reprocessing. We're looking at what are the options around whether that allows us to use the third plant, the Bateman mill, what we do in terms of mining areas. And certainly, when you talk to Glen and the team, there is still a view that there's more to be discovered there, that will provide us opportunities to invest. I'd say it wouldn't be investing in taking the Red Lake and the Campbell mills higher, it would be -- does the Bateman mill provide optionality. So it's just getting there. I don't think they're willing to stick their head too high up out of the trenches to ask for money, but they're certainly getting really for it as long as they keep levering quarter in, quarter out, they will enhance their chances. Operator: [Operator Instructions] Your next question comes from Alex Barkley at RBC. Alexander Barkley: A question on the Northparkes permitting. I think I heard Nancy say E22 is fully approved. Is there already some kind of permit for the mill expansion? And a bit similar to David's question, was it always a 6 million tonne per annum E22 case that was under study work? And what exactly is the capacity that has been approved? Lawrie Conway: Yes, sure. So in terms of the permitting, yes, the permitting for E22 is all received, and we don't need anything to plant. But I mean, it's permitted to 8.6 million tonnes. So to go above that will require an approval, and that is what the study team will take into consideration during the expansion study next year. And then in terms of E22, it was viewed as being 6 to 7. And as was mentioned earlier, there was talk of the 9. I just need to go and refresh in terms of what was the considering -- which was the convey at the surface, which is not what we're contemplating in this one. So it's 6 with capacity to 7 or optionality for 7 being built into the project. Alexander Barkley: Okay. Sure. And just a last one. Speaking of the 9 million tonnes that was talked about on site, you threw out a number around $120 million CapEx to get the mill to that point, say reaching 10 sort of thing. Is that CapEx number still in the ballpark? I mean that could well be what people are basing their expectations around. Just maybe a rough idea there would be helpful. Lawrie Conway: Yes. Look, I dare say that in the last 2 years, that number will have changed, and that's really what the study has got to look at in terms of the capacity -- sorry, going from 7.5 to 10 or 11 or 15. The $120 million certainly has gone up since that was done 2 years ago. And you got to remember that, that actually when we were on site was based on a study that was done by CMOC about 18 months before we took ownership around the potential expansion. So it's definitely changed since there, Alex. Operator: Your next question comes from Adam Baker at Macquarie. Adam Baker: Just a follow-up on E22 CapEx of $545 million. Just wondering what the breakdown is over the next 5 years? I mean, is it a pretty even split across these years? Or will the CapEx spend be more back-end weighted as you accelerate the development in preparation for first production? Lawrie Conway: Yes. Look, it will be almost smooth over the few years. There will a slow ramp-up in terms of the capital this year. And then you're probably for '27, '28 and '29, you'll see that ramp up from, say, just over -- and this is our 80% share, over $120 million in '27, moving up to around the $150 million and then around the sort of $170 million, $180 million in '29 and then it tails off in '30 as we get into it. Adam Baker: That's great. And just secondly, on the recovery activities at Ernest Henry following the rainfall event late in December, how are things going there, you're back up and running? Or is there still a little bit of remediation to occur? Lawrie Conway: It's both. We're back up and running, the shutdowns that Matt talked about in the call last month have been completed. So the sites now finishing the remediation work ramping up the mining activities. And then by the end of March, we'd be back to normal full run rate. Operator: That does conclude our question-and-answer session. I'd like to hand the call back now to Mr. Conway for closing remarks. Lawrie Conway: Thank you, Cameron. Look, prior to signing off, I do want to call out, a lot of people have put a lot of effort into getting all of the information out today. It's either in the finance team, investor relations, corporate development projects. studies. And of course, the teams at Northparkes and Ernest Henry to allow us to put the releases out today, and I do thank them for that. And I thank you for your time on the call today, and we'll talk soon. Thank you. Operator: Thank you. That does conclude our call for today. Thanks for participating. You may now disconnect your lines. Thank you.
Operator: Good morning, and welcome to S&P Global's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations and Treasurer for S&P Global. Sir, you may begin. Mark Grant: Good morning, and thank you for joining today's S&P Global Fourth Quarter and Full Year 2025 Earnings Call. Presenting on today's call are Martina Cheung, President and Chief Executive Officer; and Eric Aboaf, Chief Financial Officer. We issued a press release with our results earlier today, in addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission. In today's earnings release and during the conference call, we're providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The earnings release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we are providing, and the press release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures. The financial metrics we'll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. As noted in the press release and slides, financial guidance provided today assumes contributions from Mobility for the full year and excludes any impact from anticipated stranded costs. The company expects to update adjusted guidance to exclude Mobility and institute GAAP guidance upon completion of the spin. I would also like to call your attention to certain European regulations. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our media relations team whose contact information can be found in the press release. At this time, I would like to turn the call over to Martina Cheung. Martina? Martina Cheung: Thank you, Mark. We had an excellent year in 2025, and we're very pleased with the results we delivered. We saw strong revenue growth, meaningful expansion of our operating margins and 14% growth in EPS. We exceeded our initial guidance from last February on revenue growth, operating margin and EPS, while returning 113% of adjusted free cash flow to shareholders. We just announced the 53rd consecutive year of dividend increases, and we repurchased more than $5 billion in stock in 2025. Financial results like this are the evidence of a committed, tightly aligned and disciplined executive team and underscore the talent and dedication of our people. I'm exceptionally proud of what our people accomplished in my first full year as CEO. We launched our new strategic vision at our Investor Day in November, and we're delivering against that vision of advancing essential intelligence. As we'll discuss today, we continue to see real momentum in our strategic initiatives and across our enterprise capabilities. While a very dynamic macroeconomic and geopolitical backdrop persists, we believe we are entering 2026 with more tailwinds than headwinds and the strength to seize the opportunities ahead of us. Our financial guidance, which Eric will outline in a moment, calls for strong organic constant currency revenue growth, continued margin expansion and EPS growth. Our confidence in that outlook is bolstered by strong performance indicators for our subscription businesses. While we're taking a prudent approach to our outlook for the market-driven components of the business, we see encouraging leading indicators that could provide incremental tailwinds to the business. As always, we carefully monitor and assess the macroeconomic environment, geoeconomic and geopolitical dynamics and the health of our customer end markets. While it's difficult to predict many of the factors that could impact our business this early in the year, we believe there are more tailwinds and headwinds and expect to deliver real value to our customers and profitable growth for our shareholders. Now turning to our enterprise financial results. As I mentioned previously, the financial results show the strength of the business and demonstrate the discipline and execution of our people. When we compare the full year results to the original guidance that we had given for 2025 back in February, we are pleased to see that every division delivered revenue growth within or above those original guidance ranges, and every division delivered operating margins at or above the high end of those original guidance ranges. We also see the strength that comes from the diversification of our revenue in 2025. Through the year, we saw a disruption in the issuance markets impacting our Ratings business following Liberation Day in April. We saw incremental sanctions impacting our energy business midway through the year. And we saw volatility in the volume-driven products emerge in Market Intelligence. Despite these various challenges in 2025, we raised our enterprise guidance through the second half of the year, and we still delivered revenue growth at the high end with margins and EPS very near the high end of that elevated guidance. We were able to do this while still making incremental strategic investments to drive future growth. Now as we outlined for you back in November, our strategic vision for S&P Global is to advance essential intelligence. We've been providing essential intelligence to our customers for over 150 years. Over 95% of our revenue is tied to proprietary benchmarks, differentiated data and critical workflow tools, and we expect that percentage to increase over time. We have been a trusted partner for our customers for a very long time. And every day, our customers are telling us that they need our differentiated and proprietary data. They need transparency at opaque markets. They need trusted benchmarks and measures of risk and performance. The message from our customers is consistent and simple. What they need most is what we uniquely provide. Our mission is to advance essential intelligence and deliver that at scale better than anyone in the world. As I shared with you in November, we're going to achieve this through three strategic objectives. The first is advancing market leadership. We have some of the most trusted brands in our markets. We start from a position of great strength to continue to grow in our existing markets, identifying new use cases for our existing products and constantly innovating to develop new products in these foundational areas. The second is expanding into high-growth adjacencies. These are the initiatives you hear us talk about frequently, private markets, energy expansion, supply chain, decentralized finance, and other rapidly evolving areas of the market. The third objective is amplifying our enterprise capabilities. We've made great progress with our enterprise data office and our Chief Client Office in 2025. And we're scaling out additional enterprise capabilities through process engineering, upskilling and training our people on new technologies and leveraging leading AI solutions, including those we built ourselves. These advancements generate value for our customers and our people at scale. In 2025, we made great strides in several of our key strategic focus areas. We delivered exceptional results in private markets. We expanded in private credit ratings, we significantly enhanced our private market tools like iLEVEL with new AI functionality and launched private equity benchmarks and indices. We announced and completed the acquisition of With Intelligence and our partnership with Cambridge Associates at Mercer. We are well on our way to building the most comprehensive solution set in the world for the private markets. In energy expansion, we launched AI capabilities, making much of our research and insights available through Microsoft Copilot. We launched enhanced gas, power and commodity flow intelligence and introduce new integrated energy scenarios to help market participants make sense of a challenging global energy environment. And we integrated the 451 team with our Power team to connect the most sought-after themes from our customers and unlock new insights on data centers and power. We also continue to see capital flowing into the energy ecosystem, which benefits multiple divisions, including Ratings. 2025 was truly a leap forward for S&P Global in AI. We launched new AI products and features in every division, many of which were on display at our Investor Day. Using a platform-agnostic approach to GenAI solutions, we have announced collaborations with several major technology partners. We are also moving quickly in decentralized finance. We'll have more to share in this exciting area in the quarters to come, but we were thrilled to launch the world's most well-known index, the S&P 500 on chain in collaboration with Centrifuge in 2025, in addition to other exciting innovations. Now turning to our enterprise capabilities. Two of the most impactful accomplishments of 2025 are the establishment and development of our Chief Client Office and our enterprise data office. As you know, the Chief Client Office was established to deepen engagement with our large strategic customers at the most senior levels. In 2025, the CCO enabled S&P Global to bring the full enterprise value proposition to our clients. We have elevated engagement not just with our clients' business leaders, but also with their heads of technology, AI and data science. Not only does that give us commercial advantages but also gives us early insight into our customers' needs and challenges. In addition to the strategic meetings with the C-Suite, our technologists are meeting with data scientists, AI experts and developers that work in customer organizations to co-develop solutions that we can leverage across our customer base. We are finding time and time again that the challenges impacting our largest customers are mirrored in many ways among our other customers, and the solutions that we bring to CCO clients can be sold at scale. While still very early, we believe that the CCO in collaboration with division teams and with Kensho Labs will be a meaningful driver of both revenue growth and product innovation going forward. Our enterprise data office also made meaningful headway in 2025. We are finding more ways to bring our data together faster methods to ingest, integrate and distribute data and are communicating more effectively across the technology teams to drive efficiencies. One of our goals with the EDO is to reduce run rate expenses by more than 20% by the end of 2027. And we are well ahead of pace to achieve that goal. In 2025 alone, we reduced manual data processing meaningfully with more than half of our total data workflows now processed via automation tools. We also eliminated more than 10% of applications in use and simplified the EDO technology stack to standardize on the best applications and reduce costs. One of the areas where we quickly saw the impact of our enterprise progress is in the integration of With Intelligence. Through our collaboration across teams, including strategy, corporate development, finance, technology, legal and others, we were able to shorten the close process to less than 6 weeks. That was an incredible accomplishment for an acquisition of this size and was much faster than our original assumed time line. What our data and technology teams were able to accomplish after the close was no less impressive. We linked more than 75% of the fund manager and investor data sets in less than a month through the application of Kensho Link. We enabled single sign-on or SSO, through Capital IQ Pro in January, which immediately helped us identify cross-sell opportunities. In collaboration with our Chief Client Office and Market Intelligence, we held 20 regional training sessions for commercial teams and generated more than 200 new sales leads and cross-sell opportunities within the first 60 days. We've also already realized millions in cost synergies since the deal closed at the end of November. It's been truly exciting to see our people embrace the enterprise mindset and come together to create value. 2025 was an incredible year of progress and results. Now I'd like to turn to 2026. We're entering 2026 with a strong backdrop for Billed Issuance, but we're lapping another record year. In 2025, Billed Issuance increased 11% and and surpassed $4.3 trillion. This creates a challenging compare for 2026, but there are several drivers that give us confidence in the potential for continued positive growth. Our base case assumption, therefore, starts with Billed Issuance up low to mid-single digits in 2026. We continue to see favorable market conditions with spreads remaining low and our expectation for 2 rate cuts from the U.S. Fed in the back half of the year. We also see encouraging maturity walls as I'll discuss in a moment. M&A tends to be more challenging to predict, but we saw a strong pipeline of deals announced in the back half of 2025 and continue to see pent-up demand given the dry powder in the markets. We also saw significant debt issuance from hyperscaler investments in AI infrastructure in the second half of 2025, and we expect that to continue in 2026, albeit spread more throughout the year. Given the phasing of issuance in 2025 and the expectations for 2026, we would expect growth rates to fluctuate from quarter-to-quarter. We expect Billed Issuance growth year-over-year in the first quarter with acceleration in the second quarter as we lapped the disruption from last April. Given the difficult compare, we would then expect deceleration in the third quarter before Billed Issuance growth turns negative in the fourth quarter. In the event of macroeconomic distress, elevated market volatility or uncertainty or a slowdown in economic growth, we would expect Billed Issuance to be lower than our forecast. We could see potential upside if we see elevated M&A, additional pull forward from out year maturity walls or greater-than-expected debt for technology and infrastructure projects. Given that refinancing activity tends to be the most predictable issuance in a given year, I wanted to spend an extra moment to discuss what we're seeing for 2026. When comparing the 2026 maturity wall now to the 2025 maturity wall a year ago, we see 12% higher maturities and a stable mix of high yield versus investment grade. The 2-year and 3-year cumulative maturity walls are also up from last year. While our base case assumption is that we do not see dramatic pull forward from the '27 and '28 walls into 2026, we note that if credit conditions remain highly favorable and we see additional reductions in interest rates, we may start to see more of that debt coming to market early. Now let me turn to the market factors and commercial conditions we're focused on in 2026. The list of factors on the slide illustrates the market dynamics that could influence our business either positively or negatively in 2026. Importantly, some of these factors can impact different parts of our business in different ways. Market volatility, for example, made temper issuance volumes and create temporary headwinds for Ratings, while at the same time driving revenue in the exchange-traded derivatives of our indices business. Generally speaking, S&P Global and our customers tend to do better in relatively stable market conditions with strong economic growth. As we look to our customer end markets, we see a reasonably healthy environment for financial services customers and our commercial engagements have been strong. The energy space continues to evolve in the changing geopolitical landscape. We expect oil prices to remain fairly stable, but lower in 2026 than we saw on average over the last few years. We continue to see great engagement from our customers, strong demand for our differentiated offerings and excitement as we push forward on product innovation and growth. Before I turn it over to Eric, I want to pause and reflect on everything we accomplished in 2025 and what gives me so much confidence in the long-term success of S&P Global. We have a clearly defined and well-articulated strategy. We have assembled an incredible team of leaders, and we are all aligned behind the mission of advancing essential intelligence. When I speak to our large strategic customers, I routinely get the sense that we have deeper and more constructive relationships there than we have ever had before. We see both cyclical and secular tailwinds driving our business in the coming years. We've executed very well in our subscription business to create great momentum into 2026, and we continue to find new avenues to leverage processes and technologies to improve our productivity and free up capital to invest in future growth and steadily improve margins. I'm very proud of what we've delivered in 2025, and we're excited about our opportunity to drive value in 2026. Eric, over to you. Eric Aboaf: Thank you, Martina, and good morning, everyone. Starting with Slide 16. Our financial results underscore our market leadership and the strength of our execution in the fourth quarter. We finished 2025 with strong momentum in our subscription businesses and encouraging signs in the market backdrop for 2026. All of this reinforces our confidence in the medium-term financial targets we laid out at our recent Investor Day. Ratings and Indices each posted double-digit growth during the quarter, driven by robust debt issuance and equity market appreciation inflows enabling us to make strategic incremental investments in key growth areas across the enterprise. We're also pleased with our strong subscription growth in both Market Intelligence and Energy. Reported revenue grew 9% and our organic constant currency revenue rose 8%. Continued expense discipline allowed us to make important strategic investments in the fourth quarter while still expanding margins. Adjusted expenses increased 8% resulting in 60 basis points of year-on-year margin expansion to 47.3%. As you'll recall, we divested the OSTTRA joint venture in early October. And if we exclude the contribution from OSTTRA in 2024 as well, margin expansion would have been 130 basis points year-over-year. We delivered 14% growth in adjusted diluted EPS in the quarter, resulting in full year EPS at the higher end of our most recent guidance range and well above the initial guidance range we provided last February. While our tax rate for the full year was within our guidance range, it did come in a bit above our internal expectations and near the high end of guidance. Had our tax rate come in at the midpoint of guidance, EPS would have been approximately $0.08 higher. Now turning to our key strategic investment areas on Slide 17. Private Markets revenue grew 16% year-over-year driven primarily by the Ratings and Market Intelligence divisions. Ratings was the largest contributor to that growth, underscoring continued strong demand for debt Ratings, private credit analysis and credit estimates in the private credit market. Energy Transition and Sustainability revenue decreased 3% to $101 million in the quarter. This decline was not entirely unexpected and reflects the ongoing uncertainties that have led many customers to slow spending in this area, particularly in consulting engagements and onetime transaction spend in certain geographies. While we remain confident in the long-term growth of this important initiative, our outlook for 2026 does not depend on a meaningful recovery in the near term. Turning to Vitality. As we build on the new products, features and enhancements that were highlighted earlier, I'm pleased to report we generated $470 million in Vitality revenue in the fourth quarter and continue to deliver a Vitality Index of 12%. Going forward, while we do not intend to provide explicit disclosures on these metrics in this particular format. We will continue to provide investors with timely updates on the progress we make both qualitatively and quantitatively. Turning to our divisions on Slide 18. Market Intelligence reported revenue grew 7%, and organic constant currency revenue grew 5% in the fourth quarter. Subscription revenue, which constitutes roughly 85% of Market Intelligence grew approximately 7%, both organically and as reported. Onetime revenue and volume-driven revenue were flattish in aggregate in the quarter. Subscription revenue growth remains the single most important indicator of the health and execution of Market Intelligence, and we are very pleased with the results the team delivered. Data Analytics and Insights reported revenue growth of 7%, which included a $9 million revenue contribution from the With Intelligence acquisition. The performance was anchored by robust subscription sales of Capital IQ Pro and Visible Alpha. Credit & Risk Solutions revenue growth was 10%, driven by strong subscription sales of Ratings Express. We also benefited from some upfront revenue recognition tied to a major renewal in the Financial Risk Analytics product group, which lifted growth above what we had seen in the first 3 quarters. Enterprise Solutions posted 4% revenue growth, which includes a 2 percentage point headwind from EDM and thinkFolio, both of which saw declines year-over-year in the fourth quarter. Wall Street Office, its manager and corporate actions all supported the underlying revenue growth across this part of our MI franchise. However, we did see a slowdown in our volume-driven products in the quarter that are tied to capital markets activity. This activity provided a tailwind to recurring variable revenue growth in the first 3 quarters of the year, but in this quarter. Adjusted expenses increased 7% year-over-year driven by higher compensation expense, additional long-term strategic investments and higher-than-expected expenses from With Intelligence given the accelerated close, partially offset by ongoing productivity initiatives. This resulted in a 32.2% operating margins in Market Intelligence for the quarter. Given the sales outperformance we experienced in our market-driven businesses, both Ratings and Indices, we chose to pull forward some of our 2026 investments in Market Intelligence beyond what was contemplated in our latest 2025 guidance. Without the incremental investments in the quarter and earlier than expected close of the With Intelligence acquisition, MI's margin would have been approximately 80 basis points higher in the fourth quarter and 20 basis points higher for the full year. Now turning to Ratings on Slide 19. We Ratings revenue increased 12% year-over-year or 10% on an organic constant currency basis. The increase was balanced across both transaction and non-transaction revenue streams, underscoring the breadth of our market coverage. Transaction revenue grew 12% in the fourth quarter, driven primarily by strong issuance volumes and investment grade. While we also saw a healthy growth across high yield, structured finance and governance, we did see a low double-digit decline in Billed Issuance from bank loans. That mix shift out of high-yield and bank loans and into investment grade created an unusually large gap between Billed Issuance growth of 28% and transaction revenue growth of 12%. Nontransaction revenue increased 11%, driven primarily by higher annual fee revenue from Surveillance. We also saw a very strong growth in CRISIL, and we nearly tied last quarter's record in Ratings Evaluation Services revenue. Adjusted expenses increased 6% reflecting higher compensation costs and continued strategic investments in our people, technology and product development. This contributed to the division's 210 basis points of margin expansion to 61.8%. Now turning to S&P Global Energy on Slide 20. Energy revenue grew 6% in the fourth quarter, driven by continued strength in energy resources, data and insights and price assessments. We continue to see very strong demand for our subscription offerings, including Platts benchmarks and our differentiated data, research and thought leadership. Sanctions announced in the second half created a $3 million headwind on fourth quarter revenue, which negatively impacted Energy Resources Data and Insights and Upstream Data and Insights revenue. We expect to lap those sanctions by the end of Q3 2026. Energy Resources Data & Insights and Price Assessments grew 9% and 8%, respectively, driven by strength in petroleum gas, power and renewables. Advisory and transactional services revenue decreased by 5% as we continue to see some softness in consulting and events revenue. This was partially offset by double-digit growth in Global Trading Services or higher trading volumes in petroleum, gas and LNG offset the declines in onetime revenues. Upstream Data and Insights revenue increased slightly in the quarter, driven by upfront revenue recognition of certain software renewals. We're continuing to lay the groundwork for our Upstream transformation strategy and see a path towards stabilization in 2026 through a combination of client platform upgrades, expanded distribution partnerships and dedicated specialists in our go-to-market team. However, given the backdrop of lower oil prices and ongoing market uncertainty, it will take several quarters before these management actions will drive growth in Upstream. Adjusted expenses rose 5%, driven by higher compensation costs and ongoing investments in growth initiatives, partially offset by productivity initiatives. Operating profit for the Energy division increased 7% and operating margin expanded by 50 basis points to 45.5%. Now turning to S&P Dow Jones Indices on Slide 21. Revenue grew by 14%, with double-digit growth across all business lines, including asset-linked fees, which benefited from both higher AUM and net inflows. Revenue associated with asset-linked fees grew 13% in the fourth quarter. This was driven by equity market appreciation and strong net inflows into products based on S&P Dow Jones Indices. Exchange-traded derivative revenue was up 20%, driven by strength in SPX ETD volumes. Data and custom subscriptions increased 13% year-over-year, driven by new business growth in contracts and included a roughly 2 percentage point contribution from revenue related to the ARC Research acquisition. Adjusted expenses were up 11% year-over-year, driven by higher compensation costs and investments in growth initiatives. Indices operating profit grew 16% and operating margin expanded 90 basis points to 68.8%. Now turning to Mobility on Slide 22. Revenue grew 8% year-over-year with double-digit growth in dealer and financials and other. Customers continue to rely on the unique data and solutions from CARFAX, driving strong subscription growth despite a complicated environment for automotive OEMs. Dealer revenue increased 10% year-over-year owing to the healthy new customer growth in both CARFAX and automotiveMastermind. Manufacturing revenue grew 1% year-over-year as tariffs and regulatory uncertainty weighed on demand for consulting and lower recalls. Financials and other increased 11% as the business line continues to benefit from strong underwriting volumes and commercial momentum. Adjusted expenses grew 7%, driven by continued advertising and promotional investment, partially offset by the lapping of elevated incentive compensation last year. Mobility's operating margin expanded 70 basis points year-over-year to 35.4%. Before I move on to our guidance for 2026, I'd like to provide you with an update on our planned spin of the Mobility business on Slide 23. We have made significant progress against our separation plan, and we are excited to announce at the NADA conference last week that we've chosen Mobility Global as the name of the new soon-to-be independent company. Since our last earnings call, we have also confidentially filed the Form 10 with the SEC completed the senior leadership appointments, including naming Matt Calderone as CFO designate. Looking ahead, our next major milestones are well defined. We will continue to make progress in the separation process for the first quarter. In the second quarter, we expect to file our Form 10 publicly and the Mobility global team expects to host an Investor Day and launch its equity roadshow. We also expect to launch a public debt offering for Mobility at some point in the second quarter, targeting an investment-grade rating. From a financial reporting and guidance perspective, S&P Global will continue to fully consolidate Mobility Global in our financial statements and 2026 guidance until the separation is complete. We also want to ensure investors have clear comparability in a transparent view of S&P Global's post-separation financial profile. Upon completion of the spin, we intend to provide recast financials for the 4 quarters of 2025 and any 2026 periods reported, adjusted to exclude Mobility's contribution along with other relevant adjustments as outlined at our Investor Day. We also expect to issue updated 2026 financial guidance at that time, excluding Mobility. Now turning to guidance on Slide 24. I'd like to start by framing the key assumptions that underpin our guidance so that you can see what's driving the outlook, particularly around margin expansion and certain inputs for our market-driven businesses. Our guidance rests on a simple premise. We plan to operate more efficiently while continuing to reinvest to drive organic growth. On investment priorities, we're focused on a few clear themes. First is product innovation and continuing to enhance our benchmarks proprietary data and workflow tools to support organic growth. Second is investment in strategic growth areas like private markets and energy expansion where we see durable long-term demand and opportunities to leverage synergies across multiple divisions. Third is our investment in AI for both our products and for our internal productivity. And finally, we're extending our geographic reach and client segment coverage so that we can bring our strongest offerings to more customers and capture new opportunities over time. On productivity initiatives, we're driving efficiencies through several work streams, including enhancements and data operations, software engineering and research. We'll also continue scaling internal GenAI initiatives, which are improving throughput and speed in a meaningful way. And we're pairing these tools with end-to-end process reengineering, so the productivity gains are sustainable, long-term value generators that scale, not just isolated use cases. Turning to our market assumptions. In Ratings, our outlook assumes Billed Issuance will be up low to mid-single digits in 2026, reflecting what we can see today in the maturity wall and underlying market conditions while recognizing that M&A, infrastructure and other opportunistic issuance remains unpredictable. In Indices, we assume market appreciation of 5% to 7% from January 1 to December 31, consistent of the assumptions underpinning the medium-term targets from our Investor Day. Our exchange-traded derivatives business remains an important driver for indices and our guidance assumes low single-digit growth in ETD volumes. In Market Intelligence, we expect continued momentum and healthy growth from our subscription-based offerings. We are taking a prudent approach to 2026 guidance for Market Intelligence reflecting the unpredictability of some of our volume-driven products. Our guidance today assumes fairly modest growth in one-time sales as well as those volume-driven products. Our outlook for energy reflects the market environment and sanctions as discussed previously. This sanctions assumption remains unchanged based on the current environment and the expectation that the duration and scope of the sanctions will not materially change. This leads us to our guidance for the enterprise on Slide 25. On an organic constant currency basis, we expect revenue growth of 6% to 8%. On a reported basis, growth is expected to be approximately 60 basis points higher, reflecting the impact from acquisitions, divestitures and currency movements. Excluding the contributions from OSTTRA in 2025, we expect to expand margins in 2026 by 50 to 75 basis points. Including the impact of OSTTRA, we would expect adjusted operating margins to expand by 10 to 35 basis points. Finally, adjusted diluted EPS is expected to be in the range of $19.40 to $19.65, representing growth of 9% to 10% year-over-year driven by operating income growth and share count reduction, partially offset by a higher tax rate. We're not providing 2026 GAAP guidance at this time other than for reported revenue and capital expenditures. Because the timing of the Mobility spin remains uncertain, we cannot reliably predict all the GAAP components. Upon completion of the spin, our plan is to initiate GAAP guidance for 2026. Let us now turn to our division revenue outlook for 2026 on Slide 26. For Market Intelligence, we expect to sustain solid organic constant currency growth in 2026 in the range of 5.5% to 7%, supported by continued strength in subscription revenue which we would expect to grow closer to the top half of the range, partially offset by the assumption of slower growth and onetime sales and volume-driven products. In Ratings, we expect to see organic constant currency growth in the range of 4% to 7% in 2026. That outlook assumes Billed Issuance growth in the low to mid-single-digit range, as highlighted earlier. Our guidance assumes transaction revenue and nontransaction revenue grow at similar rates in 2026. While we expect strong refinancing activity, M&A activity is inherently difficult to predict as is the potential spend on technology infrastructure. We have also seen softness in bank loan volumes in January and we are reflecting modest expectations for those volumes in our guidance as a result. As always, we expect to refine our issuance forecast as we progress through the year. For energy, we expect organic constant currency revenue growth of 5.5% to 7% in 2026. We'll continue to manage through known headwinds, including sanctions-related impacts and the work we're doing to stabilize and reposition parts of the Upstream portfolio. Our guidance assumes approximately 60 basis points of headwind from the customer sanctions I discussed previously. For Mobility, we expect organic constant currency growth of 7.5% to 9%, reflecting continued strength in the subscription base and the mission-critical nature of the products. We remain confident in the long-term growth for manufacturing, our guidance for 2026 assumes only modest growth until we see more concrete signs of acceleration. And for Indices, we expect organic constant currency revenue growth of 10% to 12%. After two consecutive years of strong equity market performance, we're assuming a more normalized equity backdrop. Our exchange-traded derivatives remain an important contributor, particularly in volatile periods, and we continue to invest in innovation across new products, asset classes and distribution channels to support growth. With that, let me turn the call back over to Mark for your questions. Mark Grant: Thank you, Eric. [Operator Instructions] Operator, we will now take the first question. Operator: Our first question will come from the line of Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: I just wanted to drill down on Market Intelligence, some of the softness that we saw on the volume-driven products. I was wondering if you could provide any incremental color. And as we think about 2026, some of the unpredictability that you mentioned on the volume driven, if you could also provide some color on that front? . Eric Aboaf: Ashish, it's Eric. Thanks very much for the question. As you know, Market Intelligence is comprised of a number of different revenue areas, subscription revenue growth, about 85% of the revenues. And it was up nicely in the quarter at 6.6%. So a nice step off as we go into 2026 as well and built up nicely from the first half of the year. At the same time, we do have volume-driven revenue growth in Market Intelligence. And that's really driven by a series of different products. And what we find is that in some quarters, it's higher and some quarters a little lower. It's been running a little higher for the first 3 quarters of the year, a little lower in the fourth quarter, and we expect it to bounce around from time to time. On the positive side, we've had some really nice volumetric revenue growth in WSO, Notice Manager, some of the corporate actions and then some of the primary book building, in particular, munis, where we saw some nice underlying muni issuances in the marketplace, and that reverberated back into us as revenue growth. At the same time, we've had other products that have gone the other way, which will happen from time to time. So in primary market book building, some of the investment-grade in fixed income products came in a little lighter, equity issuances came in a little lighter. And that's a mix of what's happening in the marketplace, which clients our lead book runners versus co-book runners and so forth and has -- and also has an effect. We also have a very attractive product in ClearPar which continues to do very well. It's driven by other factors like the number of loans traded. And that, as you know, was lower this quarter, and you saw that in the Ratings business. You saw that in this business. And so also had some lower volume driven revenues. So it's a mix. We operate probably -- I've given you examples of 6 or 7 products or 20 to 25 products that have volume-driven drivers. And these will just move around with market dynamics that are generally things that we can monitor and measure and so forth. Going forward, as you asked, we're optimistic about the market environment. Capital markets activity has been steady issuances and so forth. But we need to see how that plays out. And that's why as part of our 2026 guidance, we guided to Market Intelligence in the 5.5% to 7%. We guided to Subscription revenue growth in the top half of that range. And we said we'll be a little conservative or careful I'd say, on the volumetric revenue growth because we think it will bounce back, but it's just hard to tell exactly when and how and when, and we just want to work through quarter-by-quarter. Operator: Our next question comes from George Tong with Goldman Sachs. . Keen Fai Tong: Anthropic recently announced a suite of 11 open source plug-ins for Claude cohort. Can you talk a bit about how you expect this competitive development to impact S&P's business? . Martina Cheung: George, it's Martina. Thanks so much for the question. Look, we think these kinds of announcements are really exciting. And we're actively involved in advancing this technology and actually helping to establish these ecosystem ourselves. As you know, we've worked with pretty much every major player in the AI space for some time. And we see AI really is a net tailwind for the business. You'll remember that last year, Claude for financial services launched and S&P Global is now one of the leading providers of financial data to our customers through Claude for financial services. And we have a very good relationship with Anthropic. You've also seen in December, we announced a partnership with Google that gives us access to Gemini Enterprise. And of course, yesterday, we also announced our MCP connector for OpenAI. And if I go back to Investor Day, it's important to remember what we laid out for you. So first, we're embedding leading AI tech in our products, and that's really to make sure our customers have access to that great AI functionality without needing to leave our platforms. And of course, for customers who want to use third-party platforms with our flexible distribution philosophy, they can get access to the data they're licensing wherever they want to use it. And we've been doing this for years. We have hundreds of distribution partners and adding the LLM players to this as another group of distribution partners. And with that, of course, we maintain control of the commercial relationship directly with those customers and we don't allow the LLM providers to train on S&P Global data. And then secondly, we have accelerated the deployment of AI internally, and that's really enabling us to accelerate our time to market for product innovation. We've scaled our productivity initiatives, and we're improving the timings and quality of our benchmarks as a result. I'd say ultimately, the best barometer for the long-term potential of our business is what we hear from our customers. And they are consistently telling us that they want more from us, more data, like more AI functionality, more features and integrations. And we're going to continue to solve for that. We'll continue to deliver strong growth and profitability. We saw that in 2025, and we've guided to that in 2026. Thanks for the question. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. . Toni Kaplan: I wanted to ask about Ratings. I know your guide is below the long-term framework despite there being some positive tailwinds from the factors you spoke about, the refi wall, M&A, having closed a lot of it in the second half of last -- or announced in the second half of last year that will close this year, AI infrastructure financing. I guess, why should this be a below normal year for Ratings? Martina Cheung: Toni, thanks for the question. So with Ratings and the Billed Issuance guide of low to mid-single digits, let me talk to you a little bit about some of the underlying assumptions there. So in the first case, I would say that we obviously have the maturity wall, an important assumption here for us starting the year is that we would see the majority of the '26 refinancing coming to market this year and not massive amounts of pull forward from 2027 and 2028. And some of that just has to do with the timing of when those issuances were done, they were done, for instance, many of them were done at very low interest rates. And so that's one key assumption. The second one would be modest M&A growth year-over-year. Yes, we certainly have seen all the announcements in the back half of 2025, the timing of those, the materialization of those is important, and I think we'll be able to gauge more of that as we go throughout the year. And maybe a third point that I would make here is that we saw quite a bit of issuance in the back half of the year from the hyperscale players. We know that creates a very difficult compare in the back half of the year, this year. And on the hyperscale players, we've assumed continued growth, but modest growth. Now look, there are lots of big numbers being thrown around out there. A total of about $650 billion in announced CapEx from the hyperscale players. I would say the way to think about how we've looked at that is, first, we need to see how much of that actually materializes within the current year. And secondly, how much of that would be debt funded. And so we take one haircut on our assumption for how much we think will materialize and then another haircut on how we think -- how much we think would be debt funded. Now with all of that, it's early in the year. You know we'll update you as we go throughout the year. If we saw, for example, higher levels of hyperscale issuance throughout the course of the year than we saw in 2025, we think that could possibly add a few percentage points to Billed Issuance. But it's too early to really make aggressive assumptions around this. And so we're guiding to prudent levels, and we'll keep you up-to-date throughout the course of the year. Thanks so much, Toni. Operator: Our next question comes from Faiza Alwy with Deutsche Bank. Faiza Alwy: So I wanted to follow up on George's question, just given the panic and confusion that the market is experiencing as it relates to AI. I know you've talked previously about revenues driven by benchmarks and proprietary data. And I think you've said you're fairly agnostic around the channel that data consumption occurs in. So I was hoping you could put a finer point on that and talk specifically about your workflow products and the mood there. And to the extent there is a shift in channel, sort of how do you overcome that? Is it potentially like higher pricing on the same data? Or just any more clarity you can provide on that, I think, would be helpful. Martina Cheung: Thanks so much for the question. So of course, as you pointed out, we did illustrate during Investor Day that the vast majority of our revenues come from our unique and differentiated benchmark data and insights as well as our critical workflows. Now I know that with everything that's happened in the last week or so that there is a lot of attention and a number of questions around workflows. And so let me talk about that for a little bit. But the workflow tools that S&P Global has developed are critical systems of record for our customers. So products like iLEVEL, ClearPar Cap IQ Pro, Platts Connect and others, they're not simple apps that were developed rapidly. And in fact, they get smarter as we embed AI technology in them. So we think of these as enterprise-grade solutions that involve sophisticated integration. So many of them, for example, provide connectivity across industry networks of clients, and they enable capital flows, trading, reporting and other mission-critical functions. And think about the regulated environment in which we operate. So we and many of our customers and the workflow tools we provide need to actually operate in very sophisticated ecosystems. And so our workflow tools embed functionality for compliance, risk management, data integration and segregation and integrations with other tools that our customers use daily. And for our financial services clients, we need to, as a provider to them comply with and attest to our compliance with complex digital regulations like Dora, for example. So our solutions have been developed and refined over many years to enable these mission-critical workflows, and we deploy them globally at scale. Another point I'd make here really is that our workflow tools have S&P Global data embedded in them to drive functionality. So the true value of many of our solutions like WSO can't be realized without S&P Global's world-class data sets like loan reference data. And our customers are consistently telling us they don't want to have to expand their list of vendors to get access to leading-edge technology. They want us to embed that technology in our products, and we've been rapidly doing that now for several years. And the message is consistent to what we've been saying to you over the last year, our customers want fewer vendors and more strategic partnerships with comprehensive partners like ourselves. They see the expertise we have with Kensho and they recognize that we have very unique and massively scaled data that we bring to the table. So we're confident that our unique position as the world's leading provider of benchmarks and our combination of AI expertise, our differentiated data and our enterprise-grade workflow tools enable us to continue advancing that essential intelligence for our customers around the world. Thanks for the question. Operator: Our next question comes from Surinder Thind with Jefferies. Surinder Thind: Martina just following up on some of the earlier questions. At a high level, can you maybe talk about your assessment and experience with the AI technology in your attempts to deploy it internally versus maybe the hype that's coming out of Silicon Valley? And maybe what does this mean structurally for S&P in the sense that when we look at some of the newer firms that are coming out. They're coming up with a much smaller employee footprint, these AI native companies versus maybe some of the prior generation. Martina Cheung: Yes. Surinder, thanks for the question. And as you rightly said, we've been investing in this area for many years since we acquired Kensho in 2018. We've deployed about $1 billion against this, and that's really put us in a great position as we think about deploying these capabilities, both within our products and in our internal processes. And so I would say early days, but we are seeing traction in the momentum that we see with our customers, for instance, on the product side of this. So I'll give you some examples. We deployed the automated data ingestion tool on iLEVEL in 2025. And with the 6 months, we had nearly 20% of the iLEVEL customers opting for that add in, which is not part of the standard subscription. We also have seen very good demand in our energy clients for adding on the ability to pull energy research into Copilot and Copilot Studio that's seen quite a robust pipeline over the course of last year, and we'd expect more of that in 2026. And so earlier opportunities here that we've seen lots of good momentum. And again, it comes back to what are our clients saying to us. We have one CCO client that was working with the CCO team recently and essentially said, look, we've seen some of the bigger tech firms. We're also looking at some of these niche providers that have AI native shells, if you like, without the data. And frankly, we prefer to work with you guys, you want to see you guys put the functionality into your tools, and we want to use single pipe to get our data through. And so as I said earlier, the best barometer really of our long-term success here is what our customers are telling us, and we're moving faster and doing more with our customers. Maybe the other point that I would make, and then I do want to hand over to Eric on the productivity side of this and to your points around smaller teams, et cetera. We would certainly expect over the next several years that revenue growth will outstrip headcount growth. And in many ways, we're seeing places where we've reached peak headcount growth, and we'll see that continue to decline in certain areas over time where we've accelerated the application of these functions. Maybe Eric, over to you. Eric Aboaf: Thanks, Martina. Surinder, let me add that on the internal usage of AI, we're really accelerating a number of use cases and not just I'd call proof of concept, but actually changing the way we do work, changing the way our processes are developed and simplifying. I think if you remember back to Investor Day, we talked about some of the deep pools of opportunity we named for the enterprise data office, the software development process, the researcher activity that we have and then the analysts. And we described those as pools of human resources that comprise about 1/3 of our total 40,000-plus headcount. And each one of those has an industrious effort now underway to actually bring in and leverage a number of the new tools, some of them that we've developed internally, a number of which are available externally. You're all well familiar with some of the software development tools that are having a very significant productivity impact for the developers and in those environments, researchers in an area where we've already been able to simplify, streamline and save $10 million plus over the last year as we provide them the tools and the functionality and the capabilities that they need to provide more research faster and more efficiently than before. And then the effort that's probably the furthest ahead is the enterprise data office where over time, over the next 2 years, we see about a 20% reduction in that cost base in that area. It's nearly a $0.5 billion expense base out of $7.5 billion. And it's the kind of change that we see coming now because we have these AI tools, we know how to implement them, we know how to simplify what we have. We know how to lighten the set of internal processes streamlined. And I think over time, it's going to transform how we operate this company and create the productivity and our ability to reinvest in the top line as we've been doing over the last few years, but also deliver margin year after year after year in a way that will drive both margin expansion, top line growth and EPS growth for our shareholders. Operator: Our next question comes from Manav Patnaik with Barclays. Manav Patnaik: Martina, you talked about how you thought AI was net tailwind for your business. And I was hoping you could just elaborate on that more on the top line basis. So do you think all these enhancements that you're talking about will help you accelerate revenue growth? And also, how do you think that changes your pricing strategy going forward? Martina Cheung: Manav, thanks for the question. We do think this is a great opportunity, and we're excited by the announcements. A number of these we've been anticipating because we've been engaging very closely with the various players in the markets. Maybe let me start with how we see this delivering additional value for our customers as we accelerate not just the integration of AI into our own tools, but also leaning into partnerships with a number of these players. First, I'd say that our clients are getting additional value by being able to use the data, our data in more ways. And the more ways to use it, the more value it creates and the better opportunity for value-based conversation at renewal when we talk to those customers. We've also seen really nice uptick in demand for add-ons. And that's helped us obviously with net new revenue. Examples of that, that we mentioned were the automated data ingestion as well as in iLEVEL as well as Microsoft Copilot add-on for our energy customers. And then I would say that we also have seen our clients just this really, really steep increase in interest in new data. And so this is quite interesting. And we're seeing a lot of that in the conversations that the CCO and the Kensho Labs teams are having with our CCO clients. So we'd expect to see maybe new data set sales opportunities there as we're having those conversations as well. And ultimately, the way that we're tracking this, and Eric and team are really doing quite a bit around this to make sure that we can see that adoption and track it. We're looking at retention. We're looking at renewal -- net renewal rates which would be inclusive of price increases. We're looking at add-ons, net new revenues, new product sales. And importantly, this is also helping with competitive wins. So we think a good opportunity there overall. We wouldn't change the pricing strategy around our enterprise opportunities, but maybe the way to think about it, Manav, would be that we see both opportunities around the renewal discussions as well as the opportunity to sell net new, whether it's add-ons or net new data sets. . Operator: Our next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Eric, just wondering if you can elaborate more on the pull forward of investments that you brought into the Market Intelligence business into 4Q? And I know you guys aren't guiding to segment level margins anymore, but any qualitative color you can give us on sort of the expected growth in expenses within MI for 2026 relative 2025? Eric Aboaf: Scott, it's Eric. Thanks for the question. On some of the fourth quarter expenses in MI, remember, there were two factors. There was the early integration of With Intelligence, so that came on and then which we're very excited about, followed by some pull forward on investments. Those are really in the technology, I'll call it, feature functionality area of several product lines, and it's the kind of reinvestment that we're making as we deliver productivity to also drive top line growth. Some of them are actually AI investments and the infrastructure that helps support that where we're finding that we've already seen a quick adoption by clients. What we're trying to do is invest behind that very quickly to expand that AI feature functionality in particular and some of the other features that will drive future growth. In terms of margin expansion, we're quite comfortable with the guide that we've provided in aggregate, the 50 to 75 basis points across the various divisions. I think as we get a little further during the year, we'll see how each of them perform, and we're being prudent in our guidance. Some of the -- in MI is the volumetric revenues, which we've seen bounce up around from time to time. So this isn't anything particularly new. But if you go back over the last 8 to 12 quarters, you'll see some of that. And so we're just being a little bit careful. In terms of margin expansion, we had said at Investor Day that MI has, I think, we said clearly, the largest surface area for margin expansion. We think that over time, it will be at the upper end of the 50 to 75 basis point margin guide. I think for this year, we think it's solidly in the middle of our guide. And we're here to meet that and to deliver on that and to do even better. And I think if some of the volumetric revenue growth comes in more like it did in '25, then we're prudently guiding for in '26, right? So if we see that same total year revenue growth as we'd like it to see, it will come in at the high end of the range. But it's a little early to make that prediction given that the volumetric growth is driven by a number of external factors. And so we start MI in the middle of the range, and we're looking to take it up during the year as we deliver. Operator: Our next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: Eric, I wanted to continue the margin guidance. Again, I know you're not getting specific guidance by the different segments. But any qualitative color, if you can talk about the other segments like you just gave us for MI, we'd really appreciate it. Eric Aboaf: Sure. Jeff. Let me -- maybe we'll just take through MI, we covered at a high level, and I think you've got a good sense there. If we go to Ratings, one of our market-sensitive businesses, it's clear that it will depend upon the issuance environment, the rated issuance expansion during this year. And that's all driven by the M&A activity, the potential hyperscale investment-grade issuances, structured finance and so forth. So I think that one we've historically been careful at the beginning of the year and are doing so again. I think similarly in Indices, there, we've delivered really nice margin expansion performance. We expect to continue to do that. Here, we're being a little careful as well with the guidance on equity market appreciation. There's a good tailwind because of the averages and where they've come out relative to the average of '25 and where we are today. But if markets continue to trend upwards, there'll be opportunity towards the upper end of the range, but it's a little early to predict that. Energy, I think, will also deliver well. There, we've got some headwinds as we described, some of the sanctions, the turnaround in Upstream is underway. And I think what we'll see is margins and revenue accelerate from the first half to the second half of the year. And there we're also confident we can meet the middle of the range. But in each one of these, it takes a series of actions, a number of which we control and some of which we don't control to -- for us to get to the upper end, which is where we'd always like to deliver. I mean that's our intentionality. That's where management and the executive team is focused on. What we are committing to is that every division will expand margin, every divisional extent margin in this range. And there are certainly opportunities, I think, across every division, starting with the market-sensitive divisions, but also in MI and in Energy to deliver even more than the middle of the range depending on execution, depending on the market environment. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Alexander EM Hess: This is Alex Hess on for Andrew Steinerman. I just wanted to get a few points of clarification, if you don't mind. Could you elaborate as to what organic ACV growth was in the fourth quarter in MI? I know that's been a point that you guys have been highlighting, certainly, when it's been running ahead of pace. And then maybe on the balance sheet, just walking through sort of sources and uses of capital as you enter '26? Any call-outs there, especially at the debt buildup in the year. So I know it's two parter. Eric Aboaf: Let me take those in sequence. ACV growth continues to come in very nicely in MI. It was solidly in the 6.5% to 7% range this quarter, which gives us 2 quarters in a row of 6.5% to 7%. And if I remind you, the first half of the year was sitting at 6% to 6.5%. So I think we're starting to see the acceleration or maybe I'll say, continuing to see the acceleration that we had seen from the first half into the third quarter. We're now seeing it first half to second half. And that's what gives us confidence in the step off into next year. It's also related to where the subscription growth is coming in really nicely. And we think that subscription growth will be at the top half of our revenue guide. We think ACV will be at the top half of our organic constant currency revenue guide as well and will help propel revenue to levels that we'd like to see this coming year. In terms of balance sheet and capital management, I think maybe a couple of points that I'd highlight. A lot of the balance sheet management continues. As we've previously discussed, we did go ahead with a buyback and expanded buyback in the fourth quarter. We funded some of that with some debt in commercial paper. So you see that come through in the balance sheet, and that resulted in $5 billion of buybacks for the year for 2025. As you recall, our buybacks typically are lighter in the first quarter, and then build during the course of the year. Just given the market environment, the strength of our balance sheet, but also the stock price levels that we're seeing, we're likely to do a higher buyback this first quarter in 2026. I think last year was in the $650 million range. This year, we're targeting about $1 billion of buyback and see that as a way to expand EPS in these volatile markets. Operator: Our next question comes from Craig Huber with Huber Research Partners. Craig Huber: Martina, you gave several examples of initiatives on revenue front that AI is helping your revenues. But can you just simply if you would, please give me your 4 to 5 revenue AI contribution you think is going to help you the most for revenues this year, your products, your add-ons, but what's your 4 to 5 you're most excited about? And then as you roll it all up, your AI enhancements to your products, how much do you think that's actually going to help your revenue growth this year, your midpoint growth, 7.5% of revenue growth? Is it going to help by roughly 1 percentage point. Do you have a sense on that, please? Martina Cheung: Craig, thanks for the question. Well, look, we're not providing guidance around the contribution of AI or calling that out specifically. Let me maybe take a step back and characterize some of the groupings of how we benefit from AI as part of our products. And so as you know, we have been working really closely with our customers on this and they're really pointing the way in many cases around the types of functionality they want to see. And so that demand is really coming from the customers themselves. And what we're doing essentially is making our products smarter on their behalf and at their request. And so some of the examples I called out earlier, maybe just again, put them in buckets. So one would be how we're actually bringing really advanced capabilities into our products. We showed you document intelligence, for example, at the Investor Day and that has seen a really good uptick and gotten very positive reception from our customers. A second category would be where we launched an add-on, which is charged for separately and I mentioned automated data ingestion for iLEVEL, there are a number of others there across the divisions and within MI as well. The third would be just the overall conversation, oftentimes with the CCO clients and Kensho is resulting in increased demand for new data as a result of clients being able to use these technologies to do lots more interesting things with data. And so we may expect to see new product sales, new data sales as part of this as well. And remember, we're doing all of this with our philosophy of flexible delivery. So we will, as we have done for many, many years, lean into our distribution partners, including the model developers and hyperscale partners to create as much value for our customers as possible. And then what's the results or the contribution it's in a number of areas. It can be in revenues. It can be in retention. It can be in new data sales or new add-on sales. It can be in competitive wins. And we're seeing quite a bit of this across the businesses, whether it's an MI or in Energy, for example, we're seeing AI-enabled capabilities as we talked about last year in index as well. And so this this is quite exciting for us. We continue to lean in here. And we're seeing the momentum and some of the early traction. And we look forward to sharing more about that as we go throughout the course of the year. Thanks, Craig. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: I want to jump back to the volume base sales that were later in the quarter. Can you just go over your view on that in terms of those sales being kind of market-driven or why else they would have been lower. I just wanted to ask, I mean, straight out, is any of the wallet share going to clients investing in AI and other areas that just might not be with S&P? And then also just in terms of like the margin expansion, if you account for some of the pull forward of the investments, it sounds like the margin growth year-over-year would have been 80 basis points. We're just seeing a better trajectory in the last few quarters. And maybe you can kind of comment on that as well. I know it's two parter, but please indulge me. Eric Aboaf: Shlomo, it's Eric. Let me start with the margin impact. There -- this -- and maybe quantify it in a couple of ways. As we described, With Intelligence comes on in the fourth quarter. And that obviously starts with a lower margin, just given where it is in its growth trajectory, but one with significant margin expansion plans and forecast. There's the pull forward on some of the investment spend as well, which we're pleased to have done, and that's really offset in a way in other divisions where we saw higher-than-expected growth in particular in Indices. And so purposely, planned on some investments in MI where it made sense in effectively funded by another area. And together, those worth about 80 basis points for the quarter. And then there's another of 50 basis points or so that just comes from that lower variable revenues. If you factor that in, that between those three areas, I think margins for MI would have been in the 33.5% level, which is pretty close to the full year 34% margin. So we're sort of consciously navigating and managing, I think, actively, and that's some of what you saw this quarter. In terms of the variable revenue, this is really driven by sort of external factors. It's -- there are no cancellations. There are no questions around pricing. It's all been the variability in some of those external market factors. And so for example, we talked about the bank loan syndications and and the loan markets being slower in transactional activity. That just comes back to us directly in ClearPar as a set of lower revenues in that particular quarter. And we'll be exposed to that kind of volatility. Conveniently, in Market Intelligence subscription revenues is 85% of total revenues. But we'll have a little variability around that. And that's, I think, just part of the business model. Clients want to have a pricing schedule that's tied to how they make money, which is partly on the the amount of activity. And so we have a system that supports that. But we're pleased with the overall performance and just calling out what will some of the volatility that we'll see from time to time. I think we saw some real positives in some quarters this year. You'll see some slower growth, but it was still in the -- it was still positive. And so it's just a matter of seeing that it evolves over time. Martina Cheung: And Shlomo, maybe I could add a couple of additional examples here. So Eric mentioned earlier, investments that will help with revenue growth. Maybe two examples of that to make this tangible. One is that we invested more in cloud to accelerate the -- bringing together of our Data Fabric and the EDO and that's really creating the opportunity to do more with our content, connecting it together, produce more products, et cetera. And then the second area was we pulled forward some expense around sales enablement tools within Market Intelligence into Q4 as well. So just a couple of examples there. Thanks for the question. Operator: Our next question comes from David Motemaden with Evercore. David Motemaden: Just had a question on sales cycles within MI. Martina, have you seen any changes in MI sales cycles? And just given the announcements of some of the GenAI enhancements at the LLMs over the last 6 months or so. Has that impacted sales cycles at all? Are you seeing any changes to the pipeline? I'd be interested in what you are seeing. Martina Cheung: David, thanks so much for the question. I mean I think the only time generally that we might see a sales cycle being longer and this wouldn't be specific necessarily to AI or LLMs, but generally speaking, the only time you might say that happen is if you have a very large deal that might have multiple products in there. And so maybe some of the CCO deals where we're dealing with large enterprise opportunities could be some examples of that. But I wouldn't necessarily say that, that has differed from what we've seen in the past. What I will say is that the volume of meetings has increased dramatically with our clients, in particular with the CCO accounts, not just because we are bringing the whole enterprise together for a discussion with them, but also because they're looking at what more they can do with us. And so that's an area where, of course, we see opportunity as well. Thanks for the question. Operator: Our next question comes from Owen Lau with Clear Street. Unknown Analyst: Could you please add more color on the priorities of your private market solutions in 2026? What are some of the initiatives that can drive or even accelerate the growth in this area this year? Martina Cheung: Owen, it's Martina. Thanks so much for the question. While we're very excited about our private markets opportunities in 2026. Maybe just to kind of point to the different divisions around this. In Ratings, we've seen really strong performance around Private Market Ratings certainly in 2025. And the work that we've done really there to make sure that the issuers in the market understand our methodologies and that we have very established clear relationships in the broader business. That's all helpful for us, and we don't see a reduction in appetite for private market from investors. And so we'd expect that to continue to progress nicely in 2026. Look, it's possible that some of these hyperscale issuance could go through rated in our private markets teams. If that's the case, we might see a little bit of that potential for increased come through that channel, but generally very well positioned there. In index, we've seen a number of launches around private markets in 2025, and we are getting a lot of interest speaking with our clients about new index opportunities. And the team is also working with Market Intelligence team to see how they can accelerate innovation using the data from both With Intelligence and from the Cambridge Mercer agreement that we've struck. And then in MI, look, we're so excited about the closure of the With Intelligence deal early. And just the spectacular capabilities of the EDO team, enabling us to link that data through Kensho Link and get it out to market faster. We've already seen really early momentum around cross-sells that we talked about in the prepared remarks. And that With Intelligence team is phenomenal. We're super excited to have them on board. And I would say maybe just a last quick point. We launched the beta for Cambridge Mercer in Q4, as we had discussed, got very positive feedback. The taxonomy for private markets that we discussed as well around standardizing and reporting is also getting very, very good feedback from the market. And we're continuing to work with customers on that, and you can expect us to keep you updated on that as we go throughout the year. So I'd say, Owen, we're excited. There's always good opportunities here, and we'll keep you updated as we go throughout the year. Thanks for the question. Operator: Our next question comes from Jason Haas with Wells Fargo. Jason Haas: I'm curious if you could talk about your outlook for bank loan issuance in 2026. I'm curious why that's been soft over the past few months and why you expect it to be softer? It sounds like that's correct me if I'm wrong, but it sounds like that's maybe one of the key factors in terms of the softer market intelligence and Ratings outlook than what you had for the Investor Day? Martina Cheung: Yes. Jason, thanks for the question. So I think for bank loans, if you take a step back, it's it's more of the mix, the overall mix that we expect, right? So in Q4, we saw a 50% increase in investment-grade issuance in Ratings. And so that weighed on the overall mix, which monetized -- made the sort of like effective monetization a little bit lower than we would have seen had it been more skewed towards high yield and bank loans, for example. And so think of it as more of the mix. I think if you look into 2026, the near-term maturity walls are reasonably evenly mixed between high yield and investment grade. There is that opportunity there for more investment grade if the issuance of hyperscalers were to increase. And so all of this we take into consideration not just as part of course of the Billed Issuance, but also as part of the the revenue guide. And so ultimately, I think we continue to expect to see a little bit of softness in bank loans as we think about the initial -- the overall guide here for Billed Issuance for 2026. And as always, the timing of rate cuts, the spread environment and things like that could impact us to the upside or downside. But generally, we're being prudent on the guide here, including a little bit more softness in bank loans continuing into 2026. Thanks for the question. Operator: Our next question comes from Jeff Meuler with Baird. Jeffrey Meuler: Can you just comment on how strategically important you think CapIQ is within Market Intelligence, obviously, vendor consolidation and CCR2 themes. But just like where are there meaningful product integrations with other MI products or how you think it impacts cross-sales, just how we should think about CapIQ potentially impacting MI more broadly beyond the traditionally reported desktop? Martina Cheung: Jeff, it's Martina. Thanks so much for the question. I think -- biggest picture view of desktop is that it's about 6% of our enterprise revenue. And as we think about the desktop going forward, firstly, I would say, we have been really leaning into investing and accelerating the deployment and release of AI-enabled capabilities across the desktop. This is very valuable to our customers, the combination of unique content that we are adding is also very valuable. And so the single sign-on between Visible Alpha and the Desktop, the single sign-on between the With Intelligence products and desktop. These are all things that create important interconnectedness of this platform. And as I said earlier, this is a sort of product that really benefits and works at its highest level of value when it is used in conjunction with the unique data that we provide to our customers. I will say one of the examples of the launches that we did in Q4, for example, is the integration of Doc Intelligence with Salesforce. Now that's something that our users who have really adopted document intelligence or asking us for. And so we're seeing a good reception from our users around all the ways in which we're enhancing desktop and that's coming through not just through the CCO conversations, but our broader usage base as well. And maybe, look, I'd add just one last point on this. Unsolicited, I've had two Ratings analysts come to me in the last several weeks and tell that ChatIQ has been life-changing for them. And a fun fact is that the Ratings analysts are actually the largest power user group of CapIQ Pro. So it was nice to hear that on an unsolicited basis from our own internal customers as well. So thanks for the question, Jeff. Operator: Our next question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to double back on capital allocation. And more specifically, kind of the preference between buybacks and M&A. Obviously, it sounds like With Intelligence has gone very well and quicker than expected. You talked countless times about how important proprietary data is to your moat in this new AI paradigm. So I'm just understanding you want to be aggressive on the buybacks. Also in light of those factors, curious how you stack or rank the priorities and where you might be most interested to deploy capital on the M&A front going forward? Eric Aboaf: Andrew, it's Eric. Let me start and say that we're focused on all the opportunities in the marketplace. I think right now, we see a potential opportunity with buybacks, just given the stock market performance, accretion and so forth. And so it's a natural time for us to accelerate some of the buybacks from the back half of the year into the first half of the year and in a way, that is the active financial management that we're doing. I think at the same time, we're not signaling that buybacks are more important than growth. In fact, growth is what dominates our thinking, our activity, our actions, how to fund the growth through productivity. I got into that earlier. But buybacks is just one of the many tools. I think the other tools are continuing to invest through the P&L. We've done that actively this quarter and that we even did that with a view that margin might decline or not expand as quickly as we like in one business. But we did that very consciously and purposely and see good payback. And I think in M&A, you saw us do the kind of acquisition that we'd like to do, which is a bolt-on or tuck-in or complementary consolidating acquisition that's going to fuel future growth. And so pretty consistent, but maybe turn it over to Martina, as well. Martina Cheung: Yes. Thanks, Eric. Andrew, maybe the only other point I would add is -- and you hear me saying this all the time. We don't have any upside for transformational M&A. We're going to be -- always going to be very disciplined. And ultimately, we're solving for long-term shareholder value as part of this. Thanks for the question. Operator: Our next question comes from Peter Christiansen with Citi. Peter Christiansen: Martina, you continue to call out to centralized finance as a strategic focus. The thinking is as D5 protocols increasingly embed real-world assets, credit exposure, do you see a role for S&P on on-chain credit assessment or Oracle style type of verification? Or is the strategy more to be a layer removed from direct protocol integration? And I'm just curious if we see market structure legislation get past this year, does that equate to a stepped-up investment in D5? Martina Cheung: Peter, thanks for the question. And I'd maybe answer this in the context of Ratings and Index where we see some of the earlier opportunities here. So we're excited about this. We've been calling it out because we see a really good opportunity and we've been leaning into it. So our Stable Coin stability assessments, for example, are frequently featured as part of describing the overall health of some of the Stable Coin issuers. And so you'll see us mentioned quite frequently in terms of helping the market to understand the risk associated with various different Stable Coins. And we cover the vast majority of Stable Coin market cap. I'd also say that we have been leaning into our methodologies for thinking about rating some of these things. So we did the first rating of a protocol, for example, in Q3, we mentioned that in 1 of our prior calls. And that was a way for us to signal to the market that we are leaning into assessing the risk of these new types of infrastructure providers and protocols. So I'd say, definitely leaning in. And then for on-chain presence, we have some partnerships. We've actually had those partnerships for years now. and we're excited about the potential opportunity there for Onchain credit assessment. In Index, I would say that we've been innovating very, very quickly here. You've seen us announce the opportunity to tokenize the 500 million Onchain. We've done some really innovative launches off the back of that tokenization. So I'd say tokenization there is a good opportunity for that business. And we're going to talk to you a lot more about this over the course of the year, but I appreciate the question, and we see it as an opportunity, and we're leaning in. Thanks, Peter. Operator: Our final question will come from Sean Kennedy with Mizuho. Sean Kennedy: So I know there was some pull forward this quarter, but I was wondering if the expected investment in AI capabilities and products is greater than what you were thinking 6 months or even 3 months ago with everything that's happening in the AI and software markets? And how Kensho provides a significant advantage here versus the competition? Eric Aboaf: Sean, it's Eric. Let me start. No, this is not a higher level of investments in aggregate for the year. We don't expect that to be higher than expected next year from relative to 6 months ago. I mean, we routinely invest through the P&L, 3%, 4% of our expense base. And we're just continuing to do that. We're just shifting in some cases how we invest, where we invest and the particle feature functionalities that are important to customers changes over time. But we see it as quite sustainable and just part of our continued pattern. Martina Cheung: And maybe I'd just add in there, Sean. Just by having the Kensho team and our choice in how to allocate those as a really valuable scarce resource. That also gives us a lot of leverage around how we can actually making this happen more quickly across the organization as well as how we can actually generate growth opportunities through Kensho Labs. So well, thank you so much for all your time today. I'd like to reiterate how proud I am of what we've accomplished in 2025. We have a clearly defined strategy, an incredible leadership team, the best people and deep relationships with our customers and partners, all aligned on our mission of advancing essential intelligence. Thank you to our customers, our people and our shareholders who continue to support us in this mission. We are exceptionally well positioned and excited about the opportunity to drive value in 2026. Thanks for joining the call today. Mark Grant: Thank you all again for joining the call today. You may now disconnect.
Operator: Please standby. Good day. And welcome to the GCM Grosvenor Fourth Quarter and Full Year 2025 Results Webcast. Later, we will conduct a question and answer session. If you are interested in asking a question, please ensure you dial in using the numbers you have been provided for this call, and press star 1 on your keypad to join the queue. If anyone should require operator assistance, please press star then 0 on your telephone. As a reminder, this call will be recorded. I would now like to hand the call over to Stacie Driebusch Selinger, Head of Investor Relations. You may begin. Thank you. Stacie Driebusch Selinger: Good morning, and welcome to GCM Grosvenor's Fourth Quarter and Full Year 2025 Earnings Call. Today, I'm joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Jay Sacks, President, Jonathan Reisin Levin, and Chief Financial Officer, Pamela Lyn Bentley. Before we discuss our results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance, and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties, and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the Risk Factors section of our 10-Ks, our other filings with the Securities and Exchange Commission, and our earnings release, all of which can be found on the public shareholders section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are on our website. Thank you again for joining us. And with that, I'll turn the call over to Michael to discuss our results. Michael Jay Sacks: Thank you, Stacie. 2025 was a great year for GCM Grosvenor. Most importantly, we drove value for clients as our investment results, the cornerstone of our value proposition, were strong across the board. Absolute Return Strategy's performance was excellent, with our multi-strategy composite generating a 15% gross rate of return in 2025. Infrastructure, our fastest-growing strategy of late, returned approximately 11% for the year. All of our other verticals in aggregate were positive and competitive as well. We think the investment opportunity set remains strong, and we're pleased to have approximately $12 billion of dry powder. From a capital formation perspective, 2025 was the best fundraising year in the history of the firm. We raised $10.7 billion of total capital, with approximately $3.5 billion of that coming in the fourth quarter. Both records. Jonathan will go into more detail, but our fundraising was broad-based, with all of our verticals, including ARS, having positive flows, and all investor channels and geographies contributed. Our pipeline of activity is very strong entering 2026, which bodes well for fundraising this year. 2025 financial results were similarly strong. Our fee-related earnings, adjusted EBITDA, and adjusted net income were up 11%, 15%, and 18%, respectively, when compared to 2024. Our fee-related earnings margin for the year was 44%, which is 200 basis points higher than our margin in 2024. We continue to enjoy significant margin improvement since coming public, and we believe we still have positive operating leverage. Our adjusted EBITDA and adjusted net income were aided by the $68 million of performance fees generated from our ARS business. In that regard, 2025 represented the fourth time in the last six years that we have generated more than $50 million in annual performance fees from ARS. While carried interest realizations were light for the fourth quarter, our earnings power from carried interest continued to increase at a rapid pace. Our gross unrealized carried interest balance stands at an all-time high of $949 million, up $113 million or 14% from 2024, with approximately 50% or $478 million of that belonging to the firm. Based on a number of real-time positive developments, we believe we will see another increase in this balance when we close our books at the end of Q1. We ended 2025 with $91 billion of assets under management, a 14% increase compared to 2024, and a new high watermark for the firm. Fee-paying AUM increased 12% year over year to $72 billion, and contracted not-yet-fee-paying AUM increased 27% year over year to $10 billion. Our contracted not-yet-fee-paying AUM is an important leading indicator of future revenue growth with real embedded FRR growth in that number. Finally, 2025 marked meaningful progress towards several of our key strategic objectives, particularly in regard to the individual investor channel, where AUM increased 18% year over year. In 2025, we launched Grove Lane Partners, our new wealth management distribution joint venture. We launched our infrastructure interval fund, which is now raising money every day. And we recently filed registration documents for a registered private equity fund, which Grove Lane will support. While we always caution that new distribution markets take time to ramp up, we remain enthusiastic about the future of the wealth channel for our business. Before turning the call over to Jonathan, I want to comment on the challenging market of the past couple of weeks. The consensus seems to be that the market stress has been driven by concerns of AI disruption and impact on equity and credit valuations with regard to SaaS businesses. While we probably prefer a somewhat less volatile environment, we are pretty sanguine with regard to recent developments. First, diversification is the defining characteristic of our investment and portfolio management process. In the private equity, private credit, and ARS space, all of our verticals, actually our typical portfolios, include exposures to several hundred companies or assets on a look-through basis. Those positions are diversified across markets, industries, different asset class types, and geographies. And we have always believed this diversification is a core tenet and a significant part of the value we deliver to clients. Second, with regard to our SaaS exposure, we believe we have less exposure than peers and very limited exposure generally. SaaS exposure represents only 4% of our total AUM, less than 6% of our credit AUM. Third, our view generally is that not all SaaS businesses are the same. That SaaS businesses are not going away, and they also will benefit from AI. With regard to SaaS-related credit specifically, existing credit attachment points are generally protective with regard to impairment. Fourth, we believe last week's significant pullback was without differentiation across companies, which always provides opportunity. Our absolute strategies portfolio had positive performance in January, and in general, this is the type of environment where ARS strategies often add value. Finally, we believe that across our platform, we have more exposure to the disruptors and the beneficiaries of disruption than we do to the businesses where disruption to business model or future prospects is of concern. Simply said, we have more net long opportunity from AI trends, including direct exposure to AI and to all the related AI beneficiaries, than we have exposure to loss from those disrupted. Of course, our stock has not been immune to the recent market dislocation. And we ourselves are a good example of a proverbial baby being thrown out with the bathwater. With our stock trading at a lower earnings multiple than the S&P 500, and that of our alternative investment peers, with solid growth prospects and with a current dividend yield of approximately 5%, we believe we represent good value today and that buying back stock represents an attractive use of capital. Consequently, we have increased our buyback authorization by $35 million, leaving us with $91 million to repurchase shares. Given our ample cash balance generated in part from strong cash flow generation and in part from the proceeds from warrants exercised in November, we can buy back stock, minimize dilution from stock-based compensation, and also repay $65 million of our term loan, which we are doing this week without prepayment penalty. In closing, 2025 was a very strong year, momentum remains strong, and we remain on track to achieve our goals to more than double our 2023 FRE to over $280 million and grow adjusted net income per share to more than $1.20 by 2028. And with that, I'll turn the call over to Jonathan. Thank you. As Michael noted, my remarks will focus on our strong fundraising results for the year 2025. Our $10.7 billion raised, in addition to being a firm record, is notable for its diversification across strategies, which is best illustrated on page 10 of our earnings presentation. Every investment strategy contributed meaningfully to our results this year, and all have sizable pipelines heading into 2026. The numbers only capture part of the story. So to bring our fundraising to life, I'm gonna take you through a few real examples of 2025 wins. First, as we've discussed in the past and at our Investor Day, evolving alongside our existing clients through cross-selling has been a key driver of our growth, generating approximately 20 to 25% of our fundraising in any given year. One such client is a large public pension that has partnered with us for years on a multi-asset private markets program focused on smaller cap opportunities in private equity and real estate. Through our ongoing dialogue, our client described that they had strong demand for what they called the missing middle of real estate, sitting between smaller and very large opportunities. We designed a new program specifically to address that gap. Importantly, the client also re-upped their original private equity and real estate programs, committing more than twice their initial allocation. It's a strong example of listening closely, adapting quickly, creating durable solutions, and growing alongside our clients. To that point, our AUM with this particular client is four times what it was when they launched their first program with our firm. A second example highlights similar expansion within the absolute return strategy space. In this case, we've worked with the client for almost twenty years, managing small, middle-market programs across private equity, infrastructure, and real estate. As a result of this evolution, our AUM with this particular client has many, many multiples of what it was when they launched their first program with us almost twenty years ago. The programs we manage serve as an alpha generator by attacking less trafficked areas of the market, incorporating significant fee efficiency due to meaningful exposure to co-investments and direct investments. In fact, in this particular relationship, we do everything from direct control investing to co-investing to fund investing across private equity, real estate, infrastructure, and absolute return strategies. Stacie Driebusch Selinger: The fund investing activity serves as a farm system of relationships. Jonathan Reisin Levin: That ultimately transition to the client directly. In 2025, we expanded that relationship by introducing ARS, making this one of the many programs that comprise the $1.9 billion of ARS fundraising in the year, the highest amount since 2021. Michael mentioned our growing success in the individual investor channel, and I'll highlight a key example of that momentum: strong demand for white-labeled solutions. We've long believed that the differentiation that's made us successful in the institutional market, serving as a customized separate account partner, would translate well in the individual investor channel. And we're seeing that thesis play out. Over the past two years, we've raised almost a billion dollars across 11 white-label solutions in the wealth channel. We believe these customized solutions will be a meaningful contributor to our growth in this channel going forward alongside everything we're doing from a product standpoint. The last example is an Asia-based institution for whom we've managed an ARS program for more than two decades, alongside providing broader advisory and value-added services. The client wanted to increase their exposure to Japan-focused ARS strategies. And despite having a large and sophisticated investment team, they sought our partnership to leverage our experience and capacity in that market. Leveraging the depth of our global ARS team and long-standing relationships with Japan-based managers, we designed a customized Japan-focused ARS program tailored specifically to the client's objectives. These examples represent only a snapshot of how we partnered with clients over the past year. Collectively, they reflect the power of our platform, the strength of long-term relationships, and our ability to tailor solutions across client types and channels. While each client relationship is unique, our success is driven by a common foundation: a broad, flexible platform that lets us adapt to market conditions, tailor creative solutions, and deliver across a wide spectrum of opportunities. With that, I'll turn it over to Pam. Pamela Lyn Bentley: Thanks, Jonathan. Both our fundraising and investment performance led to strong asset growth in the fourth quarter and the year. Private markets fee-paying AUM and management fees grew 106% year over year, respectively, from a combination of solid fundraising and conversion of contracted not-yet-fee-paying AUM. Growth in all of our various earnings drivers throughout the course of '25 sets us up well for continuing momentum and earnings expansion. As usual, let me touch on key figures for the upcoming quarter. For '26, we expect private markets management fees to be relatively consistent with the fourth quarter. It's also important to note that given the timing and fee structure of our specialized funds in the market, we expect limited catch-up fees this year. As noted, absolute return strategies had strong investment performance and capital formation, resulting in ARS fee-paying AUM and management fees growing 155% year over year, respectively. For 2026, as a result of positive net flows and terrific investment performance, we expect ARS management fees to increase by approximately 5% from the fourth quarter. Turning to expenses, our compensation philosophy is centered on attracting and retaining top talent by aligning their interests with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation, and equity awards. We remain disciplined in managing expenses, and our FRE compensation and benefits remain stable for the year at approximately $148 million or an average of $37 million per quarter. As a reminder, we typically see a seasonal uptick in compensation in the first quarter of the year, and we expect FRE compensation and benefits to be approximately $1 million higher in '26 versus Q1 of last year. Non-GAAP general, administrative, and other expenses were consistent in the fourth quarter at just over $20 million. We expect non-GAAP general, administrative, and other expenses in 2026 to be in line with or just slightly above 2025. Turning back to 2025, in addition to strong AUM metrics, it was a productive year on our financial drivers. I point you to Pages four and five in the earnings presentation for a summary of the key metrics. Total fee-related revenue for the year was $416 million, an increase of 6% year over year. Our fee-related earnings grew 11% year over year, and our fee-related earnings margin expanded to 44% for the year. Adding our strong incentive fees, adjusted net income grew 18% year over year. During the fourth quarter, our outstanding warrants expired, with a portion exercised resulting in the issuance of approximately 10 million shares at the strike price of $11.50 per share, generating just over $110 million in proceeds. We also repurchased 2.8 million shares during the fourth quarter at an average price of $11.11 per share, or a total of $31 million. As of year-end, $56 million remained under the existing share repurchase authorization. And today, we announced that our Board has approved an additional $35 million for share buybacks. Additionally, we are prepaying $65 million of our term loan, reducing our leverage and saving over $3 million per year in interest expense. While these actions enhance our financial flexibility and support shareholder returns, our primary focus remains on strategic investment for long-term growth. With strong fundraising, excellent ARS investment performance, steady FRR growth, margin expansion, and upside from incentive fees, we believe we have all the ingredients in place for a very strong 2026. Thank you again for joining us, and we're now happy to take your questions. Operator: Thank you. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. The first question will come from Jeffrey Paul Schmitt with William Blair. Hi, good morning. Could you discuss your capital allocation plans just with balance sheet cash up on the warrant exercise? And Pam had mentioned you paid down some debt over the last week or two. In up share buybacks. But what are your plans from here? Should we expect additional debt pay downs? Michael Jay Sacks: Thanks, Jeff. So it's Michael, and then Pam jump in if I leave anything out here. But, you know, we've always talked about the fact that we're a capital-light business. We've paid a healthy dividend and increased that dividend a number of times since going public. And we've said, you know, numerous times, and we intend to sort of stay a capital-light business. So we did, you'll you saw in the Q4, we bought back shares post-warrant exercise. And we are gonna pay some debt down now. And I think, you know, that with the current authorized exercise and the current and the debt pay down we announced this morning, that that kinda puts us back in a pretty, you know, comfortable range. Obviously, we have a quite healthy dividend yield, not getting a ton of appreciation for that. So while we probably, you know, do have cash flow to be able to increase that dividend, it doesn't seem to get me rewarded particularly, by shareholders sort of focused on increasing that buyback. Jeffrey Paul Schmitt: Okay. And then continue to see really good operating leverage in the business. I think the fee-related margin was 44% for the year. It's up a lot over the last five years. Can you continue to keep expense growth low as this business scales out through '28, which was sort of your medium-term outlook, can you continue to drive margin expansion over that period? Thanks. Michael Jay Sacks: We believe we can. And so, we do think I think I mentioned it in my comments, we believe we have continued operating leverage and we think that we can and will continue to drive FRE margin and overall margin through '28. Jeffrey Paul Schmitt: Okay. Thank you. Operator: Thank you. And the next question comes from Kenneth Brooks Worthington with JPMorgan. Hi, good morning and thanks for taking the question. Kenneth Brooks Worthington: The absolute return business had a great quarter, had a really solid year. You've been highlighting for some time the expectation of flat flows. How are you feeling about the business, and how do you feel about that business returning to organic growth as we look to the future? Given sort of the successes you've had in the past couple of years? Michael Jay Sacks: Well, Ken, we're gonna flash back to our Investor Day conversation, you know, when we were out in the hall. We're not changing our budgeting. And we're not changing and making any proclamations on a call like this. And as you know, anybody who was at the Investor Day or watched that Investor Day recording knows we definitely have people in the firm in that vertical that are more bullish on the vertical than we are budgeting. But we're not changing that budgeting at this time. And I could point out, Ken, that budgeting relates to flows, which obviously translates directly into management fees. But it also does, you know, relate to performance expectations and kinda what we sort of talk about as run rate performance fees at budget. And I did highlight that for the last six years, we've beaten the run rate at budget on the performance fee side as well. Kenneth Brooks Worthington: That was an elegant way of answering, so, appreciate it. As we think about I just wanna dig into it too. It's John. Sorry. Yeah. Jonathan Reisin Levin: Let me add one thing. I mean, I agree with everything Michael said. I do just make sure we make the important distinction because you framed the question in the context of where organic growth. If you if Pam gave, you know, guidance for the '26, and you might have been specifically referring flows as opposed to just FRR. But that guidance for the '26 does have embedded in it, obviously, FRR growth from that vertical in light of the success we've having. So I just want to make sure that you when you file back and look at those that script, you catch that piece. Kenneth Brooks Worthington: Cool. Thank you. And just on two funds, maybe first Advance, how much has been raised thus far in the strategy, and how much time is left until that fund closes? And then CIS is back in the market, just remind us how big the prior fund was. Operator: Sure. Let me Michael Jay Sacks: take John, let me take Advance, and you just give the specific number on CIS. So, Ken, we are in market with for Advance. We actually have the ability to extend the period to raise funds for Advance, and we have talked to our LPAQ about doing that. And so we'll be continuing to try to raise money for Advance, you know, going forward the next, you know, several, you know, next, you know, quarter or so. Advance is in my view, likely to come in smaller than the prior advance. It'll be one of the few funds we've, you know, ever had where a successor is smaller than the predecessor. And as you know, Advance focuses on emerging managers, which is emerging and diverse managers. And there's been a lot of conversation about diversity and diversity, equity, inclusion, over the course of the last year or so. And it's been a steeper slope for this fundraise this time around. And I think that's just a fact. That's a fact we've been living with. And when we have our final close, we don't announce the numbers along the way, but when we have our final close, it will be, I think, smaller than the prior fund. I would say that as given the size of the prior fund, you know, it's not gonna be all of our forecast and everything incorporate the idea that it's gonna be smaller. So we've understood that. We understand the landscape. We've been up that that fund has been operating in, for a while now. And that's baked into our guidance and our expectations. Kenneth Brooks Worthington: K. Thank you. And just CIS, the prior one? Jonathan Reisin Levin: Yeah. It did it's about between it's right roughly a billion dollars. We there were some sidecar vehicles that invest alongside that fund, but for the CIS three, plus or minus a billion dollars were, as you said, now in market critical infrastructure solutions for And you know that we've talked a lot about the success we're having generally in the infrastructure space. And so when you look at the total capital formation for infrastructure vertical across separate accounts and various products, this is just a piece of it, but we feel as good about this piece as we do about the broader infrastructure strategy, which is obviously going quite well. Kenneth Brooks Worthington: Great. You very much. Operator: And the next question will come from William Raymond Katz with TD Cowen. William Raymond Katz: Great. Thank you very much for taking the questions. So John, you spent a lot of time about the depth and breadth of the gross sale dynamic for 2025. And I think between you and Michael sort of hinted at a pretty good '26. Was wondering if you could maybe unpack the drivers for 2026 and maybe break that down between, specialized versus maybe the SMA side of the equation, retail or global wealth versus institutional, any other metric you think sort of sailing for us as we sort of work through our math. Thank you. Jonathan Reisin Levin: Sure. You know, I don't know, Bill. If I broke it down, I would break it down much differently from what the flows formation and the makeup of that formation has been over the past couple years with the relevant embedded trends in it. So when you think about it being broad-based globally, when you think about being broad-based across the channels, and when you think about it being highly diverse or broad across many of our verticals, The mix between separate accounts and specialized funds being roughly the same mix as that's represented in our AUM at seventy thirty. You know, with the underlying trends still being relevant to that. Infrastructure is strong, and we're in a market with a bunch of infrastructure stuff. And the individual investor market's growing faster than the We had individual investor AUM up close to 20%, which is larger than our what our overall AUM growth was. Continued growth from the capital from the insurance channel as compared to what it represents in AUM. So I don't think that I would call for something kinda markedly different in any period of you know, reasonably long period of time that you would capture capital formation over, I would say that our expectation would be a continuation of the trends we're seeing, which is a very healthy environment capital formation. And us benefiting from the diversification and breadth of the business and where we're making investments in particular to get behind the tailwinds that we're all collectively seeing in the market. Michael Jay Sacks: Bill and Michael, I don't think we said in the script which we often do. So glad that you asked and happy to say it now, our pipeline you know, we've talked in the past how we track pipeline, and we have near-term pipeline, a couple categories in near-term pipeline. Etcetera. After raising $10.5 billion through December 31, our pipeline today is larger than it was a year ago. So just and and to John's point, and it's completely you know, diverse on channel, on jurisdiction, on geography, etcetera. So, that's I think we normally mention that, and we didn't, this time, I don't believe. So thanks for asking. William Raymond Katz: Okay. Thank you. And maybe a follow-up for Pam. Maybe a two-part question. You've been able to really hold the line on expenses year on year even as the business continues to scale. What is it that's driving that, the ability to sort of tamp down particularly on the OpEx side and the comp side? And then as we look ahead, so so unrelatedly, how are you guys thinking about the realization opportunity on the carry side equation, and which bucket do you think it comes from? Thank you. Pamela Lyn Bentley: Appreciate the question, Bill. I think on the OpEx side, I would say, obviously, we're focused on continued expense management, but also just continued investment in scalability and technology. There's a lot of great efforts going on that are enabling us to achieve that scale and including AI and we spoke a little bit about that at Investor Day as well. And we are also, again, just disciplined in making sure we're still investing in the areas of the business where there's product growth such as in the individual investor space. So we're investing where it makes sense, and we're holding the line and reducing expenses where we can through really investments in technology. And I think, Bill, if you can remind me the second part of your question there. Michael Jay Sacks: Yes. Sure. Sure. I'll take it, Pam. It was the carry question. Where is it gonna come from? And how good do we feel about it, and what's our you know, how do we characterize it? And I think, Bill, that's where I would start that where I would start on that is the I think the most important piece, and I wanna begin a little, is it how we mostly think about it is it's not a it's not an if, it's a when. And so when matters, time value money matters, absolutely for sure. You know, sooner is better. That said, that asset is appreciating very rapidly. And I, you know, encourage everybody to listen to my comments in the script with regard to that asset, look at the appreciation, over the year, last year, quarter over quarter, that asset's appreciating rapidly. And what to me is very encouraging about that asset when you have a carry asset on your balance sheet, one of the things you worry about is sort of old carry. And is the old carry just kinda stale and sitting there and you're not gonna really collect it? If you look at our collections, our old carry has come way, way, way, way down. We've collected, you know, most of it. So it's live. It has been a when not an if question. And we have, you know, every confidence that that carry at $4.79 firm share now is a when, not an if, and that that number is gonna go up. Which we touched on. And there is a ton of carry at work behind that that doesn't really appear anywhere. Right? Because it's just carry that's not yet in the money to be counted and carried NAV, but it's working. We're deploying the capital. And we're creating the investment returns to turn that into carried NAV. And there's a ton of that that we've, you know, generated in the last six years or so. And so we're hopeful that the same experience you've seen with our carry asset over the time period that we've been public where we've, you know, we've tripled three and a half x, whatever it is, the size of the asset while collecting a lot of cash, that, you know, not saying specific dollars amounts, but that that same pattern is gonna occur again on top of the $4.79. We think that this we think this is not you know, like, if you look at our carry asset today, at $4.79, it's a big chunk of our total enterprise value. Relative to peers. It's worth noticing that. And then you think about the dry powder the carry that we have behind that, and it's a very significant asset for Grosvenor. That we sort of feel, you know, and it will start cash flowing to a higher degree. Just a question of when. And when we done, we when when it does, we think it will be, you know, significantly appreciated. William Raymond Katz: Okay. Thank you for taking all the questions. Operator: Press 1. Again, that's 1 if you would like to ask questions. And we'll take a question from Crispin Elliot Love with Piper Sandler. Crispin Elliot Love: Thank you. Good morning, everyone. First, on the fundraising outlook broadly, very strong in 2025. Just curious on how you're thinking about 2026 just given the momentum you have built up, least it compares to 2025. You said pipeline is stronger than a year ago. Does that mean that we should assume that you expect fundraising in '26 to exceed 2025? Or am I going a little bit too far there? Michael Jay Sacks: Our bottom-up granular build coming in from the business development team and the investment teams lands at a number that would exceed last year. Given how good last year's fundraising was, given it was a firm record, given the sort of massive increase over 2024, we're not budgeting any, you know, we're not standing on the call today saying, you know, that '26 fundraising will exceed '25. But, you know, we've certainly got the pipeline, you know, to give, you know, to have them give '25 a serious run for its money. And as I said, our teams, you know, think we should have a bigger year. But our base budget is, you know, is in line with last year, and we'll keep, you know, updating that as we get through the, you know, go through the year. And when we're confident that we're gonna exceed it, we'll announce that. Crispin Elliot Love: Perfect. That makes, that makes a ton of sense. And then just performance fees, very strong in the quarter, but my question is a follow-up on the carried interest side. Was the softest for carried in '25? First, was that a surprise for you? I know third quarters are typically the strongest, so not a major surprise to see a little bit lower in the fourth. But just curious on the absolute level for the fourth quarter. And I do appreciate the difficulty in forecasting these levels and how Operator: 's time to be a driver. It was it was lower than expected than we Pamela Lyn Bentley: expected. Michael Jay Sacks: That said, you know, carry is not the revenue the easiest revenue stream for anyone to. And so, particularly when your carry is a quite, you know, is a highly diversified carry with, you know, lots of different waterfalls. It's not like, you know, work on one deal and generate carries. So it's, it's the hardest revenue stream for us to predict. We would love it to, you know, the we would love love the realizations to increase. We've, you know, been looking for that to happen since kind of the slowdown in 2022-2023. We do see, you know, you know, interesting, you know, more activity teed up everywhere, public market, private market. And so you know, we are expecting, you know, some, you know, expecting increased revenues there. But that movement in the carry at NAV is super important. Because Pamela Lyn Bentley: you don't know when you're getting that Michael Jay Sacks: money, but you are gonna get it. And so tracking the asset matters a lot. And, you know, we that asset moved a bunch in Q4 even though we didn't collect a lot of cash. Crispin Elliot Love: Great. Thank you, Michael. I appreciate taking my questions. Operator: And at this time, there are no further questions. Stacie Driebusch Selinger: Thank you again to everyone for joining us today and taking the time. We appreciate the engagement in the questions. If there are follow-up questions, please feel free to reach out. If not, we look forward to speaking with you next quarter. And hope everybody has a wonderful day. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Welcome to the Quest Diagnostics Incorporated Fourth Quarter and Year End 2025 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and the question-and-answer session that will follow, are the copyrighted property of Quest Diagnostics Incorporated with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics Incorporated is strictly prohibited. I would like to introduce Shawn Bevec, President of Investor Relations for Quest Diagnostics Incorporated. Please go ahead. Shawn Bevec: Thank you, and good morning. I am joined by Jim Davis, our Chairman, Chief Executive Officer and President, and Sam Samad, our Chief Financial Officer. During this call, we may make forward-looking statements and we will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics Incorporated’s future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth, and adjusted earnings growth, are compound annual growth rates. Now here is Jim Davis. Jim Davis: Thanks, Shawn, and good morning, everyone. With diligent execution of our strategy and a strong fourth quarter, we generated double-digit growth in revenues and earnings per share for the full year. In 2025, we expanded our category-defining clinical innovation to meet robust demand, formed strategic collaborations with elite health care organizations, and further advanced our position as the premier lab engine powering the wellness industry. We also continue to improve quality, productivity, and the customer and patient experience with process enhancements, AI, and automation. As we look ahead to 2026, our guidance reflects our continued confidence in our business strengths and market fundamentals, which include favorable demographic trends, increasing use of blood-based lab diagnostics, and growing interest in preventative health and wellness. Now before I turn to this year’s highlights, I would like to take a moment to comment on PAMA. Last week, bipartisan legislation was enacted that delays the implementation of PAMA until 2026. This one-year delay in rate cuts was paired with an update to the data collection period to 2025 from 2019 based on the data to be supplied by applicable laboratories to CMS later this year. We greatly appreciate Congress for recognizing the need to reform PAMA and for providing this one-year delay of PAMA cuts, which provides meaningful short-term relief. However, these steps do not fix PAMA’s structural flaws, which include relying on an estimated 10,000 plus labs to self-report data to establish industry-representative data for payment rate setting. As a reminder, fewer than 1% of all the clinical laboratories reported commercial payer data to CMS in 2017, resulting in three rounds of excessive rate cuts based on data that did not reflect the market. A different approach is needed to prevent a repeat of excessive rate cuts. The RESULTS Act provides a common-sense long-term solution that corrects these deficiencies by, for example, eliminating the need for thousands of labs to self-report data and instead leveraging an independent third-party database that provides comprehensive and representative data to set accurate market-based rates. We will continue to work with our trade association, ACLA, to build on progress in securing the necessary support in Congress to pass RESULTS into law this year. Now I will provide more detail on how we executed our strategy across our key customer channels and operations during the quarter and the year. We are focused on delivering solutions that meet the evolving needs of our core clinical customers, physicians and hospitals, as well as customers in the higher growth areas of consumer, life sciences, and data analytics. In the physician channel, we delivered high single-digit organic revenue growth in the fourth quarter on broad-based demand for our clinical solutions, including several areas of advanced diagnostics, and from geographic expansion resulting from increased health plan access. We also grew revenues in enterprise accounts as we added new customers and extended business with existing customers. In addition, during the quarter, we scaled our lab testing to serve more than 200,000 patients at Fresenius Medical Care’s dialysis centers in the United States. We also added water purity testing capabilities to our menu to support dialysis customers nationwide. In the hospital channel, revenues grew low single digits with Collaborative Lab Solutions driving our growth in the quarter. Our CoLab Solutions harness our lab and process management expertise to optimize quality and drive cost efficiencies in areas ranging from hospital lab and supply chain management to analytics and blood utilization. At the start of 2026, we began to scale our CoLab Solutions across all 21 hospitals of Corewell Health, a leading health system in Michigan, and our largest implementation of these solutions to date. We expect CoLab Solutions to generate approximately $1 billion in annual revenue in 2026. Additionally, we recently finalized our laboratory joint venture with Corewell Health and are jointly constructing a state-of-the-art laboratory in Southeast Michigan from which we plan to serve the state in 2027. Hospitals value our flexible solutions for accessing expertise, innovation, and capital. We are pursuing several potential hospital outreach and independent lab acquisitions as well as CoLab opportunities while also continuing to integrate and generate value from our recent transactions. In the consumer channel, we are leveraging our diagnostics expertise and technology to drive growth through our consumer-initiated test platform, questhealth.com, as well as through collaborations with industry-leading wellness and wearables companies. In the fourth quarter, we expanded questhealth.com to offer more than 150 tests, including our new 85-biomarker Elite Health Profile. Our innovation, quality, and technology integrated into existing apps and experiences make us the clear choice for organizations seeking to add diagnostic insights to their offerings. And we added new consumer brands to our extensive roster of collaborations in the fourth quarter. At our Investor Day in March, we said that we would expect consumer-initiated testing to generate revenue growth in excess of 20%, and we exceeded that growth rate in 2025. Across the consumer channel, we delivered nearly $250 million in revenues for the full year. We enable growth across our customer channels through faster growing advanced diagnostics in five key clinical areas: advanced cardiometabolic and endocrine, autoimmune, brain health, oncology, and women’s and reproductive health. During the quarter and full year, we delivered double-digit revenue growth across several clinical areas of our advanced portfolio. I would like to highlight a couple of these innovations today. Our Analyzer solution provides a comprehensive yet simple approach for aiding the diagnosis of the eight most common autoimmune disorders. About 24 million Americans suffer from at least one of over 100 autoimmune disorders. Because symptoms of these disorders often overlap, and a shortage of rheumatologists exists nationwide, patients may go for years before receiving the correct diagnosis. Analyzer helps primary care clinicians identify the likely category of disease affecting the patient, and thereby speeding referral to the right specialist for faster diagnosis and treatment. In brain health, our portfolio of Quest AD-Detect blood tests for Alzheimer’s disease extended its year-long double-digit growth momentum into the fourth quarter as providers increasingly adopted the high-quality blood-based biomarker tests for the most prevalent type of dementia. A recent study by our scientific team suggests that blood tests like our newest AD-Detect panel, which fulfills guideline criteria for confirmatory blood testing, could decrease cost to the health care system by reducing the use of higher-cost PET/CT imaging for diagnosis, improving access and affordability. In oncology, we continue to build our presence in blood-based minimal residual disease testing. New research presented at ASCO GI in early January highlighted the strong clinical value of our Haystack MRD test in monitoring for colorectal cancer. We further expanded in the MRD space with the launch last week of our cutting-edge flow MRD test for blood-based cancer myeloma. This test enables ultrasensitive detection of residual disease in a blood specimen, sparing patients the pain and complications of conventional testing of bone marrow biopsies. Along with driving top-line growth across our business, we are focused on delivering operational excellence with enhanced processes and strategic implementation of automation, AI, and other advanced technologies. Through our INFIGURATE program, we achieved our full-year target of 3% annual cost savings and productivity improvements in 2025. Inside our labs, we deployed automated sample processing across our network and collaborative accessioning at multiple sites to streamline and optimize our processes. We also implemented the Hologic Genius Digital Diagnostic System at two of our laboratories and look forward to scaling this solution for enhancing quality and productivity in cervical cancer screenings at several of our labs this year. Outside the lab, we are using AI to make the customer and employee experiences easier, faster, and more insightful. For example, our virtual AI agent has reduced routine logistics calls by up to 50%, and we expect a new AI logistics tool will help us reduce courier transportation times as we roll it out this year. I will now turn the call over to Sam Samad for the financial results. Sam Samad: Thanks, Jim. In the fourth quarter, consolidated revenues were $2.81 billion, up 7.1% versus the prior year. Consolidated organic revenues grew by 6.4%. Revenues for Diagnostic Information Services were up 7.3% compared to the prior year, reflecting organic growth in our physician, hospital, and consumer channels as well as recent acquisitions. Total volume, measured by the number of requisitions, increased 8.5% versus 2024, with organic volume up 7.9%. Total revenue per requisition was down 0.1% versus the prior year. As a reminder, Corewell Health and Fresenius Medical Care deliver significant volume growth at a lower revenue per requisition than our company average. Excluding these two relationships, our organic volume growth accelerated to 4.1% in the fourth quarter, while our revenue per requisition growth remained solid at approximately 3%. Unit price remained consistent with our expectations. Reported operating income in the fourth quarter was $386 million, or 13.8% of revenues, compared to $361 million, or 13.8% of revenues, last year. On an adjusted basis, operating income was $429 million, or 15.3% of revenues, compared to $409 million, or 15.6% of revenues, last year. The adjusted operating income dollar increase was due to organic revenue growth and revenue growth from recent acquisitions, partially offset by wage increases. Operating income percent was reduced in the quarter by startup expenses related to Fresenius Medical Care and Corewell Health, as well as Project Nova expenses. Reported EPS was $2.18 in the quarter, and adjusted EPS was $2.42, compared to $1.95 and $2.23 the prior year, respectively. Foreign exchange rates had no meaningful impact on our results. Cash from operations was $1.89 billion for the full year 2025 versus $1.33 billion in the prior year. This significant year-over-year increase was driven by higher operating income, favorable working capital due to timing of disbursements, a cash tax benefit related to recent tax legislation, and the one-time CARES Act tax credit. As Jim said, we successfully executed on our strategy in 2025 to deliver these results, and we will continue to build on this as we progress through 2026. Turning now to our full-year 2026 guidance. Revenues are expected to be between $11.7 billion and $11.82 billion, which represents a growth rate of 6% to 7.1%. Reported EPS is expected to be in a range of $9.45 to $9.65 and adjusted EPS in a range of $10.50 to $10.70. Cash from operations is expected to be approximately $1.75 billion. Capital expenditures are expected to be approximately $550 million. Our share count and interest expense are expected to be consistent with 2025. This guidance reflects the following considerations. We assume approximately 6% to 7.1% in revenue growth, and this does not include any contribution from prospective M&A. The severe weather impact experienced in January 2026 is creating a greater headwind than what we experienced during the same period a year ago. We have contemplated the impact to date in our full-year guidance. We expect the seasonality of our business to be generally in line with last year’s and pre-COVID seasonality. Based on the passage of federal funding legislation last week, there will be no impact from PAMA in 2026. For Project Nova, our multiyear initiative to modernize our order-to-cash process, we expect approximately $0.25 of EPS dilution related to increased investment spend versus 2025. Operating margin is expected to expand versus the prior year. The CoLab relationship with Corewell Health will add approximately $250 million in organic revenue at low single-digit margins in 2026. We continue to make progress with our launch of 100 basis points in 2026 versus 2025. Our lower operating cash flow guidance in 2026 compared to 2025 reflects several one-time benefits in the prior year, and one more payroll cycle in 2026 than 2025. The one-time benefits in 2025 were approximately $150 million, and the impact of the one additional payroll cycle in 2026 is approximately $120 million. With that, I will now turn it back to Jim. Jim Davis: Thanks, Sam. To summarize, with diligent execution of our strategy and a strong fourth quarter, we generated double-digit growth in revenues and earnings per share for the full year. In 2025, we delivered category-defining clinical innovations that fulfill customer needs, formed strategic collaborations to create new growth opportunities, and further advanced our position as the premier lab engine in consumer health. Our 2026 guidance reflects our continued confidence in our business strengths and market fundamentals supporting enduring interest in our diagnostic innovations. Looking ahead, I am excited about our path forward. We are focused on connecting everyone, from clinicians to consumers, to illuminate a path to better health, and are well positioned to serve growing interest in accessing the health insights that only laboratory diagnostics can deliver. Quest Diagnostics Incorporated sits at the center of health care as a trusted provider, and that is because of the dedication of our nearly 57,000 colleagues to living our purpose—working together to create a healthier world one life at a time. I would like to close by thanking each of my colleagues for what we accomplished together in 2025 and for their ongoing commitment to transforming lives for the better in the years ahead. Now we would be happy to take your questions. Operator: Thank you. We will now open for questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you fall back in the queue. To be placed in the queue, please press 1 from your phone. To withdraw, press 2. Again, to ask a question, please press 1. Our first question comes from Luke Sergott with Barclays. Your line is open. You may ask your question. Luke Sergott: Great. Thanks for the questions, guys. I guess, as you are looking for 2026, can you just give a sense of what the underlying growth drivers are as you think about, or the assumptions on the growth drivers as you think about, like the consumer piece, new tests as you think of MRD coming on, potential reimbursement there, chronic disease management, etcetera, you know, just kind of break it out as to what you guys are thinking as we kind of bridge that build. Yeah. Jim Davis: Hey. Good morning, Luke. I think you touched on most of those. Look, we expect the organic growth to remain strong as Sam indicated. I think from a testing standpoint, we are seeing tremendous uplift in our Alzheimer’s portfolio of tests. Those include the Aβ42 and several p-tau markers, as well as our algorithms that assess the likelihood of disease. Our autoimmune testing, as I indicated in the script, is again very, very strong. The new diagnosis rate of autoimmune disorders continues to grow. Diabetes continues to grow. Cardiovascular testing—and not just the routine testing. The more advanced testing, what we call CardioIQ that includes Lp(a), ApoB, insulin resistance. All of those doing very, very well. Some of that being generated by the consumer segment. Our own questhealth.com just saw tremendous growth throughout last year. The partnerships that we developed with WHOOP, with Oura, with Function Health, with several other types of wellness companies. All of that helping. The last thing I would mention is, you know, we got back into network with Elevance in several key states last year, Nevada, Colorado, Georgia, and Virginia. And I would still say we are in the early innings of winning our fair share in those states. So all of that continues to just, you know, propel the organic growth as we enter this year. Luke Sergott: Great. And then a follow-up here. As you think about 1Q, you talked about the bigger weather impact, that headwind. You think about, like, consumer ramping and just from a pacing perspective, how are you guys thinking about 1Q and then how that ramps throughout the year? Jim Davis: Yes. Let me just comment on the weather impact. It was a tough January versus last January. But the good news is it was in January. So we have the rest of the quarter, the rest of the year to make it up. Now you know, we cannot predict the weather in the last six weeks of the quarter here. But what I will tell you is, you know, the first three, three and a half weeks of January were very strong, very strong growth. And so we are convinced that the majority, or some portion of it, comes back. You know, whether it is 30%, 40%, it is hard to predict. The general health and wellness types of work always come back to us. Some of the episodic work, if people were getting tests every two weeks for some chronic care condition, maybe they missed that appointment. But the other thing I would tell you is we have really good systems in place today to track the appointments that were canceled, to track the appointments that we canceled because we could not open our patient service centers, and we continue to remind patients that they missed their appointment, and we see nice uptick from those reminders in terms of patients rescheduling. In terms of the pacing of the quarter, I will let Sam comment on that. Sam Samad: Yes. So Luke, I would echo, first of all, the comment that Jim made around very strong utilization in January, and then we had some historically bad storms across the country that impacted the month. But we are still confident about the recovery in the quarter, and what we are seeing is also that strength coming back. But in terms of seasonality, you know, I think what you should expect is something similar to what we saw last year in terms of pacing across the quarters over the full year and something similar to what we saw pre-COVID seasonality. If you go back before 2020, specifically referring to the 2019 period, that type of seasonality is very, I would say, consistent in our business. It was during COVID. But if you compare it to 2025, I think the seasonality is very similar in terms of how you should think about the pacing. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Erin Wilson Wright with Morgan Stanley. Your line is open. You may ask your question. Erin, your line is open. Please check your mute feature. Hearing no line, this is the Operator, let us go to the next question. Yep. Thank you. Our next question then comes from Patrick Donnelly with Citi. Your line is open. You may ask your question. Patrick Donnelly: Hey, guys. Thank you for taking the questions. Sam, probably one for you. Just want to talk through the moving pieces on the margins. And it seems like a lot is going on in 2026 between Corewell, Project Nova, Haystack. An extra week of payroll, which you mentioned. It does sound like they will be slightly up year-over-year, so can you talk through the impact, a little bit of a bridge, if you are able to? And then the cadence, it sounds like typical seasonality. I know typically 2Q is the highest. It would be helpful just to talk to the cadence and then the moving pieces on the margin if you are able to quantify, that would be even better. Thank you, guys. Sam Samad: Yeah. Thanks, Patrick. So let me go through all the moving parts here, at least the moving parts that we have in 2026. First of all, let me just say operating margin is expected to increase in 2026 versus 2025. So that is the starting point here in terms of how you think about 2026. It is impacted somewhat negatively by the ramp of Corewell and Fresenius businesses, mostly Corewell actually, in terms of the roughly $250 million of Corewell revenue increasing in 2026, which comes at a lower margin. It is a CoLab business. It is low single-digit margin in 2026, improving to, you know, normal CoLab margins later in 2027 and beyond. But in 2026, it is impacting operating margin rate. It is very good business. It is $250 million in terms of additional revenues, but at low single-digit margins this year. So that is impacting the operating margin rate expansion, but even with that, operating margin rate is improving. Obviously, we have very strong organic volumes. The 6.6% at the midpoint guide that we have given is mostly organic growth. It is almost all organic growth. Actually, there is only about, you know, roughly 15 basis points of M&A carryover in that. So think about it as all organic growth and driving margin expansion. In terms of price impact, again, another piece of the story here. Price is relatively flat year-over-year, consistent with our expectations and consistent with what we have been seeing in practice over the last couple of years. So no negative impact from price, roughly flat within that plus or minus 30 basis points that we have talked about. In terms of Haystack, Haystack is less dilutive in 2026, so it is actually helping. You know, that is consistent with what we have shared in terms of 2026. So the test is ramping, good volume ramp that leads to less dilution on Haystack. And then, you know, you have, as an offset, Project Nova. We have quantified that in the guide that we provided. It is roughly $0.25 of incremental expenses in 2026 that is impacting our margins. So that is going to happen across 2026. It started to ramp more significantly in Q4 of 2025, and it is going to continue in 2026 as we stated prior, and we have quantified it now for 2026. In terms of seasonality, the last thing I think that you asked, Patrick, and then I will hand it over to Jim who wanted to add a couple of comments. But seasonality, consistent with what we saw last year. But if you think about it in terms of maybe more specific terms across the quarters, you know, Q1 is usually our weakest quarter, as we say, in terms of EPS contribution to the year. Q2 is the strongest quarter. Q3 is a step down from Q2, and Q4 is a step down from Q3. In terms of seasonality, first half, second half, I think you should expect somewhere just north of 49% in the first half and just north of 50% in the second half in terms of EPS contribution for the full year. That is just giving you more specifics. That is the seasonality pacing. Jim? Jim Davis: Yeah. Patrick, a couple of other things that are enhancing the margins, margin rate. One is our consumer business. We mentioned in the script, it is a $250-ish million book of business that continues to grow at 20%. Remember, with that business, there are no denials and there are no patient concessions or bad debt. It is definitely a help from a margin rate standpoint. We continue to grow that business north of 20% relative to the portfolio growing 6% to 7%. The other thing I would mention is LifeLabs in Canada. The margin rate continues to improve. We said by year three it would be at the company average, and it is definitely heading in that direction, very close to that. And as that margin rate of that business continues to improve, it will help our margin rate as well. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Michael Cherny with Leerink Partners. Your line is open. You may ask your question. Michael Cherny: Good morning, and thanks for taking the question. Maybe if we can talk about the competitive environment as you see it, and you talked obviously about above-expectations organic growth. Some of these are contract-oriented. As you think about the current health of the market, think about where you sit across the hospital labs and an environment where you continue to have different types of partnerships, where do you see your biggest competitive strengths as you kick off in 2026 and 2027? And how much of the expectations for organic growth are, for lack of a better term, share gain? Jim Davis: Yeah. Hey, Michael. Look. I think there is absolutely share gains in the organic growth that we saw in 2025, and I think it will continue into 2026. As I mentioned, getting back into network in those key states with Elevance, that is all share gain in those states. I did not mention Sentara, but Sentara is a big health system health plan in the Southeast along the Atlantic Coast. We are back in network with them, and that has been a tremendous help. Look. Our strengths are simply our national coverage. We have over 1,200 sales reps out there positioned with primary care, with all of the various channels. And that really helps when it comes to positioning our autoimmune testing, our brain health testing, our cardiometabolic testing. Having that broad national coverage really, really helps. Now in terms of, you know, everyone wants to make a lot about, you know, Quest and our nearest competitor. But I have to tell you what. Quest and our nearest competitor are probably less than 30% of the market. So I think we are making inroads versus hospital outreach. I think we are making inroads against physician office labs. And, you know, perhaps these big health systems are just, you know, not going after that business as strongly. They have other things to invest in. They have other priorities, other investments that generate higher returns than laboratory testing. So I think we are capitalizing on those trends. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Kevin Caliendo with UBS. Your line is open. You may ask your question. Kevin Caliendo: Hi. Thanks for taking my question. What are you guys seeing in terms of the HIX now that we have further visibility? Is that sort of in line with your original expectations around the potential impact? And just a clarifying question around volumes. I appreciate that you are now including Fresenius and Corewell in this, but if we were to take that out, what would your organic volumes have been in Q4? Sam Samad: Sure, Kevin. Let me comment on both, and Jim can add color as well. But first, on the health exchanges, I will remind you about what we modeled and what our expectations are. We modeled a 30 basis point impact on revenue growth from the exchanges. And that is factored into our guide for the year. So that was our modeling, and that is what our expectation is. Now in reality, what we have seen in terms of enrollments has actually been better than expected. It is early days to measure utilization as a result of that and what the loss of utilization is off of the enrollments. But I would say we are encouraged by what we saw so far in terms of by the end of the year and also what we saw in January in terms of enrollment. Now, again, we need to see the mix of those enrollments of potentially patients going to higher-deductible plans, bronze plans versus gold plans. I mean, there are a lot of moving parts there. And it is very early days to be able to say, you know, this is really encouraging. But so far, based on the enrollments, we have seen it better than expected. In terms of Fresenius and Corewell. Listen. Corewell is all organic growth. It is a CoLab relationship. It is all organic growth. Fresenius is mostly organic growth as well. In terms of Q4, where our DIS business grew by roughly close to 8% organically in terms of volumes, the volume growth ex-Fresenius and Corewell was just over 4%. So, basically, from a volume perspective, they had a sizable impact because the nature of the Fresenius business specifically, and to some extent Corewell, but more so Fresenius, is it is very routine business, very high-volume business that is done on a very regular basis. It is a lower rev-per-rec business, still very profitable, based on the fact that we do not do draws. We do not incur as much cost. It is a high-volume business. The impact on revenue in Q4 was much less. It was just less than a percent. So our organic revenue growth was 5.6%, excluding those two businesses, and it was 6.4% in total. Jim Davis: Kevin, the other thing I would point out is, in addition to the 4.1% organic growth when you strip out Fresenius and Corewell, we also had 3% organic rev-per-rec lift. And, again, that is coming from price being stable, number one. Number two, the continued test-per-rec increase we are seeing. Some of that coming from the mix of our consumer business, so all of that just continues to point to strong organic revenue growth that we are seeing. Operator, next question. Operator: Thank you. Our next question comes from Jack Meehan with Nephron Research. Your line is open. You may ask your question. Jack Meehan: Thank you. Good morning, guys. Jim, wanted to ask you about how you see PAMA playing out this year. So we do have the survey coming up from May through July. I assume, like, are you ready to participate in that? And do you think this data ultimately is read out later in the year and could inform rates in 2027? Jim Davis: Yeah. So first check, we are really thankful that we got a delay for the sixth year in a row. And I think that is reflective of the fact that Congress feels that the original methodology was flawed and it led to excessive cuts, and that is why we got the further delay. As you indicated, they moved the data collection from 2019 to 2025. And, yes, we are absolutely prepared to report. The problem, Jack, is I am not sure the other 10,000 labs—maybe there will be a few—are prepared to report. So if we end up with less than 1% of the labs reporting, like what happened before, it is just going to lead to inaccurate market-based pricing. So that is why we continue to push the RESULTS Act. And we remain optimistic that the Act will get, for lack of a better word, acted on this year. There was a hearing on January 8 with the Energy and Commerce Committee, the Health Subcommittee. Our ACLA president testified at that meeting. There are over 65 cosponsors of the bill. And as you know, under the RESULTS Act, that leads to a different type of data collection process, one that uses a third-party database. There are many third-party databases out there. The one we have recommended represents a sample of over 80% of the adjudicated laboratory reqs, and we think that is going to be a much better indicator of what the market price will be. And when you mix in, you know, the roughly 9,800 labs that failed to report the last time—and those are labs that are primarily hospital outreach labs, physician office labs, other smaller independent labs—when you mix all that data into the two largest national labs, we think it is good news for the calculations related to the absolute market rate of the testing that is out there today. So we are optimistic, but we are going to keep pushing it hard in the first, you know, six months of this year and hopefully get it done before the fall. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Erin Wilson Wright with Morgan Stanley. Erin Wilson Wright: Great. Sorry for the issue earlier. But can we dig into some of the consumer testing dynamics in the environment that you are seeing? You have launched several new partnerships, new initiatives, WHOOP, Oura, Function Health. Can you speak to some of the sustainability of growth across this segment, the margin profile? Are you seeing anything new or different in terms of consumer utilization trends across this segment? And how should we think about what is embedded in guidance in 2026 on this front? Thanks. Jim Davis: Yeah. So thanks, Erin. We remain very optimistic about this. This is all about consumers who are interested in their own health. They are interested in prevention. And as you know, prevention is not about waiting for symptoms. Prevention is doing some things before diagnosis, doing something before symptoms set in. Let me start with the wearable companies. I think this notion of linking your biometrics with your biomarkers so that you understand the influence of those biometrics—whether it is sleep, nutrition, movement, heart rate variability, pulse—you can create these correlations between those biometrics and your biomarkers, ultimately giving feedback to the consumer on what they need to do in order to improve their biomarkers. And I think these wearable companies are really on it, and we are seeing nice lift from, still very early with both those companies, but we are seeing nice lift. I think some of our value-added resellers that are providing, let us just say, other value-added medical guidance to the laboratory testing that we do for them, I think it is serving the need, honestly, that consumers cannot get or are not getting from their physicians. Many of the tests on these panels will not be covered by normal health plans under normal conditions, under normal general health and wellness testing. And yet these same tests are covered if the patient is sick. So again, people are worried about prevention, not waiting until they get sick to get these types of tests. So, you know, look. We are looking at the renewal rate of these companies. Many of these value-added resellers are subscription based, and we look at the renewal rates, and we are positive about what we are seeing. The last thing I would leave you with is our own questhealth.com channel is on a $100 million run-rate business right now. And we continue to see nice uptick there. And it is not just in the wellness panels that we offer on questhealth.com, but there is a lot of what I call episodic testing that occurs. This could be allergy testing, tick testing. This could be diabetics who just want to check their A1c. It is a lot of STD testing. So our own channel continues to grow very nicely, and we certainly look at the repeat business of our own consumers and are happy with it. Sam Samad: Maybe I will add a couple of comments, Erin, just on the financial side. So, you know, with regard to the direct-to-consumer that Jim just mentioned, the questhealth.com, we have talked about that business growing somewhere in the 35% range over the course of the year, and that is in fact where it ended. It is approximately 35% for the full year 2025. So that business is really doing very well. And then if I think about the direct-to-consumer, but also the partnerships that we have and the partnerships are wearables and other wellness companies, etcetera. We have a vibrant ecosystem there that we are supporting and that we are the engine for. You know, the margin rates on those businesses, both direct and the other collaborations that we have, is an attractive margin rate above our corporate average because basically, it is simple. It is all cash pay. We do not have patient concessions. We do not have denials. So that business has an attractive margin profile. You asked about guidance for 2026. I am not going to give you a specific number, but all I will say is that the greater than 20% growth, in terms of a CAGR over the long term, we still feel very confident about in terms of consumer and these other high-growth businesses that we called out during Investor Day. And the expectation this year is that we are going to continue to sign up new partners as well in collaborations because we are powering a whole ecosystem here. Operator: Our next question comes from Michael Ryskin with Bank of America. Your line is open. You may ask your question. Michael Ryskin: Hey, thanks for the question, guys. I want to go back to Corewell and Fresenius contribution in 2026. Just given that it is organic amounts of traditional M&A basket. But I also want to focus on margin opportunity and the ramp there over time. I know you talked about sort of dilutive to margins and price in 2026 and improving over time. Could you just walk us through the ramp and what gets you there? Just sort of give us a sense for the time frame for both of those businesses going beyond this year? Thanks. Jim Davis: Yes. I think it is pretty straightforward, Michael. On Corewell, we said it is a $250-ish million book of business for us in 2026. And we said that would start out at low single-digit margin rate. As we get into 2027, we expect that to be in the low teens. Fresenius, the margin rate will continue to improve through the end of the year. And by the end of the year, we expect that book of business to be at or slightly above the company operating margin rate average. Michael Ryskin: Great. Okay. Okay. And is that the— Operator: Next question. Michael Ryskin: Go ahead. Go ahead, Michael. Go ahead. Sorry. Just real quick. Is that, when we think about the moving pieces to the margins in 2026, you talked about margins will grow this year. But it sounds like it is a little bit less than we would have expected in prior. Is that the biggest swing factor? Is there something else that we are keeping in mind for margins this year? Sam Samad: I think the Corewell one is the biggest swing factor, given the fact that it is a $250 million incremental business at low single-digit margin. So that is definitely a swing factor. Fresenius, as Jim mentioned, I mean, think about it as kind of a somewhat similar profile to a physician outreach acquisition where it starts out below the margin average. You know, we have got integration costs. We have got some setup costs. And then over time, maybe it takes longer than a typical physician outreach acquisition. But over time, it improves. And by the end of the year, I think we will be at the average. The only other thing I would point to, which I mentioned earlier when I answered Patrick’s question, is Nova expenses and the fact that we have an incremental $0.25 of Nova expenses in 2026. But, you know, we still have a healthy operating margin rate expansion, impacted to some extent by the Corewell growth. But Corewell will ramp over time to improve to normal CoLab margin rates. Operator: Our next question comes from Tycho Peterson with Jefferies. Your line is open. You may ask your question. Tycho Peterson: Hey. Thanks. Couple on oncology. So, Haystack, you have got the PLA reimbursement. You have MolDX decision effective January 1. Maybe just touch on the path to getting commercial coverage, Medicare Advantage, some of the next steps we should be thinking about on the back of MolDX. And then on the flow cytometry-based MRD, I am just curious how you think about the value proposition there. Obviously, more of that market is moving towards sequencing-based tests. And then just lastly, are you baking anything in for your multicancer risk stratification test launching this year? And what about the partnerships with Guardant and GRAIL? Thanks. Jim Davis: Yeah. So there is a lot there, Tycho. Look. With respect to Haystack reimbursement, Novitas is the MAC that we submit to, and it did receive a PLA code. It received reimbursement. We continue to adjudicate through Novitas and are successful there. With respect to Medicare Advantage, we are still waiting on the MolDX tech assessment. Once that tech assessment is complete, we will be well positioned with the Medicare Advantage plans. And then, you know, look. We are having ongoing discussions with all the major payers in terms of commercial reimbursement. In some cases, we get paid. In other cases, we do not. In some, you know, we bill them all. We have doctors write letters around medical necessity. And we continue to make progress on that. The flow MRD is an ultrasensitive flow test that has incredibly good sensitivity and specificity, and we think it is very, very competitive with next-gen sequencing-based tests. We are very confident of that. We will continue to do studies to show that. The value proposition is really around speed. So as you know, patients with myeloma, you know, that disease moves very, very quickly. Speed is of the essence. And we can get an answer back within three days. It is also a significantly lower-cost test. So from a reimbursement standpoint, it will offer payers a choice. It will offer physicians and patients a choice to have a test that is highly comparable with the next-gen sequencing test at, again, a turnaround time that is very, very short—three days, not weeks—and with, again, ultra-good sensitivity and specificity. In terms of the multicancer early detection test, yes, we have a partnership with GRAIL. We will do the blood draws for GRAIL. We have listed it in our test compendium. And GRAIL obviously pays us to do those draws and handle the logistics for them. And then, we did announce a partnership to draw for the Guardant colon cancer-based blood screening test, and that will be underway later in the first quarter. Sam Samad: Yeah. And from a guidance perspective, Tycho, the partnerships with GRAIL and Guardant are reflected in our guide. They are a modest contribution in terms of the percentage of the total. The risk stratification test is, again, very modest. It does not launch until later in the year. So, we are excited about that launch. Operator: Our next question comes from Andrew Brackmann with William Blair. Your line is open. You may ask your question. Andrew Brackmann: Yeah. Hi, guys. Good morning. Thanks for taking the question here. So, Jim, maybe a big-picture question for you, sort of related to the opportunity for Quest Diagnostics Incorporated in monetizing the data that you generate. You know, you obviously generate quite a bit of it. So as you sort of think potentially about monetizing some of this longer term or maybe even partnering with some of these AI companies to further unlock that value, what are the things that you are putting in place today to maybe go after that opportunity? Thanks. Jim Davis: Yeah. The data business has been a nice business for Quest. It is growing double digits. It has been growing double digits for the last several years. There are multiple customers when we think about who are the customers for that data. Number one, the pharmaceutical industry, whether it is targeting clinical trials, targeting patients with certain conditions—you know, type 2 diabetes, you name the condition—pharma turns to us to look for patient cohorts. We give patients, when they are getting a blood draw, the option to make their names available for clinical trials, and that has been very successful as well. The payers tend to be a very good customer of this data. As an example, you know that people switch from Medicare Advantage Plan to Medicare Advantage Plan. If a patient switches from Plan A to Plan B, Plan B will come to us and ask us for previous lab data, lab history, of that patient so they can quickly understand what chronic conditions and other issues that that patient may be dealing with. Then I would say the public health agencies are also customers. You know, there are certain tests that we, certain results that we have to provide public health agencies, including the CDC. But very often, these public health agencies come to us and want to understand, you know, viral conditions, STD outbreaks, and things like that, and we highlight to that. I will say we have partnerships with several different AI-based companies that we are working with to better use the data to provide health insights and other population health insights to all the constituencies that I mentioned above. Operator: Thank you. And this question comes from Elizabeth Anderson with Evercore ISI. Your line is open. You may ask your question. Elizabeth Anderson: Hey, guys. Good morning. Thanks for the question. I just had two modeling questions. One, and I apologize if I missed it, but can you just highlight the Elevance and Sentara reinclusion in their networks and sort of the impacts you think that that will put through in 2026 volumes? And then in response to Luke’s question, I understand that core volumes are continuing to be strong. I just did not quite understand whether you were calling out that there was any weather impact from the cold weather and storms in January. So I just want to make sure I have that down exactly. Thank you. Jim Davis: Yeah. So, again, on Elevance, we mentioned in 2025 we got back in network in the states of Nevada, Colorado. We were partially in network in Georgia, but we were not in network with all of their plans. So back in Georgia and Virginia. And, you know, let us just say it is a three-year ramp from our current share position with other health plans to get to that same level with Elevance in those states. So we are now in year two. So we expect continued share gains with that. Sentara, as you know, is a health system in Virginia, and it has its own health plan. And we are the only one in their network on their health plan side, so we will continue to get share gains in Virginia, and the health plan actually goes even further south. So the health plan extends beyond just the Virginia border. So we are excited about that as well. Sam Samad: With regards to weather, Elizabeth, what we said is the weather impact was significant in January, but it is embedded in our guide for the year. So, as we think about the year itself and the seasonality, we expect the seasonality to be similar to what we saw last year, even with this weather impact that we saw in January, which was actually worse than January 2025, which in itself was pretty bad. But we had some pretty bad storms across the country in January. We do expect some recovery in the next two months or the next month and a half remaining in the quarter, and we have seen the underlying utilization has been very strong. So, we are encouraged by that. Operator: Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. You may ask your question. Benjamin Shaver: Hey, guys. You have got Benjamin Shaver on for Pito. Thanks for taking the question. Just a quick one on 2026 guidance. How should we think about the price-per-rec versus requisition growth assumptions as it pertains to that? And also within the pricing assumption, how does the test-per-rec versus unit pricing play out? Thanks. Sam Samad: Yeah. So we are not going to provide the specific guidance around revenue per requisition. We usually do not. We provide revenue assumptions in terms of the guide. On a qualitative basis, I will tell you the impact that we talked about with regards to the high-volume impact from Fresenius at a lower revenue per rec, still very profitable business, but that will impact revenue per rec as a total in 2026. If you look at it excluding those two businesses, Corewell and Fresenius, I think the rev per rec will be consistent with what we have been seeing. But those two businesses, Corewell and Fresenius—and mostly Fresenius—will impact rev per rec negatively, as we saw in Q4. In terms of the other factors within revenue per requisition, I think the key thing that you should factor in is the fact that we continue to see tests per rec improve. We saw that across all of 2025. And that improvement is driven by a number of factors, whether it is the advanced diagnostics, more options for early screening, both cancer and other disease states, guidelines evolving, and physicians really gravitating towards more testing. So all of those continue to play out, and we are still encouraged by, definitely based on what we saw in Q4, continued growth of tests per rec and what we expect to see in 2026. Operator: Thank you. And this question comes from Eugene Park with Baird. Your line is open. You may ask your question. Eugene Park: Hi. Can you hear me? Operator: Yes. Go ahead. Eugene Park: Hi. Thanks for taking my question. Can you quantify the impacts on setting up Fresenius and Corewell? And maybe break out the Project Nova cost in Q4? And if you can elaborate more on how much setup, if there is any left to do, and you can provide more color on Q1 2026 on potential impact. Sam Samad: Yeah. So I think I heard most of your question. If I did not catch all of it, please correct me. But in terms of Q4, without quantifying the exact impact, because I do not want to get into quantifying every single quarter the impact of Nova and also Fresenius, Corewell. All I would say is there was a significant impact from the setup expenses of Fresenius and Corewell because we are standing up these businesses. There are integration costs. You know, there is a lot of cost when you initially set up these new partnerships, both the CoLab partnership and, in the case of Fresenius, a new partnership across dialysis testing. And then Nova, we had also expenses in Q4. We had previously called out the fact that with the delayed signing of the contract with Epic, we had some expenses that got pushed out into Q4, and that is in fact what played out in the quarter. As you think about next year in terms of specifically Nova, we called out roughly $0.25 impact from Nova expenses in 2026. So when you think about 2026, the impact is roughly $0.25. The way I think about it is fairly even in terms of quarterly impact across the quarters. Maybe slightly more in the first half than the second half, but not materially. So, you know, I think you can model it fairly equally across the quarters. Operator: Okay. Thank you. And I would like to thank everyone again for joining the call today. Certainly appreciate your continued support. Have a great day, and stay healthy. Operator: Thank you for participating in the Quest Diagnostics Incorporated Fourth Quarter and Year End 2025 Conference Call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics Incorporated’s website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at (866) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 AM Eastern Time on 02/10/2026 until midnight Eastern Time, 02/24/2026. Goodbye.
Operator: Good morning, and welcome to First Quarter Fiscal 2026 Earnings Results Conference Call. My name is Kevin, I will be your operator for today's call. At this time, I would like to inform you this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's remarks. I will now turn the call over to Felise Glantz Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed. Felise Glantz Kissell: Thank you, and welcome to Aramark earnings conference call and webcast. This morning, we will be hearing from our CEO, John J. Zillmer, as well as our CFO, James J. Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the Risk Factors, MD&A, and other sections of our annual report on Form 10-Ks and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP can be found in our press release and IR website. With that, I will now turn the call over to John. John J. Zillmer: Good morning, everyone, and welcome to our fiscal first quarter earnings call. Thank you for joining us. We are very pleased with the strong results delivered in the quarter. Even when considering the calendar shift referenced in the earnings release, the company has significant business momentum, which Jim and I will share in greater detail. We believe we are well positioned to record record-breaking financial performance driven by our growth mindset, operational discipline, and unwavering commitment to service. We are seeing multiple positive growth trends throughout the organization, including extraordinary client retention in both FSS US and International, levels we have never seen before achieved at this point in the fiscal calendar, combined with significant new client wins already awarded to us early in the fiscal year, particularly in healthcare, education, and corrections within the US, and in sports, mining, and energy within International. Substantial new business opportunities are immediately upon us, giving us great confidence in reaching our net new target of 4% to 5% in fiscal 2026. And lastly, adding new purchasing spend in our global supply chain GPO network within hospitality areas such as theme parks, hotels, and now cruise lines, in addition to benefiting from increased volume and scale occurring more broadly at the company. In the first quarter, organic revenue for Aramark grew 5% to $4.8 billion and would have increased approximately 8% if not for the calendar shift. Growth resulted from both strong base business and net new business. We expect performance acceleration to occur as we successfully onboard a record level of new account wins combined with maintaining the unprecedented retention levels I just mentioned. Notably, this does not factor in sizable new client wins which would drive our business momentum even further and we are expecting those to begin this fiscal year. Moving to the business segments, FSS US organic revenue increased to $3.4 billion, or 2%. It is worth highlighting that the segment would have grown approximately 5% if not for the calendar shift, which primarily affected education. Of course, this growth will simply be recaptured in the second quarter as part of our results, ultimately having no impact on the full year. Top-line revenue growth drivers in the quarter were led by workplace experience, which delivered a seventeenth consecutive quarter of double-digit growth from launching significant new business wins in addition to strong holiday catering activity. Refreshments mobilized new accounts at an accelerated rate, and identifying additional growth opportunities from an integrated enterprise-wide strategy. Healthcare experienced strong base business, specifically from vertical sales success and the expansion of multi-service offerings. Sports and Entertainment expanded our college football portfolio by providing a pro-level hospitality experience where alcohol unit sales are now becoming comparable to NFL stadiums. And Corrections continue to add statewide systems as our Into Work program is nationally recognized for the ability to provide pathways for education, career development, and rehabilitation. Just last week, we successfully launched operations at Penn Medicine, the largest contract win ever in the US, as you recall. As the fiscal year progresses, we will continue to roll out services across Penn Medicine's nearly 4,000-bed, seven-hospital system, including patient and retail food service, environmental services, patient transportation, and an integrated call center to support operations. I am extremely excited to announce that our success in demonstrating Aramark's enterprise-wide capabilities and collaboration resulted in our newest healthcare win, RWJBarnabas Health, the largest, most comprehensive academic health system in New Jersey, covering eight counties serving over 5 million people. RWJBarnabas Health has 18 primary locations with 5,700 beds. Anticipated to launch this summer, we will support their patients in retail dining, environmental services, and patient transport. This represents one of the largest contracts awarded in healthcare in recent history. Other clients added to the portfolio include the University at Albany, where we began operations this semester to redefine the student dining experience through innovation, inclusivity, and community engagement, as well as a new statewide relationship with the Alabama Department of Corrections to deliver food services, integrating our proprietary AI platforms for menu planning and operational efficiency across 27 facilities. As you can see, we are already off to a great start for the fiscal year in new account wins. We anticipate the US growth trajectory to benefit from strong new business, high retention rates, and increased volume growth. Once again, International delivered outstanding results with revenue reaching $1.5 billion in the first quarter, an increase of over 13% year over year on an organic revenue basis, with International revenue results largely unaffected by the calendar shift. International reported a nineteenth consecutive quarter of double-digit growth, maintained an exceptional client retention level, and every country contributed to revenue growth in the quarter with the UK, Spain, Germany, and Chile leading the way. New business in the first quarter within International included the Welsh Rugby Union, highlighted on the last earnings call. In just a few days, we will be serving 74,000 fans at Principality Stadium, the largest stadium in Wales and the fourth largest in the UK, and the location for the upcoming highly attended Six Nations Rugby Championships. We were also awarded copper mining and state-owned giant Codelco and other meaningful mining contracts in Latin America. The International team achieved well over 100 core account wins in the first quarter, providing us with the ability to establish additional business development and operational scale in the countries we serve. Now for an update on global supply chain. Performance was strong in the quarter as the team is focused on growing and optimizing spend and offering products, services, economics, analytical insights, and sourcing solutions for our clients. Inflation continues to actualize in the range we anticipated, with all global regions in line or favorable to our assumptions. We remain highly committed to GPO growth and are actively pursuing meaningful opportunities. Double-digit growth propelled well over $20 billion worth of contracted spend as we expand business in International regions, increase penetration in adjacent hospitality areas, and further scale through select strategic acquisitions. AI-driven technology continues to differentiate our supply chain and GPO capabilities, delivering back-end efficiencies and actionable business insights. Tools such as mobile AI chatbots and AI-enhanced analytics provide GPO clients real-time visibility into their business. Our own internal supply chain operations AI systems are accelerating back-end efficiency and productivity gains. Before handing over the call to Jim, I want to reiterate our confidence and realize the numerous growth opportunities ahead for the business this fiscal year, driven by the strategic and operational initiatives underway at the company. Our success comes from the teams throughout the organization and around the globe who show up every day with purpose, serving with integrity, solving problems with ingenuity, delivering consistent excellence. Jim? James J. Tarangelo: Thanks, John, and good morning, everyone. We are off to a great start to fiscal 2026. The unprecedented levels of success with our annualized gross new wins and client retention last year have built the foundation for our strong outlook, and we believe we are well on track to deliver on our financial targets for 2026. More importantly, this momentum in the business has continued; we are extremely excited about our growth prospects going forward. I will now provide some insights into our first quarter financial performance before reviewing our expectations for the second quarter as well as for the overall fiscal year. Just to level set regarding the calendar shift, as a reminder, our fourth quarter fiscal 2025 had a fifty-third or extra week. While this has no impact on our full year 2026 results, it does affect the cadence of quarterly comparisons. Due to the fifty-third week in 2025, each quarter in 2026 starts and ends a week later than the comparable quarter last year, shifting strong activity and low activity weeks between reporting periods. With that context, as John mentioned, organic revenue growth in the first quarter was up 5%, on track with what we anticipated. As we discussed on our previous earnings calls, we expected the calendar shift to have a 3% to 4% unfavorable impact on growth; in the first quarter that is exactly what occurred, as the estimated impact of this shift was approximately $125 million, or about 3% on revenue. Excluding the impact from the calendar shift, organic revenue growth in the quarter would have been up approximately 8%, at the high end of our long-term growth algorithm. Now for the second quarter, we have the opposite occurrence in that a low-activity week falls out of Q2 and is replaced with a strong-activity week. We estimate the positive effect of this shift to be a benefit in a similar contribution of about 3% on revenue. Turning to profitability in the quarter, operating income was $218 million, up slightly versus the prior year. Adjusted operating income was $263 million, up 1% on a constant currency basis compared to the same period last year. The calendar shift reduced AOI by an estimated $25 million. AOI growth would have been approximately 11% without the calendar shift. The quarter benefited from higher revenue levels, the leveraging of technology capabilities, particularly in supply chain, and disciplined organizational cost management. Now to the business segments, US had AOI at a 1% decline compared to the same period last year, with a calendar shift impacting growth by an estimated 10%. The US AOI growth would have been approximately 9% without the calendar shift. The workplace experience group, refreshments, and corrections had strong performance in the quarter, driven by revenue drop-through, enhanced technology driving efficiencies, and supply chain productivity and above-unit cost management. The International segment had year-over-year AOI growth of 12% on a constant currency basis. Profitability growth was led by strong results in the UK, Spain, and Chile, which is partially offset by some mobilization costs in a couple of countries from new business within Sports and Entertainment and Higher Ed as well as a slight impact from the calendar shift. Moving to the remainder of the income statement, interest expense was $81 million, and the adjusted tax rate was approximately 25%. Our quarterly performance resulted in GAAP EPS of $0.36 and adjusted EPS of $0.51, with a calendar shift impacting adjusted EPS growth by approximately 13%. Regarding cash flow, as expected and consistent with our typical first quarter cadence, we saw a cash outflow that reflects the natural seasonality of the business. This increased compared to the prior year due to greater working capital use driven by strong growth in the business. Capital expenditures were higher from the timing of commitments associated with sizable new business wins and certain client renewals. We continue to advance our capital allocation priorities by repurchasing another $30 million of Aramark shares as part of our share repurchase program. We also took steps to optimize our financial flexibility by proactively repricing $2.4 billion of 2030 term loans at lower interest rates. The repricing resulted in interest expense savings of 25 basis points. We will continue to pursue opportunities to further enhance our capital structure with a focus on shareholder value creation. At quarter end, the company had approximately $1.4 billion in cash availability. Turning to the outlook, our second quarter is progressing well and in line with our expectations. We believe revenue growth will continue to be strong as we onboard and roll out new business, including those recently commencing operations, DePaul University, the University at Albany in Collegiate Hospitality, and the University of Pennsylvania Health Care System, as John mentioned. Regarding profitability, we also expect AOI to benefit from our key operating levers driven by strong supply chain efficiencies, effective cost discipline, and, of course, higher revenue levels. With all that said, we anticipate performance in the second quarter to be right in line with current Wall Street expectations. We are also well on track and highly confident in achieving our full-year guidance, particularly given the phenomenal trends we are seeing in the business. As a reminder, our full-year outlook for fiscal 2026 is as follows: organic revenue growth of 7% to 9%, AOI increasing 12% to 17%, adjusted EPS growth of 20% to 25%, and a leverage ratio below three times. In summary, we are off to a strong start to the year as we continue to advance our growth strategies, fueled by extensive new business wins and outstanding client retention. We are energized about the opportunities ahead and remain highly focused on delivering exceptional top- and bottom-line performance. Thank you for your time this morning, John. John J. Zillmer: I want to personally thank our teams for maintaining virtually flawless client retention to date, while continuing to drive exciting new business opportunities. Our efforts are centered on our ability to create a consistently strong and sustainable business focused on providing valued hospitality services to our clients. We expect to build upon our growth momentum throughout this fiscal year and beyond. I am extremely excited about what is next to come. Operator, we will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touch-tone phone. If you are using the speakerphone, you may need to pick up a handset first before pressing the numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. To remove yourself from the queue, please press star 11 again. Our first question comes from Ian Alton Zaffino with Oppenheimer. Your line is open. Hi. Great. Thank you very much. Ian Alton Zaffino: It seems like you guys are winning a lot of, call it, competitive business here, and some larger competitors are included in that mix. Is this a trend we should expect here, and then maybe what do you attribute the success to? Thanks. John J. Zillmer: I would say we have enjoyed significant success over the last, certainly over the course of the last year and going into 2026, in competitive new account wins. Some of those wins are very complex, large organizations that are part self-op and part served by our competitors, and we have been lucky enough to win two very large opportunities in Penn and RWJBarnabas that represent very significant both competitive wins and self-op conversions. So we see that trend continuing. We are positioned extraordinarily well to win these situations. The capabilities that our teams have built, the systems that we can bring to bear that serve our clients well and can demonstrate to them in these sales processes are significant. And so each of these decisions is independent; all of these clients make judgments based on what is best for their needs, and we have been able to demonstrate a very unique capability and have been lucky enough to be selected in those opportunities. So we are very pleased with the performance to date and lots of wind in our sails, if you will. Ian Alton Zaffino: Okay. Thanks. And then, just as a follow-up, kind of like a multiparter here. What I wanted to see is or find out, are there any other large bidding upcoming? Or also, rebidding that is happening, any larger ones that are coming in that would be dovetailing into, just retention in general. What are you guys doing here that you continue to improve retention and see it at these exceptional levels? Thanks. John J. Zillmer: Thank you. Good question. And absolutely, we are focused every day on retention, and it is the number one driver of our ultimate success when we can retain the clients that we serve. It is very important. And so the first part of the question with respect to new bidding opportunities, I am not going to comment on other large pursuits that we have ongoing at the present time, because they are competitive in nature, and I do not want to signal our strategy to our competitors. There are a number of large opportunities that we are pursuing. I would say for the bidding cycle this season, we have a kind of a normalized bidding cycle. As you know, it is the time of year where K-12 and higher ed are going through their bid processes. But we are achieving record-high retention at a time in the fiscal year when normally we would have lost a little bit of business by now. So we are very pleased with the results to date. We are hyper-focused on it. It is a very important part of our compensation systems. People are very aware of how seriously we all take this as an organization. So we are pleased. We are driving for success. We want to get better every day. Ian Alton Zaffino: Thank you very much. Great quarter. Operator: Next question comes from Neil Christopher Tyler with Redburn Atlantic. Your line is open. Yes, good morning. Thank you. Good morning, John, Jim. I just wanted to zoom in on a couple of the subsegments that you called out and ask for some help in framing their materiality. Specifically, within Sports and Leisure, the absolute relative scale of the college athletics revenues, where they have got to, if you can give us any help on how to think about those because that is something you have been talking very enthusiastically about for a little while now. And similarly, in Business and Industry, the refreshment component seems to be outpacing everything else. So are these stand-out sufficient to drive the levels of growth on their own, or is there a lot going on elsewhere presumably as well? I wonder if you could help us there. Then I have got a quick follow-up on margins, if that is okay. John J. Zillmer: Sure. The revenue growth is very broad-based and wide-ranging across the lines of business and geographies. So we are seeing very good strong net new business performance both in FSS US and in International, and it is not really driven by one group or another. When we highlight these, it is because they have had outstanding performance, but the other businesses are all performing well as well. So we feel very good about both the broad-based nature of it and the success of the entire organization as we pursue these growth opportunities. With respect to the Sports and Entertainment business, we have not really disclosed the breakdown between collegiate sports and our pro teams, and we do not intend to disclose that at this point. I will say that when you think about the scale and the size of opportunities in collegiate athletics, it is very significant. We are certainly the largest player in that segment to date and continue to pursue significant opportunities going forward. And we may, at some point in the future, make the decision to disclose that information separately, but at present, we have not. Yeah, and I will just add, you asked about refreshments. That is a significant piece of our Business and Industry segment, and as we mentioned, that segment has grown double-digit 17 quarters in a row. It is both our underlying B&I business and our Refreshment Services business that is benefiting from very high retention levels and really strong new business. So they both are growing double-digit and contributing to the success that we are seeing in that segment. Neil Christopher Tyler: Got it. Thank you. And then just if I can follow up on margins. Jim, I wonder if you could just remind us or help handhold a little bit on the puts and takes in the adjusted operating margin in this quarter compared to what we should expect over the year? Just to make the major items, if that is okay. Thank you. James J. Tarangelo: Sure. I think at the first call, as I mentioned in the script, we have about $25 million of cost associated with the fifty-third week in the first quarter that will unwind. So if you adjust for that impact, margins would be up about 20 basis points in Q1. Neil Christopher Tyler: We do have the last quarter lapping the impact. We mentioned the GLP-1s and elevated medical costs during the last earnings call. We revamped that program so that will no longer be a factor starting January. So those are just two of the items I would point to in Q1, but it is primarily the fifty-third week impact that will unwind in the second quarter. So when you look at the first half, it will be more normalized. And then for the full year, on track for the 30 to 40 basis points that we have consistently delivered and talked about and embedded in the guidance that we provided in the beginning of the year. So margins are falling in line with our expectations. Neil Christopher Tyler: That is perfect. Thank you very much. Very helpful. Operator: Our next question comes from Leo Carrington with Citi. Your line is open. Leo Carrington: Good morning. Thank you very much for taking my questions. If I could follow up perhaps on this net new growth you have been experiencing. What is your expectations in terms of the duration that this could persist, especially as it is driven more by very strong retention rather than acceleration in gross wins as I understand this? At what point in the year do you have the confidence to perhaps exceed the target? And then secondly, could I ask two questions on AI? Firstly, how do you perceive the risks or opportunities around your revenues, in the sense of what your blue-chip office clients are reporting in terms of the importance of catering in the context of hiring and investing in the office environment? Is there an opportunity in data centers for you? And then secondly, on the cost side, you referenced the back-end efficiencies and supply chain productivity. To what extent are your AI initiatives here paying off already? Thank you. John J. Zillmer: That is a lot, so let us break it down into chunks and talk about AI first. Let me break that into a couple different pieces. First, in terms of the back-office productivity and the impact on our cost, we are already seeing the impact of AI, particularly on supply chain as we use it to both accelerate the data capture process as well as the negotiating process, if you will, for the services and the product that we buy. So it has already had a significant impact. And it is important to note that our investment in AI is really relatively small. It is part of our normal IT operating budget. We do not have any significant program investment or a significant capital investment targeted towards AI implementation. We are able to do this as part of our ongoing IT spend and driving significant performance improvement already through it. So we feel very confident in the use of AI both as it relates to our organization as well as the improved profitability. With respect to the business opportunity, we see the evolution of jobs in the United States as one that will be productive for us. As you can tell from our revenue growth that is occurring in B&I and in Refreshment Services, we have lots of runway to grow the business. We serve customers in all kinds of locations, whether it is manufacturing, office, mining, remote camps, the national parks. The vast majority of our businesses will probably see an opportunity coming from the application of AI in their respective segments. And so we do not see it as a threat to the business. We see it as an opportunity—an opportunity for further growth. Obviously, data centers are under construction, we would certainly have an opportunity to pursue and to bid on those kinds of opportunities. It is very analogous to our remote camps mining businesses, if you will. So we see it as a long-term opportunity for the company, not a threat to our organization. And I am old enough to probably be able to say this. I remember the days when everybody thought robotics was going to replace everybody in an automotive plant. Workforces adjust, processes adjust, companies adjust. We see it as a long-term opportunity with a changing marketplace in that jobs may change, but people will still be employed. So we see it as a long-term opportunity. Jim, do you want to take the other half of the question? James J. Tarangelo: Yeah. The other, you talked about, you started with the run rate and opportunity in pipeline. So we are certainly running ahead of where we expected to be in terms of net new, well on track to deliver and perhaps exceed on the 4% to 5%. So we are in a really strong position in terms of retention. As John mentioned earlier, just not the size and scale of retention risk that we may have at this point in the year. That, coupled with a number of the large wins we talked about, and then on top of that, a very robust pipeline of opportunities, many active discussions, and many of those pretty close to finalizing. So we have kicked off the year in a very good spot, and we will keep you posted over the next couple months here. John J. Zillmer: And I will just add one last comment on that. We see the long-term growth algorithm in this company to improve as a result of our operational discipline. We are getting better and better every day with respect to both elements of the business, which is selling these new accounts and these new opportunities by applying great systems and processes to these client organizations, as well as continued operational improvement which leads to higher client retention. And so both elements are important. Our gross new wins last year were the highest we have ever had, and we continue to see very strong success in both new business wins and retention. Operator: Our next question comes from Jaafar Mestari with BNP Paribas. Your line is open. Jaafar Mestari: Hi. Good morning. First question, please, on just pricing and volumes. Curious if you could quantify the contribution to organic growth in the quarter, and maybe update your views for where like-for-like price and like-for-like volumes land for the full year, please? James J. Tarangelo: Sure. For Q1, pricing essentially about 3% in line with inflation, in line with our expectations. That is offset essentially by a 3% we talked about for the Q1. For the full year, I think we are still on track. We still anticipate pricing being in about 3%. Volumes are a half percent to 1%, and then at this point, just hit the middle of the range, and perhaps better for net new would be about 4.5%. That would put you right in the middle of the guidance. And as we talked about, on track. We are encouraged by the trends we are seeing in net new and opportunities to exceed that. Jaafar Mestari: Super. And just a follow-up on cash flow. It is a normal cash burn quarter, but that normal seasonal outflow was $200 million more than last year. Can you perhaps detail some of the moving parts there? It looks like CapEx in the narrow sense—you buying facilities and building stuff—was actually exactly in line, but then payments to clients were $40 million higher. And if that is correct, then is the balance of $160 million all working capital outflow? Does it stay there? Does it revert? James J. Tarangelo: If we view the payments to clients, we essentially view as capital investment in our clients. It is more of an accounting distinction. But for the first quarter, CapEx was about 4.5% of revenue. So that is elevated, and that is a result of the success we have seen with our new business and a little weighted toward sports and higher education, which, as you know, does require a higher percentage of capital. Some of the business higher proportion of business we rolled out in Q1 was from those sectors. We do expect that to normalize. Historically, if you look, we are running about 3.5% capital spending as a percentage of revenue. By the end of the year, we should be back in that range. So Q1 was a little skewed with the capital. And then in terms of working capital, as this business grows, we do have a use of working capital, seasonal use that was a little bit higher than the prior year. As growth accelerates, additional working capital goes in. So it is in line with our expectations and how we planned it out. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Your line is open. Andrew Steinerman: It is Andrew. I just wanted to make sure I heard you correctly about the assumption for client retention in the fiscal 2026 guide. I think you said you are counting on maintaining the same high client retention percentage that you experienced in fiscal 2025. I just wanted to make sure that I heard that correctly. And then also the second question is, is there anything else that you want to add directionally about trends in the start of this current second quarter outside of the calendar shift and the Penn Hospital start? James J. Tarangelo: In terms of retention, as we said, Andrew, we are actually at a better spot in terms of retention this year than prior year, and as you know, last year was a record retention for the organization. So it is in early days, but I think we are on track to be consistent or even better than what we delivered in fiscal 2025. Your question on trends? John J. Zillmer: Nothing other than what we have already modeled, I think, is probably fair, Andrew. Nothing different. We obviously have start-up of new accounts, but nothing that is really impacting the second quarter differently than we have already disclosed. Andrew Steinerman: Okay. Thank you. Operator: Next question comes from Andrew John Wittmann with Baird. Your line is open. Andrew John Wittmann: There was a comment in your prepared remarks about inflation. I think you guys said that it was running kind of in line or maybe slightly better than you had anticipated. Maybe I thought you could elaborate on that a little bit more, maybe decompose it into maybe food and supplies prices versus the labor that you are seeing out there? And if it is running better, was just wondering if it is just kind of immaterially better, or if there is an offset somewhere else in the P&L that keeps the profit guidance where it is. John J. Zillmer: Thanks, Andrew. I would say it is roughly 3% on a food basis, and that is across multiple geographies, a little higher in one, a little lower in another. So in the aggregate, it is right in that range of what we anticipated. We still see some elevated risk on certain commodities, but everything else kind of coming in line. Obviously, the big commodity in the US is beef, which continues to have demand outstrip supply, so pricing is fairly high. But we are able to mitigate that through the menu design and the like. So we think that that inflation number is very consistent with what we expected and what we are seeing unfold. From a labor cost perspective, I would say it is still probably in that range as well, different across geographies in various countries, but in the aggregate, again, in that range. So we expect the overall impact of inflation to be about 3% to offset it through appropriate pricing strategies in market and various other changes. So really nothing extraordinary in the inflation environment for us at this stage. Andrew John Wittmann: Okay. Cool. That is my only question. Thank you very much. Operator: Next question comes from Joshua K. Chan with UBS. Your line is open. Josh Chan: Hi. Good morning, John, Jim. I guess you mentioned the unprecedented retention trend. So I am just wondering what is changing or improving this year, and how does the retention pipeline, if you will, or the defense pipeline, look for the rest of the year? John J. Zillmer: I would say again that we are just extraordinarily focused on retention as being a key driver of our success, and so we continue to get better and better at it. We continue to have very high expectations for our teams, and frankly, their performance has been extraordinary. It is a combination of a lot of different things, but most it is about performance, and it is about delivering the services that our clients expect and meeting their expectations. So with respect to the pipeline, we have a fairly normalized year. Nothing very large on the horizon in terms of risks. It is just a fairly normal year. Josh Chan: Okay. Great. Thanks for the color there. And are you seeing any change in terms of customer spend, average spend per transaction? Is that trend continuing to move up, or what are you seeing there? John J. Zillmer: We continue to see broad consumer support, particularly if you break down the consumer transactions in Sports and Entertainment. We are seeing very good per capita spending, very good attendance levels in the various leagues, obviously somewhat driven by team performance, but overall attendance in the NBA and NHL at good levels. So we feel very good about the trends that exist within the business. We are not seeing any consumer pushback or any strong concern with respect to the economic environment. Overall, I would say it is steady as she goes. Josh Chan: Great. That is good to hear. Thanks for the color. John J. Zillmer: Thank you. Operator: Our next question comes from Toni Michele Kaplan with Morgan Stanley. Your line is open. Yehuda Selverman: Hi, good morning. This is Yehuda Selverman on for Toni. Just had a quick question or two on the sports segment. So we wanted to talk a little bit about the World Cup and if there is any update on how this contract might work. We have heard that it could be one contract for all the games spread across the country. We are wondering if there is an update in the selection process and how that has gone and, if it really is one contract across the many different stadiums, how that might play out in terms of the stadiums that are operated by different providers at the moment. John J. Zillmer: I am not sure where you are getting that. We have the contract to operate the games in the stadiums we operate, and that is true of our competitors as well. So we will have the games at Lincoln Financial Field, at NRG Stadium in Houston, and in Kansas City we will have the games there. So there is not one single contract. There is not one operator. The services are being provided by the company that is under contract to operate that stadium. We anticipate having positive revenue trends from the World Cup, but also keep in mind that those stadiums, while they are being used by the World Cup, cannot be used for concert activity and other events. So all in all, we see it as being relatively revenue and profit neutral to us, not a significant upside or downside to our projected financial results for the year. Yehuda Selverman: Got it. Thank you for clarifying. And then just one quick follow-up also on the sports segment. Similarly, coming up in Q2, there is potential tailwind from March Madness being held in a couple of stadiums that were not held previously. Curious if it is a similar scenario where it might be neutral as they cannot have other entertainment or sports events at the stadium at the same time. And, alternatively, is there an expected headwind from the NFL playoffs seeing less home games this year than last, or minor just like the MLB? John J. Zillmer: I would say, first of all, anything that is scheduled in our stadiums has been on the calendar for quite some time. So if the NCAA Final Four or Sweet 16 is in one of our stadiums, we will have the opportunity to serve those events, and that would have already been baked into our expectations and into our planning process because we know that those things are scheduled well in advance. So it does not represent a real change to us in terms of our overall planning process. We were lucky enough to have some teams in the NFL playoffs, and it was a good playoff season. We are very pleased to say that our clients in Seattle, the Seattle Seahawks, won the Super Bowl. We served their facilities needs there in the stadium in Seattle, and we are very proud to be of service to them. But I would say overall, our expectations for the sports year are pretty consistent with our plans, and really no expectation for either windfalls or downside. James J. Tarangelo: Yeah, I will just add in terms of Q1, we did have about nine or so fewer major league MLB games. We had the Phillies in the prior year. So that had some headwinds in Q1 as we return to a more normalized growth rate in Q2, as John just mentioned. Yehuda Selverman: Great. Thank you. Operator: Our next question comes from Jasper James Bibb with Truist Securities. Your line is open. Jasper James Bibb: Hey, good morning, everyone. A couple for me on the RWJBarnabas contract. Should we think about this as comparable in size to the Penn Medicine win? And I think I heard launching this summer. How should we think about the timeline for that hitting a mature run rate? Is that going to be more of a fiscal 2027 driver, or your contribution for 2026 going to be material too? John J. Zillmer: Yeah. I think it will be a staged opening that will begin this summer. I think we are still working to finalize the actual opening schedules, if you will. So there will be a significant impact in 2026. We anticipate beginning to serve them in June, and then throughout the balance of the summer, it should be transitioning. But that schedule is still yet to be determined. Yeah. We are very proud to have been selected to operate Robert Wood Johnson Barnabas Health System. It is a terrific win, and as you know, the system is actually larger than Penn Medicine's, and ultimately the potential revenues are likely to be as strong as Penn's. So we feel very good about it, and there will be impact in 2026, and we will know more here over the next few weeks as we develop the implementation schedule. Jasper James Bibb: Great. Thanks for that. And then the Europe group was really strong again this quarter. It has been a really nice couple of years for that business. Just hoping we could step back and talk about the drivers of your growth in Europe, where you see more opportunity there, and what the pipeline looks like for that business over the balance of the year. John J. Zillmer: I cannot say—I am sitting here looking for superlatives because they have just done an extraordinary job of building that business over the last several years. They have been hyper-focused on growth, and frankly, it has been a result of improving performance and demonstrating to our clients that we are the company that can deliver for them across a range of countries and a range of geographies. We have been committed to that growth. We have invested in sales resources and processes and systems and, frankly, in leadership. So we have great teams on the ground really focused on building their organizations and enterprises, and they have been able to demonstrate it here now over several years running, and we have very high expectations for them this year as well. I cannot say enough about them. I am really excited by the work that they have done and their performance to date, and we believe that that success will continue. Jasper James Bibb: Great. Thank you for taking the question. Operator: Our last question comes from Stephanie Benjamin Moore with Jefferies. Your line is open. Stephanie Benjamin Moore: Actually, my first question is just a follow-up to maybe the prior question and the prior discussion here. Could you talk a little bit about some of these larger platform wins? Is this a change in strategy, a change in go-to-market strategy, or is it just timing of some of these wins? But it does seem like you are seeing some larger wins unless I am missing something here. So just wanted to understand if there is a strategic shift happening behind the scenes, and I have a follow-up as well. John J. Zillmer: I would say, yes, there is a strategic shift, and it is really on the part of our clients as they begin to recognize the need to systemize their operations in order to take advantage of cost synergies and operating synergies. A great example of that is Penn Medicine. They had multiple service providers; they were also self-operating a lot of their business. Their CEO made a very strategic decision to go ahead and consolidate and systemize so that they could capture the cost savings and the synergies and ultimately reduce cost to patients and control expenses for the medical institution. You are seeing more and more of that in healthcare systems. We are very proud of the service we provide to Baylor Scott & White in Texas, who were really one of the first organizations to apply the system-wide approach to this. Very proud to be selected to serve Robert Wood Johnson Barnabas as they apply that same strategy. My belief is that more and more organizations, particularly in healthcare, will continue to pursue that as they recognize the need for cost containment and control in a world of declining reimbursements from the federal government. They need to operate more efficiently, and we have the tools and processes and systems in place to enable them to do that in a consolidated way. So there is a strategy shift really on the part of our clients and customers and their philosophical change. We have had great success, and we believe we will continue to enjoy outsized results as a result of our ability to go ahead and apply those systems and processes to that strategy. Stephanie Benjamin Moore: And then just as a follow-up, I wanted to touch on your timing to contract profitability or breakeven, however you want to speak to it. Has there been any change in terms of the timing that new contracts are able to start contributing at a faster pace, just based on some of the operational improvements and investments, as you just noted, specifically? Any changes, especially as we think about maybe some of these larger contracts as well? Thank you. James J. Tarangelo: Some of the larger contract wins this year, as John just mentioned, within healthcare, they are typically less capital. While they are large and complex, unlike a large Sports and Entertainment opening, there is less capital required, and contractual structure in healthcare is often significantly more geared toward cost-plus or cost-reimbursable, which helps mitigate some of the large start-up costs. So I think you are right. This year, with some of those large contracts rolling out, the start-up costs, the ramp up to profitability, is a little faster, and that was embedded in the plan and the guidance that we set out at the beginning of the year. Felise Glantz Kissell: Thank you, everyone. Operator: I will now turn the call back over to Mr. Zillmer for closing remarks. John J. Zillmer: Terrific. Thank you very much, and thank you, all of you, for your support of the company and your questions. Always happy to provide as much information as we possibly can. We like to be as transparent as possible and make this easy. I want to thank the Aramark team for their extraordinary devotion and commitment to customer service. These financial results that we are enjoying now and that we will enjoy in the future are a direct result of your efforts. So Aramark team, thank you, and we look forward to talking to you again soon. Take care. Operator: Thank you for participating. This concludes today's conference. You may now disconnect, and have a wonderful day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Trimble Fourth Quarter 2025 Earnings Call. [Operator Instructions] I will now hand the call over to Rob Painter, President and CEO. Please go ahead. Robert Painter: Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude the divested agriculture and mobility businesses as well as the 53rd week of fiscal 2024. For the fourth quarter, we will also adjust for the timing of January 1 term license renewals. As reported numbers, along with the reconciliation are provided in the appendix of our slide presentation. Okay. Let's get to it. Our fourth quarter results delivered a top and bottom line beat, punctuating a strong close to a strong year and positioning us well to deliver in 2026 and through the 2027 plan we presented at our last Investor Day. The results of the quarter and the year demonstrate the durability of our focused portfolio and the compounding returns of our Connect & Scale strategy. As shown on Slide 4, we delivered $970 million in revenue in the quarter, up 9%. For the year, revenue was $3.57 billion, up 10%. Our ARR grew 14% to $2.39 billion with a notable 16% increase in our AECO segment and 20% increase in Field Systems. Earnings per share of $1 in the quarter was up 12% and $3.13 for the year, up 10%. Both were even higher on an organic basis. Connect & Scale is both an application and a platform strategy. As Slide 5 visualizes, our applications manifest as best-in-class hardware and software solutions, whereas platform manifests through connected workflows and ecosystems. Said another way, an application solves one problem, whereas a platform connects people, data and workflows to address system complexity. Furthermore, a platform empowers an ecosystem where customers and partners can build and extend offerings and integrated workflows. Platforms get stronger and more valuable as more people use them, creating a network effect where all participants benefit. With this in mind, we allocate capital along this continuum of product development, go-to-market and the underlying systems and processes to unlock our full potential. By connecting the hardware and software of Trimble to connect the office and the field, we are connecting the physical and digital worlds. In turn, we are delivering solutions that increasingly compound customer outcomes by leveraging unique data, connected solution capabilities and our unmatched go-to-market reach. We see AI as a force multiplier that accelerates value delivery along this entire flywheel. Slide 6 illustrates the financial outcomes of disciplined execution since we began our Connect & Scale journey in 2020. We have expanded recurring revenue as a percentage of total revenue from 40% to 65%. Software and services now represent 79% of total revenue. We have expanded gross margins by 1,300 basis points, which has given us tremendous degrees of freedom to invest for our future growth while expanding EBITDA margins by 400 basis points. With this context in mind, let's turn to a review of the segments, starting with AECO. The team delivered another outstanding quarter. ARR at $1.48 billion was up 16% and revenue at $454 million was up 15%. Our ACV bookings remained strong with the team delivering a record quarter with cross-sell and upsell motions continuing to gain momentum as evidenced by net retention in our core commercial base at approximately 110%. I'll highlight 3 examples of ongoing strategic progression in project management, collaboration and visualization and AI. In project management, our decision to allocate capital here over the last couple of years is yielding results. We delivered over 40% growth in bookings and over 50% growth in ARR. Throughout the year, we added hundreds of new customers and began our international expansion. Ease of use, natively built workflow integrations and bundled selling motions are driving growth and adoption. We're excited about our growth potential in project management and have our 2026 sales motions aligned to continue to win here. Trimble Connect has transcended its origins as a collaboration and model viewer to become the unifying pillar of our construction platform strategy. Connect turns field data such as point clouds and imagery from a job site into actionable insights in the office. It also takes detailed designs from the office to the field for fabrication, layout and installation. By capturing the as-built reality from the field and fusing it with design models, we are creating the definitive digital record of the physical world. This positions Trimble not just as a tool provider but as the data platform of record for the entire built environment. With respect to AI, Hensel Phelps, whom we highlighted during our Dimensions keynote, estimates they are saving millions of dollars in labor hours with our submittals AI agent that automates processing of the data and paperwork-intensive aspect of construction. In MEP estimating, we've deployed AI to identify and count electrical components directly from construction drawings, replacing a manual takeoff process. This feature already has thousands of monthly active users and delivers over a 50% productivity gain and is generating millions of dollars of incremental ARR. In addition, we have created in-app AI assistance into many of our products, some of which are orchestrating multi-agent workflows, and we can already measure tens of thousands of conversations in case deflection rates up to 20%. 2026 will be a year where we accelerate our agentic AI releases. Stepping back to look at a set of metrics of performance and progression, Slide 7 provides a 2025 refresh on the segment composition. The key takeaways here include a well-balanced and diversified set of customers being served with each pillar of the business having greater than $230 million of ARR, a geographic split that is centric to capturing the North American opportunity while demonstrating a compelling global opportunity to expand reach and a revenue mix that is almost entirely recurring. Slide 8 goes further to give a set of annual KPI updates that mark proof points against the growth drivers we put forward at Investor Day. I'll start with 3 KPIs that demonstrate the power of the $1 billion-plus cross-selling opportunity we see in Construction, starting with the data point that only 20% of our customers currently buy more than one product, a clear sign of penetration opportunity. Next, customers with more than 3 products grew 18%, demonstrating our ability to run land and expand plays. Finally, more than 70% of our ACV bookings came from cross-sell and upsell motions, demonstrating that our customers value the breadth and depth of Trimble solutions. In addition, the significance of Trimble Connect was demonstrated by an 18% growth in the number of projects in Connect. Moving to Field Systems. The physical business of Trimble outperformed in the quarter with particular strength once again in Civil Construction. Revenue at $379 million was up 4% and ARR at $409 million was up 20%. Kudos to the Field Systems team. They did an exceptional job in 2025, demonstrating the strength of our innovation and execution and continuing to lay the foundation for Connect & Scale to differentiate at the intersection of the physical and digital worlds. I'll highlight a few examples of unique Trimble value delivery that Field Systems enables, starting with our customer, JE Dunn, one of the largest and most sophisticated North American general contractors who self-performs their concrete work. They work with Trimble software in the office to create precise 3D design models, then utilize Trimble augmented reality to see those models in context in the field. They deploy Trimble total stations to lay out these models in the physical world and Trimble 3D laser scanners to capture as-built data for quality control, all of which is coordinated through Trimble Connect to create a digital twin. This unique Trimble workflow that links work in the office and the field is driving productivity and quality while eliminating millions of dollars in rework, which in turn is significantly reducing their carbon footprint. Beyond self-perform concrete workflows, we have advanced our piling automation workflows for solar farm construction, and we developed a mass hall workflow to automate the infrastructure building process for mines as well as for large commercial and industrial sites. AI acts as a force multiplier on top of these unique workflows from AI classification of large data sets we collect in the field to analytics across transportation infrastructure, building construction, mining and utilities to optimize workflows and enable our customers to make better decisions. This isn't just a vision, we already have tens of terabytes of reality capture data that have been uploaded to Trimble Connect, and we expect to double that in 2026. Stepping back to look at a set of metrics of performance and progression, Slide 9 provides a 2025 refresh on the segment composition. The key takeaways here include a well-balanced and diversified set of capabilities we take to market from GNSS and optical surveying instruments to inertial navigation and our unique positioning services that support precise positioning and navigation to our on and off-machine Civil Construction automation portfolio. Field Systems is our most global business, and we continue to develop product and distribution to reach the global opportunity. Finally, the revenue composition demonstrates a significant milestone in 2025. The segment is now over 50% software and services and 26% of our revenue is now recurring. Slide 9 also lays out a set of KPIs against the growth drivers we put forward at Investor Day. During the year, our business model conversions continue to expand our addressable market as evidenced by the fact that approximately half of our sales of machine control as a service are to new logos. It's the same phenomenon we see with our Trimble Catalyst subscriptions, where we are reaching new users and customers with this more affordable offering. Finally, the addition of new Trimble technology outlets is expanding our reach to serve the mix fleet. Moving to Transportation. ARR at $508 million was up 7% and revenue at $136 million was up 4%. We continue to grow despite the challenged freight market. To highlight a couple of examples of Connect & Scale at work, I'll start with our unique ability to cross-sell within the portfolio. From the perspective of a customer, they don't see divisions within the business. They see a set of capabilities. And those capabilities come in the form of carrier TMS, shipper TMS, dock and yard scheduling, final mile, maintenance, mileage, navigation, fuel tax reporting, freight audit and beyond. Cross-selling looks like selling fleet maintenance into our TMS base or selling mapping into our European customer base or selling shipper TMS capabilities from Transporeon into the North American market. In parallel, we continue to natively integrate the data flows across these capabilities, and we apply AI as a force multiplier to deliver outcomes that we are uniquely positioned to deliver given the breadth and depth of the global customer base and data set we touch. Another example of being better together comes in the form of freight marketplace. In the third quarter, we announced Procter & Gamble as an anchor tenant. In December, we won the business of one of the world's leading beverage companies to manage their U.S.-based spot, mini bid and strategic procurement. By bringing billions of dollars of additional shipper freight spend into our marketplace, we believe we are well positioned to capture additional business with the leading global shippers by connecting them with vetted carrier freight capacity. Stepping back to look at a set of metrics of performance and progression, Slide 10 provides a 2025 refresh on the segment composition, which is almost entirely recurring revenue. The segment is well balanced with the carrier and shipper-centric solutions and geographically balanced between Europe and North America. During the year, we expanded the power of our multisided marketplace as evidenced by the addition of over 10,000 carriers and over 100 shippers. We also demonstrated the ability to grow our existing customers as evidenced by double-digit growth of Transporeon customers doing more than EUR 1 million of ARR and MAPS and Enterprise customers doing both $100,000 and $1 million in ARR. With that, Phil, I'll turn it over to you. Phillip Sawarynski: Thanks, Rob. Let me start with capital allocation, which remains disciplined and consistent. During the fourth quarter, we repurchased approximately $148 million worth of shares, a direct reflection of our confidence in the long-term value of our business and our commitment to delivering shareholder returns. We retained a substantial $925 million under our current repurchase authorization, which gives us flexibility for opportunistic buybacks. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares as we look to provide returns for our shareholders. Our M&A strategy remains focused on strengthening our core market positions. We continue to screen for opportunities in high-growth capabilities that we integrate into our platforms, primarily in construction software with an emphasis on tuck-in acquisitions. Let's review the fourth quarter of 2025, starting on Slide 11. We delivered organic revenue growth of 9%, which exceeded our outlook, driven by the continued strength of AECO and Field Systems and with Transportation & Logistics demonstrating resilience and positive growth within a constrained freight market. ARR was toward the top end of our outlook at 14% to a record $2.39 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded to 74.6%, and we achieved EBITDA margins of 33.5%. Both were aided by January 1 term license renewals. Reported earnings per share was $1 for the quarter, $0.05 better than the midpoint and above the high end of our guidance. Our 2025 full year results serve as validation of the progression of our financial model and confidence that we are on a trajectory to deliver our long-term model as presented at Investor Day of $3 billion in ARR, $4 billion of revenue and 30% EBITDA margins in 2027. For the full year, organic revenue growth of 10% surpassed the high end of our outlook. Gross margins expanded 150 basis points to 71.7% and EBITDA margins expanded 150 basis points to 29.3%. EPS for the year was $3.13 and above the high end of our guide and well above our long-term model of low to mid-teens growth when adjusting for the Ag divestiture. Moving to the balance sheet and cash flow items on Slide 12. Our year-to-date reported free cash flow remains strong at $361 million when considering the $307 million of tax payments and other costs primarily related to divestitures. We exited the year with a strong balance sheet that provides financial flexibility with $253 million of cash and a leverage ratio of 1.1x, which is well below our long-term target rate of 2.5x. Moving to a segment review of the numbers. Let's start with AECO on Slide 13. AECO continues to perform and exceeded expectations with a record $1.475 billion of ARR, posting 16% ARR growth and 15% revenue growth for the quarter. Operating margin was at 44% and was aided by January 1 term license renewals. For the full year, both AECO revenue and ARR grew at 16% and operating margin was at 34.2%. Next, Field Systems on Slide 14. Revenue was up 4% in the fourth quarter while absorbing model conversions to recurring revenue. The continued execution resulted in another strong quarter of ARR growth at 20% and operating margin was 30%. For the full year, revenue was up 5%, ARR up 20% and operating margin expanded 100 basis points to 31.1%. Finally, Transportation & Logistics on Slide 15. In a freight environment that remains muted, the segment delivered revenue growth of 4% and ARR growth of 7% for the quarter. Operating margins were at 22.9%. For the full year, revenue grew 5%, ARR grew 7% and operating margin was at 22.9%. Operating margin for both the quarter and the full year were slightly down year-over-year, primarily due to stranded costs related to the Mobility divestiture. Turning to Slide 16. Let's look ahead to 2026. The midpoints of our 2026 full year guidance are $3.86 billion in revenue, which represents approximately 7.5% growth and $3.52 EPS. We expect ARR growth at 13% and EBITDA margins to expand approximately 50 basis points to 29.8% as our model delivers strong operating leverage while allowing us to reinvest for future growth. From a cash flow perspective, we expect free cash flow to be approximately 1x net income and that we can deliver free cash flow greater than the non-GAAP net income over the long term. Slide 17 breaks down these metrics by segment. The trajectory across all 3 segments remain fully aligned to deliver the Investor Day company targets for 2027. Finally, regarding our first quarter outlook on Slide 18. Our revenue midpoint at $905 million, which is approximately 8% growth, EPS midpoint at $0.71 and ARR growth at 13%. We expect EBITDA margins at 26.6%, which is a 70 basis points expansion year-over-year. Back to you, Rob. Robert Painter: Thanks, Phil. I'll close with a reflection on the compounding benefits of our Connect & Scale strategy. The fruits of what we see today are the result of years of past work by the Trimble team. Unlocking the power of compounding takes patience and conviction to be just a little bit better every day. The strength and momentum we carry into 2026 gives us confidence that we have yet to see the biggest gains for what's possible when we connect people, data, workflows and ecosystems and construction and transportation. That same principle of compounding applies to our financial returns, and that flywheel is turning. My gratitude to the Trimble team and partners as well as our investors who continue to support our strategy. Operator, let's open the line to questions. Operator: [Operator Instructions] Our first question comes from Jason Celino with KeyBanc Capital Markets. Jason Celino: I wanted to ask about the Field Systems ARR growth. It's really impressive to see it accelerate to 20%. Maybe can you speak to some of the strength you saw in the quarter? And then when we think about guidance, it's assuming kind of deceleration in 2026 to that low to mid-teens. Is that just a function of tough comp? Or is there some dynamic with kind of the transition we should know about? Robert Painter: Jason, it's Rob here. With the growth in the quarter, and you're right, it was impressive growth from the team. We continue to see strong performance in the machine control guidance as a service. We continue to see growth actually in providing corrections into the automotive market and Geospatial, we see growth in our Catalyst, which is positioning as a service. The software conversions continue to drive growth really across the board strength. Relative to the guide in 2026, there is a lapping effect as we've started the conversions and have been early in them, there's just a natural mathematical effect on that. So really continue at the fundamental level to expect to see strong growth in that. And when you up level to the segment level, Field Systems crossed a threshold now of being over 50% software and services for the year. So very happy about that. Jason Celino: Okay. Wonderful. And then the construction and architecture industry seems very suitable for agentic given the many stakeholders and historically siloed processes. But the industry has historically been pretty slow at adopting technology. Can you discuss how you think the industry will ramp adoption of agentic and how that might compare with maybe other industries? And then as Trimble launches these new agentic features, how are you're looking to monetize them? Robert Painter: Good question. We think that Trimble platforms are the exact right place for customers to adopt the agentic workflows that we can enable, let's say, as opposed to doing them outside of a Trimble platform. So we're already that system of record that becomes a system of intelligence. We already have a unique data set resident inside of Trimble that customers want to unlock. And when I spend time with customers, increasingly, they're talking about how do they unlock more out of the data they have and how do they get AI usage on top of that data to help them address, let's say, the challenges and the opportunities that exist in the industry. So we think the best way to speed up the adoption in the industry of agentic AI is doing it on top of the existing platforms and solutions that they're already buying from us where we have that trusted relationship and a unique and I think proprietary data set upon which to build. Phillip Sawarynski: Jason, this is Phil. Just to add -- sorry, you had asked about the monetization. So one thing I'll point out with SketchUp, we introduced some new AI agents and what we've started to do is actually include credits. So as you use the agents, you apply credits against them, early stages. But as we think about the monetization is moving a little bit more into that consumption as well. Operator: Our next question comes from Josh Tilton with Wolfe Research. Joshua Tilton: Congrats on a strong end to the year. I'll start with a pretty high-level one, maybe for next year. I think coming into this year, there were some puts and takes on some conservatism in the guidance for '25. How do we think about what those puts and takes are for the guidance that you just set for '26? Maybe a little more specifically, like what are you assuming for the macro? What are you assuming around Fed? Like how do we think about some of those inputs in the outlook for this year? Robert Painter: Josh, thanks for the question. I'll start, and Phil, you can add on. 2025 was clearly a very strong year of progression for us strategically, operationally, built on what was also a strong 2024. When we think about 2026, we're also thinking about that in a longer-term context through the 2027 model we put forward at Investor Day. At a macro level, don't really see any fundamental differences in the market. So we're expecting and planning really a pretty consistent environment that's out there, and we can talk through the puts and takes on that. That includes, for example, at the U.S. federal government level, really a very muted amount of business there in Transportation at the macro level, expect to continue to see a more challenged freight market. And if we look in Construction, we see pockets of strength in data centers and infrastructure build. We see it in shipbuilding. We see it in onshoring, reshoring of manufacturing. And really, those are trends that we've been seeing here for the last couple of years. So we continue to progress the strategy. We take that forward into the guide. And inside that guide, we want to make sure we leave ourselves room to operate the business comfortably and to be able to reinvest back into the business, and that flows in then to our point of view at both the ARR growth, revenue growth down through the op margins. Joshua Tilton: Super helpful. And maybe just like one more bit of a narrow follow-up. In AECO, I know the deck says over 70% of ACV bookings with existing customers. But when we think about, I guess, just under 30% of ACV bookings coming from new, where are those new customers coming from? Like why are they choosing you over the competition? And maybe just remind us what did that look like in the past? Robert Painter: Let's start with where the customers come from, where new logos are coming from. We see that in 2 dimensions. One is geographic. So we're a very global business, more than -- in AECO, more than half of it is in North America. The global -- that's a different ratio than the global construction market, which is to say we have lots of opportunities outside of North America win new logos, and we see that through the results. If you take it at a closer to a product level or even TC1 level, bundled offerings, take project management as an example, added hundreds of new customers in 2025 into the business, and that played through that 50% ARR growth we talked about in that. So you can see that on 2 different axes. Product penetration in the market meets geographic penetration. And why customers are choosing Trimble? Well, we've got 48 years now of building best-in-breed, best-in-class purpose-built solutions for the end markets that we serve and those customers that we serve. In addition, TC1, Trimble Construction One within AECO has been a strong catalyst for that adoption because when you're buying inside Trimble Construction One or you're buying inside the Trimble platform, you're buying a set of solutions that are natively integrated that are helping you solve workflow challenges and opportunities, getting after those higher order problems. And we're doing the things that we can uniquely do to connect work in the office and the field and beyond AECO connect hardware and software across all of Trimble to connect the work in the physical and the digital world. The sum of that is what's driving those bookings, both at the new logo and existing. Operator: Our next question comes from Chad Dillard with Bernstein. Chad has disconnected. Our next question comes from Kristen Owen with Oppenheimer. Kristen Owen: Rob, I wanted to follow up here on Slide 8. Really appreciate a lot of these KPIs and giving some visibility into this. One of the questions that I have for you, though, is if I take some of these data points around net retention, the new logos versus existing customers, and I want to roll that up into a comprehensive ARR growth algorithm that sort of points us to the mid-teens guidance that you've provided for 2026. How do I think about those individual moving parts, how much is price, how much is account accretion, et cetera, et cetera? How do we take these KPIs and really contextualize them in the guidance? Robert Painter: Yes. Kristen, thanks for the question. So let's maybe work backwards from the guide implies a mid-teens growth in the ARR in the business, which is also, by the way, consistent with what we put forward at Investor Day. When you do the stack on net retention, you start with looking at the gross retention. So the churn is in that mid-single-digit range to begin with. When you -- now you go up the stack on that, what you can connect the dots on is that with 70% of the ACV bookings being with existing customers, that's both -- that's the sum of cross-sell and upsell. And we actually see a ratio of higher upsell to the cross-sell. So we're continuing to penetrate the existing base we have of customers. By the way, when we cross-sell into customers, that then creates the next upsell opportunity. There's a flywheel that happens with that. Pricing is relatively modest. I call that in the low single-digit range on the stack up through that net -- yes, through the stack to get to total net retention, I'm sorry, those are the sum of the pieces. And so then you see some of the other statistics on there, whether it's the number of customers using more than one product or the growth in customers with more than 3 products, those support that cross-sell, upsell part of the net retention stack. Kristen Owen: Okay. Great. Maybe just one additional clarification there. On the activity rate, were we to see a pickup in construction activity or infrastructure activity, how would that integrate into the algorithm? And then I have a separate follow-up. Robert Painter: Well, any additional positive inflections on overall new construction, of course, would be a positive for us. We would see it in the bookings before we'll see it in the ARR. So call that a positive that we would probably comment on into 2027 as opposed to 2026. There, we look to places like Europe, and let's talk about infrastructure in Germany, like that would be a place where we look out for additional business. Another submarket would be residential where that to turn for the positive, if we see interest rates go down and then the residential market come back, that could be a positive that we would see -- I think we would see that more in 2027 than we would in 2026, and we would see that both in AECO and Field Systems. So that's the -- I guess, how I think about the activity rate. I think you said you had one other follow-up. Kristen Owen: Yes. Sorry. The other follow-up here is the AI question. Maybe just framing it in terms of the context of how your customers are looking to adapt their business models. I mean we've heard some large integrated E&C customers publicly discussing their ambitions to bring in their own AI-enabled solutions. So I'm just trying to understand where Trimble sits in that discussion. That's my follow-up. Robert Painter: Yes. I start with trillions, billions, millions and thousands, trillions of dollars of construction run through Trimble, tens of billions of freight run through Trimble. We have millions of customers of Trimble software and hundreds of thousands of instruments and machines in the real physical world operate on Trimble. So we're quite -- we have quite a presence in a global sense. If I think about segmenting a customer base, we have everywhere from, let's say, small customers all the way through the largest enterprises in the world. And I think as you move along a stack like that and the customer segmentation, you'll have customers that have naturally different levels of, let's say, AI ambitions that they can put forward and kind of resources they can even dedicate to that. I mean there's no question that customers, especially as you move into the large enterprise customers, are looking to unlock more efficiency and more insights out of the data and then to see AI as a force multiplier to help unlock that data. So much of what we do at Trimble is that core system of record, system of intelligence. We operate the common and connected data environment with Trimble Connect. So there's naturally an enormous amount of data from the physical and digital world that's resident on Trimble, and we see our customers looking to unlock the potential based on the data they already have with Trimble. And then I should also say in connecting non-Trimble data into that. It's a fragmented industry. It's a fragmented -- relatively fragmented technology landscape as well. So thus, we have a posture and a bias of being open to third-party solutions to enrich the data sets and therefore, to enable the customers. So we see ourselves as really the logical extension of our customers' AI ambitions to build and extend that on top of Trimble. Separately, will customers take their own, let's say, AI initiatives to leverage data they have from Trimble? I absolutely think that they will do that. And that's our opportunity to build more of those agents and those agentic workflows on top of it so that our customers don't have to do it themselves. So we see all of this as a net opportunity for us. Operator: Our next question comes from Jonathan Ho with William Blair. Jonathan Ho: Let me echo congratulations as well. Given your changes in mix to recurring, how do we think about sort of the broader convergence between your ARR growth and overall revenue growth given that mix shift? And what are some of the puts and takes for that to happen? Robert Painter: Jonathan, thanks for the question. At the mix level, I think it's easier to take it through the segments because AECO has really converged as has Transportation & Logistics. So I would think of those as having converged the ARR and revenue growth rates. I mean it could be plus or minus 100 bps or so, but I call that in the noise. So you really isolate then to Field Systems where there's a spread between the 2. And in that respect, you can see it in the numbers when with the revenue in the business being $454 million in the quarter -- or sorry, excuse me, $379 million in the quarter, and you see the ARR at $409 million. So over $1.5 billion for the year of revenues. In other words, it's a smaller portion of the segment. It's in the mid-20s ARR as a percent of total revenue. So we continue to drive conversions in Field Systems, both software conversions because that's where you'd see the perpetual software that we have and then Field Systems continue to drive those conversions to recurring, but also importantly, the hardware aspects of the business. And we're talking about 150 bps or so of headwind in Field Systems through the conversions, and we continue to expect to see that into 2026. And I think we'll be talking about the same thing in 2027, and we'll, for sure, going to stay stable course. Jonathan Ho: Got it. And then just in terms of agentic AI, I just wanted to ask more broadly whether you see sort of stronger adoption in your base in 2026? Does this maybe look like a turning point? And how does your margin structure look like for sort of agentic AI revenue relative to SaaS revenue? Robert Painter: I think the strategic adoption in our customer base in 2026 will, for sure, correlate to the rollout we have of agentic AI capabilities. And I think you're going to see a lot more from us in 2026. So much of what we've been doing, call it, the last 18 months, I'd call it more of the infrastructure building and beta applications out. And Phil mentioned an AI capability a few minutes ago. So we have capabilities in the market, but actually not a lot relative to what's in the pipeline for us. So what you're going to see us releasing this year, we expect to turn into adoption in the customer base. And then building on Phil's earlier comments on the monetization, we're going to expect to see more consumption in that. We also monetize through the tiers, the tiered offerings like good, better, best tiers. And so we've put AI capabilities in those best of the tiers. So we want to incent and motivate adoption at that level. So there's a hybrid of where it's both recurring and consumption. And we're still learning here how to get that mix right. Relative to the margins and say, the incremental margins, of course, AI, agentic AI, generative AI does have a variable cost associated with it. It's not for free. So the unit economics are, of course, different in an AI forward world, which, by the way, we think is something that favors the position that we have as a company and having capabilities like within Transporeon. It was already a consumption model. 60% of that revenue through Transporeon is consumption, 40% is subscription. This is a muscle that we already have in the company. So we're not starting from scratch and having to learn how to do consumption. So again, just to summarize, a mix of within the subscriptions as well as consumption. Operator: Our next question comes from Nay Soe Naing with Berenberg. Nay Soe Naing: The first one I have is around the agentic AI rollout that's coming through later this year. Really excited about them looking forward to them. I'm just wondering, are there any particular areas within the software portfolio that you would focus on these AI agents between AECO and T&L and then even within AECO, which stage of the life cycle, construction life cycle that you would look to focus on? Robert Painter: Thanks for the question. Yes, I think you're going to see more coming out from us in 2026. You hit it correctly within AECO and Transportation & Logistics. If we think about the life cycle or the parts of AECO where you might expect to see more or less coming from us. Actually, it's across the board is the punchline. And I really wouldn't say it's concentrated in any one part of the business. And I'd say pretty similar within Transportation & Logistics. There are so many opportunities we see where to apply the technology and the capabilities. And so I think you're going to hear pretty broad applications from us. And in many respects, I just think of AI as that force multiplier. It's an extension -- it's a natural extension of what we're already doing to help our customers deliver the work better, faster, safer, cheaper and greener. So it's really just embedding it so much into the work that we already have and to accelerate outcomes for our customers. And by the way, that's very customer-facing. I should also say, internally, we have an enormous amount of work on as well to help us optimize our own internal operations, whether that's in R&D, whether that's in customer service and customer support, whether that's in driving marketing workflows to enable the sellers to grow the pipeline that we give to them. So internal, external facing [ use ] is pretty broad-based. Nay Soe Naing: Got it. That's really helpful. And my second question is also again related to AI. I was wondering if you could share with us the technology infrastructure readiness for these AI features kind of similar to the investments that you've made in your technology stack to be cloud-ready, the investment you made in the last few years. Would you need to do similar level of investments in the technology to be AI-ready going forward? Or are you already quite there? Robert Painter: I think we're already on a path with the technology readiness. I mean we're going to continue to invest in that. And inside the guide that we put forward in that operating leverage is we've left ourselves room to make sure that we're continuing to innovate in the solutions and then within the platform capabilities of Trimble. I think the very good news is we're not just starting on this. So we've been investing the last couple of years. So there's a run rate aspect to this. And a lot of what we've been doing in the last couple of years, I would really categorize it more as having built the infrastructure, the wiring, the plumbing an agentic platform upon which we can, at a more scalable level, build the actual agentic workflows. So there is a good amount of laying of pipe and wire that we've been doing really a lot in 2025, much more so than 2024, which is why we believe we're positioned to be able to accelerate releases in 2026. Operator: Our next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: I'm sorry if I missed it, but I wanted to get an update on TC1. Could you remind us if it's available globally everywhere now? And are all software solutions in AECO are on it? If not, what's the time line? Robert Painter: You were breaking up a little bit, but I think I got the gist of the question. So TC1 continues to -- Trimble Construction One continues to be a strong driver of the growth in the business, both the bookings. We see the majority of the ARR that we have today in AECO is under a TC1 agreement, which means it's a commercial framework agreement. We have rolled TC1 out into Europe. I'd say we're still in motion in Asia Pacific with the rollout of TC1. So there is some more geographic expansion that we'll continue to do, which also gives us confidence in the path forward for the growth in the business. And so much of what TC1 does is that commercial framework is it eliminates friction from the next level of cross-sell that happens. So under a TC1 frame, you may just be buying one product. You may be buying 1 or 2 initially within a prepackaged bundle that we have. Once you've got that frame agreement in place, you've got one [indiscernible] that term and conditions. So the ability to then come by the next application that we have on the Trimble becomes a lot easier, both for the sellers as well as for the customers because of that groundwork that's been laid. So it's a very positive aspect of the business and still has a lot of room to run for us to grow. Operator: Our next question comes from Rob Mason with Baird. Robert Mason: Rob, you had already discussed the burden -- model conversion burden you're carrying in the Field Systems business. But I recall coming into the year as well, we talked about a headwind from just changes in the Cat JV. But machine control was very strong throughout the year. I'm just curious, was that -- it was a couple of points headwind expected. Was that the actual experience? Did that play out? And how does that carry or not into this year '26? Robert Painter: Rob, thanks for the question. The short answer is yes, it played out as we expected. I mean it was entirely around software conversions and entirely in addition to like the machine control guidance as a service. By the way, we call it Works Plus. It's what we call it on to customers. And it's been just as successful, actually more successful than we expected. And that drives some of the headwinds through those conversions into the revenue. But there's also something that I'd say on top to me, which is positive, which is that it really is not a headwind, it's incremental with the conversions. And that is when we look at the machine control guidance offering, we see that -- we've seen that 50% of the wins that we get are to new logos. That's an addressable market expansion. And that's not a headwind to the growth because that's incremental business that we're getting. And so that really was also part of the upside that we saw within the ARR growth versus what we had in the year. So really enthusiastic about where we see these business model conversions helping us expand both customers and then usage within customers and penetration within those customers. So there's really kind of a double positive embedded in with that. And then last thing I'll say when we do these model conversions, it makes it easier to bundle additional hardware and software capabilities together. So let's say, you're a customer doing civil estimating and you want to link that to your ERP, which we also do, and you want to link that to the machines you have it on the field, which we also equip with technology. You make it a lot easier to come in with a bundled offering that can cross between that office and the field. And then it shows up for us in 2 reporting segments of AECO and Field Systems. But of course, from a customer's perspective, it's just Trimble. Robert Mason: That's good insight, Rob. And then, Phil, just your overall margin guidance for '26, I would say, as I expected, when I look across the segments and the expectations there, it looks like more basis points expansion expected in the T&L segment than the other 2. You talked about stranded costs earlier. Are those -- is that reflective of getting some of those stranded costs out? And then to the extent maybe a little color, just not as much margin expansion in Field Systems if there's any investment going on there? Phillip Sawarynski: Yes. Thanks, Rob. So yes, we anticipate with the growth in the T&L business that we can continue to put high leverage off of that business to be able to expand. There is an element of the stranded costs, as you're correct, as we enter the year. We expect to get some of that out throughout the year, which will also help with margins in T&L. And then overall, at the company level, I mentioned this for the '26 guide, we do expect about 50 basis points of expansion at the EBITDA. So as Rob mentioned earlier, what's nice about our financial model is we're able to reinvest in the business for the growth, but also show the margin expansion with the op leverage. Operator: Our next question comes from Guy Hardwick with Barclays. Guy Drummond Hardwick: Just wondering if you could point to any contribution to ARR or ACV from AI products, whether it's agentic AI or AI products so far, whether it's in reality capture autonomous procurement or anything else? And I have a follow-up. Robert Painter: So we see -- if we take autonomous procurement within Transportation, that's probably the one we've talked about the most throughout 2025. It's a discrete stand-alone product that's generating double-digit millions of revenue. Phil mentioned a release from SketchUp within the Architecture business, which is obviously within AECO. The early days, but I mean, we did see when we launched in the fourth quarter, we could see the new customers we were getting is a monthly subscription for that service. Where I see it more is if we think about -- if we sort of flip the definition and we look at the percent of revenue that's got AI associated with it, now we're talking well over $100 million of business at Trimble that is enabled or somehow powered, let's say, by AI features. And I go back to that good, better, best tier that we have of offerings where we're putting more of those AI capabilities. You mentioned reality capture, which is largely within the Field Systems business. We're very bullish about that capability because you know what a surveyor is fundamentally doing is creating a digital model of the physical earth. There's an extraordinary amount of data that's collected by surveyors. And they're not collecting data for the sake of collecting data. They need to turn it into actionable information. To turn it into actionable information, that pulls that data increasingly to the cloud. And then when you get to the cloud, you want to be able to do automated feature extraction as an example off of that data set. That automated feature extraction is a form of AI, and we're able to sell that capability because of just the raw efficiencies you get through the automation of that processing of these enormous data sets. And then once you process those enormous data sets, and yes, they're AI-enabled, you're now taking that and turning that into the next downstream workflow. And this, to me, is one of the many things that is so unique about the capability set we have at Trimble is to extend that workflow from that field back to the office and then back again to the field. Guy Drummond Hardwick: That's great. Just as a follow-up, Robbie, you mentioned a little earlier about the efficiencies of using AI internally. Trimble has shown great leverage over R&D and G&A this quarter and the full year. How much do you think AI has contributed to that? And maybe a sense of how much -- give us a sense of how much you can contribute in 2026? Robert Painter: If we look down the stack, I would say we do see it up and down. I mean if we're -- I'll go -- I'll extend actually the question a bit. And if I look in COGS, we can see in pockets of the business in the AECO, a case deflection up to 20%. So for our folks who are working on customer support, they're able to spend time working on the higher order problems. I think we get better work out of folks as well as more efficiency out of them. If we look through R&D, 95% plus of our engineers are using the technology today, and we see double-digit increases in the productivity, which is to say we're getting more development done and that development takes the form both of, let's call it, features that are customer-facing features as well as the underlying plumbing because it's a lot of work to make sure we're able to connect the data and have the right data taxonomies and investing back into cyber and all the wiring we need to do to be able to deliver the connected workflows. And we look through sales and marketing, we record all our sellers' calls, and we're able to apply AI on top of that to be able to provide feedback and coaching to level up -- help level up the sellers and marketing AI run across the data sets we have to find and create pipeline for those sellers with an upgraded marketing technology stack that we released in 2025. That's an AECO comment when I say that. And then at a G&A level, I would say we expect a lot more to come in the next couple of years out of where we can unlock more efficiencies. We continue to invest. So while we're getting efficiencies, we're also continuing to invest. When we look at the bookings growth we have, which obviously translates into the ARR growth we have, and we think about it from a lifetime value of customer acquisition cost, that tells us to keep investing in the business, and we've got the degrees of freedom to make sure that we're building the AI platform where our customers want to come and do their work. We have both -- yes, we think about playing offense as well as defense, super aware of a competitive landscape. And we see a lot of strength and confidence in what we do, but we're also humble to make sure that we continue to invest and grow and improve ourselves. Operator: Our next question comes from Kristen Owen with Oppenheimer. Kristen Owen: Just a simple one here. You did guide to significant growth in your free cash flow generation in 2026. Even when we take out that cash tax payment, can you just contextualize the free cash flow growth for us? And then given what's happened in the vertical SaaS space year-to-date, how you're thinking about deploying that cash? Phillip Sawarynski: Kristen, this is Phil. Yes. So there's a couple of elements. It obviously starts with the profit growth for the year from the free cash flow. And then we -- you mentioned the benefit we -- not a benefit, but we don't have the headwind or the usage for the taxes this year. On the other side, we do get additional benefits from the repeal of the 174 million. And so there's a little bit of less cash taxes that we have to pay that also helps with that number in 2026. And then your second question as far as the use of cash, yes, I think I'll start with a higher level of our capital allocation, how we think about that. And that's really looking at the highest returns for our shareholders. And the different elements are certainly, we look at repurchases, we look at M&A after we reinvest in the company. So we've talked about that via the P&L. So as we think about '26 going forward, I would be looking at for uses of cash, either repurchases or M&A largely. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for holding. Your conference will begin in five minutes. Thank you for your patience. Good morning, and welcome to the Vornado Realty Trust Fourth Quarter 2025 Earnings Call. My name is Nick, and I will be your operator for today's call. The call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At that time, please press star then 1 on your touch-tone phone. I will now turn the call over to Mr. Steven Borenstein, Executive Vice President and Corporation Counsel. Please go ahead, sir. Steven Borenstein: Welcome to Vornado Realty Trust Fourth Quarter Earnings Call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package, are available on our website, www.vornado.com, under the investor relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K, and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements and may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended 12/31/2025, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth. Thank you, Steve, and good morning, everyone. Steven Roth: Here at Vornado, business is good and getting better. As you all know, Vornado is a premier Manhattan-centric office company. And I'm sure we can all agree that Manhattan is clearly far and away the best office and residential, too, by the way, real estate market in the country. Predicted on our recent calls, New York is now on the foothills of the best landlord's market in twenty years. We believe this landlord's market in Manhattan will continue to tighten and last for a long time. Fundamentals are truly outstanding and the best ever. Long and short of it, is that tenant demand from finance, tech, and most other industries is extremely robust, in the face of declining availabilities and the better building subset. Take a look at our assets. We have the Penn District, our city within the city. A roster of our other assets in the better building category where in-place rents are well under market. And market rents are rising. We have an irreplaceable portfolio of very scarce, think scarce as hen's teeth, high street retail assets on 5th Avenue, and in Times Square. We have the largest and most successful and growing large format signage business. We have in-house our wholly owned vertically integrated cleaning and security company. We have the best development program in town highlighted by 350 Park Avenue, 1015, and now 623 5th Avenue. And most importantly, we have the best management team leasing, development, finance, and operations in the business. In short, we are a very focused Manhattan-based office power specialist. And while not in Manhattan, let's not forget 555 California Street, but they're still being rapidly recovering San Francisco. Where occupancy is 95%. And rent is north of $160 per square foot in the tower. At Vornado, we had an industry-leading quarter and an industry-leading year. In almost every performance metric. And when I say industry-leading, I mean better than the other guys. Here's the scorecard. During 2025, Glen and his team leased 4,600,000 square feet of office space overall. Consisting of 3,700,000 square feet in Manhattan. 146,000 square feet in San Francisco, and 394,000 square feet in Chicago. This was our highest Manhattan leasing volume in over a decade, and our second-highest year on record. Excluding the 1,100,000 square foot master lease with NYU, our average starting rents in Manhattan were $98 per square foot. With mark-to-markets of plus 10.4% GAAP and plus 7.8% cash and with an average lease term of over eleven years. The second year in a row, Vornado was the clear leader in $100 per square foot leasing. With 46 leases totaling 2,500,000 square feet. Or two-thirds of our activity. PENN1 and PENN2 led here with a total of 23 deals comprising more than 1,000,000 square feet between both properties. In the fourth quarter, we executed 25 New York office deals totaling 960,000 square feet. At an average starting rent of $95 per square foot. Mark-to-markets for the quarter were plus 8.1% GAAP and plus 7.2% cash. At an average lease term of ten years. Half this activity was for leases with over $100 per square foot starting rents. 2025 results reflected the market's growing appreciation for our transformation of the Penn District. Tenants and brokers get it. High-quality office space, the best transportation literally on top of Penn Station, the region transportation hub, and the plethora of amenities and hangout spaces are unmatched. In 2025 at Penn at Penn two, we leased 908,000 square feet and average value went to $109 per square foot. With an average term of over seventeen years. This includes 231,000 square feet leased during the fourth quarter, average starting rent of $114 per foot. With an average term of over thirteen years. All well above our original underwriting. We have now leased over 1,400,000 square feet of PENN two since project inception, putting us at 80% occupancy, hitting the target, which we guided. To. Expect to finish the lease-up this year. Based on the leases we have executed and the activity in the remaining space, we have increased our projected incremental cash yield from 10.2% to 11.6% as you will see on page 22 of our supplement. At ten one, we leased 420,000 square feet during the year at average starting is $97 per foot. Also well above our original underwriting. Since the start of physical redevelopment at PENN1, we have leased over 1,700,000 square feet at, an average starting rent of $94 per foot. At ten two, we have just 348,000 square feet of vacancy left to lease, At PENN1, we have 177,000 square feet of vacancy left to lease. Plus half a million square feet of first-generation leases still to roll over. The good news is that this will all generate income very shortly. At 10:11, we finalized two important leases during the fourth quarter as our major tenant there expanded by another 95,000 square feet. Bringing their total footprint to 550,000 square feet and AMC Networks renewed for a 178,000 square feet. In 2025, our office occupancy rose from 88.8% to 91.2%. Pause here for a minute and dig in. There's some re there has been some recent chatter about physical occupancy call it leased occupancy, versus economic occupancy, call it GAAP occupancy. Most look at the difference on a square foot basis. I prefer to look at it on a dollars and cents basis. The former, leased occupancy, is based on signed leases, including those not yet recognized by GAAP The latter, GAAP occupancy, represents leases that are recognized as paying GAAP rent. At Vornado, the difference is over $200,000,000 which is revenue signed and committed that will be GAAP recognized over the next several years. That number represents gross rents, if the buildings are already paying full taxes at and almost full operating expenses that gross revenue number is very close to net. Income is pretty much of a sure thing. A word of caution to those who are modeling there are lots of in and outs that go into our financials, and I suggest that you not use more than a 40¢ uptick in the twenty twenty seven year. Our New York office leasing popular pipeline remains robust nearly a million square feet of leases in negotiation. At various state at various stages of proposal. Michael and Glen will talk about this in a minute. Recognizing the shortage of large blocks, in the better buildings, we can make available and are bringing to market prime space of up to 380,000 square feet at ten one, up to 350,000 square feet at PENN 2, and up to 400,000 square feet at 1290 Avenue, The Americas. We are making available to the marketplace what our clients need and want. Demand for our retail assets is robust and accelerated. Now turning to our development program. Construction will commence in April two months from now, on our 1,850,000 square foot 350 Park Avenue new build, with as our anchor tenant and Ken Griffin as our 60% father. At our 1015 site, we have been busy with responding to anchor tenant requests for proposals with substantial blocks of space. We recently acquired two very high potential development assets in unique locations which I call in the middle of everything. 623 5th Avenue is a 380 thou 80 383,000 square foot asset. That was originally built to the highest standards by Swiss Bank Corporation as The US headquarters. Our assets sits on the top of Saks 5th Avenue flagship and starts at Floor 11, up to Floor 36. We acquired acquired the property in September for $218,000,000, or $569 per foot. Here's why I think this is the best deal ever. Location is the middle of everything with unique light, air, and city views. You can reach out and touch Vacavela Center, Saint Patrick's Cathedral, JPMorgan Chase's new headquarters, and even our 350 Park Avenue. Just for the fun of it, a look at this location on Google Maps. The building is substantially vacant, which is a huge advantage to us as a redeveloper. Built in 1990, the building is modern. Our business plan is to create here the 220 Central Park Southland boutique office, I e, the best of the best. We acquired this asset for $569 a foot. The finished product all in soup to nuts, including tenant concessions, is budgeted at $1,175 per foot. We will be creating here a new soup to nuts building every bit equal to a ground up new build perhaps the price at in a premium platinum location. We will deliver to tenants by the 2027, the time of a new bill. Recognizing that sex with dad W, Now In Bankruptcy, Has An Uncertain Future, I Believe That Any Outcome To The Saks 5th Avenue bankruptcy will be good for us. And the punch line is at a 10% return on cost, with, say, a 5% exit or measure of value we will achieve a double or with leverage a four bagger or an 11¢ incremental increase to earnings. In January, we closed for a 141,000,000 on the acquisition of three years 54th Street, a development site that is between 5th Avenue and Madison Avenue. On 54th Street. Adjacent to the St. Regis Hotel and on our prime up for 5th Avenue retail property. We previously acquired the $85,000,000 mortgage on this property which accreted to a $107,000,000 that was credited toward credited towards the purchase price. The development site currently is owned 232,500 square feet as of right. And the location is excellent for hotel office, and residential uses. Are considering several options for the site and have already received interesting income. On 34th Street, Mace Avenue on 34th Street, Mace Avenue, you'll develop a 475 unit rental residential building. And expect to break ground in fall of this year. My use of the word junkie in last quarter's earnings got a lot of attention. I don't know why. Any in any event, we will replace the junkie retail on both sides of 7th Avenue along 34th Street. The gateway to our Penn District was more modern appealing, and exciting retail offerings. This will be another step forward and enhance our enhance what we have already accomplished at Penn. Our 50% owned Sunset Pier 94 with partners h and Blackstone. Manhattan's first purpose built film studio facility. Has just opened. And all six sound stages were immediately leased by Paramount and Netflix. These are short term leases but a great start. The Perch, a large glass pavilion on the rooftop of PENN 2 with indoor and outdoor food and drink. Meeting and hanging space has been so well received that we did it again on the 17th Floor setback at 1290 Avenue Of The Americas. This pavilion has just opened, and together with a 10 stall five iron golf operation, and new restaurants to come, makes 1290 the single best building on 6th Avenue. And that's in my opinion, and that's a mouthful. Invite all of you to come take a look. Just call Glen. Our tenants love these spaces, they represent our continuing leadership and innovation in the hospitality side of our business all to the delight of our tenants. Credit to credit to Glen and Barry for design and execution here. Not so long ago, $100 rents were rare. Now they are ubiquitous in the better buildings. With some rents reaching $200 and even an occasional $300. Why? It might be as I mean, I said that there is a profound shortage of quote, better close quote space. Or it might be that the cost of a new build has doubled. It now costs, say, $2,500 for foot. To build a new tower in Manhattan. Can all do the math. Even at these higher rents, it's touch and go to make a new tower pencil. which are very difficult And by the way, these new bills are multibillion dollar monsters for most to finance. Here at Vornado, we have always believed in maintaining a liquid cash heavy balance sheet. Our liquidity is $2,390,000,000.00 comprised of cash balances of $978,000,000, and our ongoing credit lines of $1,410,000,000.00. Over the last several months, we extended maturity through 02/2031. On nearly $3,500,000,000.0 of debt, and we sold $500,000,000 or five and three quarter percent seven year bonds to prefund the maturity of our $400,000,000 two point one five percent June 26 bond. Why'd we go to market six months early? We follow the golden rule that that it's wise to take the money when the markets are wide open and welcoming. And that certainly allows us to sleep at night. We are pretty good at math, and it's clear to us that there is huge disconnect between our stock price and the value of our assets. Accordingly, we have gently put our toe in the stock buyback order. Over the last few few months, we bought back 2,352,000 shares for $80,000,000 at an average price of approximately $34. Since our border authorization in 2023, we bought back a total of 4,376,000 shares for a $109,000,000 at an average price of approximately $25 per share. Think about this. For the stock is a better buy today than it was at $15 three years ago. As a believer in the predictive power of the stock market, I am certainly aware of the recent decline in our stock and in fact, the decline in all real estate stock. Our case, the decline was in the face of best fundamentals in Manhattan in the last twenty years. Well, this most likely represents a great buying opportunity we will proceed with care looking over our shoulder. There are few investments we can find that are more attractive right now than our stock. This disconnect continues, we will become more aggressive. As you can see from my opening remarks, we have a lot going on. I can tell you that the activity level in the market and in our office is double what it was. All good stuff, but it's fun. Now, Michael, your turn. Michael Franco: Thank you, Steve, and good morning, everyone. Comparable FFO was $2.32 per share for the year. As previously forecasted, this was slightly higher compared to 2024 comparable FFO and better than we had anticipated at the beginning of the year. Fourth quarter comparable FFO was $0.55 per share, compared to $0.61 per share for fourth quarter 2024. This decrease was primarily due to higher net interest expense and the lease termination income at 330 West 34th Street in the prior year's quarter. Partially offset by rent commencements, net of lease expirations, higher FFO resulting from the NYU master lease at 770 Broadway, and higher NOI from our signage business. We have provided a quarter over quarter bridge on page two of our earnings release and on page eight of our financial supplement. Overall, company same store GAAP NOI was up 5% for the quarter. While same store cash NOI was down 8.3%. As explained last quarter, GAAP is more relevant to earnings, given the cash numbers impacted by free rent from the significant amount of leasing in recent quarters. As well as the adjustment in cash rent related to the Penn one ground lease truck. Now turning to 2026. As we previously mentioned, we still expect 2026 comparable FFO to be in line with 2025. Due to the anticipation of some noncore asset sales in taking income offline in connection with our plans to redevelop 350 Park Avenue and the 34th And 7th retail at Penn. First quarter will be more impacted due to GAAP rents ramping up throughout the year. Higher interest expense from our recent bond issuance and some seasonality relating to our signage business. As we previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from PENN1 and PENN2 lease up takes effect. We had indicated on prior calls that we expected to achieve New York office occupancy in the low nineties in 2026. We got there early. New York office occupancy increased this quarter to 91.2% from 88.4% last quarter. Due to the significant volume of leasing we accomplished. Principally in the Penn District. As we execute on our strong leasing pipeline, we anticipate that our occupancy will continue to increase over the next year or so. Turning to the capital markets. The financing markets also recognize that the New York office market is back. And performing at a level superior to any other market. The financing markets for these assets are very strong and liquid. With CMBS spreads reaching their tightest levels since 2021. And banks continuing to expand lending for class a assets with solid rent rolls. The unsecured bond market also remains strong, and continues to be constructive for office credits in the right markets. With new issue spreads remaining tight. We took advantage of both these markets recently. As Steve mentioned, since last quarter, we've been very active in refinancing our near term maturities and bolstering liquidity. With nearly 3 and a half billion dollars of financings. Addition to completing several mortgage refinancings, we also refinanced our unsecured term loan upsizing the loan amount by 50,000,000 to $850,000,000, and extending the loan's maturity date from December 2027 to February 2031. We also refinanced one of our two revolving credit facilities and upsized the second facility. So now we have one $1,130,000,000 revolving credit facility that matures in February 2031. And another $1,000,000,000 revolving credit facility that matures in April 2029. We very much appreciate the strong show of commitment from our banks including a few new entrants to our facilities. We also took advantage of the strong conditions in the market and completed a $500,000,000 seven year unsecured bond offering at 5.75%. Which was significantly oversubscribed. A portion of net proceeds these notes will be used to repay our $400,000,000 senior unsecured notes to mature in June. In total, since mid 2025, we have refinanced or repaid almost half of our balance sheet. Including almost all of our unsecured debt, terming out our maturities and putting our balance sheet on even stronger footing. Our net debt to EBITDA metric has improved 7.7 times from 8.6 times at the start of the year. And our fixed charge coverage ratio, as expected, continues to steadily rise expect these ratios will continue to improve over time. As income from PENN one and PENN two comes online. Recognition of the significant improvement we've made in our balance sheet metrics, over the past eighteen months, S and P recently changed their credit outlook on our company from negative to stable and affirmed by triple e minus unsecured rating. We are hopeful Fitch and Moody's will follow suit as our balance sheet continues to improve. With that, I'll turn it over to the operator for Q and A. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touch-tone phone. If you wish to be removed from the queue, please press star, then 2. If you are using a speakerphone, you may need to pick up the headset first before pressing the number. Once again, if you have a question, please press star then 1 on your touch-tone phone. Each caller will be allowed to ask a question and a follow-up question before we move on to the next caller. And the first question will come from Dylan Burzinski with Green Street. Please go ahead. Dylan Burzinski: Hi, guys. Thanks for taking the question. Maybe just touching on the 350 Park announcement. In the release. Is there anything that's changed in the structure at all versus what was originally disclosed back in, I think, December 2022? Michael Franco: Good morning, Dylan. Thanks for joining. So you know, in terms of the agreement, you know, Ken Griffin wanted to the option exercise, which we were fine with. And, you know, in the course of that, you know, there were some amendments you know, related to the overall deal. Nothing, I would say, tremendously substantive in terms of the economics, but it gave Vornado and Ruden the flex to effectively rather than just a fixed equity percentage investing anywhere from you know, we put our percentage of 20 to to 36%. So, you know, that's the that's that's the main change A couple other minor things, but I think that was the most material thing. But it's a project, you know, we're very excited about. He's very excited about You know, obviously, in the in the filing, the clock started, but we're excited about it. And and I know there were questions about toilet or so on. You know, we we intend to be part of this project. Dylan Burzinski: Okay. That's helpful. And can you guys kinda just talk about sort of yield expectations, what that implies, and sort of required rent level. Just anything as it relates to sort of the the economics. And I guess is it still Citadel's plan to sort of take down, I think it was, like, 50% initially. Michael Franco: So, you know, we'll publish that as we go a little bit closer to that date. There's a few things still moving around, but know, as we as we indicated originally, you know, there is a formula that determines Citadel's rent. It's effectively you know, it's it's based on a premium to what permanent financing costs are with a cap and collar So that that was unchanged. You know, Citadel still finalizing their space planning. But I would tell you in general, their appetite for space has grown from the original deal. So you know, when when we finish all that over the next few months, you know, we will publish that, but I don't I don't wanna jump the gun just yet. Needless to say, think it's gonna be an extremely attractive project Economically, we think it's going to be, you know, best building in the city. And, you know, we think the space we're gonna have, Billy, is is gonna command the highest rents in the city. Operator: The next question will come from Steve Sakwa with Evercore ISI. Please go ahead. Steve Sakwa: Yes, thanks. Good morning, Glen. Could you maybe just provide a little color on just kind of your overall leasing pipeline and you know, the conversations that you're having with tenants, you know, about space in the market today? Glen Weiss: I do. So our pipeline continues to be really strong. I mean, that's even after leasing 3,700,000 feet last year. As Steve said in his remarks, we're creating opportunities of big box space within the building, namely of PENN1 and twelve ninety. To meet the market, have the inventory as we see tenants expanding and coming into New York rapidly. With immediate needs. So those are all great signs. You know, in the pipeline, more than half of the activity or tenants that that will be new to our buildings and the other 50% of renewals and expansion We're seeing financial services and the law firms expand a lot within the portfolio right now. Our first quarter leasing activity will reflect that. The tech tenants are also growing a lot. As you saw at Penn eleven last quarter, we're seeing action everywhere. New York is hitting on all cylinders. Our team is hitting on all cylinders. And coming off a huge drill like we had last year. We don't see any let up in that at all. Steve Sakwa: Okay. Thanks. And then maybe as a follow-up, Steve, you mentioned the share buybacks and the disconnect with NAV. In in other property types, we are seeing know, some of the public REITs lean more heavily into dispositions and know, paying down debt but using those excess proceeds to buy back stock. Is that something that you know, you would entertain more aggressively given where the stock is today? Steven Roth: Yes. Steve Sakwa: Any other comments beyond yes? Steven Roth: Double yes. We have a we have a few assets up for sale which will generate capital. We think our stock is stupid cheap. I think in past years, I said stupid stupid, double stupid, so that's double yes. And the stock is probably the single best investment we can make now other than six two three fifth, which is obviously I'm in love with. Operator: The next question will come from Floris van Dijkum with Ladenburg. Please go ahead. Floris van Dijkum: Hey, guys. Thanks taking my question. My question is regarding your the difference between your cash and GAAP same store NOI. And I think, Michael, you indicated that throughout the year, this is going to inflect. Do you get can you give us a sense of when that inflection point will happen and when your cash NOI will will turn positive? Michael Franco: Good morning, Floris. You know, I think I said on the last call, it remains the case that we would start to see that flip over in the second half '26, and that that remains the case. So I think you'll see it improve, you know, quarter by quarter but it won't flip until the back half of the year. You know, when when, you know, those tenants start or many of those tenants start paying rent. Steven Roth: Mean, the answer is when when the when the very ugly and painful free rent burns off, that's when the cash begins to come become positive and starts to reflect a similarity to graph. The gap. So that's coming And maybe That's coming and coming pretty soon. Floris van Dijkum: That which that's encouraging. My follow-up question is regarding your your retail, particularly your Upper 5th Avenue retail, maybe could you talk about what are what's happening to to rents there relative to in place, and maybe remind everyone what your in place rents are for your Upper 5th Avenue JV. And Then Potential Monetizations For That. And I Believe I I What's Happening With The 657 5th Avenue, I think that's a new meta. Is that a permanent lease, or is that still a pop up, lease? Steven Roth: Oh, boy. There's activity on the Middle East which will be which which really it's it's inappropriate to talk about it now. So that's step one, which involves the MediStore going long term. With respect to the leases, generally, the retail market on Upper 5th And Times Square is improving dramatically and rapidly. But it is still struggling to meet the up the the the top tick rents up four or five years ago. It's getting there, but it's struggling. Operator: The next question will come from John Kim with BMO Capital Markets. Please go ahead. John Kim: Steve, you gave some very interesting information on the difference between the gap occupancy and leased occupancy. I'm assuming that $200,000,000 difference is annualized. But I was wondering how much of that you expect to get by the end of this year and by the end of '27? Steven Roth: It's it's actually not annualized. It's an absolute number. And to be honest with you, my finance guys are sitting here right across from me shooting daggers at me. The number is higher than $30,000,000. But in a in an abundance of caution, they wanted to keep it at $2,000,000. So $200,000,000 is is is a slightly lower number. It's a one timer number, and it feeds in as as a tenant sold from go into GAAP it feeds into GAAP as as tenants even take occupancy or they meet the standards for GAAP recognition of income. So that's what that number is. It happens over the next you know, as the leases mature not mature is not the right word. The leases Right. The tenants build out their spaces. Right? Someone could start recognizing the GAAP right in here. The GAAP recognition is the tenants have to either build out the spaces or take Mhmm. That happens, you know, quickly over the next year or two. I don't have a plot as to exactly how much per month but a lot of it comes in in in in first year, a lot of it comes in the second year. And, I mean but the interesting thing about it is that is income which is in the bag. The leases are signed and it's just a matter of a small amount of time as to when they go with the GAAP recognition. Now the 40¢ that I put at the end of that paragraph is a kinda strange guidance for something that's two years out, which is something we never do, And so it's kinda like strange. I wouldn't rely upon it too much. It's not a guaranteed certified. I'll bet my life audit number. But it's sort of a number. But the $200,000,000, which is a little bit more than that, with a 100% certainty comes in income over the next number of years. Now the interesting thing about it is, which I tried to say, is is that the company is it's a simple company, but the financials are sort of a little bit complicated. There are ins and outs. So there are some tenants that'll move out. There are other things which will affect earnings positively and negatively. But that's, I think, the story. Anything to add there, Tom? Michael Franco: No. No. I think you said Thank you. John Kim: Did I do a For those of us who who like to look at percentage terms, that 91.2% leased occupancy, what is that in terms of physical or economic occupancy? Steven Roth: Well, it's it's it's it's 92 it's 90 whatever Nine places. Ninety one forty two? In New York City. In New It's ninety one forty two. Manhattan office. It's 91 and change versus 88. And change. And by the way, we expect we expect that occupancy number to go up. Operator: The next question will come from Jana Galan with Bank of America. Please go ahead. Jana Galan: Thank you. Good morning. Maybe also following up on some of the strange guidance. If we could get some more details on June and did I catch in your comments that it could add 11¢ to FFO? Steven Roth: I'm sorry. I didn't get the $6.02 cents. What about Comments on the 11¢ to it. So Well, it's just math. So you know, my guys are laughing at me, but, I mean, I I'm I'm in love with this asset. I think it's probably the best acquisition ever. So the building is basically empty. The prior Aurora was emptying the building out to convert it to residential. We think that that's not the right program. We're gonna make it Glen's assignment to me is make this thing the two twenty boutique office, meaning the best of the best of the best, which will generate the best. The best income. So we believe that the finished product will cost 1,100 and change say, $1,200 a foot rounding. And we believe that the net income on the project will generate a scan over 10% just what think we have on on the supplement 10.1%. gonna have a 10% return, If you say that the project cost $1,200 a foot and That's an interesting number. Now we think if we can if we sell that building, which I'm not saying we will or we won't, it probably would command if any building will command the 5% cap rate in the marketplace, it would be that building. Which starts on the 11th Floor on top of Saks in a spectacular location. And by the way, I was being quite sincere when I said, take a look at the location on Google Map. It's just Spanish. So if you build it to a 10 and you sell it to at a five, that is basically a doubling of your money. Or if you put 50% leverage on it, that's a quadrupling of your money. If, however, these the value is in the income stream in the company, we think that that will generate a little bit more than 11% 11¢ incremental return. How do I get that number? $50,000,000 of income. Less the cost of capital on the on the $1,200 a foot cost yields 11% or slightly more than 11%. I hope that answers your question then. What? Sounds Sense. $11.07. Did I say? Percent. 11¢. Sorry. Jana Galan: Thank you. That's very helpful. And then just in terms of the development costs, and, you know, I think there's debt on it now that you probably need to term out. What are kind of your expectations on that? Steven Roth: We're going to finance the building as we always do. The it's it's not a great deal of money, couple $100,000,000. We're gonna complete the project. We're gonna let rent it out. One of the keys to it is that we will deliver we will deliver for for tenants. Probably the '27, which is less than half the time that it takes to build a new build, at less than half the cost. So those are part of the financial metrics that's the way I'm so excited about the project. When we get done with the project, we will keep it in our portfolio because we will expect that the rents will go up and up as as time goes on. And we will finance it as we finance all of our projects. Operator: The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander Goldfarb: Hey, good morning. Good morning, Steve. Can you guys walk through on 350 Park, just I know, Steve, you mentioned that it's part of the guidance for this year and that on a recurring FFO, it's flat. But you just walk through sort of the mechanics of the income and how that is there's a master lease, but then you'll capitalize it. So just wanna understand the net effect, especially as we think about our 27 and what the carryover is from $3.50 going because you're you said you're gonna stay in the project. So just wanna understand the full effect. You're talking you're talking about the transition from the existing 350 Park Avenue built which will be taken out of service and demolished starting next month into a capitalized interest model. Is that right? Michael Franco: Yeah. Yeah. Because I think there's a master lease right now. Right? There is. There is. So that that's going to terminate Well, it'll it'll be adjusted, I should say, when demolition starts, which will be April 1. So the answer is there's gonna be a little bit of a negative impact in '26 as we transition from demo to full capitalization. And, you know, next year, it'll be capitalized and will be basically on par with with what it was last year, but a little bit down this year. Alexander Goldfarb: Okay. And then the second question is, Steve, on the dividend, you're one of the few companies that still is know, paying a a reduced, you know, a stub dividend, if you will. You talked about, you know, your liquidity. You talked about know, improving on the balance sheet. The rent that's coming online over the next few years, and yet still a lot of capital projects that you have in terms of various development projects. So how do you see the dividend versus taxable income? And when you see a full normal quarterly restoration of it? Steven Roth: Well, first of all, we may be one of the few companies. I'm not sure of that, but there is a cue and cry in the marketplace with people that are overpaying their dividend to reduce their dividend to conserve the cash. So we're sort of aware of that. But nonetheless, you know, as a large shareholder, our management team has a and our board has a high incentive to pay a normalized dividend. A normalized dividend is in relation to two things. The the the internal revenue code requires that we pay out our taxable income. But, also, common sense says that we should pay to our shareholders something which is approximates the income stream of a normalized business. So it's not impossible that our regular income would be higher than our taxable income. So we we have an incentive to get back to a normal dividend as soon as we can. Which will not be this year, by the way. And as soon as we get back to normalcy, in terms of our income stream, getting all getting all of the renting that we have done paid for with the free rent and the at at at the DI, and get that all behind us we will then revert to a normal dividend. Operator: The next question will come from Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone: Okay. Thanks. I guess my first question, I was wondering if you could help a bit with sources and uses of funds over the next couple of years because as I'm listening to this, you've got a couple of redevelopments that that you now have teed up talked about, I think, last quarter, maybe building an apartment project. Buybacks are a priority. Sounds like you're be spending real money on 350 Park in the next couple of years as that gets underway. And just trying to add all this up and get a sense as to, like, you know, sources and uses, basically. Michael Franco: I mean, Tony, I can't hey. Good morning. I give you, you know, dollar figure by dollar figure. What I what I would say is, as you would expect, you know, we're not willy nilly frivolous. Right? We have a capital plan We know what's in front of us. You know, and we have a business plan. Right? And that business plan is a combination of you know, financings generally at the asset level. Some asset sales, you know, etcetera. So and I would say in terms of development projects, other than six two three, which will be, executed, you know, this year and next, You know, the other projects are more back ended, particularly three fifty. Where, you know, our capital to the extent we invest above the land contribution. Which we don't have to, although I think given the attractiveness of it, We will. Assume we will. We will. Right? That capital, you know, given that our partner has to true up with us first and the bank's gonna fund some of that, there's no meaningful capital on $3.50 for several years. So the answer is we have we have a we have a plan We can do all the things that we've laid out. And, you know, we've sold assets the past. We have some things in the works. And, you know, we're confident that we can execute those, and we're gonna be you know, as Steve said in his opening remarks, we're gonna be mindful on the buybacks once we have, you know, the appropriate capital and and and to deal with everything else. So, Lou, we have a lot of things that we want to do, which we think will create significant shareholder value. So one of them is buying back our stock, which is a separate thing which is has to be done with care. So that we don't screw up our balance sheet, which we will not do. Ever. So one of the uses is buying back stock. So that's sort of like a subtraction. We do that with capital as it's available. Next thing is three fifty Park. Is a very important we hope extremely successful project The principal amount that we will be contributing to that is our land, which is free you know, which is easy. And then there's about 3 or $400,000,000 above that in cash that will represent our 40% interest or 36% interest And so that's not a great deal of money in relation to a $6,000,000,000 project because we're only a 40% partner. So we have a a 850,000 and growing anchor tenant that's signed. And we have a 60% partner. So the three fifty part project is a great project which from a financial point of view is is is not as challenging as you would think. The 623 5th Avenue project is easily financeable What else The TIs the most important thing we have from a capital point of view is the TIs. To put into occupancy and and convert it to GAAP Red the tenants that we've already signed. That money is already allocated. Then the residential project is, you know, that's multifamily finances very well. We already have the land unencumbered. You know, that that comprises a chunk of the equity and then not much cash above that. So now the next part of it is so that's a little bit about the uses. Now the sources are I would remind you that we have basically income producing part of the Penn District is free and clear. With no debt on it. So and those buildings have now become more valuable as as Glen and his team have leased them up. So we have the Meta Building in one free and clear. We have two Penn free and clear. We have Penn one free and clear. We have the Pen 15 site free and clear and on and on. So we have we have significant financing available to us should we need it or choose So that's without know, giving you a piece of paper, that's a verbal description of our capital plan. Anthony Paolone: Okay. Thanks thanks for all that. And then just my my only follow-up is 354. I was wondering what the cost to to build a a a smaller building like that? I guess we're getting used to well over $2,000 a foot for the larger avenue type developments, it seems. Just wondering if there's any appreciable difference in a smaller mid block asset like that. Steven Roth: A a little bit a little bit less. A little bit less. Okay. But not a not but not appreciably less. Operator: The next question will come from Vikram Malhotra with Mizuho. Please go ahead. Vikram Malhotra: Morning. Thanks for taking the question. So two ones. One, just a follow-up I wanted to just be crystal clear on the $0.4 going to next year. That an NOI comment incremental contribution? Is that sort of an FFO comment? Just how should we think about that? And then maybe just other big picture moving pieces as we think about this massive, earnings ramp? Michael Franco: It's, it's FFO, Vikram. Vikram Malhotra: Okay. It's FFO. Okay. Helpful. Just on street retail, I think you know, the team hired Newmark in the sort of a reenvisioning of Penn Station Penn District Street retail I'm just wondering, as you've thought about, like, the the street retail portfolio there, is there like a broad range or, like, a after doing all of this, what's the NOI uplift over over the long term? Steven Roth: You know, we haven't split that out, and we're not really publishing projections on that. We will sometime in the short term future, but we haven't done that yet. But, you know, basically, the Penn District is a it's it's a district. It's office buildings. It's retail. It's events. It's a gathering place. It's it's the perch. It's the town halls. It's a it's a system of interaction and hospitality and work and workplaces, which is important. Each plays off the other and and and and increments the other and helps the other. So the retailer is very important as a as a separate business but it's extremely important as it affects our our our our demand for the office space. Operator: The next question will come from Nick Yulico with Scotiabank. Please go ahead. Nick Yulico: Thanks. Good morning. First on ten I was hoping you could just remind us about for the leases that were done so far, year and then when they're set to commence? I think MLS was assumed early this I guess, the bulk is sort of 2027 beyond, but I guess in relation to like the 80% lease number that you give for that asset, just how to think about when that will actually turn into GAAP NOI I guess, how much of that 80% actually is fully in 2027 as you're talking about that ramp next year? Steven Roth: That's actually a a quite about detailed guidance, which as you know, we don't do. The only only I'd say, Nick, is that pen two, more of it will be online in '27 and '26. Nick Yulico: Okay. And then, I mean, just in terms of the commencements this year then, what is it? Is is I think MLS was assumed, what, early this year? Is there anything else that's listed there from the tenants in the sub where their leases haven't commenced that you expect commencement this year? Michael Franco: I would I would make a suggestion, Call Tom offline, see if you can wrangle that in. That that answer out of them, which I doubt you will. I mean, you know, you can use your own judgment. I mean, these are big leases. And they will come on, you know, in the next six months. If they don't come on in the next six months, they come on in the next twelve months. From my point of view, as an investor, it really doesn't matter that much. So they're coming. Whether they come three months sooner or six three months later, you know, that's interesting, but not this positive. But call Tom, see what you can get out of Tom. He's sort of laughing, by the way. He's waiting he's anxious for your call. Steven Roth: The next question will come from Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: We're going back a minute. Going back a minute. I was really not trying to be anything other than responsive to your question for a company that really doesn't do detailed month by month guidance. So with respect, we'll talk. Next question. Matt: Hey, guys. This is Matt on for Ron. Thanks for taking the question. Just going to the New York office TI and LCs as a percentage of initial rent. I noticed that ticked up in the quarter was kinda wondering what the drivers were and how we could think about the trend for the rest of 2020. Glen Weiss: Hi. It's Glen. It's certainly not a trend It was an outlier quarter. We made a couple of deals where we stretched TI with not as much term on leases as we would have liked, but we wanted the tenants in these buildings for for reasons. We love the tenants. We love their credit profile, and they were great users for the assets. But not a trend at all. I expect we'll go back you know, to the to the you know, we've we've been around 12, 13% over the last few quarters, and I think concessions will will tighten. Going forward here this year. Free rent's already starting to come down, and TIs are really starting to squeeze So short answer, not a trend at all. Matt: Got it. And then just as a follow-up, I noticed the projected cash yield on Sunset Pier 94 declined despite what looked like solid leasing activity on the property. Could you talk about, like, what the the drivers of that were? Steven Roth: Reality. Which is our business, by the way. The streaming business is has some challenges. As you will know and read about in the papers. And, I mean, the fact that we leased a 100% of the space at the opening They're short term leases. They're they're not even a year long, so that's an interesting thing, but not indicative of the of the future. And it's just a matter of our our seeing realistic in our projection is to what the yield on the project will be. So the 10% went down to 9% as a result of reality. Operator: The next question will come from Brendan Lynch with Barclays. Please go ahead. Annabel Ehrer: Thank you. This is Annabel Ehrer on for Brendan Lynch. How should we think about the expected retention rate on the remaining twenty twenty six expirations? Especially the 600,000 square feet in the fourth quarter. And are there any larger blocks of space that you would call out? Glen Weiss: Great question, Glen. Hi. It's Glen. We feel really good about the expiration this year. We're on top of all the measures you would expect. On the larger block expirations, we expect two of them to renew So we we feel good about our expiration schedule. We we've taken care of you know, huge expirations over the past three years. So if you look forward 2627, we're in great shape. So, you know, I think we'll be we'll be more than fine as it relates to attacking other future experts. Steven Roth: Thank you. As you can tell from all of our remarks today, we're extremely constructive about the about the office market in Manhattan. We believe that it is tightening We believe that rents are going up. And by the way, rents are going up more rapidly than TIs or tenant inducements are going down. So our projection is and I don't Glen can give you his opinion. Is that free rent can go down because that's a discretionary item. TIs will probably not go down because the cost of construction of the tenant spaces is not going down. And it's in fact going up. So we believe the easiest is for the rents to go up. The second is for free rent to go down. And TIs are gonna be very, very sticky. Do you agree with that? Glen Weiss: I agree with that. Although, I will tell you on the TIs, careful now because you have to produce the results. On the TIs, we're definitely squeezing them in terms of not being as flexible as we were. So I think the first thing was they're not going up for sure. We're squeezing them, you know, at these ranges that we've been seeing in hopeful they'll come down. Although I agree with Steve generally, free rents are coming down, and that's been more more easy to manage with the with the deal making for sure. Operator: The next question will come from Seth Bergey with Citi. Please go ahead. Seth Bergey: Hi, good morning. I kind of wanted to go back to 350 Park. I think in your opening comments, you mentioned that you know, Citadel kinda had an appetite to take additional square footage. I think they were kinda set to occupy around 850,000. Just could you kinda quantify how much more they would much know, be looking to take? Or, you know, are you in any other kind of conversations about pre leasing space in that building? Steven Roth: Look. The Citadel relationship between Citadel and Vornado is a important. These are conversations that are still taking place. The Citadel team is still making up their mind as to what exactly their requirements are. And so as soon as we know and they become firm and agreed to, you will know, but not now. Glen Weiss: On on the second part of your question, the energy and excitement around the spec office space is excellent. So we're presenting this project to many tenants as small as even 50,000 feet So if you think about it, tenants who are expiring in thirty one, thirty two, thirty three, are already asking us to present the project That's how much excitement there is in the market There will be nothing like this available in New York. And people realize that They recognize that between us and Citadel and Ken Griffin this will be the best building built in this city by far. Steven Roth: And by the way, you can tell we're pretty damn proud of it. Operator: That's that's helpful. I'd like to I'd like to try and end up today. It's close to 11:00 as we can. So it's 11:00 now. So how many more questions do we have? Operator: This is it. Steven Roth: This is it? No more questions? Really? Well, anyway, thank you all very much for joining us. We're very excited about the business. We're very active The activity level, as I said, has you know, it's palpably double the what it was even as recently as a year ago. And thank you all very much for your support. We'll see you at the next quarter. Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. May now disconnect. Steven Roth: Good.
Operator: Hello, and welcome to WESCO International, Inc.'s 2025 Fourth Quarter and Full Year Earnings Call. If you would like to ask a question, please note this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations. Please go ahead, Scott. Scott Gaffner: Thank you, and good morning, everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today, we will use certain non-GAAP financial measures. Required information on these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com. On this call, we have today John Engel, WESCO International, Inc.'s Chairman, President, and Chief Executive Officer, and David Schulz, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to John. Well, thank you, Scott. Good morning, everyone, and thanks for joining our call today. John Engel: So I'd like to open up today's call with the organization change we announced earlier this morning. WESCO's CFO, David Schulz, will be retiring from WESCO in May 2026. David will serve as Executive Vice President, Adviser to me until his retirement. David has done an absolutely excellent job since joining our company in 2016. On behalf of our board of directors and the entire WESCO team, I'd like to thank David for his outstanding and dedicated service and tremendous contributions to our WESCO success over the past ten years. I have the utmost respect for David and greatly appreciate our business partnership that we had in building out the new WESCO. We extend our very best wishes to David and his family. I'm pleased to announce the appointment of Neil Deve as Executive Vice President and CFO. David and Neil will work together to effectively transition CFO responsibilities. Neil will join WESCO later this month to support a smooth transition. For a brief introduction to Neil, he's a seasoned CFO with extensive financial, commercial, and operational experience in multiple WESCO served end markets. In his leadership roles for both public and private companies, he's demonstrated the ability to navigate complex financial environments and deliver superior growth and value creation. Neil's an excellent addition to our executive management team and will help us as we continue to accelerate our strategy, execute our growth initiatives, deliver our financial targets, and create value for our stockholders. Now moving to our WESCO results. We closed out 2025 with positive momentum and, again, outperformed the market with our leading portfolio of product services and solutions. In the fourth quarter, we delivered record sales of $6.1 billion, up 10% year over year, including 9% organic growth, and set another record in data center sales of $1.2 billion, up approximately 30% year over year. At the business unit level, communications and security solutions and electrical and electronic solutions both delivered excellent results. This all occurred while utility and broadband solutions results continued to reflect the ongoing sales and margin challenges with public power customers. However, we saw a clear inflection back to growth with our investor-owned utilities in the second quarter of last year. And that marks the first of three consecutive quarters of IOU sales growth that strengthened in the fourth quarter. Overall, we finished the year with strong momentum, continued to take share, and build a record backlog, which was up 19% year over year. Providing another proof point that WESCO is benefiting from the enduring secular growth trends of, number one, digitalization, that includes AI-driven data centers and automation. Number two, electrification, that includes increased power generation and reliability. And number three, supply chain resiliency, that includes reshoring. Looking ahead, in 2026, and into this year, we expect to continue to outperform the market and deliver mid to high single-digit organic sales growth, strong operating leverage and margin expansion, double-digit EPS growth, and improved free cash flow generation. Recall that our midterm growth targets outlined at our last Investor Day called for organic sales growth of 3% to 5%. But given our market share gains and exposure to secular trends, we have exceeded our midterm growth targets. As we've done consistently, we're maintaining a disciplined approach to capital allocation. In the near term, our priorities remain focused on debt reduction and share repurchases to offset the annual equity award dilution. And we continue to invest in our tech-enabled business transformation and manage an active M&A pipeline. I'm also pleased to announce that we plan to increase our annual common stock dividend by over 10% to $2 per share. Now I'll briefly touch on our enterprise-wide efforts in 2025, and this is an increasingly important differentiator for WESCO. We made excellent progress on our digital transformation throughout 2025. We advanced our technology and capabilities build and we've deployed our new tech stack in pilot locations in each of our three business units. The centerpiece of our new tech stack is a world-class data lake where we're working to apply AI to improve the efficiency and effectiveness of our business. Recently, we are pleased to be recognized by Fortune in their inaugural AI ranking of Fortune 500 companies with a number 10 ranking. Once our digital transformation is completed, we expect to accelerate our earnings growth through even greater cross-sell, expand our margins through improved pricing and operating cost leverage, and increase our working capital turns by leveraging our single global IT instance. In closing, as the market leader and with positive momentum building, I'm confident that WESCO will continue to outperform our markets and deliver exceptional value to our customers and shareholders in 2026 and beyond. Finally, I continue to be very proud of our talented and dedicated WESCO team whose relentless focus on serving customers, advancing our digital transformation agenda, and driving superior execution across our businesses is producing notable results. This is all occurring as we realize our vision of becoming the best tech-enabled supply chain solutions provider in the world. With that, I will now hand it over to David to take you through our fourth quarter and full year 2025 results as well as provide a more detailed outlook on our 2026 outlook. David Schulz: Thank you, John, and thank you for the kind words. Good morning, everyone. I'll turn you to Page four. Sales in the fourth quarter were in line with our expectations driven by strong performance in DES and CSS. Revenue was $6.1 billion, an increase of 10% year over year with organic sales up 9%. Growth was driven by approximately six points of volume and an estimated three points of price, including one point from commodities. CSS delivered 17% organic growth, EES grew 8%, and UBS organic sales increased by 3%. The increase in adjusted EBITDA was driven by higher sales. SG&A as a percentage of sales was essentially flat versus the prior year. Gross margin was 21.2%, in line with the prior year. Adjusted EBITDA margin was 6.7% of sales, and adjusted EBITDA was $409 million, up 10% year over year. Adjusted EPS grew 8% to $3.40. Turning to Page five. For the full year, sales were $23.5 billion, an increase of 8% with organic sales up 9%. Volume contributed approximately seven points while price provided an estimated two-point benefit, including about a point from commodities. Volume growth was strong across CSS and EES, with UBS momentum returning in the second half. Adjusted EBITDA increased 2% to $1.54 billion or 6.5% of sales. Gross margin was 21.1%, down 50 basis points versus 2024. The decline in gross margin reflects project and product mix, along with public power competitive pressures. Adjusted EBITDA margin also benefited from 10 basis points from operating leverage versus the prior year. Turning to Page six, I'll provide you the bridge on EPS versus the prior year. In the fourth quarter, adjusted EPS increased 8% to $3.40. The year-over-year improvement was driven primarily by strong operational execution as well as the benefit from the preferred stock redemption. Interest expense was higher than the prior year due to the issuance of the 2033 notes, which funded the preferred equity redemption, and a one-time adjustment to interest on taxes payable of approximately $10 million. In addition, the effective tax rate in the prior year period included several benefits from favorable adjustments creating a tougher comparison. Versus our expectations heading into the quarter, non-operating items were approximately $10 million higher due to the one-time interest expense that I just mentioned. There were also two unanticipated tax items in the quarter, but they netted to an immaterial impact. For the full year, adjusted EPS increased 6% to $12.91. The key drivers were consistent with the fourth quarter, including the absence of the preferred dividend, favorable FX impact, and a lower share count, all of which contributed positively to EPS growth. Contributions from operations were slightly negative year over year, reflecting pressure from lower gross margin. Interest and tax remained relatively stable contributors for the year. I'll walk you through our business unit results beginning with CSS on Slide seven. In the fourth quarter, CSS again delivered very strong results. With organic sales up 14% and reported sales up 16% year over year. This growth was driven by continued strength in WESCO data center solutions, where sales were up over 30% driven by strength across our hyperscale customer base. Enterprise network infrastructure also contributed to growth with sales up low single digits over the prior quarter. Security sales were up low double digits and including data center-related sales, the business grew mid-teens. Growth was driven by customers accelerating the shift from analog to digital systems with AI-enabled data center deployments, amplifying demand for our next-generation security solutions. CSS backlog increased nearly 40% ending the year at a record level and highlighting the continued strength of our data center business. Adjusted EBITDA for the CSS segment grew approximately 30% with adjusted EBITDA margin of 9.1%, up 90 basis points versus the prior year. This year-over-year expansion reflects higher gross margin and improved operating leverage on strong top-line growth. Gross margin was 21%, up 20 basis points year over year. Adjusted SG&A improved by 70 basis points to 11.9% of sales. For the full year, CSS reported sales were up 18% with organic sales up 17%. Growth was driven by exceptionally strong demand in our WESCO data center Solutions business, up over 50% for the year along with solid growth in security. Adjusted EBITDA margin expanded 50 basis points year over year, reflecting strong operating leverage on higher sales. Turning to Slide eight, I want to take a moment to discuss the continued strength we're seeing in the broader data center market and WESCO's expanding role in supporting this growth. Customers continue to rely on WESCO and our supplier partners to meet their evolving requirements and our capabilities now span an increasingly broad portion of the data center life cycle. From a total company perspective, data center sales were $4.3 billion for the full year, up approximately 50% and represented roughly 18% of WESCO International, Inc.'s 2025 sales. This growth was driven by strong performance across both gray space and white space environments, with CSS once again delivering the majority of the contribution. WESCO's capabilities now support every major phase of the data center life cycle. From power and electrical distribution infrastructure to advanced AI compute environments to on-site services that support construction, commissioning, and ongoing operations. This allows us to deliver value across the full investment cycle and to support our customers as their needs rapidly evolve. Looking ahead, we expect this momentum to continue as investment in digital infrastructure accelerates. With our comprehensive capabilities and deep customer partnerships, WESCO is well-positioned to capture additional share and support the next wave of data center growth. Turning to slide nine. This page highlights the breadth of WESCO's data center product, services, and solutions offerings. Our capabilities span both gray space and white space, enabling us to serve hyperscale, multi-tenant, colocation, and enterprise customers with a comprehensive portfolio. In the gray space, which represents roughly 20% of our total data center sales through our EES business, we provide the critical power, electrical, mechanical, automation, and MRO products required to support the construction and operation of high-performance scalable facilities. The white space, representing approximately 80% of our overall data center sales through CSS, includes our next-generation connectivity and IT infrastructure portfolio. Beyond products, our services offer spans the full life cycle of a data center. We support customers from early planning and design through installation, commissioning, and integration, all the way to ongoing operations, modernization programs, managed services, and ultimately decommissioning. This end-to-end capability allows us to help customers adapt quickly and execute at scale in a rapidly evolving environment. With our global ecosystem of suppliers and partners, WESCO provides a single coordinated source for the solutions required across the data center life cycle. We enable seamless execution across the globe to support customer timelines and project requirements. Taken together, our combination of products, services, and solutions, and deep technical expertise positions WESCO exceptionally well to continue capturing the strong secular growth in data center demand driven by cloud, AI, and edge computing. Together, these capabilities position WESCO as a trusted end-to-end partner for the world's leading data center operators. We remain well aligned to support the significant long-term growth in this market. Moving to Slide 10. For the fourth quarter, EES reported and organic sales were up 9% driven by growth across construction, industrial, and OEM, marking our third consecutive quarter of growth in these end markets. We are very pleased with the strong results in our EES segment as we exited the year. Construction sales were up low double digits in the fourth quarter, supported by strong wire and cable demand and continued infrastructure project activity. Industrial sales were up low single digits year over year with notable strength in Canada. OEM sales increased mid-teens. EES backlog was up 6% year over year, reflecting healthy underlying demand across the portfolio. EES adjusted EBITDA grew 16% versus the prior year with adjusted EBITDA margin expanding 50 basis points to 8.5%. This improvement reflects higher sales, favorable gross margin up 50 basis points year over year, and solid SG&A performance. For the full year, reported sales were up 7% with organic sales up 8% led by strong OEM and construction growth and improving industrial performance. Full year adjusted EBITDA was up 3% and adjusted EBITDA margin was down 30 basis points reflecting modest gross margin pressure driven by project activity and product mix, primarily in the first half, which was partially offset by disciplined SG&A management. Turning to slide 11. For the fourth quarter, UBS reported organic sales were up 3% year over year. Utility grew mid-single digits driven by strong double-digit growth at IOU customers, including higher sales from grid services, partially offset by continued softness with public power customers. Broadband declined high single digits versus the prior year due to a difficult prior year comparison. Growth within our IOU customer base returned in Q2 and has now continued for three straight quarters. As we've discussed throughout the year, we continue to see softness with our public power customers driven by inventory normalization and competitive pressures. Consistent with our commentary last quarter, we continue to expect public power customers will return to sales growth by the end of 2026. UBS backlog increased 23% year over year, supported by IOU project activity, and improving broadband trends providing a strong setup for 2026. Adjusted EBITDA margin was down approximately 120 basis points year over year, primarily reflecting lower gross margin driven by headwinds in Public Power. On a full-year basis, reported sales in UBS declined 5% with organic sales down 1%. Utility was down low single digits over the prior year driven primarily by lower public power activity. Broadband grew mid-single digits on continued network investments. Full-year EBITDA margin in UBS declined 90 basis points primarily reflecting competitive pressures in the public power market. We expect stronger UBS results in 2026, driven by IOU customers and grid services applications as our utility customers respond to the rising power demand curve. Turning to our Grid Services business on Slide 12. We want to provide you with additional insight on a growing part of our UBS business. Grid Services provides end-to-end execution, technical depth, and supply chain strength to help utilities and heavy power operators build, modernize, and reliably power critical grid infrastructure. This business generated over $300 million of revenue in 2025, and grew at a mid-single-digit rate. In 2026, we expect growth to accelerate to double digits. Our grid services team supports projects across distribution, medium voltage, transmission, and substation systems through a unified model that coordinates materials, logistics, and engineering services. In distribution, we supply conduit, poles, protective equipment, and other essentials needed to ensure reliable and resilient last-mile power delivery. In medium voltage, we provide power cable, connectivity, switching equipment, including pad mount cabinets and termination kits, to help customers operate medium voltage systems safely and efficiently. In transmission, we deliver the critical components required to build, harden, and modernize high voltage networks such as cable and conductor, insulators, poles, and structures. And in substations, we provide high voltage apparatus, steel structures, grounding systems, power and control cables, and other equipment that enhance grid reliability and support growing electrification demands. Behind these product offerings is a set of execution capabilities that enable us to deliver them reliably, and at scale. Our program and project execution teams coordinate planning, scheduling, and field execution, to keep critical work on track. Even amid industry-wide labor shortages and rising project complexity. Our supply chain and materials management organization helped to ensure reliable material availability through centralized sourcing, staging, kitting, and logistics to reduce scheduling risk for utilities, developers, and data center operators. Our technical and field support team provide product application and design support, qualified resources to help manage complex project portfolios, and in support of safe, efficient installation and startup across complex grid and large load projects. Collectively, we believe these capabilities give WESCO a durable, competitive edge. Reflected in four core strengths that shape how we execute for our customers. Our end-to-end model integrates program management, supply chain logistics, and technical support into a single solution reducing complexity, reducing handoffs, and accelerating power readiness and timeliness for utilities, data centers, and large load interconnects. Our scale and infrastructure provide reliable material availability, faster mobilization, and stronger security certainty advantages that materially improve project outcomes. We bring comprehensive high and medium voltage capabilities including apparatus management, prewired assemblies, and specialized advisory services, enabling us to help deliver complex grid modernization programs in large load interconnects. And we execute with exceptional speed. Leveraging dedicated partners and proven logistics and staging processes. Our grid services business plays a critical role in enabling power delivery readiness across the markets we serve including data centers and digital infrastructure, emerging markets, renewables and electrification, and utilities. In the data center market specifically, these same capabilities come together in a powerful way to our holistic power to compute model. This begins at the grid connection where our UBS team enables high capacity, utility-side power readiness. It continues through the building's gray space electrical infrastructure delivered through our EES business and it concludes inside the white space, where our CSS business provides a network infrastructure, connectivity, and compute-ready solutions that support cloud, enterprise, and hyperscale environments. Turning to page 13. Let me wrap up our discussion of 2025 with some comments on free cash flow. For the full year, we delivered $54 million of free cash. As a reminder, our distribution model naturally requires investment in working capital. Particularly in periods of elevated activity and strong sales growth. Fourth quarter results reflect higher accounts receivable, as well as a meaningful inventory build to support this growth. As shown in the waterfall chart on the left, accounts receivable and inventory increased during the year as we continue to drive organic sales growth well ahead of our midterm Investor Day target of 3% to 5%. In 2025, organic sales were up 9%. Turning to the right side of the slide, net working capital intensity remained under control. Net working capital as a percentage of sales was 20.1%, compared to 19.8% in 2024, and 21.4% in 2023. While the year-over-year comparison shows a modest increase, this movement was largely attributable to higher accounts receivable levels. Looking ahead to 2026, we expect net working capital to grow at roughly half the rate of sales which will further reduce net working capital as a percentage of sales and support stronger free cash flow conversion. Moving to Slide 14 and our 2026 outlook. Let me begin with the growth drivers by strategic business unit, and the individual operating groups. As John mentioned, we expect reported sales growth to be in the range of 5% to 8% in 2026, with organic sales between 4% to 7%. Starting with CSS, now represents approximately 39% of WESCO's revenue, we expect 2026 sales to be up high single digits plus. Data center remains the primary growth driver and as highlighted on this slide, we expect data center sales to be up mid-teens in 2026. We also expect security to contribute to growth supported by continued healthy end market demand. In enterprise network infrastructure, we expect improvement versus 2025 as market conditions stabilize and order activity continues to improve. Looking at our EES segment, we expect 2026 sales to be up mid-single digits. The improvement is expected to be broad-based across the segment with construction, industrial, and OEM each positioned for growth as demand trends continue to improve and project activity remains strong, driven by the secular growth trends. Lastly, looking at UBS, we expect 2026 sales to be up low to mid-single digits. This reflects an improvement from the headwinds we experienced in 2025 with better momentum in utility, particularly with investor-owned utilities along with double-digit growth in grid services. We expect sales to public power customers will return to growth by the end of the year. And we expect continued solid performance in broadband. And as we've discussed previously, the long-term fundamentals remain attractive. Given the significant underlying demand for grid modernization investment and increased generation, transmission, and distribution spending to support rising power needs. Moving to Page 15, let me walk you through the details of our outlook for 2026. Starting at the top of the page, as mentioned, our full-year 2026 outlook calls for reported sales growth of 5% to 8% with organic sales up 4% to 7%. We currently anticipate a one-point benefit from foreign exchange with no impact from M&A or workdays. Our outlook reflects the continued strength we are seeing in most end markets highlighted by robust data center demand and supported by improving trends across electrification, and other project-related activity. Looking at the sales drivers, our outlook includes approximately two to five points of volume, and two points of carryover pricing. As a reminder, our outlook does not include the impact of future pricing actions, including tariffs. This is consistent with our past practice given the timing lag between supplier notifications and revenue realization. Q4 price increase notifications were up over 125% in count year over year with the average increase in the mid-single-digit range. Through January, we continue to field a higher than average number of price increase notifications with the average increase in the mid-single-digit range. We expect adjusted EBITDA margin to be in the range of 6.6% to 7%. The midpoint of this range reflects progress on operating leverage and gross margin execution, balanced with ongoing investments in our technology-enabled business transformation and the mixed dynamics inherent in large project activity. We continue to see opportunities to expand margins through improved pricing discipline, better cost leverage, and the benefits of scale as volume grows. Moving down the page to EPS. Our outlook range for adjusted diluted EPS is $14.50 to $16.50, a growth rate of 20% at the midpoint driven primarily by improved operating performance. We have also provided key assumptions underlying our outlook. Consistent with historical results, cloud computing amortization and stock compensation are recognized as SG&A expense for the calculation of adjusted EPS and not included in adjusted EBITDA. Lastly, turning to free cash flow. We expect to deliver free cash flow of $500 million to $800 million in 2026. This reflects our expectation for improved cash generation versus 2025 as we continue to make progress on working capital initiatives with working capital growth at approximately half the rate of sales in 2026. Regarding capital allocation, our top priority remains investing organically in the business to drive growth and operational efficiency, including continued progress on our tech-enabled transformation. After funding these organic investments, we will focus on reducing debt. Beyond that, we will allocate remaining free cash flow to the highest return opportunities including disciplined and opportunistic share repurchases to offset annual equity dilution and selective strategic M&A that expands our capabilities in high-growth end markets. Finally, consistent with our commitment to shareholder returns, we plan to increase our annual common stock dividend by more than 10% to $2 per share or approximately $100 million on an annualized basis. Turning to slide 16. This slide shows the year-over-year monthly and quarterly sales growth comparisons over the past year. Along with our expectations for the first quarter. You can see the continued momentum in our business through 2025, with steady improvement across the year and a strong finish in the fourth quarter. As highlighted, preliminary January sales per workday are up approximately 15% reflecting continued positive demand trends across all business units with growth rates by SBU similar to what was experienced in Q4. Storm-related activity had an immaterial albeit negative impact on sales in January, which we expect to recover later in the quarter. For the first quarter, we expect reported sales to be up high single digits with growth across all three business units. Recall that January is the lowest revenue month for the quarter and the year and that March is the highest revenue month in the quarter. Organic sales are expected to be up a similar amount as there is no meaningful difference in workdays year over year and FX impacts remain modest. We expect adjusted EBITDA margin to be up versus the prior year driven by a combination of improved gross margin and operating leverage on the higher sales growth rate. In line with historical seasonality, Q1 sales are to be down low single digits sequentially. In addition, we experienced a reset in benefits costs and payroll taxes in Q1 versus Q4, which drives slightly higher costs sequentially. One last item to note is that the expected tax rate for the first quarter is approximately 25%. Historically, we see a favorable tax rate in Q1 versus the balance of the year. Moving to slide 17, we've covered a lot of material this morning, so let me briefly recap the key points before opening the call to your questions. We closed 2025 with strong top-line performance, driven by exceptional data center growth and strong results across EES, CSS, and improving trends in UBS. While free cash flow came in below expectations, we are acting decisively and we expect meaningful improvement in 2026 as working capital initiatives take hold. Looking ahead, we enter the year with record backlog, healthy demand across our most attractive end markets, and a 2026 outlook that calls for above-market growth, margin expansion, and stronger cash generation. With that operator, we can open the call to your questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone. Please limit your questions to one question and one follow-up. Our first question comes from David Manthey with Baird. Please go ahead. David Manthey: My first question is on the price that you mentioned. You've talked about this before. I'm a little unclear on why you describe it in terms of the number of increased letters, and you said the average increase is mid-single digits. But you're not including anything in the outlook here. So if you could talk us through that. But more importantly, if you should happen to get a few points of incremental price in 2026, would and this is a hypothetical, of course. But would that take you to the high end of the EBITDA margin guidance range alone just to pick up a couple points of price? Could you just walk us through that? David Schulz: Yes. Certainly. So the way that we've outlined 2026 is very consistent with how we've always provided you with our future-looking projection. Given the uncertainty of when the price increases that are issued to us by our suppliers, when they will actually hit our revenue, we don't include it. We are highlighting the number of increases just to provide you with some context around the inflationary environment that we're dealing with. Many of our suppliers have historically taken one, maybe two price increases a year. We're seeing the number of price increases announced by them accelerate and you're seeing what used to be a low single-digit announced price increase has now been trending up to mid-single digits. It's moderated a little bit here in the month of January, but we're just providing that as perspective as to what the current market environment is dealing with. From our perspective, if we are seeing those price increases continue to get pushed through from our suppliers, and you're seeing the market accept those higher prices, you would see some transitory benefit on our gross margin. So that would give us a couple of extra basis points on the gross margin line. And then as our sales increase behind those price increases, we should get better operating leverage. So there is some benefit if these price increases do come through, but I will caution everyone that last year at this time, we were talking about the same item. So we did not see the benefit of that mid to high single-digit price increase notification translate through to our results. We only saw a 2% benefit for the full year 2025 on pricing. And a point of that was commodity-driven. So that's why we don't include it in the outlook. But if it does come to fruition, we're prepared to pass it through and ensure that we get the margin capture behind it. David Manthey: That's a great explanation, David. Thank you for that. Second, as I look at contribution margins here in the fourth quarter, I know it's maybe a little bit wrong to look at just one quarter in a vacuum. But CSS and EES came in around 14.5% year over year, which looks great. But the UBS is what dragged things down overall. And so the question is, you outlined a little bit about the complexion of the year and what UBS should look like. I just want to make sure that what's going on in UBS right now is a solvable issue in that this is just a mix of business or a transitory competitive situation. Could you talk about that? Or are there bad contracts in here that you can walk away from? Could you just talk us through sort of what that looks like through '26? John Engel: Yeah. Hi, David. Good morning. The Hey, John. It's really driven exclusively in utility. The utility portion of UBS. By public power customers. So this is an extension of what's been occurring. And we've talked about the dynamics of public power, that value chain investor-owned utilities for a number of quarters in a row now. Inventory is still normalizing. So they're still running with excess inventories at the public power customer level. And pricing is very competitive. What we're seeing is this pricing challenge and which translates to a margin challenge and we did take a significant impact in utility margins due to public power. Specifically with respect to transformers, that product category, and a little bit of a wiring cable, but principally transformers. This did not affect overall kind of line construction materials. So it's a really important point. In terms of your other part of your question, how would this do we see this? Does it extend? We're very clear that our outlook for 2026 expects to return to growth in public power by year-end. So I'll highlight that IOUs are a bright spot. They have improving momentum. We have three quarters in a row now of IOU growth. And that IOU growth has been picking up. If you look at what's happened in Q2 of last year, grew low single digits Q3, high single digits Q4 was up double digits. And so we've got a nice momentum vector. With our investor-owned utilities. Grid services that we highlighted in this earnings release it's important that we did talk about it first at Investor Day. But that is an aggressively and like, growing piece of our utility business. And that was up single-digit growth in 2025, but double-digit growth in the fourth quarter. Very important point. And utility backlog was up 23% at year-end, which provides a strong setup for 2026. So here's the bottom line, David, on the second part of your question. We do expect sales growth and margin expansion for UBS in 2026, and that's built into our outlook. David Manthey: Makes sense. Thanks for the color, John. Appreciate it. Operator: Our next question comes from Sam Darkatsh with Raymond James. Please go ahead. Sam Darkatsh: Good morning, John. Good morning, David. How are you? Morning, Sam. And, David, best wishes on your next chapter. It's been absolutely terrific working with you over the past decade. Just terrific stuff. David Schulz: Thank you. Sam Darkatsh: So a couple of just clarification questions if I could. You're guiding for data center growth mid-teens. Can you give a sense of what you're anticipating first half versus second half? Or what kind of exit rate in fiscal '26 you're seeing at a data center within the guide? David Schulz: Yes, Sam. The comps were pretty tough back in 2025. So in terms of our activity levels, we see relatively consistent activity levels by quarter on a dollars basis in 2026, but against the comp that was continuing to increase throughout the year. So you know, we've got a, you know, we were up 70% in 2025. So, again, the dollars have continued to increase sequentially through 2025. We would expect that the dollars will be relatively consistent by quarter in 2026. It is a project-based business, so there's always some things that could move. You know, a week or two within a quarter. But, generally, that's how we're viewing the opportunity in '26. Sam Darkatsh: So January is, like, running that mid-teens then? David Schulz: We would comment that our results from the fourth quarter seem to have continued about the same way from a growth perspective by business unit. And so in January. In January. Be clear. In January, Sam. You know, our up 15% per workday in January. The mix of that sales growth is consistent with our fourth quarter. Sam Darkatsh: Got you. My second question, and I apologize, I clicked off of a point during the call. So if you mentioned this, I apologize. You obviously missed the fourth quarter free cash flow expectations. It sounded like it was primarily on the receivables side. You're guiding for only roughly a 100% free cash flow of net income in '26. I would have thought that with the timing of the receivables and maybe the improving vendor lead times that that free cash flow might have been above net income for '26. Can you help reconcile perhaps some of those areas, David? David Schulz: Yeah. Certainly. And so you're right. The fourth quarter free cash flow was impacted primarily by a higher receivables balance just given the trends by month within the '5. We also had a higher inventory balance than we were anticipating. As we think about the free cash flow generation, you know, we've given you a range of $500 to $800 million that does include some of that carryover benefit of the receivables that we're collecting here in Q1. But the other thing that we would highlight is that, you know, that 100% historical free cash flow generation generally occurs when you're in that, you know, 3% to 5% organic growth range. And so while we do anticipate that we will have further investments in working capital to support what we provided you as an organic sales range of 4% to 7%, we do see the opportunity to do better collecting cash in 2026. So from our perspective, this is the right view to start the year with on a free cash flow basis. Given the continued strength in organic sales and what we're anticipating in terms of sales by quarter in 2026. Sam Darkatsh: Very helpful. Thank you. Operator: Our next question comes from Guy Drummond Hardwick with Barclays. Guy Drummond Hardwick: Hi, good morning. John Engel: Morning, Guy. Guy Drummond Hardwick: It was good to see the pickup in the order book at EES. So just wondering if you could comment on just the order book trends by end markets and particularly if you excluded the data center business. John Engel: All three of the businesses grew their backlog in Q4. So that's a really important point. And so and if it you should really think about that in the backdrop of over the longer-term normal seasonality we would not have expanding backlog. Or growing backlog in the fourth quarter. So and so positive momentum vector is the answer. CSS, obviously, was the strongest of the three. With a, you know, backlog up 40% at a record level. As we said, UBS is up 23%. EES grew as well. I will say what's really encouraging with EES is just the overall momentum vector. When you're looking at opportunity pipeline, the bid activity level, plus backlog, plus the increased sales growth rate. As we as we move throughout 2025 and particularly the second half. It really kicked into gear. And so and I'll remind you, we got a new EES leader who joined in the third quarter, and so off to absolutely a terrific start as evidenced by the strong, you know, Q3 and even stronger Q4 results. And what's really encouraging is we're getting the operating cost leverage with EES plus gross margin expansion in Q4. Same with CSS. We're getting the operating cost leverage UBS, we already talked about those drivers, but plus the gross margin expansion in Q4. I'm very bullish on UBS' sales and profit expansion opportunities in 2026. Guy Drummond Hardwick: Thank you. I'll pass it on. Operator: Our next question comes from Deane Dray with RBC Capital Markets. Deane Dray: Thank you. Good morning, everyone. Also, will add my thanks to David, and congratulations. David Schulz: Thank you, Deane. Deane Dray: Maybe we can start with some further clarification on the UBS shortfall because last quarter, there was a sense that it had turned the corner. Broadly within the segment on the public power side, but it looks like that recovery is now getting pushed into year-end. And you referenced competitive pressure. So how much of a dynamic is that in? Or is it really core demand? And then just so broadly, before you answer that, just the idea is you've got IOUs doing better. So maybe just educate us if that is moving, how much confidence does that give you about the public power side? Is there a lead? Is there a lag? You know, how correlated are they? So a lot to unpack there, but maybe we could start there, please. John Engel: Yes. So, Deane, look. The public power challenges were all throughout 2025 and, in fact, in 2024 as well. And I'll just I'll just take a few seconds and just we've talked through the dynamic of what the pandemic did to the utility value chain and that IOUs benefited first. Versus public power. So I'm not gonna go back through that, but we've gone through that a few times. That's important to understand. The momentum improvement we experienced in 2025 started in the second quarter it was with the return, the growth of IOUs in that quarter. Not public power. IOUs that is we move through Q3, stepped up their growth rate. To high single digits versus prior year. But public power still remained significantly challenged. And that challenge just extended and continued throughout. And it's a combination of two things. One is Q4. There's still an excess inventory position. At the public power customer level, on specific categories principally being transformers and distribution transformers, I'll call them. And so that's coupled with the fact that they have that excess inventory position any RFPs they're putting out to kind of do some minimal stock replenishment is under extreme competitive bidding pressures. So we experienced that negative mix effect on the category of transformers principally the public power, it was and it occurred throughout the year, but was also continued in Q4. Look. I think the public power market still has these same challenges as we started this year. And as David mentioned, our January sales results were really encouraged with the plus 15%. That's a really terrific start with the year given December's close. And the mix of the businesses in terms of the all three are growing is similar to Q4. But public power has not returned to growth. We're now stating that we expect that that return to growth will be not till the end of the year. But the very good news is and this is why it's a critical point. We included grid services in this deck. I know it's a lot to unpack. And we had a lot of script commentary around grid services. I'll remind you that we did tee that up back at Investor Day in 2024. That's been an increasing part of our business. To 300 plus million dollar business that we built organically. It grew mid-single digits last year, double digits in Q4, not via acquisition. This thing's really kicking into gear. So when you start thinking about utility, and UBS in 2026, particularly, you know, if IOUs with three quarters in a row of very positive momentum, we expect IOUs to carry the day. Public powers will remain public power will remain challenged. That is our view for 2026. But grid services increasingly kicking in and providing strong growth because we've got an outlook for grid services. Of double-digit growth for 2026. So it was a lot to unpack. Hopefully, that helps kind of stitch it together. Deane Dray: John, that was really helpful. I appreciate that. And just as a follow-up question, there's been so much focus across the electrical equipment sector on these North America mega projects. There's over 800. That are over a billion dollars of spending. Just have you all looked at what that opportunity is? How many projects of the 15 that have started do you think you're engaged in? Is that part of your backlog and visibility? John Engel: Yeah. A great question, Deane. First of all, we're aware of all of them. I think we've got a rigorous process wrapped around the front end of our opportunity pipeline. We got some terrific tools in place. We scrape all public data. We obviously have the relationships with our customers that we're leveraging. That's end-user customers. Where we have particular strength because the percentage of our customer reach is end-user is disproportionately higher than any of our competitors, but also where we serve big contractors and all the way up to global EPCs. So that process I'll call the front end of the opportunity pipeline, is something we've spent a lot of time and attention on. It's robust. It's operational. We've you know, we don't size our opportunity pipeline externally, but it's been growing at a very large clip. And it's at an all-time record level. And each of the three SBUs has their piece of the opportunity pipeline. We got a rigorous process that manages those opportunities because for every opportunity, we're looking for the cross-sell and the one WESCO. Complete. And what's the total one WESCO scope for every opportunity? And, obviously, what's in that pipeline is the mega project. So you know, we've not provided further detail Deane, in terms of you know, what percent we've won thus far, but I will remind all investors that remember upon announcement of a mega project, these are longer cycle time in general. And depending on the package that we're bidding, it comes into play at different parts along the construction cycle. So that to me is that's part of my bullishness on the future growth trajectory. That we'll be able to capture and continue to deliver against for WESCO. Because it is what feeds this secular growth trend of the infrastructure build-out and it's obviously driven by heavy reshoring and nearshoring as well. So outstanding question, Deane, but it is it's really one of the key elements that gives us great confidence about the rising demand curve for our business. Deane Dray: Thank you. Operator: Our next question comes from Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: Oh, thanks. Good morning. Good morning, John. Good morning, David. So just on the SG&A, obviously, up I think, by 11% year over year in the fourth quarter. You called out a long list of factors there. So maybe just talk about what caused that and, you know, were these year-end accruals just maybe break out the 30 basis points in 2026. You called out gross margin expansion and SG&A leverage. I'd be curious how that looks between the two categories. David Schulz: Yes, certainly. So Nigel, let me start with on the SG&A front versus the prior year. The quarter, this is primarily a base period issue. Recall that we talked about as we came into 2026 or I'm sorry, 2025 that we would need to restore incentive compensation. In the fourth quarter of 2024, we had much lower spending on incentive comp just given the trajectory of our sales and EBITDA relative to our plan. In 2025, the incentive compensation expense was more typical for the quarter. So that was really the big driver of the year-over-year change in SG&A was really driven by incentive compensation. Nigel Coe: Okay. Thanks, David. And then just the January 15% growth is obviously exceptional. High single digits for the quarter. I mean, I understand January is a low contribution to the quarter. But is it more consistent? So I do think January is your toughest kind of comp month in the quarter. Is it just conservatism, or was there anything lumpy in January that you called out? David Schulz: Yeah. January is always hard for us to pull a trend out of because we have so much activity during the month of December. You know, a lot of it, you know, based on where we finished December, we thought that we would be off to a slower start in January. Then when you add on top of that the issues with the weather. So we were pleasantly surprised by the strength of the business and the sales that we saw through the month of January. You know, again, we think that we've got the right way of thinking about this. I mean, February, we generally see, you know, obviously, fewer workdays, but then March we expect to see a recovery. So there's you know, from our perspective, the right way to think about this is there could be some activity that occurred in January that was carryover from December that we didn't get out the door. But we think that thinking of a high single-digit growth rate on reported sales is the way that we're viewing the first quarter. Nigel Coe: Great. Thanks, David. And by the way, you're far too young to be retiring. But, anyway, good luck. David Schulz: Thank you. Thank you, Nigel. We by the way, we said the same thing. Nigel Coe: Thank you. Good luck. Operator: Our final question today comes from Tommy Moll with Stephens. Please go ahead. Tommy Moll: Morning, Tommy. John Engel: John, I want to start on data centers. Heck of a year you had in 2025 there, and you're now run rating well north of a billion dollars in sales a quarter. So I want to see if you can situate us on the opportunity from here because I hear David talking about relatively consistent dollars across the quarters in '26. I don't think you want the takeaway today to be that we've now peaked on run rate data center sales. But arguably, that's embedded in the guidance. So what would we need to see to drive another step change higher potentially? In data center? John Engel: Thanks, Tommy. No. Look. I'll you know, David is not saying that we peaked with data centers, not even close. I'll just I'll take you back to this is actually important. I'll take you back to remember even it wasn't a few quarters ago. It was actually two years ago. When some of our supplier partners started to see the step up in growth related to data centers, and they were seeing it, and WESCO was not yet. And remember, we had a lot of questions from a number of investors on you know, in our earnings calls and at conferences, why aren't you seeing the growth yet? And we were very clear that the limited number of suppliers that are in a public domain where you can see the results and we're no we all know who we're talking about, that this was direct ship parts of their business and those packages went in at the very early stage of the site of the total life cycle of the construction. Project for a new data center. And we said we are highly confident that we will see that growth rate but it doesn't come one or two quarters later. It's three, four, five, six quarters later. We clearly have seen that. And I would argue that the growth rates we're seeing are equal to, if not above market. So that time lag still occurs Tommy, and it's an important point. It's why I'm so bullish over the mid to long term, and I don't think we're anywhere near not even remotely close to seeing a peak in the cycle for AI-driven data centers. And with that time lag, that serves us exceptionally well. Second point I'll make is look. You know, we're engaged with our customers. We're getting feedback from them. And in some cases, we're getting longer and longer looks into future plans because we're providing kind of a single one-stop shop to manage their global deployments which is a great place to be in the value chain. But as we're driving this growth, their forecasts have been increasing. And you're all seeing that in the form of headlines. Of increased capital spending. So this is just this is I would characterize this as a great problem to have. We have a rising power demand curve driven by a rising set of capital investments around AI-driven data centers. Go back and look at the forecast for that, each and every month, it's been getting increased. Some look. Some headlines came out earlier this week in terms of total spending across the magnificent seven. And it resulted in a forecast that stepped up again. So I think we're chasing this rising power demand curve we're exceptionally well positioned. And we think we'll disproportionately benefit. With all that said, you know, it's very hard to forecast you know, multiple quarters out. When things are inflecting up. So I'd look I think we're off to a great start. You know, we managed 2025 well. We gained momentum throughout the year, and we took data center our expectation for data centers up as we move through the year. Again, the market supported that because of the rising demand curve. So we think this is an appropriate guide to start the year with. But, hopefully, that gives you a little sense. Tommy Moll: Absolutely. Thank you, John. As a follow-up, I wanted to ask about the free cash flow and specifically working capital comments. You gave for 2026. Can you just give us an example or two of some of the initiatives that are in flight to improve that working capital in the next year? David Schulz: Yes, certainly Tommy. We have continued to drive changes to digital applications that we are using to better plan inventory. Working directly through a sales and inventory and operations planning process. We also have some various incentives, which are aligned to management and management incentives on our better management of accounts receivable. So that is another initiative. So not only do we want to work it from the inventory side and how we better manage our inventory days, and you know, we did make progress on inventory days through the first March. We saw a slight pop-up in the fourth quarter on our inventory days. And we had the same issue on receivables. So, but we are incenting our team to better manage both inventory and receivables in 2026. So slight changes to the program that we had in 2025 from an incentives perspective. John Engel: Tommy, that's a very high priority for us. And we're driving that across the entire enterprise. Tommy Moll: Thank you both. And, David, best of luck writing the next chapter. David Schulz: Thank you. John Engel: Well, thank you all. I think we've addressed your questions today. I know we have a number of follow-up calls scheduled, and we look forward to engaging with you on those. So I'll bring the call to a close. Thank you all for your support. It's very much appreciated, and I'll remind you, we expect to announce our second quarter earnings on Thursday, April 30, 2026. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen. And welcome to the 4Q 2025 Arch Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-Ks for the 2024 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends forward-looking statements in the call to be subject to safe harbor created thereby. Management also will make reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-Ks furnished to the SEC yesterday which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicolas Papadopoulo and Mr. François Morin. Sirs, you may begin. Nicolas Papadopoulo: Good morning, and welcome to our fourth quarter earnings call. We concluded another exceptional year by generating $1.1 billion of after-tax operating income in the fourth quarter, up 26% from the same period in 2024. Our quarterly consolidated combined ratio of 80.6% reflects excellent underwriting results across the group. For the full year, we produced $3.7 billion of after-tax operating income, a new high, resulting in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity for 2025. Continued strong operating cash flows and capital generation enabled the repurchase of $1.9 billion of Arch common stock in 2025. We strongly believe our stock is a good long-term investment and share buybacks represent an efficient way to return excess capital to our shareholders for the time. Since our inception, Arch's commitment to maximize long-term shareholder value has been unwavering. In 2025, book value per share, our preferred measure of value creation, increased by 22.6%. Since our start in 2001, book value per share has grown at a compound annual growth rate in excess of 15%, placing us at the top of our peer group. We remain confident in our ability to deliver strong returns throughout the underwriting cycle and to build on a legacy of disciplined execution and consistent results. We head into 2026 with measured optimism. We are starting from a position of strength, but recognize that competition is increasing in several lines of business. In an evolving market, the house playbook, which has served us well over the years, is a differentiator that remains as valid and effective as ever. Our playbook is anchored by an underwriting culture defined by deep expertise and disciplined risk selection. Combined with a diversified business model, a proven record of best-in-class cycle management, and the strengths of the Arch brand, we are well-positioned to consistently deliver superior results for our shareholders. I will now provide updates on our reporting segments. I'll begin with our insurance group, which delivered $119 million of underwriting income in the fourth quarter. Underwriting performance was solid, with an underlying ex-cat combined ratio of 90.8% in the quarter, similar to the fourth quarter last year. Gross premium return increased 2% from 2024. In North America, we continue to grow in specialty casualty lines including alternative markets, construction, and E&S casualty. As for our international units, we increased writings through our Bermuda platform and in Continental Europe. I will note that we experienced a year-over-year decline in net premium return which François will explain in his remarks. Across the insurance platform, our underwriters pivoted towards lines of business offering the most attractive margins and we grew premium volume in more than half of our business units, indicating a healthier underlying market than industry headlines would suggest. In North America, the rate environment is largely keeping pace with loss cost trends, while pricing in our international business units is tracking slightly below loss trends. Within each geography, consistent with our cycle management approach, we will adjust our business mix in response to changing market conditions and pricing dynamics. Our insurance platform has expanded significantly over the last several years, providing more opportunities to capitalize on attractive margins in many areas. Going forward, our underwriters will continue to pursue growth in those areas where risk-adjusted returns exceed or meet our long-term objectives. Moving to reinsurance, which delivered a record $1.6 billion of underwriting income for the year. The fourth quarter combined ratio ex-cat and prior year development was 74.9%, consistent with the prior year quarter, and reflective of continued underlying market profitability. Gross premium return was flat versus 2024 despite the nonrenewal of a large structured transaction. Net premium return declined primarily due to a change in the timing of certain retrocession purchases. On January 1, property cat and more generally, short-tail excess of loss renewals were highly competitive with rates down 10 to 20%. Ceding commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well, leveraging the strengths of our platform to source a handful of new opportunities. These opportunities will reduce the negative top-line impact from the rate pressure. The mortgage segment produced $1 billion of underwriting income for the year, our fourth consecutive year exceeding the $1 billion threshold. In our USMI business, new insurance return remained modest and insurance in force was stable. The underlying credit quality of the portfolio is excellent, as illustrated by favorable cure rates on delinquent mortgages, which show favorable reserve development in the quarter. While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained. The team remains focused on underwriting discipline, expense management, and perfecting its data and analytical platforms to further optimize the business. Finally, investments generated $434 million of net investment income in the quarter, while equity method investments added another $155 million to net income. We continue to look to the investment portfolio, where assets surpassed $47 billion at year-end, to provide a stable recurring earnings stream that enhances the group's overall returns. As we move past 2 PM, the PLC underwriting clock is increasingly important to focus on business that generates adequate risk-adjusted returns. For almost twenty-five years, Arch has perfected its cycle management capabilities by adhering to some foundational principles. One, leveraging a diversified specialty platform to maximize flexibility and reduce volatility. Two, embracing a business owner mindset anchored on delivering a differentiated customer experience. Three, using data and analytics to sharpen insights and enhance risk selection. And last but not least, ensuring alignment with investors by rewarding underwriters for profitability, not volume, and incentivizing our executives to grow book value per share above all else. This stage of the underwriting cycle will test underwriting discipline and acumen. Our markets are exciting for many reasons, but successfully managing the cycle is equally, if not more, rewarding. As the decisions made today will shape future returns. With our experience, focus, proven track record, and capital strength, we believe Arch is ready for the task and well-positioned to outperform the sector. This year marks Arch's twenty-fifth anniversary. Having been here since 2001, I firmly believe that Arch's culture, driven by our dedicated people, is a foundation of our success. So before I turn the call over to François, I want to thank team Arch for another outstanding year and for positioning the company for continued success in the years ahead. François? François Morin: Thank you, Nicolas. And good morning to all. Last night, we reported our fourth quarter results with after-tax operating income of $2.98 per share, and an annualized net income return on average common equity of 21.2%. Book value per share grew by 4.5% in the quarter. Our three business segments once again delivered excellent underlying results, with an overall ex-cap accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior year development on a pretax basis in the fourth quarter, or 2.8 points on the overall combined ratio. We recognize favorable development across all three of our segments, and in many of our lines of business. The most significant improvements were once again seen in short-tail lines in our P&C segments, and in mortgage due to strong cure activity. Current year catastrophe losses were $164 million net of reinsurance and reinstatement premiums. Lower than our seasonally adjusted expectations, but higher than last quarter, mostly as a result of U.S. severe convective storms, hurricane Melissa, and a series of global events. The insurance segment's gross premiums written grew 2% while net premiums written declined 4% year over year. The decrease in net premiums written was due in part to the timing of ceded written premium accruals related to the M acquisition in the prior year quarter and changes in business mix resulting from different levels of net to gross retention ratios. The ex-cat accident year loss ratio improved by 80 basis points to 57.5% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 150 basis points as the benefit we observed in 2024 from the write-off of deferred acquisition costs for the MC acquired business rolled off. The Reinsurance segment had another stellar quarter in terms of pretax underwriting income, at $458 million. Overall, gross premiums written were flat and net premiums written were down approximately 5.2% from the same quarter one year ago. Our net premium volume was up in casualty and property other than property catastrophe but was down in specialty due to the impact of the nonrenewal of a large transaction as Nicolas mentioned. And then property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2025 with an 80.8% combined for the year, certainly an excellent result and the lowest since 2016. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $250 million. Net premiums earned were down approximately $11 million from last quarter, mostly across our CRT and Australian businesses. That said, with fourth quarter new insurance written at USMI at its highest level for the year, and persistency remaining high at 81.8%, USMI insurance in force was relatively flat. The current accident year combined ratio remained low at 34%, considering the increase in new notices of default due to seasonality. The delinquency rate for our UMI business increased to 2.17% in line with our expectations. On the investment front, we earned a combined $589 million from net investment income and income from funds accounted using the equity method are $1.60 per share pretax. Strong positive cash flow from operations of $6.2 billion for the year helped us further increase the size of our investable assets which now stands at $47.4 billion. Our portfolio remains a very high quality with a short duration and remains in line with our allocation asset allocation targets. Income from operating affiliates was strong at $61 million due especially to a very good quarter at Summers REIT. As you have heard, the Bermuda government enacted in December the Tax Credits Act 2025, designed to incentivize tangible on-island economic activity. At the heart of the act are qualified refundable tax credits or QRTCs, which are available to us given our operational presence in Bermuda. This quarter, we recognized a full year effect of the 2025 QRTCs, significantly impacting your financial results, primarily through the expense ratio for our Reinsurance segment and the corporate expenses line. Nicolas Papadopoulo: Of note, included in these numbers are some one-time benefits. François Morin: Which we would not expect to recur in future years. Going forward, our view is that the impact of the QRTC should be most visible in two places. One, for the reinsurance segment, we would expect our operating expense ratio to benefit resulting in a full year 2026 operating expense ratio between 3.9-4.5%. And two, our corporate expenses should also be reduced from their run rate levels and be approximately between $80 million and $90 million in 2026. The QRTCs will also benefit other expense line items including the insurance and mortgage segment expense ratios and net investment income, but to a much lesser extent. As a reminder, our pattern of corporate expenses is typically skewed towards the first quarter of the year due to the impact of equity compensation grants. For the 2025 year, our effective tax rate on pretax operating income was 14.9% reflecting the mix of income by tax jurisdiction. It was slightly below the 16% to 18% previously guided range mostly due to a 1.4% benefit from discrete items. As we look ahead to 2026, we would expect our annualized effective tax rate to return to the 16% to 18% range for the full year. As of January 1, our peak zone natural cap probable maximum loss for a single event one and two fifty year return period on a net level basis, remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. For 2026, our current estimate of the full year catastrophe losses stands within a range of 7% to 8% of overall net earned premium similar to the estimate we disclosed last year. On the capital management front, we repurchased $798 million of our shares in the fourth quarter. For the year, we repurchased $1.9 billion or 21.2 million shares representing 5.6% of the outstanding common shares of the start of the year. We have repurchased an additional $349 million in shares so far this year through last night. Operator: We closed 2025 with a balance sheet and excellent health. François Morin: With strong capitalization and low leverage. Giving us plenty of optionality as we continue to work to put to work the capital our shareholders have entrusted in us. With these introductory comments, we are now prepared to take your questions. Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question, and we'll pause first question comes from Elyse Greenspan at Wells Fargo. Please go ahead. Elyse Greenspan: Hi. Thanks. Good morning. I wanted to start with the comments that you guys made on property cat. I think you said that there were some, you know, opportunities at one one, like that served to offset the impact of the price declines. Can you just expand, I guess, on the opportunities that you saw and just how you expect, I guess, growth in in property cat re during 2026? Nicolas Papadopoulo: Good morning, Helene. Think the opportunities we refer to in our comments I mean, are not in property cat. I think the they come from other geographies and mostly in in specialty lines. Elyse Greenspan: Okay. And then my my second question was just on capital. You guys it sounds like there was a you know, the level of and the pace of buyback, François, based on your comments, picked up just start the year. I know you guys, right, typically buy back, so it is dependent upon capital as well as the stock price. But how should we think about the level trending from here, right, $350 million, right? And a little bit over a month, right, is is a pretty pretty big level. François Morin: Yeah. I think I mean, share buybacks are, I think, certainly, as we said, like a good way to return capital. I don't think mean we don't set a target that not like we're we're saying we're gonna return x dollars by the end of the year, but you know, the market, you know, depending on stock price and we'll we see are in our ability to deploy capital in the business, we'll we'll be active for sure. I mean, the pace will vary. It's not necessarily a say, a binary event whether we buy or we don't buy. If, you know, there's we buy different levels during different different, you know, different times during the year, but you know, I think no question that given the the market environment we're in, I think we should expect us to to be pretty active on the share buybacks throughout the year. Elyse Greenspan: And then one last one. On the MCE side, can you just remind us of the the expectations for the the reunderwriting in terms of the premium impact? And what from a seasonality perspective, is that more weighted to one quarter of the year versus another, or should we think about that being an even impact during the April '26? François Morin: Yeah. By I mean, part b, no question that the the business is is pretty well distributed throughout the year. There's not much seasonality in it You know, the the reunderwriting question, we we touched on it in prior quarters. There was definitely some business that came with the acquisition primarily in, in the form of programs that we identified that were gonna be nonrenewed. We've we've done that work that will start to really our top line in 2026. And, you know, we we hopefully, you know, depending on market conditions, can offset some of that reduction by growth in the truly the middle market business that we we have on the books. But again, very much a a function of market conditions, but that was the that that's the the current thinking on that. Elyse Greenspan: Thank you. François Morin: You're welcome. Operator: Next question will be from Tracy Benguigui at Wolfe Research. Please go ahead. Good morning. On the 10 to 20% rate decreases at one one, Tracy Benguigui: Based on prior conversations I had with Arch, understand you don't like cat business below a 16% ROE. So in terms of sensitivities, I understood going into renewal, you thought that let's say, if you got a 10% rate reduction, you could still land at 20% ROE, maybe 15% will get you between 16 to 20%. Now the 10 to 20% is a wide band, So how does this all shake out on a ROE perspective for a prop cat business? Nicolas Papadopoulo: So overall, I think we still like the the the cat business. We we we wrote at one one. I think we as you said, some areas have been more competitive than than others. We've seen Europe, you know, being very competitive. I think in The US, you know, probably less so compared to Europe, I think we we just adjust the, you know, our writings to to the the target profitability that is set by by region. So so overall, I think we we we were able to, you know, retain most of our renewals know, we we got some very favorable signing from our broker because of the you know, the the the the service we provide and the the the long standing relationship we have with our, you know, many of our selling companies. So so I think we we still we still we still like the business. I think if rates were to continue to to go down you know, in the mid teens, you know, we we we we we will have to on the case by case basis, you know, realize where it makes sense and where where where it doesn't. Tracy Benguigui: Okay. And any early thoughts on midyear reinsurance renewal pricing relative to what you're seeing in January? Nicolas Papadopoulo: So our our thought is more about the the marketing in general. I think the competition we are seeing is really a reflection of the excellent results with all benefited from, you know, in the last in the last three years. So and you know, the fact that we had only one major cat, which was the the California wildfires. I think we you know, of any other major cat that we'd expect, you know, the the the the supplies to to to to to continue to be there. So I think people should pay attention to the risk adjusted return. Know, going forward because it will be a a a it's a it's a big element of how we underwrite the business. K. Thank you. Operator: Thank you. Next question will be from Cave Mohaghegh Montazeri at Deutsche Bank. Please go ahead. Cave Mohaghegh Montazeri: Morning. Given yesterday's move in the market, I was going to ask you François Morin: About the risk of disruption to your business model from AI. And whether you're more likely to be a net beneficiary from AI. Their improved efficiencies and smaller risk selection, Cave Mohaghegh Montazeri: Rather than at risk of disruption, which I suspect is probably more limited to some distribution platforms. Or maybe to carriers from the right lines are more commoditized. Love to hear your thoughts on this topic. Nicolas Papadopoulo: Yes. I think I I agree with your your premise. I think we we think of AI as more of an opportunity for efficient efficiency and rather than a than a threat, but ultimately, the the the beneficiary of AI will be the consumers. You know, as most of the savings and efficiency will be part on to the to the insured. So but, yes, I think the you know, the the the the advantage of being in the specialty market is it's it's complex. I think it will I'm not saying it's impossible, but it will take time for models to learn to to replicate the the behavior of the of the underwriters. So I think what what we're seeing is, you know, personal lines or SME may maybe maybe maybe happening there faster. Than in the in in the space that we are playing. Cave Mohaghegh Montazeri: K. And my follow-up question is is a follow-up on capital return I guess, theory, if there is no growth, in 2026 I hope you guys see growth. But if there is no growth, you could distribute close to a 100% of the the capital you generate. Is that something you would consider If not, what's the highest payout ratio you'd consider in the no growth and no M and A scenario? François Morin: No. You're right. I mean, if we're not growing, which again, we don't know if we will or not, but depends on the market. But absolutely, if the market you know, we're not growing, you know, their their their our capital needs should remain relatively flat, and every dollar of, you know, income that we generate technically could be you know, creating more excess capital. What's our you know, do we have a, you know, do we have a set of targets? No. We don't. But we are you know, if the market, you know, points us in a certain direction and the opportunity is there to buy back you know, more than you would know, you see us saw us buyback last year, for example, we're happy to do that. Very much a function of market conditions, and you know, that's something we evaluate, you know, on a daily basis. Cave Mohaghegh Montazeri: Thanks. You're welcome. Operator: Thank you. Next question will be from Michael Zaremski at BMO. Please go ahead. Michael Zaremski: Hey, thanks. Good morning. I guess first question on the Reinsurance segment, specifically. Operator: Just, I guess, Michael Zaremski: A lot goes into the loss ratio, of course, for the segment. If we're looking at the underlying loss ratio trend, it's it's nudging a bit higher into the low to low fifties. I guess it's thinking about 26% to the extent the reinsurance market plays out the way you're you're thinking in terms of just some additional downwards rate pressure? Should we continue kind of to nudge that loss ratio underlying loss ratio trend line higher? For the cat load? Yeah. I think so. I think I think the mark on the reinsurance side, I think, Nicolas Papadopoulo: Margin are definitely under pressure. So I think I think think you're right. And it's it comes from the pricing on the excess of loss and also you know, on the expense side, you know, we we we're seeing also sitting commission François Morin: You know, going up. So Michael Zaremski: Okay. Nicolas Papadopoulo: And But we but we still but we still like the business. I think it's you know, we we have a big diversified platform. We write the business in many So I think we we we believe that we we can find ways to to continue to track attractive attractive market, but, yes, the margin mean, they were very high, but the the margins are definitely under pressure. Michael Zaremski: Okay. Great. And I'm gonna ask another capital management question just because, you know, you all, as you point out, are good cycle managers, and you're one of the few that's able or maybe willing to to shrink, in, you know, times that you're you know, making a bet that the market isn't as conducive for growth. So on capital management, is there are there any items that would other than we could see the shrinkage in top line growth that could free up more capital than we than we can kinda see at a high level, like, the mortgage segment. Is that releasing you know, a material amount of regulatory capital that we should take in potentially take into account? François Morin: On that question, Mike, I don't think so. I mean, I think we touched while we certainly have touched on it in the past, I think the the the overall capital position, you know, the fact that, maybe there's some capital that is, trapped in in the MI companies is is not hasn't really been a factor. I think we've been able to to distribute through dividends, like, meaningful amounts of capital from from our MI company to you know, to to buy back stock, to to return to shareholders, etcetera. So I don't think that should be any you know, it shouldn't be materially different going forward. The one thing that, you know, is, you know, a capital consumer is, you know, the investment portfolio. Let's you know, that's one thing that we have some some, I think, ability to influence capital requirements depending on how much capital or assets we deploy in riskier assets such as equities and or private investments. But other than that, I think and and we can also play certainly on the reinsurance side whether we buy more or less reinsurance like that's the effect you know, impacts are our net retained Nicolas Papadopoulo: Premium. But François Morin: You know, at this point, I wouldn't expect, like, drastic changes in in how we think about excess capital or how we think about returning capital. It's it's pretty much, you know, I'd say, '26 should be you know, at a high level, a a continuation of what we saw in '25. Michael Zaremski: Great. And just sneaking one quick one in. Nicolas, you said they North America rate environment largely keeping pace with trend, but international probably slightly below. I think I thought that was a bit of a provocative statement since I think that this assumption is that what the data we're seeing is that, you know, lawsuit inflation continues to be an issue in The US. So any context you could additional color you want to put on kind of you know, why you feel better about U. S. Versus international? Nicolas Papadopoulo: Yes. I think that's you know, the the the remarks that I made is pretty based on our our own portfolio for the lines of business we write. And remember, the band in North America is more about Michael Zaremski: You know, long tail. Nicolas Papadopoulo: We're more of a casualty rider. And in casualty, we we've seen you know, rates about or above above trends. So that drives and certainly in the shorter lines, we've seen you know, rates coming down. So I think, you know, that but when you take the entire portfolio and then then we we we we we see one offsetting the other at this stage in the market. Michael Zaremski: Thank you. Operator: Next question will be from Andrew Andersen at Jefferies. Please go ahead. Andrew Andersen: Hey, good morning. Could you share about a bit what the conditions are on the casual reinsurance market there? Are you still seeing rate ahead of loss cost? Nicolas Papadopoulo: So on the on the casualty side, you know, generally on the primary before we talk about the reinsurance market, I think on the primary side, feel that rates are still know, we are still getting more rate than trend. You know, it's it seems that it's they're still waiting a little bit. Of what we saw in the last quarter, but I personally believe that the the steep pain I think we still we'll still we'll see some unfavorable developments in the market for the old years and the the, you know, the prior to 2022. So I'm I'm optimistic that the the the the rates could continue to to at least meet meet trend for the foreseeable foreseeable future. So that's the background. When we look at specifically at the reinsurance, I think the we've seen, you know, there's there's there's a there's a lot of supply, a lot of willingness for the reinsurer to to write the business, and I think the thing that has been new is you know, maybe based on what I I said earlier, the the the the ability or the willingness of the the selling companies to to retain more of the business, which is which has added you know, the supply is constant. And the demand is is stable to to down. So that that that is another layer of a competition there. Michael Zaremski: Thanks. And and that demand comment on stable to down, was that just on casualty? Or perhaps you could update us on how you're thinking about property demand into midyear? Nicolas Papadopoulo: The one I talked about is about is with casualty. I think on property, we seen you know, on the on the reinsurance side and especially on the cat excess of loss side, we we we've seen retention being stable. Only a few, sedan decided to to to add, you know, sublayers to to their So I think that and and on the on the other property, yeah, we we're seeing companies based on the again, as I said earlier, the Excel result of the last three years, willing now to take on more of the business. So that's a factor there too. Michael Zaremski: Thank you. Next Operator: Question will be from David Motemaden at Evercore. David Motemaden: Hey. Thanks. Good morning. Just had a question François Morin: Encouraging to see the level of buyback continue in the first quarter. David Motemaden: But François Morin: We I'm just sort of wondering how you guys would frame David Motemaden: How we should be thinking about the current excess capital position that you guys have before we start thinking about you know, running through the puts and takes on on growth and different sources and uses. Will be great to to get a get an update on that front. François Morin: Yeah. I mean, listen. We the excess capital is a you know, it's a it's a number that changes is not static, right? And but no question that given the level of results and returns we've generated the last few years, we've we've we did end up accumulating some excess capital. You know, our our number one mission, we've said it before, is to put the capital to work in the business where we think it makes sense, where we can generate adequate returns. You know, after that, yes, we absolutely are committed to returning the capital to the shareholders but, you know, we wanna do what's right for the shareholders. And some period of time, we sometimes it may just mean that, you know, for a given, you know, we do hold on to the capital for a bit longer. The money is, you know, has been it's been said before on our calls. It's it's in our pockets. It's not it's not burning anything. It's it's just sitting there. It's maybe not the most optimal way. Right? But it's still it's not really a strong value in a meaningful way. So we're so we're we're all about what doing is right for the shareholder. And, you know, if if in an environment, again, if we don't grow materially going forward or at least for the the short term, you know, you could certainly think that, you know, you know, you should think of the the level of earnings we're gonna generate to be you know, additive to our excess capital position, and that's, you know, gives us more opportunity to return more capital to shareholders. David Motemaden: Great. And then maybe just following up on the casualty reinsurance side. You've seen decent growth there. It's offset some of the pressure on the property side as you guys have managed the cycle. I'm interested, Nicolas, you had talked about I guess, iHire seeds on proportional reinsurance. You know, I was assuming that is for property. But given you know, your answer to the you know, one of the previous questions, it sounds like know, is is I guess I'm wondering, are you seeing higher seeds on on casualty REIT just given the supply demand François Morin: Changes? And do you still view casualty re as a David Motemaden: A growth opportunity in '26 that can help offset some of the pressure on the property side? Nicolas Papadopoulo: So to answer your first question, I think it's marginal on the casualty and it works both ways. Underperforming accounts, see sitting commission going down a bit, should be more, but and, you know, external account that everybody is looking for. You may see marginal increase, but really not not a I should have clarified earlier. Not the big factor. It's mostly the the big swing has been on other on the on other property. And and to answer your second questions on appetite in the space, I think backing the right sitting company, people, like, you know, a little bit arched, have, you know, real good understanding of the business, and can navigate their way in ultimately, pretty favorable, you know, in some pockets primary casualty market. We think it's something we would like to do more So we it's hard to do based on what I explained earlier, but again, our brand in the reinsurance side is is is good, you know, we we have huge trading with our sitting companies. So so we can you know we we we we can find ways to we certainly first call when you know, new programs are set up or, you know, some reinsurers you know, decided to be moved out of the program or reduce. I think we we have a shot at at at growing going forward. David Motemaden: Awesome. Thank you. Nicolas Papadopoulo: You're welcome. Operator: Next question will be from Yaron Kinar. At Mizuho. Please go ahead. Yaron Kinar: Thank you. Good morning. François, I want to go back to your comment regarding François Morin: Looking to potentially retain more premiums in 'twenty six. Can you elaborate on that? Just given the ceding commission rates that are increasing and the supply demand imbalance, I think, pointing to more of a buyer's market. Is it that the margin on new casualty and specialty business in insurance is so much better that it's still more economic to keep it than to see that lower pricing. Yeah. I mean, the the François Morin: That's part of the equation. Right? I mean, just like you know, we have the advantage of of having both insurance and reinsurance in in our platforms. So we see both ways. But, you know, as a buyer of reinsurance, we're no different than some of the seeding companies that buy from Archery and you know, you know, Nicolas touched on it. It's like, well, yeah, sure. I mean, I I can get, you know, maybe a slightly higher receiving commission and and that's part of the the economics of the transaction. But you know, given the rate increases we've seen on the primary side in the last couple of years that have compounded and and certainly, maybe not across the board, but in Yaron Kinar: Sub François Morin: Subsegments of our book, Nicolas Papadopoulo: You know, François Morin: Primary insurers are are like the business, like the pricing a lot. As it is today. So Yaron Kinar: You have to, you know, François Morin: Compare the two. Am I better off retaining a bit more, or do I just kinda lock in my profit effectively and just kinda go for the same commission? So I think it's it's, you know, as as you can imagine, we have multiple reinsurance that we evaluate throughout the year. It's not a it's, you know, every one of them is is looked at individually depending on market conditions and what we see, you know, what the opportunities are. But I wouldn't say that we're necessarily planning to buy more or buy less at this point, but it it could happen. And, again, that's that's something that will evolve throughout the year. Nicolas Papadopoulo: Yeah. And I think the the other way the other way you can you know, retain more is by switching the structure of your insurance which is to go from a quota share insurance to an excess of loss. And traditionally, not what the reinsurers like to offer, but based on the know, competition in the marketplace, think those structures have been more common. So I think that's that's something we we look at as well. And, again, we we like the casualty you know, in in most of our markets. So it's it's true also you know, outside outside The US, I think. And both both on the insurance and and reinsurance. We have a we have a decent sized portfolio outside The US. Just I wanted to make make sure you we we mentioned that. Yaron Kinar: Yeah. That that makes sense. And and I appreciate the the thought on the restructuring of reinsurance programs. I hadn't thought about that as much. My second question, one that's been asked on prior calls as well. Can you give us an update kind of as we look at into 2026, how you rank the appetite and track of new business between the three segments in terms of capital deployment? François Morin: Yeah. I mean, no question that reinsurers has been you know, the last couple of years, definitely, you know, the you know, a very attractive market for us, and we deployed meaningful. And you saw our growth, and you saw what we you know, how we performed in in that market. As the market comes down, it's I think it's it's it's a less, you know, ahead of the others, I would say. So you know, if I had to rank them today, I'd say, yeah, reinsurance to me is still ahead, but you know, the gap has narrowed. It's come down. Reinsurance is doing still very well. Very attractive. But, you know, I think the gap between reinsurance and insurance is is not as significant as it was a year ago. And mortgage, you know, we haven't, you know, haven't had a question yet on mortgage. I mean, it's if it's a good thing, I mean, we we love it. Right? I mean, just a great business. It's it's steady. It's been a great source of earnings for us. You know, again, we we we we flapped about it. We talked about prior calls. Like, which one of your three kids do you like the most or like the late or not like as many as much as the others? We love them all. Right? We love all three of our segments, but certainly, you know, I think that the the the fact that the reinsurance market is is compressing a little bit, I think, just brings all three segments a bit closer to each other. Yaron Kinar: Thank you very much. François Morin: You're welcome. Operator: Next question will be from Matthew Hyman at Citi. Please go ahead. Matthew Hyman: Hi. Good morning. Yaron Kinar: Of questions. One was just with respect to the MCE reunderwriting, been asked about the premium consequences of that. I'd be curious about the margin consequences of that. François Morin: Well, I mean, François Morin: You'd like to think that, you know, the business that we're shedding is is the the worst performing business. So François Morin: Absent François Morin: You know, you know, absent any other event, you would think that our margins should improve. But that doesn't factor in kinda that that that comment is you know, obviously, has been has been true, but the market in front of us you know, will will will you know, may be different than what we had assumed. So on the one hand, no question that the nonrenewals will improve our margins, but maybe depending on where the market what the pricing looks like, It's still a very good market. Middle market business has been I think, in in a good place. I think rates have been holding up and have been, you know, improving, so that's been good. But you know, what's you know, margins going forward? Hard to comment on that. Nicolas Papadopoulo: Yeah. And I think some of the program we've shared are actually cat exposed. So, you know, the the the upfront the upfront result may have looked okay, but we think it's a it's a bad allocation of capital, and we can get better return by deploying that capacity elsewhere. So I think especially on the on the reinsurance side. So I think those those are the decisions we've we've made. I mean, some of them are you know, running hard, but a few of them that we decided to shed were more, you know, cost of capital you know, opportunity being better elsewhere. And I and I feel you know? But, again, if if to answer your question overall, I think we we still, you know, thinking that the business could run-in François Morin: You know, Nicolas Papadopoulo: Monday in the in the low nineties. So Matthew Hyman: Appreciate that. I guess another question I had was given the François Morin: QRTTs, Matthew Hyman: Any opportunistic investments you're thinking about making in tech or ops or accelerating existing investments? François Morin: Not as a direct result. I'd say we we will make and have made investments, you know, over time based on you know, what what we're trying to accomplish and, you know, trying to streamline operations trying to be more efficient, and whether it's, you know, improving some systems, etcetera. I think that's you know, that that nothing is different in that respect. You know, the fact that, you know, certainly reinforces, you know, the value for sure for us, and it's been there throughout the value having a presence in Bermuda. And I think it's you know, we we wanna we we we are committed, remain committed to the island. So that's that, you know, reaffirms that. But in terms of, like, making, I'd say, direct investments as a result of the QRTCs, I don't think it's the case. It's more you know, based on need and based on what we were trying to accomplish. Nicolas Papadopoulo: And I think it's it's really an offset to the the high cost of doing business in Bermuda. So I think that's smart from the the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch. Yeah. Matthew Hyman: Yeah. That's totally fair. And then I just normally went after third, but François Morin: Your comment on Matthew Hyman: The demand quotient potentially changing for casual reinsurance. François Morin: Just it made me curious whether or not you are seeing any real changes Matthew Hyman: To subject premium basis in in any of your reinsurance treaties at this point. That's informing that, or is that unrelated? Nicolas Papadopoulo: So in terms of can you can you provide them I'm just curious. Matthew Hyman: It's maybe a different way to ask it is, over the course of this year, it feels like there have been some companies that have had to adjust down their premium assumptions for their reinsurance book based on, you know, updated information from on the underlying subject premium basis. I'm just curious whether or not you're you're you're seeing any noticeable signal or information there that's worth calling out and whether or not your demand comment we should read as risk in in two subject premium basis next year. Nicolas Papadopoulo: So what you described, I think it's true on the other property, you know, companies that wanted to go aggressively into the excess and surplus property side or energy, you know, I've had to, you know, revised to the downside the the the projections. I think on casualty, what I was referencing is more sedent retaining more, but I think the the underlying business is still growing. So I've had a that's that's that's not that would not be the reason. François Morin: Yeah. But to add to that, François Morin: I think, man, just to be clear, we we you know, we do I mean, we we that's something we look at every quarter. So we we are very we've been very active internally, certainly in 2025, and and that will remain making sure that you know, yes, we get premium projections from the underwriters, from the scenes and we obviously superimposed some of our own views based on where we think the business may end up Nicolas Papadopoulo: So François Morin: Certainly don't wanna be in a position where we we have to make a massive downward kinda adjustment because we we overshot the mark. So I think we've been very careful and and making sure that we remain on top of it throughout the year as we, you know, readjust our our premium projections based on market conditions. Matthew Hyman: Okay. Thank you for that color. Appreciate it. Have a great day. Yep. Thank you. Operator: Next question will be from Meyer Shields at KBW. Please go ahead. Meyer Shields: Great. Thank you so much. Two quick thank you. François Morin: Mentioned there were a couple of Meyer Shields: Expense items in the quarter besides the tax And if somebody needs to tell us where Cannot hear you already. François Morin: I mean, the the line broke down, so I apologize. I I just I I don't know if it's our side or or it's my or it's the caller's. Assume it's me. Meyer Shields: No. It's it's probably me. You mentioned that there were a couple of favorable expense items beyond the Bermuda tax credits, and I was hoping you could tell us where those showed up. In terms of modeling for next year. François Morin: Well, I I think I touched on it. I mean, the Bermuda tax credits, I I think the the intent of the comment was that, you know, Bermuda tax credits you know, at the core, it is very much a function of, like, how much presence we have in Bermuda, and the direct, you know, payroll related kind of expenses. So, yes, we have expenses in Bermuda, in all three of our segments and also in, you know, in our investment team. So that is reflected as an investment expense. In the corporate line. So again, the the where it's noticeable, as I said, is in the reinsurance segment and in corporate. In the other places, there are I mean, we're talking, like, single millions of I mean, it it's it's not gonna be noticeable to the outside world. So in terms of modeling, I would say, yes. There's some benefits, but it's it's so Meyer Shields: Mean, it could be know, it could be very it will be buried in François Morin: As part of the overall expense base of either the insurance or the mortgage segment, for example. So that's why it's just hard for us to kinda Meyer Shields: Isolate it. Meyer Shields: No. No. I appreciate that. You were very clear. François Morin: Actually. What I'm trying to get a handle on is the favorable expense items besides the tax credits because you you said that there were a couple just didn't know where they were. François Morin: I I mean, there's nothing else really to point out. Those are I mean, sorry for the confusion, but the idea was, you know, was just that. So there's nothing else to point out that was favorable in terms of expenses that were again, that you we we we should, you know, highlight or identify. Meyer Shields: Okay. Fair enough. And then final question. Nicolas Papadopoulo: Does the Meyer Shields: The fact that we're finally seeing the, non renewed program business actually hit the income statement, is that going to have an observable impact on the acquisition expense ratio in insurance? François Morin: I would say no. I would say no. I mean, that's again, that's talking Meyer Shields: Shedding François Morin: Again, $2.3 billion of written premium that we're we're on a written premium base of $8 billion and, you know, you do the math from there. I I would not factor in any meaningful improvement in in the acquisition ratio. For the insurance segment. Meyer Shields: Okay. Very helpful. Thank you. François Morin: Bye. You're welcome. Operator: Next question will be from Roland Meyer at RBC Capital Markets. Please go ahead. Roland Meyer: Good morning. Can you give an update on the carrying value of the deferred tax asset when we expect to hear some clarification on the ability to recognize it? Nicolas Papadopoulo: Yeah. I mean, that's I mean, that that's François Morin: Been right. So we we wrapped up the first year, and, you know, we set up a an asset at the end of, you know, in the '23 that we started amortizing in '25. So the billion 2 is now, you know, roughly came down by about a $100 million. In '25 and, you know, we are gonna keep, you know, amortizing that in '26. And depending on where the law goes in Bermuda, maybe that asset followed goes away. We just don't know. I mean, it's not our decision. It's obviously yeah. We Bermuda law, but, you know, there there's there's been talk that, you know, this you know, depending on, you know, negotiations or kinda what the Bermuda government ends up doing, that this asset could be know, no longer be an asset to us. That'd be either, you know, late, you know, fourth quarter 'twenty six or maybe '27. Roland Meyer: Okay. Perfect. And then I just wanted to ask on your view of M and A. This environment. I know there's been a couple deals announced in the past month or so, and François Morin: With how your sort of debt to cap is stacking up, you're you're kinda deleveraging over time and just anything on leverage or m and a. Nicolas Papadopoulo: Yeah. So on m and a, I think our position hasn't changed. So we Nicolas Papadopoulo: We like strategic assets. So anything that can really improve our our platform or add lines of business or help us, you know, move forward into something we we we we were planning to do and buy buy versus build. I think we we we look at everything else, but you know, we we you know, at this stage, we we at especially in in in terms of where the market is, I think we we efficiencies, we we we it's it will have to be an amazing deal for us to to really, pursue it. Know, and nothing's impossible, but, you know, I think it's unlikely. Roland Meyer: Great. Thanks for the answers. François Morin: You're welcome. Operator: Thank you. I am not showing any further questions. So I would like to turn the conference over to Mr. Nicolas Papadopoulo for closing remarks. Nicolas Papadopoulo: Yes. Thank you, everyone, for spending an hour with us. And, again, another pretty damn good performance, you know, in 2025, and again, thanking all the employees for their hard work they did to get us there, and I think we pretty much ready to go for 2026. And we'll talk to you next quarter. Thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Thank you for participating. You may now disconnect your lines.
Operator: Good morning, and welcome to the Principal Financial Group Fourth Quarter 2025 Financial Results and 2026 Outlook Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. To ask a question during the session, you will need to press 11 on your telephone. We would ask that you be respectful of others and limit your questions to one and a follow-up so we can get everyone in the queue. I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations. Thank you, and good morning. Welcome to Principal Financial Group's fourth quarter and full year 2025 earnings and 2026 outlook conference call. Humphrey Lee: As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the safe harbor provision, CEO, Deanna Strable, and CFO, Joel Pitz, will deliver prepared remarks. We will then open the call for questions. Members of senior management are also available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events, or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the US Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable US GAAP financial measures may be found in our earnings release financial supplement and slide presentation. Deanna, thanks, Humphrey, and welcome to everyone on the call. Deanna Strable: This morning, I'll walk through our strong full year 2025 performance, then Joel will follow with more details about our financial results, business unit performance, and our 2026 outlook. Our results in 2025 follow strong results in 2024. We delivered our enterprise financial targets in both years, demonstrating the strength and quality of our execution. This momentum and our strong diversified business mix position us well for 2026. We expect to deliver another year of performance within our target ranges for EPS growth, free capital flow conversion, and ROE. Turning to our results, which can be found on slide two, our adjusted non-GAAP earnings per share growth for full year 2025 was 12% and at the high end of our target range. Reported results were even stronger with EPS growth of nearly 20%. This growth was driven by favorable market conditions, strong underwriting performance in specialty benefits, and margin expansion with disciplined expense management across the enterprise, all while continuing to invest in the business. Our performance showcases the power of our diversified and resilient business mix. Strong, high-quality earnings and continued margin expansion reflect disciplined execution across all areas of the company. This momentum translates directly into robust capital generation, enabling us to invest in growth while continuing to deliver attractive returns to shareholders. We returned over $1.5 billion in 2025, including approximately $850 million of share repurchases and $685 million of common stock dividends, all within our targets. Our continued focus and execution against our strategic priorities is driving results. As shown on slide three, we remain focused on three attractive profit pools: the retirement ecosystem, small and mid-sized businesses, and global asset management, where growth is stronger, returns are higher, and our integrated business model creates differentiated advantages. Let me share some key highlights of our progress in each area for full year 2025. Starting with the retirement ecosystem, in which we offer a comprehensive suite of capabilities across recordkeeping, asset management, wealth management, and income solutions. Our momentum is broad-based, where total retirement transfer deposits of $35 billion grew 9% year over year, and Workplace Savings and Retirement Solutions, or WSRS, recurring deposits increased 5%. This growth reflects our ability to win new business and retain existing clients in a competitive marketplace. What really excites me is the engagement we're seeing from participants on our platform. WSRS deferring participants grew over 3%, and those who are saving are saving more, with average deferrals per member increasing over 2%. Participant roll-ins reached $6.5 billion in 2025, up 15% over 2024, as we make it easy for participants to consolidate retirement savings from previous employers onto our platform. These engagement metrics demonstrate the strength of our platform in serving participants' retirement needs. Turning to sales, we continue to see momentum across key channels. Pension risk transfer sales for the year totaled $3 billion across 70 cases at attractive returns. Importantly, nearly a quarter of PRT premiums came from existing clients, highlighting the power of our integrated retirement solutions. Our retirement investment expertise continues to gain traction. DCIO sales were nearly $8 billion in 2025, demonstrating that our investment capabilities resonate with third-party retirement platforms. Additionally, this year, we expanded and enhanced our retirement investment solutions, addressing a broader spectrum of plan sponsor needs. These connections within and across our businesses demonstrated the distinct competitive advantage as we deliver comprehensive retirement solutions. Turning to our small and mid-sized business market, our long-standing focus and differentiated capabilities in this attractive market continue to deliver results. In retirement, growth in our SMB market remains strong, WSRS recurring deposits grew 8% in 2025, and transfer deposits increased 32%. This, along with strong new business activity and retention, resulted in account value net cash flow of positive $1.5 billion. In benefits and protection, we continue to deepen customer relationships. On average, our group benefits customers now have 3.13 products with us, up nearly 3% compared to 2024. Employment growth for our block was nearly 2% on a trailing twelve-month basis. This reflects both the resilience of the small business market and the value we deliver to help employers attract and retain talent. Additionally, life business market premium and fees grew 15% in 2025, demonstrating strong demand for specialized solutions which help business owners protect their key assets. In Global Asset Management, we're generating strong new business momentum with continued focus on our competitive differentiators. Investment Management gross sales reached $127 billion in 2025, up 16% over full year 2024, with particularly strong momentum in private markets where sales increased 50%. Net cash flow in 2025 was strong in key growth areas. Our private markets capabilities generated positive net cash flow of $3.5 billion across real estate, infrastructure, and private credit. Humphrey Lee: Our ETF platform added nearly $2 billion in positive net cash flow. Deanna Strable: Reflecting increased momentum in delivering solutions that meet evolving investor needs. This contributed to strong AUM growth across our platform. Private markets AUM grew 12% year over year, and our ETF platform reached record AUM of $9 billion. In international pension, AUM grew 24% to record levels, demonstrating the strength of our diversified global platform. Looking across our three strategic growth areas, our execution in 2025 and the momentum we're seeing position us well for another strong year in 2026. Several early indicators stand out. Elevated quote volumes are materializing across distribution channels, and we're making strategic investments that are driving meaningful engagement and competitive advantage. Managed account adoption is accelerating, with participant enrollment up 51% in 2025, with account values over $9 billion. In our SMB segment, group benefits quote activity is strengthening, following our disciplined underwriting approach in dental. Additionally, new paid family medical leave markets in 2026 will contribute to growth as more states adopt mandated requirements similar to past years. In global asset management, demand for private market solutions continues to be demonstrated through increased RFP volume, up 16% over the average of the last three years. Our growth expectations in this space are driven by focused new product development and strengthened through recent mandate takeovers, which further demonstrate client confidence in our capabilities. We're also continuing to innovate in the ways we interact with customers across the enterprise, leveraging data and emerging technologies, including AI, to deepen engagement and improve customer experience. The momentum and strength we are seeing across our businesses continue to build our confidence in delivering our financial goals as we expand our customer base to over 75 million worldwide. Lastly, as part of our ongoing business portfolio optimization, we recently announced the sale of our runoff annuities business in Chile. This action reflects the continued discipline we've applied over the last several years to strategically focus on higher growth, higher return, and more capital-efficient businesses. We are confident in the strength of our current portfolio and the way it positions us for future growth. Before I turn this over to Joel, I want to share some of the important recognitions we've received. For the fourteenth consecutive year, Principal Asset Management was named a best place to work in money management by pensions and investments, earning this recognition every year since the inception of the award. We were also recognized as a 2026 military-friendly employer, receiving this recognition since 2017. In addition, we earned the Equality 100 award for 2026 by the Corporate Equality Index. These recognitions reinforce our culture and competitive advantages, help us attract and retain top talent, and differentiate us in the marketplace. We closed 2025 with momentum across our diverse portfolio of businesses. I'm incredibly proud of our results, and our success is a testament to the focus and hard work of our nearly 20,000 global employees. Their ongoing commitment to excellence and our customers enabled us to capitalize on opportunities throughout the year and has set the stage for continued growth in 2026. Joel? Joel Pitz: Thanks, Deanna. Good morning to everyone on the call. I'll walk through our financial performance for the fourth quarter and full year, provide updates on our capital position, and share details of our outlook for 2026. Our full year and fourth quarter results can be found on slides four and five. We delivered strong full-year results, meeting or exceeding our 2025 financial targets. Full-year non-GAAP operating earnings, excluding significant variances, were $1.9 billion or $8.55 per diluted share. This represents a 12% increase in EPS over 2024, at the high end of our 9% to 12% EPS target. Results for the quarter were also strong, with non-GAAP operating earnings of $499 million or $2.24 per diluted share, a 7% increase over a very strong fourth quarter in 2024. Variable investment income improved from the third quarter, with quarterly and full-year returns better than 2024, and in line with the assumptions provided during our 2025 outlook call. In addition to the OE improvement, similar to last quarter, we had a gain on a real estate transaction reflected below the line of approximately $40 million pretax. Non-GAAP operating ROE for 2025 was 15.7%, an improvement of 120 basis points compared to the year-ago period, and at the high end of our 14% to 16% target range. Margins also strengthened, expanding 80 basis points to 31% for full-year 2025. This improvement was driven by top-line growth and disciplined expense management, with compensation and other operating expenses increasing 2%. These results reflect strong business fundamentals across the enterprise, disciplined expense management while investing in the business, and favorable market conditions. Turning to capital liquidity, we ended the year in a strong position with $1.6 billion of excess available capital. Humphrey Lee: This includes Joel Pitz: $800 million at the holding company, at our targeted level, $300 million in our subsidiaries, and $480 million in excess of our targeted 375% risk-based capital ratio, which is 406% at year-end. We returned $1.5 billion to shareholders in 2025, comfortably within our target. This includes $851 million of share repurchases and $684 million of common stock dividends. In the fourth quarter alone, we returned $448 million of capital to shareholders, including $275 million in share repurchases and $172 million in dividends. Last night, we announced an $0.80 common stock dividend, payable in 2026. This is a $0.01 increase from the dividend paid in the fourth quarter and a 7% increase over 2025. This aligns with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth and strong capital generation. Moving to AUM and net cash flow, total company managed AUM was $781 billion at year-end, down $3 billion sequentially. Compared to 2024, AUM increased 10%. The modest sequential decline was primarily driven by $1 billion of disposed operations, which has no impact on our future earnings outlook. Net cash flow was negative $2 billion for the quarter, with positive private flows of $1 billion. As a reminder, our net cash flow definition excludes the $2.4 billion of dividends reinvested within our mutual fund franchise. Moving to the businesses, the following commentary excludes significant variances, which can be found on slides seventeen and eighteen. Starting with RIS, and as shown on slide six, we delivered strong results. Full-year net revenue grew 4%, comfortably within our target range, driven by growth in the business and favorable markets. Operating margin of 41% expanded 90 basis points over 2024 and was at the top end of our target range, reflecting our disciplined focus on profitable revenue growth. Pretax operating earnings grew 6% over 2025 and 3% over the prior year quarter, driven by higher net revenue and disciplined expense management. Fundamentals across the retirement business remain strong. WSRS recurring deposits grew 5% for both the full year and from the year-ago quarter. Transfer deposits totaled $35 billion for the year, up 9%, including $3 billion in pension risk transfer sales. The fourth quarter was particularly strong, with transfer deposits of $12 billion, up 35% year over year. Turning to slide seven, Principal Asset Management delivered strong earnings on revenue growth and margin expansion. Within investment management, full-year adjusted revenue growth of 4% was at the low end of our 4% to 7% target range. The divested businesses had a 150 basis point impact on net revenue growth in 2025, with no corresponding impact on earnings. Pretax operating earnings for the year were strong, increasing 5% to $610 million, driven by growth in net revenue and margin expansion. Full-year operating margin of 36% expanded 60 basis points from a year ago and is within our target range. Within international pension, we delivered strong AUM of $154 billion, an increase of 24% year over year. For the full year, while we had strong fee revenue growth in Latin America, net revenue declined 2% due to foreign currency and the Hong Kong business, which we are exiting. Operating margin of 46% for the full year expanded 170 basis points from 2024 and was within our 45% to 49% target range. Fourth-quarter results reflect typical seasonality and one-time expenses, and we expect improved earnings in the first quarter. Turning to Slide eight, Benefits and Protection delivered pretax operating earnings of $177 million for the quarter, up 7% compared to the prior year quarter, driven by life insurance, which was up 29%. Full-year pretax operating earnings increased 7%, driven by 11% growth in specialty benefits. Starting with specialty benefits, full-year premium fee growth of 3% was below our target range, driven by lower net new business. Operating margin of 16% for the full year expanded 120 basis points compared to 2024 and was at the high end of our target range of 13% to 16%. The adjusted loss ratio of 59% for the year was the best in our history, improving 130 basis points from 2024 and below our 60% to 64% target range. These results were driven by favorable experience across group life and group disability. Dental underwriting results show meaningful improvement with another quarter of year-over-year gains. These strong underwriting results underscore the effectiveness of our management actions to drive profitable growth. In life insurance, full-year premium and fees increased 3% within our 1% to 4% target range, as strong business market growth of 15% more than offset the runoff of our legacy block. Operating margin of 10% for the year was below our 12% to 16% target range, impacted by higher claim severity during the first half of the year. Long-term mortality remains within our expectations. As we close out 2025, our results reflect strong execution across the enterprise. We delivered earnings per share growth of 12% and ROE of 16%, both at the high end of our target, expanding margins in every segment, and generated strong free capital flow conversion of 92%. We maintained our disciplined approach to capital deployment, returning $1.5 billion to shareholders. This momentum, combined with our strategic focus on the retirement ecosystem, Humphrey Lee: small and midsized businesses, Joel Pitz: and global asset management, positions us well as we enter 2026. Before turning to Outlook, we want to acknowledge that consistent with past practice, supplemental investment slides have been made available on our website. Now turning to our outlook for 2026. As shown on slides ten and eleven, we are well positioned to, once again, deliver on our enterprise financial targets in 2026, with 9% to 12% growth in earnings per share, 75% to 85% free capital flow conversion, and 15% to 17% return on equity. The ROE target has increased, reflecting our strong 2025 results, competitive positioning, and the capital efficiency of our diversified business mix. These targets assume normal market conditions throughout 2026 and reinforce our confidence in the sustained delivery of our financial targets. We remain committed to returning excess capital to shareholders and are targeting $1.5 billion to $1.8 billion of capital deployments in 2026. This includes $800 million to $1.1 billion of share repurchases and an increase in common stock dividend, aligned with our targeted dividend payout ratio. Our EPS target is on an excluding significant variances basis and therefore assumes run rate variable investment income or VII. In 2026, we once again expect our reported VII results to improve year over year. We will continue to quantify the impacts on reported results from higher or lower than expected VII as a significant variance in our earnings calls throughout the year. Turning to our business units, slide 11 outlines our financial targets and 2026 outlook considerations. Notably, our strong execution and profitable growth give us confidence to revise several of our margin targets upward. In RIS, building on the strong results in 2025, we are increasing our margin target to 38% to 41% and expect to be at the upper end of the margin range in 2026. Net revenue target of 2% to 5% remains intact. The following outlook commentary for investment management international pension accounts for our previously announced divestitures, with the related impacts detailed on slide 10. In investment management, we are increasing our margin target to 35% to 39%, and we remain confident in our ability to deliver on our 4% to 7% adjusted revenue growth target, consistent with 2025. In international pension, our margin target is 46% to 50%, with 2026 expected in the upper half of that range due to growth in higher-margin businesses. We expect to be at the low end of our 47% net revenue growth target in 2026. In specialty benefits, we have updated our premium and fees target to 5% to 9% to better reflect our growth expectations, which remain above industry levels. In 2026, we expect higher growth at the low end of the revised range, with growth improving throughout the year. Our margin target is increasing to 14% to 17%, with 2026 expected in the upper half of the range. Our loss ratio target of 60% to 64% remains intact, with 2026 expected to be strong and at the low end of the range. In life, we are moving a subsidiary supporting enterprise distribution to corporate. This completes the alignment of our affiliated distribution functions within the same segment. As a result, we expect 2026 overall premium and fee growth of negative 2% to negative 4%, while the business owner market continues to grow at over 10%. Our margin target of 12% to 16% remains intact, with 2026 expected at the low end of the range. Notably, the realignment of fee revenue will have no impact on life or total company earnings. Before opening for questions, I want to remind you of a few seasonality impacts. In investment management, the first quarter is typically our lowest quarter for earnings due to seasonality of deferred compensation, elevated payroll taxes. We expect $30 million to $35 million in seasonal expenses in 2026. In specialty benefits, dental claims are typically higher in the first half of the year. Similar to the pattern in 2025, these factors will contribute to higher total company earnings in 2026 compared to 2025. We have positive momentum and are well positioned to deliver on our financial targets for a third consecutive year. This concludes our prepared remarks. Operator, please open the call for questions. At this time, I would like to remind everyone Operator: that to ask a question, please press 11 on your telephone. Humphrey Lee: The first question we have comes from Wes Carmichael with Wells Fargo. Your line is open. Hey, thank you. Good morning. First question, I had a question on investment management, but I just wanted to ask how you're thinking about the outlook for performance fees in 2026? I know they were a bit more muted in 2025, but curious if the outlook has changed at all. Deanna Strable: I'll have Kamal address that. Kamal Bhatia: Good morning, Wes. I think performance fee is, as we've always highlighted, typically in that $30 million to $40 million in an average year. At this stage, I would still expect 2026 to be very similar to the trend we saw in 2025. So there are no significant changes on that front. Deanna Strable: Thanks, Wes. Did you have a follow-up? Wes Carmichael: I did. Thank you. A question on earnings, it may be related to real estate, but one of your peers this quarter mentioned that they were redefining operating earnings related to real estate. And I know you, in principle, have a bit of a higher allocation to real estate compared to some peers. So curious if that's something that you maybe looked at as well. Deanna Strable: Yeah. I'll actually ask Joel to address that one. Thank you. Joel Pitz: Yeah. Wes, first and foremost, congrats on the new role. Hope it's going well. Yeah. As it relates to definition, we do reflect our operating earnings within our real estate properties within operating earnings. I'm sorry. The depreciation is reflected there. But what's important is for our outlook purposes, we always do an excess fee basis. And so we're going to compare run rate to run rate when we do our guidance. We do expect improvements in our VII for 2026 relative to 2025, as we have in recent history. So we are expecting some upside on that front. But if you look at what we do from a guidance perspective, it doesn't contemplate that improvement within our VII. We do think that there is some merit to doing that is what they're doing because we do think it better reflects the total return. We are contemplating doing that for the first quarter of 2026. Again, it was not contemplated in our outlook because our outlook is based on an excess fee basis. Hope that helps, Wes. Wes Carmichael: Yep. Fully understand. Thank you so much. Deanna Strable: Thank you. Next question? Humphrey Lee: Thank you. Our next question comes from Suneet Kamath with Jefferies. Your line is open. Great. Thanks. I wanted to start with some of the job headlines that we're seeing. I mean, they continue to point to challenges in the market. I appreciate the slide with the SMB employee employment growth of, I think, 1.8%. So it didn't look like it hit you in 2025. Just wondering maybe what you're seeing and what are your expectations for employment growth for 2026. Thanks. Deanna Strable: Yeah. Thanks, Suneet, for that question. Since that does impact a couple of our businesses, I'll take a stab at answering that. And if you have a follow-up, we can go deeper. So obviously, we're early in the understanding of the impact of AI on job levels, and it will likely take some time to play out and will likely also vary by client and industry. There are a few things I think that are worth mentioning that we do know. First, when you look across both RIS and specialty benefits, we are not seeing any meaningful impact. Employment growth remains positive. It remains stable from a growth perspective. And even if you go over and look at wage growth, that remains strong as well. The other thing I'd point to is we periodically field a well-being index relative to SMB employers, and we just fielded that in the last month. And our customers really aren't expecting a near-term impact. In fact, we actually asked with respect to how they expect AI to impact staffing levels, and 85% expected levels to either stay the same or increase. And then when we ask them about the impact of AI on salary levels, 95% expected wages to stay stable or increase. And the last thing I'll mention is given that we do 180,000 employer customers across the enterprise, I think we will benefit from the diversity of our block of business and how that plays out. We'll obviously continue to watch this closely, communicate any changes in what we're seeing, but sitting here today, we aren't seeing signs of impact. Suneet Kamath: Okay. Then I guess, just as we think about the institutional retirement business, we are hearing more companies talk about expanding into wealth management, and there's some costs associated with that. I know you have your own approach, but I'm just curious, how are you sort of differentiating, and how do you avoid channel conflict with perhaps the FAs that sell your 401(k) plans? Thanks. Deanna Strable: Yeah. I'll actually ask Chris to spend a little time on that. If you go back to our November 2024 Investor Day, we did talk about that being an area that we were leaning into to continue to, one, deliver outcomes to our customers, but also drive growth as we go forward. We're on that journey, and I'll ask Chris to answer your specific questions. Christopher Littlefield: Yeah. Thanks, Deanna. Thanks for the question, Suneet. So, again, we've talked about rolling out our advice model and being able to provide more advice to our participants. Our approach is different. We are just focused on those people that are already customers of Principal in their 401(k) plans, and so we're very much focused there. And we're also focused on people with less than a million or 100,000 new customers as a result of these services in the last year. We're just seeing nice momentum. So we do think we have a differentiation. We do believe we're focused on a segment of the customers that while advisers may be interested in them, they're much more interested in people with a lot more investable assets. And so we're working closely in partnership with a lot of our close advisers to make sure that we partner together and get the people the advice that they need and then figure out how to share the economics of that going forward. Hope that answers the question, Suneet. That's helpful. Thanks. Deanna Strable: Thanks, Suneet. Next question? Humphrey Lee: Thank you. Our next question comes from Wilma Burdis with Raymond James. Your line is open. Wilma Burdis: Hey, good morning. Deanna Strable: Hey. Hey. Can you guys hear me? Deanna, maybe you could give us some color on the strategy for some of the small divestitures in international. Yeah. Thanks, Wilma, for that question. And I'll maybe step back a little bit. As you know, we've had several meaningful changes to our business portfolio over the last few years. These changes were all risk-reduced and, more importantly, put us in a great position to deliver on our strategic and financial objectives as demonstrated in our strong performance since then. As I think you've proven and you mentioned it, more particularly in a few of our businesses, we will continuously assess our portfolio and make any changes as needed. And the recently announced divestitures are really just an ongoing continuation of our portfolio optimization, ensuring alignment with our growth priorities and a focus on higher growth, higher return businesses. As Joel talked about relative to the outlook and you saw on those slides, those divestitures will have some impact on some of the financial metrics, whether that be revenue, net cash flow, AUM, capital, but I am confident that all of them will enhance our strategic focus and ultimately be accretive to EPS and ROE. As I sit here today, I feel strongly we have the portfolio we need to deliver consistently on our financial aspirations. And going forward, I feel we're also in a position where we can be much more focused on growth rather than the ongoing optimization of our portfolio. Wilma Burdis: Thank you. And thanks, Melissa. Talk a little bit about Deanna Strable: oh, thank you. Could you talk a little bit about what gives you the confidence to raise the ROE target to 15% to 17%? I think the results have been pretty consistent, but maybe just go in a little bit more detail. And are there any dynamics that might support ROE even higher or at least in this pretty solid range longer term? Thanks. I'll have Joel reach into that. As we came into the year, we hadn't actually moved into the range that we had been targeting previously, which is 14% to 16%. Obviously, sitting here today, we're really proud of the increase we saw. And as we looked forward, we felt confident that that higher range made sense for the trajectory of our businesses and also contemplate some of the divestitures that I just talked to you about as well. But I'll turn it over to Joel for more input. Joel Pitz: Yeah. Wilma, just to complement that, this is it's a sign of our conviction and ability to continue to increase. Francis Matten: Our ROE. As you saw, the nice improvement that we have year over year, if you look at the 14% to 16% guidance, we're sitting here today at the very high end of that. And we expect additional improvements going forward. Again, that's just a product of our competitive positioning, our differentiated business model, our capital-light businesses. Not only allow us to invest in organic growth, but also make sure we provide plenty of capital to shareholders through share buyback and dividends, again, are both ROE accretive. So, again, it's a product of our conviction. Our ability to continue to drive top-line growth, deliver profitable growth, and to also get the ROE expansion that we're committing to. Deanna Strable: The other thing, Wilma, I'll add on that is we also want to organically grow our businesses. And so ultimately, it's the combination of our metrics that we have a lot of conviction in and also feel are attractive to our shareholders but feel that that new range more reflects what we can expect to see over the near term. Wilma Burdis: Thank you. Next question? Humphrey Lee: Thank you. Our next question comes from Joel Hurwitz with Dowling and Partners. Your line is open. First, following up on Wilma's question on shutting the noncore businesses. Appreciate the financial impacts to revenue and margins, but what were the or are the Joel Hurwitz: benefits to those sales? And then when I think about your overall businesses, sorry. Yeah. I was when I think about your overall businesses, you still have the, like, the legacy LifeBlock. Any potential to divest that? Deanna Strable: Yeah. You know, the first thing I would say on your second question is we like our portfolio of businesses that we have today. We'll obviously explore if anything makes both strategic and financial sense, but that's not on our top priority as we think about our portfolio of businesses today. And then I'll ask Joel to respond to the capital implications on our announced divestitures. Francis Matten: Joel. Thanks for the question. So as it relates to announced divestitures, we had a couple of asset management businesses in 2025. We had to run off Chile annuity business in early 2026. All those impacts were fully contemplated within our outlook. And so we have both the earnings impact, which is de minimis, we have the revenue impact, which I communicated in my opening remarks. And quantified the year-over-year impact that those revenue headwinds are going to create. Again, no meaningful impact to profitability, but does impact year-over-year revenues. And from a capital perspective, those are fully reflected within our outlook guidance. And, therefore, it's within the $1.5 billion to $1.4 billion to $1.5 billion to $1.8 billion capital deployment that we have there. From a quantification perspective, the question that we are getting is a Chile annuity runoff business. Just to frame a reference, in 2025, the revenue was about $65 million of revenue. And the earnings were about $30 million pretax. Just to give you a sense as far as what the magnitude of that business was, and as it relates to the timing of the transaction, we're contemplating we think from a regulatory approval perspective, it'll likely be the third quarter of 2026 when that transaction closes. Deanna Strable: I hope that helps. Do you have a follow-up question? Yeah. I guess I would just follow-up Joel Hurwitz: on that, right? If it's $30 million pretax, right, that's all 10% ish of international, and you said it would be EPS accretive. So just trying to think about the actual capital benefits and how that becomes EPS accretive. Is that in the '26 buyback? Or if it's closing in the back half, should we expect some accelerated buyback in '27? Francis Matten: Yes. So it'll be accretive once the transaction closes. And with the capital that's freed up because of the transaction, we are expecting elevated share buyback in 2026. That takes that into account. And so, again, we do expect to deploy the capital pretty shortly thereafter, not only for share buybacks but also to fund organic priorities as well that are going to get a higher return than what our Chile annuity business was. Deanna Strable: Thanks, Joel. Next question. Humphrey Lee: Thank you. Our next question comes from Tom Gallagher with Evercore ISI. Your line is open. Tom Gallagher: Hey, good morning. First question is on spec benefits. You had a strong dental underwriting quarter. I know it's your biggest business, at least by premium. And I know it's seasonal. You would certainly point that out. But when we think about I know you've also been getting rate, though. And I just want to understand what we should expect from a loss ratio standpoint. As we head into '26. Did you get more rate in that business in '26, or what you got in '25 was enough? And so I guess, the punch line on that is, should we still expect a low to mid-seventies loss ratio in the first half of this year? Or do you think it will be improved over that driven by pricing? Yeah. I think that's a great question. I'll have Amy address that. Amy Friedrich: Yeah. Thanks. Appreciate the question, Tom. So I do want to start back. You are absolutely right that dental is a large product for us in terms of what it takes up in terms of our total premium. But keep in mind that we really go to market with a bundled set of solutions. So we sell, we renew, we service, we price, with that bundled product in mind. So we always have Amy Friedrich: So multiple products, usually three or more, kind of at play at the same time. When I answer for dental, that's usually just part of the picture we have going on with that customer. But you noted the dental pricing changes. I do want to add one other dimension to that is that we have a nicely competitive, owned dental network as well. So we have great relationships with our providers. We have that dental network that is something that we can work to continue to optimize. So I would say the dental pricing as well as the dental network optimization efforts are the two things that are really going to pull through into the loss ratio that we see in 2026. I would say that dental pricing efforts are what we saw come through in late 2025, in terms of that improved loss ratio. More of the dental network optimization will show up in 2026. So they have been historically running at that rate that you quoted, which would be kind of in that low seventies. What I would assume is that we will continue to see that loss ratio move down in 2026. Likely, we'll actually see more improvement in 2026 than we saw in full-year 2025. Again, that's going to be driven by not just pricing, but by that network optimization. So something in the very high sixties is something that feels a little bit more like what I would think of as the longer-term performance for that dental block. Tom Gallagher: That's that is helpful. Thank you. For my follow-up, just, I guess, a broader question on free cash flow. You did 92% in 2025. That's a Humphrey Lee: certainly top Amy Friedrich: quartile. Humphrey Lee: Terms of the peers. Tom Gallagher: Curious if you kind of zoom out and say, how are you able to do such a strong level of free cash flow and what gives you confidence in the 80%? I don't even think that, at least that I'm aware of, you're using a big Bermuda strategy that a lot of your peers use. But what is it about your strategy? And, you know, if I just compare Principal to peers, that produces such a better free cash flow outcome. And I also say that through the lens of I know you're pivoting within RIS toward more general account, which, you know, is usually associated with more capital intensity, not less. Yet your free cash flow is still quite strong. So sorry for the long-winded question, but curious any comments on that. Deanna Strable: Yeah. I'll make a few comments and then add Joel to add on. You know, I think with the actual calculations, there are some nuances that make 92% a little bit higher than actual kind of what you would think on a run rate basis. But I think I come back to when we came out of the strategic review, we really focused on places where we could drive again, capital-efficient businesses, aligned with our strategic imperative, and the company is very, very focused on ensuring that organic capital deployed is going to places that are accretive to our ROE but also carry very strong value of new business as well. So I think we've really transformed the company to figuring out how to optimize EPS growth, free cash flow, and ROE, but the nature of our businesses are inherently lower capital intensive, which allows us a lot of flexibility to strategically think about how we deploy the capital to the most strategic and financially accretive. But with that, I'll turn it over to Joel. Francis Matten: Yeah, Tom. As Deanna said, we really like our mix of business. And it gives us a lot of flexibility and optionality, you know, to make sure we can deploy organic capital in the highest impact way. Just like we talked about with inorganic opportunities, we have a high bar with organic as well. And we place a lot of scrutiny on how those finite dollars are being spent and making sure that they're optimized. And so we're at a really good mix of business. And we feel really good about our ability to deploy capital for organic purposes and also free up plenty for share buybacks and dividends, etcetera. And so as it relates to that 92% that you quoted, just a technicality, and Deanna mentioned this a little bit. Least some of the nuances within the calculation. I'd say more of a run rate was high end, like 85% when you take into account things in the denominator such as actuarial assumption review and other noncash activities. But still high end, still have a lot of conviction. Our 75% to 85% free capital conversion. Again, that affords us a lot of optionality ability to drive shareholder value. Humphrey Lee: Thanks. Amy Friedrich: Next question? Thank you. Our next question comes from Humphrey Lee: Jack Patton with BMO Capital Markets. Your line is open. Jack Patton: Hey, good morning. Just a question on investment management. Can you talk about your outlook for Humphrey Lee: thousand net flows this year? Jack Patton: Any leading indicators around RFP volumes or anything else you can share regarding that outlook? Deanna Strable: Yeah. Thanks, Jack, for the question. I'll ask Kamal to address that. Kamal Bhatia: Good morning, Jack. So I think your question is around what I see in terms of future outlook from our clients. So I'll point to you a couple of data points. One, as the industry is maturing, we are continuing to pursue new avenues of growth. In asset management. First, I would highlight for you a new pipeline of committed transactions and new diligence activity. We are seeing in our European real estate business. After a while, particularly in partnership with a lot of Asia-based investors, particularly family offices. One of the things that's benefiting us is we have a lot of experience in this space. But we also have an ability to structure these transactions depending on their preferences. And we see a growing pipeline of activity in that space. And I'm quite excited about these relationships because these are incrementally new clients that will come into Principal that we have not had before. And we can increase our cross-sell opportunity with them over time as well. The second piece I would point out to you is we also continue to grow our international wealth platform. In fact, just recently, we launched a wealth a private wealth product in France. That exceeded expectations in January with respect to its initial fundraising. What we are targeting is the independent financial network in France that will help us grow that business. Particularly, a lot of that market is covered by bank and insurance products, and we certainly think we have an opportunity there. And it also elevates the brand of Principal Asset Management in Europe. And then the last thing, there has been a lot of interest around strategic partnership. We have a very high bar of selectivity around fit. I would point you to recently, we signed an exclusive partnership with the leading Islamic bank in Saudi Arabia. To design a market-leading private market solution that they seeded with significant capital, also working with the asset management arm of that entity to grow into the wealth market. You would imagine, Saudi Arabia is one of the fastest-growing markets over the next decades. And a highlight I would point to you is in 2025, we have also grown our private market substantially. Over $16 billion of our AUM now in private markets comes from our outside real estate. So it gives me great confidence that the pipeline is building both around clients and newer avenues of growth. That answers your question, Jack. Jack Patton: It does. Thank you. Follow-up? Maybe follow-ups. Jack Patton: Oh, yes. Maybe sticking with investment management, the management fee rate in the quarter was, you know, 28.4, which is a bit lower than where you had been running. I know that the comparison noise is volatile on a quarterly basis, but just any color on what drove the movement this quarter and anything on your outlook there? Kamal Bhatia: Sure. Pavel, go ahead. Yeah. Kamal Bhatia: So this quarter, there is some noise related to almost $13 billion of divestitures. That impacted that revenue growth comparison all time periods, but I would point out that it didn't have any impact on earnings. If you include the divestitures, they had roughly a 2% revenue growth impact, reducing our 2025 growth rate in IIM around 4%. There's also an underlying mix of public market strategies in an associated performance variability that had some small impact on AUM-based fee rates that you're quoting. The way I would ask you to think about this is as we continue to grow in private markets around the globe, client demand has shifted to higher return strategies, particularly development-oriented that do use some level of leverage. Because these strategies are anchored around committed or invested capital other than reported AUM, you could see the mix create some temporary mismatch on average fee rates when you compare it on a traditional basis points over AUM basis. Importantly, these strategies will incrementally generate more transaction fees and more performance fees for us, so they support stronger revenue growth and earnings over time. Also, in many of the stabilized asset mandates, particularly the takeovers we see in the US, given where we are in the real estate cycle, a lot of those mandates are anchored on net operating income, NOI, which is good for clients, and that creates opportunities for us to create value for our clients as well. I think you heard in our comments earlier that we delivered 9% growth in private market revenue this year. So what I would say is the dynamic would create higher variability in the fee rate that you are observing, but we are focused on delivering the revenue growth as we talked about in our targets. Deanna Strable: Hope that helps, Jack. Jack Patton: It does. Next question? Thank you. Our next Humphrey Lee: question comes from John Barnidge with Piper Sandler. Your line is open. John Barnidge: Good morning and appreciate the opportunity. My first question Humphrey Lee: on the investment portfolio, how do you think about exposure to software within that and how do you think about the AI impacts on the pricing dynamic from a knock-on perspective to benefits and protection? Thank you. Deanna Strable: I'll have Joel talk about the investment portfolio and then maybe Amy can add some questions regarding if any impacts she expects within her business as well. Francis Matten: Yeah. Good morning, John. As it relates to the investment portfolio, we continue to feel very good about our overall portfolio. Well-positioned, high quality, well matched to our liabilities. As it relates to your specific question on software exposure, we are underweight. At less than 1% of our GA. And, importantly, our deals are underwritten on a cash flow basis. And not just on a recurring revenue basis. And that reflects our conservative nature of underwriting. Given our quality, well-diversified portfolio, your credit risk and drift remain very manageable. Remains in line with long-term expectations. Both in the current year 2025 as well as the outlook for the future. And certainly is backed into all capital deployment expectations. Amy Friedrich: Yeah. So thanks, John. Here's how we think about it in terms of AI adoption, and we don't love to do a lot of guesswork, so we actually go out there and do some primary research on this. Deanna mentioned the well-being index. It actually gave us some really good insight. The last couple of rounds, late October last year and then the rounds that we did this year, we definitely see small and midsized businesses as saying they want to adopt more technology. They're actually seeing, though, that AI adoption as more of a growth driver for them. So, again, as you turn into larger companies, they might cite more of the efficiency play, some of the efficiency and workforce dynamics they need to get out of AI. Smaller businesses gather up a little of that, but they're seeing it as an ability to know their customers better, to design journeys better for them, and to democratize some of the pieces of technology that haven't been affordable for them in the past. So they see it as a growth driver. The data within our own block does not indicate that we're seeing impacts on this. We're seeing a pretty stable set of expectations around what happens with job growth. I will say, Deanna mentioned this before, there is an interesting dynamic on wage. Almost every single SMB that we have talked to and surveyed indicates that they think the likelihood that wages go up is very high. So wages going up tends to not only help benefits and protection but be something that can transfer over into Chris's businesses as well in the retirement business. Deanna Strable: Thanks, John. Do you have a follow-up? John Barnidge: Yeah. Thanks a lot for that opportunity. Principal Asset Management was unifying investment management and international pension. And we're now a couple of years into that. Structure of the business. And I think there was a comment earlier about continuously evaluating the portfolio. Should we think about businesses within that Francis Matten: international pension business John Barnidge: where there isn't a natural synergy for investment management within the Principal Asset Management umbrella being kind of the focus area for that? I'd love to hear more. Thank you. Deanna Strable: Yeah. I think there's a couple of things there, and I think some of Kamal's examples show that by separating and recalibrating our management business into investment management and international pension, it is allowing the investment management arm around the globe to really focus on where we can drive growth and traction with our assets or capabilities around the globe. Specifically, if you look at some of the recent international pension divestitures, they have been focused there, but I come back to that the remaining entities and assets within our international pension, we feel are strategic and can continue to drive value and growth. In some situations, also can contribute to the I'm growth picture as well by leveraging that customer base and our relationships. So, hopefully, that helps. Amy Friedrich: Thank you. Next question. Humphrey Lee: Thank you. Our final question comes from Alex Scott with Barclays. Your line is open. Alex Scott: Hi. Thanks for taking it. First one is on the international Francis Matten: pension business. You know, I just wanted to dig into the outlook a little bit. If I take the revenue guide at the lower end, and I think you the margins at the higher end, it points to over $300 million. And it is a business where it's been more flattish in terms of earnings growth for the last few years. And I think I heard you mention you're losing $30 million from the divested business. So just wanted to see, you know, what's driving this optimism around being able to grow it, you know, this year in a more meaningful way? Deanna Strable: Yeah. I'll maybe have Joel dig into that and see if we can respond to that. Francis Matten: So, Alex, if you look at where we are in 2025, about $279 million after tax or I'm sorry, pretax on an excess fee basis. And so that's the basis that we're building on and going into 2026. And then we feel certainly that we can deliver on that $300 million target in 2026. Couple things, couple data points. CLI put our assets under management, record levels, $154 billion as we sit here today. 24% increase year over year. And, importantly, from the macro perspective, there are some, finally, some FX tailwinds emerging within these businesses, those local businesses have been dealing with FX headwinds for a period of time. So even in 2025, there were FX headwinds impacting the business that mitigated the growth a little bit. But that is turning the corner, not only as of year-end 2025 with our strike price, but also you see some of those FX tailwinds emerging in January and thereafter as well. So it's going to be nice that the underlying profitability of this business is going to show through not just on a local currency basis, but also on a US-denominated basis when you translate those earnings back to US dollars. Deanna Strable: Paul, is there anything you'd like to add? Kamal Bhatia: Alex, I'll just point you to two data points that should help you. One, we do see a lot of value in many of our pension businesses. I'll point to make as an example. Just in '25, we actually delivered $300 million of positive NCF in and the Mexico pension business for six consecutive quarters has shown positive NCF and growth. So, yeah, some of these businesses are small and internal onward, and they will add earnings growth. The other piece I would point to you is the geography may not show up in pensions. But we are creating value. Chile is a perfect example where we have a strong moat and brand in the pension business, and we have really leaned into our talent and cross-selling around that brand to grow the I'm business. And Chile continues to produce for the first time positive net cash flow for us. In IIM. So you want to think about the turnaround businesses as well as the businesses where we are cross-selling and growing our I'm platform. Deanna Strable: Thanks, Alex. Do you have a follow-up? Alex Scott: Yeah. For a follow-up, I wanted to ask you about industry consolidation. I know you've gotten this question over time. I think it's maybe becoming more interesting just because of some of the advances in technology and, you know, Principal Financial Group is, I think, been, you know, well above average in terms of implementing some of this new tech. So, you know, is that an opportunity to, you know, potentially participate in consolidation and, you know, leverage your advantages, you know, maybe with somebody else's business as well. And I guess the flip side is, is it a risk from the standpoint of, you know, if the industry is consolidating and some of your peers are getting bigger, you know, do you need to think harder about it from that standpoint too? Deanna Strable: Yeah. I'll make a few opening comments and then maybe ask Chris to talk specifically within the retirement business. So the first thing I would say is that we feel good that we don't need an organic to deliver on the near-term objectives that we've laid out. I'd also say that within all of our businesses, we participate and look at any opportunities that are coming to market, but there is a unique aspect of both the benefits and protection business and the retirement business, and that there are multiple ways to play in that consolidation. Obviously, you can strike a check and get a block of business, or because those two businesses have a feature where those employers constantly check the market and decide where they want to move that, you can also still participate in inorganic opportunity on a case-by-case basis in the open market. So we are obviously very focused on that, but I think a lot of the industry discussion has been around retirement, so I'll maybe see if Chris has anything else to add. Christopher Littlefield: Yeah. Thanks, Alex. Thanks, Deanna. Yeah. You know, I think in retirement, it's been consolidating for quite some time. You know, we're still at, I think, north of 40 overall record keepers, and I do expect that to consolidate pretty significantly over the next decade. I think the great position that we're in is we're already at scale. We feel really good about the scale that we have, and we continue to grow our overall block of Humphrey Lee: business and book of block of participants that we continue to serve. You heard that we Christopher Littlefield: continue to grow that amount. And so there's two ways to do the consolidation. One is to go pay a premium for a book of business, and the other is to compete it and win it in the marketplace. And our current focus is really about competing in the marketplace and winning it as smaller subscale providers are having a more and more difficult time to meet the needs and demands of employers, of participants, and of the vast and significant regulatory changes that continue to come. So we like our position. We're going to continue to look for those opportunities. We're actually able to win in the market and feel good about our overall position as it exists today with a focus more on organic growth than any sort of Humphrey Lee: premium that we'd pay to acquire a book of business. Deanna Strable: Thanks, Alex, for those questions. Amy Friedrich: Thanks. Are there any more questions in the queue? Humphrey Lee: Thank you. I'm showing no further questions at this time. We have reached the end of our Q&A. Amy Friedrich: Ms. Strable, Humphrey Lee: closing comments, please. Deanna Strable: Thank you. As we close today's call, I want to thank all of you for joining us today and for your questions. As we tried to iterate, we ended 2025 with very strong momentum. Earnings growth and ROE at the top end of our targets, expanding margins, and robust free capital flow and capital deployment. Our performance reflects disciplined execution and the strength of our strategy. As we move into 2026, we're well positioned to deliver against our targets and continue creating sustained long-term shareholder value. Thank you again for your support, and we look forward to connecting with many of you soon. Have a great day. Humphrey Lee: Thank you. This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day. And welcome to Saia, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Matthew J. Batteh, Saia, Inc.’s Executive Vice President, Chief Financial Officer. Please go ahead. Matthew J. Batteh: Thank you, Betsy. Good morning, everyone. Welcome to Saia, Inc.’s fourth quarter 2025 conference call. With me for today's call is Saia, Inc.’s President and Chief Executive Officer Frederick J. Holzgrefe. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. Also, in 2025, we recorded $14,500,000 in net operating expense impact from a gain on real estate disposal and impairment of real estate. When we discuss adjusted operating expenses, adjusted cost per shipment, adjusted operating ratio, or adjusted diluted earnings per share for the third quarter 2025 or full year 2025 in our comments, it refers to adjusted results that exclude the gain from that sale and impairment on that property. See our press release announcing fourth quarter results for a reconciliation of non-GAAP financial measures. That press release is available on the Financial Release page of Saia, Inc.’s Investor Relations website as well. I will now turn the call over to Fritz for some opening comments. Good morning and thank you for joining us to discuss Saia, Inc.’s fourth quarter and full year results. We look back on 2025, I am proud of our team's resilience and focus. Delivering strong execution for our customers even as volume patterns shifted day to day amid constant change. Having now completed our first full year at the national network, I am more excited than ever before about the future of Saia, Inc. Throughout the year, our now national footprint provided opportunities with both new and existing customers as our expanded reach enabled us to provide our industry-leading service in more markets. Having a national presence provides us with the opportunity to solve more problems for more customers, which we believe has resulted in increased market share. Our record capital investments of more than $2,000,000,000 over the last three years have allowed us to rapidly expand our footprint in a short period of time, and I believe we are still in the early stages of capitalizing on the opportunity that national network provides. Of course, our achievements would not be possible without a best-in-class team. While the demand environment remained dynamic throughout the year, our team responded to our customers' needs every day. Our core operations performed as we expected for the fourth quarter. However, reported results were impacted by self-insurance costs late in the quarter. Our fourth quarter operating ratio of 91.9% reflects these increased self-insurance costs. The sequential deterioration from third quarter's adjusted operating ratio was impacted by unexpected adverse developments on a few cases arising from accidents that occurred in prior years, which required reserve increases in the period of approximately $4,700,000. As we well know, accident-related costs continue to rise due to increased litigation costs and settlement values as well as general inflation, and can develop sometimes unexpectedly over several years. Regrettably, this unexpected need for reserve increases was related to the accidents that happened years ago. However, we continue to invest in industry-leading training and safety technology. We are seeing positive trends in our safety statistics. During 2025, despite having the largest fleet in company history and internal miles increasing by 2.4% year over year, we saw a 21% reduction in our preventable frequency and a 10% decline in lost time injuries, reflecting the benefits of these ongoing investments in safety. Focusing on the fourth quarter, volumes continue to reflect the muted demand environment the industry experienced throughout the year. Shipments per day were down 0.5% compared to 2024, while tonnage per day was down 1.5% compared to the same period last year. As is typical, we experienced some volume shifts in the weeks after the GRI, which was implemented on October 1, and we remain extremely focused on ensuring that we are compensated appropriately for the quality and service that we provide to customers. When we analyze the results of the GRI closely, we are pleased to see customer acceptance trends slightly above historic levels. Similarly, contractual renewals remained strong in the quarter, averaging 4.9% of the book of business contracted in the quarter. We continue our efforts to ensure that we are fully compensated for quality and service we provide and have seen a 6.6% contractual renewal increase in the month of January 2026. Despite the volume decline, our fourth quarter revenue of $790,000,000 is a record for any quarter in our company's history. Mix headwinds continue to impact our results with slight decreases in weight per shipment and length of haul compared to 2024. Additionally, revenue per shipment excluding fuel surcharge decreased 0.5% compared to last year. As we have discussed in our prior quarters, the volume decline in our Southern California region continued, as volume in the region in the fourth quarter was down about 18% compared to the prior year. This region is typically our highest revenue per bill market and the volume decline caused an estimated $4,000,000 revenue reduction for the quarter. While the Southern California region continues to play a factor in our mix dynamics, we are seeing growth with customers in both legacy and ramping markets as our expanded footprints allows us to get closer to our customers and handle segments of their business that we may not have had access to prior to the network expansion. Reflecting our ability to provide industry-leading service in more geographies, we were able to drive revenue per shipment excluding fuel surcharge up 1.1% sequentially from the third quarter. Our nationwide network has now been fully operational for one year, giving us clear perspective on the impact of our generational opportunity to expand the network over a very short period of time. Over the past year, we strengthened relationships with existing customers while bringing our high-quality service to many new customers, contributing what we believe is a record level of market share gain. These customer relationships will continue to develop, reflecting the long-term value of the strategic investments we have made over the past few years. With our network expansion, we were able to achieve a cargo claims ratio of 0.47% in the fourth quarter, which is a company record for any quarter. Considering the size and scope of our national network, with newer locations still in early stages of their life cycle and employing newer Saia, Inc. employees, this customer-centric metric is a testament to the culture instilled at each location in our organic expansion and our team's ability to perform at the highest level. This level of service reflects our team's consistent effort and attention to detail, core strengths that have helped establish Saia, Inc. as a leading national LTL carrier. I will now turn the call over to Matt for more details from our fourth quarter results. Thanks, Fritz. Fourth quarter revenue was largely flat compared to the prior year, increasing by 0.1% to $790,000,000, while revenue per shipment excluding fuel surcharge decreased 0.5% to $297.57 compared to $299.17 in 2024. Fuel surcharge revenue increased by 6.1% and was 15% of total revenue compared to 14.1% a year ago. Yield, excluding fuel surcharge, increased by 0.5%, while yield increased by 1.6% including fuel surcharge. Tonnage decreased 1.5% attributable to a 0.5% shipment decline in addition to a 1% decrease in our average weight per shipment. Our length of haul decreased 0.1% to 897 miles. Shifting to the expense side for a few key items to note in the quarter. Salaries, wages, and benefits increased 6.1% compared to 2024. This increase was primarily driven by increased employee-related costs, which include a company-wide wage increase of approximately 3% on October 1, due to adverse claim development on a few accident cases late in 2025 related to accidents that happened in prior years. In 2025, we are pleased to see a decrease in the number of preventable accidents year over year. However, cost per claim continued to rise due to increased cost of litigation and increases in settlement values. Depreciation and amortization expense of $62,900,000 in the quarter was 16.4% higher year over year, primarily due to ongoing investments in revenue equipment, real estate, and technology. Compared to 2024, cost per shipment increased 6.1%, largely due to increases in self-insurance-related costs and depreciation. Group health insurance alone accounts for more than 30% of the year-over-year cost per shipment increase due to continued inflation in healthcare-related costs. We continue to believe that we provide best-in-class benefits to support our employees who drive increased customer satisfaction, and while a headwind, we have absorbed the majority of the market rate increases that we have seen over time. Total operating expenses increased by 5.6% in the quarter, and with the year-over-year revenue increase of 0.1%, our operating ratio increased to 91.9% compared to 87.1% a year ago. Our tax rate for the fourth quarter was 22% compared to 23% in the fourth quarter last year, and our diluted earnings per share were $1.77 compared to $2.84 in the fourth quarter a year ago. Moving on to our full year 2025 results. Revenue was a record for Saia, Inc., increasing 0.8% compared to 2024. Operating income was $352,200,000. Adjusting for one-time real estate transactions, our operating income was $337,700,000 for 2025. Our operating ratio for the year deteriorated by 40 basis points to 89.1%, while our adjusted operating ratio was 89.6% for 2025. Focusing on the balance sheet, we finished the year with just under $20,000,000 of cash on hand and $63,000,000 drawn on the revolving credit facility, to bring us to approximately $164,000,000 in total debt outstanding at the end of the year, which is down from $200,000,000 at the end of 2024. Looking back on 2025, I was pleased with our team's core execution, despite a challenging macroeconomic environment. We insourced more miles compared to the prior year, cost-optimally scaling and leveraging our fleet's national network and technology investments driving our optimization efforts. Further evidence of our network optimization efforts shows in our handling metrics, which improved sequentially every quarter through the year and exited the year 1.5% below their first quarter peak. From a quality standpoint, our cargo claims ratio of 0.5% for the full year was a company record and improved year over year in every quarter compared to 2024. We continue to see the benefit of our investments in safety, training, and technology. Lost time injuries in 2025 declined 10% year over year, and preventable accident frequency declined 21% year over year. While the underlying nature of self-insurance remains inflationary, our reduced incidents have helped mitigate the rising costs. Importantly, our record investments have enabled us to drive increased customer satisfaction in more markets. Our ramping terminals, or those open since 2022, operated profitably for the year, despite the relative inefficiencies that come with opening 39 terminals in such a short period of time. The 21 terminals that we opened throughout 2024 continue to mature. We estimate that those terminals increased revenue market share by approximately 80 basis points in 2025. In aggregate, our ramping terminals, while weighing on the company's operating ratio, contributed incremental operating income for the year. We are seeing tangible results with our customers through our expanded service offerings, and I believe we are just beginning to unlock the full potential of our national network and technology investment. I will now turn the call back over to Fritz for some closing comments. Thanks, Matt. Despite uncertainty surrounding volumes in the broader macroeconomic environment in 2025, I am proud of how our team adapted each day to meet our customers' needs. Every day represents new variables, and our ability to consistently deliver strong service quality metrics reflects the strength of our Saia, Inc. culture across both our legacy and ramping terminals. While the inflationary costs associated with our industry continue to be pronounced in certain areas, we are actively working to manage costs through the use of network optimization technology. We accelerated our network optimization efforts that began in 2025 and are already seeing cost savings as a result. Fueled by our ongoing investments in technology, these initiatives improve density and efficiency across our national footprint, with handles declining steadily from the first quarter peak. As our network continues to scale, adding density and enhancing our ability to service customers, our value proposition continues to become increasingly clear. These investments we have made over the past three years, more than $2,000,000,000, have strategically allocated capital toward real estate, revenue equipment, and technology to support our long-term profitable growth. In addition to the investments we have made in our network expansion, the investments in revenue equipment and fleet modernization have improved operating efficiency and safety while also positioning us to improve the customer experience. We have also invested heavily in technology to optimize network performance and drive operating leverage, including advanced analytics for operational profitability insights, customer-facing capabilities, employee training, and process automation. We believe that the combination of these investments strengthen our competitive position and supports sustainable value creation for shareholders. As we look to 2026, our focus remains on strengthening core execution by continuing to invest in both technology and our people. Our national network provides a complete LTL solution for our customers, and our success is defined by consistently meeting and exceeding customer expectations while generating an appropriate return for these significant investments. We believe strongly that our national network is poised to scale as macroeconomic conditions improve. By leveraging these investments, combined with our team's commitment to excellence, we expect to drive incremental improvements to our performance in 2026 even if the macro environment remains soft as it was in 2025. The network investment over the past few years reflects a considerable deployment of capital, which requires a return. Our emphasis through 2026 will be on an intense focus on ensuring that we see return on these investments. We expect to be fairly compensated for these investments as our customers benefit from the increasing scale and quality that we provide. Over time, we will need to continue to reinvest in the inflationary and capital-intensive network and find ways to continue to deploy technology to operate more efficiently. Ongoing investment will require that we are appropriately compensated to provide a return to our shareholders. With that said, we feel very strongly that our business has never been in a better position to drive value for our customers and return to our shareholders. With that said, we are now ready to open the line for questions. Operator? Operator: We will now begin the question and answer session. You may press star then 1 on your touchtone phone. Please, in the interest of time, we ask that you please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question comes from Jordan Robert Alliger with Goldman Sachs. Please go ahead. Jordan Robert Alliger: Yes. Hi, good morning. I was just wondering, can you perhaps in the context of how your monthly tonnage data has been going through the quarter and then October, and then January, how that may tie into your thoughts around sequential margin seasonality 4Q to 1Q? Thank you. Matthew J. Batteh: Sure. Hey, Jordan. I will give the monthly just so that everyone has that. So October shipments per day were down 3.4%, tonnage per day down 3.3%. November shipments per day up 2.6%, tonnage up 1.8%. December shipments up 0.6%, tonnage down 2.2%. And then when I look at January, obviously, we had some of the weather impacts that passed through, shipments per day down 2.1%, tonnage per day down 7%. But keep in mind, we have seen consistent weight per shipment for the past five or six months now, which is good to see that stability. We are comping some pretty heavy weighted shipment periods in the first quarter last year, so keep that in mind from a weight per shipment standpoint. If you remove the impacts of the storm or normalize them, shipments in January would have been slightly positive, which continues the trends that we have been seeing, so relatively in line there. From the margin standpoint, look, if you look at history, Q4 to Q1 sequentially is typically a degradation of about 30 to 50 basis points worse. If we get a normal February, normal March, we think we can outperform that and beat that, and if we get a stronger than normal March and see some of that come to fruition, we think we can even further outperform that and get below where we were last year, which really feels like we set up for a pretty good backdrop from that point. And I think that is a really important point, is that you know, we get through Q1, we have seen the macro data that is out there that has come up and has been positive, trends out there that would appear to be positive. I mean, I think this is our time, right? So this is the time where we have invested and positioned ourselves for this opportunity. And I think that you build off of what we could see in the first quarter, as Matt outlined, I think you are looking at a full-year kind of OR improvement 100 to 200 basis points. And if the market, if macro is kind of at the upper end of kind of the trends, then I think that is only better for us, right? So this is the scaling point. This is why we did this, this is the time we made the investments we have over the last number of years. And just one point, Jordan, to clarify the sequential margin, we are viewing that off of the normalized Q4, right, if you remove the one-off impacts that we called out. Just want to make that clear. Jordan Robert Alliger: Insurance? Matthew J. Batteh: That is right. Yes. Jordan Robert Alliger: Okay. Thanks very much. Operator: The next question comes from Jonathan B. Chappell with Evercore ISI. Please go ahead. Jonathan B. Chappell: Thank you. One super quick clarification. Fritz, that 100 to 200, that you just mentioned, just what is the tonnage backdrop behind that? I know it is like the ISM is not getting better, but is it positive? Is it right, etcetera. And then go ahead. Frederick J. Holzgrefe: Yes. I would just say that I am looking at the ISM data, so I am expecting that there will be some positive backdrop there, right? So in a positive backdrop, that is good for Saia, Inc. I think that if we have seen some other macro data out there that it would be positive, I think that would lead to a market in which we would see some potential tonnage growth. And if that is the case, then I think that is an opportunity for us. So I think it is more about if those things come together, this is why this is such a compelling opportunity for us. If those things do not come together, I think we are in a position where we could still improve OR, but clearly would be at the lower end of the range I described. But in a favorable backdrop, I like the opportunity. J. Bruce Chan: All right. And you said several times getting compensated appropriately. You mentioned the, or maybe Matt said the GRI acceptance was a little better than usual. Is this a year where if you get a little bit of volume tailwind and like the weight seems to be relatively consistent, you know, what type of range are we looking at for pricing yield? How do we want to measure rev per shipment type of growth this year? Matthew J. Batteh: Well, look, we are obviously, we have not been netting the renewals that we have been taking. Part of that is just volume shift in the period. But core inflation in this business is going up. We have got to be able to push take rate and part of that has been the ability to close the network gap and to provide more equal service in these markets with the national scale. That is how we think about it. The weight per shipment, obviously, is a headwind to year over year in Q1. But after that, you start to normalize a little bit more. Revenue per shipment improved 1.1% sequentially from Q3 to Q4. So we see it in the renewal number, we are focused on it, and we are not taking the day off from that even though the environment is a little bit light, we have got to get paid for it. I mean, it is year two of a national network, and we should expect price ahead of inflation. J. Bruce Chan: And Matthew J. Batteh: develop a margin on that. $2,000,000,000 of investments over the last three years serves a return. And we are focused on getting that return and being in a position to reinvest in the business over time. J. Bruce Chan: Got it. The next question comes from Christian F. Wetherbee with Wells Fargo. Please go ahead. Christian F. Wetherbee: Hey, thanks. Good morning, guys. Guess I want to ask about the new terminals open and kind of relative profitability. It sounds they did contribute positively to operating profit for the year. Can you give us a sense of where maybe the OR for those are? And then Fritz, in the context of the 100 to 200 basis point, how do we think about the contribution of the new terminals? Is that where you can get some incremental volume, you could see more material improvement in the OR there to drive towards the top end of that 100 to 200? Matthew J. Batteh: Yes. From the first part, Chris, obviously, they are a drag on the company-wide. So they range, right? We have got some that are sub-95%. We have got some that are higher than that. In aggregate, they are sort of mid to upper 90s, but a lot of these, if you think about it, they are still within, and when we opened them in 2024 for the biggest batch, those all opened early in the year. So throughout the course of last year, just eclipsed the year of these operationally, which is really something that we are pleased with and proud of. We have got room to go and obviously work to do, but they are in that range. I would add that the margin improvement is going to come from the new, they are not going to be a drag time. I would point you back to what we did in the Northeast expansion, right? We saw that as those developed, sort of maturity, we can drive incrementals in those. Frederick J. Holzgrefe: I think what is different this go around in the Northeast is that the incremental opportunities across the business. If you study our network cost stats that we described earlier, where we are able to insource and scale more of our linehaul network, that is all about building densities across a national network. Part of that is the contributions of the new facility. So I think that this is why this was such a compelling investment to make. And if we get the environment, we can accelerate that sort of performance. But I think it is great because it is going to come from both new and old, but it is going to benefit national network. Matthew J. Batteh: Okay, helpful. And we are seeing real opportunities with that, Chris, just in customer conversations. You do not always get turned on overnight to some of that business, but the level of discussions that we can have with customers, or even frankly customers that we did not have the opportunity to get in the door with, because they want simplicity, they want ease of doing business. When you have got a full national network, you get that opportunity. So to Fritz’s point, it is not just the scale on the new ones, but even though we covered some of these markets before, we are getting new opportunities because we can have those discussions at a better level of detail and do more for the customer. Christian F. Wetherbee: Helpful color. Thanks, guys. Appreciate it. Operator: The next question comes from Stephanie Moore with Jefferies. Please go ahead. Stephanie Moore: Great. Thank you so much. Maybe returning to the pricing commentary, maybe you could discuss a little bit on what you are seeing in the overall pricing environment. And also, as you think about your higher pricing capture, would you say this is more so customers starting to recognize the investments that you have made or maybe it is both? Are you being a bit more tactful with your own pricing actions? Thanks. Matthew J. Batteh: From the environment, I would say we continue our own initiatives. We do not ever take a day off from that, as the business is inflationary. We have to go get rates. So we are continuing those efforts and really pushing the envelope harder in a lot of instances. So no change from us there. Obviously, with capacity where it is for everybody, shippers have options, and they maybe were willing to move to a more regional carrier or something for a time being, but that is just a product of where we are. I would not say that is new. We have been seeing that for the past couple of years at this point with the capacity environment the way it is. But our view is that if you look at history, when the environment gets a little bit tighter from a capacity standpoint, there is a flight back to quality and a flight back to national carriers. So, not taking a day off from the pricing aspect of it. In terms of our higher capture rate, we track that very closely. We study the results of the GRI and all pricing actions really closely. I think it is a combination of two things. We are getting more granular than we have before, and we are using our analytical tools to focus on key opportunity areas for us. But I think importantly, the opening of these terminals has given us national scale, has made it harder for customers to change out. When you have got a better value proposition and you have got the opportunity to go and talk to them about what you can do for them in every market, which we have not always had the ability to do, you get more conversation points. So I think it is a combination of both. Frederick J. Holzgrefe: Yes. I would just add, and I would emphasize Matt's last point. National network, high-level consistent service, that makes that pricing discussion more palatable, right? If you are doing a great job, you come and say, look, this is the value we are creating for your supply chain, and this is what we need to do to be able to continue to support our customers' success and then continue to invest in our business. That is a continued opportunity for us. It only heightens now because of the success of the national network. Stephanie Moore: Thank you. No, that is important context. And maybe just a follow-up on the volume trends and the sequential improvement we have seen for the last couple of months. As you kind of look at what your customers are telling you or what you are seeing, do you think that it is generally more optimism, kind of like what we have seen maybe in some of the macro data points, or is this, you know, truckload capacity? How does this compare to maybe what we saw at the start of 2025? Any context on the overall demand environment would be helpful. Thanks. Matthew J. Batteh: I think it is a little bit of everything. I think it is a little bit of maybe a little bit more positive end of the year, which is good. I think there are maybe some structural market sort of influences here. But I think total, the tenor might be just a bit more positive, right? And I think that is good. Now, we will caution just by saying, look, we are seeing it and hearing it in a bit of customer conversations. I would like to see it more in volumes too, right? So, some of that will develop through the quarter. We think it will, but until we actually see it in the results, there is a potential that things could change. But overall, I would say year over year the factors would appear to be more positive. Stephanie Moore: Thank you. Operator: The next question comes from Scott Group with Wolfe Research. Please go ahead. Scott Group: Hey, thanks. Good morning. So Matt, you were going pretty quick. What was the comment about Q1, maybe it is going to improve, maybe it is not going to improve on a year-over-year basis? I just was not sure, like the two different sort of environments you were talking about, if you can just add a little bit more color, then I have a follow-up. Yeah. Matthew J. Batteh: Yes. So if you normalize for the Q4 item that we called out and use that as the anchor point, history says that Q4 to Q1 typically deteriorates 30 to 50 bps in that range. Different years, obviously. We think we can beat that, just thinking about if we get a normal rest of February, a normal March. But if March comes in a little bit more strong and we are starting to see some of this ISM data come through, whatever it may be, we think we can further outperform that and potentially get it below where Q1 operated last year. Obviously, a long way to go between here and there, but that is the distinction between the two, it would be more about March coming in a little bit stronger than what we would typically see in history. Scott Group: Okay. And then just, you know, just a couple of other things. When do you think we start to see, like, the yield or revenue per shipment trends catch up to the renewal trends? And then it sounds like you are talking a little bit more about insourcing linehaul. Like, when do you think we start to see, like, that purchase transportation line start to more meaningfully decline as a percentage of revenue? Thanks. Matthew J. Batteh: On the revenue per shipment side, I mean, keep in mind how weight per shipment impacts yield. Weight per shipment, you get a read from how that looks just with January numbers. So a headwind there from a revenue per shipment standpoint that helps yield, but then it starts to normalize a little bit more in Q2, Q3. Weight per shipment has been relatively steady for us over the past five or six months, which has been good to see. So once you start lapping some of the Q1 weight per shipment headwinds, I think we start to see that in the Q2, Q3 period. And obviously, if the environment tightens up a little bit more, you are going to see that run further and we are going to press the gas even harder on that. If you look at it from a PT standpoint, I mean, one of the things that we have talked about for a long time is just the ability to run more balanced when you have got a full nationwide network, selling in and out of more geographies, all of that. PT as a percent of total miles over for the full year of 2025 was 12.1%. If you go back to the 2021 period, that number was over 18% of miles. So we have reduced it pretty dramatically over time cost-optimally. We still feel really good about how we use PT. When you have a nationwide network, you are able to balance the network more, run more efficiently as you get more balance between your terminals. So it has come down a good bit over the years, but we still feel really good about how we use it as the network continues to scale, and certainly as volume comes back, we are going to have further opportunities around that, but we feel good about how we use it. Frederick J. Holzgrefe: Yes. I think, Scott, too, just to add, we look at that, we study more cost per shipment and total network cost per shipment. So it is not the PT line under itself, that certainly is one line, but our salaries, wages, and benefits also has internal costs in there. So we kind of look at those two combined. And so over time, we like that trend. And I think as the business scales, I think we will continue to see that improve meaningfully. Scott Group: Appreciate the time, guys. Thank you. Operator: The next question comes from Richa Harnain with Deutsche Bank. Please go ahead. Richa Harnain: Thanks, operator. Hello, good morning, gentlemen. So just a quick clarification on the January information that you said, that ex-weather shipments were up a little bit. Could you tell us what tonnage was doing ex-weather? Sorry if I missed that. And then, you know, my main question is, oh, go ahead. Go first, and then I will ask the second one. Matthew J. Batteh: Yes. Shipments would have been up a little bit and tonnage down about 4% to 4.5%. Richa Harnain: Got it. Okay. Thank you. And then you both have been talking about how the network is very, you know, poised to scale. I wanted to ask about, like, trends in cost per shipment. You know, ex those self-insurance costs bumping higher, you know, it still felt like it was higher than what we usually see sequentially per your ten-year average. I think cost per shipment was up 5.7%. Usually, we see a 4% increase Q3 to Q4. I know Q3 was a very solid cost-out quarter for you and that is part of it, you know, the base being lower. But how should we think about, like, cost going forward? Are you carrying just extra cost as a result of your network expansion? And it is going to take a more pronounced upturn to absorb all that? Maybe just, you know, talk about that and along those lines, can you mention, you know, how much excess capacity or slack you feel like you have in your system today to absorb extra volume should it come in? Thanks. Matthew J. Batteh: Yes. So if I look at the cost side of it, we do not typically look ten years back. Our business has changed so much over that period. If you look at a little bit more of a shorter period of time, Q3 to Q4 cost per shipment generally is up in a sort of 5% to 5.5% range. Keep in mind too, that includes historically we would have a wage increase impact both in Q3 and Q4. We did not have the wage increase in Q3 this year. We had it on October 1. So that is an automatic headwind of an increase in cost compared to what you would see in a historical number. So that is one piece of it. You have got volume that is down 4.3% Q3 to Q4 on just a calendar period. And you have got two fewer workdays in the period. So you have got fixed costs that are just over a shorter amount of days. And I would say even all those workdays are not real revenue days. The day after Christmas is a workday, but it is not a full volume day. So you just do not get that leverage. But if you think about that, just that piece is important on the wage increase where it would not have been in that historical number. So, obviously, we are going to always work on that. We have got room to improve, but we feel like we managed it pretty effectively if you look in line with some of those historical trends. We called out the headcount portion too. Year over year in Q4, excluding linehaul drivers, is down 6.4%. If you look at that sequentially from Q3, that is down about 2%. So we continue to match hours with volume and feel good about how we are managing it, but we cannot take a day off from that. We have to work through that all the time. And on the network standpoint, obviously, we have got excess capacity. Like Fritz said, we opened all these terminals for a reason. It was a generational opportunity for us to expand the network. We have, you know, it is going to vary by market, but I would say on a broad base, 20% to 25% excess capacity. We are prepared for an inflection. But important to note, capacity in LTL comes in a lot of different ways. It is terminals, certainly, but it is also doors, it is yard space, it is people. You are really the lowest common denominator of all of those pieces when you think about capacity. But this is why we did this. We expanded in what has turned out to be a prolonged freight cycle, but if we had it to do all over again, we would do the same thing because we feel really good about what the opportunity is for us over the long term of the business. But we feel really poised to scale when the environment gets a little bit of an— Operator: Thank you. The next question comes from Kenneth Scott Hoexter with Bank of America. Please go ahead. Kenneth Scott Hoexter: Hey, great. Good morning. Just want to clarify, you were down 7% in tons in January, one of your peers was flat. So I just want to understand what is going on in the market maybe a little bit. Were you more impacted by weather as a national carrier as they are? Is there a difference in end markets, SMB adds? Just want to understand somebody is being more aggressive in pricing versus that differential? And then in the past, I just want to take this another level, you have noted revenue per shipment ex-fuel is a good indicator for price. So a lot of discussion here on rev per shipment given that it was down year over year, and I get the weight, but you noted contracts were up 6.5% in January, accelerating from just shy of 5% in the fourth quarter. So is that demand picking up? And so thoughts on pricing is accelerating? Just maybe one on tonnage, on pricing if you can. Matthew J. Batteh: Yes. I would encourage you to look through. I mean, first of all, we are not seeing anybody on the pricing side act differently. So environment continues to remain rational, nothing different from what we have continued to see there. The tonnage comp for us, if you look at just where weight per shipment was the first three or four months of the year. That is the biggest component of this. Weight per shipment has been relatively steady, call it sort of May, June 2025 to where we are now. We are just lapping some weight per shipment comps that are much higher than that. So that is why the tonnage number is what it is for us. I would say from the peer set that you are talking about, I think weight per shipment is relatively consistent. I would have to go back and look, but that is really what the driver of that is, the higher weight per shipment comp, which continues to be a headwind in the March, April timeframe and then it starts to flatten out compared to where we are now. Frederick J. Holzgrefe: I think the only thing I would add, just on January discrete, but we have incorporated the impact of this in Matt's discussion around what we think about Q1 in total. But that weather system, listen, this is an outdoor sport. You have got to deal with weather every year. But when Dallas gets shut down, our Texas market is impacted, that is, from a relative, that is the biggest portion of our company. So that is going to have a relatively large impact on us versus maybe some of our peers. But our guys did a heck of a job rallying, getting us back in position. But when Dallas through Memphis is frozen and Texas is frozen and we are not operating, and we track that on our website, that is tough for us. But because of the great work by those teams, we recovered from that. We are back full-scale operation now. So we feel good about what the trends are for the full quarter. But January, there are a few days there that were pretty tough. Kenneth Scott Hoexter: Okay. And if I could just get one clarification, just because I have gotten some questions on the assumption for the first quarter, the OR commentary. I know you tried to answer this before, but I just want to get clarification. The tonnage that you are now assuming, I know you said it could get better. What is the base case, that 100, 200, maybe midpoint in your tonnage assumption? Matthew J. Batteh: I mean, obviously, the Q1 headwind from a weight per shipment standpoint, then it flattens out. But I think for the top end of that range, like Fritz talked about for the full year, a little bit of a shipments and tonnage lift would be embedded in that. But importantly, we still feel like we can drive improvements even if the macro environment does not give a lot of uplift and just stays similar to what it was last year. And we look at historic seasonality through the quarter from here, right? So January is tough, we have the weather. But February and March would look like our normal, typical seasonality. Kenneth Scott Hoexter: All right. Thanks, guys. Operator: The next question comes from Thomas Richard Wadewitz with UBS. Please go ahead. Thomas Richard Wadewitz: Yes, good morning. So I wanted to understand a little bit more your thoughts about flat market, flat freight market, just how you would think Saia, Inc. will perform if that is the case. Like, it would be great if ISM is right and you see a better backdrop. But, you know, what if you do not see that cyclical improvement? So in particular, do you think you will transition to shipment growth if that is the backdrop? Or would you say you just kind of, because it kind of seems like the December and January, it is hard to see outperformance versus the market or it is not as clear maybe versus what you have been going at. So how do you think about when you get beyond the tonnage headwind in 1Q, get beyond weather, what does shipment growth look like for Saia, Inc. against a, you know, flat freight market? Frederick J. Holzgrefe: Well, I think I would look back to last year and how we performed in the market, however you want to describe it, flat, soft, recessionary, whatever. Growth for us came in our developing new markets, ramping markets. I think that is going to continue into the year, into this year. I do not see any reason why that sort of level of customer acceptance would not continue. I think in our legacy markets, I think what you would see is sort of normalized, flatten out there compared to what we saw in 2025, and then it is a focus on core execution. In a flat market from here, you probably would see kind of us grinding out some share primarily because customers look at us and say, hey, that is a great product. This is a national network. This is working. We take share in that way. And we price accordingly to try to continue to get those returns. So I think it is the 2025 playbook in a flat market into 2026, but if the ISM develops like it would sort of indicate, I mean, I think that is what is exciting, right? That is where I think you could accelerate that. Do I look at December and January volume trends? I always comment or note that in the course of the year, I do not know if February, January, or December are the nine, ten, or ten, eleven, twelve most important months of the year. I do not know. I do not know that there is a huge trend in there. But I think the core underlying execution for us has been good, despite sort of the macro conditions. Thomas Richard Wadewitz: So, okay, well, I appreciate that. So, how do we think about the low end of that 100 to 200 basis points? Do you think that, does that assume some growth in revenue per hundredweight? Do you kind of get, I know you have had questions on it, but does that assume you get to two points of growth in revenue per hundredweight, something like that? And then also a little bit of shipment growth? Or what kind of revenue growth backdrop do you need to get to that low end of your OR comment? Frederick J. Holzgrefe: Listen, I think that if we get sort of a macro freight market that is growing a bit, I do not know, 1%, 2%, yes. That would be great. But at the end of the day, I am not necessarily interested in, we are not as interested in leading the league in shipment growth. This is more about focusing on generating returns. So, if the market were stronger than that, you might see more of us, more of our return coming from evolving or developing our revenue per shipment. That probably accelerates in that kind of an environment. And then we will get some growth in our new markets, we will continue to grow. So the combination of that would take us up, and that revenue piece is really going to drive the incrementals. So, I would say that in that range that we have given, we have assumed that when we talked last, back in the last quarter, we said 50 basis points of improvement into this year just in the steady state grind environment. If we get a little bit of growth into the year, can we get to 100? Absolutely. And if you get more growth and a little bit more pricing as well, then you are going to go to the upper end of that range. And if you are investing and looking at Saia, Inc., what you are focused on is, you say, well, these guys know how to monetize the capital that they have deployed in the business. That is where the incrementals really look good. And I would encourage you to consider that over time. And we can point to history, we know we have done it before. Thomas Richard Wadewitz: Okay. So you probably get some revenue to get to the low end of that 100 to 200. And obviously, if the market is stronger, you can do a lot more. Is that, sounds like— Frederick J. Holzgrefe: Absolutely. Operator: The next question comes from Brian Patrick Ossenbeck with J.P. Morgan. Please go ahead. Brian Patrick Ossenbeck: Hey, good morning. Thanks for taking the question. First, just to follow-up on the sourcing linehaul. It sounds like the network is helping with that from a density perspective. But I thought you also mentioned some technologies. So is there more of a structural benefit you are getting here from an investment? And then maybe just wanted to hear an update on the mix of the portfolio. You mentioned the weight per shipment rather headwind. West Coast exposure, you had one to two lane growth previously. So maybe just an update in terms of where we are in that. Is that still going to be part of a tougher comp from a mix perspective here, maybe in the first couple of quarters? Frederick J. Holzgrefe: Yes, Brian. So what I would point to, and I think one of the things that is always important when you consider our cost structure is to kind of reference us or compare us to our competitors. All the public guys are all larger than we are. And by and large, I think that if on an apples-to-apples basis, we have got a pretty good cost structure. And that is largely dependent on the deployment of technologies over the last few years around how we plan, schedule, and run our linehaul network. So we have never been necessarily concerned with using PT if it is cost-optimal, right? So as we have modeled the network over time, we have to use PT freely when it made sense to match our cost structure and importantly match customer expectations. So that same, we deploy that technology, that optimization technology, on a larger scale as we grow the business. And as you add 39 ramping points across the network, what you can do then is you take that same technology and figure out, all right, what is the better way to schedule and manage our sort of network costs, our linehaul and PT, and that is why the cost structure is, we feel like, pretty competitive. And although it is challenged in a seasonally soft fourth quarter, it is still pretty good overall compared to much larger competitors. So that is kind of a key skill set, technology-based solution that we deploy. We will continue to, like any technology, continue to invest in it because over time, you want to continue to improve whatever it is, the logic or algorithm that is driving those sort of decision points, you want to continue to refine and improve that. So that is something we will continue to focus on going forward, and I think it is a competitive skill set that we have. Matthew J. Batteh: From a mix standpoint, Brian, I mean, LA headwind, weight per shipment headwind, those late March, April-ish timeframe are when those start to lap. Obviously, we are down, but in the areas that are growing, it is typically a little bit more in those shorter haul segments right now. But I think part of that is just expansion of the network. You get opportunities with customers to solve more problems, but from a larger standpoint, really that LA, weight per shipment part, that recedes a little bit after the late Q1, early Q2 time period. But importantly, we are focused on driving returns on the investments and focusing on price. We have got to get paid for the service that we provide, and we have got more conversation points than we ever have with the wider network. But those are the key points on the mix portion of it. Alright. Thanks. So just to clarify, Fritz, the optimization, is it just more doing more with the same technology? Nothing really new incremental, just to a broader base with better density. Is that correct? Frederick J. Holzgrefe: Yes. I mean, that is. But I think, Brian, what is important to underscore here is that we continue to invest in that technology, right? So further refine the algorithms we use for that and the tools that we deploy with that around how we plan the network going forward. So it is not a static investment where we say, hey, two years ago we deployed this technology, we are now not making changes to it. We continue to invest in it. But that is really key for us. Brian Patrick Ossenbeck: Right. Matthew J. Batteh: Okay. Thanks for your time. Operator: The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great. Thanks. Good morning, guys. Just one follow-up to start. Just to confirm on this insurance, like is this, like, should we treat it as a one-time item, what happened in the fourth quarter? Or is this the new baseline going forward? And also then you have seen some volume shifts after you pushed through the GRI. Can you unpack it a little bit more, kind of who did that go to? Was it entirely price driven? Was it a new customer, an old one? Any further detail there would be great. Thank you. Frederick J. Holzgrefe: Yes. On the, I will just take the self-insurance and the accident expense. That is from a few years ago. Unfortunately, that was an unexpected adverse development. So it is appropriate to record reserve for that. I do not expect that to be the new run rate. Certainly do not want things coming from prior periods like that. But the reality of it is that underlying this business, accident expense is part of the business, right. So you have got to make sure, further explanation why you are going to focus on pricing and make sure you understand those things. But I would not consider that number as a run-rate item. We highlighted it simply because it was unexpected adverse from prior periods. Matthew J. Batteh: On the GRI aspect of it, you always see a little bit of volume move when you take the GRI. And part of that is temporary, where customers are trying to shift things around, try to save some dollars. We did it in what is typically a seasonally weaker period of the year. But there is always a little bit of movement around that. We feel pretty strongly that we are really well positioned as that starts to flow back, but that is not out of the norm. We typically talk about sort of keeping 80% to 85% of that. We are, on that segment of business, seeing a flow-through rate just in excess of 90%. So we feel like we are getting a better hang on to that and we feel like it is partly the network. We have got more opportunities where customers are saying, hey, Saia, Inc. is doing a great job for me in more locations than they ever have. But you always see a little bit of volume trend, but importantly, the acceptance rate is really where we are focused and we are going to continue to press on. Ravi Shanker: Sounds good. Thank you. Operator: The next question comes from Ariel Luis Rosa with Citigroup. Please go ahead. Eric Thomas Morgan: Hi, good morning. This is Ben Moore at Citi for Ari. Fritz, Matt, good to hear from you and thanks for taking our question. You previously noted not seeing meaningful restocking at retailers and curious to hear, as you are having your conversations with customers, what is the sense on restocking? Is it starting to happen? If not, what is your sense on kind of throughout the year when that might inflect? Frederick J. Holzgrefe: Yes. I do not know that we have got a specific call out for that, Ben. I think that it is what we would expect from here based on at least what the sentiment you see is that kind of maybe more normal, if you will. So I do not know that it is an accelerated level of restocking or just more of a normalized supply chain management. So I do not know that we are in the, how would I say, the sort of up-and-down time with that. I think it seems to be stabilizing a bit. So we do not see quite the volatility that we might have seen even six months ago, as people were addressing changes in their supply chain. We do not see as much of that now as we did then. Eric Thomas Morgan: Great. Really appreciate that. And maybe just as an add-on or clarification on your 20% to 25% excess capacity you mentioned earlier, you have in the past talked about maybe anticipating as much as 35% to 40% incremental margins on the excess capacity on an inflection, and kind of reaching gradually your sub-80 OR long-term target. What is your sense on that right now? Are those numbers still kind of what you have in mind, targeting perhaps maybe not 2026, but 2027 and beyond? Frederick J. Holzgrefe: Listen, a $2,000,000,000 capital investment like what we have deployed in this business, the returns that we are expecting are sub-80 OR, right? So now, when does that happen? I think the market is going to influence that, but I do not see any reason why we do not drive performance of the business in the low 80s and into the 70s. Parts of the network, even today, that have some level of maturity, we actually operate in the upper 70s now. We use that as a guidepost. We say, look, we ought to be able to do that everywhere. And that is why we made the investment. So I do not think there is any hesitation on our side to say that that cannot be achieved. Eric Thomas Morgan: Great. Thanks so much. Operator: The next question comes from Eric Thomas Morgan with Barclays. Please go ahead. Eric Thomas Morgan: I wanted to touch on salaries, wages, and benefits here in the fourth quarter. You talked about headcount being down, I think, above 5% year over year. Obviously, you had the wage increase here in October. But you would think that maybe, like, the headcount coming out and the wage increase on a year-over-year basis would offset each other. Can you talk about maybe, or just dig into the expenses in salaries, wages, and benefits line a little more? Is there anything in the fourth quarter that maybe will not repeat going forward? Or is there any reason that that could potentially be elevated? Or just add more color there would be helpful. Matthew J. Batteh: Yes. I mean, you have always got, we talked about the health insurance inflationary environment. We talked a little bit about that in the prescripted comments. If I look at headcount, excluding linehaul drivers, it is down 6.4% compared to Q4 last year and down about 2% sequentially from Q3 to Q4. But on a cost per shipment basis, which I think is where you are getting at, Reade, if you look sequentially, you have got two fewer workdays. So your fixed costs are spread out over fewer days, fewer shipments. You have got a shipment deterioration that you see in the sequential Q3, Q4 numbers. And then the days that you have shipments, they are not all full revenue days, but the fixed cost of headcount, of salaries, in a way some of the insurance items, those are all embedded in there. But we are pleased with the pace that we continue to match hours with volume. We are never going to be, that is just part of our business. You have got to match hours with volume. So I think more than anything, it is just you did not have the wage increase in Q3. We did it in Q4. So that is an automatic increase compared to if you were just kind of looking and modeling historically. But we feel like we managed it pretty effectively in what is a challenging period of the year plus with a more challenging environment. We knew what October shipments were on the last call, and that was a 23-workday month, which is the most important month. November was 18 days. So just some of those nuances and headwinds on how the calendar lines up, but we feel like we managed costs how we typically do on a headwind from a wage increase that was only in one period versus the combination of the two. And then if I could just follow-up on the previous question on capacity. Can you talk about the capacity difference in your new markets versus your legacy markets? I would assume you have a little a little more excess in your new markets as you try to build density in those. But I just want to get a feel for where the legacy markets are as well. Frederick J. Holzgrefe: Yes. I think Matt walked through this pretty well earlier, but I think you have to remember that capacity is measured by not only door count, it is yard space, it is drivers, it is equipment. In the new markets, we continue to have, and would expect to at this stage, ample capacity. We can, if things grew in those markets at a rate faster, you could easily add drivers or we could recruit drivers, add equipment, that sort of thing. In the legacy markets, we feel pretty well positioned there. When we say 20%, 25%, we are taking a whole range of assumptions and locations. Unlike maybe some of our larger, more established, mature peers. Our number is a whole range of variations. So there is not a lot of insight there that I can give you beyond to say, look, new markets, plenty of capacity, probably upwards of 50% in newer markets. Legacy a little bit less, probably around 20%. You have to weight how big are the new versus old. I do not spend a lot of time worrying about it, to be honest. Eric Thomas Morgan: Got it. Well, thanks for squeezing me in, guys. Operator: Next question comes from Jason H. Seidl with TD Cowen. Please go ahead. Jason H. Seidl: Thank you, operator. Hey Fritz, Matt. If we look at these 39 terminals, and by the way, it is great to see them turning profit now. How should we think about the walk to sort of an average legacy profitability? So if we assume normalized economic environment and a rational LTL pricing environment, how many years do these terminals walk up to the average? Matthew J. Batteh: Well, there is a wide range in, obviously, in that 39. You have got the Garland, Texas facility that is more meaningful than some of the smaller ones just in terms of freight environment and magnitude. Historically, we think about these on sort of a three-ish year time horizon to get towards company average. Now, the comment that you made was on a better macro. In a better macro backdrop, we want to get there faster. Yes. Normal, we think about it in a three-year time horizon. We have got some of these that are already operating below the company number. I mean, it is not all of them, it is a minority, certainly only a couple of them, but that is good to see in the scale impact of it. But typically, think about them on a three-year time horizon, and if the macro gives us a little bit of an uplift and it is a bit of a recovery scenario, you think about what Fritz just said in the previous question around excess capacity, well, you have fixed costs that are just associated with running these terminals. And, obviously, you have got variable costs in there as well. But the fixed costs are going to scale even more so in an uplift environment. That is what gets us so excited about this. In a volume uplift environment, you are not having to add costs at a one-for-one level. We can scale the investments that we have made. They are not for the results in these terminals in the next three months or six. It is three-, five-, ten-year investments that we are making in these. But that means that there are fixed costs embedded in those and inefficiencies that are not in some of the markets that have been open for much longer. So we get really excited about the opportunity to scale just because we are the only one that has opened this many new terminals in a short period of time. It is the right long-term move, but it really sets us up to take advantage in a bit of a better macro. Jason H. Seidl: Right. No. That makes sense. And just a quick follow-up on the insurance side. Given sort of the rise that we have seen in sort of the mini nuclear verdict that has been more recently, any thought given to maybe upping your self-insurance level going forward? Matthew J. Batteh: We are always looking at unique ways and conversations around our insurance tower. We factor in a lot of different things as we are going through those negotiations and the renewals. I think very important, we invest, and we have said this for a long period of time, we invest and will continue to invest in every piece of safety technology. Best-in-class equipment with all safety technology on it. So never going to take a break from that, but the environment is inflationary. I mean, you hear everybody talk about that. So the best way to prevent that is to have fewer incidences, and we are pleased with the progress we have made this year. So we have a pretty wide-ranging discussion every time on the insurance renewal side. We take it, there is no stone unturned when we are talking about those things. Frederick J. Holzgrefe: And I would challenge, we would say it likely has, if not the top safety feature set fleet, as anybody in the business. I mean, we have never cut corners on that. Driver-facing, forward-facing cameras, all the mitigation technology onboard, training to support that. That is important to us. The most important thing we can do around safety is keep our drivers safe, get them home safely. That is how you save on insurance. Get people back home safe, back to work tomorrow safe. Jason H. Seidl: Appreciate the time as always, guys. Operator: The next question comes from Eric Thomas Morgan with Barclays. Please go ahead. Eric Thomas Morgan: Hey, good morning. Thanks for taking my question. Just wanted to follow-up on the last one on insurance. I know you said we should not be including the prior period developments in the run rate. So just want to clarify if we, I mean, if we back out the $4.7 from the quarter, I think insurance costs would have come down sequentially a healthy amount to like $20,000,000. So just want to double check if that $20,000,000 or so is the run rate you are thinking going forward. And if so, what is kind of driving that sequential improvement? I know you have mentioned claims ratio improved there. So not sure if that is a factor as well. Thanks. Matthew J. Batteh: Yes. The math you did, Eric, is right on the impact of that. So that would point to us having, and what was embedded in our guide, obviously, a pretty good quarter from an experience standpoint. I think you have got to use a longer-term average, certainly, when you are thinking about it from a modeling standpoint. You will look in our history and you will see pluses and minuses and just how that moves throughout the year. The environment is going to continue to be inflationary. But I think importantly, as Fritz noted a second ago, we spent a lot of time, and will continue to, on the training, and we are seeing it in our results, and we continue to. Preventable accidents down 21% compared to the prior year, and that was embedded in some of that Q4 look. But I think you have got to use a longer-term average. These discrete ones are not part of the run rate moving forward. But that line continues to be inflationary. I think it is fair to use more of a longer-term average with some inflation on top of it. Frederick J. Holzgrefe: And then when we build in our guides, you know, we think about what our improvements are, that is assuming what we understand to be about sort of a normal case development, right? The handful that we described, that we called out here, were extraordinary in the sense that the tail on them, but when we think about the guide, appreciate that that is an inflationary line. So we try to include that in that analysis, and that would include some development of cases that have happened over time. So Matt's description around looking at that over time is important. Eric Thomas Morgan: Thanks for the time. Operator: The next question comes from Harrison Bauer with Susquehanna. Please go ahead. Harrison Bauer: Great. Thanks for taking my question and squeezing me in here. Matt, building off some of your thoughts on fixed versus variable cost, some of your peers have offered what their view is on incremental margins in the early stages of a growing tonnage environment. Considering you have similarly invested heavily into your network with ample capacity, and as you get this network running, can you share what your view is on incremental margins in your business before you would have to invest materially in more capacity? If that is drastically different from the 40% plus that your peers have described? Thank you. Matthew J. Batteh: No. I mean, look, this is, to Fritz’s earlier point, this is why we did this. And we do have these costs that are associated with opening 39 terminals over the past three or so years. But we feel really poised to scale out of that. There is no reason, I mean, we think about those same types of numbers in a slight uptick environment, and then certainly if it escalates further, a 30%, 40% incremental margin number. And you will see that probably in excess of that in some of these markets that are relatively new because you are not adding costs at the same pace as what the volume and the revenue is coming in, which is part of having a national network and part of why we scaled, and history proves that point. If you go look at the execution and the incremental margins post the Northeast expansion, that is exactly what we saw and there is nothing that stops us from getting to that point. So that is exactly how we think about it. And if the environment runs a little bit further or faster, the capacity environment tightens, we feel like we can outperform that. But that is absolutely the types of numbers that we think about. Harrison Bauer: Thanks. Operator: This concludes our question and answer session. I would like to turn the conference back over to Frederick J. Holzgrefe, Saia, Inc.’s President and Chief Executive Officer, for any closing remarks. Matthew J. Batteh: Betsy, it looks like one more person popped in the queue. Could we answer? Can we get Tyler? Operator: My apologies. The next question comes from Tyler Brown with Raymond James. Please go ahead. Tyler Brown: Hey. Thanks, guys. Thanks for squeezing me in. Just had a couple quick ones. So Fritz, I think you talked about your $2,000,000,000 investment that was obviously largely on real estate. I think you just gave CapEx guide of $350,000,000 to $400,000,000. But, Matt, where would you peg maintenance CapEx, and is this year's CapEx largely just fleet and fleet catch-up? Matthew J. Batteh: There was a lot, obviously, in real estate over that period, but there is also a big investment in equipment over the past couple of years. If you look at the past couple of years, the biggest tractor investment in company history, the biggest trailer investment in company history. A lot of that was to catch up with all the volume growth over the past several years. So it is a lot of real estate, but it is also a lot of equipment as well in that period. From a maintenance CapEx standpoint, I mean, that is really what this year is from an equipment standpoint, is maintenance CapEx. Obviously, volumes are a little bit down compared to where we expected them to be when we walked into 2025. So we feel really good about the equipment pool. That is inflationary, just like every other line of our business, but from an equipment side, it is really a maintenance issue this year for sure. Tyler Brown: Okay. So it feels that you guys will be still cash generative. You should have solid free cash. So your leverage is very manageable. M&A probably is not a story, and clearly, Fritz, you see a ton of upside. So does there come a point that you guys will contemplate additional shareholder returns? I mean, maybe through a buyback, or will you guys hold capital back for another CapEx cycle down the road? But how do you guys think about that over the next couple of years? Thanks. Frederick J. Holzgrefe: So I would say all those things are in play, right? So first of all, we understand and respect the fact we are stewards of the shareholders' capital. So as this business generates returns, we will consider buybacks, dividends, whatever that might be. But that is important, right, because this is a business that we expect to generate a return. At the same time, I think that we are going to have to balance that with opportunities that will be presented to us as the market adjusts, as terminals become available in markets that we do not necessarily service as well as we would like to. We have got 212, 213 facilities right now nationwide, and I think that that potentially goes to 230. And I think that potentially there are some markets where we may have to build. There could be other markets where I think we are going to be able to find available real estate. So we are going to have to balance the deployment of capital in that way. I think the way to think about that, though, is obviously we are going to be stewards first and foremost. To the extent the investment opportunities present themselves, those are going to be accretive from a return on invested capital as well. So that would further fund shareholder returns in future years, because I think there is a lot of growth potential in this business still. So we are excited about that opportunity. Matthew J. Batteh: I think it is important to add to that, Tyler, too, the point you made at the beginning of being free cash flow generative this year is a big deal. That is what we expect to be. Operator: This concludes our question and answer session. I would like to turn the conference back over to Frederick J. Holzgrefe, Saia, Inc.’s President and Chief Executive Officer, for any closing remarks. Frederick J. Holzgrefe: Thank you, operator, and thanks to all that have called in. At Saia, Inc., we believe that our value proposition to the customer continues to be significant. We look forward to talking about success we will achieve in the quarters and years to come. Thanks all for the time. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Butterfield Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Noah Fields. Please go ahead. Noah Fields: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's fourth quarter and full year 2025 financial results. On the call, I'm joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer; Michael Schrum, President and Chief Financial Officer; and Bri Hidalgo, Chief Risk Officer. Following their prepared remarks, we will open the call up for a question-and-answer session. Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2025 results. The press release and the slide presentation that we will refer to during our remarks on this call, are available on the Investor Relations section of our website at www.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures, which we believe are important in evaluating the company's performance. For a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. Today's call and associated materials may also contain certain forward-looking statements, which are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins. Michael Collins: Thank you, Noah, and thanks to everyone joining the call today. In 2025, Butterfield delivered strong financial results through disciplined execution. Net income improved versus the prior year, with core net income per share growing 17.4% year-on-year to total $5.60 per share. Our strong relationship-led banking and trust businesses increased noninterest income while lowering deposit costs and asset redeployment boosted interest earnings. We maintained expense discipline and advance our technology platform by adding new customer functionality and improved interface. Capital management remains an important value lever, which is reflected in our quarterly dividend increase last year and share repurchases, which resulted in a total combined payout ratio of 97% in 2025. Our M&A growth strategy remains on track, and we continue to have active dialogue with potential targets. Butterfield is a leading offshore bank and wealth manager with leading competitive positions in Bermuda and the Cayman Islands and a growing retail banking business in the Channel islands. We provide a range of services, including trust and private banking, asset management and custody, which are designed to meet the needs of our clients. Beyond these core banking markets, we serve international private trust clients in the Bahamas, Switzerland and Singapore. And from our London office, we offer high net worth mortgage lending for prime Central London properties. I will now turn to the full year highlights on Page 5. Butterfield generated solid net income of $231.9 million and core net income of $237.5 million. This resulted in a core return on average tangible common equity of 24.2% for 2025. During the year, net interest margin increased 5 basis points to 2.69% from 2.64% in 2024 with the average cost of deposits falling to 150 basis points from 183 basis points in 2024. Tangible book value per common share grew 21.7% in 2025, ending the year at $26.41. Balance capital management continued to be a key driver for shareholder value. In addition to the increase in the quarterly cash dividend rate, the bank repurchased 3.5 million shares for a total value of $146.7 million in 2025. Finally, on behalf of the bank's Board of Directors, I am pleased to welcome Meroe Park back to the Board. Meroe brings more than 30 years of distinguished public service, including senior leadership roles at the Smithsonian Institution and the Central Intelligence Agency, where she oversaw governance, operations and public accountability. Her proven ability to lead in complex environments, coupled with deep expertise in human resources, operations, technology and cybersecurity will add a meaningful voice to our Board's deliberations. I will now turn the call over to Michael Schrum for details on the fourth quarter. Michael Schrum: Thank you, Michael. Good morning, everyone. In the fourth quarter, Butterfield reported net income and core net income of $63.8 million. We reported earnings per share of $1.54 with a core return on average tangible common equity of 24.6% in the fourth quarter. The net interest margin of 2.69% in the fourth quarter was a decrease of 4% from the prior quarter with the cost of deposits falling 10 basis points to 137 basis points from the prior quarter. The bank has again announced a quarterly cash dividend of $0.50 per share. During the fourth quarter, we continued to repurchase shares, acquiring and canceling 600,000 shares at a cost of $29.6 million. On December 8, the Board also approved a new share repurchase authorization for 2026 of up to 3 million common shares or $140 million. On Slide 7, we provide a summary of net interest income and net interest margin. In the fourth quarter, we reported net interest income before provision for credit losses of $92.6 million, which is in line with the prior quarter. The net interest margin decreased 4 basis points to 2.69% compared to 2.73% in the prior quarter. This decline was as a result of lower treasury and loan yields following further cuts by central banks. Average investment volumes increased as the bank deployed assets into high-yielding available-for-sale investments which helped increase average investment yield to 2.72% from 2.67% in the third quarter. Average loan balances continued to moderate compared to prior quarter predominantly due to lower originations relative to amortization on existing loans. Average interest-earning assets in the fourth quarter increased $199.4 million to $13.7 billion, with treasury and loan yields were 20 and 23 basis points lower, respectively. During the quarter, we maintained our conservative investment strategy with the reinvestment of maturities into a mix of U.S. agency MBS securities and medium-term U.S. treasuries. Slide 8 provides a summary of noninterest income, which totaled $66.3 million, an increase of $5.1 million over the last quarter. This was due to higher banking fees, which improved from seasonal growth in card volumes and incentive programs. Foreign exchange revenues also rose as volumes increased, as well as higher asset management revenues due to increased asset valuations. The fee income ratio increased to 41.7% compared to the prior quarter, continuing to compare favorably to historical peer averages. On Slide 9, we present core noninterest expenses, which increased compared to the prior quarter due to external services fees, high incentive accruals and increased event and sponsorship marketing-related costs. There were a number of costs during the quarter that we do not expect to repeat. I would anticipate that quarterly core expenses to be around $92 million over the next few quarters. I'll now turn the call over to Bri to go through the balance sheet and some risk highlights. Bri Hidalgo: Thank you, Michael. Slide 10 shows that Butterfield's balance sheet remains liquid and conservatively positioned. Period-end deposit balances were consistent with prior quarters, although actual deposit outflows of $360 million were offset by foreign exchange translation gains of $310 million when compared to the fourth quarter of 2024, as shown in the appendix on Slide 17. Butterfield's low-risk density of 28.3% continues to reflect the regulatory capital efficiency of the balance sheet. On Slide 11, we show that Butterfield's asset quality remains very strong. The investment portfolio carries low credit risk consisting entirely of AA or higher rated U.S. treasuries and government-guaranteed agency securities. Credit performance in our loan and mortgage portfolios was stable this quarter with no net charge-offs, non-accrual loans held at around 2%, and our allowance for credit losses remained at 0.6%. Our loan book remains 71% full recourse residential mortgages with nearly 80% having loan to values below 70%. We continue to take a conservative underwriting approach, focusing on high-quality residential lending across our Bermuda, the Cayman Islands and the U.K. and Channel Island segments. On Slide 12, we present the average cash and securities balances with a summary of interest rate sensitivity. Net unrealized losses in the AFS portfolio included in OCI were $89.4 million at the end of the fourth quarter, an improvement of $12.1 million over the prior quarter. Interest rate sensitivity has increased versus the prior quarter, driven by updates to deposit beta assumptions. We continue to expect OCI improvement with additional burn down over the next 12 months of 28%. Slide 13 summarizes regulatory and leverage capital levels. The Board of Directors has once again approved a quarterly dividend of $0.50 per share. TCE/TA of 7.5% continues to be conservatively above the targeted range of 6% to 6.5%. Finally, our tangible book value per share continued to improve this quarter by 5.4% to $26.41 as unrealized losses on investments improved. I will now turn the call back to Michael Collins. Michael Collins: Thank you, Bri. In 2025, Butterfield continued to produce top quartile returns relative to peers, while maintaining a comparatively low ratio of risk-weighted assets to total assets of 28.3%. Our banking jurisdictions in Bermuda came in at the Channel Islands continued to perform well and provide stable, noninterest income with solid core deposits and franchise-level market shares. We remain committed to actively pursuing trust and bank acquisitions, which should help improve the overall quality of earnings for our asset-sensitive banking franchise. Finally, I would like to thank our clients for their continued support and business. I would also like to express my gratitude to fellow directors for your guidance and governance. As we enter 2026, I look forward to continued collaboration and success across all of Butterfield. Thank you. And with that, we would be happy to take your questions. Operator? Operator: [Operator Instructions] And our first question will come from Tim Switzer with KBW. Timothy Switzer: I was looking for some clarification real quick on the expense guide you gave. I heard the $92 million, did you say $90 million to $92 million for quarterly expenses or it broke up a little bit. So just looking for clarification. Michael Schrum: Yes. No, thanks for the question. Yes. I mean, they were trending a little bit higher in quarter 4. Obviously, some of that was due to incentives, et cetera, and then there was some outside services fees. But I think, some of those will not be repeating in future quarters. So sort of thinking it's going to settle between $90 million and $92 million. Timothy Switzer: Okay. Got it. Is that a good run rate for the rest of the year? And like what's the trajectory there? Because I know there's a good amount of seasonality as we get into Q1. Michael Schrum: Yes. I mean quarter 4 is normally -- I mean, yes, depending -- quarter 4 is normally a little bit higher as you will have seen from prior years as well. Q1 tends to be sort of on the low side. So by a couple of million but nothing big expected to come through in terms of investments, et cetera, in infrastructure. So I think, yes, some of the seasonal bits in Q4 will not be repeating in the following quarters. So I think that's a pretty good run rate. Timothy Switzer: Okay. And obviously, very strong trends this quarter in your fee businesses. Can you talk about -- and I see it was pretty broad-based, but can you talk about broadly what's kind of driving that? And some of the investments you've made on the tech side, has that helped drive some of this upside? Michael Schrum: Yes. Great. Another great question. It's Michael Schrum again. So if I just close through the fee categories, so asset management fees, obviously, most -- I mean, some of those are periodic fees, but most of them are driven by underlying valuations improving significantly in the fourth quarter and throughout 2025, actually driving the asset management fee that we then build on those accounts, particularly on the discretionary side. Obviously, the money fund has also attracted. We have a AAA rate of money funds, also attracted additional volume in 2025. So that's been a positive, and hopefully, we'll continue in the future. As you know, banking is sort of seasonal in Q3 and Q4, where we get some volume incentives occurring from our card programs. So that probably will not be repeating in Q1 and Q2, so that's probably seasonally high in Q4. But underneath, the banking fees, there's also transaction volume fees, standing orders and periodic fees such as bank account fees and statementing fees, et cetera. FX has been a real source of strength this quarter and throughout 2025, actually. And so we believe we're making some good progress there. There's some new functionality that we are allowing clients to access credit lines for FX, et cetera. So I think that's helped a little bit, get our name out there and drive some volume. And then obviously, trust was particularly strong again this quarter and is primarily related to the Credit Suisse asset acquisition that we have now completely integrated, and we're starting to see good additional client volume coming through and also our standstill on that contract on fees has now expired. And so -- we're just rebalancing those fees to services provided there. So I think that probably will continue into 2026. So I think very strong performance in Q4 and throughout 2025 on the noninterest income. Timothy Switzer: Got it. That was very helpful. Appreciate all the color. One last one for me. NPAs moved a bit lower this quarter. Can you maybe talk about some of the puts and takes there? What drove that and what your outlook is for credit migration over the next year? Michael Schrum: Yes. I mean, obviously -- sorry, it's Michael Schrum again. So we're not -- we haven't put our financials out they're coming out with the 20-F when we furnish that in a little bit. But underneath the -- I mean, we're not seeing systemic shifts in NPA migration or days past due migrations. It's really related to a few commercial accounts sort of scattered throughout the throughout the network, really, mostly in Bermuda for this quarter Obviously, during '25, we saw some improvement in the credits, primarily related to the liquidation of the Elbow Beach Hotel, which completed in Q2, Q3. And then we had some commercial litigation that we successfully completed in sort of Q3 as well. So it's not really anything systemic there, but we're certainly keeping an eye on it. Operator: The next question will come from Liam Coohill with Raymond James & Associates. Liam Coohill: So you've experienced some noninterest deposit growth on the Caymans this quarter. Could you remind us if there are any seasonal elements to those flows that we should be aware of? Bri Hidalgo: Hi, Liam, this is Bri Hidalgo. Yes, we definitely saw a seasonal influx associated with reinsurance payments that drove that increase. It's nothing more than that. Liam Coohill: Okay. Great. And then to circle back to your fee businesses to take a higher level view, especially in your trust business, now that the CS business is integrated, where are you seeing the most opportunity for new clients? And how is client retention trended given the movement to your current fee structure? Michael Collins: Yes. Thanks for the question. Actually, Credit Suisse has bedded down quite well now. So our Singapore office is actually in sort of a growth mode. So that's helpful. Generally, in the trust world, you organically grow like 2% a year, and you have a natural attrition of about 2% as trust come to their natural end after 30, 40 years. So basically, there's not a lot of organic growth. So we generally focus on trust acquisitions to grow the book in our existing jurisdictions, and we're continuing to have those discussions, but we are very excited about Singapore office. It's -- we're top 5 private trust company in Singapore now and there's great growth opportunities. But generally, growth in trust is going to come through acquisitions. Liam Coohill: Great. You actually led right into my next question. It was great to hear that conversation on the M&A front have been continuing. Have you even focused on any particular geographies for those trust acquisitions and what other fee businesses interest you? Michael Collins: So we're really focused on our existing jurisdictions for trust or if we have an opportunity for bank overlap acquisitions, but we believe having trust companies in Guernsey, Bermuda, Cayman, Switzerland and Singapore, those are the best trust jurisdictions. So I don't think necessarily we would go outside of that footprint. The issue with acquisitions, obviously, is we can't always get exactly what we want. So sometimes, there'll be one or two other jurisdictions that we'll have to take on. But generally, we'll continue to focus on our existing jurisdictions because they're the best, and that's where most of the opportunities are. Operator: [Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. Noah Fields: Thank you, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the DLH Holdings Fiscal 2026 First Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead. Chris Witty: Thank you, and good morning, everyone. On the call with me today is Zach Parker, President and Chief Executive Officer; and Kathryn JohnBull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the Investor page. I would now like to provide a brief safe harbor statement, which is also shown on Slide 3 of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2026 and beyond. These statements are subject to various risks and uncertainties, which could cause actual results and events to differ materially from such statements. Please refer to the risk factors contained in the company's annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. On today's call, we will be referencing both GAAP and non-GAAP financial measures. A reconciliation of our non-GAAP results to our reported GAAP results is included in our earnings release and in the investor presentation on DLH's website. President and CEO, Zach Parker, will speak next; followed by CFO, Kathryn JohnBull after which, we'll open it up for questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach. Zachary C. Parker: Thank you, Chris, and good morning, everyone. Welcome to our first quarter conference call. I am pleased for the opportunity to report our financial results and provide color regarding the current environment and outlook. Now turning to Slide 4, I'll provide an overview of our achievements and outlook. The first quarter was marked by the longest government shutdown in our nation's history, followed by a short-term funding gap at the end of January. However, the recently enacted budget provides increased funding capacity and improved visibility for our clients for the remainder of the fiscal year across our markets. we expect that to be a positive impact. Notably, key federal health agencies received funding increases compared to the fiscal 2025 levels, reversing in part previously disclosed funding reductions to our current and addressable markets. We believe this improved clarity and stability meaningfully support the company's organic growth initiatives. This budget stability comes at an opportune time for DLH as we continue to see improving demand across our core markets. Defense and Intelligence customers are emphasizing rapid delivery, cost efficiency digital modernization and advanced technology integration through the application of command, control, communications, computers, cyber defense and combat systems with intelligence, surveillance and recognizant known as C6ISR expertise. At the same time, federal health agencies continue to prioritize system interoperability, cybersecurity, including 0 trust applications, cloud migration and AI adoption, which positions DLH competitively well for modernization-driven awards. These are areas that leverage our strengths, our capabilities and our innovative proprietary tools as discussed previously to enhance productivity on current work while elevating our competitive position on organic growth opportunities. While revenue was down year-over-year, largely due to our previously discussed program transitions to small business set-aside contracts, such as the [indiscernible] and head start. We are seeing improved visibility and are encouraged by the midterm outlook. More importantly, we delivered sequential improvement in adjusted EBITDA margin from the fourth quarter, as Kathryn will discuss in more detail shortly. We remain firmly focused on expanding efficiencies and margins and improving overall returns as the year progresses and award decisions are made. We also continue to execute on our commitment to deleveraging the balance sheet. As is typical in the first quarter, Debt increased modestly, driven primarily by the timing of labor and payroll tax repayments around holidays. That said, we remain on track with our debt reduction plans for fiscal 2026. We Overall, we remain well positioned to succeed over the coming years, including competing effectively for high organic value opportunities within a healthy and expensive addressable market. Our differentiated technology application capabilities, tools and workforce alignment exceptionally well position us for 3 strategic within our 3 strategic pillars that those are digital transformation and cybersecurity, science, research and development and systems engineering and integration. Importantly, the improved clarity around the fiscal '26 budget, combined with our broad portfolio of contract vehicles, bodes well for DLH's long-term growth outlook. We remain committed to continued investment in the talent, tools and technologies required to meet the evolving complex needs of our customers across each of our core markets. our customers leverage our capabilities to access leading edge processing speeds digital sandbox environments, tailored integrations with cot products and technologies, advanced data science and actionable visualizations and dashboards that support mission-critical decision making. While the government services market has experienced meaningful disruption this year, driven by delays in contract solicitations and awards and previously uncertain budget visibility. We have continued to use this period to transform DLH in a positive way. Today, we are technology, engineering and scientific solutions provider that is extremely well positioned to compete for the opportunities of the future. As we work to enhance our organic profile, we will remain disciplined in reducing our indirect costs and managing our capital deployment. The management team and I are confident that DLH is on track to exit fiscal 2026 in a much stronger position than we began, and we are encouraged by what lies ahead. Before I close, I would like to recognize the performance of our deep and highly credentialed workforce. In a challenging environment, we lean on the passion, ingenuity and expertise of our staff to succeed. This past quarter, you once again surmounted extraordinary challenges in support of our customers. As always, thank you to everyone at DLH for your commitment to excellence demonstrated each day. With that, I'd now like to turn the call over to our Chief Financial Officer, Kathryn JohnBull. Kathryn? Kathryn M. Johnbull: Thank you, Zach, and good morning, everyone. We're pleased to report our first quarter results for fiscal 2026. Turning to Slide 6. I'd first like to provide a high-level overview of some key financial metrics for the 3 months ended December 31, 2025. We reported revenue of $68.9 million in the first quarter versus $90.8 million in the prior year period, reflecting contributions from expansion on existing contracts, offset by the impact of conversion of certain programs to small business set aside contracts as discussed in the past and certain government efficiency initiatives. In total, the revenue contraction was mostly due to small business set aside conversions, primarily from CMOP and Head Start with an approximate $18 million decrease in the quarter versus fiscal 2025. We reported adjusted EBITDA of $6.5 million for the quarter compared to $9.9 million in the prior year period, with the decrease primarily driven by lower revenue levels. partially offset by effective management of indirect costs as we aligned our cost structure with reduced volume. Importantly, adjusted EBITDA margin improved sequentially to 9.5% for the quarter. Our cost scaling initiatives continue into the second quarter, including further reductions in indirect spend in anticipation of future CMOP site transitions and we expect the impact of these actions to become more evident in our second quarter results. From a free cash flow standpoint, we used approximately $4.8 million during the quarter which is typical for the first quarter, given seasonal increases in working capital requirements. Importantly, this represents a significant improvement compared to last year's use of $12.1 million of free cash flow which reflects delays which reflected delays in the collection of an unusually high level of receivables. As Zach mentioned earlier, the primary driver of cash usage this quarter was the timing of labor and payroll taxes around the public holidays at the end of the year. Now turning to Slide 7. I'll wrap up with a summary of our debt reduction efforts which remain a key area of focus for DLH. As a result of the first quarter working capital requirements I mentioned earlier, including the impact of the government shutdown, debt increased during the quarter to $136.6 million. We remain well ahead of our mandatory term repayment schedule and in full compliance with all financial covenants. Looking ahead, we expect to convert approximately 50% to 55% of EBITDA generated during fiscal 2026 to reduce debt by year-end. As our investors know, we take deleveraging very seriously and have a strong track record of execution, even though the uncertainty of the past few years related to the runoff of small business set-aside programs. We remain more than adequately capitalized to support our growth strategy and now have greater visibility into the year ahead than in prior quarters. As the year progresses, we look forward to improvement in our operating fundamentals and organic growth initiatives. With that, I would now like to turn the call over to our operator to open it for questions. Operator: [Operator Instructions] The first question today comes from Joe Gomes with Noble Capital. Joseph Gomes: So Kathryn, just you said about $18 million of the delta in the revenue decline was from CMOP and head start, and that would leave about $4 million still unaccounted for what was the other $4 million? Where did that get lost? Kathryn M. Johnbull: Yes. It's what we have referred to as the Knicks and the nibbles of the [indiscernible] initiatives that happened in the early part of fiscal '25 somewhat after December, but in Q2 of fiscal '25. Also, the wrap-up of that little that single international project that we had that completed in January of '25 yes, USAID project. So it is a sundry of smaller impacts that were not strategic and not related to the small business set aside. Zachary C. Parker: And Joe, those as Kathryn indicated, they're a little bit smaller because those were the effect of unbundling contracts, right, so that they were able to make more work available also to small businesses or other contract vehicles that have been in existence. Joseph Gomes: Okay. And on the spot, I know we, we had 4 contracts in the end of last year and 1 they had recently awarded somebody else. I think 2 more were out for bid. Any update on the 2 that were out, have they been awarded any timing as to when they might transition and anything new on the last remaining location. Zachary C. Parker: Well, we're looking at we believe we'll be, we're really in the wind-down phase across the board for the CMOP work. The VA has gotten more a little battle rhythm set for being able to do some of the transitions, complete their evaluations a little more timely fashion and to move into a transition phase we have been leading very aggressively and supportive of making those transitions, the specifics on the contract coverage. I'll turn it over to Kathryn. Kathryn M. Johnbull: Yes. No, I think that's the right way to think about it. As we indicated as early as the first quarter of we certainly expected the completion of the CMOP work to be near term. And as Zach said, the cadence now that there seems to be a pretty manageable process for making those transitions, we are looking at probably a complete ramp-up of CMOP in Q3 of this current fiscal year. Joseph Gomes: Okay. And when you talk about the cost reductions that you've taken so far. One, was there any cost to those? And where would that show up on the income statement? And two, is that inclusive of the expected losses? Or you need to do additional cost out once all 3 of those contracts transition? Zachary C. Parker: Let me kick it off and I'll let Kathryn hand on the specifics. So when we exited '24, we kind of laid out, at least internally and with our Board a game plan around this reset, right? The reset of the decline in business that we have been communicating that would result from CMOP and some of the unbundling and bundling of other contracts and small business set asides, while at the same time, we're anticipating more bid opportunities and wins throughout '25. So we had looked at what we kind of call them V curve and managing that for exiting '24 and throughout '25. The delays, obviously, as Kathryn indicated, in the opportunity bid opportunities during '25 due to all the challenges we've discussed had really necessitated that we made sure we had a plan that was flexible and would be phased for indirect reduction. We have implemented 2 major components of that indirect reduction. It's very important for us to maintain a competitive indirect cost profile to be able to compete organically, and that's been a key driver for us. While we've been managing the phaseout of these contracts, including those that still continue for CMOP. So we've had a management plan to make sure we can do those indirect reductions. At the same time, I would tell you, we've been implementing new measures to drive efficiencies of playing some of the tools we do for our customers, AI, ML and things of that nature to drive efficiencies in executing not only for our customers but also for our enterprise. And we're going to continue to look at deploying that. We've got a project or 2 that has some of that running out through this the remainder of this fiscal year where we can enhance and augment the caliber of services by our folks using some of these tools. We think those efficiencies will also help us in the long run. Kathryn, do you want to answer a couple of the specifics on the timing and G&A impact. Kathryn M. Johnbull: Yes. To your question, Joe, about whether the cost of those reductions is factored in and where does it show up? That is reflected in our Q1 results, both the impact of the reduction in cost as well as the cost of achieving those reductions is all reflected in the Q1 financials. And also then considered as part of the crosswalk from standard EBITDA to adjusted EBITDA. In other words, that adjustment reflects as if those reductions had taken place at the beginning of the quarter. I'm sure you can appreciate that those have to be thought through and take some implementation time and so, therefore, happened midway in the quarter. In terms of addressing the change in volume of CMOP specifically, that's part of the overall program, and we have scaled costs related to supporting CMOP as CMOP has made its journey downward. But we do, of course, still carry some costs for running the remaining locations, but we will scale it in the appropriate time frame, along with the changes in revenue volume, just as we do the volume of business for the entire enterprise. Joseph Gomes: Okay. And 1 more for me. I mean it sounds we might be starting to see some positivity here on the pipeline and bidding activity just wondering, Zach, we got named to a number of IDIQ contracts. Have they just not been putting anything out for bid or not stuff that DLH is bidding on or have there have been some projects out there that you've been on just have not won. I mean, is the I guess, kind of the hit rate of award for you guys, is that staying steady? Or is that decline? I mean maybe a little more insight into the market opportunity out there and how DLH is faring in that? Zachary C. Parker: You bet, Joe. And we are planning on giving a deep color as we have historically from time to time on that pipeline during our upcoming annual meeting with the shareholders. But to your point, yes, we've a little bit of each, right? So we've had in terms of the major IDIQs and the MAC IDIQs, the most recent news, of course, is [indiscernible] has been canceled. And as we have stated before, we saw that as a very attractive and viable vehicle for us with a number of opportunities that we had anticipated being able to bid in '25 that would allow us to start to generate some revenue around this time period. A number of those some of those jobs some of our customers have moved to other vehicles already anticipating that CIOS [indiscernible] was not going to be viable. And so we've had a couple of erosions to our pipeline attributed to work moving to a vehicle, which we could not prime. That's had some impact. And while at the same time, I'd have to say the biggest key has been customers given the budget uncertainty, et cetera, have continued to do kind of like some of our customers, bridge work instead of extending the existing incumbents instead of having a competition. And that's where we're thinking that now that they have stability, some visibility in their budget for some time. That they'll be able to move on with it and get some of those procurements. So we still just have not had a large volume of bid opportunities. We had 1 bid opportunity for the entire month of January. And that's just really, really trickling. And that one is a small one. So we have our needle-mover deals, which we invest a lot in, and we really push to drive a high wind profitability. And we have some of those that come from some of these MAC IDIQs. Some many of those are much smaller. But we're really feeling pretty encouraged that a number of the major needle movers for us. now we'll start to get some stability. We're still actively working to make sure that some of those that were earmarked for CIOS before and success predecessor [indiscernible], that we're well positioned on the GSA schedules and Oasis of which we think will be 2 of those where it would allow us to prime. But when they've moved a couple have moved to some vehicles where we were not prime is very disappointing. Some of the customers just had not had the influence as they thought they would have with the acquisition shop, but we're continuing to monitor that very closely. Kathryn M. Johnbull: But getting that certainty, the key takeaway, as you set it up, Joe, is we view that as positive that to get certainty even if the even if it isn't the way we would have done it, it's really distracting from a resource perspective and not cost effective to be trying to support and straddle all possible pads. So for us, just give us an answer, give us clarity, we can pivot and get ourselves organized to address that way. And so as Zach mentioned, while we're certainly majorly disappointed that CIOSP4 has gone away as a vehicle it's good to just have the clarity. It's been dangling for 3 years now, so at least 3, probably longer than that. So it's good to have the clarity. And while some things did drain off and go to vehicles, we're not prime or position to prime on the overwhelming majority of those opportunities appear headed places that we can and will compete as a prime. So it's good to have resolution of that strategy and to be able to move out on responding to it and pivoting our strategy to address the path that's going to come out on so that we can get on with it already. Zachary C. Parker: Yes. And I want to add, John, to that, Joe, is that we're seeing a major movement by a number of our customers, including Department of War to leverage more commercial best practice vehicles and approaches. We've referred to OTAs, other transaction authorities as something that has been viable and certainly, we demonstrated during COVID to be a viable means to get some of these bids out faster. What you're going to see is what we are seeing is a number of these vehicles start with a pilot that is a much smaller dollar value for the award and then you move from pilot to true execution. And so the revenue profile and the value of the awarded contract will shift a little bit but we're preparing for that. We've been well prepared for that. We've made some down select on a couple of those already. But we're going to see in the industry, a pretty heavy move towards not using our traditional RFP contracting model that just takes so long for the government to get this in place. And this administration is really, really keen to cut through those delays and to use more commercial best practices. So stay tuned on that. We'll talk a little bit around that as well during our upcoming annual meeting on the acquisition environment and our pipeline. Operator: [Operator Instructions] The next question comes from Bert Osterweis with Osterweis business consultation. Burton Osterweis: Good morning, Zach and Kathryn. I hope you're doing well. A little cold up here in Massachusetts. But all right. I was reading the annual report. And in a number of places, it states that we solve complex problems for civilian and government clients alike. But I only ever hear about the government clients. I was wondering more who those civilian clients are. And Zach, you mentioned in your what you just said, the last answer, was about a focus of more commercial type of jobs or commercial type of going after the jobs and I know Kathryn, you said it's not possible to pursue all possible paths. It's not financially viable, but it almost seems like the civilian customers are easier to go after. And so I was wondering, first, who they are? And second, is that something we can focus on more? Zachary C. Parker: Sure. No, great question. First of all, we probably should have a clarification of that because while we do work with the Defense Health Agency, the Department of War, in particularly in the C5 ISR arena, C6ISR arena, we are in the federal government space, we really referred to the civilian agencies that are still federal government, right? And those include customers like the National Institute of Health, the Center for Disease Control, ASPR would include DHS and other agencies, they're still federal clients. Now and so that's really what we're referring to on the macro for us that we have civilian agencies and then those that are aligned with defense. The other point, though, that raise is commercial work. And we do have a small book of business, a small bit of business with commercial. We're doing some of that work through partnerships with universities. And we do believe that there's an incubator area that lends itself for us to be able to work with more commercial companies. It's not going to be a major portion of our business. Kathryn and I have long stood and held the position that if we're going to try to move into that market in a meaningful way, it would be led probably with an acquisition. But we do have some adjacencies where we've been doing work, leveraging relationships with the federal government that have led us to doing some work usually grant funded with the commercial community. And within our public health and scientific research organization, we are looking to perhaps try to pull a little more of that business in-house. Burton Osterweis: I was thinking biotech firms and things like that. Zachary C. Parker: It is biotech. You're actually you're right spot on. It is in that arena that we have been doing some of that work. We've had some talent on our staff on [indiscernible] and Christian staff that have worked with the biotech and biopharma community. And we're looking to see if we can parlay that as well. We've just brought on a new resource that has tremendous reputation and experiences with FDA and as such, it also worked closely with the biotech community. So we're taking a fresh look at that as a potential account for us right now, it's just targeted opportunities, specific opportunities, but it could develop into an account by year's end. Kathryn M. Johnbull: Those commercial enterprises need to access that government approval queue and it's often an inscrutable protracted process for them, and so they're happy to opportunistically leverage our capability to help steer them through that. But as I said, that would be in the course of relationship building and opportunistic avenues, but not really something that we're going to we're prepared to invest a lot of money in pursuing commercial opportunities. Zachary C. Parker: The other part of that, to your point, Burt, is we need to make sure that even though the 99% of our book of business is with the federal government, we need to be able to operate at speed like commercial companies or truly commercial companies. We have and we believe that the administration is removing some of those barriers on allowing companies and customers that have interest and capabilities to be able to move at speed consistent with commercial companies. And so again, we're taking a look at leveraging some of these OTA type vehicles and our ability to leverage what has been our heritage, and that's to be able to be far more agile than a lot of our large tier companies to be able to be tremendously responsive and operate more like a commercially aligned company. . So please look for more of that. That often will mean our pipeline will look a little bit different with speed and smaller start-up sort of programs a little bit less 5-year booked values, but they offer the same organic growth profiles and trajectories that we have had otherwise, just a more rapid deployment and we've developed some of our tools so we can do rapid prototyping and that's going to help us in a number of areas where clients want to build a little test a little and then make a longer commitment. And we think we're well positioned with some of our digital sandbox opportunities and our cyclone platforms to demonstrate and move quickly from prototype to development and deployment. Burton Osterweis: One last question. Is there anything in our government contract, which prohibits us from going after civilian contracts? Zachary C. Parker: No, nothing that precludes it at all. It is a very different regulated environment. From time to time, you'll see things like you hear this administration talk about most favored nation kind of rates, in some cases, in our world, we have to look at where the best, best what I'm going to look for, Kathryn the rate schedules that we offered a couple but no regulatory formalized regulatory constraints. Kathryn M. Johnbull: It's really just a function more so of it. It's a distinctly different kind of sales model. And so you have to kind of weigh out your options for investing in that kind of a sales force, if you will, commercial sales force versus the model that makes sense in the government context. But there are some specific boutique opportunities that we're aware of and that we're leveraging. . Operator: At this point, there are no further questions in queue. I would like to turn the conference back to Mr. Parker for any closing remarks. Zachary C. Parker: Once again, I want to thank everyone for participating in our call today and for being good stewards of the DLH equity stakes. We are really, really committed, remain committed to giving you good visibility into the future and look forward to seeing and chatting with you all at the upcoming annual meeting. With that, everyone, have a blessed day, and we'll connect again soon. Bye for now. . Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, thank you for your patience. Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cincinnati Financial Corporation Fourth Quarter and Full Year 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. 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 would now like to turn the call over to Dennis McDaniel, Investor Relations Officer. Please go ahead. Dennis McDaniel: Hello. This is Dennis McDaniel at Cincinnati Financial Corporation. Thank you for joining us for our fourth quarter and full year 2025 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including our year-end investment portfolio. To find copies of any of these documents, please visit our investor website investors.cinf.com. The shortest route to the information is the quarterly results near the middle of the investor overview page. On this call, you will first hear from President and Chief Executive Officer Stephen Michael Spray, and then from Executive Vice President and Chief Financial Officer Michael James Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us, including Executive Chairman Steven Johnston, Chief Investment Officer Steve Soloria, Cincinnati Insurance's Chief Claims Officer, Mark Shambo, and Senior Vice President of Corporate Finance, Andy Schnell. Please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. Now I will turn over the call to Stephen Michael Spray. Stephen Michael Spray: Good morning, and thank you for joining us today to hear more about our results. We had another excellent quarter of operating performance that again demonstrated the resilience of our proven operating model and the long-term strategy that drives our insurance business. Investment results were also part of that excellent performance, including investment income growth, and another quarter with net investment gains. Operating performance was very strong for the fourth quarter and boosted full year results enough to outperform last year in several key areas, despite starting 2025 with the largest catastrophe loss in our company's history. Net income of $2,400,000,000 for full year 2025 was 4% higher than 2024. Fourth quarter net income of $676,000,000 rose 67% and included recognition of $145,000,000 on an after-tax basis for the increase in fair value of equity securities still held. Non-GAAP operating income for the quarter increased 7% to $531,000,000. For full year 2025, it was up 5% from a year ago. Our fourth quarter 2025 property-casualty combined ratio was an outstanding 85.2%. It lowered the full year combined ratio to 94.9%, near the midpoint of our long-term average target range. The full year ratio was 1.5 percentage points higher than last year, driven by an increase of 1.6 points in the catastrophe loss ratio. On a current accident year basis measured at 12 months before catastrophe losses, the combined ratio improved by 0.4 percentage points. The loss and loss expense portion would have improved slightly if not for the unfavorable effect of 0.3 points from reinsurance reinstatement premiums. Consolidated property-casualty net written premiums continued to grow, but at a slower pace, 5% for the quarter. That reflects our pricing discipline in the insurance marketplace as our underwriters carefully consider risks on a policy-by-policy basis and use pricing precision tools to segment those risks as part of their underwriting decisions. Estimated average renewal price increases for most lines of business during the fourth quarter were lower than 2025, but still at a level we believe was healthy. Our standard and excess and surplus commercial lines business averaged increases in the mid-single-digit percentage range. Our personal lines segment included homeowner in the low double-digit range and personal auto in the high single-digit range. We believe our relationships with independent agencies are as strong as ever and that they will continue to trust us with their high-quality new business. The fourth quarter 2025 decrease in new business written was driven by our personal lines segment that had unusually large amounts the past two years. However, the $92,000,000 for the quarter was still 62% more than the average of the three years prior to 2023. Policy retention rates in 2025 were similar to 2024. Our commercial lines segment was down slightly, but still in the upper 80% range. Our personal lines segment was also down slightly but still in the low to mid-90% range. Performance by insurance segment is the next area I will highlight, focusing on full year 2025 results compared with 2024. But first, I will note that all operating units had an excellent fourth quarter profitability, each with combined ratios below 90%. Commercial lines' 91.1% combined ratio for the year improved by 2.1 percentage points, including a decrease of 1.9 points in the catastrophe loss ratio. Its net written premiums grew 7%. Personal lines' 103.6% combined ratio for 2025 increased by 6.1 percentage points, including an increase of 7.1 points in the catastrophe loss ratio. Its net written premiums grew 14%. Excess and surplus lines' 88.4% combined ratio for the year improved by 5.6 percentage points, including a decrease of 1 point in the catastrophe loss ratio. Its net written premiums grew 11%. Both Cincinnati Re and Cincinnati Global produced strong results and again demonstrated the benefits of diversifying risk to improve income stability. Cincinnati Re's combined ratio for the year was 95.9%. Its 1% decrease in net written premiums reflects changing reinsurance market conditions. Cincinnati Global's combined ratio for 2025 was 79.2% with premium growth of 10%, benefiting from product expansion. Our life insurance subsidiary increased annual net income by 16% and grew term life insurance earned premiums by 3%. Moving on to our reinsurance ceded programs. On January 1, we again renewed each of our primary property-casualty treaties that transfer part of our risk to reinsurers. For our per-risk treaties, terms and conditions for 2026 are fairly similar to 2025, other than an average premium rate decrease of approximately 7%. The primary objective of our property catastrophe treaty is to protect our balance sheet. The treaty's main change this year is increasing the top of the program to $2,000,000,000, compared with $1,800,000,000 effective 07/01/2025. Should we experience a 2026 catastrophe event totaling $2,000,000,000 in losses, we will retain $523,000,000 compared with $803,000,000 for an event of that magnitude during 2025. We expect 2026 ceded premiums for these treaties in total to be approximately $204,000,000 with the increase from the actual $192,000,000 in 2025 driven by additional coverage and subject premium growth. As usual, I will conclude my prepared remarks with the value creation ratio. Our 18.8% full year 2025 VCR exceeded our five-year annual average target range of 10% to 13%. On a full year basis, net income before investment gains or losses contributed 9.1%. Higher overall valuation of our investment portfolio and other items contributed 9.7%. Now Chief Financial Officer, Michael James Sewell, will highlight investment results and other important points about our financial performance. Michael James Sewell: Thank you, Steve. Thanks to all of you for joining us today. Investment income was a significant contributor to higher net income and improved operating results, rising 9% for the fourth quarter and 14% for the full year 2025 compared with the same periods of last year. Bond interest income grew 10% for the fourth quarter and net purchases of fixed maturity securities totaled $1,600,000,000 for the full year 2025. The fourth quarter pretax average yield of 4.92% for the fixed maturity portfolio was similar to last year. The average pretax yield for the total of purchased taxable and tax-exempt bonds during 2025 was 5.6%. Dividend income for the quarter matched last year even without the repeat of a $6,000,000 special dividend from December 2024. Net purchases of equity securities totaled $74,000,000 for the year. Valuation changes in aggregate for the fourth quarter and the year were favorable for both the equity portfolio and our bond portfolio. Before tax effects, the fourth quarter net gain was $181,000,000 for the equity portfolio, and $24,000,000 for the bond portfolio. At the end of the fourth quarter, the total investment portfolio net appreciated value was approximately $8,400,000,000. The equity portfolio was in a net gain position of $8,500,000,000 while the fixed maturity portfolio was in a net loss position of $181,000,000. Cash flow from successful insurance and investment activities continue to fuel investment income. Cash flow from operating activities for full year 2025 was $3,100,000,000, up 17%. Regarding expense management, our strategy continues to seek a good balance between controlling expenses and investing in our business. Our fourth quarter 2025 property-casualty underwriting expense ratio decreased by 0.2 percentage points as an increase in agency profit-sharing commissions was offset by growth in earned premiums outpacing growth in other expenses. Turning to loss reserves, our approach remains consistent and aims for net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. As we do each quarter, we consider new information such as paid losses and case reserves. Then we updated estimated ultimate losses and loss expenses by accident year and line of business. During 2025, our net addition to property-casualty loss and loss expense reserves was $1,300,000,000, including $1,100,000,000 for the IBNR portion. For current accident year loss and loss expenses before catastrophe effects and measured at 12 months, several of our major lines of business had 2025 ratios better than 2024. The main exception was commercial casualty rising 4.2 percentage points. That reflects ongoing uncertainty including potential negative effects of legal system abuse we and others in the industry have noted in recent years. We remain confident with our pricing and risk selection for this line of business. For prior accident years, we experienced $196,000,000 of property-casualty net favorable reserve development during 2025 that benefited the combined ratio by 2.0 percentage points. On an all-lines basis by accident year, net reserves developed during 2025 included a favorable $275,000,000 for 2024, favorable $8,000,000 for 2023, and an unfavorable $87,000,000 in aggregate for accident years prior to 2023. As usual, I will conclude with capital management highlights. For the full year 2025, we returned capital to shareholders totaling $730,000,000 including $525,000,000 of dividends paid and $205,000,000 of share repurchases. We repurchased approximately 1,400,000 shares at an average price of $151 per share, including 651,000 shares during the fourth quarter at $157 per share. We continue to believe our financial flexibility and our financial strength are both in an excellent position. Parent company cash and marketable securities at quarter-end was $5,600,000,000. Debt to total capital remained under 10%. Our quarter-end book value was a record high $102.35 per share with $15,900,000,000 of GAAP consolidated shareholders' equity providing plenty of capacity for profitable growth of our insurance operations. Now I will turn the call back over to Steve. Stephen Michael Spray: Thanks, Mike. Before we get to Q&A, I want to share our efforts related to intelligent automation. As most of you have heard us say before, our vision is to be the best company serving independent agents. Strategies we undertake must ladder up to improving the experience for the independent agents we serve and their clients. We are embracing intelligent automation to improve processes across our technology ecosystem. Generative AI is certainly a part of it, but it is only one aspect. Our work began with improvements to our data architecture, giving us a rich understanding of our risks and how we could shape our entire insurance portfolio for the future. We use workflow tools in each insurance segment that organize data and automate certain activities in writing new business or in other transactions. That experience formed a deep pool of talented associates with the knowledge, skills, and desire to continue our journey into generative AI. Most importantly, these associates are also insurance experts. We have created an AI center of excellence which is harnessing cloud provider large language models to create internal solutions that can then be easily replicated throughout our company for fast scalability. We have a number of projects completed and even more on the roadmap. Let me share an example. Using generative AI, we created a proprietary chatbot that our commercial lines underwriters use to obtain reference information and find answers that assist with underwriting decisions. We are concentrating on using GenAI to gain efficiency that leads to meaningful productivity gains for our associates. We are optimizing their efforts, allowing them to add more value to our business, deepening relationships, sharing expertise, and focusing their energy on the most complex underwriting and claims decisions. As we continue to weave GenAI into our business, we expect to see additional impacts to our profitability and growth. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Mark Chambeau, and Andy Snell. Jordan, please open the call for questions. Operator: As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from Michael Wayne Phillips from Oppenheimer. Your line is live. Michael Wayne Phillips: Thank you. Good morning, everybody. I guess I do want to start with the commercial casualty line. Mike, I heard your comments on the uncertainty and the legal system abuse. It is, you know, I think it has been pretty common for everybody for a while. I guess, pricing seems to be getting softer for commercial casualty for the industry, maybe not necessarily for you, but at least for your peers. I guess just as we think about 2026, and your 2025 number of, I guess, 76.8 or 77%, you know, how much confidence do you have in that number not continuing to creep up from here or hopefully holding flat or maybe improving? Just, you know, confidence around that given what is a bit of a softer market today than it was the last couple of years. Thanks. Second question is on your tech investments, and you have talked to this for a while. And, you know, one of the benefits that you have talked about is more accurate pricing. I guess, do you see that those investments, and the one comment of more accurate pricing, is that more applicable to you in lines versus commercial lines, or is it kind of the same? Do you apply that to both? Should it be applied to both? And, you know, how do you think about that from the two sides of the fence there? Thank you. Okay. Thank you, Steve. Appreciate the help. Stephen Michael Spray: Yeah. Mike, Steve Spray. Let me, I can start, and then if Mike wants to add some additional thoughts, he can as well. Just to your, to the softness in the pricing. I think we did see, just I will speak to maybe overall commercial pricing there in the fourth quarter. We did see it start to get more competitive pretty, you know, pretty, pretty quickly in the fourth quarter. On a package basis, all lines. Now most of that was driven by commercial property, but I think, you know, again, as a package company, the auto and the casualty kind of got drawn into that. I just, I can understand somewhat the property softening just given the results of the industry, and you can see Cincinnati Financial Corporation's results as well. I just think there are loss cost headwinds, particularly in casualty, as Mike mentioned on the legal system abuse. Commercial auto. So I think that the pricing is going to hold up. We are confident in the future. For 2026, confident that our rates, our pricing are exceeding loss costs in all lines except for workers' compensation. The only other thing I might add there, Mike, and we talked about it in prior quarters, is if you look at the average rate increase for Cincinnati Financial Corporation, I will just speak to Cincinnati Financial Corporation, it just does not tell the entire picture. Our underwriters, both on new and renewals, have been executing now for years on, you know, using sophisticated tools they have to segment the business, the accounts we write, risk by risk. And when you get into a market like we are in, and you have commercial results like we have, fourteen consecutive years of underwriting profit, I think it only stands to reason that the average net rate is going to be under pressure. We have fewer accounts that are underpriced or that need aggressive action. And then on the business that is most adequately priced, we are coaching our teams to make sure they do whatever they need to do to keep that business. And so sometimes, the market gets a little softer, we have to give up a little rate on that. But again, in my opening remarks, I said we are still confident in the risk selection and the overall pricing we think is very healthy in the commercial book too. Yeah. We definitely apply it to both. Like I just mentioned, our overall combined ratio as a company now, fourteen consecutive years of underwriting profit. And for someone who has been here for thirty-four plus years and grew up as an underwriter, I can tell you we have always had this culture of continuous improvement. We have gotten better at risk selection. We have gotten better at loss control, loss mitigation. We have gotten better at claims management. But from my seat, that has always been linear. And the pricing sophistication and segmentation that we instituted back roughly 2011, 2012, that has been exponential in the improvement and the results of Cincinnati Insurance. And it is in commercial lines. It is in personal lines. It runs through other areas of our business as well. It has probably been more pronounced in the improvement in commercial lines over the years, but the sophisticated pricing, probably even more important in middle market personal lines and specifically personal auto. So, you know, if you can see the ex-cat accident year continuing to improve in personal lines, and that is heading in the right direction. And we need that too. Cat has been, we have had a lot of volatility, a lot of variability around cat. And we think there is still room for improvement across all lines of business, actually. But probably more importantly in personal lines. Thank you, Mike. Stephen Michael Spray: Thank you, Mike. Operator: Your next question comes from the line of Jon Paul Newsome from Piper Sandler. Your line is live. Jon Paul Newsome: Good morning. Thanks for the call. Hope you guys are well. I want a little bit on the commercial competition question that Mike asked. And maybe some thoughts, is it still very much large versus small with the competition you are seeing in the fourth quarter incrementally changing towards still just the large folks, or are we seeing it creep down into smaller accounts over time. And, similarly, I want to see if there are any thoughts you had or observations you had related to the kind of source of that incremental competition. Is it, you know, is it just across the board or are we seeing some emergence of some folks that maybe are not necessarily terribly disciplined in their carriers or MGAs or whoever. That makes a lot of sense. Second question, different, where are we in the process for derisking on the personal lines side? You know, you mentioned California. I think it is maybe, I mean, it is just a little bit broader than that. But where are we in that process? Are we kind of done? Are we a few quarters to go before all this works itself out? Then you cannot still get out of some of those policies we need. Yeah. On what a really bad day can look like and aggregations. Stephen Michael Spray: Yeah. Paul, I would say yes. It is still, it is still, I would say, leaning towards larger accounts. And then even there, I would be saying more specifically towards large property. But like I mentioned, you know, it has gotten more competitive in the middle market space, for sure, and I think that is what you are seeing there too. But let me, let me maybe, let me maybe put this in perspective a little bit too and see if this helps. If you look over the last three or four years, we were in an unprecedented hard market, I would say for my career, particularly in personal lines. And with our financial strength, we were able to really help our agents continue to write business through that hard market and be there in a really dislocated market. Let me just give you a, let me give you, I hate the tough comp thing because it sounds like an excuse, so that is not what I am driving at here. 2024 was just an extraordinary year when it comes to new business, both for personal lines and commercial lines. And if you look at, if you just look at 2025 over 2023, commercial lines new business up 31%. 2025 over 2023 for personal lines new business were up 14%. 2025 over 2023 for E&S, up 30%. If you consolidate those three, 2025 was up over 25% over 2023. So on an actual basis, we are still really pleased with the new business. We are able to write it at pricing that we feel is adequate and that we are, that it is healthy and that we are happy with. So a little bit of this, a little bit of this softening is just coming off, I would say, a pretty extraordinary hard market. And again, we were able to grow through that because of the relationships we have with our agents because of our financial strength. You know, Cincinnati Insurance Company since 2018 on an all lines basis, we doubled net written premiums since 2018 from just a little over $5,000,000,000 to now over $10,000,000,000 in net written premium. Personal lines more than doubled in the last four years. So that just kind of frames it, Paul, hopefully, the way we are looking at it, the way I am looking at it, really strong growth for the company. I think this is a natural slowdown. And one thing I can promise you is we are going to maintain discipline through all cycles when it comes to risk selection and pricing. And I could not be, I could not be more proud of the underwriters, both on the new business and on the renewal and the way they are executing with what I think are the most professional agents in the business. Paul, we are, we are well into the process. I would not be able to give you a view on we are a quarter or two or three or four away. I can just tell you from my perspective, we are well into it. On the metrics we are using, we are exceeding the expectations that we have for ourselves at this point in the process. We had moratoriums on certain areas for new business. We are working with the state of California and we will continue to do that as well. But as far as lessons learned, California, I think it really boils down to just a new view of risk, I think both for us and for the industry. And so that is where our focus has been: terms, conditions, and pricing on our E&S homeowner business in California, whether it is post-loss or pre-loss. We still feel really good about where we are there. Jon Paul Newsome: Great. Appreciate the help as always. Thank you, guys. Stephen Michael Spray: Thank you, Paul. Operator: Your next question comes from the line of Michael David Zaremski from BMO Capital Markets. Your line is live. Michael David Zaremski: Hey, great. Thanks. In terms of the new reinsurance program that you detailed, should we embed a lower top line impact to the income statement, maybe specifically on personal lines? Okay. That is a good clarification then. Okay. So we should not be, I should not be kind of impacting the premium, the cost for that in the model. Okay? It is good to hear about the upside protection. Going to be switching gears to, you know, workers' comp. You know, the answer might just be, you know, you guys are booking really conservatively on an accident year basis, but, you know, if I just look at what you are booking at, it continues to increase year over year. Obviously, a lot of reserve releases. But is anything changing on comp that we should be aware of? Up for it? And can we lastly just, going back to the commercial lines competitive environment. I guess if we think about your comments about casualty is still an issue for the industry in terms of inflation there. Property is well priced. I guess if you all had a crystal ball for the industry, if you do not want to speak to Cincinnati Financial Corporation, would you expect pricing to continue moderating just a tad from the property side? Or I do not know if you guys are willing to go on record there. You know, we can see that you guys might not be playing full offense right now based on the kind of agency appointments and top line growth. But just curious if you feel the competitive environment, the rate of change on price has kind of moderated and we are kind of in stable-ish territory? Michael James Sewell: You know, this is Mike, and thanks for the question, Mike. The CAT program is really applicable to both commercial and personal. So in 2025, you saw a huge benefit that the CAT program had on our personal lines side. So, you know, I would say maybe it matters on which one gets hit first depending on what, you know, the cat is. But we still have a reinstatement, one reinstatement, generally speaking, on the overall cat program. So that would cover us for a second loss. But as Steve mentioned, if we do have a $2,000,000,000 loss this year compared to last year, that would be 2026 compared to 2025, we would have a lower amount that we would be out in the current year with the improved coverage up to $2,000,000,000. Mike, Steve Spray, the only thing I might add is that, as I said in my prepared remarks too, the overall rate on that property cat program was down 7%, even with the additional coverage. Yeah. I would say, let me start and see if you want to add on. But, you know, as it relates to release of reserves, you know, it has been consistent. And, you know, I know, not that I am surprised, but, you know, each year, we have been having favorable development. You know, we have had the many years of favorable development. We did have $20,000,000 of favorable development in the fourth quarter with $65,000,000 for the year. For the quarter, I would say the $20,000,000, it was spread really throughout, you know, if you look back the last ten plus years, the most favorable was 2024, 2023 accident years. That was $4,000,000 and $3,000,000 between those two. If you look at it on a year-to-date basis, the $65,000,000 of favorable development primarily came from accident year 2023, 2022, and 2020. The other accident years were, even the most recent accident year on the year-to-date basis for 2024, that was a favorable $2,000,000, dollars of favorable development. So we continue to reserve the way we do, conservatively, and, you know, we will just, you know, I will watch what our actuaries do. Stephen Michael Spray: Mike, I might just add on the, kind of on the day-to-day business underwriting and pricing of comp. We have made, that is another area we have made great strides over the last fifteen years, is our expertise and then our appetite. We just, right or wrong, we just felt that the rate environment was not where we wanted it to be, so we have been cautious. We have been careful, conservative, in comp. You know, it is, you can see it. I think it is now roughly a little over $240,000,000 of premium. So it has less impact on the overall commercial lines book, but we stand ready to help our agents write work comp where we feel like we can get the risk-adjusted return. I think the future will bode well for us on comp. You know, one of the other things is some of our biggest state, well, our biggest state, Ohio, is obviously a monopolistic state. We do not write workers' compensation here, and we are not active for work comp in California. And some of our other larger states, Texas, they are a little more minimal as well. So that is just kind of a view from, like I say, the business side. Yeah. Mike, let me make sure. I am glad you mentioned this, but make sure we are playing full offense. We always are. We have got such a winning strategy and model that has been proven over time. We are on full offense. We are adding more products, whether it be on the standard side for commercial and personal, our small business platform, our E&S company continues to grow. We are adding product out of Lloyd's to help our agents write more business with us as well. We are adding agencies across the country, the high-quality agencies. That will continue. So we will continue to play offense. But playing offense, winning offense is not going to be in pulling back on risk selection or probably even worse, cutting rate. That is not going to be part of the equation, so we are going to have to, along with, I think, the best agents in the, like I said, in the country, it can always come down to a price. We have got to be able to convey value that we think we bring as a company, that I know our agents bring in their communities. And that is where we are going to, that is where we are going to win. And if price becomes more and more of an equation, we just have to get, we are going to have to get more at-bats and kind of weed through all that. As far as looking forward on competition, I said it kind of early on here, just with the headwinds on loss costs, primarily around casualty, general liability, umbrella, management liability has been under pressure, commercial auto, I just do not see that market, that is my opinion, I do not see that market continuing to have pressure on pricing. I just do not think it makes sense. Now, it may go there, and I think it will have an impact on us. Because if it gets to a point where, again, on a risk-by-risk basis, if we do not feel we can get a risk-adjusted return, we are going to turn away from those in the short term because we are playing a long, we are playing a long game here. Michael David Zaremski: Thank you, Steve. Thank you, Mike. Operator: As a reminder, if you would like to ask a question, you can press star plus 1 on your telephone keypad. Your next question comes from the line of Charles Gregory Peters from Raymond James. Your line is live. Charles Gregory Peters: Hey. Good afternoon. This is Mitch on behalf of Greg. Thanks for taking my questions. So you mentioned in an earlier response that you expect commercial auto pricing to hold up. Can you give us an update on where commercial auto renewal pricing was in the quarter? And based on current claims, how much additional rate you believe might be required to sustain underwriting margins in 2026? Thanks. Turning over to the investment portfolio, you mentioned reinvestment yields are running about 70 basis points above the book yield. How are you guys expecting that to translate to net investment income growth in 2026 considering the declining rate environment? Stephen Michael Spray: Yeah. Thanks, Mitch. Well, commercial auto rate for the fourth quarter was up mid-single digits. We think it, on a pricing, is prospective, looking forward, we think that and we are confident that our commercial auto pricing is exceeding loss costs. One thing that I think is a little unique with us, Mitch, is that I mentioned earlier too, is we are a package writer. And so we do not, you know, monoline auto is not a big product for Cincinnati Insurance Company. We are also not a heavy transportation writer, long-haul trucking risks. It is not to say we do not have one or two in our portfolio, but that is not a focus of ours. So I think our commercial auto over the last, I will say, seven, eight years has been a little more predictable and a little more, you know, as of year-end 2025, commercial auto, even with some ads in accident year 2025, on a calendar year basis, we were slightly profitable in commercial auto. So, you know, for us, feel good about commercial auto. And, again, it is part of the package. Steve Soloria: Thanks, Mitch. This is Steve Soloria. We are thinking that the longer maturity rates are going to kind of hold steady from where they are. So we are expecting to be able to put money to work there pretty consistently. The insurance side has given us a lot of cash to work with. But from a market standpoint, the Fed seems to be kind of cautious on what they are going to do on the short end. So we think on the long end, we will continue to get yields in the ballpark of where we have been right now. So we are pretty comfortable that we will see solid growth going into 2026 and beyond. Operator: Thank you. That concludes our question and answer session. I will now turn the call over to Stephen Michael Spray, CEO, for closing remarks. Stephen Michael Spray: Thank you, Jordan, and thank you all for joining us today. We look forward to speaking with you again on our first quarter 2026 call. Operator: That concludes today's meeting. You may now disconnect.