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Operator: Good morning, and good afternoon, everyone. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Second Quarter Fiscal 2026 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, February 6, 2026, at 8:00 a.m. Eastern Time or 2:00 p.m. Central European Time. Please note that on February 5, at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, Coty issued a press release and prepared remarks webcast, which can be found on its Investor Relations website. On today's call are Markus Strobel, Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty's earnings release and the reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of Coty's financial results and Coty's expectations reflect certain adjustments as specified in the non-GAAP Financial Measures section of the company's release. With that, we will now open the line for questions. Operator: [Operator Instructions] We'll take our first question from Filippo Falorni with Citi. Filippo Falorni: Markus, maybe can you give us a bit more color on the Color the Future performance improvement plan for Consumer Beauty. You mentioned in the prepared remarks yesterday that there's a lot of different initiatives commercially, including streamlining the portfolio. What are you thinking those potential impacts are going to be on sales near term and then a little bit longer term? And then, Laurent, on the margin side, Consumer Beauty has been significantly below corporate average. Do you have an aspiration of what their business operating margins can get back to? Markus Strobel: All right. Thanks, Filippo. I'll take that on. There's about 3 or 4 principles how we are addressing the consumer business priorities and focus on our business building plan. It's imperative for us to get back to sell-out growth and to market share growth. We've got to be the masters of our destiny and win in the market. That's our ambition. Now how we're going to do that? Number one, we're going to focus on our most iconic assets. These are brands like CoverGirl, where we have assets in there like Lash Blast, Simply Ageless and iconic brands like Rimmel. We started doing this in the last couple of weeks, and I'm very encouraged by the early results. We have seen declines on these franchises in the high single digits. Now they went down to the low single digit to the mid-single digits. So it's nothing to write home about, nothing that we are happy about, but we're going to see the power of focus on the key assets. Number two, you know that cosmetics is driven very much by the big innovation bundles that come in spring. In the past, we had gigantic innovation bundles with lots of SKUs that kind of -- most of them didn't work and they crowded out productive SKUs on the shelf. So you've had kind of the double whammy and you got returns from the trade. So we're avoiding this. We're going to bring our first bundle in fiscal '26, which is sharper, streamlined with better SKUs, fast rotation and will also protect our existing fast rotating SKUs on the shelf. This leads me to the question you had, when do we see sellout. Obviously, if we sell in a smaller bundle, we're going to see initially less pipeline fill, and you're going to see this in Q3. But the focus we're getting with this and the sellout velocity on the shelf will improve sell-out as we go along and hopefully get our business back on track. That's number two. Number three is that we -- when we do these big bundles and these big advertising campaigns, we have a lot of money on asset creation. But we have very little money to -- in what we call working ACP, wonderful assets to the consumers in digital, in advocacy via influencers and so on and so on and so on. So by having smaller sharper bundles, we're going to free up asset creation money, put it into working media. And we also had a lot of exciting experiments with AI in color cosmetics to create assets in a much more efficient way. We have a couple of experiments that show us we can probably create assets at 70% to 80% cost reduction versus what we're doing now. And again, money we can reinvest into consumer, consumer-facing businesses. These 3 actions together will compound and beyond the Q3, which is the hump for us, right? Our expectations will get us into a much better future on color cosmetics. Laurent Mercier: Yes. Maybe, Filippo, to take your second question on the profitability for Consumer Beauty. I mean you heard really from Markus that, number one, there is a clear diagnosis on where we have the gaps and the work that Gordon and the team initiated that in front of each gap, okay, there is a clear action plan. So now, of course, it takes some time really to implement these actions. Markus was giving the example of innovation. So the team really has designed really a detailed innovation plan, but this is going to pay off in fiscal '27, okay? But on top of this is, of course, reignite the sellout and then volumes will also reverse the gross margin trend because currently in the gap, there is some fixed cost under absorption. So we have really these elements. A lot of work done really on platforming across all our great brands. A&CP, detailed work, really how to optimize A&CP. And of course, there is another work on SG&A optimization. So I'm not going to give you a precise number, but I can tell you that all these initiatives really under high scrutiny, and you will start to see really some improvement in fiscal '27, which will be part of the profit recovery for the global company. Operator: We'll take our next question from Rob Ottenstein with Evercore. Robert Ottenstein: Great. Just to kind of understand things a little bit better, I want to just sort of throw out a friendly challenge, which I'm sure it will be easy for you to revuke, but it'll, I think, help understand things a little bit better. Based on the management comments from what I understood, there's a problem with focus, brand SKU proliferation. You want to get the portfolio right, so you can really focus on the key brands and all of that makes sense. But this is also happening within the context of very significant changes in where and how the consumer buys. Drug stores where you're pretty heavily exposed have been very weak. Department stores have been weak for many years. Amazon has become a huge driver. So I was wondering if you could just kind of talk about your strategy within the context of these very important route-to-market changes and how the consumer shops and why you feel it's more important to get rid of SKUs first rather than get the RTM footprint right first and how you're balancing those 2? Markus Strobel: Yes. I don't think this is a contradiction. I mean, number one, focus is to drive sellout and market share because we have been underperforming the market in the last 18 months, and this is obviously not sustainable for us. We got to minimum grow with the market and ideally slightly ahead of the market. This is our objective. Okay. Focus on SKUs, this is one thing, and I can tell you examples about that, that this really makes a gigantic difference in the performance. But obviously, in the channel footprint, this is something we are addressing as well. We're actually in -- we're [indiscernible] doing in our Prestige portfolio pretty well on Amazon. We have grown sales by like 30% in the last 6 months. We've launched a Marc Jacobs brand in Amazon in July. This is doing very well, double-digit growth. And the fun fact is that our launch in Amazon has a halo effect actually on brick-and-mortar. The similar thing we're seeing in the TikTok Shop in the U.K., where we are being pretty active with our Rimmel brand and everything we're doing in the TikTok shop. And the volumes are still small today, but the marketing effect we're getting and the increase in the algorithm rankings has a huge halo effect on the other channels. So we are investing into the new channels. But again, it's always important to take the other channels along because our consumer also shops there. When I talk about less is more to build the core, this applies to the portfolio, but also applies to the channels because we also need to have the new channels be successful and the halo effect building our core in our existing channels. I think this is where the magic happens. Robert Ottenstein: Great. And are you making any changes in terms of channel strategy? Markus Strobel: We're going to invest, obviously, in our business, we're going to go where the consumer goes, okay? So we're investing heavily in online. We're investing heavily in e-commerce. We're investing in TikTok shops and everywhere where consumers go. But it's, for us, also important that we, especially in our cosmetics business, protect the channels where our existing consumer shops as well. As we get new consumers, that's great. But brands like CoverGirl and Sally Hansen, there's a huge Gen X population that shops for them. And actually, we have retailers asking us, everybody is going after Gen Z, who's doing something for Gen X and you can do that because you have the brands to do it, at least help us. So I think with the right joint business planning activities with the drugstores and these customers, we can do a big splash in the market on both groups. Operator: We'll move next to Nik Modi with RBC Capital Markets. Nik Modi: So I guess just Markus, any views on kind of how you intend to manage the business after the Gucci license ends? And would you consider a deal with Kering to kind of terminate early just so you can kind of move on and reallocate resources? That's my first question. And then I have just a quick bigger picture strategic question. Markus Strobel: Okay. Let me get to your first one, Nik. I mean, how we're addressing this, and I think we have mentioned this in previous calls. I mean, job #1 for us is to drive our big brand franchises. And we have many big brand franchises that are basically over $0.5 billion, like Hugo Boss, Burberry to the next level. They have still a huge growth potential. Marc Jacobs has huge growth potential. Chloe has huge growth potential. So basically, these brands that we have, where we see the potential, where we bring out new. So we are basically pretty busy cooking new initiatives and new innovation for the years '27, '28, '29 that coincide with the Gucci exit in June '28, I think it is, to really have the right pipeline to build our top line sales and compensate part of this. Second job to be done is building the new brands that we have acquired. We have new licenses with Swarovski, Armani, Etro. And we have big plans for Swarovski. We're going to come up with what we hope to be a real blockbuster in 2027. And number three, obviously, on Gucci, as we get closer to the license exit, we probably also need to look into our cost structure, how we kind of tweak this a bit to keep our profitability intact. So these are the 3 actions we're taking there. Now your question on caring. And I mean we are always open for deals for shareholders. So yes, we are open. Nik Modi: Got it. And then just I guess this kind of gets at Filippo's question, on the Consumer Beauty business. But newness is so important in fragrances. How does that kind of -- does that conflict with this whole notion of kind of streamlining the complexity of the portfolio? Markus Strobel: Yes. No, not necessarily. I think newness -- let understand what newness is in fine fragrances. People love it when you -- they like to experiment, they like to layer in. So of course, you're going to come up with new propositions. But the new propositions need to be tailored in a way that drives total portfolio or the total brand. I'll give you one example. We've launched Boss Bottled Beyond in summer. That's a pretty successful initiative. It's the #2 male initiative of the year. We have already 90 basis points share in the U.S. because we wanted to crack the U.S. for Hugo Boss with this initiative, and it's working very well. Problem is our Hugo Boss franchise in total is not growing. So the innovation is great, but it has no halo effect on the core. And often what happens is you bring in a new innovation, many SKUs, it's pretty cool. Everybody sells the innovation and then we're losing shelf space on SKUs that are loved by consumers and are fast rotating, right? So that is something we need to avoid in the future and be much more surgical, how we bring our innovation to market and also how do we build in a halo effect, right? So that if you launch one, it halos on the other by joint merchandising or there's tons of other things that we can do. So yes, innovation is the lifeblood of this category, but innovation executed in a way that it has an effect on the core. So if I do a Boss Bottled Beyond, I want it to grow the total Hugo Boss franchise and not only the innovation itself. And we are applying this discipline, this logic, this idea of building in halo effects into innovation in everything that we do. And I think that should have a pretty strong effect moving forward. Operator: We'll move next to Olivia Tong with Raymond James. Olivia Tong Cheang: Nice to speak with you, Markus and Laurent. Markus, I was wondering if you could give some views on your assessment of the internal controls of the company and sort of prioritization, what's your starting point? Because is it the brand, the marketing, innovation, SKU management, IT, it sounds like it's all of the above. So do you think this is a company in need of significant reinvestment? Are there costs that you can take out? And I guess, most importantly, do you trust the answers that the analytics are providing? Markus Strobel: Yes. That's -- thanks, Olivia, for that question. Number one, I mean, we have a very, very creative organization. We have amazingly creative people that come up with very awesome things where even I, with my long beauty experience, have to say, wow, this is really cool, right? What we are missing a bit is the operational discipline to bring this to market in a way that is sequenced, that is properly funded and that is well thought through in agreements return in the plans we go to market. We are often so excited about our innovation that we are focusing on the sell-in, right, which is good for a quarter or 2, but what we got to focus on is the sell-out. How does it reach the consumer? Does it meet the consumer needs? Do we have strong joint business planning plans with every single retailer to really bring it out and get the sell-out going because if you get the sell-out going, the sell-in will come. This always equals at the end of the day. But we've got to start from the sell-out from the consumption, from the market shares. That's the big switch that we're going to do. And this is not only -- it's not only words on paper. This is -- it's easy to say, right? I can put this on a PowerPoint chart. It looks great. It's very hard to do, to change the mindset of the organization on this one and put the processes in and the data and the analytics. That's where we spend a lot of time these days, how do we get to one source of truth and every aspect about our business. So when we talk about service to customers, what is the one number that tells us, are we meeting service to customers? What is the one number that tells us are we meeting offtake and market share expectations? So we spend a lot of time in, at the moment, data and AI to really build out our data lake to make sure we have the right questions, the right answers, the right hypothesis and come up, come up with the right action. So you're right, there's a lot of investment needed in this space, and we're making these investments. Operator: We'll take our next question from Charles Scotti with Kepler. Charles-Louis Scotti: A couple of questions from my side. The first one, could you please provide us more granularity on the expected mid-single-digit sales decline in Q3? It appears that the Consumer Beauty will remain the main drag, but Prestige Beauty comps become significantly easier in Q3 and apparently, inventories are healthier. And despite that, it seems that there will be a sequential deterioration in Q3. So what's explaining this dynamic? And more broadly, what's driving the gap between consumer and your own expected top line growth? Is it destocking or market share losses? Second question on the gross -- sorry, one by one. Laurent Mercier: Yes. Maybe I can start with that one, Charles, and then please go on. So indeed, on the Q3, mid-single digits. So as we indicated, I mean, it's -- the main headwind is from Consumer Beauty. And indeed, as we shared just before, I mean, we are really still in a phase of that we know where the gaps are. The team is really putting in place all these actions, but it takes time. And indeed, we are still in this phase where the example that too many innovations, then we had to take some returns in some cases. So it's still hurting the top line, and this is something that indeed we are managing. There is also a part that how -- it's exactly the strategy. We are focusing on the big bets. So there are also some parts where we are deprioritizing, okay? So it may -- it's weighing on the net revenue, but for good reasons, okay, it's really with this approach that it will pick up and then it will improve the gross margin and it will improve the profitability. So there is the dimension that you need to consider in Q3 for Consumer Beauty. But at the same time, we are starting to see some green shoots. Markus was referring to CoverGirl, Simply Ageless, Lash Blast, I mean, are doing good. So we need really to amplify these initiatives. But again, it takes time. Then on Prestige, I mean, first of all, you see that indeed, we have some really sequential recovery from Q1 to Q2. This is what we indicated. I can tell you that the headwinds that we faced over the last year, which was related to retailer inventory now is fading out. So we are really now sell-in and sell-out, step-by-step are really now synchronized. So that's positive. Now again, Q3, we still have some challenges. Now it's really focusing on sell-out. Sell-out will be sell-in. But sell-out indeed, and we indicated in the call that we still have some headwinds. I mean, U.S. is -- U.S. Prestige is one case. I mean we -- our Q2 was not at the level expected. Q1 sell-out was very encouraging. The beginning of Q2 was encouraging, but the end of Q2, in fact, was lower than expected. And these are exactly the reasons that Markus was sharing, okay? So that's really the big, great innovations, which are really doing great. But on the other hand, we didn't focus enough on the core. And this is currently what's putting pressure on our sellout and market share and that all the actions are in place to correct this. But indeed, it takes time and it's weighing also on our Q3 Prestige top line. So that's really the big picture. But keep in mind that these are adjustments and then step by step, there will be some sequential recovery on both divisions. Charles-Louis Scotti: Okay. Very clear. On the 200 and 300 bps gross margin contraction, could you break down the key drivers between input cost inflation, product geographic mix, tariff and promotions? And what is your full year gross margin assumption? Given that the margin comps also become much easier in Q4, is it fair to assume the same 200 to 300 bps margin contraction in Q4 or a little bit less? Laurent Mercier: Yes. Yes. Thank you. So indeed, Q2 gross margin, I mean, came lower than our initial expectations, and this is indeed what's driving -- putting some pressure on the profit. So what are the big drivers? So on the Prestige division, the number one is that indeed, we saw in Q2 and especially end of Q2 really some very high promotionality in the market. So it really puts some pressure on trade terms on markdowns. So this is really something that we saw really from the whole category and the whole sector. So it indeed created some headwind on the gross margin, and this is mostly the case indeed in Prestige. And on top of this, of course, I mean, come the tariff, we indicated tariff is about $8 million for this Q2 and will be below $40 million for the full year. And the third element still on Prestige is also the ForEx. As we discussed last time, I mean, we are -- we have production in the U.S., and we started really to put some more production in the U.S., but we still have big production in Europe. And of course, the euro-dollar is creating really a headwind on the gross margin. Having said that, just keep in mind that the gross margin in Prestige is still higher than versus 2 years ago, okay? So despite these headwinds, we are on a good territory. So we are seeing this pattern remaining in Q3. And then indeed, there will be some recovery in Q4. Consumer Beauty is -- we discussed the number one, there are similar components, but there are 2 other elements which are important is number two, that lower volumes, especially on our color cosmetic brand is creating fixed cost under absorption, which is really hurting our gross margin. So that's why the sellout and recovery on our big brands step-by-step will mitigate this hurt. And the second one is the mix. We are doing great in Brazil. On the other hand, as you understand, our big brands in the U.S., which are very high profitable, they are under pressure. So there is also this mechanical mix effect. And again, the plan of the call of the future is really that to recover this and step by step recover. So Q3 will still be the same pattern and then some sequential recovery in Q4, which will continue in fiscal '27. Operator: We'll move next to Oliver Chen with TD Cowen. Oliver Chen: On the Consumer Beauty side, given the strategy edits here, should we expect it to get worse and worse before it gets better just in order to conduct that reset? And also, as you think about Consumer Beauty, what specific innovation are you most -- feeling most confident about that we should focus on? And on the fragrance side of the house in Prestige fragrance, would love your thoughts on your growth relative to the market and what innovation you're most focused on to attempt to outgrow the market trends? Markus Strobel: Yes. The first question was again, I forget... Laurent Mercier: On Consumer Beauty. Markus Strobel: The Consumer Beauty, yes, I was already on the innovation. On Consumer Beauty, I think I would not -- I think things will get better. This quarter for us is difficult as we are really changing the way the go-to-market, sharper bundles, better focus on the base business. It will take some time, but I would not characterize this going -- getting from worse to worse. It will not be easy. It will take some time, but it will get better. I'm pretty much convinced of this. I've seen the plans. I have seen the way the team is defining the activities of the brand to both appeal to a modern consumer, but also make sure that our heritage consumer is being protected and keeps loving our brands. So I'm very excited about that. We have good innovation coming up. We have strong innovation coming up on our core franchises, on the Simply Ageless, on the Lash Blast, but also on new items, more trend items like skin tints and all these things that are currently being requested by the market. So we're on it. So I guess the bundle that we're going to bring out the fiscal '26 bundle is going to be good, much better than before. The fiscal '27 bundle will be great. So that's the way we envision it. In Prestige, we have some pretty exciting blockbusters coming up in the next couple of months. We're going to launch a big Calvin Klein female initiative, actually now soon, very, very soon. And we are super excited about that because we're trying to already make sure that we have halo effects on the Calvin Klein franchise. And Calvin Klein is a big franchise. If you can move the needle there, we can get immediate better sellout and growth. We will have a big bet with the Marc Jacobs beauty like the makeup launch in end of the fiscal year, which we try to turn into a big blockbuster as well. Very excited when I look at that innovation. So this is our near-term focus to get these 2 things right. And obviously, we have many more things in the pipeline that we can talk when we speak again. Operator: We'll move next to Susan Anderson with Canaccord Genuity. Susan Anderson: I guess maybe just a follow-up on the promotional environment. I guess, as things kind of worsened in second quarter in the back half, was this driven by competitors, I guess, trying to gain more share? Or was it just consumer demand was lackluster? And then do you expect this promotional environment and markdowns to continue into the third quarter? And then just a follow-up on Oliver's question as well. Maybe if you could talk about kind of where your Prestige fragrances are growing relative to the market. Laurent Mercier: Yes. Susan, I can start. So indeed, I mean, we saw some competitors indeed being very, very aggressive on promotions. So that's why I was telling you it came more second half of Q2. Yes, we are taking the assumption that it will stay in Q3. So that's why we are including this in our equation in our gross margin. So now at the same time, this is really the segue to all the strategy and what Markus has just shared. So it's really that on our side, it's really forcing us and pushing us really to reallocate our resources and really focusing on the sellout. We have great innovation that we can amplify. So that's really the motto. And again, as you know, we are really -- across the full portfolio, we are seeing the Gen Z, I mean, entering the category being very excited. Volumes are growing. That's very important. So again, we are taking this more as conjectural effect, but we are confident that all the work we are doing will help really to manage and mitigate these headwinds. So again, to be very clear, from a consumer standpoint, there is full confidence. I mean all the KPIs, household penetration, especially in market like the U.S., new consumers entering the category, this is at stake. And as you know, I mean, new tools TikTok, again, these are new tools where really we are seeing great traction. So again, we shared -- I mean, there is -- we stay absolutely confident that the fragrance category will keep growing mid-single digit and it's really volume and mix, okay? So volume is very important and it is the case. Operator: We'll take our last question from Andrea Teixeira with JPMorgan. Andrea Teixeira: So I was hoping to see if you can comment, Markus, first of all, welcome. I was hoping to -- if you can talk to the experience you had managing these brands, especially the Consumer Beauty portfolio at P&G and some of the fragrances as well at the time of the decision to sell these brands to Coty. I mean, obviously, it's the question that most of us probably are thinking, what's different now with Coty? And obviously, the industry has transformed over the last years where Coty has been the stewards of these brands. But what gives Coty a better right to win? And a clarification on the SKU rationalization. What is the top line and gross margin impact over the years and how to think in terms of the cadence of that impact? Markus Strobel: Okay. I cannot obviously not comment what went down 10 years ago, I was running the SK-II brand at that time in Asia, far away. I can only comment today what we are doing on the business and what gives me confidence. If you look at, for example, the history of CoverGirl in the last few years, there has been a lot of back and forth on the positioning on the equity, right, a brand for like older consumers and then suddenly try to make it a full Gen Z brand, which obviously did not work and then back again and back and forth. I think every brand that I have ever run, everything starts with the consumer, okay? Do I understand my consumer? Do I understand my target? Do I right have the propositions for my target? And do I have a strong equity that I'm going to drive and then I'm not going to walk away from. So what we have done in the past couple of weeks under Gordon's leadership is really sharpen and define our equities and basically say whom is CoverGirl for and whom it will appeal to. Who is going to be -- who's going to laugh Rimmel? And we find out there is consumers out there that do. There's consumers that potentially do, older consumers, younger consumers, these brands have broad appeal, and we need to bring it now to life. We need to bring it from a PowerPoint chart into the market. And we're doing that, and it's going to happen over the next couple of weeks and months. And I'm fairly confident that we can get better than we were before. And the gross margin, the question was... Laurent Mercier: Yes. Your question, sorry, Andrea, was really -- okay, yes, how do we see some improvement from all these actions? I mean I think you're familiar with that again. Number one, as I shared, I mean, today, we know what are the headwinds, okay, in our gross margin. So some will naturally disappear or anniversarize, okay? So of course, the tariff and the ForEx, all these headwinds are hurting this year. And next year, they will anniversarize. I think Consumer Beauty, you heard really that all these actions will deliver some gross margin. So now on the SKU rationalization, either Consumer Beauty or Prestige is, of course, that it has an impact across the full value chain. So this is -- yes, and Markus, you can comment. Markus Strobel: Yes. I think one, Andrea, I think which is very important on that we're doing a lot in terms of becoming more productive and saving costs, improving our gross margin. But in the beauty care category, with the gross margins you have in general in Beauty, the #1 thing is to drive top line growth because I'm always saying top line health is bottom line wealth in beauty, and that's what we all geared to do. Operator: At this time, we've reached our allotted time for questions. I'll now turn the call back over to Markus Strobel for any additional or closing remarks. Markus Strobel: All right. Thanks for the call. We recognize that our recent financial performance has not met expectations. There's no sugar coating it. This leadership transition marks a fresh chapter grounded in realism, discipline and focus. Going forward, we will be transparent about what works and what does not. We're going to set balanced near- and long-term targets. We're going to concentrate our resources where they matter most, and we continuously review our portfolio to unlock value. Consumer demand is our North Star, and we have a clear emphasis on focused execution, sharper priorities. I'm confident that Coty will improve. It will take time, but progress is already underway. As I said in my prepared remarks, it will not happen overnight, but it will happen. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas Fourth Quarter 2025 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to BJ Grant, Senior Vice President of Investor Relations. You may begin. Bill Grant: Thank you, Jenny. Good morning, everyone, and welcome to the Ventas fourth quarter and full year 2025 results conference call. Yesterday, we issued our fourth quarter and full year 2025 earnings release, presentation materials and supplemental information package, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of topics may cause actual results to differ materially from those contemplated in such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website. Certain non-GAAP financial measures will also be discussed on this call and for a reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental information package posted on the Investor Relations website. And with that, I'll turn the call over to Debra Cafaro, Chairman and CEO of Ventas. Debra Cafaro: Thank you, BJ. I want to welcome all of our shareholders and other participants to the Ventas fourth quarter and full year 2025 earnings call. 2025 was an outstanding year for Ventas. We delivered strong results from the execution of our 1-2-3 Strategy focused on senior housing, as secular demand from a large and growing aging population strengthens and supply remains constrained. We are intent on the significant value creation opportunity ahead. We plan to use our advantaged position, proprietary Ventas operational insights platform, financial strength and industry relationships to capture the unprecedented multi-year growth opportunity in senior housing, while we also help individuals live longer, healthier and happier lives. In 2025, we drove growth at scale. Our normalized FFO per share increased by 9% and our same-store SHOP cash net operating income grew 15%, our fourth consecutive year of double-digit SHOP NOI growth. Our enterprise value exceeded $50 billion, and our fourth quarter annualized NOI and SHOP NOI reached $2.5 billion and $1.3 billion, respectively. We raised $7 billion of capital from a wide array of sources at attractive prices during the year. Our investment activity also accelerated as we closed $2.5 billion of high-quality senior housing investments that enhance our enterprise growth. By year-end, we owned over 83,000 SHOP units and 53% of our NOI was generated by our SHOP community. Our investors were rewarded in 2025 as Ventas delivered total shareholder returns of 35%, significantly outperforming our industry benchmarks by wide margins and the S&P 500 in a year when it reached record highs. The Ventas team has been outstanding in its commitment to each other and to excellence as we've worked together to deliver value and performance across our stakeholder base. We are keenly focused on the multiyear NOI growth and value creation opportunities ahead. Let's start with the durable and powerful demand trends in senior housing. This year marks a historic demographic inflection point when baby boomers start to turn 80. This cohort of nearly 70 million individuals is the wealthiest generation ever. As the baby boomers age, the over-80 population should grow 28% in the next 5 years and double in 2 decades. Today, more people than ever are choosing senior housing for the valuable benefits it provides at an affordable cost that is comparable to the cost of staying at home. Senior housing is a consumer-driven private pay business that provides important support, socialization and safety benefits to residents. We were once again reminded of the value of senior housing during the recent winter storms, when care providers across the country kept residents safe, warm and well cared for in our communities, while many seniors living alone lost power and heat. Meanwhile, the new supply of senior housing continues to hover around all-time lows. To put this in context, there were only about 2,500 new senior housing units started in the fourth quarter of 2025. While we expect over 2 million people to turn 80 in 2026. Both sides of this demand-supply imbalance are weighted strongly in our favor, and Ventas is exceedingly well positioned to capitalize on this unprecedented opportunity. With a long runway ahead, we intend to continue executing our strategic vision of; one, delivering outsized senior housing organic growth; two, making value-creating investments focused on senior housing; and three, driving cash flow throughout our portfolio. We also want to extend our trajectory of enhanced financial strength and flexibility. Ventas has built a scale platform to drive outperformance. Our experienced team, proprietary analytics tools, strong balance sheet, data capture and industry relationships give us a competitive moat in senior housing that continues to expand. With our vision, strategy and market positioning in place, I'll close on our 2026 operating guidance, investment activities and dividend increase. In 2026, we expect to deliver high single-digit growth in normalized FFO per share led by SHOP. We expect SHOP to produce our fifth consecutive year of double-digit same-store cash NOI growth with occupancy, rate and margin, all showing healthy year-over-year increases. Our total company same-store cash NOI growth should be nearly 10% in 2026. On the investment front, our team and our pipeline are extremely active. Our #1 capital allocation priority remains U.S. senior housing. We've already closed over $800 million in high-quality senior housing acquisitions year-to-date, and we are highly confident we can complete $2.5 billion of investments focused on senior housing this year. We intend to remain aggressive in expanding our senior housing business through investment activity that provides attractive risk-adjusted returns and enhances our enterprise growth rate. Finally, I'm pleased to share that our Board of Directors has approved an 8% increase in our quarterly dividend on the strength of our performance and positive multi-year outlook. Earnings and dividend growth are important components of the Ventas investment thesis. The whole Ventas team is aligned and focused on continued outperformance at scale, and we're in it to win it. With that, I'm happy to turn the call over to Justin. J. Hutchens: Thank you, Debbie. I'm pleased to share the results of a successful 2025 with both organic and external growth in our senior housing business. I'll start with SHOP. We had a really strong fourth quarter in our SHOP same-store portfolio. Revenue grew over 8%, led by occupancy growth of 300 basis points year-over-year and 100 basis points sequentially, demonstrating strong demand and sales execution. The occupancy growth was led by the U.S. at 370 basis points, with a particularly strong contribution from our independent living communities. Furthermore, our communities in the U.S. top 99 markets outperformed NIC by 160 basis points. RevPOR grew 4.7%, even with the mix impact of the outsized occupancy growth in our lower-priced independent living portfolio. NOI grew 15.4% year-over-year in the fourth quarter, led by the U.S. with 18%. Margin grew 180 basis points to over 28%, driven by 50% incremental margin. A quick note, as I reflect on the full year, I'm particularly proud about the occupancy. We achieved a better-than-expected 280 basis points of average occupancy growth across the portfolio led by the U.S. with 350 basis points. Once again, we saw broad-based contributions to SHOP performance across our operating partners, such as Sunrise, Atria, Discovery, Sinceri, Senior Lifestyle and the Groupe Maurice, who continue to deliver exceptional care and services to our senior population and very strong financial results. Looking ahead, we see significant opportunities for growth across multiple areas. We have spent the past several years taking numerous actions to ensure we are ready to meet this moment of accelerating demand in senior housing. We are positioned for continued organic growth and occupancy rate and operating leverage across the SHOP portfolio. Our U.S. portfolio is well positioned for a long runway of growth at only 86% occupancy. We expect contributions to growth across the portfolio and particularly growth drivers will include our new high-quality, high-performing acquisitions, the 45 communities that were transitioned from the triple-net lease with Brookdale to SHOP and our evolving Ventas OI execution in collaboration with our operators across the broader portfolio. With this backdrop, I'm pleased to give our 2026 guidance for SHOP. We expect the same-store NOI growth range of 13% to 17%, driven by occupancy growth of 270 basis points year-over-year and RevPOR growth of 5% supported by in-house rent increase assumptions of 8%, which are stronger than in the past couple of years. Operating expenses are expected to grow 5% again this year as we continue to add occupancy. I'd note that we've included modestly higher expenses in the first quarter, reflecting the recent severe weather across the U.S. With these components and the positive operating leverage, we expect that margin will continue to expand in 2026. Summarizing guidance, we are looking forward to our fifth year in a row of double-digit SHOP NOI growth with 15% at the midpoint. I'll give a quick update regarding the 45 transitions of former Brookdale communities. They have fully converted the SHOP and are now operated by 5 experienced transition partners, whose senior leadership teams are highly engaged. Capital refresh projects are underway with most expected to be completed ahead of the key selling season. While still early, we anticipate modest NOI growth in 2026 and remain confident in the long-term opportunity to double NOI across this group of communities. At the core of what we do is delivering a high-quality living experience for our residents. Our communities support safety, connection and independence, while providing the amenities, professional care and services that enhance daily life, creating peace of mind for the families of residents that experience is delivered at a compelling value proposition. On average, residents can afford to live in our communities almost 7x longer than the typical length of stay. The quality of care and services we provide is reflected in strong resident outcomes across our portfolio. For instance, at Atria Senior Living, we've seen a third consecutive year of improvement in Net Promoter Scores signaling growing advocacy among residents and their families and continued outperformance versus industry benchmarks. Le Groupe Maurice has also been recognized for the sixth consecutive year as the leading senior housing brand in Quebec based on an independent survey evaluating safety, building quality, programming, service levels and the quality of staff. More than 70% of Sunrise's communities are in the best senior living rating by U.S. News & World Report, further validating their strong customer engagement and ability to deliver a differentiated experience for residents and families. Furthermore, Discovery Senior Living achieved a #1 JD Power customer satisfaction ranking, validating their ability to integrate communities, improve performance and sustain resident experience. It's no wonder there is increasing demand for senior housing. Today, we partner with 43 operators across our SHOP portfolio, providing meaningful coverage across the senior housing continuum of care, diverse geographies and a wide range of price points. Importantly, as more operators and communities are integrated into the platform, our data and analytics capabilities become increasingly powerful, reinforcing the network effects that drive performance and widening our competitive moat relative to other owners of senior housing. Our ability to manage senior housing at scale is a core competitive advantage. Our differentiated platform allows us to support a broad range of operators, enabling us to match the right operator with each community in each market and capture incremental growth opportunities. Ventas OI execution is at an all-time high. In 2025, we significantly deepened our collaboration with operators through site visits, senior management meetings, operator summits and active asset management. This engagement enables us to work shoulder to shoulder with our operators on key priorities such as NOI driving CapEx, dynamic pricing, sales execution and rigorous benchmarking across key operating metrics, all in support of our relentless pursuit of creating environments where seniors thrive and investments flourish. We plan to further elevate this engagement as we meaningfully expand the capabilities of our senior housing team and enhance our interdisciplinary approach to supporting and growing our network of high-performing operators. Furthermore, the Ventas OI platform is also technology agnostic meaning operators can plug into Ventas OI from a wide variety of operating systems contributing to our ability to scale. Now turning to investments. We concluded 2025 with $2.5 billion of senior housing acquisitions. We really like what we've been buying. Our senior housing investments are squarely within our right market, right asset, right operator framework. Improved Ventas' overall SHOP portfolio quality are poised for outperformance due to favorable supply and demand dynamics and increase the company's enterprise growth rate. In the aggregate, these investments have already created significant value based on the strong operating performance achieved under our ownership that is in line with our expectations. 2026 is off to a strong start with over $800 million of wholly owned senior housing investments across 7 transactions closed already this year. This brings our cumulative senior housing acquisitions to $4.8 billion in a little over a year. For the full year of 2026, we're providing guidance of $2.5 billion of investments focused on senior housing and we have high confidence in achieving this amount given the momentum we continue to see in our pipeline. While competition for senior housing assets has increased as additional capital flows into the sector, Ventas is uniquely positioned to deploy capital where we have strong conviction and where we can fully leverage our differentiated competitive advantages, our scale, relationships and operating expertise allow us to aggressively pursue opportunities where we believe we are best positioned to create value. We are seeing a broader and more diverse set of potential transactions in the market across a range of investment profiles. We seek senior housing investments that combine durable in-place cash flow and growth with the potential to generate attractive risk-adjusted returns consistent with our low double-digit to mid-teens unlevered IRR targets. Our relationship-driven approach to sourcing, structuring and executing transactions, combined with the continually expanding network of high-quality operator relationships continues to provide Ventas with differentiated access and the ability to win compelling opportunities. Ventas remains a senior housing partner of choice for operators seeking the benefits of Ventas OI in the scale, capital and operating support of our platform. Since 2024, over 70% of our transactions have been with pre-existing operator relationships. Sellers are equally focused on repeat business, reflecting our consistent execution and reliability of the counterparty, which in turn creates incremental opportunities for follow-on investments. Over the past year, more than 50% of our transactions were with repeat sellers. In closing, we are looking forward to an exciting 2026 as we continue to drive organic and external growth in our senior housing business. Now I'll hand the call to Bob. Robert Probst: Thank you, Justin. I'll share highlights of our fourth quarter and full year 2025 performance, our recent capital raising activities and we'll close with our 2026 outlook. We finished 2025 strong with 10% year-over-year growth in normalized FFO per share in the fourth quarter. This increase was driven by same-store property growth of 8%, led by SHOP, which increased 15%. Our Outpatient Medical and Research, or OMAR, business grew same-store cash NOI by nearly 4% year-over-year in the fourth quarter. Outpatient medical same-store NOI increased by 4.5%. Occupancy in outpatient medical reached almost 91% in the fourth quarter, the sixth consecutive quarter of year-over-year occupancy growth. Our outpatient medical in-house property management teams have delivered 6 straight quarters of TTM retention exceeding 85% and very strong tenant satisfaction. Meanwhile, our research portfolio, which represents 8% of total NOI grew same-store NOI by 30 basis points year-over-year supported by occupancy gains from university tenants. Looking at our full year results. We delivered normalized FFO of $3.48 per share, a 9% year-over-year increase and at the high end of our guidance range. This growth was achieved through solid execution of our 1-2-3 Strategy, led by SHOP organic NOI growth and $2.5 billion of accretive senior housing investments. Strong organic growth in equity funded investments also worked together to improve our leverage to 5.2x in the fourth quarter, the best it's been since 2012. Since the beginning of 2025, we demonstrated our advantaged access to multiple pools of capital. We raised over $7 billion since the start of last year. including nearly $4 billion in bank, bonds and mortgage debt and $3.2 billion of equity issuance. We have $12 billion of unsettled equity to fund future investments. I'd highlight that our leverage pro forma for the unsettled equity is approaching 5x, and our growth outlook in 2026 suggests the trend of lower leverage is expected to continue. Let's conclude with our full year 2026 growth outlook. For 2026, we expect net income of $0.57 per share at the midpoint. We expect 2026 normalized FFO per share to range from $3.78 to $3.88 or $3.83 at the midpoint. This guidance midpoint represents 8% year-over-year growth on a comparable basis. The building blocks of our guidance are similar to 2025 and are driven by our strategy. The 8% growth in normalized FFO per share or $0.27 per share is expected to be led by SHOP NOI growth and accretive investment activity. Netted against offsets, including the expiration of noncash rental income from Brookdale and higher net interest expense from refinancing maturing debt. Our total company same-store cash NOI guidance midpoint increase of nearly 10% year-over-year is led by SHOP at 50%. Our OMAR same-store guidance midpoint of 2.5% is consistent with our growth in 2025 and is led by growth in outpatient medical. Triple-net is expected to grow over 4%, led by cash rent increases in January for Brookdale in our triple-net senior housing business. I'd note that beginning in 2026 and as reflected in guidance, our normalized FFO will exclude noncash stock-based compensation expense, which had $0.08 per share impact in both '25 and '26 as adjusted, it has no effect on our year-over-year growth rate. Our guidance also includes equity funded investments of $2.5 billion focused on senior housing. G&A growth in 2026 on a cash basis is generally in line with the growth of our enterprise, or in the low $150 million range in 2026. We are investing in our organization in support of the company's increased asset base and expanding asset management initiatives. A more fulsome discussion of our guidance assumptions can be found in our Q4 supplemental and earnings presentation posted to our website. To close, we are extremely pleased with our 2025 performance. The entire Ventas team is determined to continue to deliver outperformance at scale and superior performance for our shareholders. With that, I'll turn the call back to the operator. Operator: [Operator Instructions] And your first question comes from Jim Kammert with Evercore. James Kammert: Bob, just finishing up on your comment there. On the Brookdale sort of reset on the triple net side, obviously, 4% is because of the rent bump. But prospectively, that's kind of -- it goes back to a 1% to 1.5% kind of business. Is that a reasonable assumption for the triple-net as a whole? Robert Probst: Yes, Jim, I would say more like 3% on average for escalators. Obviously, the January Brookdale increase is outsized, but that would be a run rate assumption outside of that. James Kammert: Okay. That's great. And then another housekeeping. In the guidance, obviously, you have the quest to continue to gradually deleverage. And with the 503 million or so expected average shares for '26, what does that imply for the year-end count, sort of like a 27.5 million kind of net incremental shares for the year? Is that in the ballpark? Or where will we end the year, I guess, if you're providing that share count? Robert Probst: We haven't given a year ending. Maybe we'll do that later in the year. It depends a lot on timing. But what we have assumed is the $2.5 billion of investments are principally funded with equity, $1.2 billion of which is already in the bank. So when you look at the year-over-year increase in shares, it is that. It is a function of the investment's equity funded. So 503 million is the number for the year. James Kammert: Fair enough. And so you're not going to try to get like above that, in other words, about 2.5 I got you're saying. I appreciate that. Operator: Your next question comes from the line of Seth Bergey with Citigroup. Nicholas Joseph: It's Nick Joseph here with Seth. So just on the acquisition guidance of $2.5 billion, obviously, you're off to a good start. I think you're almost 1/3 or probably over 1/3 of the way there already. I think you mentioned high confidence in being able to hit that, but also that competition has increased. So just hoping you could kind of talk about what you're seeing in the market today. Is it more portfolios? And what would drive you below that $2.5 billion just given the pace you're already on? J. Hutchens: It's Justin. Well, first of all, our pipeline is very active and has been. We described the investment activity we've had as having momentum, and we've really been pressing our advantages to execute on our pipeline and the opportunities that are a good fit for us. When it comes to the type of deals we do, we do a number of off-market deals. For instance, the $800 million that we've closed already, half of that, was off market. When it comes to marketed deals, there is increased competition. And what we're finding is where we have our advantages, first of all, the track record of closing, which has caused repeat sellers to opportunities with us. Our operator relationships that have become really deep and strong and expanding those relationships and adding more operator relationships to the platform. There's plenty of activity as well overall in the U.S., and we're getting more than our fair share of that and like our opportunity to continue to do that. Nicholas Joseph: And then just, I guess, unrelated, obviously, it's been a more disruptive flu season nationally, but it seems like occupancy is holding up well. What are you hearing from, I guess, your facilities or your operators on the flu season? And I guess, how have mitigation efforts changed post-COVID? J. Hutchens: Yes. And -- that's a really good question. There has been national headlines around a flu season that was elevated at a point in time. We're not all the way through the winter season, so we'll see how that plays out. In terms of our portfolio, there are a number of things that have changed that -- since the pandemic era that have improved infection control. One is simply that we're using more protective equipment such as masks. There's -- we're isolating. The general public is better at just staying away if they have infection, washing their hands. There's a -- so therefore, I'd say, a heightened awareness around any kind of infection in our communities and the management of that is much better than it was at one point in time. Having said that, we're also experiencing minimal flu impacts. It's been very mild and very few reports of any kind of outbreak whatsoever at this stage. Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: So just maybe on occupancy in the SHOP portfolio. You talked about sort of the weather impacting expense a little bit. Just can you walk us through a couple of things? Like how are you baking seasonality into the first and the fourth quarters? And does weather impact either occupancy or flu impacts, et cetera? What are you baking in as you go through the year for your occupancy guide? J. Hutchens: Yes. So in the 270, we've assumed seasonality. And that would include just normal seasonal impacts, and that could be weather, it could be flu related. That's in the guidance. And I think you know how the seasonality works. Obviously, we'll have more -- usually more move-out activity, a little less move-in activity in the winter season, and that's the end of the year and the beginning of the year. And then the key selling season, May to September, is where we have outsized move-in activity and generally lower move-out activity. So that's the big opportunity every year, and we look forward to performing well within that and delivering the 270. That's the assumption. The comment I made on the call was really referring to expenses. There was obviously some recent severe weather, and we've incorporated expenses related to that in the first quarter, which is also obviously baked into the full year guidance. Vikram Malhotra: Okay. Great. And then just obviously, the acquisition pipeline is very strong. I wanted to talk about dispositions potentially in senior housing, whether it's into your fund or elsewhere, like Canada, for example, now 97% occupancy. In the U.S., you have another bucket that's sort of underperforming, I guess, their Tier 3 markets. But maybe you can expand upon the future growth opportunities in both those buckets and whether anything there could be disposition candidates? J. Hutchens: Yes. So there's a lot in there. I'll mention -- so first of all, we're always going to have some amount of pruning that we'll do within the portfolio, and there's a $200 million that's assumed. That would include some senior housing underperforming. We still have -- there's always a bottom part of the portfolio that doesn't have the long-term potential that we like to see it have. So that creates disposition opportunities. In terms of Canada, one thing that's interesting about that, it's a very high-quality, high-performing portfolio. It doesn't grow as much as the U.S. It's also much smaller. It was 30% of our SHOP portfolio just a few years ago. It's down to around 16% today. And that's because the U.S. is growing in every way organically and externally. And so Canada has become kind of a smaller footprint. You mentioned the other markets. And what -- if you look at Page 11 of the sub, people that are following along. In the other markets, we have more of a mid-market product, and that is mostly independent living. We also have assisted living. And a lot of those communities have benefited from our plans in terms of refresh, putting new operators in place and offer a growth opportunity. They're in good markets with strong net absorption and a lot of the actions that we've directed towards the portfolio have benefited that category, and it has relatively low occupancy. So we'll look forward to growth opportunity there. Vikram Malhotra: Congrats on the strong results. Debra Cafaro: Thank you. Operator: Your next question comes from the line of Julien Blouin with Goldman Sachs. Julien Blouin: Maybe, Justin, on the Brookdale transitions, can you give us a look under the hood, sort of what are the lowest sort of easiest hanging fruit that can help drive that immediate growth and improvement in 2026 you mentioned? And then maybe tying that to Ventas OI, how does that platform help your operators improve the performance of the newly transitioned assets? J. Hutchens: Yes. Great question. And we had a number of triple-net to SHOP conversions last year. The biggest part of that was the former Brookdale communities that were in the lease that moved to SHOP. Those communities are -- have a lot of advantages. They're large scale. They're in markets that have strong net absorption. We have 5 new operators in place. All of those operators have experienced transitioning. We have CapEx planned. A majority of them will have had their refreshes done by the key selling season. I'd say that's one of the biggest actions we're taking early. And then we expect the performance to be good over time. It's not really a 2026 story per se, at least some modest growth there, but '27 and beyond is where we really expect to see ramped up performance and go after that doubling of the NOI that we've talked about. Julien Blouin: Got it. That's really helpful. And then I think in the past, you've talked about how the time to turn a unit is very short given the limited wear and tear in senior housing and in your portfolio. But I was wondering if you had any thoughts about the time it takes to secure a new resident to replace an outgoing one and sort of how that might have changed in the last 12 to 24 months, and sort of how waitlist lengths sort of play into that? Have they sort of grown over the last 12 to 24 months as supply has subsided? J. Hutchens: Has what grown? I didn't hear that last part. Julien Blouin: The length of waitlist? J. Hutchens: Yes. So the sales cycle, it tends to be really short in assisted living. We could -- sometimes inside of 60 days of getting a lead, you would expect them to make a choice, whether it's with us or with another option that they're pursuing. Some move much faster than that, way inside of 30 days, sometimes even just a matter of days in terms of the sales cycle. Independent living could be much longer. It's more of a discretionary choice. And we are seeing really the big demand driver isn't as much about the sales cycle as it is just the increasing senior population that's accessing our services. And then our sales execution has obviously been excellent because we've been able to outperform our markets for many, many quarters, in years in a row now. And why is that? Well, it's because of the investment in our portfolio, the operators we selected, the OI platform that we've layered on to ensure that we have good performance. And we really like our opportunity, probably very obviously, moving into this next phase where we have even better demand. We're just really well positioned to continue to drive occupancy. Operator: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Unknown Analyst: This is Sam on for Tayo. A lot of my questions have been asked already, so I guess I'll throw this one out there. Do you guys have any -- I guess, can you -- how do you guys -- how should we think about the cadence of deals for the remainder of the year? Robert Probst: From a modeling perspective, this is Bob. I would assume over the course of the year sort of ratably would be a good modeling assumption. Unknown Analyst: I appreciate it. Robert Probst: Okay. Debra Cafaro: Thank you. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: On the assets that you're acquiring, I assume they're coming in at kind of like low 90% occupancy. How much more occupancy upside is possible there? I know you mentioned you have SHOP properties that are 100% occupied and you're underwriting or use. What are you assuming on the occupancy upside? J. Hutchens: Yes. So we -- first of all, we do have a number of different types of kind of senior housing profiles in our pipeline. And that can include some value-add opportunities, really high-quality opportunities that actually have a lower occupancy that we've managed to source. So we'll expect even more occupancy runway if and when we close those investment opportunities in our pipeline. We've had -- our favorite has been the kind of the high-performing stabilized. If you're 90%, you have 10% to go. And when you have markets that are projected to go all the way to 100% occupancy over the next few years, that's a very reasonable expectation. So we're going to focus on -- we have a lot of occupancy upside. We're 86% occupied in the U.S. That's been designed largely by moving our triple-net communities over to SHOP, and then we've been buying these high-quality newer communities as well. So we really like the portfolio positioning and the opportunity to grow occupancy. Michael Goldsmith: Got it. And we kind of touched on this a little bit, but just maybe ask more discretely. You talked a little bit about competition. The portfolio -- some of the blended cap rates of your acquisitions to start the year were sub-7%. So it is -- and I know historically, it's kind of been in that 7% to 8%. So like should we expect kind of being -- remaining the year in that like sub-7% range or -- and that's shifting down, let's say, 50 basis points, like 6.5% to 7.5% versus 7% to 8% maybe historically? Just trying to get a sense of where the market has moved. J. Hutchens: Well, it's not surprising given the quality of this asset class that there's a lot of interest in it. So there certainly is more competition. Clearly, it hasn't slowed us down at all given how strongly we're positioned. There's a drifting down in cap rates. You can see it in our sub -- we reported under 7%. And I would say we'll report our expectations as we close deals moving forward. Debra Cafaro: And as Justin said, we remain -- we are highly competitively advantaged in making acquisitions in senior housing. Michael Goldsmith: Good luck in 2026. Debra Cafaro: Thank you. Operator: Your next question comes from Michael Carroll with RBC Capital Markets. Michael Carroll: I just wanted to build off of the seniors housing valuation question. I mean, obviously, private market valuations have improved. I mean how difficult is it to buy assets under or at replacement cost today? I mean, is there an idea of like how big of the discount is today versus it was maybe 1 to 2 years ago? J. Hutchens: It depends on what you're buying. So we've had -- we've been buying consistently under replacement cost. There's been some that have been a little closer to replacement cost, and it's really just a function of the age of the property usually. So we've had some really nice high-quality newer communities that you're buying closer to replacement costs. We have others that are way below still. So we're looking to try to stay at or below in terms of our investment criteria, and we've been able to do that really consistently. Debra Cafaro: And rents would we still have to -- and rents would still have to grow significantly to justify new construction. Michael Carroll: Okay. Great. And then just on the pipeline that you have today, I mean, I know that you have a $2.5 billion target for the year. You already completed about $840 million. I also know how conservative Ventas is with putting investments within their guidance ranges. So of the $1.7 billion unidentified deals, I mean, should we assume that there's a pretty good horizon or line of sight on completing those specific deals? J. Hutchens: So we're describing it as high confidence. So you can interpret that. Yes, and the pipeline keeps growing as well. Operator: Your next question comes from the line of John Kilichowski with Wells Fargo. John Kilichowski: My first question is around the balance sheet and G&A really. When I look at what you gave in terms of same-store and the acquisition number, they are both great numbers and maybe the FFO was slightly below where we would have expected. And I think part of that was some higher interest expense and maybe some G&A that we're not thinking about. Could you walk us through the building blocks there and the assumptions, maybe there's some conservatism because you've already prefunded, I believe, $500 million, but maybe there's more there that we're not considering. Robert Probst: Sure. Let me unpack a little bit. So there are 2 key drivers as you look at the year-over-year growth of 8% outside of the tremendous growth in SHOP and external growth. And that is, first and foremost, the expiration of the noncash Brookdale amortization we disclosed that ad nauseam. That's $0.04 year-over-year. And so that's one item to note. The second is refinancing maturing debt. We do have $2.2 billion of debt to mature this year. That's higher than the last couple of years. And obviously, there's a refinancing increase relative to debt on the books. Those 2 alone explain the difference between 8% and 10%. I mentioned in my prepared remarks, G&A. We are investing in the enterprise. As you would expect us to do, we're growing scale in senior housing. We're investing behind the platform. Meanwhile, we are very, very focused on efficiency and effectiveness at the same time. But believe that we've got the right balance there. But we do have growth in our G&A in the guide as well. John Kilichowski: Got it. That's very helpful. And then my next one is on the 15% same-store guide. What does this imply in terms of U.S. growth? And then just overall, how much of this is just you capturing the opportunity in front of you? And how much can you attribute this to like what you talked about in your opening remarks with Ventas OI? J. Hutchens: So we're not really giving U.S. and Canada separate. But clearly, U.S. was 18% in '25. It gives you a feel for the outsized growth potential that we have in the U.S. The -- we really, like I said before, we like how the portfolio is positioned. It's well invested. We have the right operators in place. We continually take actions. You mentioned Ventas OI. I'll just give you a flavor for some things we did in '25 as a proxy for the types of actions we take. So we added 12 operators last year. And so our platform is designed to onboard operators, bring them into the OI platform, help them to really be able to focus on the day-to-day execution. We had 88 redevs that helped to improve our competitive positioning. We had 26 communities that transitioned to new SHOP operators, and then we converted 74 from triple-net to SHOP to position ourselves with that lower occupied opportunity and long runway of growth. And so we're always taking portfolio actions, but on top of that, we're also taking operational type actions. And this is where I think the power of the platform really comes into play. And our operators have the responsibility for running the day-to-day business. We have this powerful platform to help really highlight for them opportunities to improve, and that could be anywhere from sales, pricing and other operational benchmark improvement opportunities. So we'll continue to kind of press that advantage and execute in '26. Operator: Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Richard Anderson: So allow me to be pain in the you know what with my 2 questions. First, on supply. I guess, Debbie, you said rents need to grow significantly to justify new construction. Well, they are growing significantly, as you guys have pointed out. And I'm wondering how supply doesn't become a relatively near-term concern just around the narrative. We've seen it happen in industrial and data centers and multifamily when that was growing at 20%. So to what degree are you sort of preparing for that and because the senior housing was oversupplied before the pandemic as some of us remember. So I'm just curious, I know it's great now, but what's the strategy over the next 5 years to keep sort of that reality in line of sight? Debra Cafaro: Yes. Thanks, Rich. The multiyear NOI growth opportunity has a really long runway, and it's principally driven by demand because of the absolute explosion of the over 80 population, which is our customer base. And as I mentioned, the starts are literally in the 2,000 a quarter level right now. There's over 2 million people turning over 80 in 2026, and that continues to grow as far as I can see. And we know that the -- the cost to develop are high, labor, materials, et cetera. We know there's about a 3-year cycle. And what we project is that even if new development starts that there is a surge, a step function in demand as you look forward in 3, 4, 5 years. And so the demand overwhelms or should overwhelm any incremental new supply. So that's how we're looking at it. And you've referred to earlier periods. The senior population growth was very flat to low single digits. We expect it to be 28% over the coming 5 years. So we think the best is yet to come. Richard Anderson: Okay. That's perfectly good color. Second question is on the affordability comment. I think somebody said maybe it was Justin 7x -- they could afford to stay 7x longer than the average length of stay, which is an interesting stat. But in my mind, it's affordable to people who can afford it if that -- it sounds silly to say, but I would argue the vast majority of seniors cannot afford this product. I don't know what the penetration rates or how you calculate that, but it's got to be at the very low end of the scale. So I'm just curious if you've given any thought to a more affordable product to sort of capture a broader range of seniors as we go through this that can afford it. I know that's being done in a way and some other companies are doing that. I'm just wondering if you're sort of modifying your strategy to some degree to get at what is the majority of the senior population, in my opinion, that can afford this product. Debra Cafaro: Rich, Debbie here. So yes, Justin did quote, and I talked about the fact that our industry provides a very important valuable benefit to seniors and their families in our communities at an affordable cost. And we have a page in the deck that's actually very illuminating on this Page 16. And I also mentioned that baby boomers who are starting to turn 80 are the wealthiest generation ever, and they control about half the country's wealth. And what's really important is, as Justin said, our residents can afford senior housing almost 7x what it actually costs for them to live there. And more importantly, it's effectively a replacement expense for what seniors are paying to live in their homes alone and get any kind of modicum of in-home care similar to what's provided in the senior living communities. And on top of that, the seniors aren't alone, they're getting the socialization and safety and support of a communal setting. So we really do believe that the product provides valuable benefits. Anyone who's ever used it in their families is understands that and that it truly is an affordable cost to this generation that will be the resident base and is starting to become the resident base starting in 2026. Richard Anderson: Can I give you my mother's phone number so you can call her and tell her that. Debra Cafaro: We do it all the time. We get calls all the time because it's a very needed benefit that we provide in our business. Operator: Your next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: This is Farrell Granath. My first question is around your pipeline. I know you've added some additional color and a lot of questions about it. But just when thinking about entering into '26, is there a quantifiable difference between what your pipeline is today versus what it was 1 year ago for '25? J. Hutchens: We disclosed that our pipeline in U.S. senior housing is $35 billion. And that -- some of which we closed last year, some of which is still in the pipeline. Some of it closed this year already and some of it is still in this high confidence group that we described earlier. And I would describe the pipeline as growing. It's certainly becoming larger. We're seeing more midsized deals. We continue to see flow business as well. So yes, there's more opportunities than we had a year ago. Farrell Granath: Okay. And then also when looking at your same-store SHOP occupancy, you've now reached around that 90% threshold and your margins are around 28% or mid-28s. I'm just curious about now that you're stepping into a higher RevPOR growth and also layering in Ventas OI, where can we potentially see this margin number move? Are you seeing additional revenue growth or margin expansion from the layering of the Ventas OI? J. Hutchens: Yes. So just like really in a very focused way, I would say we had 50% incremental margin in the fourth quarter. We expect in our numbers -- our guidance number of '26 that, that will be in the 50s. So more margin expansion opportunity in '26. I mentioned the rent increases in my prepared remarks were 8% this year. They were 7 last year. So we're starting to see higher in-house rent. We do have underlying improving trends in move-in rents as well. So there's good support for better pricing moving forward, which makes perfect sense given the supply-demand dynamic that Debbie described, and then also just having more communities that are becoming higher occupied. Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: All right. Justin, you mentioned dynamic pricing in the context of Ventas OI. So just curious if you can give us a sense of where you are in the process and the ultimate goal on how you expect and hope to price these units over time? J. Hutchens: Yes. I would -- I mean, we've been working on dynamic -- everything Ventas OI related, we've been working on really since 2022. And it's an evolving platform. The capabilities are improving every way. They're being more technically proficient and also really importantly, way better at executing in the field. And I would say that's one of the areas that really helped in '25, and we look forward to really expanding and pressing upon in '26. And in order to be able to deploy Ventas OI, you have to have high adoption from our operators. And they are highly engaged with us. So I couldn't be more happy with their willingness to work with us and therefore, execute moving forward. So I would say we're -- I'll always say we're early stages because it's an evolution and the goal is to get even better at it, whether you're talking about dynamic pricing or just execution across the whole platform. And as Bob said, we're putting more resources behind it. And so we're going to continue to just get even better at it moving forward. Juan Sanabria: And just a quick follow-up to Farrell's question. On the flow-through margins kind of can you remind us how those should trend as you get higher and higher in occupancy? I think 90% is like a critical number where you don't necessarily have to add really any incremental headcount from a labor perspective. So if you could just remind us on how that may or should change as occupancy continues to grind higher. J. Hutchens: It gets better, the higher the occupancy goes because the operating leverage kicks in. Like I said, in '26 as we kind of hover around this low 90s percent, we're expecting incremental margin in the 50s. And then we would expect that over time, as we move up the ladder towards 100% higher incremental margin, usually around 70% or so, the higher you get. So we'll have -- that's really one of the most powerful aspects of senior housing is that high operating leverage, and we expect to benefit from that over the course of the next few years. Juan Sanabria: Good luck to the rest of the year. Debra Cafaro: Thanks, Juan. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: One question on the acceleration in RevPOR growth expected in '26. Is this a function of assets that were already seeing good growth growing even quicker or more properties that were laggard starting to catch up? Any color on where that step-up in growth is coming from would be helpful. J. Hutchens: Yes, it's really -- yes, sure. And it's really just broad-based, and it's primarily driven -- one of the biggest drivers is obviously in-house rent increases and have that be around 8% versus around 7% a year ago is a big boost to RevPOR. And we always like to use a rule of simple -- really simple rule -- oversimplified rule of thumb, and that is that RevPOR is 2/3 of the in-house rent increase amount. So that puts you just under 5%. But we're also seeing solid underlying trends in terms of move-in rents as well. So honestly, this is another category that just kind of seems like we're at the beginning here. And we're pleased with the results. But as we move ahead into this strong demand environment, we look forward to performing even better on that front. Michael Stroyeck: Got it. That's helpful. And then maybe one on the outpatient research business. Does 2026 guidance assume any additional occupancy loss within the research portfolio? And do you expect that NOI has troughed in that business? Robert Probst: Yes. This is Bob. I'll take it. So looking at '25 is a perfect analogy, I would say, as we think about '26. So in '25, overall, OMAR delivered same-store 2.5%. Within that, the MOBs were over 3 modest decline in research given the backdrop there. That's a pretty good example of what we think is going to happen and continue on in '26, very, very similar. We kept the midpoint the same. So led by outperformance in outpatient medical and hanging in there on the research business. Operator: Your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: Bob, can you give us more color on the decision to exclude noncash stock comp going forward from NFFO? And then what's embedded in the guide for G&A expense this year? Robert Probst: Sure. So first and foremost, just to be very crystal clear, it's $0.08 of noncash stock-based compensation expense in both '25 and '26. We want to make sure everyone understands that we've modeled that in terms of our growth rate on a like-for-like basis. Why are we doing that to your question? We think that's getting to where the market is in terms of health care REITs and therefore, making it more comparable for you, the investor, as you look at our earnings. So that's the reason. In terms of G&A, I mentioned in my prepared remarks, we are investing in the platform. We are growing the platform. Low $150 million range on the cash G&A, and that's on a growth rate in line with our enterprise growth rate is the expectation. Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. I couldn't help but notice the occupancy delta between the IL and AL product. I guess just wondering, is that all acuity driven? And strategically, do you have a preference? Or is there an optimal mix as you're buying new assets versus IL and AL? J. Hutchens: Yes, sure. So we did have some outperformance in our independent living portfolio. We'll expect that to continue to some degree in '26. I mean, we're performing really well across both independent living and assisted living. But that's been an area of strength in terms of occupancy growth, and we'll continue to press on that. We're about half and half by units, independent living and assisted living. And when we target acquisitions, we do like a mix. We do like that continuum of care offering, not exclusively, but when we see it, we definitely give a higher priority because it offers independent living, assisted and memory care together or at least 2 of those 3 together, which just can attract a broader audience in terms of demand and also service offering. Ronald Kamdem: Great. And then can you just spend 2 seconds on just labor costs and then maybe the CapEx -- maybe CapEx per unit even because I saw the numbers were up, but presumably there's more units. But just broad-based trends on labor costs and CapEx per unit for the product would be great. Robert Probst: Yes, I'll take those. So on labor costs, we're assuming effectively just on a per hour basis, kind of normal inflation. Nothing unusual there. And we are seeing, of course, significant volume growth when you look at the 5% OpEx guide, that is really a function of the volume, but that would be a good proxy for per hour on wages specifically. On CapEx, we did give the FAD guide. That is up year-on-year from about $300 million to $400 million. You nailed it. It's led by more units, some inflation as well, but that's the driver. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Justin, just going back to the 8% in-house rent increase, have you seen any increase in move-outs as a result of the higher increase this year? And then could you just speak a little more broadly to some of those leading indicators? J. Hutchens: Yes, sure. So first of all, it all starts with the quality of care and service delivery. That is paramount. And I mentioned in my prepared remarks; it was really rewarding to be able to highlight some of the -- just the industry-leading recognition we're getting in our operators that we work with in that regard. That's what's most important. We're delivering really good services. We've established trust with residents and their families. And therefore, the value proposition is recognized by the customer. And therefore, we're not seeing anything unusual in terms of financially driven move-outs. Austin Wurschmidt: That's helpful. And then I just wanted to go back with a follow-up to the noncash comp question. And wondering if going forward, should we be expecting any change to the composition of cash versus noncash comp moving forward? Because obviously, there's implications then on the year-on-year comparison for growth. Robert Probst: No. In '25 and '26, I mentioned both are $0.08, and I wouldn't expect going forward there to be anything unusual as it relates to the noncash piece. Austin Wurschmidt: Appreciate the time. Debra Cafaro: Thank you. Operator: Your next question comes from the line of Wes Golladay with Baird. Wesley Golladay: I just have a quick question on development. I guess when do you think it would start to pick up, albeit off of a low level? And then how would Ventas like to participate? Would you like to lend develop or just wait and buy them afterwards? J. Hutchens: Okay. Good question. So we like acquisitions. We like buying durable, well-established in-place cash flow that will grow. That's been our priority from an investment standpoint. In terms of development, first of all, we think rents need to be 20% to 30% higher, and that's even at a relatively modest development yield. There's -- this is a tremendously well-supported business, though, in every way as we described on this earnings call. And so it's very reasonable to expect that there will be new supply. We would also expect that the first to come to -- that you would see announced in terms of starts would be ultra-premium products. And that's a product that it is so differentiated in terms of price when they enter a market that they don't -- they're well positioned to be the price leader. So that would be the kind of the exception that you would see come early. And then -- but it's still going to take some time. Rents need to catch up. And when they do, as Debbie mentioned, you have a 3-year runway. And when that supply opens, you're hitting this tremendous amount of demand. So we really, really like the outlook in that regard. Operator: I will now turn the call back over to Debra Cafaro, Chairman and CEO of Ventas, for closing remarks. Debra Cafaro: Well, everyone, I do want to say we had a great year at Ventas in 2025, and we look forward to having another one this year. I want to thank you for joining today's call and for your interest in the company. We look forward to seeing you soon. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the Reinsurance Group of America 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 Jeff Hopson, Head of Investor Relations. Please go ahead. Jeff Hopson: Thank you. Welcome to RGA's Fourth Quarter 2025 Conference Call. I'm joined on the call this morning by Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. A quick reminder before we get started regarding forward-looking information and non-GAAP financial measures. Some of our comments or answers may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website for a discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website. And now I'll turn the call over to Tony for his comments. Tony Cheng: Good morning, everyone, and thank you for joining our call. Last night, we reported Q4 operating EPS of $7.75 per share, which is our second consecutive record quarter in terms of earnings. Our adjusted operating return on equity for the trailing 12 months, excluding notable items, was 15.7%, which exceeded our intermediate-term target range of 13% to 15%. The quarter capped off another year of excellent financial results with strength across our businesses and geographies. These results underscore the value and diversity of our global platform and the exceptional work of our local teams. Looking back at the full year 2025 results, we delivered record operating EPS, generated a 15.7% ROE and increased the value of in-force business margins by 18%. From a capital perspective, we deployed $2.5 billion of capital into in-force transactions at attractive risk-adjusted returns, reinstated share buybacks and maintained a strong balance sheet with $2.7 billion of excess capital. These are clear indicators that we are successfully delivering on our strategy and are on track to continue meeting or exceeding our intermediate-term financial targets. Now let me highlight a few specifics from the fourth quarter. Beginning by region, the U.S. was particularly favorable, driven by management actions and variable investment income, with individual life mortality in line with expectations. EMEA results reflected strong volume growth and favorable experience. And APAC continues to see growth momentum along with in-force actions. In the quarter, we benefited from the continued contributions of our balance sheet optimization strategy. We saw the positive effects of various management actions in terms of current earnings and ROE, an increase in future value and an improvement in our liability risk profile. These actions are a regular part of our daily operations, though the timing and size can be difficult to predict. Additionally, we continue to see contributions from new business that we have added over recent years, including the Equitable block. We are confident that our most recent vintages of new business will generate risk-adjusted returns that meet or exceed our targets. Moving to investments. Our team and platform delivered strong results, boosted by favorable variable investment income coming from our alternative investment portfolio. Our team continued their efforts to reposition certain acquired portfolios, and we are on track to see these benefits in the periods ahead. To be clear, our portfolio repositioning leverages our expertise on both sides of the balance sheet with strong asset liability management to incrementally enhance our risk-adjusted returns. Additionally, we continue to expand our capabilities, including external partnerships to enable us to offer superior client solutions. On the capital front, we again repurchased shares, allocating $50 million this quarter at attractive prices. A balanced use of excess capital is an important part of our plan to generate long-term shareholder value. Shifting to full year 2025 performance. Our diversified global platform continues to deliver strong long-term results. Our operations in North America, Asia and EMEA have all been successful in executing on our strategy and delivering attractive financial results. Our APAC region produced excellent bottom line results for the year. Pretax operating income, excluding notable items, was up 18%, reflecting strong underlying growth and favorable underwriting experience. This business continues to grow at a nice rate given our success in delivering product development across the region as well as some of the favorable market and regulatory dynamics in places like Japan and Korea that lead to a high level of opportunities to solve client issues through in-force transactions. In EMEA, our full year pretax earnings, excluding notable items, were up 35%, reflecting continued strong new business growth, along with favorable experience. North American results reflected the contribution from the Equitable block, which continues to perform in line with expectations and strong contributions from in-force management actions. These positives helped overcome the challenging results from U.S. Group, specifically the excess medical business. We fully reprice this business for 2026 and expect a significant improvement in results over the next year. Looking beyond the recent renewal cycle, we completed a broader strategic review and have decided to exit the group health care lines of business. For the year, both organic flow and in-force transactions were very strong, with in-force transactions particularly robust from the Equitable deal and a wide range of other opportunities that we executed on. Focusing on organic new business, we continue to have very good success and momentum built on our long established biometric expertise and innovative mindset. We continue to see ongoing strength in Asia, driven by our product development and range of innovative solutions. Similarly, in the U.S., our value-added underwriting solutions and underwriting outsourcing efforts have given us strong momentum in a market that is generally considered mature. The 2025 successes I've highlighted are visible in the increased value of in-force business margins. We introduced this concept in 2024 to convey the underlying value and future earnings power of our in-force business. It is a measure of how much value is being created by a range of means, most importantly, new business, but also management actions and experience. In 2025, the value increased by $6.6 billion or 18%, with meaningful contributions from both new business and management actions. Over the past two years, the future expected value has increased by over $11 billion or approximately 16% per annum. Stepping back, let me provide some perspective on how we are positioned today and for the future and why we expect to deliver on our strategic and financial objectives. RGA has several unique strengths, including strong biometric expertise, asset management capabilities, a global platform, market-leading brand and flexibility to partner across the industry. We leverage these strengths as we execute across four key areas of focus. First, we use a proactive business approach to create win-win transactions, generating higher returns for RGA and greater value for our clients. Second, we optimize our balance sheet, including in-force liability management, improved risk-adjusted investment returns and leveraging third-party and internal sources of capital. Third, we operationally scale the platform and ensure that our portfolio of businesses aligns with the opportunities in the market. And lastly, we maintain a sharp focus on capital stewardship, ensuring we achieve the right balance between allocating capital to attractive business opportunities and returning capital to shareholders, which is critical to us. Whether it is the record 2025 results or the past three years where we have met or exceeded our ROE and EPS targets, RGA is delivering successfully on our strategy. We have strong momentum, a clear focus and the right strategy, and we remain confident in our ability to generate attractive shareholder value going forward. With that, I will turn the call over to Axel. Axel Philippe Andre: Thanks, Tony. RGA reported record pretax adjusted operating income of $515 million for the quarter or $7.75 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 15.7%. During the quarter, we achieved strong results across our global businesses. This was generally driven by the continued emergence of earnings from recent new business, including the Equitable block, favorable in-force management actions and strong investment performance. As Tony mentioned earlier, we continue to execute on our strategic initiatives, which positions us well for 2026 and beyond. I'll speak a bit more about 2026 expectations shortly. We deployed $98 million into in-force transactions in the quarter and $2.5 billion for the full year. We remained selective in the quarter, but overall had a very successful year across multiple geographies and products. On the traditional side, our premium growth was 7.4% year-to-date on a constant currency basis, which has benefited from strong growth across North America, EMEA and APAC. Premiums are a good indicator of the ongoing vitality of our traditional business, and we continue to have strong momentum across our regions. We also completed $50 million of share repurchases in the quarter at an average price of $187.40, bringing total repurchases to $125 million since we reinstated buybacks in the third quarter. Our capital position remains strong, and we ended the quarter with estimated excess capital of $2.7 billion and estimated next 12 months deployable capital of $3.4 billion. The effective tax rate for the quarter was 23.8% on adjusted operating income before taxes and 22.8% for the full year 2025. Looking ahead to 2026, we expect a tax rate in the range of 22% to 23%. We continued our balance sheet optimization strategy in the quarter with additional in-force management actions. For Q4, these actions had a $95 million favorable financial impact. Managing our in-force block remains a core part of our strategy and has significantly contributed to results over the past few years. As a reminder, these actions come in various forms, ranging from large upfront actions such as strategic recapture to more recurring items like rate increases on specific blocks of business. Turning to biometric claims experience, as outlined on Slide 11 of our earnings presentation. Economic claims experience was unfavorable by $51 million in the quarter with a corresponding unfavorable current period financial impact of $53 million. Approximately half of this result was driven by the U.S. group business, consistent with the updated expectations that we communicated earlier in the year. Claims experience in U.S. Individual Life was in line with expectations. Taking a step back, since the beginning of 2023, when we more fully emerged from COVID, economic claims experience for the total company has been favorable by $226 million. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business. Before getting into the segment results, I'd like to discuss a new slide, highlighting certain key considerations for the quarter and the year. On Slide 9, we've included details on the financial impact of certain items, including actual to expected biometric claims experience, variable investment income and in-force management actions. After considering these impacts, we view run rate EPS for 2025 at approximately $24.75 per share, which we believe provides a reasonable basis to apply future EPS growth expectations. We are also reiterating our intermediate-term targets of 8% to 10% annual EPS growth and a 13% to 15% return on equity. Regarding ROE, we acknowledge that we are running at or above the high end of the range and we'll continue to evaluate this target. For 2026 specifically, we are assuming a 7% variable investment income return. This is above the 6% in 2025, though below our long-term expectations of 10% to 12%, primarily due to a still muted environment for real estate sales, which is when income from real estate assets is recognized. Regarding in-force management actions, our activity has been elevated in recent years, generating earnings of about $75 million in 2023, $225 million in 2024 and $135 million in 2025. We will remain active going forward, but the timing and size of these actions is highly unpredictable. Thus, we are projecting a more limited financial impact compared to recent experience. Additionally, we will continue to balance capital deployed into the business with returning capital to shareholders through quarterly dividends and share repurchases. Our base case expectation for capital deployed into in-force transactions is around $1.5 billion in 2026. And we also expect to allocate $400 million of excess capital to reduce financial leverage during 2026. We intend to remain opportunistic with share repurchases and expect total shareholder return of capital to range between 20% to 30% of after-tax operating earnings over the intermediate term. Moving to the quarterly segment results on Slide 7. The U.S. and Latin America traditional results reflected the favorable impacts from in-force management actions and strong variable investment income. These were partially offset by the expected unfavorable group claims experience noted earlier in the year. A quick note on the group business. The block is now fully repriced, and we expect significant improvement in 2026 results back towards our historical run rates. The U.S. Financial Solutions results reflected the contribution from the Equitable transaction, which continues to perform in line with our expectations. The Equitable business generated earnings consistent with our $60 million to $70 million guidance for the second half of 2025, and we continue to expect $160 million to $170 million of earnings from the transaction in 2026. Canada traditional results reflected favorable impacts from group and Individual Life businesses. The Financial Solutions results were in line with expectations. In the Europe, Middle East and Africa region, the traditional results were largely in line with expectations with favorable other experience offset by modestly unfavorable claims experience. EMEA's Financial Solutions results reflected favorable longevity experience and strong growth in the segment. We continue to see high-quality opportunities and the longevity business remains an area of notable growth for us. Turning to our Asia Pacific region. Traditional had another good quarter, reflecting favorable underwriting margin and the benefit of ongoing growth. The segment performed very well this year, which is a reflection of our excellent competitive position and our execution of value-added solutions to clients. The Financial Solutions results were in line with expectations. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of [ $54 ] million, impacted by higher financing costs and general expenses. For 2026, we expect a corporate and other loss of approximately $50 million to $55 million per quarter. Moving to investments on Slides 12 through 14. The non-spread book yield, excluding variable investment income, was slightly higher than Q3, primarily due to new money rates in excess of portfolio yields. While the new money rate was lower in the quarter, primarily due to lower market yields and a lower allocation to private assets, it remains above our portfolio yield, providing a tailwind to our overall book yield. Total company variable investment income was above expectations by around $48 million, driven by higher limited partnership income. Overall, our portfolio quality remains high and credit impairments were in line with expectations for the year. Turning now to capital. Our excess capital ended the quarter at an estimated $2.7 billion, and our next 12 months deployable capital was an estimated $3.4 billion. It's important to note that we manage capital through multiple frameworks, including our internal economic capital, regulatory capital and rating agency capital. From a regulatory lens, we maintain ample levels of regulatory capital in the jurisdictions where we operate. Also, our strong ratings are important to our counterparty strength, and thus, we manage our rating agency capital to support those ratings. On a holistic basis, considering all capital frameworks, we remain very well capitalized. In the quarter, we successfully retroceded another block of U.S. PRT business to Ruby Re, and we are actively working on additional retrocessions. We still expect vehicle to be fully deployed by the middle of 2026, and third-party capital remains a key component of our capital management strategy. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 19, our book value per share, excluding AOCI and impacts from B36 embedded derivatives increased to $165.50, which represents a compounded annual growth rate of 10% since the beginning of 2021. To summarize, this was another great quarter to close a very successful and rewarding 2025. We continue to execute on our strategic objectives, and we are confident in our ability to deliver on our intermediate-term financial targets. Specifically, our adjusted operating EPS, excluding notable items, has grown at a compound annual growth rate of more than 10% since the beginning of 2023. And our adjusted operating ROE, excluding AOCI and notable items, has averaged around 15%, which is at the high end of the targeted range. With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions. Operator: [Operator Instructions] Our first question today is from Wes Carmichael with Wells Fargo. Wesley Carmichael: I wanted to start on capital allocation. So you had a strong deployment year in 2025 with Equitable and another $1 billion on top of that, bought back some stock. I guess my question is, a couple of quarters ago, you spoke to a 20% to 30% payout ratio in terms of buybacks and dividends. As you look at the opportunities in front of you and excess capital you have and will generate, is that 20% to 30% payout ratio still the right level? And what might change your view there? Axel Philippe Andre: Yes. Thanks for the question, Wes. Look, as we stated earlier, we reinstated share buybacks in the second half of 2025, and we repurchased $125 million of stock in 2025. We're taking a balanced approach to capital deployment. Maintaining financial flexibility is very important to us. We continue to see attractive opportunities to deploy capital into new business at strong risk-adjusted returns, which also aligns with our strategy and leverages our unique strengths but we also recognize the importance of returning capital to shareholders. We're targeting 20% to 30% total payout ratio going forward, but we also have the flexibility to be opportunistic as the year goes on. Wesley Carmichael: Okay. And my follow-up is if you continue to grow the asset-intensive business, and I think you may have had this question before, but curious if anything has changed in your mind. But would you be open to additional partnerships with asset managers or alternative asset managers? And I know you do a lot of this yourself in-house, but just wondering if you gain access to any additional capabilities or perhaps even some outside capital. Leslie Barbi: Wes, it's Leslie Barbi. Thanks for that question. You might be interested to know that we have been using external partners for decades, and we definitely continue to plan to do that. Really, when we look out in the market. We're constantly talking to potential partners. We want to make sure we don't miss any additive capabilities or expertise, anything that can add value for RGA and our shareholders. I think this flexible approach and our ability to partner is a real strength because what we're trying to do is really get the right capabilities and the right expertise into the total opportunity set. So to reinforce that, we're absolutely already using external partners, and we're very open to continuing to do that if it adds value for RGA. Operator: The next question is from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: I wanted to touch on Group Health first. Can you just let us know what rate actions you took in '26? And then Tony, I think you said you'll be exiting the business, I guess, after '26. What drove that decision? And any color on the overall size of the business that you're exiting and sort of what run rate earnings were expected to be? Axel Philippe Andre: Yes. Joel, this is Axel. We've taken significant actions to fully address the U.S. health care excess book. We raised rates by 40% on average, beginning mid-2025 through January 2026, which gives us confidence that 2026 would improve over 2025 results. As mentioned in the prepared remarks, following a strategic review, we have decided to stop writing new business effective immediately and also to not renew existing business at the end of the current 1-year term across our group health care lines of business. So for some context, the U.S. health care business has approximately $400 million of annual premium and generates approximately $25 million of pretax run rate earnings in a typical year. So this decision will have limited impact in 2026, will primarily emerge in 2027 results. We remain focused on best positioning RGA for the future by ensuring that we're deploying capital in businesses that are strategically aligned, and we also believe that the rate actions taken will result in significant improvement to the U.S. Healthcare results as the business winds down. Joel Hurwitz: Got it. Very helpful. There continues to be activity in the market and optimism from primary writers on further derisking of legacy blocks like long-term care and universal life with secondary guarantees. I know you've done a little in this space, but just wanted to get an update on your appetite for these types of businesses. Tony Cheng: Yes. Let me take that one. Thank you very much for the question. Look, we remain very selective and disciplined on ULSG and LTC long-term care risk. As you know, we have significant biometric risk capabilities, but we also keenly recognize the need for higher hurdle rates on these lines of businesses, especially within our public company balance sheet. Now it's important to note that all of our ULSG and LTC businesses have been priced with updated assumptions and has performed well over time. And then the final point is that our ULSG and LTC liabilities are less than 10% of our balance sheet today, and we expect it to remain this way going forward. Operator: The next question is from Jimmy Bhullar with JPMorgan. Jamminder Bhullar: I had a couple of questions. One was on the Equitable block. You're reinsuring 3/4 of the block, but your results -- there's not a long history, but the results this quarter were not correlated between the two companies because they basically had weaker mortality than normal, you guys had better. So I'm just wondering if you could just give us some color on what parts of the book you're not covering either by vintage or by type of product or any other factor? Axel Philippe Andre: Yes. Thanks for the question, Jimmy. This is Axel. Maybe let me start with the high level. The Equitable transaction, first of all, generated earnings consistent with our $60 million to $70 million guidance for the second half of 2025. We also continue to expect $160 million to $170 million of earnings from the transaction in 2026. Now there are four key drivers of economic upside for RGA relative to the original performance of this block. Number one, we repriced the business, which allowed us to reflect updated mortality and policyholder behavior experience. This means our reserving assumptions differ from Equitable's, and therefore, will produce different actual to expected mortality experience on the same block. Number two, we benefit from uplift from higher asset yields. We're repositioning the transferred assets into a higher-yielding environment and in a manner that is consistent with our overall portfolio asset allocation targets and ratings. Number three, we operate with lower expenses as we've absorbed the business into our existing infrastructure and did not bring over their expenses. Lastly, number four, we were able to benefit from capital efficiency given our legal entity structure. So also, please keep in mind that there are meaningful ongoing benefits to our strategic relationship with Equitable, including underwriting new flow reinsurance business and participation from AllianceBernstein in our sidecar strategy. Altogether, we remain confident that the Equitable transaction will generate strong risk-adjusted return for RGA. And then lastly, you're correct that our share of this business does not represent a 75% quota share of the entirety of Equitable's life business, but it is only a portion of that business. Jamminder Bhullar: And are you able to share what it is that you don't cover, whether it's older rate business, IUL, like anything in that regard? Axel Philippe Andre: So I'm not going to get into the specifics, but suffice it to say that, of course, we monitor very closely the claims reporting from Equitable and that the performance has been in line with our expectations. We would also note that Equitable on their call cited less reinsurance coverage on these particular claims that impacted them. Operator: The next question is from Suneet Kamath with Jefferies. Suneet Kamath: First question just on the capital deployment. If I look back to 2023, it looks like you've deployed about $5 billion of capital. And I guess the question is, if we think about the earnings power of that deployment, how much of that would you think is that sort of full earnings power? Like I know Equitable is not there yet, so that's $1.5 billion out of the $5 billion. But of the $3.5 billion left, are you getting your full expected returns at this point? Or is there still more in front of us? Axel Philippe Andre: Yes. Great. Thanks for the question. Well, it is an important question. Look, at a high level, we still view our 8% to 10% EPS growth target as a good intermediate-term target. As we've said before, we can achieve this with approximately $1.5 billion of capital deployed into in-force transactions, together with the ongoing growth of our traditional flow business and with a level of share repurchases consistent with our stated target total 20% to 30% payout ratio. So when thinking of recent capital deployment, in particular, the Equitable transaction, keep in mind that it occurred in the middle of 2025. So it did contribute to 2025 earnings with some further ramp-up expected in 2026. The 8% to 10% is an intermediate-term target. Higher levels of capital deployment may allow us to come in at the higher end of the range; however, over the intermediate term, we're comfortable with the 8% to 10%, which we have met and exceeded at times in recent years. Suneet Kamath: But should we think about the non-equitable business as sort of fully earning at this point? Or is there still more on that piece? I'm talking about the $3.5 billion of related deployment. Axel Philippe Andre: So like we've discussed before, on any capital deployment, there's a period of repositioning of the asset portfolio and as a result, a ramp-up in earnings. And our results reflect the blend of capital deployment and the trajectory of that earnings ramp-up. All of that is being factored into our intermediate-term EPS growth target. Operator: The next question is from Tom Gallagher with Evercore ISI. Thomas Gallagher: Just shifting gears to -- away from mortality to morbidity. The -- can you comment on both the Manulife long-term care risk transfer deal and your broader exposure to long-term care? How has that been performing if you just look at it on a 2025 basis? Is that in line? Is that in line with your ROE? Has that been a lot higher? Any clarity there? Jonathan Porter: Yes. Tom, this is Jonathan. We don't talk about experience at a block-by-block level. But what I can say is that we're very happy with our LTC business, and it has performed well over time. And as you know, we have focused on a subset of available LTC business that's available in the market that aligns with our risk appetite and return expectations. And we continue to manage our overall exposure to the product relative to the size of our balance sheet. So we expect this to continue to be our approach going forward. Thomas Gallagher: And Jonathan, would you say the performance of that -- any broad range ROE that that's been trending at? Jonathan Porter: No, Tom, we don't break down the performance at that level to discuss externally. But again, just to reiterate, we're very happy with the performance of that LTC business over time. Operator: The next question is from John Barnidge with Piper Sandler. John Barnidge: My first question, can you talk about your exposure in the investment portfolio to software-related companies and how you're thinking about disruption from AI within the portfolio? Leslie Barbi: Thanks, John. This is Leslie. So in terms of your first question on the software, we look closely at that exposure. I'll note that software lending is typically done against enterprise value or revenue. It's become more popular in the market, but we've not been a big participant in that. So when we drill down on our exposure within direct lending, it's very modest, less than 30 basis points of our total investment portfolio. So we're very comfortable with where we're positioned. In terms of AI, that's something among many other factors that we continue to look at across the portfolio, so analyst by analyst, and we discuss it in our portfolio management meetings. And like our approach to anything that's changing in the market, we look at trends that are coming, assess where they could impact. We make decisions where we need to and take actions at those times. And as we get more information because this will definitely be evolving. So we'll continue to do that and actively managing the portfolio. John Barnidge: And sticking with the portfolio, if I can. Leslie, you talked about using external partners for decades that have specialized capabilities. We saw a transaction earlier this year in January with cross ownership between alternative asset managers, which resembled the transaction from a number of years prior in some ways. And so curious about maybe the evolution in the relationships that you've already had for decades with kind of the new environment. Leslie Barbi: Okay. Thanks for that question. I'm not sure I was completely clear on what you were referring to, but let me just comment generally about our partnerships or use of external managers. So we certainly -- we look at what capabilities we want on the platform and then -- who is best suited to do that. So often, it's our strong internal teams. Other times, we want to use an outside partner that has different or more scaled expertise than we have. We've also engaged in partnerships where when we have a lot of alignment, it's win-win. We can see that our alignment, our culture, our needs are all going to align for a long time. We will engage in partnerships. And so we've done that a number of times in the past. There's a few smaller ones we've announced. There's aspects of larger ones you may have gleaned from some of our other transactions. But it's really engaging in this more wholesome approach and making sure all the value is considered. Operator: The next question is from Alex Scott with Barclays. Taylor Scott: First one is on, I guess, regulatory regime in Europe. And my understanding is Solvency II is going to have some changes that are beneficial to invest in things like alternatives and some of the privates that are out there, et cetera. Are you seeing any increased competition in pricing related to that? Do you anticipate that, that will happen at all? I'm just trying to understand how to think about those changes. Axel Philippe Andre: Yes. Look, let me start here and if Tony wants to add something. So we have multiple legal entities. We're a global company. We have presence in Europe, in APAC, in America, in Bermuda with multiple jurisdictions and regulatory regimes that we operate in. So we're obviously well aware of the benefits of the various regimes and the ability to pool risks and achieve efficiencies. And we're engaged with our regulators in terms of monitoring the evolution of the regulatory regimes. We've been active in EMEA for a long time with our longevity business, with our asset-intensive business and our traditional business. Tony Cheng: Yes. And Alex, let me add to it. And Axel absolutely alluded to it at the end. In EMEA, the large majority of our profits in our business is longevity swaps, which have no asset risk and really rely on, gosh, I guess, 52 years of phenomenal experience in mortality and longevity. So really, the change you're sharing has less of an impact, obviously, to that business. What I would add is we obviously are very focused on blocks of business that have both asset and biometric risk in it. It leverages off one of our strongest strengths, which is able -- ability to reinsure both sides of the balance sheet. So even for the plain vanilla types of blocks, it really is not in our sweet spot. And there's a lot of opportunities around the world we can pursue that have both the asset and biometric risk, which is where we focus. Taylor Scott: Yes. Understood. Yes, I was thinking more along the lines of your biggest competitors being the multiline reinsurers. I think they generally manage the Solvency II. So even outside of EMEA, one could theoretically think that those companies may be able to get more aggressive on pricing. But it sounds like you're not seeing that at all right now, at least, right? Tony Cheng: Yes. Look, I confirm we -- that has not bubbled up to the surface of being even a threat or risk going forward. Operator: The next question is from Mike Ward with UBS. Michael Ward: Kind of a good segue there. Just wondering, Tony, if you could elaborate on any specific regions or product lines that you think might be looking incrementally attractive this year so far? Tony Cheng: Yes. Thanks, Mike. Maybe I'll just go around the regions around the horn and talk a bit about our pipeline and answer your question there. Look, I'd say our pipeline is both rich and diverse. And as you know, we always focus on the quality of the pipeline as much as the quantity of business opportunities. So firstly, in Asia, we continue to see a strong pipeline, both in the product development area as we continue to serve the emerging middle class as well as the financial solutions as clients adjust to the new capital frameworks in markets like Japan and Korea. I've already mentioned the U.K. longevity market that continues to be strong as a market, and we continue to be the market leader, and that momentum continues into 2026. And then in the U.S., we continue to benefit, obviously, from the industry realignment as we saw with the Equitable deal. But let me -- it's really important to note that there are many more modest sized wins due to our biometric and underwriting strength that collectively are very meaningful in terms of returns and positioning us strategically in the future. So all in all, the pipeline is rich and diverse. It's across the board. And as a result, that's one of the reasons why we're so optimistic about delivering attractive returns from the business. Michael Ward: Great. And then just in the U.S. on traditional kind of mortality, pretty solid result, I think, considering the severe flu season. Just wondering if you have any insight if it's ticked up in January at all? Just wondering if you have any view there. Jonathan Porter: Yes. Mike, this is Jonathan. It's still too early to predict the final outcome of the current flu season, but the latest declining trends in population level flu activity in the U.S., Canada and the U.K. are encouraging. So influenza hospitalizations look to a peak at year-end, and that peak was at the higher end of a normal flu season range. But since that time, those hospitalization rates are down substantially. This year, the Northern Hemisphere flu season is driven by influenza A, and there's no evidence at this point of increased virulence compared to other seasonal strains. And when we look at our Q4 results, we didn't see any material evidence of seasonality in that experience. And as we noted in the prepared remarks, our mortality experience was in line overall. Operator: The next question is a follow-up from Tom Gallagher with Evercore ISI. Thomas Gallagher: Axel, I just wanted to make sure I understand all the components of earnings. I followed everything you said in terms of the 8% to 10% intermediate-term EPS growth expectation. And it sounded to me because of the $1.5 billion of capital you expect to deploy into in-force deals in 2026 that you, all things equal, should be running at that 8% to 10% intermediate-term growth rate in 2026 would be my best guess. But I guess, based on how you're thinking about things for '26, are there any other adjustments you would make to that? The two that I could think of would be your alt return assumption is a little better, so that could provide upside. And then to the extent that you do any more in-force transactions, I don't think you've included those, but any further color you could give? Axel Philippe Andre: Yes. Tom, thanks for the question. So I would point you to Slide 9 in the deck, where we show our key assumptions, right, for 2026. Number one, we, of course, are assuming much improved U.S. group experience, which was the largest contributor to the unfavorable biometric experience in 2025. Number two, we are assuming a smaller contribution from in-force management actions since it has had outsized positive impact in recent years. And lastly, we are also assuming a variable investment income return of 7% for 2026. So the key takeaway is that we view $24.75 as a reasonable starting point for 2025 run rate EPS. And we are reiterating our intermediate-term 8% to 10% EPS growth target, which, as you said, assumes approximately $1.5 billion of annual capital deployed into in-force transactions. That applies to the intermediate term. We don't comment specifically on the year-by-year forecast. Thomas Gallagher: And Axel, sorry, just to follow up. The baseline, the $24.75, does that have any of the in-force management rate actions in it? Axel Philippe Andre: Yes. Look, I appreciate the question. So like I said, right, it's important to remember, we manage the in-force business, and it's a core part of our strategy. It will continue to be. We take a partnership and holistic approach to these situations, balancing the client relationship with our long-term business. We feel this approach is a means of differentiation, leading to other business opportunities. We've had very good success over the past 3 years. I'll remind you, we've generated approximately $425 million of cumulative pretax income and significant long-term future value. Like we said, in-force actions are unpredictable in terms of size and timing. Looking towards 2026, we feel there's less opportunity compared to recent periods. And thus, we expect a more limited impact on earnings going forward. So like I said, as a reminder, the $24.75 of 2025 run rate earnings implied from Slide 9 removed all in-force actions from 2025 results. Therefore, actual in-force actions in 2026 could provide upside to these targets. Operator: The next question is a follow-up from Alex Scott with Barclays. Taylor Scott: I wanted to ask on Japan, just around the macro volatility associated with interest rates and FX. Does that have any impact on your business? And I guess, connected to that, does it create new opportunities or reduce the opportunity set? How should I think about how it affects in-force and go-forward deployment there? Tony Cheng: Yes. Thanks, Alex, for the question. It's Tony here. Look, as you shared, look, Japan has strong tailwinds from the recent regulatory changes and like you mentioned, the macroeconomic changes and clients are taking actions to address balance sheets which results in considerable opportunities for risk transfer in RGA. And we are incredibly well positioned with our strong local presence, obviously, our trusted client relationships and our world-class expertise on both sides of the balance sheet. And this is why it's one of our key markets. Now the impacts you've referred to, look, when we look at the competition that's entered the Japanese market, many of which are alternative asset managers, they've had some success in the more vanilla asset-intensive business. But let me reiterate, our focus is on the sweet spot, which are transactions, which have both asset and biometric risks and leveraging off that key strength. So we remain very optimistic about our position in Japan and the ongoing momentum in the market overall and RGA winning a very good share of that. Jonathan Porter: Yes. And Alex, this is Jonathan. Maybe just on the in-force part of your question. So just as an overarching comment, higher interest rates are good for us from an overall earnings perspective, given our positive reinvestment cash flows and illiquid liability profile. With regards to the Japanese asset-intensive business, our exposure to disintermediation risk from higher rates is modest, and we wouldn't expect to be -- have a significant impact at the current rate levels. And then specifically, on blocks -- on our older blocks of in-force business, we have high minimum guaranteed interest rates and they're protection-oriented, making them less likely to have higher lapses. And on our newer vintage products, we have protections from surrender charges and market value adjustments. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks. Tony Cheng: Thank you for your continued interest in RGA. We've had a great quarter to cap off a great year, and we look forward to continuing to deliver in the future. This ends our Q4 conference call. Thank you. Operator: The conference has now concluded. Thank you for attending today's call. You may now disconnect.
Nancy Llovera: Good morning, and welcome to Axtel's Fourth Quarter 2025 Earnings Webcast. My name is Nancy Llovera, Axtel's Investor Relations and Corporate Finance Manager. And today, I am joined by Armando de la Pena, Chief Executive Officer; and Adrian de los Santos, Chief Financial Officer. Financial information for both Axtel and Controlado Axtel, including the unaudited fourth quarter report, is available on our corporate website. We will begin today's session with an overview of our business performance followed by a Q&A segment. For your convenience, this webcast is being recorded and will be available on our website. Before we begin, please note that today's discussion may include forward-looking statements. These statements reflect management's current views and expectations and are subject to risks and uncertainties that could cause actual results to differ. Axtel assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will now hand the presentation over to Armando. Armando de Pena: Thank you, Nancy, and thank you all for joining us today. I wish you well this year. Before reviewing our financial results, I would like to comment about fourth quarter and full year performance as well as opportunities we see for our business. Results in the fourth quarter capped a year in which we generated the highest annual operating cash flow in our history. Fourth quarter performance faced a tough comparison versus a strong fourth quarter 2024, particularly in EBITDA. A 14% increase in Government segment revenues helped offset marginal declines in the Enterprise and Wholesale segments. For the full year, we increased revenues, EBITDA and generated $80 million in cash flow. Even excluding the extraordinary first quarter cash flow related to the execution of the conclusive agreement with a major mobile customer, cash flow still improved more than 20% year-over-year, demonstrating our commitment to financial discipline and shareholder value creation. The year presented challenges in closing new projects as customers remain cautious amid economic uncertainty. Although we expanded the Enterprise segment opportunities pipeline by 24%. New contract acquisitions remained similar to 2024 levels. Services such as cybersecurity were particularly affected by slower adoption of new offerings and upgrades by clients. Overall, customers' technology and telecommunication investments were focused mainly on cost optimization rather than capacity expansion or modernization. Mixed performance across the enterprise segment business lines resulted in 3% growth, moderating from a stronger growth achieved in 2024. Mobile services delivered a robust moment with revenues expanding by over 50%. And IT services posted a solid growth of 13%. These gains were particularly partially offset by a more modest growth of 1% in the telecom services and a decline in cybersecurity revenues. Notably, the 1% growth in telecom services significantly outperformed overall industry trends, highlighting the resilience of the core business despite a challenging market environment. The decline in cybersecurity revenues reflects a difficult comparison to the extraordinary performance achieved in 2024 as well as a softer demand conditions across the industry. The Government segment delivered a solid fourth quarter following a year with limited new public acquisitions and auction opportunities, which were mostly restricted to renewal of ongoing services. Performance for the year was well balanced with recurring revenues growing at 22% and onetime revenues increasing 24%. During the year, we continued the implementation of the new platform for the digitalization of our international trade documentation in Mexico, contributing to the growth of our recurring revenue. This initiative is particularly meaningful as it emphasized Axtel growth in advancing the digital transformation of international trade in Mexico and reinforces our commitment to delivering innovative high-value solutions. The Wholesale segment had a very positive year with revenues growing close to 20%, supported by a contract with a major hyperscaler customer. Our new Querétaro Texas fiber optic route deployed in 2025 is expected to continue generating opportunities for infrastructure and capacity sales, capitalizing on the next-generation low latency network with more than 5x the capacity of competing routes. Axtel announced a collaboration agreement with McAllen Data Center, MDC, to strengthen digital interconnection along the Mexico United States border through the integration of MDC Center 2 as Axtel's new primary point of presence in Texas. This alliance represents a significant step in meeting the growing demand from operators, enterprises and digital platforms requiring greater density, neutrality and stability in the cross-border connectivity. As part of our artificial intelligence strategy, Axtel established a strategic alliance with SimplyAsk, a Canadian company specialized in AI-driven automated solutions. This partnership adds virtual assistance and intelligent agents into the iAlestra's portfolio, solutions characterized by rapid flexible deployment and immediate results. Organization effectiveness remains a key factor in our artificial intelligence and business agenda, require the mix of talent, experience and diversity of perspectives. General diversity has been a strategic priority for many years, and it's embedded in certain trade agreements. In 2025, women represented more than 25% of the workforce with strong representation at senior leadership positions. Looking ahead, the 2026, the organization will evolve following the planned retirement of 2 executive directors. As part of this transition, the enterprise and government commercial organization will be consolidated after a single executive leader. And all artificial intelligence initiatives will be centralized within one team under the executive leadership of commercial development. We remain committed to maintaining an agile and efficient organizational structure aligned with evolving needs of the business in 2026 and beyond. In 2025, we strengthened our infrastructure to capitalize on the increased demand of AI-driven data transport between the United States and Mexico. We also diversified our U.S.-Mexico connectivity portfolio by linking our Cancún network to Trans American Fiber TAM-1, submarine cable, providing an alternative route to the U.S. East Coast and Central and South America. Likewise, our new generation Querétaro Texas route is expected to bring meaningful business opportunities in the years ahead. In 2026, we aim to continue outperforming industry growth by focusing on cross-sell and upsell opportunities, particularly with our top accounts. In the Government segment, we will pursue multiyear projects to expand our base of recurring revenue. For Axnet, we will enhance connectivity toward the U.S. and promote high-capacity services, particularly wavelengths, driven by hyperscaler data centers and artificial intelligence. We will maintain our financial discipline, increase cash flow generation and continue building stronger business and financial platform in the best interest of our shareholders and all stakeholders. I will now turn the call over to Adrian for additional remarks and discuss Axtel's financial results. Adrian de los Santos Escobedo: Thank you, Armando, Nancy, and good morning to all participants. Last year, we prepaid $55 million of our syndicated bank loan using cash generated from operations. In addition, we refinanced nearly $90 million more through a new 10-year loan with Bancomext, shifting our debt profile to 60%, 40% pesos and dollars, respectively. Our goal is to align our debt currency mix with that of our revenues. In 2025, we generated approximately 20% of our revenues in dollars, which are generated in both pesos and dollar. Notwithstanding the higher proportion in peso-denominated debt, which carries a higher interest rate, we estimate $45 million in interest expenses for 2026, a $5 million reduction compared to last year, resulting from the debt prepayments achieved in 2025 and the more favorable interest rates environment expected for 2026. During the fourth quarter, Fitch Ratings upgraded the company's credit rating from BB- to BB with a stable outlook. This reflects expectations of continued delevering and solid cash flow generation. We will maintain active engagement with both rating agencies to ensure that their assessments accurately reflect Axtel's strong operating and financial performance. For 2026, we expect ongoing economic uncertainty and anticipate that clients will remain cautious in their technology and telecommunications investment decisions. We're continuing to advance the development of artificial intelligence-based solutions supporting clients who are primarily focused on optimizing their operations. Internally, we will concentrate resources on the business lines with the strongest demand and maintain strict discipline in our spending and investment decision. Under this scenario, we estimate revenues of MXN 12,850 million and comparable EBITDA of MXN 3,800 million. We expect capital expenditures of approximately $83 million and cash flow generation of more than $60 million. Based on these estimates, our net debt-to-EBITDA ratio should reach approximately 2x by year-end. For budgeting purposes, we are using an average exchange rate of MXN 18.65 per dollar. I will now move on to review our financial results for the fourth quarter and full year. Fourth quarter revenues decreased 1% year-over-year, while full year 2025 revenues increased 7%, reflecting solid performance across all 3 business segments. Enterprise revenues declined 3% in the quarter, mainly due to a 10% contraction in IT and cybersecurity services following extraordinary licensing and equipment sales recorded in the prior year. Within IT, hosting and systems integration revenues grew 30%. Telecom revenues were stable year-over-year as solid performance in managed networks and mobile services revenues offset the expected decline in collaboration services. For the full year, enterprise revenues increased 2%, supported by 6% growth in IT and cybersecurity solutions and a 2% increase in telecom services, driven by strong results in connectivity, managing networks and mobility, exceeding telecom industry performance. Voice revenue declined 6%, representing 7% of this segment revenues. Government revenues grew 14% in the fourth quarter, driven by a 59% in recurring revenues. Full year revenues increased 22%, supported by a similar increase in recurring revenues, reflecting the company's successful strategy to renew 99% of expiring contracts and expand service penetration among existing federal customers. Revenue mix consisted of 70% federal and 30% state and local entities. Wholesale infrastructure revenues decreased 5% in the quarter, primarily due to a lower volume of upfront high-capacity contracts in this period. However, for the full year, revenues increased 19%, driven by strong demand from high-capacity contracts due to AI-related data transport and increased data center connectivity. Even excluding extraordinary revenues from the conclusion of our workout agreement with a mobile customer in the first quarter, revenues will have registered double-digit growth in the year. Fourth quarter cost of revenues, excluding depreciation and amortization, decreased 5%, resulting in a contribution margin improvement to 66% compared to 65% a year ago. Enterprise segment costs declined 9%, reflecting stronger margins in IT and cybersecurity services. Government segment costs increased by 2% with margin expansion supported by greater proportion of recurring revenue. Wholesale segment costs increased 5%, reflecting lower margins in the quarter. For the full year, cost of revenues increased 5% with lower enterprise costs offset by higher government and wholesale costs, probably aligned with the revenue trends. Contribution margin remained stable at 71%. Commercial and operating expenses are allocated to the 3 business segments, while corporate expenses remain centralized. Commercial and operating expenses increased 35% in the quarter and 11% for the full year, mainly due to the extraordinary bad debt provision benefit recorded in the Wholesale segment during the fourth quarter of 2024, creating an unfavorable comparison base. General corporate expenses increased in the quarter and for the full year, driven by higher personnel expenses. Higher personnel expenses were influenced by labor legislation changes and an extraordinary pension provision benefit recorded in 2024. Excluding these effects, company-wide personnel expenses will have increased 6% in the year. EBITDA reached MXN 833 million in the quarter, a 30% decline compared to fourth quarter 2024, reflecting lower contribution from the business segments and higher corporate expenses. For the full year, EBITDA increased 3%, supported by contributions across all 3 business segments affected by higher general corporate expense. EBITDA margin stood at 31% for the year. CapEx totaled $86 million, equivalent to 13% of total revenues compared to $72 million in 2024, equivalent to 11% of revenues. The increase mainly reflects an extraordinary investment related to the new Querétaro-McAllen fiber optic deployment and the renewal of a 15-year fiber optic lease ensuring the long-term resiliency and competitiveness of our network infrastructure. Cash balance at year-end reached $73 million compared to $39 million at the beginning of the quarter. Fourth quarter cash flow was positive $40 million and full year cash flow was positive $80 million, resulting from $196 million in EBITDA, $20 million in positive working capital, $86 million in CapEx and $49 million in interest expense. Additionally, we recorded $71 million debt reduction in the year. Year-end net debt stood at $456 million with a net debt-to-EBITDA ratio of 2.3x compared to 2.5x a year ago. And with this, we conclude the presentation and open the call for questions concerning both Axtel and Controladora Axtel. Nancy Llovera: [Operator Instructions] Our first question comes from [ Miriam Toto ]. Unknown Analyst: Can you hear me? Nancy Llovera: Yes. Armando de Pena: Yes. Andres Coello: Okay. Sorry, this is Andres Coello with Scotia. I think you are projecting very little revenue growth for this year. It seems like a conservative projection. And I'm wondering if that is a direct response to weak economic conditions. So I'm wondering if you can just discuss a little bit what you're seeing in terms of corporates willing to adopt IT solutions and how the economy may be affecting your outlook for this year? Adrian de los Santos Escobedo: Thank you for your question, Andres. In summary, I could say that the corporate clients are taking longer to make decisions. They used to take decisions in a month or 2 months or so or a certain period and now that has doubled sometimes and in cases even delay until further notice. Particularly, as you said, at least in our case, in services or solutions that require evolution, require to upgrade but not necessarily inflicting any pain today. So increasing capacity, if the network is saturated, that's not delayed at this -- or that's not being delayed what we saw last year but operates in cybersecurity, for example, that's taking longer for corporate clients to make decisions. So yes, definitely, there is a more conservative approach. Clients are coming more with the request of how can we help them optimize their operations. We're not seeing significant expansion in new retail, new branches of banks, new locations, which obviously more locations, more presence means more services for our industry. So that's more or less what we're seeing in the economy. We're not seeing a market, an industry that's stagnant. It's just a slow business environment that has been prevailing since last year. Andres Coello: Okay, Adrian. And regarding the Infrastructure division, do you see the possibility of any other major projects for perhaps telephone companies or also the big data consumers or AI-related projects, et cetera. How do you see the Infrastructure division? Armando de Pena: I will take that one, Adrian. Thank you. Our current new fiber from Querétaro-McAllen, is the only one with a new technology and all the new requirements in order to communicate the data centers of Texas with Mexico mainly. So that brings us an excellent opportunity to capitalize, as you were asking. We are very active with customers that could rely on this connectivity. So we do see opportunities on that as well as the alliance, the commercial alliance that we did with Trans American fiber for the East Coast of the U.S. and South America. So we are in a much better position for hyperscalers and big carriers, and that's mainly explained with the increase in CapEx because we are investing in the future demands, as you said, of AI and data center. So yes, we do see opportunities. But this opportunity sometimes take months to [Foreign Language]. Adrian de los Santos Escobedo: To crystalize. Armando de Pena: Sorry, to crystalize. So we do see for the second semester that we could achieve some opportunities there. Nancy Llovera: Our next question comes from Emilio Fuentes. Emilio Fuentes: And I was wondering what is your take on the competitive environment in the Enterprise segment. And in that context, what are Axtel's competitive advantages given the increase in importance it has gained also for the other large integrated players? Adrian de los Santos Escobedo: Could you repeat the second part of your question, please, Emilio? Emilio Fuentes: Yes, that competitive environment and Axtel's competitive advantages and given how this sector has gained relevance for other large integrated players in the country. Adrian de los Santos Escobedo: Yes, sure. The competitive advantage has been tough. Always there is -- there is a participant that holds a significant market share. But nonetheless, we've been able to compete since the inception of Alestra and Axtel. Today, what we see is customers are looking for reliable partners, are looking for post service interaction. We have seen clients that might go away and come back sometime later because price was maybe an attractive decision maker, but both service was not necessarily what they were expecting. So what I can say is we're dedicated B2B company. Second, we have an extensive network that provides the foundation for all the connectivity or database solutions that it's the base layer on which we add services like cloud, IT, managed services, obviously, cybersecurity. So we leverage our infrastructure to continue adding solutions and services that have more attractive or have greater growth opportunities. We, obviously, over the so many years that we have been in operations, we have maintained a large number of certified engineers that when you're dealing with major brands in our industry, you need these certifications in order to deploy, to install and to maintain services. So we have that environment in Axtel that, obviously, we think we are a very attractive competitor in the industry, and we've been maintaining that position for a while. I don't know if that answers your question, Emilio. Emilio Fuentes: Yes. Nancy Llovera: We have another question from the Q&A function. What are your refinancing plans and timing for that? Adrian de los Santos Escobedo: Thanks, Nancy. We started this refinancing process last year, first of all, by reducing debt that's the most efficient way to refinance debt. And on top of that, we were able to secure as informed a 10-year loan in pesos that shift the percentage of our debt in higher proportion in pesos now. And this year, we will expect to conclude the last piece of the refinancing where we would take out all maturities that come due in 2027 and 2028. We expect to do that this year. Hopefully, we can be able to execute before the end of the third quarter. Nancy Llovera: Thank you, Adrian. There are no further questions at this time. Thank you all for your interest in Axtel and for joining us today. If you require any additional information, please feel free to reach out. Have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to the ARC Resources Limited Q4 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, February 6, 2026. At this time, I would like to turn the conference over to Dale Lewko. Please go ahead, sir. Dale Lewko: Thank you, operator. Good morning, everyone, and thank you for joining us for our fourth quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer; Kris Bibby, Chief Financial Officer; and Ryan Berrett, Senior Vice President, Marketing. Before I turn it over to Terry and Kris to take you through our fourth quarter results and 2025 reserves, I'll remind everyone that this conference call includes forward-looking statements and non-GAAP measures with the associated risks outlined in the earnings release and our MD&A. All dollar amounts discussed today are in Canadian dollars unless otherwise stated. Finally, the press release, financial statements and MD&A are available on our website as well as SEDAR. Following our prepared remarks, we'll open the line to questions. With that, I'll turn it over to our President and CEO, Terry Anderson. Terry, please go ahead. Terry Anderson: Good morning, everyone, and thank you for joining us today. This morning, I'll speak to our fourth quarter results, 2025 reserves and provide an update on our plans for 2026. After that, I'll hand it over to Kris to discuss our financial results. Before I dive into the quarter, I want to take a moment to recognize our team's exceptional safety performance with 2025 coming in as one of the strongest in our history. As you've heard me say before, safety is our #1 priority. Our people did an incredible job outperforming all of our key safety metrics, which is notable given the high levels of activity and degree of complexity we worked through this year. On behalf of our leadership team, thank you to our employees and contractors for your ongoing commitment to safety. Fourth quarter results were exceptional. We delivered operational and financial results above expectations. Production in the fourth quarter was a record 408,000 BOE per day, representing 7% growth year-over-year and 10% on a per share basis. Condensate and oil production was very strong in the quarter at 119,000 barrels per day. Kakwa was supported by strong well performance and the acquisition in July. In Q4, Kakwa production of 215,000 BOE per day was up 10,000 BOE per day quarter-over-quarter and included record high condensate production. With natural gas prices strengthening towards the end of the year, we restored production at Sunrise that was previously curtailed. In combination with our low-cost transport to U.S. markets, ARC realized a natural gas price of $3.77 per Mcf, which was nearly $1.50 per Mcf above AECO. In 2025, we curtailed nearly 400 million cubic feet a day of natural gas at Sunrise during periods when natural gas prices were low. This highlights our disciplined approach of focusing on profitability over BOEs, allowing us to defer roughly $50 million of capital while preserving resource. As we look ahead, AECO prices are constructive. We have commenced deliveries to the LNG Canada project through our agreement with Shell. This is an important project and one of several future LNG developments in Canada that will represent a meaningful increase in natural gas demand and bolster long-term profitability. In addition, we are approximately 1 year away from shipping a portion of our natural gas to international markets through our LNG supply agreements, which will add exposure to global LNG prices. Moving on to Attachie. We completed our first year of operations since commissioning the asset in late 2024. Production in the fourth quarter averaged 28,000 BOE per day and included approximately 13,000 barrels per day of condensate. At over 360 net sections, Attachie is a large condensate-rich asset in its early stages of development. Our main goal was to prove up and deliver predictable results in the Upper Montney and second, to assess the Lower Montney potential. Attachie well performance varied over the past year. We've had some really strong wells and some weaker ones. While current production is 30,000 BOE per day with 14,000 barrels per day of condensate, early results from our most recent Upper Montney pads in late 2025 and early 2026 are not meeting our expectations. Therefore, we've chosen to adjust our development schedule to allow our technical teams more time to analyze the results. This will allow us to determine the optimal development plan moving forward. In terms of the Lower Montney, with our first trial pad just about to come on stream, it is still too early to assess the opportunity here. ARC will continue to take a disciplined approach towards allocating capital at Attachie to maximize asset learnings. This will lay the foundation for future development activity focusing on long-term profitability over BOEs. Attachie remains a high-quality development opportunity, and we remain confident in its long-term resource potential. Today, we are working on just 10% of the 360 net sections we've accumulated in the area. It's an important asset for us, and we will take the time to ensure we get it right. And while we do, we'll lean on the strength of our base business, which provides decades of high-quality development opportunities. In terms of guidance, 2026 corporate production guidance remains unchanged at 405,000 to 420,000 BOE per day and capital stays at $1.8 billion to $1.9 billion. With the adjustments we are making at Attachie, capital activities and timing may shift across our asset base throughout the year. Our primary focus is to maximize our learnings from this asset and improve capital efficiency. We will remain nimble as our learnings evolve, so too will our plan. Finally, before I turn it over to Kris, I'd like to speak briefly to our reserves. There are a couple of things I'd like to highlight this year. First, reserves were a record across all 3 categories, increasing by 15% on a PDP basis and about 10% on a proved plus probable basis. And second, we reported a before-tax NPV of 2P reserves of $39 per share, which is based on roughly 1/4 of our internally identified inventory. This highlights both the value embedded in our business and the inventory runway to continue to grow reserves in the future. So to sum up 2025, we advanced our strategic priorities by profitably growing our business on a per share basis. Notable achievements include: first, we delivered record average annual production of 374,000 BOE per day, which increased our profitability and improved our per share metrics. Production and reserves per share increased by approximately 10%, while free cash flow per share doubled to $2.20 per share. This allowed us to sustainably grow our dividend for the fifth consecutive year, increasing it by 11%. And second, we executed 2 strategic opportunities that will improve long-term profitability. First, we consolidated Montney Resource countercyclically, directly adjacent to our existing assets at Kakwa. And second, we added 36 sections of land at Attachie through a unique agreement with TDZE, further extending the asset duration. With that, I'll turn it over to Kris. Kristen Bibby: Thanks, Terry, and good morning, everyone. Fourth quarter itself was ahead of expectations. Production of 408,000 BOEs a day was 4% of forecast, while funds from operations of $874 million was 11% above. Fourth quarter production was a record despite the curtailment of natural gas production at Sunrise due to low Western Canadian gas prices. Volume gains were mainly driven by Kakwa through organic production growth and the acquisition that closed in July. Full year production was at the top end of guidance and was a record in terms of both natural gas and condensate production. Free cash flow was $415 million for the quarter, which represents a 47% increase compared to the third quarter and is 40% above analyst expectations. Full year 2025 free funds flow totaled $1.3 billion and was roughly double the free funds flow we generated in 2024. In terms of capital returns, ARC returned 75% of free funds flow to shareholders during the year. We repurchased just under 20 million common shares for $514 million and declared dividends of $452 million. The remainder was used to reduce debt and maintain our financial strength. ARC exited the year with roughly $2.9 billion of net debt, approximately 0.9x 2025 cash flow, which was a decrease of approximately $200 million compared to the prior quarter. Balance sheet is strong. We plan to continue to return essentially all free funds flow to shareholders in 2026. ARC invested roughly $460 million in the fourth quarter for a total of $1.9 billion of capital expenditures for the year, which is within company guidance. Full year operating expenses per BOE was within company guidance, while transportation expense per BOE was at the low end of our guidance range. Looking ahead, our 2026 guidance remains unchanged despite the changes we are making at Attachie. Our priorities are to sustain corporate production between 405,000 and 420,000 BOEs per day, investing between $1.8 billion and $1.9 billion. As Terry mentioned, asset level allocations for production and capital may shift over the course of the year as we work through what our next steps at Attachie look like. In our current price environment, we expect to generate approximately $1.2 billion of free funds flow this year, highlighting the profitability of our business under a low commodity price environment. Once again, we plan to return essentially all free cash flow to shareholders through a combination of a growing base dividend and share buybacks. With that, I'll pass it back to Terry for closing remarks, and then we'll open up for questions. Terry Anderson: Thanks, Kris. As we enter into our 30th year of business, I am confident in what lies ahead. This year, annual average production is set to surpass the 400,000 BOE per day mark. And at current strip prices, we expect to generate approximately $1.2 billion in free cash flow. We're also about a year away from shipping first volumes of natural gas to international markets via the Gulf Coast, marking a significant milestone in ARC's natural gas diversification strategy. The competitive strengths we've developed over the past few decades will serve us well as we work through Attachie and continue to execute our strategy moving forward. We have amassed a large inventory in a world-class asset in the Montney resource play and have a strong technical team to develop it. Owning our infrastructure and securing long-term takeaway capacity should allow us to consistently achieve above-average returns and maintain high margins as we grow our business. We will remain committed to our core principles of risk management and capital discipline, which are central to delivering on our strategy and providing sustainable value to our shareholders. We appreciate the support from our shareholders in making prudent decisions today that support our long-term focus on profitability. Thank you. With that, I'll open the line up for questions. Operator: [Operator Instructions] first will be Michael Harvey at RBC Capital Markets. Michael Harvey: Yes, sure. So a couple of questions for me. First, if you were to reallocate some of the capital from Attachie this year to other properties, which I think was around $250 million or so. Maybe just give us a sense for where you would allocate that to? And just kind of remind us how you're thinking about the other growth properties just because Attachie has been a focus for a while. And then second, you're at the low end of your debt target range. Would you consider taking on some incremental debt or just cutting CapEx to buy back more stock? Just kind of trying to get a sense for how aggressive you could be with the buyback at these levels. Terry Anderson: Thanks, Michael. It's Terry here. So yes, as for where we reallocate that capital, the teams are working on that right now. We think there's opportunities probably in Kakwa and we see other good potential there, especially in relation to with what we acquired last year, and the teams have been looking at that already. There's still going to be -- we're still looking at if there's opportunity within Attachie, that time, depending on the results that we see going forward here on some of the wells that are coming on here, there still will be opportunities to spend dollars in Attachie, too. But the Kakwa is probably one of the spots. The teams are still working on some of those details. Kristen Bibby: And Mike, I'll jump in on the balance sheet. So balance sheet is where we want it. So what that means is it's unlikely we would put permanent capital towards the buyback. But what you have seen us do in the past is we certainly have the flexibility to steal from the latter part of the year and use that free cash flow earlier on to do the buyback. We've taken a pretty conservative approach here over the last while. So we'll see how things go, but certainly, you can expect us to be in the market. Operator: Next question is from Sam Burwell at Jefferies. George Burwell: Just curious if you could add any color on just the nature of the underperformance and inconsistency from the latest Attachie wells. I mean, did these incorporate any new techniques that ultimately didn't pan out? And are there any learnings to date that you can share from this batch of wells? Or is it really still too early to call? Terry Anderson: Yes, there's nothing -- it's Terry here. There's nothing significant that we changed on the completion design here. And it is really too early. Like we're talking in the Upper Montney, most recent Upper Montney pad has only been on production here for 5, 6 weeks. So we need time for this to truly clean up. And so that's what we're looking for is just time to truly evaluate it. And the whole point of that is to make sure that before we spend more capital, we've got the information from this pad. That's why we're making the change to slow down. Typically, we'd be drilling and completing next pads already while we're waiting for results. We're not doing that. We're making sure that we're making the best decisions based on the information, and now we need to wait for that information first to make the best decisions going forward here on capital activity. George Burwell: Okay. Understood. And then shifting over to Kakwa, looks very solid in 4Q. And I think the tuck-in acquisition makes a lot of sense. But I mean, any way to quantify what the bolt-on does for inventory depth? And are there any levers you can pull to either run Kakwa at a higher production rate or extends the inventory life further? Ryan Berrett: Yes. This is Ryan. I think when you think about that, obviously, this is just consistent with our strategy of bolting on contiguous acreage where we can. So teams are looking at that right now and evaluating and that will be incorporated into our development plan going forward. Operator: Next question from Patrick O'Rourke at ATB Capital Markets. Patrick O'Rourke: Just going back to Attachie and sort of the learnings you're doing here, 3-12 pad. It sounds like you don't -- you sort of want a little bit more time there. But just wondering going forward in terms of the development, it's been a pretty tight development sort of scheme that you've used to date. Any thought to a program here that spreads the wells out a little bit more going forward? Terry Anderson: Patrick, it's Terry. The short answer is yes. I think that's the things that we are looking at here. We want to get the learnings where we're at. Like I said earlier, like we're on just the first 10% of 360 sections. So the whole point here is slow things down and start looking at the opportunities on the whole asset base. So that might be an option that we would be looking at here and extending out further from where we're at, at the moment. So yes, that is one of the things that we're looking at. Patrick O'Rourke: Okay. Great. And then just thinking about the reserve report and reserve performance here, positive technical revisions. Can you sort of give us any color? I know you're lightly booked at Attachie, how reserve evaluators approach that? And then at Kakwa, where you've had some outstanding performance, sort of what level of inventory is formally booked in the reserve report today? Kristen Bibby: Patrick, it's Kris here. We don't disclose asset level reserve stuff. What I can say is there was minor adjustments made at the Attachie level. And then obviously, at Kakwa, the main change was the booking of the acquisition that we closed in July was the main change, but good strong corporate reserve performance across all categories, obviously. Operator: Next question will be from Aaron Bilkoski at TD Cowen. Aaron Bilkoski: Terry, as you alluded to, the latest pad had only been on for 5 or 6 weeks. Can you talk a little bit about what you saw or didn't see at that most recent pad or maybe the most recent pads that prompted you to pull the asset-specific guide? Terry Anderson: Well, it's extremely early, I guess, from the perspective that we haven't cleaned up the wells yet. And I guess from that perspective, we were expecting a little more hydrocarbon. And right now, we're seeing it, but we're not seeing to the degree that we want. But we realize also we are so early on this. So it's too soon to actually make that call, but it's not too soon to say, well, we want to wait to see the results so that we can efficiently spend capital on the next pads. So really, there's not a lot there. It's more of kind of just gut feel looking at it right now than anything. Kristen Bibby: And as far as the asset level guide goes, the reason that we're removing it is because we're -- we've made a change on the operational side where we're now slowing down and interpreting the data, as Terry mentioned, before we move on. So any time you do that, it impacts obviously your TILs or your wells coming on. And therefore, we're going to read and react and just wanted to get away from, frankly, month-to-month explanations. Aaron Bilkoski: Okay. That's fair. Just another quick question. Have you guys made any midstream commitments for Phase 2 that you may not realize? Kristen Bibby: Everything is already on our commitment schedule, and we're in -- we have what we need to go forward eventually. Operator: Next question will be from Kalei Akamine at Bank of America. Kaleinoheaokealaula Akamine: This one is also on Attachie. Just kind of wondering if you can provide some color on where exactly the underperforming Upper Montney wells are located to the extent that this reflects a geologic trend, is it water content? And if it is, how should we think about the aerial extent and the implications for the broader development footprint? Terry Anderson: Well, it's not water content. We're looking for the production here out of 3-12, and that's what we're focused on and what's driving the decision today. So we just -- and I keep coming back to say we just need more time to see this production and to allow it to clean up. But the 3-12 pad is the one that we're actually focused on. We have good wells right on both sides -- good pads and wells on both sides of 3-12 too. So it's not like it's an aerial thing. There's just some inconsistencies and variability that we're trying to figure out here. Kaleinoheaokealaula Akamine: Understood. Second question is on Kakwa. So as Kakwa is positioned to carry more of the load this year, what can you share about the 2026 drilling program? Specifically, should we expect activity to remain focused on the most productive condensate yields in your acreage? And can you remind us what the ultimate productive capacity is at that asset? Kristen Bibby: [indiscernible] I mean, yes, so Kakwa, there's no physical change that we are booking into Kakwa right now. So we're just highlighting that if we need, we might reallocate capital. You saw Q4 performance well ahead of expectations. And that's obviously just carried over a slight bit into the Q1 area, and that's what gave us the confidence to -- there's no adjustment to the corporate guide despite removing Attachie guidance. So pretty comfortable there. In terms of areas of development, no material change from what we've done over the past couple of years. So a really good part of the field that's got good yields, but very consistent overall is what we would say. Terry Anderson: And I would just add, just to be clear, we said we're evaluating where to reallocate this capital. So we just need some time on that, too, and Kakwa is an option for sure. Operator: Next question will be from Luke Davis at Raymond James. Luke Davis: Just a couple for me. So first, just wondering if you can kind of frame out how much technical work went into the initial sanctioning decision at Attachie? And just further to that, I guess, what gives you such a high degree of confidence that you'll crack the nut here, particularly across the broader base? Is this just like the large land overlay? Or is there something technically that you can point us to today? Terry Anderson: Well, from a technical basis, we drilled a number of pads and a number of wells on that east side, and we had great results coming out of that. So that, from a technical perspective, gave us the confidence to move forward. We have 9 horizontal wells across the east side of the river. So we've got -- and we've got results from that, that show condensate production, gas production from all of that. You have ConocoPhillips to the north. But we do have a lot of data across that land base to give us the confidence that it's -- the resource is there. We're not questioning that. We're just questioning trying to figure out the completion design or how to effectively stimulate it because we have some great wells, and we have some wells that are not so great. So it's like, okay, what's going on there, and that's what we're trying to figure out. Luke Davis: Yes, that's helpful. Appreciate it. Last one for me. You also tweaked around messaging just around kind of growth potential across the portfolio. Can you just give us a sense for how much depth is left, specifically on the condensate-rich side and ex Attachie, what the longer-term growth profile could look for? Terry Anderson: Well, we have lots of opportunity, obviously, in Kakwa with 15-plus years of development there. And then we just did this new little acquisition. There's Parkland that has lots of liquids opportunity. Even the north part of Septimus, in Dawson, the Lower Montney and Dawson has some good liquids in it, too. So there's definitely some more liquids growth. And then obviously, we have a lot of gas growth also. Operator: Next question from Josh Silverstein at UBS. Joshua Silverstein: So you still are spending around $250 million at Attachie this year. I don't know if you could break this down at all, but I was looking to see is this is all for Phase 1 drilling, how many pads you may be bringing on relative to what you did last year? And you have been doing a little bit of CapEx work for Phase 2. So I was wondering if there's still a little bit of that going on as well. Kristen Bibby: Josh, it's Kris here. Yes, we've still held the placeholder for $250 million at Attachie. As we've mentioned, we'll consider reallocating it if we choose to. It's just a little bit undetermined at this time. The point of removing asset level guidance was we're going to read and react. So I can't really comment on the pads going forward. As we said, overall corporate guide still $1.8 billion to $1.9 billion, and we'll reallocate as we see fit throughout the year. Joshua Silverstein: Got you. And then you guys had been active in M&A over the past year, adding into Kakwa. I was curious just to get your updates on that front this year. Are there still some opportunities that may be out there? And especially given that you guys are still in a very strong balance sheet position, is there an opportunity to grow inorganically? Ryan Berrett: Yes, Josh, it's Ryan. Yes, I think it's something, obviously, we're always looking at and has to be very consistent with our M&A strategy of high-quality assets, large inventory, contiguous asset base. I can't comment on any specific processes at this time. But yes, of course, we're open to it. Operator: [Operator Instructions] Next will be Travis Wood at National Bank Capital Markets. Travis Wood: Terry, you kind of touched on this. I think Attachie was unveiled nearly 15 years ago or so at an Investor Day, and you ran the pilots, you've drilled many wells kind of across the broader land base. So what exactly is showing up in the recent data versus the pilots and the pads kind of leading into Phase 1 that now kind of causes you guys pause? And so what exactly changed over the last couple of years? And then what is it that you're looking for on the data side to get comfort again in terms of reiterating guidance at Attachie and push towards Phase 2? Terry Anderson: Well, I think the big thing that we've realized is actually the casing deformation that we didn't see on the other pads. So that was one of the things that was different from the original number of wells and everything we've seen. And so that means we're just trying to make sure that we can effectively stimulate the reservoir like we've seen on the first number of wells and pads. Really, the -- I keep coming back to the resources there. We just need to tweak designs and to be able to effectively stimulate the reservoir to access that resource that's there. So that's -- and sometimes these things take a little time to figure out. And this isn't the first time we've actually seen this. In Dawson and in Parkland, we've seen similar events where we couldn't effectively stimulate the full lateral length. We figured those out. This one, we've gone so fast at it in such a confined area that we just need a little more time with it. Travis Wood: Okay. And I mean, I think going back to even the wells. In front of the pilot or some of the older legacy wells even around 2015, will you test what you're doing in this more concentrated area on the west side and try to identify the resource is open to these completion techniques to the Northwest? Or how are you thinking about kind of derisking the completion side? Terry Anderson: So that's what the teams are looking at right now is to look at expanding, like I mentioned, we're only on the first 10%. So there's a lot of acreage. Some of the plans will evolve into going further out from our existing area that we've been drilling and assessing that a little bit more. So that's -- but our teams are looking at all of those details right now. But that is something that we are going to definitely pursue is moving over and testing more of the acreage beyond the 10% that we're on right now. Operator: And at this time, we have no other questions registered. I would like to turn the call back to Terry Anderson. Terry Anderson: Okay. Thank you. Like, I guess my final comment would be, I realize that sometimes the right business decisions are not necessarily the most popular decisions from a market perspective, but we are here to manage risk while we create long-term value for our shareholders. So we will make the right decision. And that's what we're doing here today, slowing things down, making sure that we are focused on delivering long-term value to our shareholders. We appreciate your patience. So thank you, everyone. Have a good day. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.
Pekka Rouhiainen: Good morning, everyone, and welcome to Valmet's Fourth Quarter Results Webcast. My name is Pekka Rouhiainen. I'm the Vice President of Investor Relations at Valmet. And with me today are Valmet's President and CEO, Thomas Hinnerskov; and our CFO, Katri Hokkanen. Today, we will walk you through Valmet's fourth quarter and also highlighting some of the full year highlights, the most notable one being the full year margin, increasing to a new record of 11.9% as our strategy, delivered its first results during the second half. The agenda for today is straightforward. First, Thomas will present the Q4 and full year highlights, including the acquisition of Severn. Next, Katri will walk us through the financial development in detail, and then Thomas will return to discuss the dividend proposal, the guidance for 2026 and the short-term market outlook for the next 6 months. And after the presentations, we'll open the lines for your questions. So thank you for joining us today and your interest in Valmet. And with that, let's get started, Thomas. Thomas Hinnerskov: Thank you, Pekka. 2025 was my full first year as CEO at Valmet, and it's been a true transformative year. We've been driving many changes and initiatives, and I'll get back to some of those later in the presentation. Therefore, firstly, I want to be thanking the Valmet team for all the hard work and commitment throughout the whole year. I also would like to sort of thank everyone at Valmet personally for being very open and welcoming me to Valmet and being open for the behavioral and cultural aspects we've been working on in order to speed up our execution and being bolder in our thinking. Let me start by setting the overall frame for today. We operate in a softer market in the second half of the year. But even though the market is going through a softer patch in the short term, we do remain confident that our strategic choices are the correct ones, and they will take us to the next level of performance by 2030. So with that, let's start with the full year highlights. For the full year, we delivered a resilient performance. Net sales held steady and our comparable EBITA margin reached, as Pekka said, a record of 11.9%, up 0.6 percentage points from previous years. This was driven by the bold operating model changes we decided already in the first quarter when the market was still largely in a better shape. That timing really mattered, and we were ahead of the curve. It gave us the efficiency benefits when the environment turned softer later in the year without us having to react defensively at a challenging moment. Process Performance Solutions performed exceptionally well and Biomaterial Solutions and Services remained stable or remained -- maintained stable margins despite our customers' low operating rates and overall weaker global economy. Cash flow stayed strong at EUR 581 million and orders remained solid against a very demanding comparison period. The Board of Valmet proposes a EUR 1.35 dividend per share, unchanged from last year. Overall, Lead the Way is now being embedded across the organization and the benefit becomes visible already in the second half of last year. With that, let's have a look at the fourth quarter. The overall fourth quarter picture is quite similar to the full year. The market was subdued in biomaterial services like we anticipated. And unfortunately, we saw a more muted demand also in the parts of our Process Performance Solutions, especially in the pulp and paper automation market was slower than expected. Also some of the packages in automation actually got postponed in the end of the year. When we exclude the exceptionally large Arauco order and the FX from the comparison point, orders were very close to last year's level, so which is a solid achievement, I think, in this environment. Profitability was clearly a highlight. Our comparable EBITA margin reached an all-time high of 13.3% for the quarter, driven by the operating model improvements implemented earlier in the year. Those actions decided when the market was still better, gave us an efficiency that we needed in the second half. We secured several important wins, including our largest ever energy order for a biomass power plant in Berlin. So these kind of projects add to our installed base and create long-term life cycle opportunities for us. Process Performance Solutions delivered another excellent quarter with a margin of 21.9%, very good execution from the team and a strong starting point as we invest back into growth going into '26, like we've talked about earlier as well. And finally, we announced the acquisition of Severn Group just before Christmas. Severn brings leading severe-service valve technologies, a high-quality installed base, truly strengthening our flow control in several key process industries, so a very strong strategic fit for us. One important clarification. Our 2026 guidance does not include this acquisition. We will include Severn in our guidance once the transaction is fully finalized, which we expect will happen in Q2. So overall, a strong quarter operationally, supported by disciplined execution and the benefit of the choices we made earlier in the year, even though the market didn't support us with tailwinds. Let's take a closer look at the order development behind the quarter. As expected, orders for the quarter decreased year-on-year in both segments, mainly because of the comparison period including the exceptionally large pulp mill order from Arauco in Q4 2024. Like earlier said, this order impacted also biomaterials services and Automation Solutions orders intake in Q4 last year. That single project alone create a very demanding benchmark for this quarter, obviously. Against that backdrop, our performance was solid. We secured our largest ever energy order for the Berlin biomass power plant, which also came with extensive service agreement, highlighting our life cycle approach that we have launched early in the year at our strategy. This is an important long-term value driver for us. Overall, our energy business had a good year and was able to close some key wins. In biomaterial services, the market remains subdued, and we saw a decrease in service orders compared to Q4 last year. This is fully in line with what we communicated earlier, operating rates, investment activity has been under pressure, and we saw the impact in our Q4 financials. In Process Performance Solutions, the environment softened, particularly in the pulp and paper automation. The difficult end market of our customers showed also in automation's demand during the quarter and furthermore, some package deals did not materialize and were postponed for later. Going forward, we see the market now stabilizing from the weaker Q4 level. So overall, while the headline year-on-year comparison shows a clear decline, we had a decent quarter in a soft market and continue to capture some strategically important wins that strengthen our installed base for the long-term service opportunities. Let me then highlight one example that illustrates the strength and the versatility of our automation technology. We secured the automation delivery for the next-generation Polarstern, polar research vessel. This is a mission-critical platform for a vessel operating in some of the most extreme environments on earth. The order showcase how far beyond the traditional process industries our automation offering today reaches. When a customer like this chooses Valmet to run a vessel like this, it is a strong testament or a statement of trust in the reliability, safety and sophistication of our systems. It also builds long-term value. These vessels have multi-decade life cycle and the automation is central to their operation. That creates recurring life cycle revenue and further strengthen our installed base in a segment where we already hold a leading global position in cruise and marine arbitration. So while the quarter was soft in pulp and paper automation, this kind of win demonstrates the underlying competitiveness of our technology and our ability to grow in diverse markets. Let's look at another concrete example of our strategy to further strengthen our Process Performance business and diversify outside our traditional biomaterial business. We are -- yes, we are very excited, I have to say, to be able to announce the acquisition of Severn in the fourth quarter. This is a strategically important step for Valmet in the mission-critical flow control business. Severn brings leading severe service valve technologies, a strong installed base and deep customer relationship in industries that are complementary to ours, to our biomaterial business and businesses as refining, chemicals, energy and gases as well as metal and mining. So the strategic fit is excellent. Severn has a proven track record in demanding applications where reliability is key and this strength in our Flow Control business, both technology-wise, but also commercially. It clearly expands our addressable market and increase our presence in segments where we see long-term growth potential beyond our traditional biomaterial business. It also takes us to top 5 globally in the valves business. The combination also brings clear synergy opportunities, broader market reach, complementary offering and the ability to increase service presentation or penetration in a large, high-quality installed base. Severn generated around EUR 250 million of revenue in 2025 with an EBITDA margin of about 16%, reflecting a solid operating foundation. We expect the acquisition to close during the second quarter of this year. And overall, very good strategic fit. In addition, it strengthened Flow Control, broaden our portfolio and improves our growth profile over the long term. Now let's turn to Process Performance Solutions. Process Performance Solutions delivered a record year in comparable EBITDA. Orders came in at EUR 372 million, decreasing as anticipated due to the very strong comparison period, which include the landmark automation order from Arauco last year. Net sales remained at last year's level. Flow Control continued to grow organically while Automation Solutions saw a decline, particularly or partly, I would say, reflecting the softer demand condition we already discussed on the previous slides. The clear highlight is profitability. Comparable EBITDA reached a new record of EUR 90 million, and the margin increased to 21.9%. The margin was supported by solid commercial execution, operating model efficiencies and overall disciplined cost control. So even with a softer automation market and a tough comparison on orders, PPS continued to show strength and resilience. However, we do want to be mindful of the fact that we don't expect the margins to continue at this record level into 2026 as we will be investing back into long-term growth by hiring key personnel, both in the sales but also in R&D. Now let's move to the Biomaterials Solutions and Services. Starting with orders. The highlight win in the quarter was the Berlin biomass power plant order, which I mentioned earlier, but compared to last year, exceptionally strong fourth quarter, orders were clearly lower as the comparison period included the very large Arauco pulp mill order. Full year services orders were up 4% organically and represented 52% of the orders received. Looking at the market environment, the biomaterial services market continued to be soft, very much in line with what we saw already in the third quarter. In fact, the year was divided into sort of 2 parts, a good active first half, followed by a clearly softer second half as customer operating rates were visible in the market. On the net sales side, development was as expected. Capital net sales came in at a solid level in the quarter, and we saw the Aramco project progressing well. In total, we booked roughly EUR 400 million of Aramco as net sales during 2025, and we estimate that roughly another EUR 400 million will be booked as net sales in 2026 as the project continues to advance according to plans. In Services, net sales decreased organically by about 7%. This reflects the order mix in the recent quarters, which have been more tilted towards longer lead time mill improvement projects. Also along with the FX impact, that mix effect was clearly visible in the net sales for the fourth quarter as well. Comparable EBITA amounted to EUR 123 million with a margin of 11.6%, unchanged from last year. Biomaterial services net sales were lower, but the operating model efficiency we implemented early in the year supported the segment's margin development, and I'm very pleased that we made those decisions when we did. Without them, the year-end would have been significantly tougher for this segment in terms of delivering the margin. This covers the operational and market development for our segment this quarter. To give you a deeper look at our financial development, I'll now hand over to Katri, our CFO. Katri, the floor is yours. Thank you. Katri Hokkanen: Thank you, Thomas. And actually, before I begin, I want to sincerely thank the Valmet Finance team and our Investor Relations team for a very strong year-end reporting effort. This was the first annual closing under our new renewed operating model and reporting structure. We introduced several improvements to our quarterly and annual reporting during the year. So delivering these changes while maintaining excellent accuracy and clarity required significant teamwork. And I want to thank everyone involved for their dedication in this. I'll now take you through Valmet's financial development, focusing in the fourth quarter. I will cover our profitability, cash flow, balance sheet and other key financials. And as always, my aim is to provide a clear and transparent view of our financial position and the drivers behind our performance. Let's start with an overview of our net sales and comparable EBITA for the fourth quarter. Net sales amounted to EUR 1.5 billion in Q4, and this was EUR 51 million lower than in the comparison period, and this was mainly due to a negative currency impact of approximately EUR 42 million as the euro strengthened against U.S. dollar and some other key currencies. Organically, net sales were only 1% lower than Q4 last year, showing steady development in both segments. Comparable EBITA reached EUR 196 million, and the margin rose to 13.3%, which is the highest quarterly margin in Valmet's history. The increase was driven by the cost savings from our own operating model renewal, which continued to support profitability in the second half. And by the end of the year, we realized approximately EUR 35 million in cost savings related to the operating model renewal. And this includes approximately EUR 20 million in the fourth quarter and the targeted EUR 80 million annual cost savings run rate has been reached now. Like I said earlier, we will be investing part of those savings back into growth. So the incremental net savings impact will be roughly EUR 30 million in the first half this year. I'm pleased to note that even with the weaker market and currency headwinds, our operating model and disciplined execution allowed us to deliver another quarter of strong financial performance. Let's move next to our order backlog. At the end of 2025, Valmet's order backlog amounted to EUR 4.3 billion, which is EUR 146 million lower than at the end of 2024. Based on the current delivery schedules, we expect approximately EUR 3.1 billion of the backlog to convert into net sales during this year. And this is in line with the level we guided last year when a similar amount of backlog was expected to be recognized as net sales during 2025. And our book-to-bill ratio for the full year was 1, reflecting the softer market in the second half of the year. Even so, the absolute backlog continues to provide a very solid visibility for this year. Overall, the backlog remains at a healthy level, supporting stable deliveries for the year ahead. And as always, our teams are working hard to create a solid amount of book and bill during the year on top of the order backlog. Moving on to our cash flow and working capital next. Cash flow from operating activities amounted to EUR 189 million for the fourth quarter, bringing the full year operating cash flow to EUR 581 million. Our comparable cash conversion ratio for 2025 was 94%, which is in line with our long-term average and demonstrate the strength of our cash generation capability. Net working capital decreased to EUR 29 million at year-end compared with EUR 134 million a year ago. And I'm very pleased to see over EUR 100 million released during the year. CapEx for the year totaled EUR 103 million, representing about 2% of net sales, and this is broadly in line with previous years. And we expect this to increase a bit this year. Efficient cash generation, together with disciplined capital allocation, remain the key priorities for us, and they both support and enable both operational flexibility and also our long-term growth ambitions. Let's move on to our balance sheet and leverage position. At the end of 2025, Valmet's net debt amounted to EUR 904 million, and our gearing decreased to 35%, down from 38% in the third quarter. Net debt decreased by EUR 41 million from Q3, even though we paid the second dividend installment of EUR 0.67 per share, which totaled EUR 123 million in Q4. Our net debt-to-EBITDA ratio improved sequentially to 1.40 compared with 1.50 at the end of the third quarter. We are well within our target of under 50% gearing, which means we are in a good position for the upcoming Severn acquisition as well. It is estimated to increase Valmet's gearing by approximately 15 percentage points once completed. The average interest rate of our total debt was 3.4% at year-end, decreasing from 4% a year earlier. During Q4, we also completed our first Schuldschein loan transaction, which amounted to EUR 375 million. And this transaction strengthens our long-term debt structure, diversifies funding sources and broadens our debt investor base. So big congratulations once more to the team who made this transaction happen. Net financial expenses decreased slightly to EUR 62 million for the year. And overall, the balance sheet remained strong, which gives us flexibility as we continue to execute our strategy even in a softer market. Moving on to our capital efficiency and EPS. Our comparable ROCE for the full year was 13%, and this is a solid level and slightly higher than a year ago. However, our long-term financial target is to reach a 20% comparable ROCE by 2030, so we still have work ahead of us. Main driver behind the lower ROCE compared to 2022 is the series of acquisitions we have made in recent years. These have increased our capital employed. We remain confident that these investments will support stronger returns over time, and they fit well with our strategy and long-term financial ambition and increase shareholder value. Adjusted earnings per share for the year was EUR 1.82. The year-on-year decrease is mainly related to changes in the expensing of fair value adjustments from acquisitions. And just as a reminder, adjusted EPS excludes acquisition-related impacts, but it does include items affecting comparability, which is sometimes misunderstood. Looking at the key financial figures for the fourth quarter, I'm pleased to note that almost all the numbers are in the black for Q4, with the exceptions of orders for reasons we have already discussed and net sales, which decreased mainly due to currency impacts. Comparable EBITA increased to EUR 196 million, up 2% from the previous year, and the margin improved to 13.3%. EBITA and operating profit also increased from last year's levels. Cash flow from operating activities was EUR 189 million, up 7% year-on-year in Q4 and 5% in 2025. For the full year, items affecting comparability amounted to minus EUR 85 million compared to minus EUR 53 million in 2024. The increase in these costs was mainly driven by restructuring expenses related to the operating model renewal. On a full year basis, our tax rate was 25.7%, which is in line with Valmet's historical ETR level, which has been around 25%. You will also notice that our effective tax rate in Q4 was higher than usual as there were some one-off impacts in the taxes. That concludes my review of the key financials. Thomas, over to you, please. Thomas Hinnerskov: Thank you very much, Katri. Very clear, very transparent, very good. Thanks. So let's start with the dividend. So we laid out our capital allocation priorities back at the Capital Market Day last year in June. First, organic growth. We are reinvesting part of the operating model savings back into growth, particularly into strengthen commercial execution. This is a deliberate choice to support our long-term profitability. Secondly, strategic M&A. We expect to close the approximately EUR 410 million acquisition of Severn in 2026, a significant strategic step aligned with our portfolio ambition. Thirdly, dividends. Our policy is to pay out 50% of profit for the period or minimum 50% for the period. The Board's proposal is a EUR 1.35 dividend translating into 89% payout ratios and EUR 249 million in total dividends, unchanged from last year. Fourth, share buybacks, which remain a flexible tool depending on the balance sheet strength and other capital allocation needs of the previous authorities. Overall, the proposed dividend is consistent with our policy. It reflects confidence in Valmet's cash flow and long-term financial position. Let me start with the short-term market outlook for the first half of 2026 compared with the fourth quarter. In PPS, the market softened in Q4, particularly in pulp and paper automation, but also in Flow Control, where earlier tariff cost prebuying turned into a temporary headwind. From here, we do not expect further softening. We see the PPS market stabilizing at the Q4 level and improving modestly during the first half of 2026. In Biomaterials Solutions and Services, the market environment in pulp, packaging and paper remained soft and highly dependent on the timing of any possible individual customer decision. Biomaterials services are also expected to remain soft, but not to worsen from current levels, which is why we've adjusted the wording. Capacity utilization, especially in Europe and China remains low and continues to pressure our customers' profitability. From our perspective, the market is flattening, not deteriorating further. Turning then to our 2026 guidance, which we published today. First, we expect net sales to remain at previous year's level. This reflects the flat order backlog and the short-term market environment I just described. Second, we expect comparable EBITDA to remain at previous year's level or increase. The drivers are clear. On the positive side, we'll have additional net savings of roughly EUR 30 million from the operating model renewal as well as the first benefits from the new global supply unit. On the more cautious side, general market uncertainty remains high and for that reason, we guide for flat or increase. Our long-term ambition remains unchanged. Our 2020 target is a 15% comparable EBITDA margin, a clear step up from the 11.9% in 2025. And we continue working with determination to progress also in 2026. Despite the market challenges, our simplified operating model, our focused strategy position us well to navigate near-term volatility and to continue creating long-term value for both our customers and our shareholders. With that, I'll hand over to Pekka for instructions on the Q&A. Pekka Rouhiainen: Thank you, Thomas and Katri, and let's now go to the Q&A part here. [Operator Instructions] But we start with the questions here from the platform since we have a few. So first of all, Thomas, can you discuss the Services market in 2025 and the outlook for 2026 for biomaterial services as it's one of the important factors for the guidance? Thomas Hinnerskov: Yes. Clearly, that is one of the swing factors for the guidance. Looking back 2025, I think divide the year in 2 parts. The first half, clearly strong, especially in the beginning of it with parts, but then also sort of over the summer period, good mill improvement projects coming off, some prebuying ahead of the tariffs as well. We also saw that in the first half. Then turning into a softer second half that really reflect our customers' operating rates and the challenges that they are going through. Going then into '26, which I think is what we are most sort of interested and passionate about how that will turn out. Clearly, softness continues. We don't think -- we don't see that it's going to be more soft than what we experienced now, but it is going to be soft. It is a bit foggy in terms of looking sort of further out how it will. But then I think it's -- I think we -- what we are doing as well ourselves is we're investing in commercial capabilities. We strengthened our life cycle concepts to actually help our customers. There's still a lot they can do in terms of the mill improvement projects to drive up their efficiency so they become more competitive in their market. And I see that as a positive thing, but it's in our hands that we can actually drive that ourselves. Pekka Rouhiainen: Thank you, Thomas. Thank you for that clarification. And then about the guidance, it was already reflected here, but we received also a few questions before the call started. So does the guidance include Severn acquisition? And what kind of financial impact? So 2 questions here. Do you expect from Severn in 2026? Thomas Hinnerskov: Yes, good point. I think it is very important to clarify that Severn is not included in our guidance. It's too early to do that. We will, of course, include it once we close it in the second quarter. That is clear. Severn had a 2025 estimate of roughly EUR 250 million of sales. That will, of course, come into Valmet at the time we close the deal from a run rate perspective. Pekka Rouhiainen: Yes. Thank you. And then a question on the Services net sales, maybe going to Katri here. So what's the Services net sales decreased in Q4, so were there some specific drivers for that decrease? Katri Hokkanen: Good question. Thank you. First of all, organically, it went down by 7%. So FX played a role there. But Thomas discussed or told in his presentation that as you remember, in Q3, our orders were a bit more tilted towards these mill improvement projects, and they take longer time to recognize as revenue. So that was the main reason. Pekka Rouhiainen: All right. Thank you. Thank you for those. And please use the platform. We'll address those questions also later if there are any more. But now we go to the conference call. So operator, I hand over to you. Operator: [Operator Instructions] The next question comes from. Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I have 2. Firstly, on the biomaterials. So the margin trend was better in Q4 than in Q3, if we look at the year-on-year development and the absolute level. The question is what was behind that improvement? I mean you said that you got a bit more cost savings in Q4 than Q3, but was that the reason? Or was there something else in the underlying business? Thomas Hinnerskov: Basically, if you think about -- I think we also said it in part that a large part of that margin improvement in Q4 for buyer was that they had part of the operating model changes that they actually received or that impacted them positively. And as you probably remember, Panu, we said roughly 2/3 of the savings from the operating model comes into the biomaterial business. Panu Laitinmaki: Okay. Then secondly, on the process performance, you said in your comments that you don't expect the margin to remain at the record high '25 level. Were you referring to the Q4, not continuing at the '22 level or on a kind of full year basis, what you reported for that division? Thomas Hinnerskov: I think we specifically are commenting on that it will not stay on what sort of Q4 level going forward. So as you recall from the Capital Market Day, this is one of the areas where we want to invest into driving more organic growth with investing into sales resources and further R&D resources that we started executing right after the Capital Market Day and the strategy was launched. Some of these recruitments are coming online late last year and early this year, and that put -- we can say, increase the cost level and therefore, take the margins down. Then it's also clear when you drive sales in this area, we will not see the bottom line impact as fast because it takes a bit of while before it really gets into the service mode of these solution. Katri Hokkanen: And may I build on top of that. So if you look at the PPS margin, so it was actually really strong on the second half of last year. And we expect it to ease a bit, but still remain on a solid level. Thomas Hinnerskov: And you also remember, Panu, we said it in Q3 as well, we were commercially ahead of the curve in terms of anticipating some of the cost challenges that now comes online from a tariff perspective, et cetera. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: So I have a couple of questions or 2 basically. I'll take them one by one. So firstly, on the Service segment, I appreciate the comments earlier. But if you could give a bit more comment there, you say it's still a tough or a soft market, you could say. Is there any region that stands out in terms of consumables demand, for example? And how do you see the rebuilds and other projects if you look at the current environment? And also if you think about the trajectory for the business in the midterm, do you see any pent-up demand building up currently? And also, is there something in this cycle that is different from the past? In other words, do you see any reason why demand would stay weak beyond a few quarters? Thomas Hinnerskov: Michael, thanks for joining and thanks for the call -- thanks for the question, even though you are calling in. Good question. I think let me elaborate a little bit because I think it is an important driver. There's probably 3 elements I'm sort of looking into when we think about it. You asked a little bit about are the areas geographically where there's differences. I think it's clear that North America took some capacity out end of Q2, Q3. Now they're running at very good operating rates. That's great to see that, that actually also impacts our business also going now into this year. On the other hand, we had some quite low operating rates, in particular, in the China Asia market, which then, of course, also have impacted the Service business. Do we see that continue? I think with the -- can we get into a global economy where there's a little bit less uncertainty that will also drive consumer behavior and confidence up, which will then, of course, will be helpful for our customers, which will then create more demand and therefore, the operating rates will go up. I think that's -- I think it's harder to see that it should go further down from here. I think that is a pretty stressed or pretty low end of the market range that we're in. Then what also I think is going to help us in the sort of going forward is if you look at our capital business in this area for '25, then I would say just sort of give you a little bit of more flavor to this. Pulp business, we probably have a 50% market share there last year. Packaging business on the capital side, I'm not talking about, capital on the packaging business, definitely leading for sure in terms of capturing a very strong position there last year. And then on tissue, we also had a hit rate that was well above the 50% last year. So that builds also the installed base, even though it was a relatively soft market also on the capital side, but it does help us going forward. Mikael Doepel: Okay. And then another question on the project or the capital business you just mentioned. So if we think about the larger potential greenfield projects out there, how would you describe the current market environment and the pipeline? I mean, do you see the increased geopolitical uncertainties pushing projects out in time or even some cancellations? Or are things actually progressing as planned? Any color there would be helpful. Thomas Hinnerskov: Yes. No problem. I think -- not a big change from when we talked last. I think that sort of situation basically is the same. They are the same projects in Latin America, as everybody knows about. There's some -- still some activity across other parts of the world. I think our pipeline generally looks the same as what it did a year ago when we look at sort of our sales pipeline. So with that, I don't think there's bigger changes. Maybe a bit of further color, I would say, I think North America, with the old installed base, there is good opportunities for our customers to actually improve their current operation by doing larger mill improvement projects. It's always difficult to sort of predict when it actually happens, right? Mikael Doepel: Sure. Absolutely. And then just a brief follow-up on that and related to Arauco. I think you mentioned that you expect revenues of about EUR 400 million from that project in '26. What was that in '25? You might have said this, but I missed it, sorry. Thomas Hinnerskov: Roughly the same. So it's roughly evenly distributed. So if you think from a run rate perspective, you're going to see the same net sales in '26 as you saw in '25. We've been happy with the progress in the fourth quarter as well, progressing really well on all the different install islands, so -- and very pleased with how the team is managing and operating that. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: This is Tom Skogman from DNB Carnegie. I would like to get a bit more clarity on the savings program. So if you first start with this EUR 80 million program for white collars, I think you said the incremental savings in the P&L in '26 will be around EUR 30 million. But is this kind of the total impact also adjusting for the growth plans that you have? Or should I take away some of this EUR 30 million kind of build the bridge? Thomas Hinnerskov: Yes. Good question, Tom. And that's like we said before, you need -- we had roughly EUR 30 million in '25. We'll have another EUR 30 million in '26. The EUR 30 million in '26, that is sort of net of investment into growth. Tomas Skogman: Okay. So that's the total impact. And then I'm a bit surprised that you don't give out any information at all about this EUR 100 million savings program or kind of supply chain savings and manufacturing footprint. Should I estimate some savings at all this year? Or is this kind of not the thing for '26 or for '27 and beyond? Or what should I think? Thomas Hinnerskov: Yes. That's a good question, Tom. There are a couple of parts to the whole global supply savings, right? The EUR 100 million we talked about back in June. Clearly, there's some that we are driving sort of relentlessly sort of get short-term impact from -- particularly from a procurement perspective. Then we're also looking overall footprint, how does that actually -- where should we focus our manufacturing capabilities, so how to think about, and of course, we will throw more color to that and information about that as we progress throughout '26, and there will be sort of -- yes, so you'll know more about that. I would probably think about having something similar to the operating model savings in your spreadsheet. Tomas Skogman: So around EUR 30 million savings this year and nothing in '25 basically? Katri Hokkanen: Yes. I would have said double-digit millions. So very much in line with what the Boss just said. Tomas Skogman: But there were no savings here in '25, right? Katri Hokkanen: They really start to materialize in 2026. So that's the thing. Thomas Hinnerskov: And when you have to think about why did we say no savings in '25, Tom, is sort of like we think compared to what we have seen earlier, right? So we talk about where -- how are we cranking up the machine to deliver more, right? And that... Tomas Skogman: But can you just give some thoughts about where you will get this kind of half the supply chain and then the rest is kind of factory closures and what of this will be reinvested also so we don't plug in too much into our models? Thomas Hinnerskov: Yes. It's clear that some of these savings in terms of driving our global competitiveness are very, very important from a competitiveness perspective, of course, also from a margin expansion perspective. So some of it will be or will have to be in particular in today's environment, be reinvested into actually winning the projects. That is clear. Tomas Skogman: Yes, I understand that. Okay. And then finally, the Severn order trend in '25, you just said the sales what it was, but can you give some indication on the order trend there? Thomas Hinnerskov: For Severn? Tomas Skogman: Yes. Thomas Hinnerskov: Yes, let's come back to that when we close. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one is a follow-up on Michael's regarding the greenfield project pipeline and your position in the Chinese market because obviously, we've seen a few projects there last year. I think there's another one coming this year, at least one. So we always talk about South America, but there's quite a few things happening in China. So how do you see your chances of winning something there in 2026? That's the first one. Thomas Hinnerskov: Yes. Thanks, Sven, and thanks for joining. China market, important market for us. We're well established. We delivered the first machine there back 90 years ago, I think. So we've been a long-standing supplier into the Chinese market. It is clear, as you said, some of the dynamics we see in the China market is that they are going -- they have aggressive generally investment philosophy, but they're also going more integrated, which we have sort of not seen to the same extent before. So they're going more backwards into actually having their own pulp supply, and that will drive demand for pulp projects in the Chinese market over the next couple of years. Sven Weier: But you also see that going ahead in your current pipeline for this year? Thomas Hinnerskov: Yes. Yes. It's always difficult to say sort of when does things really pan out. I have to sort of say that as well. But yes, we do see it in the pipeline. Sven Weier: And the second question I had is just around the guidance because obviously, with flat sales, you give a bit of a point guidance on revenues, which I appreciate. But on EBIT, right, you say flat, but could also increase. I just wonder about the moving parts, right? Because, I mean, operating leverage is not going to have an impact if your revenues are flat. I mean what are the -- and you talked about the savings. I mean, should we expect a big mix impact on the bridge? And I mean, what kind of range are we talking here? Could it be a significant increase? Or are we talking about a relatively narrow range here also for EBIT? Thomas Hinnerskov: Yes. So good question. So what's really the sort of the swing factors here? I think as we've shown in last year, especially second half, we've taken sort of our own destination really in our own hands, right? We sort of -- with having been early on, on the operational savings, which then hit the bottom line already second half. Swing factors going into '26, I would say, to a very large extent, 2 things: service growth and then growth in our PPS business. Lots of -- Katri talked about our order backlog, but still a lot of book-to-bill going into or have to be happened this year in '26, right? And that's mainly thinking about PPS and the service, especially maybe on PPS, which may be especially on the automation systems. Sven Weier: The upside is not limited by the EUR 30 million net savings, but there could be also a positive mix effect on top of that if things go well. Thomas Hinnerskov: Yes. Back to how does the growth come in Service and in particular and in PPS, yes. Sven Weier: Which would then be more, I guess, back-end loaded on Service, given that short term, the Service market is still difficult, as you said, right? Thomas Hinnerskov: Exactly. Exactly. And that, of course, as you're saying, that creates the mix impact as well, which then drives up our margin. Operator: [Operator Instructions] The next question comes from Timo Heinonen from Handelsbanken Markets. Timo Heinonen: It's Timo from Handelsbanken. I mean I'm sorry if you already commented this, but the Service profitability very strong in fourth quarter. And of course, I know that the cost savings, but at the same time, the sales are down quite a bit. I think it must have been some underlying improvement. I mean that the margin is up only because of the cost savings? Thomas Hinnerskov: First of all, thanks for joining, Timo. And did you mean -- are you talking just about the Bioservice or did you talk about the whole thing? Timo Heinonen: Bioservices, of course. Thomas Hinnerskov: Sorry, once again, I couldn't hear you. Timo Heinonen: I mean if we look at what the margin could have been and then, of course, you have had some cost savings, but then the revenue being down. So it seems that you have been able to kind of improve the underlying margin as well, yes profitability improving, excluding the cost savings. Katri Hokkanen: Timo, as you know, we cannot give comments on the Services profitability overall. But if you look at the buyer side, the main driver for -- because the volume was dropping, then margin was kept was actually the operating model savings. So that was the #1 thing. Timo Heinonen: Okay. But no kind of underlying improving, I mean, pricing or anything like that? Thomas Hinnerskov: Not significant, I wouldn't say. [Technical Difficulty] getting ahead of the curve from the softness in the market, and that's what we are quite pleased with that, that decision really proved out to be the right one. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: I would just like to understand the dynamics a bit better in China because to me, it seems like you have other competition there than you have in the Western world, and it's very hard to understand what is kind of happening to your market shares in China in board machines and in pulp mills. I mean we see so few order announcements from you regarding Chinese customers, especially on the pulp side, but there seems to be a lot of things happening there. So I would like to understand it a bit better. Thomas Hinnerskov: Yes. I think -- I mean, I'm not sure I fully get your question, Tom. So forgive me. So ask a follow-up if I'm not answering you on that one. I think China market, yes, it is a different market than some of the others. There's some different competition. But clearly, our large Chinese customers, they do look at total cost of ownership or cost per tonne or being the most efficient. They understand probably very, very well that it is about having the lowest operating cost, especially in that market where there also is overcapacity. So how do you actually get to be able to compete effectively and profitable in that market as well. And that's where I think our technology comes really into play because we can deliver that with the most -- or the lowest total cost of ownership to our customers, right? Tomas Skogman: But if you look at pulp mills in China, I mean, what is your market share there the last 5 years or so? And is there any kind of change going on? Thomas Hinnerskov: Yes. I don't think we disclose sort of regional market shares. But I think, as I said, I think it was to Michael's question, that we had a good year in our pulp business as well with sort of a 50% -- taking 50% of market share from a global perspective. Tomas Skogman: But are there other competitors in China in pulp mills? I mean this is really what I want to understand, how are you doing against them in kind of midsized projects, et cetera, if that's kind of one of the hopes that there will be things happening this year? Thomas Hinnerskov: I think our advantage also in the Chinese market or maybe in particular in the Chinese market even more so is back to most efficient equipment, but also this thing about being able to support the customers in the start-up, in the process and start-up of the equipment, and that's where other competitors, especially sort of local competitors don't have the capability at all. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Pekka Rouhiainen: Thank you, operator, and thank you for the good Q&A session. There are no more questions in the digital platform either. So I think it's time to start to wrap up. So the Q1 report for Valmet will be published on April 28. I hope to see many of you in the roadshows and seminars we are planning to attend in Q1. But now I'd like to hand over to Thomas for you for any closing remarks. Thomas Hinnerskov: Thank you, Pekka. And thanks, everyone, who joined us today for a good discussion here on this webcast and other venues as well. First and foremost, I just really want to thank the Valmet team for the hard work and commitment during the past year. Thanks to the finance team for delivering another great transparent report all at the right time and had all the deadlines. To sum up or maybe also maybe even more importantly, I want to have send a big thanks to our customers for the trust that you have shown us throughout the year and for a lot of you, very challenging year. And I sincerely think that we've also played it back and try to deliver as much value and make you as competitive as you possibly can in your markets as well. But thank you very much for the trust. To sum up, we achieved a record high EBITA margin in Q4, thanks to the early action we took last year. 2025 was a true transformative year for Valmet with new strategy, new operating model, a lot of initiatives. Next strategic milestone is the Severn acquisition, which makes us even better positioned for growth in the Process Performance Solutions and outside our biomaterial core. So with this and despite some market headwinds, we are starting the year 2026 from a position of strength. See you out there. Have a great weekend when you get there. Thank you.
Operator: Hello, and welcome to the Saputo's Third Quarter Fiscal 2026 Financial Results Call. [Operator Instructions] I'll now turn the conference over to Nick Estrela, Head of Investor Relations. Please go ahead. Nicholas Estrela: Thank you, [ Jill ]. Good morning, and welcome to our third quarter fiscal 2026 earnings call. Our speakers today will be Carl Colizza, President and Chief Executive Officer; Maxime Therrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded. And the webcast will be posted on our website, along with the third quarter investor presentation. Please also note that some of the statements provided during this call are forward-looking. Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward-looking information in our annual report, press releases and filings. Please treat any forward-looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information, except as required under securities legislation. I'll now hand it over to Carl. Carl Colizza: Thank you, Nick, and good morning, everyone. This quarter was a powerful reminder of the impact of disciplined execution and a clear strategy. Across the company, teams stayed focused on what matters most: customer service excellence, strengthening our operations and advancing the initiatives shaping our future. Commercial momentum was strong as we continue to deepen customer relationships, solidified our presence in key categories and sharpened innovation and brand building. We are getting more of the right products in the right markets and reinforcing the relevance and reach of our portfolio. At the same time, the operational foundation of our business is also growing stronger. Capital investments made over the past several years are translating into a more efficient and reliable network, one that supports consistent fulfillment as well as flexibility to respond to shifting market dynamics. Coupled with disciplined cost management and resource allocation, these improvements drove meaningful margin progress in the quarter. Our global export markets, we benefited from a favorable relationship between selling prices and milk costs. In domestic markets, we navigated inflationary pressures through ongoing responsible pricing actions while maintaining customer confidence. Finally, I want to highlight our strong cash generation this quarter. Commercial execution, an efficient operating network and prudent cost management translated into robust cash flow delivery. This reinforces the financial flexibility supporting our long-term strategy. We also continued to repurchase shares, returning capital to shareholders while increasing capacity to invest in our future. I will now turn the call over to Max for the financial review before providing concluding remarks. Maxime Therrien: Thanks, carl, and good morning, everyone. I will expand on our financial performance for the quarter. Q3 was another solid quarter for Saputo, marked by strong commercial execution, disciplined cost management and meaningful operational efficiencies across our network. We delivered higher sales volume in all sectors, supported by strong customer demand and fill rate execution. We benefited from a favorable product mix and pricing action across key domestic categories to offset inflation and higher input costs with our North American platforms benefiting from a richer mix driven by growth in cheese and value-added product categories. Adjusted EBITDA increased 18% or $75 million to reach $492 million, reflecting continued commercial momentum, efficiency gains from recent capital investment and tight cost control over SG&A. Margin expanded to 10.1%, up from 8.4% last year, reflecting solid operational performance. Revenue came in at $4.9 billion, down 2% from last year, largely due to the effect of lower commodity markets in the U.S. Net earnings were $220 million. On an adjusted basis, net earnings were up 41% at $235 million, and adjusted EPS increased 46% to $0.57, benefiting from stronger earnings and the impact of our share repurchase program. Net cash from operations remained strong at $401 million driven by both improved EBITDA and ongoing working capital discipline amid fluctuating market prices and ongoing inflation. These efforts contributed to year-to-date net cash flow from operations of $1.1 billion, significantly higher when compared to last year. Our net debt-to-adjusted EBITDA ratio improved to 1.76x, below our long-term target range, underscoring the health of our balance sheet. Through the first 9 months of the year, we returned $646 million to our shareholders via dividend and via the repurchase of 12.6 million shares under NCIB. The Canada Sector benefited from solid momentum with revenue up 4% and year-to-date growth of 5%. Strong commercial execution drove higher sales volume and a more profitable mix, supported by growth in value-added milk versus core white milk and continued gain in cheese and cultured products. Specifically in cultured, cottage cheese continued to post significant gains with Saputo cottage cheese improving share in both the latest 12 and 52 weeks. Pricing also supported the top line, mitigating inflationary pressure and the higher cost of milk. On profitability, adjusted EBITDA was up 8%, reaching $189 million. That improvement came from two places: higher volume and favorable mix and the efficiency gains we're capturing from our automation and production investment. These efficiency projects are reducing our costs and strengthening our position as a low-cost producer. Continued SG&A discipline helped absorb higher wages and compensation costs. Overall, the sector is running with strong volume, a healthy product mix and tight cost control. For the U.S., revenue came in at $2.1 billion, down 7% from last year, mainly reflecting lower U.S. dairy commodity prices, especially butter and cheese block prices. That said, our pricing actions to offset inflation and higher dairy ingredient market prices helped to mitigate part of the decline. Importantly, across both the quarter and the year-to-date, underlying demand strengthened with higher sales volume in retail, foodservice and value-added ingredients. Several of our largest customers increased their pull-through, highlighting the strength of our relationship and our ability to support their evolving needs. During the quarter, the team delivered several notable commercial wins. We kicked off a partnership with one of the fastest-growing brands in value-added milk, marking an important step as we look to capture our fair share in this dynamic and growing beverage segment. We also achieved exceptional holiday execution in cream, driving strong results across the category. Heavy cream in particular grew 7%, outperforming market consumption, supported by strong commercial positioning with winning customers and fill rates. In addition, the mozzarella category delivered solid growth, supported by our ability to respond effectively to sustained demand in export markets. Adjusted EBITDA was $185 million, up 16%, driven by volume growth, favorable mix and operational improvement. Our efficiency initiatives and the benefit from the recent capital investments are flowing through, including the consolidation of our Green Bay plant into our Franklin facility. We also continue to scale up our new consolidated Midwest warehouse, where early efficiencies are already helping offset transitional costs. The commodity market impact was a headwind compared to last year, primarily due to negative inventory realization in cheese during the quarter. The new milk pricing formula worked as expected and contributed positively. Labor and compensation costs were higher, as were investment in advertising and promotion. Our SG&A optimization served as an offset. Overall, the US Sector delivered stronger volume and continued to capture benefits from our network optimization and cost reduction initiative, driving meaningful margin expansion. For the International Sector, revenues were $994 million, down 3% from last year. Higher sales volume across the sector were supported by the improved milk availability in Argentina. In Australia, lower export volume were partially offset by stronger domestic sales, consistent with our mix optimization strategy. Revenue also benefited from higher international cheese and dairy ingredient prices versus last year. Adjusted EBITDA for the quarter was $82 million, up 61%, driven by higher volumes, product mix optimization and a much more favorable relationship between international prices and milk costs. For the Europe Sector, revenue were $336 million, up 8% from last year. The growth was driven by higher sales volume, supported by increased advertising and promotional activity behind our branded cheese portfolio. Bulk cheese sales volume were also up on higher milk intake, though at lower market prices. These gains were partially tempered by softer retail volume in noncheese categories. Adjusted EBITDA came in at $36 million, up 16%, with margin improving to 11%. The lift was driven primarily by a more favorable balance between selling prices and input costs, which help restore margin, supported by higher volumes. We benefited from the consolidation of our cheese packing operation in Nuneaton and continued progress on our ingredients strategy, both of which delivered operational efficiencies and cost savings. In summary, our Q3 results demonstrate solid commercial execution, sustained volume growth, disciplined and strategically phased A&P investment that continue to build through the year and tangible operational improvement across the organization. We're strengthening our margin, expanding operational efficiencies and generating robust cash flow, all while maintaining a very strong balance sheet. We remain confident in our ability to continue navigating macroeconomic volatility and our continued focus on driving sustainable value creation. With that, I'll turn the call back to Carl. Carl Colizza: Thank you, Max. In Canada, we delivered a second consecutive quarter of record profitability. This reflects disciplined execution and the strength of our commercial platform. Automation initiatives also continued to deliver meaningful operational efficiencies. We deepened customer partnerships across retail, foodservice and industrial market channels. Progress was anchored in sales-led wins that drove meaningful volume and mix improvements, driven not just by pricing but by stronger customer uptake, reinforcing the relevance of our portfolio. Our brands also continue to expand household penetration. Dairyland, Neilson, Milk2Go, Saputo, Armstrong and Scotsburn each won a brand most trusted award in their category. Alexis de Portneuf earned silver and bronze medals at the World Cheese Awards, further validating the strength of our offering and customer brand trust. Supported by strong commercial foundations, consumer demand remained robust with Canadians continuing to prioritize nutritious, high-protein dairy options. This trend was reflected not only in category growth but also in the success of recent product launches. This includes the Armstrong protein line and our new Dairyland and Neilson protein beverages, which are gaining meaningful traction. Complementing this, a major national foodservice partner continued to exceed expectations, driven by strong uptake of its protein beverage platform. Our portfolio is well aligned to consumer shifts spanning everyday essentials, value-added offerings, specialty cultured products and premium dairy foods, all supported by a growing range of high-protein innovations. In retail, sales volumes increased year-over-year with broad-based category growth. We also grew our presence with major retail banners and smaller independent grocers, enhancing our retail scale and diversity. Despite a generally soft market backdrop in foodservice, our business remains resilient and we continue to distinguish ourselves. We are outpacing peers through strong channel delivery and increased our presence in select strategic accounts. Overall, we are leveraging our resilient and connected commercial platform, supported by disciplined pricing, cost management and brand investment. I am proud of our teams for driving this level of performance and positioning the business for long-term sustainable growth. In the US Sector, we executed well on the elements within our control and our performance exceeded prior year levels. While market headwinds did have an impact on our overall results, our underlying business remains solid and continued to demonstrate resilience. Strong volumes anchored performance and operational efficiencies partially mitigated the impact of market dynamics. In the U.S. commodities landscape, markets were highly volatile this quarter, and we anticipate this volatility will persist through the remainder of the fiscal year and into the next year. Across the QSR landscape, operators are increasingly leaning into cheese-forward offerings from value menus to new cheeseburger and mac & cheese innovations, signaling where commodity values have moved and pointing to firmer demand. As these consumer-facing promotions expand and industry demand strengthens, we anticipate a gradual recalibration of markets. Through it all, our focus remains on the elements within our control and, in this regard, we remain firmly on track. Team focus has been on operating with discipline, supporting our customers and positioning ourselves to capture momentum as conditions normalize. Customer engagement continued to grow strong across retail, foodservice and industrial channels, demonstrating portfolio relevance and partner confidence in our ability to support their growth. We are seeing strong momentum in our ingredient strategy. At our Waupun, Wisconsin facility, our approximately $180 million investment in upgraded whey protein systems, now producing both WPC80 and WPC34, along with our new state-of-the-art lactose dryer, is transforming the platform. These advancements are boosting WPC80 output by roughly 35%, elevating product quality and positioning us to lead in the fast-growing high-value protein and lactose solutions categories. In a dynamic global marketplace, we are strengthening commercial flexibility, elevating product quality and reinforcing our leadership as a trusted partner for high-performance, value-added dairy ingredients. The multiyear work to modernize and optimize our network is paying off with the permanent closure of our Green Bay, Wisconsin facility and the transfer of production to our Franklin site, this phase of consolidation is now complete. As the Franklin facility integrates additional packaging activity, increased scale and streamlined processes have enabled the plant to boost output by roughly 30%, positioning it to operate more effectively and respond faster to customer needs. These changes are already enhancing cost optimization and the speed at which we can respond to market needs. Across the business, our U.S. team remains proactive and customer-centric, continuing to deliver fill rate performance that ranks amongst the industry's best, supported by strong operational discipline. Our commitment to network optimization and cost management will enable us to compete effectively and deliver sustained progress. We view the newly released dietary guidelines for Americans as a constructive development for dairy as they continue to recognize dairy as a nutrient-dense food. The guidelines highlight high-quality protein, calcium and key vitamins, reinforcing consumer interest in foods that deliver meaningful nutritional value, versatility and affordability. This environment supports our strategic focus as we invest in high-protein, functional and value-added dairy categories and leverage our scale and brand strength across retail and foodservice. Taken together, favorable nutrition guidance, continued innovation and our diversified portfolio position us well to meet evolving consumer needs. In our International Sector, this quarter demonstrated the strength of our teams and the resilience of our platform. In Argentina, we saw some moderation in operating pressures as inflation and currency trends showed periods of better alignment, which eased certain raw material cost pressures. That said, the situation remains dynamic with macroeconomic volatility in Argentina continuing to be an important element for us to navigate. Australia delivered a solid quarter, supported by strong momentum across domestic retail and foodservice. Higher export pricing helped balance the increased cost of milk, and seasonally stronger milk intake enabled higher cheese production, allowing us to optimize output for every liter of milk to meet growing demand during the quarter. Our teams continue to adapt and rise to the occasion in very different market environments, staying focused on long-term strategy and strengthening our market position. In Europe, we delivered a strong quarter that reflects our commercial capabilities and the progress we are making in repositioning the business. There was renewed energy in our branded cheese portfolio, supported by thoughtful investments in marketing and consumer engagement to strengthen our brand presence. Cathedral City delivered a standout performance generating strong volume growth with material household penetration gains that reinforced its position as a leading trusted choice for consumers. Operationally, this has been a year of meaningful change. We completed important steps in modernizing our network, including the transition of production capabilities and the relocation of cheese packing operations to Nuneaton. We maintained service levels and efficiency even as we navigated through the transition phases. Across all our sectors, progress reflects a common thread: disciplined execution, stronger brand engagement and trusted partnerships with customers. Our people are delivering and their efforts are positioning us well as we enter the final stretch of the fiscal year. Together, we are building a modern and future-ready company, one that is aligned with consumer expectations and able to capture growth opportunities with confidence. As we look ahead, the opportunity in dairy remains exceptionally strong. Protein-rich diets and the latest dietary guidelines all underscore the critical role high-quality dairy protein will continue to play. And while global supply and demand are not yet optimally balanced, this does not change our confidence in meeting the needs of a market that is clearly expanding. Consumers, customers and partners want to participate in this growth, and we are well positioned to lead, from optimizing the value of our whey solids to strengthening every link in our value chain. The industry may encounter bumps along the way, driven largely by milk supply dynamics, but the long-term trajectory remains clear and we are ready to capture the full potential ahead. This concludes our formal remarks. I will now turn the call over for questions. Operator: [Operator Instructions] Your first question comes from the line of Irene Nattel of RBC Capital Markets. Irene Nattel: First of all, congratulations on another great quarter. It's really exciting to see F '26 evolve as the key inflection year that we had all hoped for. But how should we think about the next phases of sort of the evolution from this new base that you're establishing as we look ahead, let's say, through calendar '26 or into F '27 and beyond? Carl Colizza: Thank you, Irene, for the question. I would say that when we consider where consumers are headed and when we think about the nutritional value that dairy can bring to the consumer's mindset of consuming nutritiously dense foods, dairy is in a great position. And accordingly, our platform and our portfolio is exceptionally positioned to be able to capture that momentum as well. So the short answer is that we feel great about our future on the basis of the assets, the portfolio, the brands, the talent that we have in the organization to capture what consumers are growing into with regards to their diets, nutrition. And dairy will play in a very important role in supplying that protein demand that comes with all of that. Irene Nattel: And that leads into my next question. In the first section of your prepared remarks, Carl, you said something about the free cash flow providing increased capacity to invest in our future. Could you elaborate on exactly what you are referring and what we should be expecting? Carl Colizza: For sure. And our strategy is anchored in meeting customer and consumer needs. And it is increasingly clear what our partners are looking for, and accordingly, our business is built for and our objective is to continue to grow. And in order to do that, we will not shy away from investing in ourselves in order to capture the organic growth that is upon us. So we will continue to look at options for capital investments in order to bolster our capabilities with our existing portfolio to support our growing brands, our flagship brands. We will also continue to invest in opportunities to grow with the ingredients sector. And that ingredients sector is primarily where we will see high demand for proteins. And in order to do that, once again, we won't shy away from looking at capital investments or looking at M&A that could help us get to market quicker. So all of those things are on the table. We continue to take a very balanced approach to capital allocation as a whole. We always have a long-term strategy. But I can assure you that today, the clarity that we have from the consumer and the customer marketplace is very clear, and our runway here for what to invest in and to grow with is abundant. Operator: Your next question comes from the line of Michael Van Aelst of TD Cowen. Michael Van Aelst: And I wanted to touch on just the overall performance. It was a very strong performance across the markets in terms of your execution. But what I find interesting is the level of price discipline you're able to maintain across the geographies even in an environment where we're seeing some of the highest milk supply growth that we've seen in a long time, especially in the last 6 months. So what are you doing? And what's allowing you to maintain that price discipline, and not feel pressures in your margins? Carl Colizza: Thanks, Mike. It's a good question. And generally speaking, milk supply has increased across the globe, certainly in every platform in which we operate in. And it's provided us, first and foremost, the comfort that the raw materials will be there to supply our marketplace. And our marketplace continues to grow. And that growth is happening in a number of different categories. But at the core of why Saputo outpaces and excels versus that of our competition despite an industry growth is fundamentally our operational execution. It has everything to do with our fill rates and has everything to do with the partnerships that we have with customers. We are often the first phone call someone makes when they are looking to capture an opportunity. And probably equally and more importantly, we also help our customers make sure that they capture what consumers are looking for with regards to nutrition and ensuring that they understand how dairy can play that role. And being proactive fundamentally and being able to back that with supply is what's keeping us at the forefront of our current momentum with volume, with sales and with revenue. Michael Van Aelst: Okay. So it sounds like a combination of just the execution and the partnership with your customers as well as solid demand growth helping to offset that milk supply increase. Carl Colizza: You're right, Mike. And I want to underscore that although we do have across the globe very meaningful increases in the supply of milk, I think I've said this in prior calls, capacity was added in numerous geographies. The farming community showed up, provided the raw materials for these assets to be productive, to be able to -- they too, to capture the market demand, the growing market demand for dairy. So we're in a very good spot when it comes to the supply of raw materials. But we also have underlying demand growth. And at the end of the day, we're actually fortunate to be in that position versus what we also lived through in some of the prior years, which was a shortage of that very same raw material, our milk. So again, Saputo's outpace of the market comes from our, I'll say, our secret sauce, which fundamentally is about how it is we execute, how it is we service our customers. Michael Van Aelst: All right. And just to follow up. You went through a list of things that is helping to support your margins and expand your margins, but there's one that it kind of stood out for me and I'd like to hear some more color. And that was you said you have a more resilient operating model. What has changed? And can you explain how that's helping you with your margins? Carl Colizza: Well, if you recollect, the capital investment program that we embarked on 4-ish years ago now included also a lot of rationalization, included a lot of new equipment commissioning. We are certainly at the end of that program. And accordingly, our platform is now more resilient by virtue of fewer assets that we're operating, more efficient. And one thing I want to underscore is that the talent in our plants is also more stable. The learning curve is mostly behind them. And so we are executing and firing on all cylinders at this point. And that's what allows us to have industry-leading fill rates. And when you have that kind of credibility in the marketplace regardless of the channel, be it foodservice, retail or industrial, orders will come. And that's translating into our revenues and translating fundamentally into our bottom line. And then I'll say one last thing around the resilience piece, the definition of that. It also includes first pass quality. Our resilience isn't just about manufacturing a quantity of goods, but it's ensuring that we have the quality on first pass. And that is also at exceptional levels today. So we're very proud of where the team is at following a multiyear capital investment strategy. Operator: Your next question comes from the line of Scott Marks of Jefferies. Scott Marks: I had two questions, both on the USA Sector. First, you called out in the prepared remarks some of the changing U.S. dietary guidelines and how that positions some of your products favorably. Wondering, have you actually seen any increases or incremental increases in customer orders or demand relative to what you've already experienced this fiscal year? Carl Colizza: Well, the dietary guidelines came at a time when we were already seeing incremental demand for high-protein or dairy-rich products. So I can't necessarily link it to the dietary guidelines. But I can assure you that, that momentum in and around the definitions and the guidance that the dietary guideline is presenting was already present. So this is just another point in which I am confident that the benefit will come in the long term as well, and it will help sustain the knowledge of nutrition, nutrient-dense foods and how dairy and dairy protein specifically plays an important role. Scott Marks: Understood. And second question, obviously, you guys posted a pretty strong quarter in the U.S. despite some of the unfavorable commodity markets. As we think longer term, obviously, given your improved operational position, maybe how should we be thinking about, I don't know, normalized run rate profitability for this business in the future once commodity markets do kind of stabilize? Carl Colizza: Well, our objective in the U.S., has always been the same, and that is to be in the high single digits to trying to achieve a double-digit EBITDA margin for the platform. And we're well on our way with the investments that have been put in. Despite the headwinds that we had in this quarter, our business did deliver. And they delivered on the basis of, first and foremost, having the volume through our plants, equally being able to deliver on the orders that have come through. And we're not done yet. Keep in mind that what we're seeing now and what will lap into next year will be the full benefits of the duplicate costs being removed. We're going to see the full benefits of our warehousing operation consolidation and improvements that we're putting through. And of course, we're not done yet with our capital investment program. We haven't necessarily underscored all of the things that we're working on, but I can assure you that levels of automation are part of it. And we also have further plans to capitalize on the existing and most recent investments in the ingredients space. And the name of the game in the U.S. is going to continue to be efficiency and ensuring that we supply the market needs both domestically and on the export. I want to ensure there also to underscore that the export market from the U.S. platform based on the milk competitiveness in the U.S. is a very important component of our future growth. Operator: Your next question comes from the line of Vishal Shreedhar of National Bank. Vishal Shreedhar: With respect to the outlook, now that Franklin is up and running and the Wisconsin whey facility in Green Bay shut down, can you give us a context of how much remaining -- assuming those are the major projects, how much remaining efficiencies is set to be captured from the initiatives that you had in place and now are culminating? And how we should look at just early takes at the next fiscal year in terms of what the improvement magnitude will be from some of these initiatives? Carl Colizza: Well, what I would say is a couple of things. From a whey perspective, because you mentioned two things. There's Franklin and whey. From a whey perspective, we're only just beginning to unlock the incremental capacity that we've added in WPC80, okay? So there's still further upside for sure. When you think about Franklin, the floor plate in Franklin still has much room to grow. And when you think about future capital investments for us, Franklin will be a nucleus whereby we will be looking to add some capabilities for further retail growth and retail offerings in our portfolio. So Franklin will continue to contribute to the U.S.'s bottom line for many years to come considering the infrastructure that's in place. So I would say that from that standpoint, there's still a lot of headroom in those two Wisconsin-based facilities to continue to contribute to the U.S.'s growth. And I also want to ensure that we appreciate that there are other areas within the country that we've also invested in, and that includes capacity and capabilities for flagship Cheese Heads brand. Incremental capacity has been built, is being added as well to continue to service the growing demand and the growing market for cheese snacks. So there are a number of angles that we continue to work on in the U.S. And I have yet to mention some of the very interesting aspects on the dairy foods side that we're working with partners on in the growing functional beverage and high-protein beverage space as well. Vishal Shreedhar: Okay. And with respect to the acquisitions that you cited within your framework, do you anticipate them to be North America focused? Or are you looking internationally as well? Carl Colizza: Yes. And maybe just take the opportunity to clarify on M&A. M&A is part of our DNA. It's always been part of our history. And considering that our strategy is to grow as a business, M&A will be one of the contributors to how we will achieve incremental market penetration or expand in some channels, whereby the fastest path to capturing the opportunity will be through an acquisition. And yes, a lot of the focus will be here in North America, where we know the domestic markets extremely well. But we also understand where our milk cost base is, and the U.S. milk cost base, in particular, remains extremely competitive. Vishal Shreedhar: Okay. And lastly, what is your perception of the capacity added in dairy over the last several years and the market's response to that capacity addition in dairy? And do you anticipate that to have pressure on margins? Or do you think the market looks balanced for the years ahead? Carl Colizza: Well, I think the pressure is here already. The additional milk supply and the pace at which milk supply has been brought on, for a number of reasons. The milk supply is as strong as it is, including the resilience of the farming community. But there's also been a number of factors that have been contributing positively. First, it was a healthy year for feed. Accordingly, there was a very strong or favorable relationship between feed costs and milk production. That encouraged milk farming. In addition to that, the components according to the feed quality were also very strong. And that's brought in on a world global average almost 5% increase in the overall milk supply. Thankfully, there are assets there to process it. Demand has grown as well but hasn't grown at the same pace as milk for now. But this is the now and we're in it. So if you look at in the medium to long term, we feel good about the assets that have been put in, the availability of raw milk to meet first and foremost the demand that is present and that continues and the signals are out there that are growing. And we're going to be in a position where we're going to need all that milk and then some. Operator: Your next question comes from the line of Mark Petrie of CIBC. Mark Petrie: Just a follow-up on a couple of things. Carl, just with regards to the outlook, you're now calling for volatility in the U.S. dairy market for a little bit longer than I think you were before. Does that really just relate back to the supply dynamics on milk? Maxime Therrien: Yes. You're right, Mark. And I mean, look, I think the word volatility -- U.S. volatility has been there now for quite some time. What we're calling for really and what we're trying to articulate through that messaging is that there's an abundance of milk supply right now. As I said, that growth is outpacing the growth of some of the dairy categories. But we can absolutely see, there's a line of sight, and it's already beginning. If you take a look at the most recent global dairy trade index, there was a sharp 6% to 7% rise on that index. And you can see that the demand is starting to catch up, if I can say it that way. So yes, our call out is related to the current abundance of milk, readily available amounts of milk, but we're looking way past that. And we're saying we're in a great position to be able to capture demand from the marketplace without having to worry about raw material supply. Mark Petrie: Yes. Understood. And just to follow up again on you called out international, that was sort of one of my other questions which is, it does seem like maybe the balance is a bit better there. Is that a fair characterization? And I think you sort of said it, but that relates more to demand than supply. Is that fair? Carl Colizza: There's a healthy supply of milk in our international sectors as well, as well as resilient and robust demand. The protein phenomenon and the demand for protein-rich foods is absolutely global. It's not just a North American thing. So we're seeing that in Southeast Asia. We're seeing it in China. Of course, we're seeing it in Europe. We're seeing it in Oceania. I mean, it can go on and on. So the phone rings every day. And the first thing that comes up outside of cheese is, what protein do you have available, what quantities and what's the supply outlook? So I can tell you that we're in a position whereby that demand and the strength of the demand and the long-term view on it is global. And we feel comfortable with the supply that we have in the operating platforms that we're in. And even in the areas that we don't operate in, we feel good about the overall dynamics that are going to improve here over the coming months and quarters. Mark Petrie: Yes. Okay. And my last question. When it comes to sort of brand building and kind of the new mindset that you guys have executed on over the last number of years particularly in Canada, I think you've held up Armstrong as sort of the best example of that. You mentioned Cheese Heads in the U.S. as a platform. Would that be the brand that you would highlight in the U.S., as sort of following a similar playbook not the same, just different product and brand, but similar? Is that fair? Carl Colizza: Well, what I would say is the discipline, the methodology and how it is we make choices for investment, absolutely the same. And that's part of our sort of our commercial road map. But the two brands don't have the same essence necessarily. Armstrong is your everyday cheese brand with a broad portfolio. Cheese Heads is more of snacking and convenience. There are other brands in the U.S. that we will continue to lean on, including some of our specialty cheese brands in Montchevre, Treasure Cave, Frigo, Black Creek. So the playbook in where and how we invest will be the same across our network. We're learning from each other, learning to manage data and dissect and digest insights differently. But certainly and first and foremost, we have a heightened appetite to invest in our brands and our flagship brands, and those also include another geographies, Cathedral City, Devondale and so forth. And I see the incremental A&P spend that we've put through in this last year paying off and giving us the continued confidence to do so and narrowing our focus and improving our position here in the U.S., especially when it comes to our retail offering. Operator: Your next question comes from the line of Chris Li of Desjardins. Christopher Li: Let me start off a question on international. Obviously, it's been very strong this year with the recovery in Argentina and Australia holding its own. What does the outlook look like next year as you start to lap some of the recovery in Argentina and presumably starting to face lower GDT prices. So what are some of the key puts and takes as we look into F '27? Carl Colizza: Well, overall, what I would say, and I'll kind of tackle them separately. If I look to Australia in particular, the Australian milk supply although not growing is stabilizing. And we continue to execute on our strategy to focus a greater amount of the milk and milk share that we have to the domestic markets, both the retail sector as well as the food service sector. And the team has executed that extremely well. And equally, when we look to the export markets, despite a diminishing volume going to that market, we're moving up the value chain as well in the export markets with more value-added products flowing out from the Australian platform. So despite where the GDT was at, we feel good about the relationship between the milk price and the selling prices of the products we bring to the market. And there are very early signs as well when you take the very last of the GDTs with a strong demand and strong pricing recovery. That give us optimism for Australia as well to continue with its momentum. Because I can assure you that the platform is at the right size and the platform is very efficient to capture the market needs. And when it comes to Argentina, we also see that the milk supply, that rebounded in a very healthy way this year. We captured close to 9% incremental milk this year based on all the reasons I described earlier around the quality of feed, the feed ratio and, of course, climate environmental conditions were favorable for milk supply. And we don't see that as of right now changing in the Argentinian supply. And equally, we also see the cost of Argentinian milk remaining competitive so that we can continue to prioritize our export markets. Christopher Li: That's very helpful. And if I can just maybe switch to the U.S. Obviously, over the last number of years, you made a lot of investments in cheese and we're certainly seeing the fruits of those investments. Now Dairy Foods is also a very big business and Carl has already alluded to some of the initiatives that you're working on, on the beverages side, et cetera. I was just wondering if you can maybe perhaps elaborate a little bit more on the dairy food business and, if you execute will, how meaningful could that opportunity be, let's say, over the next couple of years? Carl Colizza: So maybe just by reminding us a little bit about the portfolio in itself. And the portfolio of Dairy Foods includes products that we bring, like heavy creams and half-and-half for coffee creamers, things of that nature, in gable-top form, if you like, the traditional cartons, aerosol products, ice cream mixes for soft serve, value-added beverages both in aseptic packages and ESL formats as well, yogurts and other cultured products. and, of course, one of the products that is in very high demand both in Canada and the U.S. and really across the globe, cottage cheese. So when I think about how we'll be able to expand in that sector, our Dairy Foods platform is well positioned to meet that growing customer demand in cottage cheese and better-for-you beverages. And we're already investing in some of these areas, and we will continue to amplify our offering in this sector. Christopher Li: Great. And then last question, still on the U.S., is just with respect to you guys aligning to customers that are growing. Where are you on that journey? Given the stronger execution, what does that pipeline look like in terms of gaining new businesses from large customers? And then as you're doing that, what type of reaction are you perhaps getting from your competitors? Carl Colizza: You cut in and out, Chris, but I think I understood based on your last segment. But I would say that the U.S. market has always been competitive, I've said this before, and it remains competitive. But beyond that of just general competition, there is also a continued underlying demand. And so for us, it's ensuring that we are as often as possible first to market with capturing the growing elements of trends, in particular. And I know I've said this several times now, and you'll hear us talk about it with confidence and with enthusiasm, but high-protein products are very important to the consumer lineup today with dairy. And there are a number of products that we offer that meet that. And that includes cottage cheese. It includes everyday cheese. It includes value-added beverages and, of course, ingredients. And so when I think about competition, I think of it more as competition for the consumer and being first to the consumer's mouth, not so much about the demand uptick. Operator: [Operator Instructions] Your next question comes from the line of John Zamparo of Scotiabank. John Zamparo: Lots of talk both on this call and especially more broadly about high-protein preferences and especially high-protein dairy beverages. I wonder what you can say to frame the size of that opportunity for Saputo, say, over the next year or 2. And can you share what type of point of sales growth you're seeing from that category in North America? Carl Colizza: I won't share necessarily numbers associated to anticipated revenues or things of that nature. But what I can tell you is that we're still in the very early stages of what I believe will be a continued and sustained growth in that sector for years to come. And in Canada, as an example, I talked about the brand strengths and some of the recognitions that we've had with our brands. And you think of Milk2Go, Dairyland and Neilson and Scotsburn being our flagship fluid brands, we already have added high-protein multi-serve options to our lineup. The uptake is very good. Some of the considerations we'll be giving in Canada for our capital expenditure program will absolutely be around the value-added milk category, which includes high-protein beverages. And what's great about this space as well is that it's a multichannel in nature. And equally, it's a number of different spots within the retail store so by that, I mean both the refrigerated and nonrefrigerated spaces. And we've got the capabilities North and South here, Canada and the U.S., to be able to capture those occasions and/or the growth that will occur in each of these sectors. So I would say that we're quite bullish both in the U.S. and in Canada about capturing that growing need. John Zamparo: Okay. Carl, I want to come back to the new dietary guidelines from the HHS and the USDA. And I wonder, do you have any customers who are required to follow those guidelines and now must augment their product portfolio as a result? Carl Colizza: Well, I would say there are some who either are part of federally funded programs and things of that nature. But at the end of the day, it's not going to create an uptake because of a decree or an obligation. It's going to create an uptick because the guidelines. Beyond that of the favorable light that it's put dairy in, the guidelines are actually very simple to follow. If you take the time to actually read them, the insights that it provides, the recommendations it provides even for portions, which by comparison to other dietary guidelines that exist in the countries we operate in, this one is very clear. So I think that on the basis of simply that, the clarity that it brings, we're going to see a favorable uptake continue with dairy. John Zamparo: Right. Okay. Fair enough. And then finally a modeling question. I wonder how we should be thinking about CapEx levels for F '27 because F '26 was a very low CapEx intensity year now that Saputo has completed multiple projects over the past few years. So is F '26 likely to be a reasonable baseline for F '27? And are there any material projects or even high-return projects already planned that you can call out? Maxime Therrien: Yes. John, you could look at F '26 as a low point from a CapEx perspective. Regarding F '27, whether it's through inflation, whether it's through digital investment and other projects that Carl referred to, you could expect to be north of $400 million as you're modeling the F '27. So it will be somewhat an increase in capital investment organically. Operator: Your next question comes from the line of Etienne Ricard of BMO Capital Markets. Riad Diab Garcia: This is Riad on for Etienne. So my first question is in terms of the potential trade deal between the EU and Mercosur. Can you give us some insights on how that could impact your Argentine business? Carl Colizza: Well, I would say the following. The trade deals need to go further than just elimination or reduction in tariffs. For anything that touches the agricultural sector, there needs to be sanitary certificates or sanitary standards, if you like, that need to be understood and accepted by all sectors. So having said that, that's probably one of the biggest stumbling blocks that exist today within that trade route. So if they can clarify that, then I would tell you that the Argentinian platform's exports would be well positioned on the basis of the cost of its raw material. And I don't see the reverse necessarily being something that we would look to benefit from, which would be European products going into Argentina. Just looking at the cost basis of the milk in Europe, we're talking apples and oranges. So whether or not that trade deal yields anything material will require there to be some clear language around sanitary standards. Riad Diab Garcia: Okay. And then moving to the European business. In the past, you guys mentioned that you aspire to achieve a mid-teens EBITDA margin there. So how should we be thinking about the expansion of margins in that segment going forward, especially given the strong performance this quarter? Carl Colizza: Well, our European platform continues in the U.K., it continues to do really well on executing what they set out to. First and foremost, it included some consolidation. It included revamping our waste strategies or our byproduct strategy. Those two things, for the most part, as far as investment and the heavy lifting is behind them. They're refining it and continuing to enjoy the benefits that come with that. Equally, our flagship brand, Cathedral City, has some renewed investments, A&P strategies behind it. We expect it to continue to perform very well as we saw here in the last quarter. Early signs of the contribution of the investments in way of share gains and/or market or household penetration is very good. And I also want to underscore that the U.K. platform isn't just Cathedral City. There is a very healthy butter, oils and spreads business behind it as well. And that is currently also being optimized. And we feel good about, lastly, in the U.K. business, new channels that we are investing time and energy and. That includes foodservice. I've said this before, the foodservice sector was not an area that we had any real eye on. It is now part of our daily calls, if you want to call it that, our daily tasks. And we are making inroads in that sector. So exciting times for our U.K. platform. Operator: There are no further questions at this time. I will now pass it back to Nick for closing remarks. Nicholas Estrela: Thank you, [ Jill ]. Please note that we will release our fourth quarter and full year fiscal 2026 results on June 4, 2026. Thank you for taking part in the call and webcast, and have a great day. Operator: This concludes today's conference call. You may now disconnect.
Jakub Cerný: So good afternoon, ladies and gentlemen. We will come from Komercni banka and thank you for sharing your time with us today. It is the 6th of February 2026, and we are going to discuss the results of Komercni banka Group for the fourth quarter and for the full year 2025. Please note that this call is being recorded. Today, we have the entire Board of Directors together in one room led by the Chairman and CEO of Komercni banka, Jan Juchelka; and we also have Margus Simson, Chief Digital Officer; Miroslav Hirsl, Head of Retail Banking; Katarina Kurucova, Head of Corporate and Investment Banking; Anne de Kouchkovsky, Chief Risk Officer; Jitka Haubova, Chief Operations Officer; and we them, of course, Etienne Loulergue, our Chief Financial Officer. As always, we will begin with the presentation of results, which will be followed by a questions-and-answer session. [Operator Instructions] Now let me ask the CEO, Jan Juchelka, to begin the presentation. Thank you. Jan Juchelka: Thank you, Jakub. Hello, everyone. Thank you for sharing your time with us. We very appreciate your attention you pay to Komercni. It's my pleasure together with the management team to lead you through the presentation of Q4 2025 results and the full year 2025 results. We can start with Page #4. Komercni in 2025 printed solid growth of financing of Czech economy across the board, all segments with the emphasis on housing loans. We grew by 6.8% in the fourth quarter attributed by -- contributed by 4.3%. On the side of deposits, we grew almost by 6%, which we didn't find optimal. This is why in fourth quarter, we opened the gate a little bit for gaining a bit more deposits from the market in order to build solid foundations for 2026 commercial and business growth. Assets under management outside the bank grew by 5.5%. For us it's a combination of mutual funds made by Amundi, the private banking product. Pension schemes and insurance products from Komercni pojistovna. Here, we saw a little drop on the new sales and new origination for the investment products by Amundi, I will come back to it in a bit of -- in a few minutes in detail. Balance sheet and capital remains very strong. We are sitting on 17.9% of capital, 17.1% is Core Tier 1. Loans to deposits in safe territory of 83.1% and both short-term and long-term indicators of liquidity remain far above the requested 100%, LCR for 159%, NSFR for 130%. Full year's results were translated into CZK 18.1 billion net profit. On a reported basis, it's 4.7% growth. If you take out the extraordinary income stemming from the sale of the headquarter building last year at Wenceslas Square in Prague. We are showing 22.3% on a year-over-year basis growth. It represents CZK 95.61 per share, and all this money will go back to shareholders as we are -- as a Board of Directors, advising the shareholders meeting, which will take place in April this year. Cost-to-income ratio of KB remained at 46.1%, return on equity at 14.2%. Looking forward, we will guide -- or we are guiding the market for 2026 dividend guidance at 80%. The payout ratio, and we feel we are fulfilling our promise that after the extraordinary period of time, which took three consecutive years, we were giving back 100%. We will go lower but we are still 15% above the traditional payout ratio, which used to be 65% before COVID. In the bank, there was one remarkable corporate governance-related event. We are welcoming Herve de Kerdrel as a new Supervisory Board member since 1st January 2026. Herve is lifelong banker, which is retired SG banker joining the team and enlarging the diversity of Supervisory Board. In 2025, Komercni made an important step towards the new realities. We are closing our KB 2025 transformation program, probably the largest transformation initiative in the Czech banking history for the last 20 years, where we delivered the full -- fully rebuilt digital platform from 21st century, replacing the core banking, the accounting and payment systems and other relevant systems and launching new client proposition and new application for the front office in branches, for Internet banking and for mobile banking. Thanks to that, we are also able to learn new disciplines. How to acquire hundreds of thousands of new clients. In 2025, there was 135,000 new clients using our platform, KB+. The total number of KB Group customers overshooted 2.2 million. So currently, we are recording 2,268,000 clients whom we are servicing in the entire group. In 2025, we gained a couple of recognitions on the MasterCard Bank of the Year, we were named as the Bank of the Year in Corporate Banking and Bank without Barriers. We can move to Page #5. Speaking about strategy, let me open this chapter with the statement that we have completely new fully digital platform, working 24/7 with multicurrency accounts in place in which we are currently finding almost entire portfolio of our retail clients. So 2025 was a year of huge -- of finalization of huge maneuver of transferring clients from the old to the new system. And we are gaining also the expertise how to onboard, how to activate and how to cross-sell the new clients. We will come back to it in detail through my colleague, Miroslav Hirsl in a second. We have created a competitive advantage with higher digital sales penetration. We are currently achieving 54%, 55% and heading to 60% of the total sales of our products in a digital way, improving customer satisfaction, thanks to the very modern design of our new app and new interface in the Internet banking and in the branches. The modern technology is done in the world where we have applicated the agile way of working for the software crafting and software coding, thanks to which we are able to come to the market much faster with new innovations, and we will show you the picture what might be those in 2026. We were very strict on working with -- working on costs. The cost base was redefined. In 2025, we are super strict even in the context of our NBI slightly lagging behind our original expectations. So we took the measures on the cost side immediately. And we see that the new platform combined with much simpler, much faster processes and much simpler organization is bringing a higher level of efficiency. We are keeping the bank strong on capital. We will obviously continue with that, not only from the, let's say, strict supervision point of view, which is represented by Czech National Bank, but also by our strong conviction that the large and stable capital base is enabling us for the future to grow organically. We are recognizing as leader, combining MSCI ESG rating, S&P Global CSA Score, as well as FTSE4Good is keeping us amongst top 5% of players of that kind. We continue financing also the energy transition in the country and other relevant programs. So we are exiting the program as a simpler, more agile, more efficient bank, well positioned to deliver the organic growth down the road starting 2026. Next page, please. Page #7, I'm handing over to Margus Simson, the Chief Digital Officer. Margus Simson: Good Afternoon from my side. Just looking into the things that we delivered during this last 5 to 6 years of transformation, then I would probably point out three the most important ones. The first one, the new digital bank is completely cleaned up, completely simplified compared to the setup that we had in the past. So taking a simple example on the retail platform side or retail customer side, we had 600 products before in the legacy system. We have only a bit more than 30 in the new one, effectively bringing down 20x the number of products. This is not only speeding up the kind of -- the way how fast we can develop things, but it also brings down the operational cost, operational complexity. It is helping to bring up our time to market from 18 months that we had rather before in the old system to rather to a couple of months in the new system. So the ability to innovate, the ability to deliver into the market is significantly change, thanks to that kind of complexity reduction that we have been going through. So simplification in every term, the things that the customer sees, the things that are happening inside the bank is the biggest benefit of the transformation from that end. When looking at the functionality, then obviously, the new technology brought different opportunities as well, multicurrency account, the very similar setup what, for example, Revolut has. This has been enabled only by the new solution being up and running. The account customization, I believe, one of the very unique opportunities that the customers tend to love and this one is that they can choose their own account numbers. This is something that is -- seems trivial or seems like a little bit unnecessary development. But at the same time, we see that the customers like that when the services are really tailored rather towards their own needs and their own initiatives. When we're looking from a security perspective, then previously, we had our authentication tool separately and our mobile application separately, now into one, which makes the usage for the customer significantly easier, but also make sure that we do not have the complexity also from that side burdening our customers and ourselves. And when we are looking at the security options that are setting in KB+, just imagine a modern solution that needs to be there in order to make sure that the customers' money is safe and we do guide. And with that one, I'm handing over to Miroslav Hirsl to focus on the questions of what has been really changing on the business side, and what has been delivering the results. Miroslav Hiršl: Thank you, Margus, and hello to everyone. Let me guide you by using a few highlights through how all of that was explained so far is reflected in business life and business activity of the bank. On the next slide, if I may. And I will start by commenting the number of users by the way. So the first thing to say is our new bank is up and running. It's stable. And today, there's more than 1.6 million active users. And when I say even more, it is by additional -- sorry, 30,000 clients. And the number is basically increasing every week, every day and even every time you click on a refresh button on the screen. So it's moving forward. It's not just a number of users. It is also the number of new clients that aren't there on the platform. And when you look at 2025 and 2024, we basically almost doubled our acquisition capacity compared to the usual years before. Even though in the brackets, you see another year that was pretty good. I would stick to my doubling the acquisition capacity, which is quite a success. Another point I'd like to highlight goes to customer migration. You heard it already. So we finalized the migration of private individuals to the new platform. There are still a few left on the old one, but it will be a lower and lower number and it's not critical anymore for the activity of the bank. If you would ask me, is it done? I would say, yes, it's done for private individuals, what is not yet done, but will be done soon is other client segments, starting by small entrepreneurs. Already more than 50% of clients has been migrated to the new platform, and we will finish the process by Christmas this year. Number three out of my fourth chapter is private banking clients. Even though there are not so many, they are quite specific in many cases. We will start the migration with the first cluster next month, in a few weeks. And again, the strong commitment and confidence on our side that we will be able to finalize the migration process until the year-end. There's one chapter more, and this is legal entities. This will take a year longer, but we will wait for 2027. We will start the beginning of summer this year already, and we would like and will finalize the process in 2027 by the year-end. Moving to the next slide. A few more things to say. The first one, it's true that we went through quite important and even sizable streamlining of the distribution network over the recent years. It was branches, number of branches, but not only that, it was number of front office people and probably even more number of managers, not just the number as such, but also the number of layers and the whole organization structure. And it is true that when you go through so significant changes, it creates a certain friction in the organization and takes part of your energy rate for the change itself. This was the first thing that was symptomatic for our distribution network. The second one was, by the way, to focus of distribution network or front office people to migration as such because it was taking approximately 20% of the capacity. Good news is that it's all done, even though there's still some migration to go through, it will just be part of business as usual, not taking much of our distribution capacity, which should allow us to spend even more time with our clients and to spend even more time on our business activity, which gives me a lot of optimism for the years to come. From the same basket, let me speak a bit about the increase of digital sales. A few years ago, we were starting from quite modest humble numbers in 2025. We were already around 55% of all sales happening in the digital way. And when I say digital, is not just paperless, but it means it goes end-to-end digitally without any human being in the bank touching the process at all. And it is true even for some quite significant products, such as consumer loans, where we are already about 50% of all the tickets being processed super-fast without any touch of a human being. So if I should close the story by the last element. It has to be client satisfaction because what we were doing, we are not doing because of transformation per se or migration per se. We are doing it to make the bank better for the clients. And you can see on the graph that we did and the customer satisfaction measured by NPS, is consistently increasing month by month, where we are starting at very humble levels. Today, we are already moving in the corridor between 25 -- sorry, 35 and 40 points. And we still believe in our ambition to get to 50, but we will need a few more quarters for doing so. But it is true that with every other migration rates finished, these clients getting used to the new environment, with the new environment being very stable, we are quite convinced that this is going to happen. I would stop here, and I will give the floor to Etienne, our CFO. Not yet? Jan Juchelka: So in fact, the word goes back to me, not because of my function, but because this is the order how we agreed at the beginning. So let me say, Page #10, just to summarize what was this chapter of our transformation about. We went out as a streamlined organization with much lower number of managerial layers. We were turned down from 7 to 8 to the existing 4 to 5. We have increased our span of control at the level of approximately 8.1, and we want to stay around 8 for the time to go. We have came out as a team of people who know how to run and deliver the complex transformation of that size of that kind, using agile@scale, way of crafting the [indiscernible] and running the project across all the disciplines of banking. That being combined with micro services architecture of our IT is giving us the advantage of much faster time to market when launching new innovations, when launching new functionalities, when launching new products. The system is much more stable than the previous one. We are seeing higher than 95% of operational stability and availability of the systems as we speak. The overall platform is obviously much better ready for working smarter in a smarter way with data and implement AI functionalities in a smoother way. We are not abandoning our very strong culture of compliance and risk management, which was, by the way, one of the contributors also into our net profits in 2025. And we have gained already in various parts of the bank very high productivity increase. Let me name the housing loans production, which is back at record high levels delivered by approximately 50% of the staff than it was before, and further cost rationalization across the bank. Let me move to the next page, please. Now we are inviting you back to the traditional pages of our presentation. We are very lucky together with our main competitors to make the banking business in the Czech Republic. This is a growing economy, we expect in 2025, the growth -- the total growth of GDP was 2.5%. 2026 after the revision of our macro echo team, we believe it might go even higher to 2.7%. The industrial production is back to the growth followed by already growing construction businesses. Wages are beating the inflation. So without any surprise, the households are the main engine of this growth and large contributor in the growth of GDP. Thanks to that. Also unemployment is down. So this is one of the assumptions we are making that consumer lending, consumer loans produced by Komercni banka in 2026, should be one of the fastest-growing parts of our loan book. The inflation, as I mentioned, is nowadays even in -- for January, even below 2%. Czech National Bank has not touched the 2 weeks repo rate and they are remaining at -- they are keeping it at existing 3.5%. And Czech crown is slightly stronger and stronger vis-a-vis both euro and dollar. So the overall frame seems fine, when you combine it with the fact that the current government seem to be pro-investment and pro-business. And we see that there is also more and more decisions of our clients to follow this enthusiasm by private investments. Let me move to next page, which is the business performance. The loans are up by almost 7%. The main engine being mortgages, Komercni is back to the market, taking from the market anything what oscillates around 20% of the new production. When you see the fourth quarter of '24 and fourth quarter of '25, you see the -- you see also the fascinating growth by 82.2%. Having said that, and having repeated that, we are delivering it with 1/2 of people than previously. When moving to consumer loans, we would love to have higher numbers in '25. It didn't happen, but we have our new format of consumer loan in KB+, which is fully digital from beginning to the end. We have 15% to 20% of the capacity of our branches back to sale and less to assist the clients with transfers and migration. And we are orchestrating the branches, the digital, KB Advisory services, third parties and KB Contact Center in the best way to approach the market with a real omnichannel approach and simply speaking, to sell more in 2026. When moving from retail to corporate, there was very dynamic very dynamic growth in the fourth quarter, very strong fourth quarter, promising fourth quarter. We believe that the rebound of Czech manufacturing industry, machinery industry, defense sector and a few more is bringing us back to faster growth of -- the faster growth and positive trajectory. On that front, KB will be assisting its clients at the maximum, and we believe that here the dynamism will continue. When speaking about corporate clients, we need to remind ourselves also the performance of SGEF, which became 100% subsidiary to KB, which is delivering 6.2% growth. Let's move to the next page. You see that Komercni was all over the place during 2025. During the fourth quarter of '25, assisting clients with financing or advisory in their transformative projects. Miroslav spoke about NPS for retail clients. Let me say that our strong activity on corporate and investment banking side is bringing us back very high levels of Net Promoter Score in corporate and investment banking business. Higher we go through the portfolio, we are drifting towards 80 positive points of the feedback, of the satisfaction feedback by corporate clients. We are very proud of it, but we are not complacent from that. So we will continue pushing the button on the side of corporate clients, midsized clients, municipalities as we do today and confirming our leading position in corporate financing. Let me go to next page. Page #16 is deposits. I need to confess it grew by a little bit suboptimal levels. We wanted to grow more and we opened the gates in the fourth quarter to get more like long-term deposits mainly from retail to build even stronger funding for our future commercial and business growth. Despite the fact we were growing by 5.8%, which is probably not a disappointing number, but our ambition was slightly higher. When speaking about deposits, what is probably the most important part of it is that, the savings accounts and term deposits are growing by almost 30% in that -- in the mix between the paid and non-paid deposits, the non-paid deposits, i.e., current accounts are slightly down. When going to -- from the balance sheet of the bank to assets under management outside the bank, you know that we have this partnership with Amundi, where the sales of mutual funds was down by 14% on a year-over-year basis between '25 and '24. We should keep in mind that, yes, on one hand, we are not super satisfied with that. On the other hand, '24 was super strong and we are sitting together with Amundi to get appropriate action plan in place and to get it back to growing trajectory. Inside that, KB has collected more fees even from that structure, thanks to the change or transformation of the composition of fees charged to the clients, mainly thanks to the fact that there was much less money market funds sold and much more equity, fixed income and other funds sold to our retail clients. Having said that, insurance was growing by double digits, 15.2% in total, life, 15.3%, non-life, 15%, both somehow being also or taking the benefit from the growing book of housing loans. But not only that, you can see in our KB+ application that there is an extra button for the insurance product, which is bringing first fruits to the P&L. Next page, please. Here, I'm handing over to Etienne Loulergue, our CFO. Thank you. Etienne Loulergue: Thank you, Jan. I will guide you through the financial performance of Komercni banka for 2025. So 2025, Komercni banka delivered again a very solid financial performance bottom line with net profit reaching more than CZK 18 billion on a full year basis. And if we compare it to the reported 2024 net profit, which was CZK 17.2 billion, it's a growth of more than CZK 800 million, representing 4.7%. But if we look at the full year 2024, excluding the exceptional positive one-off the capital gain coming from the sale of the historical building of Vaclavske namesti, we start from CZK 14.7 billion in 2024 on recurring. Therefore, the growth year-on-year is plus 22%, representing CZK 3.3 billion in 2025. The main drivers for this growth are the following. First, we have the influence of the net cost of risk evolution in 2025, which represents year-on-year positive evolution of CZK 2.5 billion. Second, and it is very important to highlight in our 2025 performance, we have a visible decrease of our operating expenses base by more than CZK 700 million on the full year basis with two main components. Of course, we enjoy the fact that we have a lower contribution to the Resolution Fund in 2025, and it helps for CZK 380 million. But more important than that, we are able to decrease our internal cost base by more than CZK 360 million with efforts, which will explain a little bit later. The third driver for growth is, of course, the growth of the net banking income overall driven by our commercial performance. The overall growth of the net banking income is plus CZK 70 million, representing plus 0.2%. And within this net banking income. We have, of course, the fourth driver, which is the net interest income growing by more than CZK 560 million and unfortunately slightly compensated by a decrease in the overall net fees and commission and net profit from financial operations. This more than CZK 18.1 billion of net profit in 2025, enabled to deliver a return on average tangible equity at 16.1% growing year-on-year by more than 70 basis points on a reported basis. And if we compare to the recurring basis, it's even bigger with more than 300 basis points. You can see also that the return on average assets stands at 1.2%, which is also growing year-on-year by approximately 10 basis points. And on the bottom right part of the chart, you can see the evolution quarter-over-quarter with a regular growth of the net banking income and solid control of the operating expenses. We can move to the next slide, please. Evolution of the balance sheet. We had a solid growth of the balance sheet and a sound growth of the balance sheet. It represents 4.1% additional year-on-year or CZK 60.4 billion, and we reached CZK 1.6 trillion off balance sheet at the end of 2025. On the asset side, the first driver for this growth is obviously the commercial loan performance with a growth of CZK 52 billion, representing 6% of this part of the balance sheet. And on top of that, we grew also our cash and liquid instrument by CZK 17 billion, representing 4%. On the liability side, the growth was driven by the client deposits for CZK 47 billion year-on-year, representing 4%. And additionally, we also grew our portfolio of securities issued with CZK 17 billion from an issuance of covered bonds that we achieved in the last quarter of 2025. The purpose of such initiative is to diversify our sources of funding and secure satisfactory level of liquidity ratios. And I recall at this stage, considering the balance sheet evolution that we have a comfortable high-quality liquid asset portfolio on the asset side, representing more than CZK 400 billion, or 1/4 of the balance sheet, which enables to sustain the liquidity coverage ratio at a flattish level, 159% and the net stable funding ratio at 130%, also stable year-on-year. Now if we move to the next slide to go in more details regarding the composition of the net banking income. First, we have the net interest income, which is growing year-on-year by 2.2%, more than CZK 560 million with definitely as a first driver, the growth of the balance sheet. We have the growth of the loan books by -- as we mentioned just in the previous slide, contributing by plus CZK 300 million in the net interest income of plus 3%. And the growth of the deposits contributed with plus CZK 185 million in the net interest income or 2% for this specific category. Important to highlight also on the top left of the page, you can see that we maintained our net interest margin overall, at a stable level, 1.72% coming from 1.74% in 2024. And this is a very positive achievement considering that in 2024, we had to suffer a decrease of this net interest margin by almost 20 basis points. So 2025 stabilizing is a satisfactory -- very satisfactory performance. And now the change is to continue the growth on volumes. If we move to the next page, on fees and commissions. The overall picture year-on-year is decreased by CZK 330 million, representing 4.6% However, we have to remind that in the base of 2024, we benefited from some exceptional additional fees and commissions coming mainly from the exceptional performance of asset management in 2024. We benefited from extra performance fees in this field. And we also benefited from very important transaction in the field of syndicated loans, generating also additional fees in 2024. The exceptional fees that we had in 2024 represented slightly more than CZK 300 million. So if we exclude them and we compare to a recurring base, we are year-on-year more or less flattish in terms of fees and commissions. Second point to highlight in the fees and commission, flattish with counting -- factoring the fact that in 2025, we have performed this significant migration of our private individual clients to the new digital solutions under a new framework in terms of fees as the client now benefit from subscription plans. So the structure of fees changing, and we are much more consistent with market practice. It influenced the transaction fees by minus CZK 200 million in 2025 compared to 2024. And now we are on a new base on which we come with growth, thanks to additional volumes. You can see also on the bottom of the page, the quarterly evolution of the fees and commission and their mix. And you can see a steady growth in the second half of 2025 with a nice rebound in the fourth quarter. If we move to the next page. The third component of the net banking income is net profit from the financial operations. And in this front, we are growing nicely by more than CZK 100 million year-on-year, representing 2.8%. And the first driver is very sound as it is our sales activity for -- mostly for hedging instruments for our client. The growth represents plus CZK 130 million of 8%. On the front of net gains on foreign exchange operations from payments, we are in terms of overall revenue, flattish. However, we see a continuous growth of number of transactions and volumes, but we have also a slight pressure on the spend. You can see also on the bottom right of the page, the evolution quarter-on-quarter of these two activities. And I would like to highlight that Q4 is kind of normal quarter compared to Q3, which was a historically high quarter obviously, the best of 2025 and probably one of the best historical speaking. Next slide, please. Now moving to the cost path here. This is a remarkable achievement in 2025 with the reduction of the cost base. It was made possible thanks to the transformation, which was explained at the beginning of the presentation by my colleagues, where we have invested massively in the digital transformation and now our digital solutions are up and running. We have also reorganized and refocused network in orderly manner. And now we benefit from these gains in productivity and efficiency, and it is visible in our operating expenses. And the first driver of the operating expenses decrease is the personnel cost with minus 5%, representing CZK 450 million year-on-year, and it is driven by a reduction in the number of average position by approximately 6.5% year-on-year. I would like also to highlight that we keep a very strong discipline on the other cost and especially on the general administrative expenses, which were also decreased by 4%, representing almost CZK 200 million year-on-year. I recall once more the reduction in the Resolution Fund contribution helping also to reduce the overall cost base. The last element in the operating expenses that is important to comment. And it is growing. It is a depreciation part growing by 7%. But we confirm that we have it completely under control as it is our road map following all the investments we have capitalized in the previous years to deliver this massive digital transformation at the bank level. Reducing the operating expenses in such big scale enabled to deliver a significant positive jaws effect on the cost-to-income ratio and we decreased by more than 2 points our cost-to-income ratio, which reached a level of 46.1% on a full year basis in 2025. And I will now hand over to Anne de Kouchkovsky, our Chief Risk Officer, for the asset quality and cost of risk. Anne Laure de Kouchkovsky: Thank you, Etienne. So I will start with the asset quality. So the fourth quarter is in prolongation to what was seen during the full year. As it was mentioned earlier, the portfolio of loan grew up to almost 7% and this was in the context of a very stable and excellent quality of our loan portfolio. So this is seen in the Stage 2 and Stage 3. So you see that Stage 2 is dropping down but this is mainly driven by the effects of the inflation reserve that was created some years back. And that -- and we commented in the previous quarter that the scenario of inflation not being realized that we just saw the prospective figures that we decided to release these reserves. So this is creating this effect in Stage 2. But despite from that, it was very low inflow of Stage 2. Same remark on Stage 3, you see that here, we are dropping to 1.6% share of the portfolio in nonperforming loans. And this is also influenced by some write-offs and successful resolution of the big corporate client sites that were nonperforming and some sales of receivable. As far as the provision coverage of the nonperforming loans is concerned, it's very stable, and the effect and I would say, the variation is linked to this sales of receivable and resolution of the corporate files. So maybe more interesting is to see the effect on the cost of risk. So if we can go to the next slide. So for the fourth quarter, we are in net release of CZK 130 million. And here, on the non-retail portfolio, once again, it's driven by the release of the inflation reserve and this successful resolution of the client situation that I mentioned earlier. And at the same time, we also decided to modify a bit some assumptions on our reserves and to keep reserve with more broader assumptions linked to these unstable situation, whether it's macroeconomic or geopolitical. On the retail exposure, this is the net creation here, but this is driven by also the adjustment in the reserve assumptions. And this is I would say, for the newly assumption created for the reserve for the coming years, we are here impacting more of the small business exposures. So all in all, for the full year, it's a net release of almost CZK 1.5 billion, so minus 16 bps, which is obviously very low point, but it was logical, given all quarters' evolutions. Here, maybe one comment is that cost of risk is always seen as more through the cycle. So some years might be obviously impacted by some exceptional resolution of long-dated situation with client. This was the case this year. We also had the impact -- positive impact of the very high-quality portfolio, which led to very low inflow of problematic loans, this is also linked to what was mentioned that we are growing with mortgage and big corporate loans, which are the, I would say, the bulk of our exposures, and we are less present in segments which naturally brings some cost of risk, and this is what we are going to develop for the coming years. So, again, on the non-retail side, it's mainly the effect of repayments and successful resolution and the adjustment of assumptions of the overlay. And on the retail, as I mentioned, it's intrinsically very low inflows of default and the adjustment of overlay. And I give you the floor back, Etienne. Etienne Loulergue: Thank you, Anne. And I will comment on the capital adequacy ratios. So we maintained a solid level of solvency ratio with 17.9% at the end of 2025, which is well above the overall capital requirement set by the regulation. We are more 130 basis points above this requirement. The main -- first maybe the composition of this capital adequacy ratio is very qualitative with Core Tier 1 ratio standing at 17.1%. and the Tier 2 instrument in our own funds represent 0.8%. The main components of the evolution of this ratio are stable Core Equity Tier 1 part of the capital, stable level of Tier 2 instrument in 2025, so stable in terms of regulatory on funds. While on the denominator side, the risk-weighted assets grew by 2.4% in 2025 to reach a level of CZK 580 billion. Of course, we have maintained our provisioning for the dividend at 100% on the cumulative net profit of 2025. This is a transition for the next slide. Being in this solid capital adequacy ratio situation, we confirm our intention to distribute 100% of the net profit to 2025 as guided across 2025. So we will distribute the CZK 18.1 billion of total net profit for last year, and it represents an impact per share at CZK 95.6. Now coming to the forecast for 2026, considering our conditions to grow further our loan book and contribute more to the funding of the Czech economy and grow our commercial footprint. We see an acceleration of our loan production in 2026 and therefore, an acceleration also of our risk-weighted assets. And as we, of course, want to stay always with a solid capital adequacy ratio. We consider that it is time to slightly reduce the payout policy. Remember that we have distributed 100% of the net profit for three consecutive years, but always mentioning that it is kind of extraordinary situation with an expectation to accelerate again on the credit side for 2026. We consider that it is prudent, but still very satisfactory to guide a distribution of 80% of the net profit in 2026. Next slide, please. To comment on our outlook for the year 2026, of course, in the central scenario. First, the assumptions on which we base our scenario are the following, we foresee, again, solid growth of the gross domestic product of the Czech Republic at 2.7%. We also forecast a good control of the inflation below 2%, and also stability of overall of the interest rate environment, starting with the short-term rates, the 2-week repo at 3.5%. And by the way, probably as you noticed, it was confirmed yesterday by the Czech National Bank in their public statement. Based on this assumption and our ambition to continue to grow our commercial books, we forecast for the loans to client growth in the range of mid- to high single digits in both segments, retail and corporate, probably slightly higher in retail, thanks to the dynamism of the household consumption. On the front of client deposits, we also target to grow mid- to high single digits as it is consistent with the loan book. On the net banking income, our ambition is to grow mid- to high single digits with the contribution of the main components, of course, the net interest income first, but also growing again on net fees and commission and net profit from the financial operations. On the front of operating expenditures, after having decreased in '25 compared to '24, we count with coming back in a slight growth of the OpEx in '26, but with low single-digit growth. The combination of this low single-digit growth in OpEx and higher growth in the net banking income, we should enable to deliver, again, a positive growth effect in 2026. For the cost-to-income ratio and decrease it in the range of 43% to 44%. Regarding the net cost of risk in 2026, coming from the exceptional 2025, which was in net release representing 16 basis points of net release overall. Now in '26, we are cautious, and we expect to return to creation of loan loss provisions. However, in the range that is lower compared to the average level that we have observed through the cycle. Bottom line, the return on equity should stay in a very satisfactory level between 13% and 14%, considering again that the net cost of risk should come back in creation of provisions. Of course, we commit to maintain a solid level of capital adequacy ratio, and we maintain our guidance to stay in the range of 17.5% to 18.5% for our ratio, which is 100 basis points above the overall capital requirement set by regulation. And I hand over to Jan Juchelka for the final conclusion. Jan Juchelka: Thank you very much, Etienne. Thank you for giving us your attention. It's -- there is a hard work behind us in 2025, especially on the side of cost management, on the side of crafting the finalization of the transformation program. We believe we are perfectly equipped for 2026 on both retail and corporate segments to attack the market with a growing loan book and growing deposit base. We believe that in the dialogue of Czech Banking Association where KB is an important member, we will continue the constructive dialogue with the government who presented pretty ambitious parts of public investments. We believe that private investments from our corporate clients will follow, and the consumption and investments of households will continue remaining strong. This is the main assumptions on which we are building our conviction that 2026 should be another strong year of Komercni banka. Thank you very much. I am shipping the word back to Jakub Cerny for conducting the Q&A part. Jakub Cerný: Thanks to all the speakers. In the next part of today's meeting, we will be happy to answer your questions. [Operator Instructions] Thank you. So our first question comes from the line of Cihan Saraoglu from HSBC. Cihan Saraoglu: I have two quick questions. One is with regards to how much inflation overlays you have left? Have you consume all of those, released all of those in 2025? And the second one is with regards to competitive landscape in the deposit market, particularly, I remember in the first -- towards the first half of 2025, deposit competition was somewhat escalating. And then you're also saying that you want to -- you commented that you were not really happy -- too happy with the acceleration in your deposit book in terms of growth. So how do you see the competitive landscape and how confident are you with regards to your deposit growth guidance? Anne Laure de Kouchkovsky: I will start with your question on the inflation reserves. So here, just maybe to remind a model are backward looking with some forward-looking coefficient. And what we put in the reserve is more like what we cannot capture with the models. Then this is based on many assumptions. And I explained inflation being no more one of our concern. And we see that it's going to a very, I would say, the lower level than it used to be in the past. We considered changing the assumption. So under the so-called pure inflation, we don't have any reserves, but we considered that the environment being still very unstable on other, I would say, geopolitical macroeconomic concerns, we kept the reserve both in the corporate and on the small business for the retail part. Jan Juchelka: If I may continue with the deposits and the competition on that front. Yes, you are right. The composition of our deposits was and remains, let's say, slightly different on the side of current accounts versus saving accounts or term deposits. So if you wish, unpaid versus paid parts of the deposit. It's visible here in the Czech Republic that we are opening advertising company with pretty attractive levels of rates for our retail clients. We see the tendency of our clients to either bring back fresh money, should they be already existing clients or bringing money as a new client. So slowly but steadily, we believe that we will be building even stronger pillar of our deposits for further funding of -- financing of Czech economy. As far as pricing is concerned, we are not the leader. We are not proposing the highest-ever rates. Nonetheless, we know that it will not go forward without leaving some money on the table in favor of attracting fresh money into the bank. So if you wish we slightly adjusted our approach to collection of new deposits. When speaking about deposits on the corporate side, we believe that smaller the companies longer the deposits stay in the bank. So we are, again, more or less, as we speak, we are back to the market with very attractive rates for small businesses where we were lagging behind our traditional market shares. And we continue pushing on a cross-sell of these clients using the deposits as an anchor product in the new platform. Jakub Cerný: [Operator Instructions] We still have a question from Marta Czajkowska from IPOPEMA. Marta Czajkowska-Baldyga: I have a few questions. First, you mentioned that there was a pressure on credit margins in the fourth quarter. Can you just elaborate on that, which credit lines are more exposed to that pressure and whether you expect this to continue? The other question is on the 2026 outlook, where do you see the potential for growth for NII is this coming only from loan growth, the mix of the loan growth or the margin expansion? And also on the fee income, where do you see the prospects for higher growth to support the revenue streams? And on the cost side, if I may, you mentioned you expect slower growth. If you could elaborate on the potential for cost savings in 2026. Etienne Loulergue: I will start with the outlook. So you are right that we expect growth of the net interest income. It is -- our assumption is based on growth of the volumes, not only loans, deposit as well. Even though indeed, we have higher growth on the paid deposits, more than the nonpaid deposit, even paid deposits we are able to generate margins additional on them. So we expect growth from deposit and loan volumes. And if we focus more on the loan portfolio, it's also a question of mix indeed. We forecast to accelerate on the consumer loans, for example, where we didn't grow so much in 2025, and we have a much higher expectation in 2026. And definitely, on this type of loan, we have better margin. In the field of fees, we expect to grow in different categories of them. I will mention, of course, the cross-selling fees, where we expect a rebound in asset management fees, definitely, but also transactional fees as after having achieved the migration to the new subscription plan, now we expect to grow, thanks to volume growth. Regarding costs, we have mentioned that in 2026, we expect rather an increase compared to 2025, but in the low single digits. So we don't expect to decrease further the OpEx in 2026 compared to 2025, but to be back slightly in growth under a very good control, of course. This growth is driven by an increase in the depreciation that is expected and again, fully under control because we have a road map of the put in use of all the investments we have achieved in the recent years. And on top of that, a slight increase of the other component of the operating expenses, both staff and general administrative, sorry, expenses, but in a very low single digits in both cases. Coming back to the pressure on margins on credit. It is true that the market is very competitive, and we saw it in Q4. We can say that, for example, on mortgages, which is market growing very fast. We are also facing intense competition, and we saw a cushion of a few basis points on the margin -- on the mortgages. However, as this product remains a core project to anchor the long-term relationship with the client. And with this product, we are able to generate cross-sell, especially on fees, but also by securing some stable deposits on the balance sheet, we truly believe that it is worth accepting a slight decrease on the spread and mortgages, but securing additional revenues side. Jan Juchelka: If I may, just a few additional words, Etienne. You probably know that in the field of consumer loans in the field of small businesses, we are somehow lagging behind our natural market share. We believe that we have the means to fill the gap here and to be much more active on providing consumer loans to Czech households and providing the appropriate financing to small businesses. And we have acquisitive ambitions on that front. So we want to grow. And this is one of the main sources of NII down the road, especially when you take into account that households will be -- will continue their strong economic activity also in 2026 and on. We believe that those are also two subsegments where the margins are still achieving pretty nice, pretty nice, pretty nice numbers. Let me also remind that on the side of mortgages, we are currently collecting anything around 20% of new production from the market. Again, I will never miss the opportunity to say that we do it with 1/2 of people than we used to be -- than there are used to be. There is still obviously a margin lower than on consumer loans. We see that oscillating between 60 and 80 bps for 2025. Hence, here, the volumes will be, let's say, prevailing and creating also the perfect base for cross-sell to clients, which are taking long-term mortgage from KB. Marta Czajkowska-Baldyga: Okay. Just one follow-up on your dividend policy. Going forward, post 2026, could the market expect a continuation of 80% payout ratio in the following years as well? Jan Juchelka: We feel super responsible in front of the shareholders. And when speaking about shareholders, obviously, there is one which collects 60% of the ownership, but there is anything between 70,000 to 80,000 institutional and private individuals, which are representing the 40%. And we are simply guiding our dividend payout through the filter of do we have better use for the excess of capital or not? If not, we are giving it back to the shareholders. When we see our forward-looking predictions, we will always keep as much capital as needed for securing our organic growth. And the rest will be for investors. Should that be 80% on the long term, it's pretty too early to say. We'd rather stay on the safe side and guide the market only for the ongoing year. But we will do our best to keep it at satisfactory levels. Jakub Cerný: [Operator Instructions] So we don't seem to have any further questions at this point. So I'm handing back to the CEO for a concluding remark, please. Jan Juchelka: All right. Again, thank you very much for this numerous presence in our con call. We very appreciate your attention paid to Komercni. We are looking forward to come back to you at latest with the next first quarter presentation. In the meantime, we entirely stay at your disposal for potential questions should you have any. And thank you very much and the team of Investors Relations and all my colleagues here to help with the presentation and answering your questions. Thank you, and have a good rest of the day. Jakub Cerný: Thank you all. This has concluded our call today. You can now disconnect. Good bye.
Operator: Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference call. Tyler Burns: Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mongeau; and Chief Financial Officer, Tom Stewart. Before financial markets open today, Canopy Growth issued a news release announcing the financial results for our third quarter fiscal 2026 ended December 31, 2025. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on the website under the Investors tab. Before we begin, I would like to remind you that our discussion during the call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks by Luc and Tom, we will conduct a question-and-answer session where we will take questions from analysts. With that, I will turn the call over to Luc. Luc Mongeau: Thank you, Tyler. Good morning, everyone, and thank you for joining us today. Q3 was a quarter where Canopy Growth delivered significant progress on multiple levels, and it reinforced my confidence that we're building stronger business. For me, the fundamentals of the business are both about how the business is performing and our financial strength, which allows us to execute with discipline. Across the organization, our teams are focused on the right things, and that focus is starting to pay dividends. We're building a company that can consistently deliver superior experiences for consumers and patients, grow and manufacture high-quality products and create consistent value over time. On the balance sheet, we ended the quarter with $371 million in cash and cash equivalents and a net cash position of $146 million, putting us on solid footing as we move into the next phase of execution. Post quarter end, we completed a USD 150 million recapitalization that improved our liquidity and extended all debt maturities to 2031. This gives us more flexibility around near-term financing, including how and when we use tools like the ATM and more room to make the right long-term decisions. This financial strength matters because it allows us to act intentionally. A good example is the proposed acquisition of MTL Cannabis, which we announced during Q3. MTL brings an accretive profile, a strong entrepreneurial leadership team and high-quality cultivation capabilities to our platform. They've built a profitable, cash-generating business that we expect to be accretive to the combined organization. High-quality flower, cost efficiency and operational discipline are the foundation of any scale cannabis company, and MTL strengthen our ability to achieve all three. Following closing, MTL will strengthen our leadership position in Canadian medical cannabis, enhance our presence in Quebec adult use, and importantly, provide high-quality flower supply that we can leverage to drive growth domestically and in international markets. Turning to our Q3 business results. The focus on fundamentals is really paying off. In Q3, we delivered our slimmest adjusted EBITDA loss to date, driven by continued cost discipline and improving execution across our Canadian medical and adult-use channels. In Canada medical, net revenue grew 15% year-over-year, our sixth consecutive quarter of growth, supported by a high-quality, best-in-class patient experience, strong service levels and increasing engagement with insured patients. We've also taken deliberate actions to preemptively mitigate the financial impact of the proposed changes to the veterans reimbursement program while continuing to support veterans with best-in-class care and innovative high-quality products. We expect to continue strengthening this platform, maintain our leadership position in Canadian medical cannabis and use our scale to elevate service and drive margin improvement over time. In Canadian adult-use, we're seeing continued momentum as well, with net revenue up 8% year-over-year. Growth this quarter was driven by strength in pre-rolls and vapes supported by focused innovation and improved execution at retail. What really gives me confidence here is not just the growth we're seeing today, but where we're directing our attention. We're shifting our focus towards elevating the quality of our brands, strengthening product innovation and improving the quality, potency and cost of our flower to delight consumers and patients alike. Looking ahead, our focus now turns to unlocking the next phase of growth, particularly in Europe, where we are spending significant time and attention. In Q3, we started stabilizing the international business, improving execution and laying the groundwork for growth with net revenue up 22% sequentially. Progress on EU GMP certification at our Smiths Falls facility, combined with our continued focus on elevating flower quality across our sites, is expected to position us to better serve international medical markets as demand continues to develop and regulations continue to evolve. Additionally, access to MTL's high-quality supply will fuel our strategy. There's more work to do, but I see a meaningful opportunity ahead. At Storz & Bickel, net revenue grew 45% sequentially, with the new VEAZY vaporizer reinforcing our strategy around affordability and portability. Our focus remains on accelerating product development and strengthening sales and market execution, especially in North America, where we believe cannabis consumers should experience the joy and fullness of flavor that an S&B device offers. In the U.S., through Canopy USA, we remain indirectly invested in one of the world's largest THC market, providing us with long-term strategic optionality as the regulatory environment continues to evolve. So overall, this was a quarter of real progress. Our balance sheet is stronger, Canadian cannabis sales are growing, and the confidence of our team continues to build. Looking ahead, the business is well positioned to unlock additional value through elevated cultivation, innovative brands and disciplined execution. I'll now turn it over to Tom to walk through the financial results in more details. Thomas Stewart: Thanks, Luc. I echo your sentiments and remain confident in the direction our business is heading. The third quarter reflects our continued focus on disciplined execution across the business, while sustaining cost savings and significantly improving our balance sheet. With our aggressive cost-saving actions taken to date, we have been able to identify and capture $29 million of annualized savings, far exceeding our initial expectations. This, coupled with the growth we are witnessing in the Canadian business, gives us the confidence that we can achieve our goal of positive adjusted EBITDA during fiscal 2027. Turning quickly to the balance sheet. We ended the quarter with our strongest net cash position since fiscal 2022 with $371 million of cash and short-term investments and a net cash position of $146 million. We further strengthened our balance sheet subsequent to quarter end with the previously announced recapitalization, which enhanced our near-term available cash while extending our debt maturities to 2031. These actions reinforce our financial foundation as we continue to execute against our operating and strategic priorities while expanding our near-term financing flexibility, including greater discretion over the timing and use of our remaining ATM capacity. With this level of balance sheet strength and expected sustained improvements to our operations, I'm extremely encouraged as we close out the fiscal year. I will now review our detailed segment results, starting with global cannabis. Q3 cannabis net revenue was $52 million, up 4% compared to a year ago. This growth was led by Canada medical cannabis with revenue increasing 15% year-over-year to $23 million, marking another record quarter. This growth was driven by continued expansion in insured patient registrations and larger order sizes. Our medical teams' focus on improving service levels, including faster fulfillment and reduced shipping times, continues to generate positive results. Canada adult-use cannabis revenue increased 8% year-over-year to $23 million, supported by growth in infused pre-roll joints and our new All-In-One vapes from Tweed and Claybourne. In addition, disrupted retail operations in British Columbia reduced purchases by the province during the quarter, which created revenue headwinds not expected to recur in the fourth quarter. Turning to international cannabis. Sales increased 22% quarter-over-quarter, reflecting stabilization and a return to growth. As we retooled our supply chain, we saw encouraging signs of operational improvements as we exited the quarter. Cannabis gross margin was 25% in Q3 as compared to 28% in Q3 last year. The year-over-year decrease in gross margin percentage was primarily attributable to lower sales in international markets and a change in sales mix within the Canadian adult-use market. Turning to the performance of Storz & Bickel. Storz & Bickel net revenue was $23 million in Q3, an increase of 45% sequentially, driven by traditionally strong seasonal sales with Black Friday online sales increasing 16% year-over-year and the first full quarter of sales for the new VEAZY device, offset by softer demand in certain markets and tariff-related pressures. Storz & Bickel gross margins decreased to 37% in Q3 from 40% last year with tariff impacts and lower volumes providing gross margin headwinds. Moving to operating expenses. Excluding the impact of acquisition, divestiture and other costs, which includes litigation costs and recoveries from previously divested businesses, SG&A expense decreased 12% year-over-year. This improvement is the direct result of our ongoing cost savings initiatives, which remained a central focus for Canopy. These savings, combined with the performance of our Canadian cannabis business led to our narrowest adjusted EBITDA loss to date of $3 million. We remain focused on balancing cost discipline with maintaining the capabilities required to execute in our core markets. Free cash flow was an outflow of $19 million in Q3 fiscal 2026, down from an outflow of $28 million in the same period last year. The year-over-year decrease primarily reflects a reduction in the cash interest payments due to a reduction in our debt balances and decrease in working capital movements. As we move forward, our focus remains on delivering positive adjusted EBITDA in fiscal 2027, improving inventory turns and tighter capital allocation, all of which support sustainable free cash flow improvements. Looking ahead, in Canada cannabis, we expect continued strength in adult use driven by innovation, expanding distribution with key accounts and elevating our flower capabilities. In Canada medical, we remain focused on patient growth and service excellence which we expect to continue to drive growth in the medical channel. In international cannabis, our priority is operational stability and execution with sequential improvements expected in Q4 and into fiscal 2027, driven primarily by performance in our European markets. With this momentum, we expect to see improvements in our cannabis gross margins in Q4 and into fiscal 2027. At Storz & Bickel, VEAZY momentum and cost discipline remain key drivers as we navigate near-term macro and tariff headwinds. With Storz & Bickel's strongest quarter being Q3 traditionally, we can expect the sequential top line comparison in Q4 to be challenged. With the expected growth in top line revenue on improved gross margins as well as the cost saving initiatives executed today, we would expect Canopy to achieve positive adjusted EBITDA during fiscal year 2027. Furthermore, upon the expected closing of the MTL transaction, Canopy expects to consolidate MTL's results from the closing date onwards, which will contribute to net revenue, gross margin and adjusted EBITDA improvements. While integration planning is already underway, our immediate focus post close will be on ensuring operational continuity and beginning to capture the strategic and cost synergies we have previously outlined, while also maintaining our disciplined approach to financial management. In closing, I want to underscore that our priorities across the business remain clear and unchanged, rigorous operational execution, disciplined capital allocation and achieving positive adjusted EBITDA. With these three elements, we are positioning Canopy for sustainable long-term success. I will now turn it back over to Luc for his closing remarks. Luc Mongeau: Thank you, Tom. For me, the takeaway from this quarter is clear. The focus we've placed on fundamentals is working, and it's strengthening the foundation of our business. We have made real progress on the balance sheet, build momentum across our Canadian cannabis businesses, and took an important step forward with the proposed acquisition of MTL Cannabis. With that foundation in place, our focus now shifts to accelerate in Europe, expanding the reach of Storz & Bickel and elevating cultivation, quality and efficiency at scale across our platform. From my very first day, I believe that Canopy Growth has the potential to transform, refine its focus, improve its structure and deliver on its promise of a sustainable and profitable cannabis company. With each quarter, we're demonstrating sustainable improvement, and I'm confident we're positioned to gain further momentum as we move into fiscal 2027. Thank you. Operator, we'll now take questions. Operator: [Operator Instructions] First question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: First for me, I just wanted to dig a bit more in terms of the international business and what to expect maybe for the next 12 to 18 months for growth opportunities. MTL had a small international business today, but it does seem their production capabilities could help you improve your international supply chain. So maybe any color in terms of how to think about the timing of that flowing through? And is there any additional capacity needs to ensure MTL's legacy domestic business continues to be serviced? And then additionally, in terms of the EU GMP at Smith Falls, how should we think about potential timing of that and that improving your international supply chain capabilities? Luc Mongeau: I hope you're well. Thank you for the question. Okay, there's a lot to unpack here. Let's start with flower. So we've demonstrated in the past, when we have flower in Europe, our capabilities out there, whether it's sales, distribution, I mean, deliver results. And so the focus is really in ensuring that we have the right supply of flower going to Europe. So we've been -- the team have been doing quite a bit of work in recent weeks and months to ensure that our demand signals that we're seeing in Europe are well integrated with our growth capabilities in North America. And this has been pretty much fully resolved. So we're in a good place where we can really meet the demand better than we did in the past. Let me give you a bit of a -- maybe a bit of a data point. So during Q3, our sales team in Europe had about two strains -- for a long period of time, two strains to sell. We forecast that in early fiscal '27, they'll have over a dozen different strains up to sell. So we're confident that we're unlocking supply of flower there. This will build on the unique capabilities that Canopy has established over the years. So Smith Falls is already EU GMP qualified. We're going for a, let's call it, a second level of certification. All the docs are in a road to get this approved. So we feel confident there. As well, we have the facility in Europe, and we have a facility in Germany in SLR that can receive, clear and distribute flower in Europe. And we're continually doing operational improvements there. So we feel really good there. As for MTL expanding capacity, we've met with the extremely qualified team there. They have amazing growers. Plans are in place to ensure capacity improves. As well, we're working on our facilities at Canopy to improve yield out of our facilities and the work streams are there. We're seeing great progress. So our level of confidence to build step change performance in Europe next year is building every week. Aaron Grey: Appreciate the color and data points there. That was really helpful and thorough. Second question for me is maybe just touching on the expectations for the gross margin, both on the legacy business, on how you expect those to trend, particularly for cannabis, which has been volatile over the past few quarters, both on the up and downside? And then how best to think about layering on MTL, which has had a higher legacy gross margin profile? Thomas Stewart: Yes. Thanks, Aaron. I'll take that one. So as Luc said, we're excited about the acquisition of MTL and believe it really complements and enhances the existing business in Canada as well as abroad. With MTL's historical margin performance, which you're right, does exceed ours, we're targeting in the near term here, we blended gross margin of, say, mid- to high 30s. But I think there's still a lot of runway after that as we see the European business stabilizing and grow just given the high price points in the European market. So definitely, we expect the MTL transaction to be accretive to gross margin and as well as to our adjusted EBITDA. Operator: The next question comes from Bill Kirk from ROTH Capital Partners. William Kirk: Tom, when you said a positive adjusted EBITDA during 2027, does that mean for the full year? Or does that mean one of the quarters in the fiscal '27 will be positive? And do you expect positive numbers if you were to exclude the contribution from MTL? Thomas Stewart: Yes. So a couple of parts there. So as I said on the call, Bill, I am encouraged by the progress we continue to make to grow the business and course correct our cost structure. We continue to work towards achieving adjusted EBITDA positivity as soon as possible. We will benefit -- or we will see headwinds with the veteran changes, and that's a lot of the reason why you're seeing us take more aggressive cost-saving actions now. So I'll say we're trying to get there as quickly as we can, Bill, and we would expect to be there at some point during fiscal 2027. William Kirk: Okay. And then for my second question, the indebtedness maturities are out to 2031. You're sitting on net cash. So would you expect the period, the last 5 quarters or so, that period of large equity issuance and dilution, would you expect that to be over? Thomas Stewart: Yes. So yes, we're pleased with the current balance sheet position we're in after completing the January recap with a lot of the cash we have on hand now, I would fully expect that does reduce our utilization at the ATM in the coming quarters, but we will preserve capacity for future strategic opportunities as and if they arise. Operator: [Operator Instructions] The next question comes from Pablo Zuanic at Zuanic & Associates. Pablo Zuanic: Luc, can you comment in terms of the domestic medical business, there's this proposal in the budget to reduce the cap for veterans from $8 per gram to $6 per gram that could become effective by April 1? Where are we that? Is there room do you think that, that will be delayed or scratched? Luc Mongeau: Pablo, thank you for the question. This is a very important subject, and we want to make it clear that Canopy is really not in support of this reduction because it can potentially impact the level of care that veterans receive. So as you can imagine, we've channeled a lot of efforts to work with the authorities to see if this could be either delayed or the reduction may be minimized. So far, we have not been successful. So we're taking all the actions to maintain both the integrity of the quality of the care and service the veterans are receiving. And at the same time, we're taking all the actions to maintain the integrity of our margins. So as Tom said, we were -- we took additional actions to be even more stringent on our efficiencies on cost savings. We're able to find more cost savings. So we're doing everything we can to maintain the integrity of our margins. Tom, anything to add? Thomas Stewart: No, I think it definitely presents a headwind for us, but we're taking the actions now prior to the changes coming to effect to make sure we could preserve adjusted EBITDA performance to the full extent possible. Pablo Zuanic: Right. And before I ask my follow-up, I mean, according to my math, the veteran part of the domestic medical business, it's almost about 2/3 of the market. Or am I wrong in that calculation? Thomas Stewart: You mean the total cannabis market on the medical side in Canada, Pablo? Pablo Zuanic: Right. Yes. Would the veteran piece be about 2/3 of the total market roughly? Luc Mongeau: 2/3 of the total medical? Pablo Zuanic: Yes, of the market in Canada. Luc Mongeau: Yes, no, that's -- we can follow up with you. For me, I look at the market in a couple of ways. The adult-use market in Canada is close to $5 billion, growing at 4% to 6% every year. The medical market is about somewhere between $300 million to $400 million. We can get back to you with the exact numbers. The veterans are a good portion of the medical market, but there are other large group of insured and noninsured medical patients in Canada as well. So what's important there, Pablo, is that, look at it, in the last quarter, we grew at 50% in this highly profitable market. MTL is growing at double digits as what was their last reported results. Combined together, we're going to be the #1 player there. We care about the veterans. We care about all cannabis patients in Canada. And we're doing everything, as I mentioned, to maintain the integrity of our service and our care and the integrity of our margin. So as we come together with MTL, we'll look at every single synergies possible there. We'll have the benefit of greater scale to maintain margin integrity and more to follow. Operator: Next question comes from Brenna Cunnington at ATB Capital Markets. Brenna Cunnington: So just looking back to the balance sheet here. So cash balance of roughly $376 million ending the quarter and roughly $425 million following the recapitalization, so quite the war chest that you're building up here. We know that some of the cash will be going towards the consideration for MTL. So kind of a two-pronged question here. So could you shed some light on roughly how much cash you're wanting to keep on hand and the top priorities for the excess cash? And then also, could you remind us of roughly how much spend will be needed right off the bat for MTL integration? Thomas Stewart: Brenna, so I would say from a cash standpoint, we want to make sure we have sufficient flexibility, and we want to maintain sufficient cash if we -- as and if we find opportunities in the market. So I'm not going to pinpoint that to a number, but I would say this is a healthier position than probably you would expect in terms of cash level. For the MTL acquisition, and again, this is math we could do here. But it will be probably between $40 million and $50 million of costs is what we're expecting the cash outlay to be, Canadian dollars, for the MTL acquisition. Brenna Cunnington: Okay. Perfect. And then just looking at Storz & Bickel, so good to see some of the improvements here. Looking ahead, and apologies if I missed this in the prepared remarks, but given the dynamics at play here, what can be done to help improve sales and make it sort of more stable going forward? Luc Mongeau: Yes. Thank you for the question. Storz & Bickel, amazing brand, amazing products, amazing company. I strongly suggest to anybody who has never used the device to try it. It's still a brand that has very low brand awareness, very low trial and everything, especially in the U.S. And so it's -- the strategy to drive growth and value creation is two-pronged. Real expansion of market penetration, usage in the U.S. and well acceleration of the innovation, this -- an innovation we see in a couple of ways, price point expansion. As we expand into affordability, we see the brand really exploding. We're seeing it with the VEAZY right now, which is the entry-level device, and it's doing extremely well, and we will continue to expand that way. And right now, we're only offering devices that are suited to flower, and we can expand the brand into devices that use concentrates and distillates, which is a very large segment of the market that we're not playing in. So multiple avenues for growth and value creation expansion for the brand. Operator: Thank you. This concludes Canopy Growth's Third Quarter Fiscal 2026 Financial Results Conference Call. A replay of this conference call will be available until May 7, 2026, and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Investor Relations team will be available to answer additional questions. Thank you for attending today's call.
Operator: Good morning, ladies and gentlemen, and welcome to the Cousins Properties Fourth Quarter Conference Call. [Operator Instructions]. This call is being recorded on Friday, February 6, 2026. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead. Pamela Roper: Thank you. Good morning, and welcome to Cousins Properties Fourth Quarter Earnings Conference Call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; Gregg Adzema, our Executive Vice President and Chief Financial Officer; and Kennedy Hicks, our Executive Vice President and Chief Investment Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information link on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings. The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of the potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly. Michael Connolly: Thank you, Pam, and good morning, everyone. We had a strong 2025 at Cousins. On the earnings front, the team delivered $0.71 a share in FFO during the fourth quarter, which is in line with consensus. In addition, we delivered $2.84 a share for the full year in 2025, which represents 5.6% growth over 2024. Importantly, leasing remained robust. We completed 700,000 square feet of leases during the quarter, which is our second highest quarterly volume over the last 4 years. And for the 47th consecutive quarter, we delivered a positive cash rent roll-up on second-generation leasing. Earlier this week, we acquired 300 South Tryon, a trophy lifestyle office property in Charlotte for $317 million, which strategically expands our presence in the Uptown submarket. These are remarkable results all around. Let me start with a few observations on the market. Most major companies are phasing out remote work. Home Depot here in Atlanta is the latest Fortune 500 company to end work from home entirely. Thus, office fundamentals are improving. Demand is growing as leasing hit a post-pandemic high in 2025. Vacancy is declining with new construction starts at de minimis levels, any meaningful increase in new supply is 4 to 5 years away. The net result of these trends will be a shortage of high-quality space that will be particularly acute in 2028, 2029 and 2030. Importantly, for Cousins, corporate migration to the Sub Belt has reaccelerated. As a result, our leasing pipeline is robust across all markets. We see a notable pickup in leasing interest from West Coast and New York City-based companies, particularly among financial service and select large-cap technology companies. While not necessarily full corporate relocations, they are significant regional hubs and in some cases, highlight growth away from high tax and high regulation states. The recent mayoral election in New York and wealth tax proposals in California only reinforce these trends. A slowing labor market is raising some concern about office leasing. However, as I said, demand is actually accelerating. I'll explain why. Office using employment growth was historically high during the pandemic. At some companies, headcount almost doubled. Because of the pandemic, many of these new hires were remote and associated office space was never leased. Now as return to office mandates have become widespread, many companies lack the space to accommodate their pandemic era headcount growth even after recent layoffs. Simply said, the tailwinds from accelerating return to office remain greater than the impact of a slower job market. This is an excellent setup for Cousins to advance our strategic plan. Our team remains sharply focused on driving earnings growth while maintaining our best-in-class balance sheet and enhancing the quality of our Sub Belt lifestyle portfolio. I will share some 2026 priorities. First, we plan to grow occupancy in 2026. At quarter end, the portfolio was 88.3% occupied and finally reflects the expiration of Bank of America's lease in Charlotte. We have modest lease expirations in 2026 and a late-stage leasing pipeline that now totals over 1.1 million square feet. While the ramp will be weighted towards the back half of the year, we have a goal of achieving occupancy of 90% or higher by year-end 2026. We believe this goal is achievable, but will be highly dependent on the timing of lease commencements, which are outside of our control. Simply said, though, timing, not underlying leasing demand will be the risk in achieving this goal. Second, we hope to execute additional accretive investment opportunities. Our track record highlights our openness to a wide variety of transactions, including property acquisitions, debt, structured transactions and joint ventures. However, our core strategy remains the same, invest in properties that already are or can be repositioned into lifestyle office in our target Sub Belt markets. To fund any new investments, we will always evaluate all of our options. To be clear, new equity at today's stock price certainly does not make financial sense. Dispositions of noncore assets, settling shares already outstanding on our ATM and/or utilizing the balance sheet are more likely options. While sometimes characterized as conservative, we view our low levered balance sheet as an offensive tool. At select times in the past, we have modestly flexed up our leverage to take advantage of compelling investment opportunities. Given improving property fundamentals and a scarcity of competitive office capital, this could be one of those moments. We will remain agile and opportunistic with any acquisitions and/or dispositions. And as always, our capital allocation decisions will prioritize earnings accretion while maintaining our financial strength and enhancing our portfolio quality. Lastly, we hope to identify a new development start that could break ground in late 2026 or 2027. As I mentioned earlier, large users with '28, '29 and 2030 expirations are facing a significant shortage of large blocks of premier space and will likely need to consider new construction. We hope to capitalize on this dynamic as select development with meaningful pre-leasing has been a powerful source of long-term earnings and NAV growth for Cousins. Last night, we introduced 2026 FFO guidance of $2.92 a share at the midpoint. This guidance forecast implies 2.8% growth over 2025. This would be our third consecutive year of FFO growth and would represent a 3.7% compounded annual growth rate over this time period. This performance is simply unmatched among other traditional office REITs. Our team's ability to drive both internal and external growth is the key. We are excited about what is ahead for Cousins. As I said, demand is accelerating, new supply is at historical lows. The office market is rebalancing. We are growing earnings. Bank of America independently ranks our portfolio as the highest quality in the office REIT sector, and the balance sheet is exceptionally strong, and our G&A is highly efficient for our investors. Before turning the call over to Richard, I want to thank our dedicated Cousins employees who provide outstanding service to our customers and each other every day. Richard? Richard Hickson: Thanks, Colin. Good morning. Our operations team ended 2025 with another great quarter and once again delivered a full year of fantastic operating results for our shareholders. In the fourth quarter, our total office portfolio end-of-period leased and weighted average occupancy percentages were 90.7% and 88.3%, respectively. Our portfolio leased percentage was sequentially higher, driven by gains in Atlanta, Tampa and Phoenix. Our portfolio occupancy was flat sequentially as we expected, with occupancy either increasing or holding steady in every market except Charlotte. Regarding occupancy in Charlotte, the impact of Bank of America's expiration at 201 North Tryon is now fully reflected in our occupancy. As Colin mentioned, our occupancy outlook remains the same. Our exceptionally low 2026 lease expirations of only 4.8% of contractual rent and continued strong new leasing demand are important tailwinds in our focus on driving occupancy gains. Leasing volume in the fourth quarter was very strong for Cousins. Our team completed an impressive 39 office leases totaling 700,000 square feet with a weighted average lease term of 9.6 years. This is our highest quarterly square footage volume of the year and the second highest in the past 4 years. Our total signed activity for the year exceeded 2.1 million square feet, which was the most since 2019. This quarter, 493,000 square feet of our completed leases were new and expansion leases, representing 70% of total activity. For the full year, new and expansion activity accounted for a healthy 55% of our activity. Our average net rent this quarter came in at 36.52 and leasing concessions, defined as the sum of free rent and tenant improvements were above trend at $10.58. As a result, average net effective rent this quarter came in at a lower $23.18. It is important to note that we completed 211,000 square feet of leasing at Northpark this quarter, including a very important 166,000 square foot new lease with AT&T. While this activity is clearly very positive, Northpark lease economics are generally lower than the balance of our portfolio. So for context, when excluding Northpark activity, our average lease economics were much stronger with net rent of $41.02, concessions of $10.03 and net effective rent of $27.96. The same dynamic holds true with our increase in second-generation cash rents this quarter. In total, this quarter, while still positive, cash rents only increased 0.2%. However, excluding Northpark, cash rents increased by a more substantial 10.4% and every market posted increases this quarter. At the market level, JLL reports that leasing volume in Atlanta registered a 5.8% increase quarter-over-quarter in the fourth quarter, marking the highest quarterly volume of the year. We have seen this demand in our portfolio, where we signed a phenomenal 361,000 square feet of leases in the fourth quarter, our highest quarterly volume in Atlanta since the first quarter of 2019. 70% of our quarterly activity was new and expansion leasing and included the AT&T lease at Northpark that I've already mentioned. Our total activity also included 2 renewals with Raymond James totaling 55,000 square feet in both Buckhead and Northpark. Net of our Northpark activity, the Atlanta team also rolled up rents an impressive 14.5% this quarter. Our Atlanta portfolio occupancy also increased for the second consecutive quarter to 84.2%, driven by commencements at Avalon and in Buckhead. In Austin, JLL noted that the CBD posted positive absorption for both the fourth quarter and the full year. In addition, with 1.3 million square feet of leasing activity market-wide in the fourth quarter, total leasing activity for the full year was the highest for Austin since 2021. Notably, leasing by technology companies played a meaningful role in the year's activity and nearly 1/3 of tenants currently in the market are technology companies. Across our Austin portfolio, we signed a solid 98,000 square feet of leases in the fourth quarter, and we ended the year at 94.8% leased. In Charlotte, CBRE noted that the fourth quarter rounded out with what was one of the strongest leasing years as of late, with leasing activity market-wide increasing 72% year-over-year. About 3/4 of that activity was new and expansion leasing, driven by large block and also new-to-market requirements. Along with that, there is no speculative new development currently underway. This supply and demand equation has already translated into solid rent growth in the urban core and the tightening conditions in Charlotte certainly bode well for our major redevelopments of 201 North Tryon and 550 South. Our 550 South redevelopment is reaching completion at a great time as the property will see a couple of move-outs in the second quarter that combined will total 128,000 square feet, all of which have been long expected and are included in our occupancy outlook. With that said, I'm very pleased to report that we are in lease negotiations with a new 87,000 square foot customer at 550 South that would take occupancy in 2026. While we don't yet have any specific activity to report at 201 North Tryon, we continue to see very encouraging demand for multiple large requirements for what we view as the highest quality second-generation large block availability in the market. In Phoenix, full year 2025 net absorption came in at over 700,000 square feet and fourth quarter absorption showed improvement over the prior quarter for JLL. Demand in the market continues to be focused on the most well located and high quality projects especially in Tempe and the Camelback Corridor. As such, the highest quality segment of the market has been successfully increasing rents. For example, prior to 2024, Phoenix had not seen a lease completed with a gross rent over $60 per square foot. As of today, 20 leases have been completed market-wide north of that mark. In the fourth quarter, our Phoenix team signed an incredible 177,000 square feet of leases, all of which were at our Hayden Ferry project in Tempe. Over 90% of our quarterly activity was with 3 new customers with all of them relocating their corporate headquarters to Hayden Ferry. I'm thrilled to say the entire project, inclusive of Hayden Ferry I is now 95% leased. The redevelopment of Hayden Ferry and resulting accelerated lease-up of the former SVB space and then some is one of the greatest success stories in Cousins recent history. I'll conclude with an update on our leasing pipeline. Our overall pipeline remains near peak levels and 60% of the overall pipeline is new and expansion leasing. In our December late-stage leasing pipeline update, we shared that 1.2 million square feet of activity was either signed quarter-to-date or in lease negotiations. Even after completing 700,000 square feet of volume in the fourth quarter, as of today, we still have over 1.1 million square feet of leases either signed quarter-to-date or in lease negotiations. Further, the amount of activity we have in lease negotiations is at its highest level in 5 years. With continued robust demand and activity progressing nicely through our pipeline, we believe we are positioned for an excellent start to 2026 on the leasing front. As always, I want to thank our operations team for everything they do to help make us successful. Again, 2025 was another fantastic year, and we are looking forward to continuing the momentum into 2026. Kennedy? Jane Hicks: Thanks, Richard. Good morning. As Colin discussed, one of our key objectives remains to identify and execute acquisitions that meet our criteria, lifestyle Sun Belt assets consistent with or better than the quality of our current portfolio that we can acquire and fund in a manner that is accretive to earnings and cash flow. While office transaction volume is increasing across our markets, we believe that we still have a competitive advantage as a well-capitalized buyer and operator, particularly when it comes to larger offerings. To that end, I'm excited to provide more detail on the acquisition of 300 South Tryon in Uptown Charlotte that we closed earlier this week. The 638,000 square foot trophy asset is an excellent strategic fit for our portfolio. The highly amenitized building sits in the heart of the urban core, boasting a walk score of 95 as well as very convenient vehicular access and direct connectivity to the Kimpton Tryon Park Hotel. Since its completion in 2017, the 100% leased building has served as Barings global headquarters, while also attracting a who's who of Amwell 100 and other professional service firms such as Mayor Brown, Ameriprise Financial, K&L Gates and RSM. Barings leases approximately 30% of the building. We acquired the building off market for $317.5 million or $497 per square foot, a basis that represents a significant discount to replacement cost. This equates to a 7.3% cash cap rate and an 8.8% GAAP cap rate. There's currently over 6 years of weighted average remaining lease term and strong upside potential given that the in-place rents are approximately 20% below today's market rate. This transaction and the seller's desire to work with us directly validates our competitive advantage within our markets. The asset is a great complement to our existing Charlotte portfolio, bringing it to 2.7 million square feet. The Charlotte market has recently been a top performer, leading the country in job growth in 2025 amongst major MSAs. As Richard mentioned, this dynamic, along with the dwindling supply of high-quality urban space has led to demonstrable recent rent growth in the top-tier buildings. We expect this trend to continue and perhaps even accelerate. Turning to dispositions. The private market continues to improve with equity and debt sources becoming more constructive around office opportunities, especially those of a smaller size. As we have discussed in the past, we view dispositions as one of several funding options for new acquisitions and eventually developments. Given the quality of our portfolio and balance sheet, we don't need to sell. But when there are opportunities to accretively rotate into assets that improve our portfolio composition and mitigate higher CapEx needs, we plan to execute. We are currently under contract to sell Harbourview Plaza in Westshore Tampa, scheduled to close in the first quarter for $39.5 million. This is a 2002 vintage building that is approximately 81% leased and due for a renovation. We were encouraged by the depth of investor demand for the building and decided that our resources are better invested in other assets going forward. We also have a land parcel, 303 Tremont in Southend Charlotte, now under contract to be sold to a residential developer. The contract price for the 2.4 acres is $23.7 million, and we expect it to close in the second half of the year. As you know, we maintain a very modest land bank, but similar to the rest of our portfolio, we are always evaluating the highest and best use of our capital. As this area of South End has evolved, our view is that this particular site is now better suited for a residential development as opposed to the office towers that we originally contemplated. Given the aforementioned office supply shortage in Charlotte, we continue to advance predevelopment efforts on our other South End site, 1435 South Tryon and remain enthused about the prospects for that eventual office development as well as others across our markets. Looking forward, we are optimistic that 2026 will be another busy investment year for Cousins. We continue to be opportunistic when it comes to acquisitions and dispositions as well as other investment opportunities. We have the flexibility to invest in a variety of ways throughout a capital stack, yet we'll maintain discipline as to quality with a constant eye towards ultimately increasing earnings. Finally, I want to provide an update on Neuhoff, our mixed-use development project in Nashville. We finished the quarter with the apartment component up to 89% leased. And today, it sits at over 90%. We did move the stabilization date to the first quarter of 2026 as we expect to achieve over 90% occupancy in this quarter. On the commercial side, we remain very encouraged by the recent activity, both in the market and at the project. We now have a late-stage lease pipeline that is nearly 120,000 square feet. We look forward to providing further updates. I will now turn the call over to Greg. Gregg D. Adzema: Thanks, Kennedy. I'll begin my remarks today by providing a brief overview of our results, spending a moment on our same-property performance and then moving on to our property transactions and capital markets activity before closing my remarks by discussing our inaugural 2026 earnings guidance. Overall, as Colin stated upfront, our fourth quarter results were outstanding. Second-generation cash leasing spreads were positive, same-property year-over-year cash NOI increased and leasing velocity was exceptionally strong. Focusing on same-property performance for a moment, GAAP NOI increased 0.4% and cash NOI increased 0.03% during the fourth quarter compared to last year. These numbers were negatively impacted by the large Bank of America departure that Richard discussed earlier. But despite that, we've kept this property in the same property pool. Excluding 201 North Tryon, same-property cash NOI increased 2% during the fourth quarter. As Kennedy just discussed, we're in the process of selling 2 noncore assets. These assets were reported as held for sale on our year-end balance sheet, and we recognized impairments on both during the fourth quarter. At Harbourview Plaza, we recognized a $13.3 million impairment, which as a depreciable asset does not impact NAREIT-defined FFO. At 303 Tremont, we recognized a $1 million impairment on our land parcel, which does run through FFO. Before moving on, I want to provide a little bit more detail on the Tremont impairment. We originally purchased this parcel in 2021 for $18.9 million. It's currently under contract to sell for $23.7 million, so there's been significant depreciation. However, while we held it, we spent $5.4 million in predevelopment costs. It's these predevelopment costs that led to the impairment. And just last night, we received repayment at par of our $18.2 million mezzanine loan secured by an equity interest in the 110 East property in the South End submarket of Charlotte. We assumed this repayment in our '26 guidance. Finally, although we didn't sell any common shares during the fourth quarter, to date, we have sold 2.9 million shares through our ATM program on a forward basis at an average gross price of $30.44 per share. None of these shares have yet been settled. With that, I'll close out our prepared remarks by discussing our 2026 earnings guidance. We currently anticipate full year '26 FFO between $2.87 and $2.97 per share with a midpoint of $2.92 per share. This is approximately up just a little under 3% from the prior year. Our guidance includes a refinancing of approximately $465 million in debt that matures between August and October of '26. Our unsecured bonds currently trade at the tightest spread to treasuries among all traditional office REITs and are much tighter than any secured debt options. This will provide us a significant cost of capital advantage as we pursue this refinancing. Our guidance also assumes the 300 South Tryon acquisition is funded with proceeds from the Harbourview and Tremont sales as well as approximately $200 million in additional noncore asset sales. We provided this additional sales assumption for modeling purposes. In reality, as Colin stated earlier, our strong balance sheet puts us in a position to be very patient and opportunistic on the ultimate funding for this acquisition. Our guidance does not include any additional property acquisitions or development starts in 2026. If any of these do take place, we'll update our earnings guidance accordingly. Bottom line, our fourth quarter results are excellent, and our initial 2026 guidance indicates the third straight year of earnings growth. Our best-in-class leverage and liquidity position remains intact. Office fundamentals continue to improve with accelerating leasing activity and declining new supply, and we continue to deploy capital into compelling and accretive investment opportunities. We look forward to reporting our progress in the coming quarters. With that, I'll turn it back over to the operator. Operator: [Operator Instructions] Your first question comes from the line of Blaine Heck from Wells Fargo. Blaine Heck: Colin, I thought your commentary on starting a new development project was interesting. Can you talk about which markets are most supportive of development from a yield perspective and whether you're likely to develop on land you own, maybe redevelop something in your portfolio like your opportunity in the domain or whether you'll be looking to purchase land associated with that new development? Michael Connolly: There's not a specific development yet that I'm referring to. But given the number of opportunities that we're looking at across our footprint, that does make me hopeful by year-end, we will have identified one. And I think it could be in several different markets. Dallas, Uptown Dallas is extraordinarily tight, and we're seeing rents today approach replacement cost rents. You alluded to The Domain, which is effectively 100% leased, and we've got great land there. We referenced a tightening Charlotte market in the south end of Charlotte, again, where we own great land, where we're seeing a shortage of large blocks of space. Even in Buckhead, where I'm sitting today, there's not a single block of space over 100,000 square feet today in a Class A building. So I do think you're going to start to see some increases in rental rates that will justify new construction for some large users that have no other alternatives, and we want to be ready to capitalize it. And it ultimately could be land that we own today. It could be some discussions that we're having about various ventures with folks that own parcels that we currently do not own. So it's going to be -- we're going to be flexible, but we're laser-focused on identifying and converting one of these opportunities, hopefully by year-end. Blaine Heck: Okay. Great. That's helpful. You've got a robust late-stage pipeline, as you guys have alluded to at 1.1 million square feet. So I'm sure you guys have a good idea of where rent spreads might be on that activity. Is there any color you can provide there and just general thoughts on '26 rent spreads on a cash basis? Richard Hickson: Sure. This is Richard. Yes, I mean we definitely have visibility into that in the late-stage pipeline. And what I'll say is that it's looking certainly more in line with our activity this past quarter net of Northpark. So we feel good about the near term on continuing to be able to roll up cash rents. Michael Connolly: And Blaine, I'd highlight if we're successful in delivering another positive cash rent roll-up in the first quarter, that will be our 48th consecutive quarter with a positive second-generation rent roll-up. That's -- for those that don't want to do the math, that's 12 years. Blaine Heck: Very impressive. Yes. Last one for me. Can you just talk a little bit more, I guess, about the optionality you guys have for funding the 300 South Tryon acquisition and how you're thinking about sales versus debt or equity issuance from a strategic and also economic perspective? I guess, are there certain target cost of capital or yields on each option that would make you kind of lean one way or the other? Michael Connolly: Yes. Great question, Blaine. It is -- we have a lot of optionality. And the reason for that optionality is the low levered balance sheet we have and the trophy quality of the portfolio. You hit it right on the head. We're trying to balance both the financial aspects with the strategic aspects. And so we will continue to look at various opportunities to fund that. And I'd say we think about dispositions and the alternative dispositions really with a basket approach. So you could see we've got Harbourview and a piece of land under contract to sell. We perhaps could pair that with an older vintage, higher CapEx disposition that might be at a higher cap rate. But ultimately, what we're trying to balance with any disposition or basket of dispositions is a -- a disposition yield that is comparable to where we could reinvest that. So we've been buying at GAAP cap rates in the 8s. I would expect us to -- any sales that we execute the weighted average cap rate of those sales to be at least at that cap rate, if not lower, because ultimately, driving accretion is the priority. Operator: Your next question comes from the line of Andrew Berger from Bank of America. Andrew Berger: Maybe just piggybacking on Blaine's first question on developments. Can you give us a sense of the type of underwriting criteria you would look for, whether that's yields and maybe the percent pre-lease that would give you enough confidence to start the project and also whether this is something you would look to do yourself or potentially bring in a joint venture partner? Michael Connolly: I would say we're targeting plus or minus 50% on a pre-lease basis. And I would expect cap rates -- or excuse me, development yields to be at least 150 basis points, if not 200 basis points higher than stabilized cap rates today. So that would put you in the, call it, 8.5% to 9% range today on a development yield. And we're flexible in terms of whether we do it ourselves or we ultimately have a joint venture partner, and we're always evaluating lots of different opportunities. Andrew Berger: Great. And as my follow-up, you mentioned some activity from companies primarily located on the West Coast and New York City. Can you just talk about which of your markets you're seeing the most of that activity in? Michael Connolly: Sure. We're seeing a significant amount of activity in Austin from West Coast companies. We're also seeing some of that in Nashville with various tech users. And then I'd say there's been a real significant pickup in financial services firms out of New York looking at Charlotte in particular. Operator: Your next question is from the line of John Kim from BMO Capital Markets. John Kim: Colin, it sounds like from your occupancy target this year, you have a little bit less conviction than last quarter, yet leasing activity was very strong this quarter. The investment activity with 300 South Tryon and selling Harborview should help your occupancy figure overall. So I'm wondering what has changed in the last few months for you to maybe walk that back a little bit. Michael Connolly: No, John, I don't think anything has changed. And we still, as we sit here today, believe that, that is an achievable goal. Again, it's a goal, not guidance, but we do think that it is achievable given the low levels of expirations. And as you touched on the leasing that we're doing, as I mentioned, timing of commencement is a risk, and I'll just give you an example that if we had a decision between a 100,000 square foot lease that could commence in 2026 in Charlotte or a 200,000 square foot lease in that same block that would commence in 2027, we would likely pursue the larger lease if the economics were strong. So there's just -- there's a little bit of timing from a quarter-to-quarter perspective. But we still think that it's highly achievable. And again, I think you're going to continue to see progress on our percent leased over the year and perhaps that spread between percent leased and percent occupied could continue to grow. But again, I think there's just some variability with timing of a commencement of a lease that's beyond our control. John Kim: Yes, that makes sense. I'm just wondering if you feel comfortable maybe not now or going forward on providing a leased target rather than occupancy just given those dynamics. Michael Connolly: Yes, that we would consider. Absolutely, we would consider that. It's easier to forecast. John Kim: You mentioned in your prepared remarks, the return to office just providing a demand boost currently. Today, we're about 4 years removed from COVID restrictions ending, but I know the return to office has been various or varied across your markets. How much runway do you think we have left on the RTO demand? Michael Connolly: Hard to say, John. There are -- as I mentioned, there are companies like Home Depot that just kind of made this announcement and shift just a few weeks ago. What we can say is that demand is continuing to accelerate. Our pipeline continues to grow. And I also think there's some other trends that will likely kick in, in the not-too-distant future that I think could increase renewal activity and that being the shortage that I indicated is coming in '28 and '29, we're starting to see some of the tenant reps and better informed customers recognize that they probably need to address those lease expirations sooner than later so as to not be boxed out of space at expiration time. Operator: Next question comes from the line of [ Manush Abek ] from Evercore ISI. Unknown Analyst: You talked about good traction on the former Bank of America space and also the commentary sounded positive on the Neuhoff commercial property. So I was wondering if you could share some more color on just the specifics on what type of tenants and how far along you are with those prospects in terms of like lease discussions on those 2 like projects or spaces. Richard Hickson: Sure. I can start with that. This is Richard. Specifically on 201 North Tryon we really continue to see a lot of encouraging demand from large users. Colin already alluded to this, but we all know that Charlotte has traditionally been a hub for financial services. That's -- nothing has changed there. I think it's evolved to some extent to include some level of fintech and technology embedded within large traditional financial services firms, but we're seeing very encouraging looks from that industry and also from large users looking to relocate significant operations out of other markets and into Charlotte. So again, we don't have anything specific to report to you on 201 North Tryon, but we're very optimistic that we will have something very near term. In Nashville, again, technology seems to be a really healthy driver of activity and sort of add-on to new-to-market activity. So continue to be very optimistic about the demand there, both in market and from out of market. Unknown Analyst: Got you. And maybe one follow-up question. Obviously, the market -- there is some fear in the market baked in about just software companies and their outlook for those. Is there any space in your portfolio or tenants that you have a closer eye on just to like follow them if there's any like type of underutilization of space? Again, I don't mean to sound too negative in your commentary is obviously very positive. So I just wanted to check on that since that's the current theme. Michael Connolly: No. It -- the tech component of our customer base is made up of primarily very large, well-capitalized technology companies, Amazon and Google being our 2 largest customers. But there's nothing that we've seen or identified any software companies within our portfolio that are now underutilizing their space or would be showing any signals of any negative impact to their business. So it's far too premature for that. Operator: Your next question comes from the line of Anthony Paolone from JPMorgan. Anthony Paolone: You mentioned the activity in Austin and financial services in Charlotte. But can you talk a bit more about Atlanta? I think the narrative around really strong growth plans for firms like Microsoft and Google were pretty prominent over the last few years. But maybe give us an update on maybe where they are in that hiring and whether or not sort of the anticipated ecosystem around those employers has developed. Michael Connolly: I think specifically, you referenced Microsoft that has bought a significant amount of land in West Midtown. I'd say they have scaled back those plans specifically for their new development. That being said, they did anchor to a large office development project in Midtown. So it was -- I'd say they accomplished probably half of what their announced plans were. But overall, Richard could touch on Atlanta. We're seeing really positive activity, leasing activity across in all of our markets, and it continues to represent a significant amount of our leasing activity. So Richard can give a little bit of color on that. Richard Hickson: That's absolutely right. If you look at what we've completed recently, again, the volume has been phenomenal. Looking out in both the late and early-stage pipelines for Atlanta, the new and expansion activity is roughly half of our demand. Looking at the industry mix, financial services are very much focused on Atlanta. But it's also tended to be a more diversified demand mix in Atlanta, too. So we're seeing a little bit of everything, plenty of professional services. There is the tech component. And so it's very healthy from a diversification standpoint. Anthony Paolone: Okay. And then just back on the occupancy side and thinking about that over the course of this year. Is there -- like can you quantify maybe like how many leases are signed, -- they're just waiting to commence throughout the course of '26? And also maybe even as it relates to your expirations, what you think tenant retention might look like? And I guess the goal of those 2, just trying to understand what the bridge or might need to be on the leasing side to get occupancy higher. Richard Hickson: Sure. I'd say just at a high level, we've always indicated that retention is likely, over time, going to be in the 50% range. And we only have, I think, 1 million square feet -- of square feet expiring in 2026. To your question about what's signed but not yet commenced, what I'd say is that virtually all of our Q4 '25 new and expansion leasing, which is 490-some thousand square feet is going to be commencing in '26. So I think the exact number is 460,000 square feet. That weighted average commencement is going to be in the third quarter, kind of mid-third quarter. What I'd caution is that though those actual commencements are in the third quarter, the way we report occupancy on a weighted average basis, we won't see the impact of those commencements flow through until the fourth quarter in its entirety. So -- but again, we -- a lot of the heavy lifting that we've done on leasing recently is going to show up in '26. Now you look out to the late-stage pipeline and the early-stage pipeline, we're still seeing plenty of '26 commencements on our uncompleted or unsigned activity, but we are fighting the calendar. And Colin gave a good example of situations where we might make decisions to choose a later commencement if it's the right long-term and strategic decision for the company and may not help occupancy in '26, but still be the right decision for the long term. So again, plenty of activity that we completed will have an impact on '26, but we're starting to get into that time of the year where '27 commencements are going to become more and more common. Anthony Paolone: Okay. So if I could just kind of make sure I understand all that, if you keep half your tenants expiring this year, that's almost 0.5 million square feet, then you've got another almost 0.5 million square feet that's just scheduled to commence. So that kind of gets you to flat as a starting point, everything that gets done at this point that you can get commenced and '26 becomes the pickup. Is that kind of a fair summary then? Michael Connolly: Yes. And also what Richard referenced was just the signed leases in the fourth quarter. There were also leases signed before the fourth quarter that will have an impact on 2026, Tony, to ultimately drive the occupancy as well as any other new speculative leasing that we do that we're working on now that will have a positive impact on 2026. Operator: Your next question comes from the line of Brendan Lynch from Barclays. Brendan Lynch: A couple on Harborview and Tampa. Was this asset sale more consideration of asset being asset specific relative to being a consideration for the Tampa market? And also, how many assets do you have that have similar characteristics to Harborview that are older, lower occupancy and need redevelopments that you would be interested in potentially recycling? Jane Hicks: Brendan, it's Kennedy. I would say this is asset specific. So we are certainly very encouraged by what we're seeing in the Tampa market in general and across the rest of our portfolio there. And as it relates to the other assets, I mean, as we've said in the past, it's a very small percentage. And so we kind of look at it relative to the -- where we think investor demand is and again, where the best use of our capital is going to be going forward. So it's certainly sub 10% of the portfolio, if not much less than that. Brendan Lynch: Okay. That's helpful. And maybe you could also give an update on Proscenium as you've made progress with the repositioning and how demand has been for the space in that asset? Jane Hicks: Sure. Good question. We are just now opening up the repositioning. So it's, I'd say, 2/3 of the way done. And as we've seen with some of our other assets, that's generally been a good indicator of when the leasing activity starts to pick up. So we're in good discussions with several prospects there and really encouraged by the response that we've gotten to the renovation work. Operator: Next question comes from the line of Nick Thillman from Baird. Nicholas Thillman: Maybe, Richard, following up on just the late-stage leasing pipeline and the 1.1 million square feet. As we think of just larger tenants within that pipeline, say, above 100,000 square feet, are there any big chunkier deals within that number? And just remind us what the actual close rate historically has been for signed deals on that pipeline? Richard Hickson: Yes. The late-stage pipeline is generally very reliable. So it's 95% to 100% usually conversion rate. I can think of a couple of instances in the last couple of years, we've had someone fall out of that pipeline, and it's usually highly specific to a business decision or approval process in a particular tenant. So very good conversion rate there. There is a little bit of chunkiness in the late-stage pipeline. Some of it's in Atlanta, some really positive new activity. We have some renewal activity that's of size that's in the pipeline as well. But it really -- it's fairly evenly spread across all of our markets. Nicholas Thillman: And on that Atlanta number, is that related to renewal or new? I just wanted to clarify that. Richard Hickson: They're both actually, but the largest is new deal. Nicholas Thillman: Okay. And then maybe just touching on a couple of the larger blocks that are coming up. Just an update on overall in Houston with Samsung? And then also, can you remind us what the plans are with Ovintiv space that's currently a sublet that's expiring next year with the 88% of the subtenants in the space. Is the plan to go direct with subtenants? Or is there some larger users looking at that space? Maybe some more commentary there, so those 2 spaces. Richard Hickson: Sure thing. Maybe I'll start with Legacy Union in Plano and the Ovintiv building. Again, as a reminder, what we did last quarter was we entered into an agreement with Ovintiv as the prime tenant to take over management for one, get control of the building because we did not have that. And then terminate them early in the middle of '26, at which time we will go direct with the subtenant base, which is extensive at the project. So you look at that square footage that will still expire out in '27. We're having very positive constructive discussions with 4 different subtenants currently at the project. So we feel good about our prospects of potentially taking those direct. When you kind of back those out and look at what the opportunity is to go do new leases with new tenants and continue to multi-tenant the building, that's roughly 150,000, 175,000 square feet out in '27. And the pipeline in Plano and North Dallas, in particular, it's extremely robust. And we're seeing just in the last month, probably at least 3, 4 different tours of the building greater than 150,000 square feet, but we also have plenty of inquiries of a single floor, 2 floors, 3 floors. So very positive demand backdrop there. At Briarlake in Houston with the Samsung expiration. As a reminder, that expiration is in at the end of November of this year. So really minimal impact either way on 2026. It's 123,000 square feet. I'd say that at this moment in time, only about 70,000 of that is exposure. We're having very positive discussions with a number of subtenants there as well and also some new deals and very similar demand backdrop to North Dallas. Operator: Your next question is from the line of Dylan Burzinski from Green Street. Dylan Burzinski: Colin, you mentioned, obviously, the strong demand backdrop, which is accelerating Cousins portfolio is likely to be sort of 90% leased, call it, towards the end of this year, it sounds like. And then you mentioned new development not likely coming for the next 4 to 5 years. And obviously, replacement rents are sort of well above market rents today. So just sort of wondering, can you sort of give us an outlook for where you guys sort of see the growth in net effective rents shaking out over the next 1, 2, 3 years? Michael Connolly: Dylan, as you just described, the backdrop is really, really positive. Demand is accelerating. Construction is de minimis. You're actually seeing approximately 20 million square feet a year being taken out of inventory. And so we do see a shortage of premier space starting to take shape in 2028 and beyond. And so that -- we believe we're close to an inflection point where it will very much become a landlord's market. And as I alluded to, tenant reps are starting to recognize that by approaching us early on those type of renewals in those time periods. I can't say specifically what the change in net effective rents will be. But I do think rents will go higher and concessions will come down. You're already starting to see in certain submarkets where that shortage is showing up sooner and will be a good proxy. And Dallas would be a good example where over the last 4 years, rents have arguably doubled within trophy properties in uptown Dallas and again, concessions have come down. So rent growth in the office world rarely moves in a single-digit linear way, whether up or down. It's usually a bit chunkier. And we are seeing, again, some specific markets today where we've seen double-digit rent growth over the last year. At our Hayden Ferry project, as an example, rents have grown 10% to 20% over the last 12 to 18 months alone. So I think it's a very, very favorable backdrop an environment for owners of trophy lifestyle office and I'd say, particularly in the Sun Belt where the population continues to grow and migration continues to be very favorable. Operator: Your next question comes from the line of Upal Rana from KeyBanc. Upal Rana: Colin, you mentioned in the past of an increased interest in private capital in your markets. Could you give us an update on how that looks today and how that is impacting how you're thinking about deploying capital on external growth opportunities? Jane Hicks: This is Kennedy. I'll jump in on that. Yes, I mean, as I mentioned, certainly seeing more private capital generally, family offices, kind of high net worth capital has been leading the way. There's certainly a lot of debt capital out there now that's being much more constructive around office. But those types of capital sources generally are more focused on the smaller deals. So that's where we're, again, trying to align some of our disposition thoughts as well. So we really haven't seen that capital start to compete with us on acquisitions. We think it's probably coming, but still feel like we've got a good window and a competitive advantage when it comes to investing in some of the larger assets. Upal Rana: Okay. Great. That was helpful. And then Greg, on your full year guidance, assumes the refinancing on the term loan, Colorado Tower and 201 North Tryon. What do you have currently baked into you guidance on where pricing could potentially shake out? Gregg D. Adzema: We're committed to an unsecured borrowing strategy. So we will likely refinance all of those 3 maturities with unsecured debt. And I'm not saying I'm going to do it right now, but if I did it right now, we have a hole in our maturity schedule in 7 years and 10 years. So we have some flexibility in what we do. And the 7-year debt would probably get priced, if I did it today, somewhere, give or take, around 5% and the 10-year debt would be priced somewhere around probably 3.5%-5.40%. Operator: Your last question comes from the line of Shashank Saurav from Mizuho. Shashank Saurav: This is Shashank on for Vikram Malhotra from Mizuho. It appears that Austin as a market has inflected positively. Any more color on bigger requirements there? Richard Hickson: I think we are definitely seeing some level of positive -- I don't want to say green shoots, a little overused term, but some positive activity that I alluded to in the tech sector. Obviously, a lot of Austin's success in the past has been driven by tech demand. And we see that starting to percolate certainly in our pipeline in our own specific activity. So I would say, yes, we're seeing some positive movement there. Shashank Saurav: My next question is, how should we think about TI spend in '26 and as we go into '27? Richard Hickson: Well, obviously, the TIs drove some elevation in concessions this past quarter. I would point you back toward my comments about ex Northpark and looking at lease economics in that context, you're going to continue to see with the elevation of TIs, our prioritization of occupancy and driving occupancy. And so that could continue. But what I'd like to stress, and this has been a theme over, frankly, many years as we've talked about at different points of time where we see pressure in TIs or concessions in general, that we have been able to successfully maintain net effective rents. And I think that was the case this past quarter, even with elevated TIs. And it's important to note that with the tightening conditions that we see ahead, certainly in the medium term that we're going to be able to back off of that over time. I think it's going to become a more constructive market for owners and landlords. So I would call that a more near-term dynamic as we prioritize occupancy. Operator: There are no further questions at this time. I would like to turn the call back to Colin Connolly for closing comments. Sir, please go ahead. Michael Connolly: Thank you for joining us this morning, and we appreciate your continued interest in Cousins Properties. If you have follow-up questions, please feel free to reach out to Gregg Adzema or Roni Imbeaux. Have a great day and a great weekend. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Good morning. My name is Didi, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners, Inc. quarterly conference call. The slide presentation for this call is available in the Relations section of the Virtus website, www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer period and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke. Sean Rourke: Thanks, Didi, and good morning, everyone. Welcome to Virtus Investment Partners, Inc.'s discussion of our fourth quarter 2025 financial and operating results. Joining me today are George Aylward, our President and CEO, and Michael Angerthal, our Chief Financial Officer. After their prepared remarks, we will open the call for questions. Before we begin, I'll refer you to the disclosures on slide two. Today's comments may include forward-looking statements, which involve risks and uncertainties described in our news release and SEC filings. Actual results may differ materially. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are available in today's news release and financial supplement on our website. Now I'd like to turn the call over to George Aylward. George? George Aylward: Thank you, Sean, and good morning, everyone. I'll start with an overview of the results we reported this morning, and then Michael will provide more detail. The fourth quarter reflected a challenging environment for us given the quality-oriented equity strategies, which represent half of our AUM, remained out of favor, resulting in an increased level of net outflows. As we have previously noted, our quality-oriented equity strategies have delivered strong long-term performance across cycles and have previously been our largest drivers of growth when in favor. However, the market backdrop continued to favor more momentum-driven stocks resulting in near-term underperformance. Importantly, the impact from our quality equity strategies has overshadowed areas of strength across the business, which in the quarter include positive net flows and strategies from several managers, including in growth equity, emerging markets debt, listed real assets, and event-driven. Continued strong positive net flows in ETFs, product introductions of differentiated actively managed ETFs, expansion into private markets with two strategic investments, solid long-term investment performance, with fixed income and alternatives also having strong near-term performance continued return of capital, with $10 million of share buybacks in the quarter, and a solid balance sheet meaningful liquidity, and de minimis net leverage at year-end. We continue to execute our strategic priorities in the quarter, including broadening our product offerings, with several ETF introductions and expansion into the private markets. For ETFs, we launched three new actively managed funds in the quarter, including a growth opportunities ETF from Silvent, and U.S. and international dividend strategies from our systematic team. We expect several additional active ETF launches over the next two quarters across managers, including Stone Harbor, Duff and Phelps, and Silvent. We now have 25 ETFs spanning a range of strategies and continue to focus on broadening access to them in distribution channels. In addition, we have several other new offerings in process or filing including interval funds and additional retail separate account strategies. And as mentioned, we also have expanded into private markets with the previously announced pending acquisition of a majority interest in Keystone National Group, an asset-centric private credit manager, and a minority investment in Crescent Cove, a venture growth manager. I will discuss both in more detail shortly. Looking at our fourth quarter results, assets under management were $159 billion at December 31, down from $169 billion due to net outflows and the impact of market performance. Total sales of $5.3 billion compared with $6.3 billion in the third quarter, which included a $400 million CLO issuance. Total net outflows were $8.1 billion and across products, the outflows were almost entirely driven by equities. Looking at flows across asset classes, equity net outflows largely reflected the continued style headwind for quality-oriented strategies. We had several meaningful institutional partial redemptions in such strategies, as well as some seasonal tax loss harvesting in the funds. Fixed income net flows were modestly negative at $100 million for the quarter, and we saw positive net flows in certain fixed income strategies including multisector and emerging market debt. Alternative strategies were essentially breakeven for the quarter and positive for the trailing twelve months. In terms of what we're seeing early in the first quarter, our U.S. retail funds continue to face headwinds though there have been encouraging signs in the market of broadening investor sentiment and January sales were at the highest level since June, and net flows at the best level since September, and fixed income net flows were positive. For ETFs, sales and net flows continue to be strong. Within retail separate accounts, while for the month we have seen an increase in sales, there was a large redemption from a client that rebalanced a lower fee model only mandate to a passive strategy. On the institutional side, trends are similar to the fourth quarter with known redemptions exceeding known wins. Turning now to our financial results. Earnings in the operating margin declined modestly, reflecting lower average AUM, partially offset by lower operating expenses. The operating margin was 32.4%, compared with 33% last quarter. Earnings per share suggested of $6.50 compared with $6.69 in the third quarter. Turning to investment performance. Recent performance reflects our overweight to quality equity, while long-term performance demonstrates we've generated solid performance over our cycles. With the three-year period, while 39% of AUM outperformed benchmark, due to challenging equity performance, fixed income and alternative strategies performed very well. With 76% and 60% of AUM respectively outperforming benchmarks. Over the ten-year period, 62% of our equity assets, 77% of our fixed income assets, and 71% of alternative assets beat their benchmarks. For just mutual funds, 65% of equity funds, and 87% of fixed income funds outperformed their peer median for the ten-year period. I would also note that 84% of our rated retail fund assets were in three, four, and five-star funds, and 23 of our retail funds are rated four and five stars. As it relates to equities, despite the style headwind, our quality-focused managers continue to invest with high conviction businesses with durable fundamentals and long term potential. Their disciplined approach has delivered excellent returns over cycles, and we remain confident that as companies with quality characteristics come back in favor, these strategies are well positioned. With the environment year-to-date, we are pleased that although it's a short period several of these strategies have generated very compelling performance. In terms of our balance sheet and capital, we continue to have financial flexibility to balance our capital priorities of investing in the business, returning capital to shareholder and appropriate leverage. During the quarter, we repurchased approximately 60,000 shares for $10 million. The full year, we used $60 million to repurchase over 347,000 representing 5% of beginning shares. We ended the quarter with significant liquidity, including $386 million cash and equivalents and an undrawn $250 million revolver, positioning us for the upcoming first quarter obligations include including the closing payment for Keystone National. Before turning the call over to Michael to review our financial results in more detail, I would like to provide some highlights on the Keystone National and Crescent Cove transactions which will allow us to provide private market offerings and differentiated strategies with strong track records. We will acquire a 56% majority interest in Keystone, a boutique private credit manager specializing in asset-based lending with approximately $2.5 billion in assets across a tender offer fund, and two private REITs. Keystone's approach differs from traditional direct lending. Its financings are secured by specific collateral, are self-amortizing with regular payments of principal and interest, have shorter durations, and are structured with robust covenants and triggers. This collateral backed covenant rich design provides meaningful downside protection for investors who are underexposed to private markets and serves as a differentiated complement for those already invested in traditional private credit. We see significant growth opportunities for Keystone across both retail and institutional channels. Their strategies are already available in an at-scale tender offer fund used by an established base of wealth management firms, and we believe we can expand that meaningfully. In addition, over time, we also expect to introduce the capabilities to U.S. and non U.S. institutional clients. We're excited to welcome Keystone's Salt Lake City-based team to Virtus Investment Partners, Inc. and expect to close the transaction during the first quarter. With regard to Crescent Cove, a private investment firm that focuses on providing flexible capital solutions to high growth middle market technology companies, we completed a 35% minority Crescent Cove has built a strong track record growing to over $1 billion in AUM across multiple private funds with a diversified client base. Their venture debt strategy offers compelling risk managed way for investors to gain exposure to private technology companies. We see long term growth potential for Crescent Cove, including extensions into other products for broader client usage, and we're excited to be partnering with their team. With that, I'll turn the call over to Michael Angerthal to provide some more details on the financials. Michael Angerthal: Thank you, George. Good to be with you all this morning. Starting with our results on Slide 10, assets under management. Our total assets under management at December 31 were $159.5 billion and average assets declined 3% to $165.2 billion. Our AUM continues to be well diversified across products, and asset classes. By product, institutional accounts were 33% of AUM, Retail separate accounts, including wealth management, represented 27% and U.S. retail funds represented 26%. The remaining 14% consisted of closed end funds, global funds, and ETFs. Within open end funds, ETF AUM increased to $5.2 billion up $500 million sequentially on continued strong net flows. And up 72% year over year. We are also well diversified by asset class, with broad representation across domestic and international equities including mid, small and large cap strategies, and a fixed income platform diversified across duration, credit quality, and geography. Turning to slide 11, asset flows. Total sales were $5.3 billion compared with $6.3 billion in the third quarter. Reviewing by product, institutional sales were $1.4 billion versus $2 billion last quarter which included the issuance of a $400 million CLO. Retail separate account sales were $1.2 billion compared with $1.4 billion in the third quarter. Open-end fund sales were $2.8 billion consistent with the prior quarter and included $800 million of ETF sales. Total net outflows were $8.1 billion compared with $3.9 billion last quarter. Reviewing by product, institutional net outflows of $3 billion were primarily due to redemptions of quality domestic and global large cap growth strategies. Of the total gross outflows in the quarter, 75% were partial redemptions rather than full terminations. Retail separate accounts had net outflows of $2.5 billion driven by quality small and SMID cap equity strategies. Open-end fund net outflows of $2.5 billion compared with $1.1 billion last quarter also driven by quality-oriented equity strategies which more than offset positive ETF flows. ETFs continued to deliver strong momentum generating $600 million of positive net flows and sustaining a strong double-digit organic growth rate. Before turning to the financial results, I would note that outlook commentary that I provide beyond the first quarter contemplates a full quarter impact of Keystone National. Turning to slide 12, Investment management fees as adjusted were $168.9 million down 4% due to lower average AUM, and a modestly lower average fee rate. The average fee rate was 40.6 basis points, which compared with 41.1 basis points last quarter. For the first quarter, average fee rate of 41 to 42 basis points is reasonable for modeling purposes. And looking beyond the first quarter, we anticipate the average fee rate will be in the range of 43 to 45 basis points. As always, the fee rate will be impacted by markets, and the mix of assets. Slide 13 shows the five-quarter trend in employment expenses. Total employment expenses as adjusted of $95.8 million decreased 3% due to lower variable incentive compensation. As a percentage of revenues, employment expenses as adjusted were 50.7% and within our range of 49% to 51%. As a reminder, the first quarter will include seasonal employment expenses, which are incremental to this range. Looking beyond the first quarter, we anticipate that employment expenses as a percentage of revenues will be in a range of 50% to 52% as the benefit from the addition of Keystone is more than offset by the decline in equity AUM. As always, it will be variable based on market performance in particular as well as profits and sales. Turning to slide 14, other operating expenses as adjusted were $30.2 million down from $31.1 million due to discrete M&A related costs in the prior quarter. We have maintained other operating expenses within our $30 million to $32 million quarterly range for several years, and for modeling purposes, this remains appropriate for the first quarter. Looking beyond the first quarter, we believe a quarterly range of $31 to $33 million is reasonable. Slide 15 illustrates the trend in earnings. Operating income as adjusted of $61.1 million compared with $65 million in the third quarter, with the decline due to lower average assets, partially offset by lower operating expenses. The operating margin as adjusted of 32.4% decreased 60 basis points from the third quarter. With respect to non-operating items, non-controlling interests of $1.5 million decreased from $2.1 million due to the increase in ownership of our majority-owned manager. For modeling purposes, this level is appropriate for the first quarter. Beyond the first quarter, we believe that a reasonable range for non-controlling interests will be $5 million to $6 million, which factors in the Keystone minority ownership. Our effective tax rate of 25.3% was lower by 70 basis points sequentially due to an update to our blended state tax rate, and this rate is appropriate for modeling purposes in the first quarter. Beginning with the second quarter, we anticipate an effective tax rate of 23% to 24% due to the addition of Keystone. Net income as adjusted of $6.50 per diluted share declined 3% from $6.69 in the prior quarter. Slide 16 shows the trend of our capital liquidity and select balance sheet items. Cash and equivalents at December 31 were $386 million. In addition, we had $36 million of other investments including seed capital to support growth initiatives. The $1 million decline in outstanding debt reflected the quarterly required amortization payment on the new term loan. Gross debt to EBITDA was 1.3 times, and we ended the quarter with $13 million of net debt. During the fourth quarter, we repurchased 60,292 shares of common stock for $10 million. Other uses of capital during the quarter included the $40 million closing payment for Crescent Cove that is included in the $61 million of investments—equity method row which also includes our minority investment in Zevenbergen. As well as $9 million for an increase in equity of our majority-owned manager which was the last of the scheduled equity purchases. In the first quarter, cash usage will include our annual incentive payments, typically our highest operating cash outlay of the year, and the annual revenue participation payment which we expect to approximate $22 million, which represents most of the remaining obligation. And as previously mentioned, we will make the $200 million payment for Keystone National upon closing the transaction. Taking into account that payment, and other first-quarter activity, we would anticipate net leverage at March 31 of 1.2 times EBITDA. With that, let me turn the call back over to George Aylward. George? George Aylward: Thank you, Mike. We will now take your questions. Didi, will you open up the lines, please? Operator: Yes. As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. And our first question comes from Ben Budish of Barclays. Your line is open. Ben Budish: Hi, good morning and thank you for taking the question. Maybe first just on the fee rate, Mike, you gave some color on the quarter and the year. Just curious if you could flesh that out a little bit more. What was the driver of the fee rate compression in the quarter? I assume Q1 guidance is kind of based on what you're seeing year to date, and the full year is going to be benefited from Keystone. But just any more color on the underlying dynamics would be helpful. Michael Angerthal: Yeah. As you know, we've operated our fee rate in a relatively narrow range for quite some time. I think if you normalize the 40.6 basis points in the first quarter, you get to about 40.9, just under 41 basis points as we had some discrete expenses, especially on the ETF side. So normalizing that, you have a kind of flat profile quarter over quarter. So we've been able to maintain that. And you know, looking off of that 40.9, we gave the range in the 41 to 42, so you have that level. And we're anticipating one month of impact from Keystone as we're on target for closing on March 1. As we've talked about. So when you factor in one month of Keystone in addition to where we ended the fourth quarter, we think that that range is appropriate for modeling and represents our ability to keep our fee rate in that narrow range over time. Ben Budish: Okay. Helpful. And then maybe just a strategic question. I know you just did a transaction, I apologize that we're already asking you about the next one. But George, in your prepared remarks, you talked about market-wide headwinds, especially to kind of value-oriented strategies where you over-index. I'm just curious—I understand over the last few years, the line of questioning has probably been more around private markets, private credit. But just as you're thinking about future transactions, do you see that as an avenue for additional diversification? You know, does it make sense to broaden your kind of growth equity footprint? And perhaps could you remind us today how much of the AUM is more kind of growth versus value-oriented? Thank you. George Aylward: Sure. And, so a couple things. So I think as we think about diversification in addition to diversifying our offerings, right, so our goal is to provide, you know, the building blocks for a well-diversified portfolio, so we continue to build those out. But the other area of diversification we also think about a lot is where our clients are and what channels we're in. So think when we previously talked about M&A, we've obviously talked about adding compelling differentiated strategies. We've also said areas of interest to us would include those things that would either broaden our distribution footprint, particularly outside the U.S., as well as in other channels, we think there's more opportunity for us to garner penetration. In terms of overall strategies, again, a lot of dialogues around private markets, and we do agree that private markets have an important place in a portfolio. But that's not 100% of the portfolio. So we do continue to think about the other elements of the traditional managers. Right now, as we're living through an overweight towards what I would define as quality-oriented strategies, which include both core value and growth, but of a quality nature. We do have other managers who are more growth equity. They've been our smaller managers. But I think as we said on a previous call last quarter, as well, we've actually seen growth there. They're just unfortunately smaller than our largest managers that have more of that quality orientation. So a lot of the ETFs and SMAs that we've been launching over the last quarter or two have been in those other kind of growth equity managers. Particularly where we see areas outside of the traditional U.S. basis, some non-U.S. strategies as well as that. So we've been focusing on, like, Silvent, which is not a quality-oriented manager. More style agnostic. That has been an area of growth for us. And we've created several ETFs that have already launched. Several are in filing. So we continue to work on those strategies. And even within some of our value managers who are classic value managers, some of them actually had very strong compelling performance in the recent quarters, and we look for opportunities to grow those. So we'll continue to evaluate other things that we can add through M&A, but, again, it wouldn't only be limited to those things which provide another investment strategy. It could be things that have other strategic elements to help just overall drive growth on the long term. Ben Budish: Alright. Great. Thank you both. George Aylward: Mhmm. Thank you. Operator: Thank you. And our next question comes from Crispin Love of Piper Sandler. Your line is open. Crispin Love: Thank you. Good morning. Appreciate taking my question. First, can you share what your software exposure is across your AUM and then relatedly just exposure at Crescent Cove Advisors given their focus on technology and just overall thoughts? Just given the news that's been permeating the headlines this week? George Aylward: So in terms of overall, just technology and software exposure? Crispin Love: Yes. George Aylward: Yeah. I mean and, you know, one of the things that has been a drag on the performance of some of our quality-oriented equities, is they are just generally, as a rule, underweight areas of technology. So that's why this recent period—in particular yesterday, was actually very good for many of our managers. You know? So, generally, I think as a complex, we are underweight exposure to technology. But, again, not all technologies created equal. Right? So there are some that will actually meet the definition of some of our managers and some will not. In terms of Crescent Cove, I mean, they're in a different part of the market as it relates to the venture part and the earlier growth opportunities. So again, that is an area of focus for them. And again, I think long-term, that continues to be a compelling area of investment. Mike, any other anecdotes you would add? Michael Angerthal: I would just say at Crescent, they don't have specific holdings that are at risk of being disintermediated by AI. So as George said, those are early stage entities, but you highlighted the key point in the existing portfolio for Virtus Investment Partners, where we're well underweight. Some of these software names. Crispin Love: Great. Thank you. That's what I thought I just wanted to make sure and all very helpful color there. And then, let me just dig into the flow picture from the fourth quarter. And then as you look forward, just fourth quarter was very challenging across open end, SMAs, institutional. Can you just discuss a little bit what drove the acceleration of negative flows quarter to quarter? The storyline seemed to be roughly similar from the third quarter commentary. And then just as you look at the fourth quarter moving to the first and kind of the longer-term outlook, just how do you feel about the flows? Thank you. George Aylward: Yeah. And as you said and as we said in our remarks, it was definitely a challenging quarter. Right? So our quality—you know, we're overweight. Half of our AUM is in quality-oriented equity strategies. They've had the longest period of underperformance versus more momentum-type strategies, in decades. That has been quite a challenge. You know? As that culminated in the fourth quarter, again, fourth quarter, a lot of time will there be, you know, either traditional just tax loss harvesting or other repositionings of portfolios for year-end, so it was a higher level of outflows than we had seen previously. But what that means going forward, you know, it's hard to know. Right? It all depends on what that market environment looks like. Right? If the market environment that we've seen in the last month and five days were to continue, as I alluded to, that's actually been an incredibly strong environment for some of those same strategies. And I think as I said on an earlier call, generally, when there's an inflection in the cycle, usually when you have some of the strongest performance from some of these strategies. It's still way too early. No one knows what that's gonna look like. Which goes to the earlier question as to why we continue to focus not only on, you know, the opportunity for when these strategies return to favor, but to continue to look for opportunities to grow our other strategies that don't have the same quality equity kind of orientation. So you know, our hope is that the long-term value of the quality-oriented equity strategies will demonstrate itself, and people will again avail themselves of those strategies. But in the meantime, we're looking to grow other areas of the business. Crispin Love: Great. Thank you, and appreciate you taking my question. George Aylward: Thank you. Operator: Thank you. And our next question comes from William Raymond Katz of TD Cowen. Your line is open. William Raymond Katz: Great. Excuse me. Thank you very much for taking the questions. First question is just in terms of the Keystone transaction. Now you've had a little more time to interact with the management team post the announcement from a few weeks ago, can you talk a little bit about maybe any kind of refined go-to-market opportunity? I think you spoke to leveraging through your distribution channel and/or institutional which makes a ton of sense. But just where do you see the greatest opportunity for that growth by channel, by geography? Love to hear your perspective on that. Thank you. George Aylward: Yeah. No. Great question. And we've had lots of conversations with management and prior to and post-transaction. And I think one of the joint goals is the excitement that we all have about the opportunity to leverage what they currently have and have been very successful with in the wealth management channel with our broader distribution resources. So our sales teams have spent multiple sessions being trained and prepped and they're all very excited and very eager to introduce those capabilities to our existing relationships as well as other relationships that we can more easily develop now that we have access to this. So we think there's a great opportunity set going forward. We do think the approach that they take on the private credit side, is asset-based in nature as opposed to the direct lending, is a very differentiated approach. Their main vehicle does not utilize the high level of leverage that some of the competitors do. So we think there's a great opportunity. The fund they have is already retail-ready. It's already being utilized by wealth management firms. As I said in the prepared remarks, we believe we can accelerate that meaningfully, so that does create what would logically be the earliest opportunity set, right? To leverage what they've already built. It is already attractive in the wealth management space, but just through the more extensive resources that we currently have. But as I also mentioned, we think there's some really interesting opportunities on the institutional side where the strategy, again, as a complement to other types of private credit, could be very compelling. So overall, we entered into this transaction because we thought there was a great combination that could create some long-term growth. The teams that are responsible for driving that growth are all very excited about this opportunity. So we're gonna continue to refine that. And as Mike alluded to, we're on target for our closing transaction date, and we're getting everything prepared in advance of that. So our sales team will—we're not waiting to close to get educated and do our planning, but all of the plans are in place and the material and everything, so we're very excited and look forward to closing on the transaction. William Raymond Katz: Okay. Thank you. And just a follow-up and a clarification. On the follow-up, I was wondering if you could speak a little bit to maybe the capital deployment priorities and how that might be shifting given you have Keystone and Crescent sort-of in the wings here. Versus how the stock has been behaving? I appreciate the buyback. But any sort of shift in your allocation thought process? And then on the deal pipeline, so not what have you done for me lately, but how does that pipeline look today, you know, net of the Keystone and Crescent transactions? Thank you. George Aylward: Sure. In terms of priorities, again, we always take a balanced approach. And in different periods, we'll either overemphasize repurchases or emphasize investments in organic growth, and we always look to maintain a reasonable level of leverage. So I wouldn't say, you know, right now, having just completed two transactions, Mike has spoken to our upcoming obligations, which we will need to satisfy, but we will continue to place an emphasis on other areas such as repurchases. Which generally we have a long history of continued stock repurchase program with periodic pauses when we have other capital needs, as well as the dividend. We do think the dividend is an important element of return to shareholders. I believe we've had eight annual dividend increases. So that will continue to be something that we prioritize. And as we've always said for M&A, that really is related to only when we have an opportunity that we truly believe is of strategic value to build long-term shareholder value and relative to our other alternatives. In terms of that pipeline, and having just completed two, which as I assume you understand, took a lot of our time, there are still opportunities that are out there We still continue to evaluate and consider. But as always, we'll only evaluate and move forward with something if we truly believe it's additive in terms of the capability. It's additive in terms of broadening our distribution footprint or in other areas such as increases in scale dramatically. This is a scale business. So that is something that we also consider as much. William Raymond Katz: Okay. And just one clarification, for Mike. Just in terms of the guidance, I think I picked them all up. I may have just not heard or it didn't come out. For the first quarter, how should we think about the comp ratio? I appreciate the seasonal dynamic, but any sense on the ratio just given some of the moving parts between the top line and the comp line? Michael Angerthal: Yeah. As you know, the seasonal items do come forward in the first quarter. But our 49% to 51% range is appropriate for the first quarter. And then moving forward, we talked about 50% to 52% once we feather in Keystone. William Raymond Katz: Okay. Sorry if I missed it. Thank you for taking the questions. George Aylward: Thank you. Operator: Thank you. That concludes our question and answer session. I would like to turn the conference back over to Mr. Aylward. George Aylward: Okay. Well, I want to thank everyone again as always for joining us, and I certainly encourage you to reach out if there's any other further questions. Thank you very much. Operator: That concludes today's call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Alpine Q4 Year-end 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jenna McKinney, Finance Director. Please go ahead. Jenna McKinney: Thank you. Joining me and participating on the call this morning are John Albright, President and CEO; Philip Mays, CFO; and other members of the executive team who will be available to answer questions during the call. As a reminder, many of our comments today are considered forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q and other SEC filings. You can find our SEC reports, earnings release and most recent investor presentation, which contain reconciliations of the non-GAAP financial measures we use on our website at www.alpinereit.com. With that, I will turn the call over to John. John Albright: Thank you, Jenna, and good morning, everyone. We are pleased to report a strong fourth quarter highlighted by 22.7% growth in AFFO per common share and $142.1 million of investments to complete an annual record of $277.7 million of investments for 2025. This record annual investment volume consisted in driving 8.6% growth in AFFO per common share for the full year 2025. Beyond investment volume, we successfully executed on all areas of our business plan during the year. Specifically, as it relates to property acquisitions, during the fourth quarter, we acquired 8 properties for approximately $40 million at a weighted average initial cash cap rate of 6.9%. For the full year, we acquired 13 properties for $100.6 million at a weighted average initial cap rate of 7.4% and Notably, these acquisitions are representative of our strategic barbell approach to acquisitions. It included investment-grade rated tenants such as Lowe's and Walmart, plus higher-yielding property investments like the headquarters and manufacturing facility for Germ-free labs. Alongside this 2025 acquisition activity in the fourth quarter, we also continue to successfully execute our strategic recycling plan, selling 9 noncore properties for $38.4 million at weighted average exit cap rate of 7.7% and bringing property disposition volume for the full year 2025 to $72.8 million, consisting of $67.4 million of income-producing properties at a weighted average exit cap rate of 8% and $5.3 million related to vacant properties. As a result of this combined 2025 property portfolio activity, 51% of our ABR is now generated from investment-grade-rated tenants. Notably, Lowe's, Dick's Sporting Goods and Walmart are now all within the top 5 tenants, collectively representing 29% and of our ABR. Further, Walgreens currently represents 4% of ABR and has fallen to our ninth tenant with only 5 remaining locations in our portfolio. More broadly, at year-end, our property portfolio consisted of 127 properties, totaling 4.3 million square feet across 32 states with a WALT of 8.4 years and 99.5% occupancy. Now moving to the exciting growth in our commercial loan portfolio. As a result of our long-standing reputation and deep industry relationships, we continue to see and capitalize on compelling opportunities to originate high-yielding commercial loans with quality sponsors at attractive risk-adjusted returns. During the fourth quarter, we originated 5 commercial loan investments and amended one commercial loan totaling a combined $102.3 million of commitments at a weighted average initial coupon of 13.5%, bringing our full year to $177 million of commercial loan originations at weighted average initial coupon of 12%, including paid-in-kind interest when applicable. The high-quality real estate projects underlying these loans are located in major MSAs, supported by strong sponsors and have been many years in the making, and we are excited to be a part of these projects. Additionally, during the fourth quarter, we sold a $10 million senior interest in our previously announced commercial loan secured by a luxury residential development located in Austin, Texas metropolitan area. This sale reduced concentration in one of our largest commercial loans. From time to time, we will likely consider additional sales of senior interest in larger loan investments to efficiently manage diversification while enhancing the yield of our net interest. At year-end, our net commercial loan portfolio was approximately $129.8 million, up from $48 million at the beginning of the year highlighting the significant scale and momentum captured by our platform during the past year. Additionally, we are targeting our commercial loan portfolio to generally run at approximately 20% of our total undepreciated asset value complementing our property portfolio investments and increasing our overall yield on our total assets, although timing of funding and repayments of loan investments may vary quarter-to-quarter. Combined, completed property acquisitions and loan originations were approximately $142.1 million for the fourth quarter at a weighted average initial yield of 11.7% and $277.7 million for the full year at a weighted average initial yield of 10.3%. The $277.7 million of investments completed was our most productive year in our company's history. To support this level of investment activity, we've not only generated capital through strategic asset sales, but also opportunistically access the capital markets. In November, we issued a $50 million of a new Series A preferred stock with an 8% coupon. Additionally, late in the fourth quarter of 2025, early in the first quarter of 2026, we utilized both our common ATM and the Series A preferred ATM programs raising the combined $18.3 million of equity. Lastly, as we look to 2026, we're excited about the outlook for the company. We believe our investment activity, equity raises and recent debt refinancings for which Phil will provide more details, have positioned the company well as we start the new year. Further, our Board recently decided to increase our quarterly common dividend per share of 5.3% to $0.30 per share beginning in the first quarter of this year. And with that, I will turn the call over to Phil. Philip Mays: Thanks, John. Beginning with a quick summary of financial results. For the fourth quarter, total revenue was $16.9 million, including lease income of $12.7 million and interest income from commercial loan investments of $4 million. Both FFO and AFFO attributable to common stockholders for the quarter were $0.54 per diluted share, representing 22.7% growth over the comparable quarter of the prior year. For the full year, total revenue was $60.5 million, including lease income of $48.7 million and interest income from commercial loan investments of $11.4 million. FFO and AFFO attributable to common stockholders were $1.88 and $1.89 per diluted share, respectively, representing approximately 8.6% growth over the prior year. Earnings growth for the quarter and the year was primarily driven by the investment activity John discussed, combined with disciplined balance sheet management. Moving to the balance sheet. Similar to our investment activity, we had significant amount of capital markets activity in the fourth quarter of 2025 and early in the first quarter of 2026. First, on November 12, we completed a public offering of 2 million shares of Series A preferred stock at a price of $25 per share with an 8% coupon. This preferred offering resulted in $50 million of gross proceeds before deducting the underwriting discount and other operating expenses with net proceeds totaling $48.1 million. We supplemented the preferred offering proceeds with a modest amount of issuance under both our Series A preferred and common equity ATM programs. Beginning with our preferred ATM program. From late fourth quarter to early in the first quarter of 2026, we issued just over 116,000 shares of our Series A preferred stock at a weighted average price of $24.92 per share for total net proceeds of approximately $2.8 million. Likewise, during this time, under our common stock ATM program, we issued just over 918,000 shares at a weighted average price of $17.13 for total net proceeds of approximately $15.5 million. Additionally, earlier this week, we closed a new unsecured credit facility and completely recast the company's unsecured debt. The new credit facility consists of a $250 million revolving credit facility with an initial term of 4 years with two 6-month extension options, a $100 million 3-year term loan, and a $100 million 5-year term loan. The proceeds from the new credit facility were used to fully repay and retire the company's prior revolving credit facility and term loans, resulting in the company now having no debt maturities for 3 years. Further, pricing for borrowings under the new credit facility improved by 10 to 15 basis points, and it provides for more flexibility and borrowing capacity related to our commercial loan investments. Please see our recent press release related to this credit facility for more details. We ended the year with net debt to pro forma adjusted EBITDA of 6.7x compared to 7.4x at the beginning of the year. Additionally, we had $65.8 million of liquidity, consisting of approximately $25.3 million of cash available for use and $40.6 million available under our revolving credit facility. However, with in-place bank commitments, the availability under our revolving credit facility can expand by an additional $31.4 million as we acquire properties and fund commercial loans providing for total potential liquidity of $97.3 million at year-end. Summarizing our investments at year-end, our property portfolio had annualized base rent of $46.2 million on a straight-line basis and our net commercial loan portfolio had loans with an aggregate face amount of $129.8 million at a weighted average coupon rate of 12.4%. One additional note regarding our commercial loan portfolio. Two loan investments totaling $7.2 million at year-end with a weighted average coupon rate of approximately 11.5% were repaid in January of 2026. Additionally, as we noted previously, our property portfolio includes approximately $3.8 million of ABR related to 3 single-tenant restaurant properties acquired in 2024 through a sale-leaseback transaction. Although these properties constitute real estate for both legal and tax purposes, GAAP requires them to be accounted for as a financing. Accordingly, current annual cash payments of approximately $2.8 million are reflected as interest income rather than lease income. To provide more information about this matter and our commercial loan program, we have added additional disclosures to our press release including the supplemental table providing details for both the loan portfolio and related interest earnings. We hope you find this additional information helpful in understanding our investments. Now turning to our 2026 outlook. Our initial earnings guidance for the full year of 2026 is $2.07 to $2.11 for FFO per diluted common share and $2.09 to $2.13 per AFFO per diluted common share. Key assumptions reflected in our initial guidance include investment volume of $70 million to $100 million, and disposition volume of $30 million to $60 million. I do want to note that our 2026 guidance and growth in earnings reflects dispositions generally closing earlier than acquisitions. Furthermore, our revenue for 2025 included $221,000 in the fourth quarter and $525,000 for the full year related to fees we receive for managing and selling the third-party properties that supported our portfolio loan. During the fourth quarter of 2025, substantially all these third-party assets were sold and the portfolio loan was repaid in full. Accordingly, these fees will not be a significant source of revenue in 2026. One last note. As John discussed, the Board has increased our quarterly common dividend to $0.30 per share beginning in the first quarter of 2026. Even with this increase, our dividend remains well covered. Specifically, this new quarterly common dividend rate represents just a 56% AFFO payout ratio computed on AFFO for the fourth quarter of 2025. With that, operator, please open the call to questions. Operator: [Operator Instructions] And our first question will be coming from Michael Goldsmith of UBS. Michael Goldsmith: First question on the loan portfolio. It looks like you set kind of an upward boundary of 20% of the portfolio. So can you just talk a little bit about how you came to setting it at that level? I guess, where the loan portfolio steps today, stands today relative to that and then just how much more you can do to kind of hit that max? And if you expect to hit that this year? John Albright: Yes. Michael, this is John. I think that really on 20% I felt like that was a reasonable number, and I'm making it too large, of course. And something that obviously is complementary to the company and the business. So it's really not incredibly magic number, but it's low enough where it's not a distraction to our investors and enough to be interesting investments for sure. And so I'll let Phil talk about kind of where we are. But as you could see from Phil's comments that we've already had a couple of loans repay. And so that will continue as we do find sources for new investments as well. Philip Mays: Yes, Michael. So probably the easiest way to think about kind of where we stand in the runway is, John mentioned 20% of total undepreciated assets. So end of the year, that would have been $770 million, so 20%, $155 million, $160 million. The portfolio had $130 million or so outstanding. So kind of runway for another $25 million, $30 million on top of opposite outstanding at the end of the year. Michael Goldsmith: And then my follow-up is you continue to reduce your exposure to some of the tenants that aren't in favor. Walgreens has moved considerably down the list, I guess, just where do you stand with that? Is there more work to do? Are you happy with where you're at? Just trying to get a sense of are we at the end of that activity? Or is there just a little bit more to do? John Albright: Yes, there's definitely a little more to do, and we're actively on selling an additional Walgreens now. And so we'll continue chipping away at it, and it will be gone at some point. But now that we've gotten it way down the list is not as sort of like super focused on it. We just want to take our time and find the right buyers and not just sell it, just to sell it. So we'll take the cash flow and be prudent about selling them, but we're working on continuing that sales process. Operator: And our next question will be coming from Jay Kornreich of Cantor Fitzgerald. Jay Kornreich: I guess just following up on that first question about the 20% threshold for the loan investments. That's really been such a strong source of growth for you guys and continues to be -- and as a large swath of the investments this past year was focused on that. So I guess, even though you've outlined how much more room you have to 20%, I mean, why not push much greater beyond that 20% threshold? Do you guys, I guess, consider doing that? Do you want to do that as you think about your opportunities in 2026? John Albright: No, I don't think we -- I mean certainly we could. I mean there's enough volume out there, but it's really not wanting to flip the script, if you will, as far as our primary sources business, which is the net lease properties, core properties. So this business has been fantastic. It gets us deeper into developer relationships and tenant relationships and it provides us a source of future net lease investments. And it's very much complementary, but I don't want it to be sort of a distraction. Jay Kornreich: I appreciate that. And then just one follow-up. You talked about some of the capital raising you did in the fourth quarter. And I guess I wanted to talk about the $10 million on the ATM that you adapt. And just curious about how you think about deploying more equity capital at these current stock prices I guess, assessing your cost of equity. I'm assuming that's really being more used for the higher-yield divestment loans. So just curious how you think about deal spreads relative to your cost of capital versus the investment loans, just how you target that and think about issuing more. John Albright: Yes. I mean we'll be prudent about it. But clearly, as you mentioned that most of it is to fund these highly accretive investments. And so even though the stock price is not kind of where we'd like it, it does work, the math does work. And certainly, as you've seen with many companies that investors seem to have a lot more interest in companies where there's more liquidity and ability. And so a lot of -- you think about it, we bought back a lot of stock last year. And we're, in essence, reissuing some of those shares. So it's not any sort of massive dilution sort of activity. It's just being prudent with funding some of these very accretive investments. Operator: And our next question will be coming from Wesley Golladay of Baird. Wesley Golladay: Just a question on the dividend. You definitely raised it again. And when you think about that, is that mainly driven by the earnings growth that you have and having to pay out a dividend that's a little bit higher? And why not trying to retain more cash flow? John Albright: Phil, I'll let you address that. Philip Mays: Yes. So it was earnings growth but also just taxable income growth. So that kind of balanced the 2. I didn't catch the last part of your question there, Wes. Wesley Golladay: Just seeing why basically increased because you had to pay it out just because you're issuing stock here, just why not just retain more cash flow versus raise the dividend? Philip Mays: It's a lot of it's growth in taxable income. When you think about the loan portfolio, right, there's no depreciation that goes with that. So even though it's 20% of total assets and the properties make up more, there is no kind of tax cover or depreciation to go with it. So it does help drive taxable income up. So the raise was really just to kind of be where we need to be to pay out taxable income. Wesley Golladay: Got it. That makes sense. One question on the loan where you have the developer for the Phase I. Are you starting to see any lot sales there? And when can you expect to get repaid? And then a follow-up would be, would you expect the second loan to start funding before the first one starts paying off? John Albright: Yes. I mean the loan is already starting to be repaid as lot sales are happening. And it is going to the senior participation we sold off. And so I would not -- the loan that we have out now won't be fully repaid by the time that the second portion is funded. But you can expect really the activity on the repayment will probably come more to us late spring. So it will really be going to the first mortgage sort of participation first. Wesley Golladay: And then I guess when you look at your pipeline of potential loans, what are you seeing in there? I mean you have a big residential loan here. Do you have other sectors that you're looking at, does it diversify it a bit? John Albright: Yes. So we're really pleased with the pipeline for sure. We're talking about more kind of grocery-anchored development and also investment-grade credit development with terrific tenants and new relationships. It's old relationships with new relationships for Pine. And so we're very excited as we continue to work on the pipeline. So more to come. Operator: And our next question will come from R.J. Milligan of Raymond James. R.J. Milligan: Just wanted to follow up on the loan book. John, longer term, as some of these loans are paid off, do you expect to continue to redeploy that capital and maintain that 20% allocation over the next several years? Or do you expect that to come down over time? John Albright: Thanks, RJ. No, we intend and see the opportunity to keep it at that 20%. The pipeline is very strong right now. So as loans burn off, they will be -- we fully intend them to be refilled. R.J. Milligan: Got it. So this is a longer-term 20% allocation part of the Pine strategy? John Albright: Correct. R.J. Milligan: Great. And then, Phil, I just had -- wanted some housekeeping on fourth quarter. Obviously, a pretty big number and beat relative to consensus. I think there may have been some onetime items in the fourth quarter. I was wondering maybe you can sort of talk about those and sort of how we get to a good run rate going into first quarter of this year? Philip Mays: Yes. Thanks, RJ. There are several onetime items in there. And just a good way to see it is when we -- in one of our schedules, the debt to EBITDA, we have a line item that says nonrecurring items in there, and it was a little over $300,000 for the quarter. That's primarily the management fees that I talked about on my prepared remarks that are going away and then also prepayments only we got from one of the loans that paid off early, that made up that 300-and-some thousand. So that's a couple of cents that nonrecurring. And then also keep in mind, the fourth quarter doesn't have the full burden of the prep outstanding and the management fee that goes with that. So the $0.54, if you take it down for all those items, you're probably at $0.50, $0.51 on a run rate at the end of the quarter. Operator: And our next question will be coming from Gaurav Mehta of Alliance Global Partners. Gaurav Mehta: I wanted to follow up on the balance sheet and wondering if you would comment on your leverage expectations in 2026? Philip Mays: I mean we're pretty happy with where we currently stand. And we're in a nice pricing tier on our debt. So I think kind of where we're currently at is about where we expect it to run for the year. But obviously, that depends on the opportunities we see. Gaurav Mehta: Second follow-up on the investment opportunities. In the prepared remarks, you commented on falling a barbell approach in '26. Just wondering if you could comment on, I guess, the opportunities that you're seeing both on the investment and non-investment grade part of the portfolio for acquisitions? John Albright: Yes. We're very excited about some of the opportunities we see on the net lease side, where we had the ability to possibly bring in new investment-grade credits further up into the top 5, top 10 tenancy. And so we're really focused on that. And so we have a good portfolio that opportunities that we're looking at right now. So pretty excited about the composition of the net lease portfolio this year. Operator: Our next question will be coming from Jason Weaver of Jones Trading. Jason Weaver: Congrats on a big year in '25. First, on the acquisition and disposition guide, which is down a lot versus '25 with the capital base growing. Is there anything we can read into that, just taking from a point of conservatism? Is it some sort of hesitance about market conditions? Or is there something else that is out there? John Albright: Yes. We just want to be really have a cadence that something we feel very, very comfortable hitting without having such a big number that you feel like you're forced into buying things that maybe you're not too excited about. So we just want to be real careful on curating a super strong portfolio and not being forced into more commodity assets. Jason Weaver: Got it. That's fair enough. And then next, I wonder if you can clue us into the expected funding mix on any new investments and as well as the unfunded commitments, whether that will be done with some combination of ATM draw versus credit facility credit facility drawdown. And sort of what mix thereof are you looking to target? John Albright: I'll just kind of start off and let Phil dive deeper. But clearly, our mix in the past probably is somewhat reflective of what's going to be in the future. And that's still recycling, still selling down noncore sort of credits and using that for investments. And then obviously, we talked about a little bit of the loans naturally maturing and paying off. But then there'll be a mix of perhaps the ATM and the line, but keeping everything pretty modest. Operator: And our next question will be coming from Craig Kucera of Lucid Capital Markets. Craig Kucera: Phil, you included the PIK interest earned in AFFO, and I understand that makes sense this quarter because there was hardly anything that wasn't collected in cash. Is that your expectation for the foreseeable future? Philip Mays: Yes, I think we'll stick with that. What we also did, Craig, just to be clear on how much PIK is in there at the bottom of the table, we added a schedule that shows the cash interest and the PIK interest, and we'll continue to also include that. So you'll know exactly what is included. But just felt like that was an easier way to go. Craig Kucera: Yes. No, that was helpful. I did see that. changing gears in your discussions with your developers that still have unfunded commitments, do you expect those guys to pull down most of that capital in 2026? Or I know a lot of those loans mature later in '27 and even '28, but just some thoughts on that? John Albright: Yes. We fully expect that those will be drawn down for sure. It's part of the project. And as the project gets going, that's fully kind of specified for those needs. Craig Kucera: And in the schedule of your commercial loans, you mentioned that Phase 2 in Austin has some conditions that are unmet. Can you give us some color on what that is and when you think those conditions might be met and the loan is funded? John Albright: I'll let Phil answer that. Philip Mays: Yes. So on the funding, probably 2Q. But keep in mind, as with the first phase, we sold off our participation of $10 million. So just kind of using round numbers. The first phase was $30 million. The second phase is $30 million. we sold off a participation already for $10 million. There's likely to be another sell on that. And so altogether, we might sell off another $10 million, $20 million, so the net hold might be closer to half. But yes, probably late first quarter, early second quarter, for the second phase funding and simultaneously with that, we'll also probably have some participation out of 10 or 20, somewhere in that range. Craig Kucera: Got it. So that's in the guidance then? Philip Mays: Yes. Craig Kucera: Appreciate that. And I guess when that first phase was initially structured, I think it was 17% for like 6 months and then dropped to 16% for 6. Once you sold that participation interest it's now yielding north of 20%. Can you walk us through the math of how it adjusts net of the participation interest? Is there any change in the way that, that loan is going to roll down? Philip Mays: The participation interest has a constant rate of 10%, and that hyperamortize so that gets repaid first, and then we get repaid second. Is that helpful? Craig Kucera: Yes. I'll probably just circle back to you offline just to make sure I'm getting the math right. And finally, you did mention you amended the loan this quarter. Was that just a loan extension? Or can you just give us some additional color on that loan? Philip Mays: Yes, it was just an extension. Operator: Our next question will come from John Massocca of B. Riley Securities. John Massocca: So maybe just going back to guidance a little bit. What's kind of the -- be kind of broad ranges, but expected yield on the investment volume you're kind of putting into guidance? And I guess, kind of implied in that question is how do you see the mix in that expected volume being demarked between structured investments versus net lease investments? Philip Mays: I think on the loan side, I talked earlier about the runway being $25 million to $30 million, and look, it could bounce around a little bit depending on when draws happen, when fundings happen and repayments. But out of that, out of the guidance, you should expect about that much to come from the loan side, and that will probably ramp up over the first half of the year. And then the balance of the guidance you can expect to be on the property side. John Massocca: And kind of where do you think that puts you from a yield perspective? Or where do you think yields are today for structured loans and the type of net lease investments you're looking at? Philip Mays: Yes. So the -- in the current book and what's expected to fund... John Albright: The yields -- the loan yields really are not too dissimilar to what we've done in the past. So there's no really tightening in the market, if you will even though there's a lot of capital out there, as we all know. It's just that the flexibility structure and the quickness of how we can react to opportunities leads to a little bit higher rates that we're able to achieve. Philip Mays: Yes. The rate at the end of the quarter is a decent rate to use for the balance of the year. John Massocca: And I guess on the net lease side, kind of where are you seeing cap rates today? I know you closed something subsequent to quarter end at an 8.5%. But is that maybe a little higher than what your target in the market today? Or is that kind of indicative of what you can invest at? John Albright: On the more investment grade sort of properties that we've been looking at, that will be lower than what we just did on that acquisition in Aspen. But very similar to the Sam's Club we purchased and so forth. So I would say, on cap rate direction, certainly, for quality properties is still very tight. But a lot of the investments we have made in the past in the past 5 years, we'll look at really strong real estate, very strong MSAs and maybe have a shorter lease duration where the likelihood of a tenant renewing is very high because the rental rates they're paying are very, very low. So they're almost like covered land plays, and we can get those at obviously higher yields than if it was like a fresh 15-year lease. And so that's where we like to play where we're picking up investment-grade credits in large MSAs that way below market interest rates. And so those cap rates will still be similar to kind of what we did last year as well. John Massocca: I appreciate that color. And then maybe on the -- you mentioned it in the context of the Austin structured investment. But are there opportunities for more participation interest sales on other structured loans in the portfolio or other deals that may be your kind of contemplated in guidance? John Albright: I mean we could sell off a lot if we wanted to, but we -- I mean, they are fantastic loans, and we'd rather hold them all, but we will certainly sell senior participations to fund activity if we need to. John Massocca: I guess as it pertains to kind of like you're seeing the world today, it's often is going to be primarily where that comes from? John Albright: I'm sorry, I missed that last point. Can you say it one more time? John Massocca: We just -- I mean you mentioned kind of what you were expecting to do on the participation interest sales side with the Austin structured investment. Is that kind of all that's really contemplated as we stand today? John Albright: As we stand today, and that's really -- we're really doing it as an accommodation for them coming in early on. Otherwise, you wouldn't even want to sell that participation. But certainly want to be good counterparties and keep that participation investor there in case we'd like to do another one. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the i3 Verticals First Quarter 2026 Earnings Conference Call. Today's call is being recorded, and a replay will be available starting today through February 13. The number for the replay is (855) 669-9658 and the code is 6769466. The replay may be accessed for 30 days at the company's website. At this time, for opening remarks, I would like to turn the call over to Clay Whitson, Chief Strategy Officer. Please go ahead, sir. Clay Whitson: Good morning, and welcome to the first quarter of 2026 Conference Call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO; Rick Stanford, our President; Geoff Smith, our Chief Financial Officer; and Paul Christians, our Chief Revenue Officer. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to, but not instead of, the GAAP financial statements. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in the company's earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it, except as may be required by applicable law. I will now turn the call over to the company's Chairman and CEO, Greg Daily. Gregory Daily: Thanks, Clay, and good morning to all of you on the call. We're excited with the start of 2026. As we anticipated and guided the market, revenue was only up 1% over prior year's Q1, but recurring revenue was up over 8%, more closely reflecting our expectation of long-term growth. SaaS revenue led with over 24% growth. We're now -- we've now had 4 quarters in a row over 20% SaaS growth, and we see that number staying north of that level through the year. While our recurring revenue sources, professional services and license are both down, we believe our focus on recurring sources will carry the day. We're very excited to announce our latest acquisition. Rick will share more, but this is a deal we're very proud of. Our best deals tend to be the ones we sell -- we source ourselves, and this is the latest example. It is a perfect fit within our transportation market. You will always be surprised at the durable, sticky niche software solutions you will find in the public sector. Well, here's another one. Helping states early detect uninsured motorists is only possible because of thoughtful, well-executed software business solutions like this. Because they already have integrations with the insurance carriers, they have an incredible defensive market positioning and their growth is compelling. The team that built this business is staying on, and we couldn't be more excited about what we can accomplish together. We remain exceptionally well capitalized and thoughtful about how to deploy our capital and expect to have great opportunities in 2026. As always, the focus is discipline. I will now turn the call over to Geoff, and he will provide more details on financial performance. When he's finished, Rick will address our latest deal in more detail. And finally, Paul will discuss revenue, and then we'll open up the call for questions. Geoffrey Smith: Thanks, Greg. The following pertains to the first quarter of fiscal year 2026, which is the quarter ended December 31, 2025. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. Revenues for the first quarter of fiscal 2026 increased 1% to $52.7 million or $52.2 million for Q1 2025, in line with expectations. The growth reflected 8% growth in recurring revenues, partially offset by a $3 million decline in nonrecurring professional services and software license revenues. Annual recurring revenues increased 8% to $169.6 million for Q1 2026 compared to $156.4 million for Q1 2025. 80% of our revenues for the quarter came from recurring sources, driven by SaaS revenue growth of 24%, transaction-based revenue growth of 12% and payments revenue growth of 8%. Maintenance revenues declined 8%, reflecting the emphasis on SaaS and new sales. Adjusted EBITDA declined $1 million to $13.6 million for Q1 2026 from $14.6 million for Q1 2025, in line with expectations. Adjusted EBITDA as a percentage of revenues was 25.8% for Q1 2026 versus 27.9% for Q1 2025. The dollar and percentage declines were driven by previously mentioned investments in our justice and utility markets, higher hosting costs and $2.6 million lower professional services revenues. While professional services are not high, the associated costs can follow revenue fluctuations with a lag. We expect the adjusted EBITDA margin to improve for the remainder of the year, and our long-term expectation remains 50 to 100 basis points per year. Adjusted diluted earnings per share from continuing operations was $0.26 for Q1 2026. Again, please refer to the press release for a full description and reconciliation. Our balance sheet is strong and well positioned for the future. As of December 31, we had $37 million of cash and no debt. As Greg mentioned, effective January 1, we purchased a provider of software for driver and motor vehicle insurance verification for $60 million in cash. Here's some color to help you incorporate this acquisition into your models. We paid approximately 15x EBITDA. The company is durably growing at a rate above 20% and has an EBITDA margin above 50%. We still have a $400 million revolving credit facility with a 5x leverage constraint. We intend to use any borrowings for acquisitions and opportunistic stock repurchases. The following sets forth guidance for continuing operations for FY 2026. The outlook does not include acquisitions that have not yet closed or transaction-related costs. revenues, $2.3 $223 million to $234 million; adjusted EBITDA, $61 million to $66.5 million; adjusted diluted earnings per share, $1.08 to $1.16. We expect recurring revenues to grow at double-digit rate for FY 2026, including the acquisition. However, we expect a decline in nonrecurring professional service revenue driven by the cadence of revenue recognition on certain projects in our utilities and transportation markets. Despite the lower outlook in those markets for fiscal 2026, they are well positioned to rebound in fiscal 2027 and beyond. Our long-term expectation for organic revenue growth remains high single digit. From a seasonality standpoint, software license sales and professional services represent the most variable line items to forecast and can distort seasonality in any given quarter. We currently expect our revenue distribution for FY 2026 to approximate the following: Q1, 23%; Q2, 25%; Q3, 25%; Q4, 27%. So I'll now turn the call over to Rick for comments on M&A. Rick Stanford: Thank you, Geoff. Good morning, everyone. As mentioned in last night's earnings release, on January 1, we closed our latest acquisition. This business operates in the transportation market and does business at the state level. The company's insurance verification product is feature-rich, including real-time verification, continuous insurance lapse updates, direct connection with insurance companies and seamless integration with state motor vehicle systems. The product can accommodate integration with every possible motor vehicle system in use by the states today, including i3s. This transaction will significantly expand our geographic reach in the transportation market, better positioning i3 to be the vendor of choice in ongoing modernization initiatives. Currently, we have the adjacent market for motor carrier software solutions such as IRP and IFA tax software and truck routing software. i3 is a major player in the motor carrier and motor vehicle software market with a combined 30 states and 4 Canadian provinces. We are thrilled to welcome this talented team to i3 and look forward to their many successes in the future. Relative to our acquisition pipeline itself is continually filled with some promising opportunities similar to this deal. Again, we remain diligent with regard to the value and strategic impact of potential acquisitions to our growth prospects. I'll now turn the call over to Paul for final comments. Gregory Daily: Paul, you may be on mute. Rick Stanford: It seems as if Paul is having technical difficulty. Operator: It seems like Paul's line has dropped here. Rick Stanford: Okay. That's fine. I'll take it from here. Thank you. Our focus on refining market offerings, especially in Justice Tech and transportation markets is providing -- is proving to be timely and effective as we continue to see an increased demand for technology that enable decision-making. This shift towards market-based solutions is evident through expanded solution scope within RFPs, increased emphasis on unified data structures to support analytics and growing expectations for continuous innovation and system evolution. In JusticeTech, we have seen an uptick in opportunities at both the state and local levels as we rolled out our new CourtOne offering, especially around case management systems and the CourtOne Jury Solution. These offerings are aligning well with current market demand, allowing us to engage meaningfully in opportunities as agencies modernize their systems. We are excited that the market leader of electronic insurance verification recently joined the i3 family. Their solutions augment the strength of our transportation market offering. Now some portion of the i3 Verticals transportation platform is live in 30 states and 4 Canadian provinces. Our partnership with West Virginia continues to be strong. We are in the process of fulfilling the recently won contract with the West Virginia Supreme Court of Appeals with i3 CourtOne. Additionally, the Arizona Department of Real Estate selected i3 to provide licensing and regulatory software across the state. We are seeing particularly strong activity across JusticeTech, transportation and regulatory and licensing markets. In addition, i3 Education is realizing the investment in i3 Marketplace. i3 Marketplace is a portal providing unified access complete with SSO, single sign-on and MFA, multifactor authentication to all i3 education models. It supports students, parents and administrators across schools and districts. i3 continues to gain traction with AI-enabled solutions. We also delivered an AI support upgrades to our current Georgia JusticeTech footprint, and we'll continue to push those changes into our other markets across the U.S. throughout 2026. Our focus on leveraging AI, along with our deep domain expertise is proving to be positive for both i3 and our customer base. This concludes my comments, Dave. At this time, we'll open the call for Q&A, please. Operator: [Operator Instructions] Our first question comes from Madison Suhr with Raymond James. Madison Suhr: I wanted to start on the FY '26 updated outlook and putting together some of the comments on the deal. It does seem like organic growth may have ticked down very modestly, maybe $1 million or $2 million. So I guess just for starters, is that generally correct? And if so, just any color on what's driving maybe the slightly modest headwinds relative to last quarter? Clay Whitson: Madison, you are correct, and it comes on the professional services line. I think we entered the year thinking professional services would go from $40 million to $33 million, $40 million in '25 to $33 million in '26. Our current view is that it will go to $31 million on professional services. Madison Suhr: Okay. Got it. That's helpful. And then obviously, the recurring side continues to be strong, 8% in the quarter. You guys talked about 8% to 10% for the year last quarter. I apologize if I missed it, but is that still the right way to think about the recurring side for this year? Geoffrey Smith: Yes. That's correct. Clay Whitson: With the exception of our acquisition, that will tick it up. It's mainly recurring revenue. Geoffrey Smith: Yes. 8% to 10% organic. Madison Suhr: Okay. Awesome. And then if I can sneak one more in just on capital allocation. Obviously, you guys did a deal. M&A is a key part of the strategy, a differentiator for you guys. But just given what we're seeing in the market and the dislocation for your stock in particular, I would love to just hear your thoughts on buybacks versus M&A here. And it does look like you guys might have bought back some stock in the quarter. Just any color on kind of the quarter itself from a buyback perspective as well. Geoffrey Smith: There will be more information about that in our 10-Q that comes out here. But to get out in front of that, yes, we did buy back a significant number of shares this last quarter. The outlook and approach has always been for us to be opportunistic with buybacks. We're in a really good place on our balance sheet. We think that our stock is inexpensive and a great investment for the current shareholders of the business at the levels we've been at. So that will continue to be the approach going forward. But you'll see a little bit of reporting about that in terms of quantity in the 10-Q. Operator: And the next question comes from Peter Heckmann with D.A. Davidson. Peter Heckmann: Congratulations on the new acquisition. Just a few additional details in terms of how you think about the opportunity there. I guess how do you think about this company's market share either by number of states or covered population? I think you said it was at the state level and at the county level. And then next, like is the revenue stream transaction-based? Or is it more of a subscription software model? Rick Stanford: So we -- thanks, Pete, for the question. We're very excited about the deal. We think the growth prospects going forward are going to be staggering to say the least. They're very good with their customers. They have their very first customer. They never lost one. We like their presence in the market. They're well known. It's not transactional today. We think that we can take this product into our motor carrier to some degree. And we know that current customers, a handful have been asking for, let's say, one neck to choke with payments and software. So we think we can get some payments play in there, too, but that's to be seen. But we're very excited about the deal. Peter Heckmann: Okay. Okay. So just as a follow-up, it sounds like there's significant opportunity to grow the number of existing relationships. Clay Whitson: Yes. Operator: The next question comes from Charles Nabhan with Stephens. Charles Nabhan: Good to see another quarter of strong SaaS revenue growth. I was wondering if you could expand on some of the drivers of that 20% plus growth as well as speak to the sustainability of that pace. Geoffrey Smith: So first off, the acquisition will add a whole new layer of SaaS growth. So we'll be well north of that number, north of 30% for the rest of this fiscal year on that. But the organic SaaS growth should stay in that general vicinity north of 20% as well. Drivers are -- it's the fruits of the emphasis that we put on SaaS in all our markets. It's coming from a lot of different markets, utilities, the public administration market, especially our board and licensing software, the justice market, it's -- all of the different markets contribute kind of in their own way there. So the -- again, rest of the year, expect organic to be north of 20%. The new acquisition, which is currently monetized primarily off SaaS. And as Rick said, there will be opportunities to add other kind of streams for that will be a great thing, but we'll be in a great spot on SaaS growth for a while. Charles Nabhan: Got it. As my follow-up, I wanted to get your thoughts on AI, approaching it from a couple of different angles. I'd love to hear how you're thinking about it in your internal processes as well as how you think about it from a the disruption potential for -- within GovTech from AI, whether it's fact or fiction and just generally how you're thinking about it given some of the recent stock movements. Rick Stanford: Yes. So Charles, this is Rick. I'll take a stab at this, and I'll let Greg and Clay chime in after. Look, we have pockets where adoption is very high with our customer base with extraction and reaction in the CAMA world. We have others where it's -- the adoption is not so great. We're continuing to push it both on the customer side and on the development side internally. That's the first thing we think about in our engineering group is how do we use AI to develop new features to our products. But at the end of the day, state, local and municipal agencies will need to create frameworks of processes, functions, structures, laws before creating engineering and security protocols. Initially, policies are going to be rigorous and hypercontrol for the fear of AI itself. So that will be a headwind to us near term, providing minimally viable products and services for constituent use. Without an overall agreed-upon plan in GovTech or guidance at the state or federal level, there's going to be inter jurisdictional inconsistencies that will cause confusion amongst state constituents. And that's something that's going to kind of put a clog in the engine. In short, we believe that it's going to be a good bit of time away from this concept of proliferation of AI within GovTech being a real working asset because of the headwinds I mentioned. Companies like i3 can accelerate the AI process. But the customer at the end of the day, is going to drive adoption at a slower pace than we can move forward. Would you add anything to that? Clay Whitson: I think that's right. We're excited about AI. It enables us to deliver better products more quickly to our customers. We have deep domain expertise, and we are the enterprise platform in most cases or the system of record for our customers. So we're deeply embedded in their everyday workflows. Gregory Daily: Just the relationship that we have. Their -- go ahead, I'm sorry. Charles Nabhan: No, no, I was just going to thank you for your thoughts. But always interested in hearing more. If I cut you off, I apologize. Operator: And the next question comes from Alex Markgraff with KeyBanc Capital Markets. Alexander Markgraff: Just a couple from me. Maybe first on the transaction. I think I heard 15 times just based on some historical comments, I think, a bit outside the sweet spot as you all have described it. Obviously, like some compelling financial profile details that you all shared. Just curious if this is a unique transaction for the multiple and maybe how many more of these sort of unique opportunities that might pull you upwards of that sweet spot there are that exist today? Clay Whitson: Well, from a price standpoint, most of the companies we bought historically have been growing organically in the 10% range. This one is north of 20%, and we see new customers coming on sustaining that growth. There are some synergies available and their margins are in the 50% range. So that's implied a higher multiple in the price. What was the second part of your question, Alex? Alexander Markgraff: Just as to whether or not there are more of these types of deals out there or in the pipeline that might sort of pull you up outside of that sweet spot for good reason, but notably pull you outside of that upper end that you've historically paid for deals. Rick Stanford: Yes, I'm glad you said for good reason. I mean we've made it known all along that while our sweet spot is 7 to 10x, if we find something that's growing, that's a perfect fit with incredible margins like this, lucky to have it. Alexander Markgraff: Okay. Super helpful. And then just on the product investments, I guess, it sounds like things are going [Technical Difficulty] plan there, and you're seeing some benefits in the sales pipeline around that. Still just as you described it last quarter, that sort of acceleration investment for '26, still the right way to think about it? And then just any changes to how you're thinking about that spend for the rest of the year would be helpful. Clay Whitson: I mean it's a continuation of what we introduced in our third quarter report last year, the investment in advance of revenues. We're glad we're doing it. It's according to plan. Really nothing has changed there. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Greg Daily for any closing remarks. Gregory Daily: Well, thanks, everybody, for listening and dialing in and showing interest. I wanted to kind of give a shout out to our large utility customer in Seattle. Good luck Sunday. 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, and welcome to the MarketAxess Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct 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. To withdraw your question, press star one again. As a reminder, this conference call is being recorded on February 6, 2026. I would now like to turn the call over to Stephen Davidson, Head of Investor Relations at MarketAxess Holdings Inc. Please go ahead, sir. Stephen Davidson: Good morning, and welcome to the MarketAxess Holdings Inc. fourth quarter and full year 2025 Earnings Conference Call. For the call, Christopher Concannon, Chief Executive Officer, will provide you with an update on our strategy and our business, and Ilene Bieler, Chief Financial Officer, will review our financial results. Before I turn the call over to Christopher Concannon, let me remind you that today's call may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain. The company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2024. I would also direct you to read the forward-looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now let me turn the call over to Christopher Concannon. Christopher Concannon: Good morning, and thank you for joining us to review our fourth quarter and full year 2025 financial results. We are pleased with the progress we achieved in delivering new protocols and functionality in 2025, and excited about our prospects and plans for 2026. First, we enhanced the MarketAxess Holdings Inc. advantage in 2025 by expanding our global network, enhancing our differentiated liquidity, and strengthening our deep proprietary data and analytics. These key components of the MarketAxess Holdings Inc. advantage are further complemented by our investment in multi-protocol solutions for the buy side and for the sell side. We have made significant progress in 2025 delivering and growing protocols across our three channels: portfolio trading protocols, block trading protocols, dealer matching protocols, automation protocols, and our closing auction protocol. Next, we have a clear and achievable technology and product roadmap that positions us to achieve our three-year targets that we announced in December. In 2025, we delivered critical protocols and workflow tools that will help achieve the first year's milestones. Now 2026 is about execution and building on the momentum we had as we exited 2025. Turning to our financial results on Slide three. In 2025, we generated record revenue of $846 million, including strong 10% growth in product areas outside US credit. Record total revenue was underpinned by record total ADV, driving record commission revenue combined with record services revenue, helping to drive record annual free cash flow generation of $347 million. Momentum continued to build with our new initiatives last year. We exited 2025 with a 29% increase in block trading ADD, including record block trading ADD in emerging markets, 28% estimated market share in US high yield portfolio trading, and over $3 billion in trading volume in our new dealer initiative protocol MIDEX. We continue to be disciplined with our expense management, with 5% growth in non-GAAP expenses in 2025. We have returned a total of $474 million to investors, through $360 million of share repurchases, and $114 million in dividends. In addition to establishing our three-year plan, we announced an enhanced capital return plan of $400 million, including a $300 million ASR. We just completed the ASR earlier this week with the final delivery of 360,000 shares. Through the completion of the ASR, we have now retired 1.7 million shares to date. In summary, I'm encouraged by the significant product deliveries that we made in 2025 and the progress we achieved across our strategic channels, portfolio trading, dealer initiated, and block trading. The investments that we are making to help drive higher levels of revenue and market share growth in US credit are beginning to show some progress. I just wanted to provide some context for our January trading volume statistics that we released yesterday. In January, we generated record total credit ADV, driven by strong growth across all credit product areas, with record ADV in our emerging markets business up 50%. Strong market volumes, combined with the continued momentum in our new initiatives, helped drive strong growth in our total credit preliminary variable commission revenue. Estimated market share in US high grade was lower than we would have liked, but it was negatively impacted by a 92% increase in new issue block activity. While this has a temporary impact on share, it's good for overall market volumes and turnover growth over time. US high grade turnover increased 95% in January, levels we have not seen since approximately 2011. Before moving to the next slide, I wanted to welcome two new members to our Board of Directors, Doug Sifu and Ken Skijano, who will be joining our board as of March 1. Doug brings deep fintech market structure and regulatory expertise from a major global market maker, and Ken has three decades of experience in fintech and private equity. Both will be integral to the board and me as we continue to execute our long-term strategy. Slides four and five really drive home how well we have enhanced the MarketAxess Holdings Inc. advantage in 2025. Most of the KPIs on slide four show healthy growth rates reflecting the underlying health of our franchise. This shows that the investments we have made to enhance our products and provide clients with new workflow tools and protocols are paying off. While we are pleased with these results, US credit market share continues to require attention and focus. The good news is we have a detailed plan to address it, which is embedded in our three-year targets. Slides six and seven highlight how well we are executing on our new initiatives across our three strategic channels, including strong growth continuing in our automation suite. On slide seven, in the client-initiated channel, we continue to make progress with block trading globally. Our block solutions continue to grow in US credit, emerging markets, and euro bonds, proving that blocks will move from phone to platform. We also recently launched a new axe trading solution for dealers to send axes directly to specific clients. The rollout is in progress, and the client feedback has been positive. We generated 24% growth in ADV to a record $5 billion of block activity across US credit, emerging markets, and euro bonds, with record block trading ADV across all three products. Our US credit ADV record was driven by record block trading ADD in US hybrid, of over $2 billion, which represented an 18% increase. Our ADV record in US high yield of over $800 million in block trading represented an increase of 19%. The strong growth continued in January, with a 56% increase in block trading ADD last month. Block trading in US credit, emerging markets, and Eurobonds now makes up about a third of our credit ADV and represents the next step in the growth of electronic trading. In the portfolio trading channel, we generated a 48% increase in total global portfolio trading ADV to a record $1.4 billion, with record US credit ADD and market share. US credit portfolio trading market share increased by 270 basis points in 2025. In January 2026, total portfolio trading ADD was up 126% and market share in US credit portfolio trading increased by 620 basis points. In the dealer-initiated channel, we generated a 33% increase in dealer-initiated ADV for the year, and we exited 2025 with a strong contribution from our new US credit MIDEX protocol with over $3 billion in trading volume in December alone. Again, this strong growth continued into January, with a 13% increase in our dealer-initiated ADV. Total Midex trading volume was a record $7 billion, representing an increase of 383%. Last in the automation suite, we had another strong year as clients continue to leverage automation enabling them to do more with less. Additionally, we were very pleased to see a significant increase in Adaptive Auto Ex algo trading volume in the fourth quarter. Several key clients adopted more customized adaptive algo workflows to increase execution performance and generated over $8 billion in trading volume in the fourth quarter. I'm also happy to report that our Pragma acquisition, which is powering our recent Algo success, is fully accretive while also adding strategic value across our matching and automation technology modernization, including driving growth in our rates complex. Slide eight shows the strong growth of our new initiatives with our top 25 clients. Our top 25 clients have been driving our growth in portfolio trading with an 85% increase in PT volume coming from the top 25. While our top 25 clients have been leveraging our platform for portfolio trading, they've also been leveraging our automation suite for block trading. Automated block trading volume from our top 20 is up over 125%. And not surprisingly, given the benefits of Xpro in managing RFQ and portfolio trades with our rich proprietary pre-trade analytics and data, trading volume through Xpro is also up 80%. Slide nine highlights the increase in market share in US high yield portfolio trading in 2025 as a result of several enhancements we made last year. The enhancements allow clients to better evaluate the pricing they receive for their high yield portfolios. While this chart highlights the dramatic increase in estimated US high yield PT market share, we have also seen our traditional RFQ high yield market share increase by approximately 100 basis points in 2025. Slide 10 highlights the increase in the long-term e-trading opportunity that we have seen in just the last several years. This is a point worth emphasizing that I believe many market followers have been missing, particularly with our recent growth in blocks. While total electronification percentage rates may have plateaued in US credit over the last year, the US high grade market overall has increased by approximately 52% and US high yield has grown by approximately 28%. We believe that we are well positioned to capture this expanding e-trading opportunity as a result of the new initiatives that we have in the market right now as well as the ones we plan to deliver in 2026. This is why we feel good about our position and our ability to return to higher levels of revenue growth in the coming quarters. Now let me turn the call over to Ilene Bieler to review our financial performance. Ilene Bieler: Thank you, Christopher Concannon. Turning to our results. On slide 12, we provide a summary of our fourth quarter financials. We delivered 3.5% revenue growth to $209 million, which includes a $2 million benefit from foreign currency translation. We reported diluted earnings per share of $2.51 or $1.68 per share excluding notable items. The net $0.83 per share impact of notable items in the quarter consisted of approximately $1 million or $0.02 per share in repositioning charges, our expenses in the employee compensation and benefits line, and $31 million or $0.85 per share for reserve release related to the tax-related reserve we established in 2025. My comments on our results from this point forward will largely exclude the impact of notable items and will be on a non-GAAP basis where applicable. Looking at each of our revenue lines in turn, total commissions revenue increased 4% to $181 million compared to the prior year. Services revenue increased 2% to $28 million. Information services revenue of $13 million increased 2%. Post-trade services revenue of $11 million increased 1% versus the prior year. Technology services revenue of $4 million increased 2%, driven by higher license fees as well as connectivity fees from RFQ Hub. Total other income decreased approximately $1 million, driven by lower investment income on lower rates and increased interest expense related to borrowings for the ASR, partially offset by unrealized investment gains in the quarter. The effective tax rate was a negative 15.8% or a positive 23.4%, excluding the impact of the tax-related notable I referenced earlier. On slide 13, we provide more detail on our commission revenue and our fee capture. Total credit commission revenue of $165 million increased 2% compared to the prior year. 4% growth in U.S. high yield, 6% growth in emerging markets, and 9% growth in Eurobonds total commission revenue was partially offset by a 1% decline in US high grade and a 14% decline in municipals. We are very pleased with the improvement in US high yield revenue generation at the 2025. The reduction in total credit fee capture both year over year and quarter over quarter was principally due to protocol mix, partially offset by the higher duration of bonds traded in US high grade. On slide 14, we provide a summary of our operating expenses. Excluding notable items, total expenses increased 8%, which included a headwind of $1 million due to the impact of foreign currency translation. The increase was driven principally by higher consulting, technology and communications, and employee compensation costs as we continue to invest in our technology modernization and upgrade talent to drive future growth. We are continuing to invest while at the same time looking for cost efficiencies. Headcount was 869, down 2% from 891 in the prior year period and down 3% from 2025. On slide 15, we provide an update on our capital management and cash flow. Our balance sheet continues to be strong, with cash, cash equivalents, and corporate bond and U.S. Treasury investments totaling $679 million as of December 31, 2025. We generated a record $347 million in free cash flow in 2025, and we returned a total of $474 million to investors through share repurchase and dividends during the year. We repurchased 2 million shares for a total of $360 million in '25, including 595,000 shares in open market repurchases, $120 million approximately 1.4 million shares for $240 million with the commencement of our $300 million ASR in December. I'm pleased to report that we just completed the ASR earlier this week, with the final delivery of an additional 360,000 shares bringing the total shares repurchased through the ASR to 1.7 million. As of January 31, 2026, $25 million remain on the board's share repurchase authorization. Stephen Davidson: On slide 16 is our full year 2026 guidance. Ilene Bieler: Before I move to guidance for 2026, please note that for 2025, total revenue outside of US credit grew 10% and US credit revenue decreased 2%. Now in terms of guidance for 2026, total services revenue, which includes information, post-trade, and technology services, is expected to grow in the mid-single-digit percent in 2026. We expect total expenses ex-notables to be in the range of $530 million to $545 million. This would imply a growth rate of approximately 8% to the midpoint of the 2026 range. This includes the full year effect of 2025 hires, inflationary increases, as well as tech investments and higher variable costs. A note on our full year 2026 expense guidance relative to our average annual operating margin expansion target. As I have stated previously, our three-year average annual targets of 8% to 9% revenue growth and operating margin expansion of 75 to 125 basis points are exactly that: averages over three years. Turning to taxes, we expect that the effective tax rate will be in the range of 24% to 26%. Capital expenditures are expected in the range of $65 million to $75 million, of which roughly 80% relates to capitalized software development costs for investments we are making in new protocols and trading platform enhancements. Now let me turn the call back to Christopher Concannon for his closing comments. Christopher Concannon: Thanks, Ilene. In summary, on slide 17, we are continuing to execute our long-term strategy. We have significantly enhanced the MarketAxess Holdings Inc. advantage with our investments over the last several years. The growth profile of the company outside US credit is strong, and we are confident in our ability to return to higher levels of revenue growth in US credit with our three-year financial targets. We continue to make strong progress with our new initiatives across our three strategic channels. We are confident in our ability to execute in 2026, and we are continuing to focus on expense discipline and optimizing capital deployment to maximize long-term shareholder value. Now we would be happy to open the line for your questions. Operator: We will now begin the question and answer session. In order to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Patrick Moley with Piper Sandler. Please go ahead. Patrick Moley: Yes. Good morning. Wanted to ask about block trading. Christopher Concannon, you noted in your prepared remarks the strength you've seen there, up 24% last year and then up 56% year over year in January. So could you break down the strength that you're seeing there, where it's coming from, and the different ways that you're attacking that market? Just trying to get a better sense for what's going on behind the scenes there. Thanks. Christopher Concannon: Sure. And thanks, Patrick, for that question. Obviously, we've been investing in our key initiatives, all our new initiatives, portfolio trading, dealer initiative, and then block. As part of the larger initiatives, we're seeing returns across all three, so it's quite exciting. The block volumes that we're seeing are quite substantial. So I'll just run through some of the stats and then get back to your question around where we're seeing blocks come through the platform. First of all, in 2025, you heard it in my prepared remarks, we've seen growth of block trading on the platform and IG of 18% and high yield of 19%. And then key areas where we first started to deploy our block protocols, EM is up 27% and euros up a staggering 66%. So the good news is the block opportunity is there. And the tools we're deploying are increasing our share of blocks on the market. Again, Q4, as you mentioned, a 24% increase, a total of $5 billion in block volume across the platform. And then here in January, still increasing our overall block volume. I'm happy to report a third of our credit volume is now in blocks during the month of January. And you know, in January, hybrid was up 33%, high yield up 42%, and EM up 92%, with the euros up 89%. So all sizable growth numbers across the block platform. We have a number of protocols that are seeing block volume pass through it. Obviously, the data is a key ingredient to our success in block. We are now able to price blocks based on their size and their direction, and that's a key feature that clients are asking us more and more about. Our targeted RFQ, which was launched in EM and Euros, is where we're seeing the strongest growth rates in our block growth rates. And then we are seeing traditional, RF all to all RFQ we are seeing blocks come through the platform there. It's just the liquidity levels are quite high. The market impact of sharing your block with all participants is quite reduced. Then the other areas, other exciting areas that we're seeing block content is in our automation solution. We're seeing very large institutional investors increase their size of block activity through automation. So there's no human involved. It's just a large block going through our AutoX platform. And then we're seeing blocks in our algo suite, which is really designed for block solutions, and we're seeing a pickup in blocks there. We've also seen block size in our newly launched MIDX solution, which was just launched in the fourth quarter of last year. And then we're seeing block sizes come through our newly launched auctions, closing auction platform there. That is designed for block size as well. So we have a number of protocols, some specifically designed to compete with IV chat and phone, and others where we're just seeing an increase in an appetite for putting blocks over the platform. The other piece of the market that we're seeing higher levels of block was around new issue. So the block market in the new issue market in January increased quite substantially. So in order to move the overall trace volumes that we're seeing, while PT is an important protocol to put exposure on and off, we're seeing higher levels of blocked activity across the market and trying to address that activity. Thanks. Operator: Our next question will come from the line of Jeffrey Schmitt with William Blair. Please go ahead. Jeffrey Schmitt: The average fee rate in credit has obviously been sliding for the last few years and really just from a shift in the protocol mix. Can you maybe talk about if there's competitive pricing pressures driving that as well? And what type of decline are you assuming in the fee rate in your medium-term revenue growth outlook? Thank you. Christopher Concannon: Yes. Great question. Again, there's a lot of parts that impact our fee per million. Just to kind of go through some of them. So the product mix, as you mentioned, can impact our fee per million. Obviously, protocol selection will definitely impact our fee per million. Maturity, average maturity impacts our fee per million. And then things like spread and volatility have an indirect impact on our fee per million. So a lot of moving parts around fee per million. We've seen some of the largest adjustments in fee per million through the protocol and product mix. A perfect example is the move to portfolio trading that comes in at a much lower fee per million. But, again, we're all about growing our incremental revenue, and much of the new initiatives that may come in at a lower fee per million are obviously growing revenue, incremental revenue. The areas that we have seen fee per million impact, one area in particular, we just talked about the growth in block volume. In January, our growth in block volume does impact our fee per million. But it has a net benefit to our revenue. I'll just walk you through an example so you can understand the implications of doing more volumes by block. If we trade a $50,000 order, which is quite a small size order on MarketAxess Holdings Inc., we'll incrementally make $17 on that trade, but that comes in at a $350 fee per million. A $5 million block trade will make $700 on that same transaction, but that comes in at a fee per million of a 140,000,000. So you can see that as we grow these new protocols and grow into incremental volume, it will have an impact on our fee per million calculation. And that's an important factor because we are growing all of these new initiatives, portfolio trading, block volume, and, obviously, automation and our dealer initiative is growing as well. All of those can have an impact on our fee per million. I'll turn it over to Ilene Bieler to round out the question. Ilene Bieler: Yeah. Let me just give a little bit of context also to support what Christopher Concannon is saying. So if you think about the month-over-month January decline to 132 from 137, for instance, in fee per million, as you noted, it's volume mix shift largely into lower fee capture product, as Christopher Concannon just discussed. But to put some more texture around it, we had a very strong month in Eurobonds with ADV up 74%. And we know Eurobonds come in at a lower capture, but we expect this, right? That's a good thing. We want to continue to see that business growing. And then also, obviously, with high-grade flux, that ADV was up 82% on a month-over-month basis. And it really goes to what Christopher Concannon was talking about before on the question on block. Now, there was a little bit of offset. There wasn't a huge change in the weighted average years to maturity month over month. It went from about, you know, 9.47 to 9.49. So there was a little bit of offset in terms of high-grade duration there. But by and large, you can see these trends, and this is not new. This is what we've been talking about in terms of both product and protocol shift. Let me get back to you also on your medium-term target question because I understand where that's coming from. And it's important to take a step back when you think about the medium-term targets. And you've heard me say this before. I said it in my prepared remarks, right? We know that the 8% to 9% average growth is just that: average. And there could be variability on phasing in over the course of the three years. Having said that, you may recall that we're being pretty clear that this is really about revenue growth and the way that we are expecting to achieve that. We think that in the first year, US credit will be about 20% of the total incremental revenue growth for the company. And then by the end of our three-year plan, we think that's going to be about 35% of incremental growth expected to come from US credit. Now, we also have our services business, and you heard that guide today in terms of, you know, in the aggregate, single digits for 2026. And we haven't included assumptions for increases in velocity, for instance, in these three-year targets in our three-year plan. While I'm not going to give you specifics on fees per million, I can confirm that we have not baked in any fee per million accretion. Our objective, really importantly, we keep talking about this, but just to bring it back, is that we really are looking at our ways, the levers we can use to drive revenue growth. And Christopher Concannon talked a lot about those initiatives, and I'm sure we're happy to go into it further. But just wanted to get back to you on that point. Jeffrey Schmitt: Okay. Great. Thank you. Operator: Our next question will come from the line of Alex Kramm with UBS. Please go ahead. Alex Kramm: Yes. Hey, everyone. Can you give us a quick update on emerging markets? Seems like that's one of the biggest standout success stories for you here over the last few years. I know it's still a very underpenetrated market, so maybe define really what the roadmap is, what you're excited about maybe in 2026. Then, you know, look, obviously, others are watching you. So just wondering if you see any sort of shift in competitive dynamics, if you're running into other people a little bit more. Or if this is still kind of a large market for you to capture? Christopher Concannon: Thanks, Alex. And, obviously, emerging markets is an exciting area for us. We're obviously, just to size the market, it's similar in size to US credit when you talk about the global emerging market. And you have two types of markets, both sovereign as well as corporate local, as well as hard currency. So it's quite a diverse market. The nice thing about that market, it is a diverse dealer market as well. It's not what I would call top-heavy. So having a diversity of dealer communities both in the local markets and the global dealer community is a key ingredient to the liquidity that we see over the platform. And as you mentioned, our EM, our emerging market growth has been quite attractive over the last couple of years. It continues into January where we saw our EM growth continue into January. Our market ADD and EM just for January was over $5 billion, which was a record and up 50% year over year. Up 56% month over month. So you just can see that trend line is quite positive. In terms of the competitive landscape, we're not seeing, you know, we're competing dramatically with chat and phone in the EM market. It's not a well-penetrated electronic market. I think, you know, we try to estimate the electronic penetration in EM as somewhere under 10% and growing. So we see that as a huge market opportunity for us. You do need people on the ground in the local markets. So it is an investment in sales, investment in regional offices, and those investments we have made for quite some time with folks in Latin America, teams in APAC, and across other areas of the globe. So exciting, a great deal of, and we mentioned earlier the block volume growth. We're seeing block volume in EM as well, helping us drive that growth. As we mentioned earlier, that was up 92% in January and up 70% month over month as well, setting a new record in block. So a lot of exciting things to come, and we're obviously very focused on protocol solutions in EM. That's one area where not only do we have an all-to-all RFQ, but we have an RFM as well, which is helping to drive some of our block volume growth both in the local market as well as in the hard currency market. Alex Kramm: Very good. Thanks. Operator: Our next question will come from the line of Alex Blostein with Goldman Sachs. Please go ahead. Alex Blostein: I wanted to go back to your comment around revenues outside of U.S. Credit. Growing, I think you said 10%, in 2025. When you zoom out, and I know there's a lot of things that go in there. Obviously, there's some trading business like non-US, but also there's recurring revenues within there as well. I think at the slide, at the slide deck at our conference, in December, you talked about that being, I think, like, a mid-teen percent grower over time. So maybe talk a little bit about what has driven sort of the slower growth last year and how do you think about the growth in that non-US trading part of the business on a multiyear basis as part of your overall revenue growth, Algo? Ilene Bieler: Thanks for the question, Alex. Yeah, of course, I know the slide you're talking about and keeping in mind that was a CAGR over five years, right? And so if you think about, let's just take your service point to start and look at the full year 2025, right? Our services revenue there was about 6% this year, and we are guiding to, for 2026, mid-single-digit growth there as well. And so I think that all fits. And then you would expect to see higher revenue growth in our trading businesses outside of US credit. So this algorithm still fits, and it still is exactly as we said. If you think about the 8% to 9% average annual overtime with the phase-in and variability. And I would just say that there are different levers. Right? If you think about this plan, there's obviously the volume levers, and while we don't control volume, needless to say, in the marketplace, we know that the electronification has definitely velocity, and Christopher Concannon has certainly talked about it in the past. And if you even look at turnover in January, Alex, that was 95%. And we also, again, while we don't control volume, we went back and we did an analysis over time and we looked at volumes. And the only time in the last since 2014, for instance, since volumes have contracted in this market really was in that one post-COVID year, and we all know what 2020 was like. So we're continuing. The important thing for us, though, in terms of driving more velocity and driving turnover is making sure we have the protocols in place, the initiatives in place that's really going to enhance for our clients what they need. We want to be there to have the solutions there. And that goes to the market share component of the algorithm. Right? When we really are looking at market share, we're looking at it as what can we do to make sure that we are protocol agnostic. And Christopher Concannon has talked a lot about that. And so if you think about all of these things together, that is really what's driving the three-year plan. A lot of it is really based on just sort of how do you maximize for when you're seeing volumes in the marketplace, what we're doing on the initiatives, then, obviously, the last part of that is the pay per million, which we talked about. I don't know if Christopher Concannon if you wanted to add to that? Christopher Concannon: Yes. No, Alex, it's the right question. Look, our international business has been growing double digits for some time. That's really powered by EM and euros, where we see exciting growth. And, again, in EM, still early penetration for electronic trading. So the market opportunity is quite sizable. Around the services, particularly the data business, we have historically, I've on these calls have many times said, we will not sell some of our data. That is proving strategically correct at this point as we see what's happening around the AI space. Keeping our data, which is proprietary, in-house to then leverage through our own use of AI is going to be a critical ingredient going forward. So I think it comes to services and particularly market data revenue, we've strategically decided to keep that at a single-digit number because we want to actually hold our data for our own AI uses, which will actually help our transaction business. So it was a strategic decision we made quite a number of years ago, but now it's proving to be quite valuable. As we start to look at the use of AI within our data set. Just to give you a sense of how much that data asset is growing, in 2025, we saw $5.3 trillion in inquiry volume. That's up about 13% from the prior year. That inquiry volume triggered close to 91 million in prices. So it's an increase in prices coming back. That is all unique data that is across the globe. Across all the assets that we trade, and we're seeing over $35 trillion in notional prices on our platform each year. So it's quite a powerful data set. Our choice is not to sell it all in raw form. Our choice is to leverage that data for AI purposes to create higher volumes, more sticky services around our trading businesses. So that's part of what factors into our thought process around data and data growth. Operator: Our next question will come from the line of Benjamin Budish with Barclays. Please go ahead. Chris O'Brien: This is Chris O'Brien on for Benjamin Budish. I just had a question about capital return. So it's been quite a strong start to the year for volumes across the industry and on platform at MarketAxess Holdings Inc. So just curious if we saw continued momentum through the rest of the year, how are you guys thinking about share repurchases as we go through 2026? Thanks. Ilene Bieler: Sure. Thanks for the question. I think, as you just noted, you know, we, in particular, obviously have significant capital return with our ASR and just closing it out. And I would remind everybody that we did take out about $220 million on our revolver in order with the cash outlay in order to put a little bit of leverage on it to do that ASR. So our first order of business is going to be to pay that down over time. And so we do know that we have $25 million left in authorizations, and so we're just going to see how that goes. There's no end date on that authorization. So that's really how we're thinking about capital right now. And you probably also saw today that we did increase our dividend to $0.78 per share. So that's another thing that we're thinking about in terms of increasing capital return, at least on the dividend side in the short term. Chris O'Brien: Great. Thank you. Operator: Our next question will come from the line of Daniel Fannon with Jefferies. Please go ahead. Daniel Fannon: So wanted to follow-up, Christopher Concannon, on your comments around Slide 10 and just the addressable market. I think you mentioned that 2025, some of the e, or the electronification slowed. Just wanted to get a sense of what gives you confidence about that reaccelerating here in '26 more broadly as we just think about, obviously, the protocols you've been doing, but if there are other things idiosyncratic in the market, competition-wise that maybe slowed that down. Christopher Concannon: Sure. Great question. Something we obviously focus on is converting this market from phone to platform. And the market opportunity is larger than what has been converted today. So when you think about that, the opportunity is enormous, and we're still early in the journey of electronification of the global fixed income market. With regard to our slides, really, if you look at US credit, that's really where the growth of electronification across the entire market has plateaued. Kind of flatlined. Somewhere, it's hard to estimate, but somewhere in the 45 to 50% range. What's holding it back from further conversion when you analyze what is not on platform, it's really phone and chat block market. So that block market makes up the next 50% roughly, and that's the market opportunity that we are chasing. And very focused on. If you look at portfolio trading, the growth of portfolio trading because it's all electronic, should have increased the overall electronic footprint in the market. Ironically, it did not. It converted what was already largely electronic RFQ into just larger baskets traded as a single price basket. So it was really the growth of portfolio trading that did a really a conversion of e RFQ to e portfolio trading. Now and look. The market was quite focused on portfolio trading, both platforms, dealers, and clients were making huge investments to convert their RFQs to portfolio trading. I will tell you the focus of clients, dealers, and platforms today has shifted to that 50% of US credit. It's all targeting block market. That's the exciting piece, and our earlier discussion on our block growth is really reflective of the investment we're making in that block market. When you jump from US credit into other product areas, EM in particular, we're still early days electronic penetration. So we're seeing our portfolio trading in EM grow dramatically. We're seeing electronic RFQ, all-to-all. We're seeing block growth in EM as well. And then finally, our automation suite of products is growing quite handsomely in EM as well. Again, a very low automation penetration in that EM bucket. So overall, I just love the fact that our market opportunity is greater than what has been converted today. Around the globe, and that just is an exciting opportunity for us as we deploy more and more products targeting that specific block market, which is left to convert. Daniel Fannon: Great. Thank you. Operator: Our next question comes from the line of Elias Abboud with Bank of America. Please go ahead. Elias Abboud: I wanted to follow-up on the last one about the overall kind of slowdown in electronification and U.S. Credit this past year. I wonder if that has changed how you think about capital allocation. Does it still make sense to allocate the incremental dollar to US credit versus other areas like emerging markets or munis that are growing faster? Then if I could just squeeze in, like, a follow-up here. I was hoping we could get an update too on the opening and closing auction initiative and what the early returns have been there. Thanks. Christopher Concannon: Sure. Yeah. First, what's great about the opportunity and we really, we were just talking about blocks where we had substantial growth. Our investment in the block opportunity is actually very similar across product set. So whether we're investing in EM blocks or we're investing in US credit blocks, the way we have built our technology, our new technology on X Pro, it scales across both product sets. So the incremental investment has very high returns because we have shifted to investing our protocols into global protocols as opposed to individual product protocols. So that's the exciting part. So any investment in a block solution is an investment in a block solution across a protocol. So the high return on that investment is quite attractive. And we'll continue to roll out our X Pro solution, which is really delivering multiple protocols from portfolio trading, to blocks to our automation delivery as well as traditional list RFQ. All delivered on the same technology stack and the same platform as we roll that out across the globe. So investments high return because we're attacking the same unpenetrated market of EM or US credit with very similar techniques and protocol. Turning to our matching solutions, things like MIDX, and auctions, these are all new investments, quite an exciting incremental revenue investment. So we're seeing sizable growth across our matching solution MIDEX, I know, Elias Abboud, you did a nice report on that in January. I appreciate all the kind remarks around our dataset and the feedback from our clients. We promise we will use it as a marketing tool to talk to the dealer community. But Midex has been growing since we launched it in the fall of last year. It's quite exciting to be a part of that match, match business, in the dealer-to-dealer market. Again, we only have one match a day. We plan to increase that to multiple matches per day. So a lot of exciting growth there. Your question on closing auctions again, a newly launched auction solution. Right now, we're just focused on a closing auction, not an opening auction. And that was launched on an entirely new tech stack brought to us by our Pragma acquisition. So very exciting new tech stack with a new front end used by both clients and dealers. The closing auction was launched really sometime in the fourth quarter. It was in a pilot phase, and we just rolled out the auction to a broader set of clients. So we're as of two weeks ago, we opened it up to a broader set. But we are seeing pretty exciting participation. We've got three dealers now supporting liquidity in the auction. We have about 11 buy-side clients that are active in the auction, and we have some just some very key at what I call anchor dealers that are now posting block size liquidity into the auctions. Some of the stats that we're seeing again, this was pilot about $2 billion in notional orders. Staged in the auction. Over $900 million of orders submitted into the auction, and so we're seeing a great deal of participation. It's interesting. We had a really great call with our clients. We did a call on this, a webinar just on the closing auction. We had over 600 participants join. It was kind of one of our record webinars that we've ever seen. But the feedback has been exciting. We've had clients looking for additional bonds to be listed in the auction. And looking to understand. It is a new protocol that clients have to get used to because it is a time protocol in the late afternoon of the day, which is new to the buy side. So again, we don't expect that to ramp up dramatically in the coming quarters. We think that will grow over time and be a key ingredient for larger block size trades near the end of the day. Elias Abboud: Perfect. Thanks, Christopher Concannon. Operator: Our final question will come from the line of Michael Cyprys with Morgan Stanley. Please go ahead. Michael Cyprys: Just a question around artificial intelligence. I was hoping you could speak to some of your ambitions and visions around embedding AI more broadly across the business. Curious what portion of client flows do you think is ultimately automatable? And how do you think about execution outcome feedback in your AI models? And does that create any sort of flywheel that others cannot catch? Christopher Concannon: Sure. Exciting area for us, an area that we've been investing in for some time. Obviously, a number of our data products are AI-based. So we are along that journey in creating commercial products through AI. I'll take a step back and just mention the AI boom itself is very helpful to the bond market. If you look at the size of the bond market more recently, it is growing as a result of the funding that AI needs. Both in terms of the equipment and chips that people are buying through funding using the bond market, but also the data center build-outs are all through bonds. And then you'll finally need the utilities and the infrastructure to support those data centers will likely also come through bond funding. So it's just going to grow the bond market quite dramatically, and we feel we'll feel the benefits of that over the years to come. With regard to our use of AI, we're pretty excited about where AI can obviously help us. There's the, I refer to as the corporate AI use where it will make us more productive. Whether it's someone in finance using AI or one of our developers deploying code through AI. We're already seeing the benefits of that development, so we're excited about what's to come, and I think we're still in the early stages of leveraging AI to increase our productivity both in terms of product design as well as product and code writing. When it comes to commercialization of AI within our trading platform, the dataset is probably the most powerful leverage that we have. And I'm happy to report, as I mentioned earlier, our dataset or our data footprint that we can leverage through AI continues to grow. So things like EM, most local markets are not transparent markets, and so we are leveraging AI to produce transparency in those local markets. The other areas that we're seeing pretty interesting exploration using AI. A portfolio construction is a powerful area where we can see clients giving us what I'd call market exposures and not specific bonds, and then we would use AI to produce an outcome or a suggested basket that they could buy either through a PT or something that's available in the market. So the other area that we're exploring is trading signals. We have quite a sizable portion of the world's bond market activity. Across EM, US credit, eurobonds, and now treasuries. We are seeing that activity before we wake up here in the morning in New York. And so the signals that are born using AI across the patterns of behavior on a marketplace are quite powerful. And we have a number of clients asking us about, you know, indicators or heat maps across sectors across the globe. There's a number of areas that we see ourselves deploying AI using our proprietary data. Another area is depth of liquidity in the market. Most people can't see the depth of the bond market. It's individually priced inquiries or over chat. We have the full depth of the market because of all the prices that we collect on the platform. So these are all areas. Another area is spread prediction. Where we are able to predict movement in spread using AI. Again, that's a very powerful piece of information if you're a bond trader, whether you're a dealer or a client. So there's lots of uses that we're exploring right now. The last use is just basic chat functionality using AI questions, basic language models. For our clients to understand the market. Or make requests of our data using chat. So there's a number of places that we're exploring. The opportunities are huge, and like I mentioned earlier, we made a strategic decision not to sell all of our data and to use it for things like trading solutions that I just described. So an exciting new area for us, an exciting new area that we're going to clearly leverage here in 2026. Michael Cyprys: Great. Thank you. Operator: And that will conclude our question and answer session. I'll hand the call back over to Christopher Concannon for any closing remarks. Christopher Concannon: Thank you all for joining us. We look forward to talking to you on our next quarterly call. Again, and have a great weekend. Operator: This concludes our call today. Thank you all for joining. You may now disconnect.
Operator: Standby 20 Karla, and I will be your conference operator today. At this time, we'd like to welcome everyone to GrafTech International Ltd. Fourth Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press star followed by the number one on your telephone keypad. Thank you. I would now like to turn the call over to Mike Dillon, Vice President Investor Relations. Please go ahead. Mike Dillon: Good morning, and welcome to GrafTech International Ltd.'s fourth quarter and full year 2025 Earnings Call. Thank you for joining us. Joining me on the call are Timothy Flanagan, Chief Executive Officer, and Rory O'Donnell, Chief Financial Officer. Tim will begin with opening comments on our 2025 performance and an update on the commercial environment. Rory will then provide more details on our quarterly results and other financial matters. And Tim will close with additional comments on our outlook. We will then open the call to questions. Turning to our next slide. As a reminder, our comments today may include forward-looking statements regarding, among other things, performance, trends, and strategies. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investor Relations section of our website at www.graftech.com. A replay of the call will also be available on our website. I'll now turn the call over to Tim. Timothy Flanagan: Good morning. And thank you for joining GrafTech International Ltd.'s fourth quarter earnings call. We are operating in one of the most challenging environments the graphite electrode industry has seen in almost a decade. Marked by global overcapacity, aggressive competitor behavior, geopolitical uncertainty, and steel production trends that remain subdued in many regions. Despite these headwinds, our team continued to deliver for our customers, manage our cost structure aggressively, operate safely, and make meaningful progress on the priorities we laid out at the beginning of 2025. One of our primary objectives for the year was to continue to grow our volumes and market share and improve our geographic mix by shifting more business towards regions with stronger pricing fundamentals, particularly The United States. Our team executed the strategy effectively. On a full-year basis, we increased sales volume by 6%. As we have shared, our commercial strategy includes making deliberate decisions to walk away from volume opportunities that do not meet our margin requirements. This discipline is essential to protecting our long-term value. And we at GrafTech refuse to follow some of our competitors in the race to the bottom. While this meant that our full-year volume finished below our most recent guidance range, it was the right decision for our business and consistent with our commitment to value-focused growth, not volume for volume's sake. As it relates to our geographic mix shift, in The United States, our sales volume grew 48% for the full year, and in the fourth quarter alone, our US volume was up 83% versus the prior year. The shift towards The US, which remains the highest price region globally, helped mitigate some of the pricing pressure we experienced in other markets, as we'll speak to later. Cost management was another key area of focus for 2025, and we delivered meaningful results without compromising our commitment to quality, safety, or the environment. For the full year, we achieved an 11% reduction in our cash cost of goods sold per metric ton. This brings the cumulative reduction since 2023 to 31%, a remarkable achievement over a two-year period. Our ongoing cost management initiatives, including enhanced procurement strategies, energy efficiency improvements, and disciplined production scheduling, have been instrumental in driving these results. In addition, a key element of our strong cost performance in 2025 was the effective management of the impact of tariffs on our cost structure. Overall, our cost management efforts have created a more agile, more efficient manufacturing footprint that positions us well to control our production costs while navigating volatility in demand. These actions, combined with the effective management of our working capital and capital expenditure levels, resulted in full-year cash flow performance and a year-end liquidity position that exceeded our expectations. To that point, including cash on hand of $138 million, we ended 2025 with a liquidity position of $340 million, a level which enables us to maintain stability despite the persistence of industry-wide challenges. Lastly, we delivered on all of these objectives while achieving meaningful improvement in our safety performance. Turning to the next slide and building on this point. As you can see, our total recordable incident rate improved to 0.41 in 2025, representing our best safety performance on record. As we enter 2026, sustaining and building on this momentum must remain a critical focus. Our ultimate goal is zero injuries, and we will continue to work relentlessly towards that standard every single day. Looking back on all that was accomplished in 2025, I want to sincerely thank our entire team around the world for their remarkable efforts, resilience, and commitment during this pivotal time. Turning to the next slide. Let me provide our current thoughts on steel industry trends as context for the rest of our discussion around our performance and outlook. Global steel production outside of China was 843 million tons in 2025, up less than 1% compared to the prior year, with a global utilization rate of approximately 67% on a full-year basis in 2025. Looking at some of our key commercial regions using data recently published by the World Steel Association, for North America, steel production was up 1% in 2025 compared to the prior year, driven by 3% year-over-year growth in The United States. Conversely, in The EU, steel output in 2025 decreased 3% compared to 2024, remaining well below historical levels of steel production and utilization for that region. In fact, with 126 million tons of steel production within The EU in 2025, this represented a decline of more than 15% compared to the historical high levels of EU steel production achieved in 2021. Further, we estimate the steel utilization rates within the EU averaged just over 60% in 2025, which is well below the global average. Although the overall steel sector is still experiencing short-term challenges, as we've mentioned previously, there are indicators of a rebound in the steel market that have started to appear. Based on World Steel's most recent short-range outlook for steel demand, globally outside of China, World Steel is projecting 2026 steel demand to grow at 3.5% year-over-year. For The US, where the steel industry has experienced relative stability, World Steel is projecting a 1.8% steel demand growth in 2026. Along with this demand growth, favorable trade policies are expected to further support US steel production. In Europe, where the steel industry has been more challenged, World Steel is projecting a return in steel demand growth in the near term, forecasting demand growth of 3.2% for 2026. This reflects some of the demand drivers we've discussed in the past, including initiatives to increase infrastructure investments and defense spending, representing some of the key steel-intensive industries. In addition, provisions within the carbon border adjustment mechanism, or CBAM, implemented at the beginning of 2026, as well as new tariff protection measures that will be effective later this year, are expected to support higher levels of production in this key commercial region for GrafTech. Against this backdrop, we estimate that globally outside of China, demand for graphite electrodes will increase slightly in 2026, with all major regions expected to contribute. That said, it's not the level of electrode demand that's the key factor holding back our industry today. It's the supply side imbalance and ultimately pricing. This supply imbalance is driven by the gross overcapacity that has been built in both China and India, with Indian manufacturers expressing plans to bring additional and unneeded capacity to the market. Combined, they are flooding the markets with cheaply priced exports, which continue to distort the competitive landscape and threaten to destabilize the entire supply chain. In response, pricing behavior of other competitors has become increasingly aggressive and arguably irrational. All of this has translated into realized prices for the graphite electrode industry that have declined significantly over the past few years. For some time, we've been clear that the pricing levels are unsustainably low and not aligned with the indispensable nature of an electrode, let alone the level of investment required to maintain a stable, reliable supply of graphite electrodes for the steel industry. Further, the level of capacity rationalization that has been announced by ex-Chinese electrode producers to date has been inadequate to address the structural overcapacity issues in our industry. As a result, we saw a deterioration of competitor pricing discipline in the fourth quarter and expect that pressure to continue into 2026. This has happened even as steelmakers in The US and Europe announced price increases for finished steel products, reinforcing the disconnect between value creation in the steel industry and the pricing environment for graphite electrodes, a mission-critical consumable. Ultimately, the current market dynamics endanger the long-term viability of the graphite electrode industry. Given these realities, structural change on the supply side is long overdue. A failure to change the current course of the electrode industry will undoubtedly result in an equilibrium that will harm the steel industry for the long term. As the only pure-play graphite electrode producer outside of India and China, we remain committed to actively shifting this dynamic in order to support our customers who rely on us for quality and reliable products. To that end, let me send a clear message to all of our stakeholders. As a leader in the graphite electrode industry, GrafTech has and will continue to act decisively. In light of the prolonged downturn in the market environment, management, with the support of our Board, continues the evaluation of a number of areas, including optimizing our manufacturing footprint, opportunities for trade or policy-making support on a number of fronts, as well as other potential strategic partnerships and sources of capital. The focus of these efforts is to identify opportunities to enhance efficiency, preserve optionality, and position GrafTech for long-term value creation. With that, I'm going to turn the call over to Rory, who will provide some more color on our commercial and financial performance for the fourth quarter. I'll then wrap up our prepared remarks with further comments on our outlook, after which we'll take your questions. Rory O'Donnell: Thank you, Tim, and good morning, everyone. Starting with our operations. Our production volume for the fourth quarter was approximately 28,000 metric tons, resulting in a capacity utilization rate of 60% for the quarter. This brought our full-year production level and utilization rate to 112,000 metric tons and 63%, respectively. On the commercial front, our sales volume in the fourth quarter was approximately 27,000 metric tons. This was flat to the prior year and fell short of our original expectations for the quarter. While a portion of the shortfall was attributed to the timing of certain shipments that shifted into 2026, as Tim noted, it also reflected our commercial strategy to not pursue certain volume opportunities that do not meet our margin expectations, particularly in The Middle East and in Europe. In The US, we grew our sales volume in the fourth quarter by 83% year-over-year, reflecting our ongoing success in shifting a significant portion of our volume to this key region. As we have discussed, for the full year, our sales volume within The US grew 48% compared to 2024, which is an impressive result given that steel production in The US was up only 3% in 2025. As a result, shipments to our US customers represented 31% of our full-year sales volume in 2025, compared to 22% in the prior year. Turning to price. Our average selling price for the fourth quarter was approximately $4,000 per metric ton, which represented a 9% decline compared to the prior year, and sequentially a 5% decline compared to the third quarter. The year-over-year decrease was driven by the substantial completion in 2024 of higher-priced long-term agreements, while the sequential decline reflected the competitive pricing dynamics that Tim discussed. Our strategy to shift more of our geographic mix towards The US helped to partially mitigate these impacts. In fact, we estimate that the higher mix of US volume compared to the prior year boosted our weighted average selling price for the fourth quarter by nearly $200 per metric ton, and by approximately $135 per metric ton on a full-year basis. Turning to cost. For the fourth quarter, our cash costs on a per metric ton basis were $4,019, representing a 2% year-over-year decline. While this is higher than our cost per metric ton reported in the first three quarters of the year, as we have noted in prior calls, we will have periodic quarter-to-quarter fluctuations in our cash cost recognition as a result of timing impacts, and this sequential increase was anticipated. For the full year, our cash costs were just over $3,800 per metric ton, an 11% reduction compared to 2024. This exceeded our previous guidance of a 10% year-over-year decline and remarkably resulted in a two-year cumulative decline in our cash COGS per metric ton of 31% compared to 2023. Our continued outperformance in this area reflects the team's extraordinary work in identifying and executing cost reduction opportunities across various components of our variable and fixed spending in order to control production costs at various levels of demand. These include drawing on our extensive experience in research and development to reduce the consumption of specific raw materials, executing procurement initiatives related to broadening our supplier network, helping us to minimize our variable costs even further, and capitalizing on our volume growth to enhance our fixed cost leverage. Further, we are achieving all of this while maintaining our dedication to product quality and reliability, as well as upholding our commitments to environmental responsibility and safety. Overall, we are pleased with this ongoing progress towards achieving our long-term expectation of cash costs being approximately $3,600 to $3,700 per metric ton. Turning to the next slide. Factoring all of this in, for the fourth quarter, we had a net loss of $65 million or $2.5 per share. This compares to a net loss of $49 million or $1.92 per share in the prior year, as the reduction in our costs only partially offset the year-over-year decline in weighted average price. For the fourth quarter, adjusted EBITDA was negative $22 million compared to negative $7 million in the prior year, with the change reflecting the same drivers I just noted. Turning to cash flow. For the fourth quarter, cash used in operating activities was $21 million, while adjusted free cash flow was negative $39 million. As a reminder, our semiannual interest payments of approximately $34 million related to our senior notes occur in the second and fourth quarters of each year. In addition, our CapEx spending for 2025 was heavily weighted toward the fourth quarter, with $18 million of our $39 million full-year spend coming in the fourth quarter. These factors were partially offset by a favorable change in net working capital for the fourth quarter, as was expected. Overall, as Tim noted, on a full-year basis, we performed ahead of our cash flow projections for 2025 and exceeded our year-end liquidity expectations. Turning to the next slide and expanding on this point. We ended the year with total liquidity of $340 million, consisting of $138 million of cash, $102 million of availability under our revolving credit facility, and $100 million of availability under our delayed draw term loan. As a reminder, the uncapped portion of our delayed draw term loan is available to be drawn until July 2026, and our expectation remains to draw on this residual portion. As it relates to our $225 million revolving credit facility, which matures in November 2028, we had no borrowings outstanding as of the end of the year. However, based on a springing financial covenant that considers our recent financial performance, borrowing availability under the revolver remains limited to approximately $115 million less currently outstanding letters of credit, which were approximately $14 million as of the end of the year. Overall, we believe our $340 million liquidity position, along with the absence of substantial debt maturities until December 2029, will support our ability to manage through near-term industry-wide challenges and provide strategic flexibility as we evaluate to ensure the long-term viability of our business. In my closing remarks, I would like to echo Tim's sentiments and extend my gratitude for the outstanding commitment and hard work demonstrated by our team members worldwide and thank our customers and our investors for their continued partnership. I will now turn the call back to Tim. Timothy Flanagan: Thank you, Rory. I'll conclude our prepared remarks with some further comments on our outlook. As we've noted, given the persistent market challenges, we must evaluate and take decisive actions to preserve the long-term sustainability of our business. I want to be clear that while doing so, we remain committed to safety, product quality, delivering on our financial objectives, and ultimately meeting the needs of our customers who rely on us for high-quality, reliable products. To that end, we've established a number of strategic priorities for 2026 that leverage the commercial, operational, and financial progress that we've made over the past couple of years. These include building on our commercial momentum to further grow our volume and market share in 2026. For the year, we expect to grow our sales volume by 5% to 10% year-over-year, including a further shift in our geographic mix towards The United States. Currently, of our anticipated 2026 sales volume, we have approximately 65% committed in our order book, following the completion of customer negotiations that occur in the fourth quarter of each year, which is tracking slightly ahead of where we were at this point last year. Specific to 2026, we'd expect the year-over-year increase in our sales volume of approximately 10%. In addition, we will continue our initiatives to improve our cost structure. As we've noted, our cash cost per metric ton has declined by a cumulative 31% since 2023. While this level of savings is not repeatable, by continuing to enhance the efficiency of our production and other measures to optimize production costs, we anticipate a low single-digit percent year-over-year decline in our cash costs per metric ton in 2026. Further, we'll continue to manage our working capital levels and capital expenditures. For 2026, reflecting our anticipated volume growth, we expect a modest increase in our net working capital levels for the full year, most notably in the first half of the year, reflecting the timing of planned plant maintenance and other timing factors. Lastly, we anticipate our full-year 2026 capital expenditures will be approximately $35 million, which we believe is an adequate level to maintain our assets at current utilization levels. While much of our commentary today has been focused on near-term challenging market dynamics and our response, it's important to not lose sight of the fact that we are in an industry that is mission-critical to electric arc furnace steel production, with structural tailwinds that will support long-term demand growth. According to the most recent full-year data published by the World Steel Association, the EAF method of steelmaking further increased its market share in 2024, accounting for 51% of the steel production outside of China. This is a continuation of the steady share growth that the EAF industry has experienced for a number of years. Driven by decarbonization efforts, we expect this trend to continue. In The US, which produces 80 million tons of steel annually, over 20 million tons of new EAF capacity have either recently come online or are planned for the coming years, with further announcements expected as we move ahead. This will further drive share gains for the EAF steel production in this key region. In The EU, while some European steelmakers have announced temporary delays in their EAF transition plans, other projects continue to move forward. And we continue to expect a meaningful mix shift towards EAF steelmaking within the EU in the medium to longer term. Given the expected growth in demand and tariff protections impacting certain foreign graphite electrode producers, The US and The EU remain important strategic regions for GrafTech for the long term. With our strong commercial momentum in these regions and our focus on meeting the evolving needs of our customers, we are well-positioned to capitalize on demand growth. Let me now briefly speak on the topic of trade, which continues to be an evolving landscape. We are continuously assessing a range of potential tariff outcomes and how those scenarios could influence steel industry trends, shape the commercial environment for graphite electrodes, and more broadly, synthetic graphite. Specific to The US, we continue to be encouraged by the steps the administration has taken to create a more level playing field from a trade perspective and to protect critical industries. As it relates to the steel industry, the expanded section 232 tariffs that have been implemented on steel imports into The US continue to have the desired impact of higher domestic steel production, supporting manufacturing initiatives within The United States. With respect to critical minerals, more importantly, synthetic graphite made from petroleum needle coke, steelmakers remain critically reliant on graphite electrodes and need a stable and healthy supply base. As noted, we expect to see growing demand in this market driven by the growth in EAF steelmaking and expect further synthetic graphite demand to result from the building of Western supply chains for battery needs, whether for electric vehicles or energy storage applications. However, the establishment of those Western supply chains remains in early stages as this is an industry that is suffering from overcapacity in China. We believe that the potential for international trade disruption further highlights the strategic importance of strengthening supply chains and that the West reducing its reliance on China for critical minerals such as synthetic graphite and to accelerate the development of its domestic supply chain. With the support of further policymaking, while additional policy measures are needed, we welcome the action of the US Department of Commerce with the preliminary anti-dumping tariffs against graphite active anode material from China, along with recent announcements related to initiatives on the sourcing and pricing of rare earths and other critical minerals. All of this demonstrates a strategic intent on the part of the US government to foster an ex-China supply chain for these key materials. As it relates to GrafTech, given the fluid nature of global trade policy and the heightened attention on critical minerals, we are taking proactive measures that seek to one, minimize the risk for GrafTech, two, capitalize on emerging opportunities, and lastly, promote fair trade in our key markets. All of this is consistent with our approach to optimally position GrafTech and its stakeholders for long-term success. In closing, this is a pivotal time for GrafTech and our broader industry. Near-term demand fundamentals are beginning to improve, and long-term drivers, including decarbonization, the continued shift to EAF steelmaking, and the growing demand for needle coke and synthetic graphite, are firmly in place. However, the supply side remains structurally out of balance, and the pricing environment remains inconsistent with the indispensable nature of graphite electrodes and the level of investment required to maintain a stable, reliable supply of graphite electrodes for the steel industry. As such, we must continue to operate with urgency, adaptability, and a willingness to make difficult decisions. To our stakeholders, we are committed to supporting our customers with dependable high-quality electrodes, protecting the long-term viability of our business by identifying opportunities to enhance efficiencies and preserve optionality, being transparent about the challenges and decisions ahead, and ultimately positioning GrafTech for long-term value creation by capitalizing on the structural trends that are set to shape the future of our industry. Lastly, I want to again thank our entire GrafTech team. Their dedication and resilience give me confidence in our ability to navigate through this period and emerge stronger. That concludes our prepared remarks. With that, we'll now open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from Bennett Moore with JPMorgan. Bennett Moore: Good morning, Tim and Rory. Thank you for taking my questions. Timothy Flanagan: Good morning. Good morning, Bennett. Bennett Moore: You've highlighted, you know, continued aggressive competitor pricing. I'm just wondering if these dynamics have worsened at all, particularly in The US. And if so, is this being driven by imports? Other local players? Timothy Flanagan: Yeah. So I guess with respect to pricing and the commentary about the aggressive nature, I'm sure you can understand that we're not going to provide a ton of specifics around geographies and levels or any specific names or actions. But, I mean, at the end of the day, what we're seeing is across the globe, pressure on pricing and behaviors that, you know, when you take a step back and you think about what role electrodes play in the production of steel and the indispensable nature of electrodes in the production of steel, again, remember, you can't produce 70 million tons of steel in The US or 65 million tons of steel in Europe without an electrode. The level of pricing that people are quoting and behaving within the market doesn't reflect the asset-intensive nature of our business. It doesn't incentivize R&D spending, and it really doesn't reflect or allow for adequate returns to be generated for shareholders. So, that's what we're seeing in the market. And I think that's problematic as we look out into the future. Bennett Moore: Thanks for that color. And the import side, sorry. Sorry. Let me go ahead. To finish the second half of your question. And is it being driven by imports? I think it's being driven, you know, across the globe, so it's not specific to a particular region. You know, imports and certainly the amount of material that's coming out of China and India, both at relatively low prices, is certainly problematic across the globe. I think you've seen some trade protections put in place in The US in particular, and now you're seeing actions taking place in Europe as well that will help with that. But it's really just the amount of material that's being dumped into the market. Bennett Moore: Thanks for that, Tim. And I guess just bringing, you know, those comments together, you've talked about expectations of improving demand, but that being more than offset by excess supply and competitive pricing. You've got 65% of your US book already locked in, which is the highest pricing. I mean, is it reasonable to assume that in 2026, realized pricing is at least going to be another directionally lower year for GrafTech? Timothy Flanagan: Yeah. And again, Bennett, thanks for the question. You know, sticking to our policy of not providing specific price guidance, I think it would be fair to say based on what we disclosed for 2025 and our commentary that we just provided around the state of the market, and to my answer to your previous question, you know, I think it's fair to say that absolute pricing that we're observing thus far, as we head into '26, isn't better than what we're seeing at the '25 level. Bennett Moore: Understood. I'll get back in the queue. Thanks so much, and best of luck navigating these waters. Timothy Flanagan: Thanks, Bennett. Operator: Your next question comes from Arun Viswanathan with RBC. Arun Viswanathan: Good morning, Arun. Yeah. Thanks for taking my question. Hope you guys are well. Good morning. Just on the pricing. So, you know, it sounds like you guys are being disciplined in, you know, it sounds like some of the competition is bordering on not being disciplined and maybe even some irrational tactics. So, you know, it seems like there's been some capacity additions as well in India and China. For a very long time, I guess, we've been under the impression that a lot, you know, the quality of those electrodes were subpar. It seems like, you know, there's a lot of customers who are now, you know, okay using those electrodes. So is that the case? And if that is the case, and you are walking away from some badly priced dynamics, how do you win back share from here? So, you know, is it service? And, you know, because it doesn't seem like there's going to be any halt in that, you know, supply addition. And, yeah, maybe you can just also discuss kind of the oncoming supply if you see any there. Thanks. Timothy Flanagan: Thanks, Arun. And as always, you packed a lot into a single question. So hopefully, I can hit all the high points there. You know, let me start with supply. Right? And we've talked about the overcapacity that exists in the market. You know, I don't think we've seen any incremental supply come on into the market here in 2025. But you've heard the announcements made by some producers that they intend to bring on additional capacity here over the next couple of years, which again, we provided commentary and our thoughts on in terms of the need for that in the market. So not additional supply in '25, but certainly some announcements that aren't otherwise favorable. You know, I think if you think about the overall pricing dynamics and where we're focusing our energies, we've stated that we will continue to focus our attention on moving volumes into The US market and to a lesser extent, the European market. This has been a commercial strategy we've talked about for the better part of a year and a half now, and we've had a lot of success. Again, we've seen tremendous growth in The US, and we'll continue to do that. We fully expect as we head into '26 to grow our volumes. We're guiding to a 5% to 10% increase in our volumes year-over-year. But that's being done with discipline. Again, we're not chasing volume for volume's sake, and certainly, as we stated around the Q4 results, we have walked away and will continue to walk away from volumes that don't meet our objectives from a margin perspective. Where that pressure is the greatest on us is certainly those regions outside of The US and Europe. And, you know, if you think about Southeast Asia, The Middle East, South America, those are regions where we have to be much more selective. To your point of how do we win market share, you know, this really comes down to the value proposition we've talked about a lot here over the last two years. And what the team continues to try to do in terms of improving our value proposition. You know, again, as the pure-play electrode player outside India and China, we focus a lot of time in R&D, bringing new products. We spend a lot of money and effort on our customer technical service teams and architect and really look to partner with our customers and add value to their furnaces and their steelmaking processes. We think that along with the quality electrodes we produce, certainly will continue to allow us to gain market share in those regions that value that. Regions where they're buying just purely on price, those are going to be the regions, again, we have to be much more selective and maybe don't have as much opportunity to grow our share. Arun Viswanathan: Okay. I appreciate that. And just as a follow-up. So, you know, you're also in the unique position where you have the integration into needle coke. And so, you know, theoretically, if the market is oversupplied, what is your ability to shift away from the graphite electrode market? And repurpose your needle coke capacity into, you know, the EV battery side or, you know, ESS batteries. You know, there's definitely very robust growth on that side, and is that something that you can pivot towards? And I know you talked about it in the past, but is there a little heightened focus there? And any timeline or any milestones that we can think about that you're pursuing? Thanks. Timothy Flanagan: Yeah. Thanks for that. And I would start by saying that there's a heightened focus on every element of our business. Both our core business of producing and selling graphite electrodes, but also, you know, how we can become a more significant player in, you know, the establishment of supply chains outside of China for anode material, whether, again, like you stated, going into energy storage applications or into EVs. I think we're well-positioned to do that with Seadrift. We've spent a lot of time in the past talking about our technical capabilities and our ongoing work with those looking to develop anode plants both in The US and Europe. And I think if you look at the trade landscape that continues to develop in Washington right now in particular, you've got an anode case that is rounding third and heading home in terms of finalization against the Chinese. I think those hearings are here later in February and will be finalized in the month of March. Again, I think that's very constructive for the battery makers who are looking to establish and put plants in The US. And I think we'll be well-positioned to help them as they move forward. And I think more broadly, if you think about synthetic graphite and what the government's doing around price floors or pricing mechanisms, some recent announcements around the vault and stockpiles. You know, all of this is, I think, a good parallel to what we can do on the synthetic graphite front. You know, again, I think we're well-positioned. We're just in the early innings of the development of some of these markets and some of this demand here in The US. Arun Viswanathan: Okay. And then just lastly, given that you are in the early innings there, we do have, you know, we've seen some price declines, and I know you're calling for a volume uplift. But understanding that it's still a relatively low utilization rate globally at 67%, you know, how much liquidity do you guys have to wade through this downturn, you know, from here? And then, you know, if conditions get worse, you know, what are some of the plans? And then similarly, are you in a position to actually pursue that development from a financial standpoint? Or is it, you know, is that going to depend on a stronger recovery? Timothy Flanagan: Yes. Let me start with the last part of your question. I think we've been consistent all along as we've talked about our aspirations and the role that we can play in the establishment of the Western supply chains. Right? This is not an area where GrafTech is going to be able to make, you know, multibillion-dollar investments on a standalone basis. Right? But we think that we possess a unique set of skill sets and assets and capabilities as a leader in synthetic graphite that allows us to partner with those that are out raising capital and building plants. And, again, that can be in a number of areas within their own value chain, whether it's raw material supply out of Seadrift, providing graphitization capacity or expertise, or also just some of our own, you know, technological advancements that our R&D team has been working on. So it'll likely come in the form of a partnership or a series of partnerships as we think about how that develops for us going forward. You asked about liquidity and what we're feeling or thinking about there. I mean, at the end of the day, we have $140 million of liquidity as of December 31. But I think more importantly is kind of our comments around, you know, as a company, over the last two years, we've acted decisively. Right? We've taken a lot of steps to preserve our liquidity, to enhance our liquidity. Right? You think back to the beginning of '24, we idled some capacity. We streamlined our overhead structure. We readjusted our commercial structure. We've aggressively cut costs and managed our balance sheet. So all of those things are things that we'll continue to do and just need to reiterate to shareholders and stakeholders at large that we'll continue to take the actions necessary for as long as this downturn exists. And, you know, that's the message here for today. Arun Viswanathan: Okay. Thanks. Operator: Next question comes from Abe Landa with Bank of America. Abe Landa: Maybe first one. You kind of alluded to this when talking about The US environment. Obviously, there had been some significant Indian tariffs kind of through the fourth quarter, and obviously, it's somewhat changed. I guess, what was the impact of Indian tariffs on the US contracting overall process and kind of how do you expect the newly signed Indian trade deal to kind of impact The US market specifically? Timothy Flanagan: Yeah. I mean, if you think about the way that The US market tends to contract, you know, they go out in the third and fourth quarter and contract a sizable amount of their full-year volume for the next year. We are largely through that at this point in time. So while we think that the repealing of the 50% tariff against the Indians down to 18% is probably a step too far, you know, we're comfortable with the position that we're in heading into 2026 with respect to our US customers. Again, fully anticipate overall volume growth for the business in '26 and fully anticipate continuing to grow our US business. And again, if you think about the strength of The US steel market as it exists today and the operating levels where they're at, quality carries the day, and service carries the day, and we think that's what differentiates GrafTech from some of the competitors in the marketplace and think that ultimately that's why customers will choose us going forward. We'll continue to enhance that value proposition and are confident that we'll continue to be able to grow that market share as we look out to the future. Abe Landa: That's helpful commentary. And then maybe shifting regions to Europe, you kind of mentioned that volumes overall for the full year didn't hit your expectations, and partially on aggressive pricing in Europe. I know there's been a number of capacity movements there, and obviously, you have two of your three main plants there. So I guess can you just kind of maybe discuss a little bit within your kind of supply and demand environment and how that relates to what you're seeing in terms of pricing within Europe and early into '26? Timothy Flanagan: I mean, Europe still is and will remain a key market for us. If you just think about the amount of steel made via EAFs in Europe, while overall steel production was down in Europe year-over-year and is down 15% from the high in 2021, Europe is still a big steel-producing area. And given the proximity to our two plants in France and Spain, it remains a key area for us. So, you know, I think the Europeans are finally starting to take some action on the trade front and the protectionism, if you want to call it that, with both CBAM and some of the announced tariff actions last quarter. But it's still a challenged market from an overall demand standpoint because of power prices and just the overall level of competition. So, again, it's a lower-priced market for us. It's a market that we focus our energies on. Again, the European buyers are also value buyers. We're not just price buyers, so I think the value proposition that I just spoke to again differentiates us in the market. And, again, we think we're confident in our position in Europe, and we'll continue to push to grow volumes in Europe as well. I don't know if the pricing in Europe is any more aggressive than it is elsewhere in the world, but there certainly is some pressure there. Abe Landa: Another question on you kind of alluded to China overcapacity kind of impacting or their exports kind of impacting the rest of the world. Obviously, always kind of tough to kind of get a good read on what's going on within China, but just maybe talk about what's going on with the supply picture of graphite electrodes coming out of China, what it looks like today, any future capacity they're looking to add? What you're seeing in the export front from China? Timothy Flanagan: Yeah. Sure. And I think when you talk about China, you really have to talk about two elements of China and their export behavior. One is the headline, which is Chinese steel exports hitting over 120 million tons this year and flooding the world with steel, which just puts pressure on a lot of our customers around the globe. So that's one element of it. And you see a lot of trade action being taken in certain geographies to protect domestic steel, both in The US and EU. Again, very important regions for us. On the electrode side, you know, the Chinese continue to export at increasing levels on an annual basis. So I'd say they're over 300,000 tonnes of UHP or 300,000 tons of total exports in, you know, somewhere in the two to two fifty range of UHP exports here over the past year. And they probably represent, you know, maybe a third of the non-Chinese market right now in terms of total demand. You know, whether or not there's additional capacity coming online in China or not is kind of irrelevant given the size of that overall market, which is well overbuilt for what their domestic EAF needs are. Right? If you think about China, it produces probably 90 million tons via the EAF, and they have probably 800,000 tons of electrode capacity. Most of that is idled or not exportable given its location or the quality, but there's a tremendous amount of volume there that sits in the market. So maybe that's a little bit of color in terms of where the Chinese are at. How much capacity more do they have to export? You know, it's hard to say, but certainly, we feel the pressure of the Chinese exports globally right now. Abe Landa: And then maybe last question. And thank you for taking the time. Maybe being a little bit more direct. But are you having conversations regarding Project Vault or any kind of related government-type support programs, and maybe can you quantify that opportunity within the synthetic graphite? Timothy Flanagan: Sure. Yeah. You know, I'm not going to comment on any of the nature of discussions we're having. I think we've spoken in the past about, you know, like any other company, government advocacy, whether at the state or federal level, is something that we engage in, and we're not going to provide specifics around what departments and whom we're speaking to. But I can say that, you know, we continue to advocate for the benefit of GrafTech in the broader industry, and it really focuses around a number of areas. Trade and promoting, you know, fair trade and the importance of ensuring that, you know, domestic markets are strong. You know, I think we've spent time educating various constituencies about the role synthetic graphite as a critical mineral plays both in the steel industry and in the indispensable nature of a graphite electrode. That's not a linkage that everybody gets on the surface. So we've spent some time explaining that to folks. As well as, you know, synthetic graphite in the form of anode powder and the role that can be played there. So we'll continue to talk about who we are and what we do and our strengths, you know, relative to the market and what the needs are, but I certainly think that this is an area we'll continue to spend time on. Abe Landa: Thank you very much. Operator: Your next question comes from Kirk Ludtke with Imperial Capital. Kirk Ludtke: Hello, Tim. Rory, Mike. Thank you for the call. You mentioned a couple of times that you thought quality and service carry the day. Are you able to price your products at a premium, or is it more that you win ties? Timothy Flanagan: Yeah. I think it depends on the market. I mean, all right? We think that our value proposition is superior in a number of cases. And, you know, there are competitors that we would put on the same tier as us from a quality standpoint, and you price competitively against those, and you hope that your service and offerings are what breaks ties. There's still a quality and market differential between the tier two and tier three producers, both Indians and the Chinese. But, again, it depends on the end market ultimately that you're selling into. Certain markets are price buyers and only price buyers, and those markets are head-to-head. And those aren't the markets that we want to focus our energies on. Kirk Ludtke: Got it. What percentage of the demand out there? I know this is probably a tough question to answer, but what percentage of the demand out there do you think is sensitive to quality and service? Timothy Flanagan: Well, I mean, at the end of the day, 100% of the demand is sensitive to quality. Right? No steelmaker wants an electrode breaking in their furnace for it. It costs them money at the end of the day. The question is how much are they willing to pay for the incremental quality? And that's a tough question to answer. But, again, that is the underpinning of our commercial strategy and why we focused on the markets we're focusing on. And willing to walk away from those folks that just demonstrate pure price buying in other regions. Kirk Ludtke: Got it. Thank you. On this $12 billion critical material fund, is that enough to move pricing in any of your end markets? Timothy Flanagan: Yeah. I mean, I think it's hard to say or maybe it's too early to say in terms of exactly how all these roll out. I mean, I think in the totality of whether it's the vault, whether it's the initiatives that the Department of War is rolling out, whether it's the initiatives from the Department of Energy, whether it's what you see from some of the larger banks rolling out infrastructure and critical mineral funds, you know, all of those things in totality and a conscious effort towards the establishment of supply chains and creating a constructive environment, all of those will have a positive uplift. Which one has the bigger weighting or which one drives more of that across the board, it's tough to say. But, you know, I think we're happy to see, you know, from a market participant perspective, that, a, that people are recognizing synthetic graphite as a critical mineral, b, that the government is taking action and decisive action and moving swiftly and not getting bogged down with bureaucracy and decision-making and really working towards establishing supply chains and supporting the domestic infrastructure. Kirk Ludtke: Thank you. And then lastly, we talked a lot about capacity additions. Do you have any expectation that your competitors might reduce capacity? Timothy Flanagan: You know, other than what you hear publicly and that's the same thing that we hear. So in terms of expectations, you know, I'm not sure that there's anything that is pending in the market as we speak. But I think broadly speaking, and part of our commentary was aimed at this, in a market that isn't rewarding producers for producing a product that is essential and allowing for investment in an asset-intensive industry and allowing for returns to shareholders. At some point in time, that logjam or that capacity surplus has got to come offline. People will start to make decisions based on that. Kirk Ludtke: Got it. I appreciate it. Thank you very much. Timothy Flanagan: Thank you. Operator: There are no further questions at this time. I'll now turn the call back over to Tim Flanagan for closing remarks. Timothy Flanagan: Thank you, Carly. And I'd like to thank everyone on this call for your interest in GrafTech, and we look forward to speaking with you next quarter. Have a wonderful day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, everyone, and welcome to the Johnson Outdoors First Quarter 2026 Earnings Conference Call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors' Chairman and Chief Executive Officer. Also on the call is David W. Johnson, Vice President and Chief Financial Officer. Prior to the question and answer session, all participants will be placed in a listen-only mode. After the prepared remarks, the question and answer session will begin. If you would like to ask a question during that time, please press star then the number 11 on your telephone keypad. The call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. I'll now turn the call over to Patricia G. Penman from Johnson Outdoors. Please go ahead, Ms. Penman. Patricia G. Penman: Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2026 fiscal first quarter. If you need a copy of today's news release, it is available on our website at johnsonoutdoors.com under Investor Relations. I also need to remind you that this conference call may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors' control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have additional questions following the call, please contact David W. Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold. Helen Johnson-Leipold: Good morning, everyone. I'll begin by sharing our start to fiscal 2026 as well as an update on the strategic priorities for our businesses. David will review the financial highlights, and then we'll be happy to take your questions. In 2026, we saw markets stabilize and solid reception to our new products. That combination helped drive double-digit growth in the quarter, which is encouraging given that this quarter is typically a slower period as we ramp up through the primary selling season. Additionally, the ongoing hard work we've been doing to improve our profitability has been showing results. Our operating loss through this first quarter was much improved versus the prior year quarter. While there are still uncertainties in the broader environment, we're encouraged by how the fiscal year has started and feel good about the execution of our plans to accelerate the growth of our business and brands. Starting with Fishing, both our Minn Kota and Humminbird brands delivered solid performance in the quarter with the category benefiting from improved trade dynamics. Demand remains strong for Humminbird's Explorer series and Mega Live 2 fish finders, which launched last fiscal year, and we saw healthy demand across Minn Kota's full lineup of trolling motors. Turning next to camping and watercraft. This is an area where our investments in digital and e-commerce are really paying off. David W. Johnson: Across Jetboil and Old Town, we've been focused on meeting consumers where they are, which is online, and making it easier for them to discover and purchase our products. These efforts helped drive growth in the quarter. Both Old Town and Jetboil remained strong leaders in their respective markets. Jetboil continues to see strong demand for its fast-boil cooking systems, which has exceeded our expectations. Finally, in diving, improved conditions across the global markets and our innovation helped drive an increase in sales for the quarter. We continue to see positive momentum for Scubapro's new Hydros Pro 2 product that we began shipping in December. Hydros Pro 2 builds on the award-winning legacy of our original Hydros Pro, incorporating meaningful innovation of comfort, fit, and performance needed in the buoyancy control device. Digital engagement is becoming increasingly important in diving, as well, from educating on new technologies to supporting dealers with better digital tooling content. We see this as another opportunity to strengthen the connection between our products, our retail partners, and consumers. Overall, we are pleased with the start of fiscal 2026. While it's still too early to predict how the rest of the fiscal year will unfold, our priorities remain clear across all our businesses: maintaining a strong and robust innovation pipeline, building a growing momentum in digital and e-commerce, and continuing to improve product costs and operating efficiency with our cost savings. These are the right drivers to position Johnson Outdoors for sustainable growth and long-term success. Now I'll turn the call over to David for more details on financials. David W. Johnson: Thank you, Helen. Good morning, everyone. Loss before income taxes for the first quarter was $1.3 million compared to a pre-tax loss of $18.9 million in the previous year quarter. The improvement is driven mostly by revenue growth and improving margins. Gross margin for the first quarter improved to 36.6%, up 6.7 points from the prior year. Overhead absorption from higher volumes was the main driver of the improvement in gross margin. Additionally, price increases and our ongoing progress on cost savings initiatives helped offset increases in material costs. Operating expenses increased $2.1 million from the prior year first quarter, due primarily to increased sales volume-related expenses, partially offset by decreased warranty expense. Tax expense for the quarter was about $2 million, driven mainly by an adjustment related to our US valuation allowance on deferred tax assets. We continue to make good progress on our inventory levels. Inventory balance at the end of the first quarter was $103.9 million, down about $17.7 million from the previous year quarter. I want to highlight that our balance sheet remains debt-free, and we continue to pay a meaningful dividend to shareholders, with the Board approving our most recent dividend announced in December. We remain confident in our ability and plans to create long-term value for shareholders. Now I'll turn the call over to the operator for the Q&A session. Operator: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Anthony Chester Lebiedzinski of Sidoti. Your line is now open. Anthony Chester Lebiedzinski: Thank you, and good morning, everyone. Certainly a great start to the fiscal year, and thanks for taking the questions. So first, just a general kind of question in terms of pricing versus unit volumes. I don't need specific numbers, but just kind of, you know, maybe if you can just talk about what you saw as far as pricing versus unit volumes. That'd be a good start. Thanks. David W. Johnson: Well, yeah, most of the increase in the quarter was unit volume driven, but we did take pricing across the businesses to react to the cost increases we had. So, but I would say most of the increase we're seeing is unit volume related. Anthony Chester Lebiedzinski: That's encouraging. Yeah. Thanks, David. So you guys have for years focused strongly on innovation. Can you share broadly as far as what, as far as your sales are concerned, what's coming from new product versus a few years ago? Has there been a meaningful change in terms of the new product component of your sales? Helen Johnson-Leipold: You know, I mean, innovation has always been critical for us, and we have been focusing on improving our success rate. So competition is strong, and our main way of maintaining leadership is innovation. So I would say we continue to make it stronger. And I don't know about the David, you can comment on the percent of volume, but it truly is the driver of growth. David W. Johnson: Absolutely. And we've seen improvement in our new product success over the last couple of years. I think, you know, during the COVID cycle, you know, that may have come down a little bit, but we're seeing improvement in that area. Anthony Chester Lebiedzinski: Gotcha. Thanks. And then you also talked about the growth in the e-commerce channel. Can you share with us what percentage of your revenue is now related to e-commerce? And do you guys have a goal in mind as far as what you want to get to in the next few years? Helen Johnson-Leipold: Well, all you know, what we can say is that it's the fastest growing channel we have. And it's definitely expansive growth for us. Our goal is to continue to grow that at a faster pace than across our businesses. It's a key contributor to growth year on year. Anthony Chester Lebiedzinski: Mhmm. Gotcha. Alright. And then so you've had a great start here to the fiscal year, strong sell-in to retailers in December. What is your sense now about the current trade inventory levels? Helen Johnson-Leipold: Well, we were glad that they marked when we said stabilized, it's more that the trade was in a good position from an inventory standpoint to react to good sell-in. And we had a good sell-in during the first quarter, and so they are in a good position. Hopefully, we get the consumer takeaway as the season begins. So I think that the trade is in a healthy position right now. Anthony Chester Lebiedzinski: Okay. That's good to hear. And you've done a lot with your cost savings efforts, and it's clearly evident in the gross margin improvement. I know there were some fixed cost absorption components to that as well. But as it relates to the cost savings initiatives, should we expect more to come on that program as we look forward to the rest of the fiscal year? David W. Johnson: Yeah. It's a key strategy for us going forward, especially in these volatile times with the supply chain. So it'll be critical for us to continue to work on optimizing product costs, being as efficient as possible. We've got a whole slew of initiatives that we're working on to make that happen. Anthony Chester Lebiedzinski: Mhmm. Okay. And then in terms of the warranty expense, you know, how significant was that as far as the adjustment to the OpEx? David W. Johnson: Yes. I mean, it was probably less than a point of the operating expense percentage going down. So, but it did come down in the quarter. So we wanted to point that out. Anthony Chester Lebiedzinski: Gotcha. Okay. That makes sense. Okay. And lastly for me, I mean, so, David, you did touch on the tax expense, which we were not expecting for the quarter. Going forward, what's the, you know, where should we expect the tax rate to fall for the balance of the fiscal year? David W. Johnson: Yeah. I mean, the challenge for us is, you know, just the profits in the geographies in which we serve. So we've got, you know, the valuation allowance in the US. And as we make money in the US, you know, that it that that won't we won't have tax benefit or expense on that because it's all reserved for us. So the tax rate will be kind of wonky going forward until we can kind of stabilize our profits. Anthony Chester Lebiedzinski: Mhmm. Okay. Gotcha. Alright. Well, thank you very much, and best of luck. Operator: Thank you. Thanks, Anthony. Thank you. I'm showing no further questions at this time. I'll now turn it back to Helen Johnson-Leipold for closing remarks. Helen Johnson-Leipold: Okay. Just want to thank everybody for joining us, and have a great day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PAA and PAG fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we'll open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Fernandez: Thank you, Victor. Good morning, and welcome to Plains All American Pipeline, L.P. fourth quarter 2025 earnings call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following today's call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide two. An overview of today's call is provided on Slide three. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, Chairman and CEO and President, and Al Swanson, Executive Vice President and CFO, along with other members of the management team. With that, I'll turn the call over to Willie. Willie Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. Earlier this morning, we reported fourth quarter and full-year adjusted EBITDA attributable to Plains of $738 million and $2.833 billion, respectively. 2025 was a pivotal year for Plains. The market environment presented multiple challenges including geopolitical unrest, actions from OPEC to increase oil supply, and uncertainty on the economic impact from tariffs. As highlighted on Slide four, despite these distractions, we remain focused on transitioning to a pure-play crude company, which also serves as a catalyst to streamline our operations and better position Plains for the future. This transition is accelerated through the sale of our NGL business, along with the recent acquisition of the EPIC pipeline now renamed Cactus III. These transactions enhance the quality and the durability of our cash flow stream while improving distributable cash flow and positioning us well for future market cycles. 2026 will be a year of execution and self-help, with a focus on three initiatives. First, we remain on schedule to close the NGL divestiture near the end of the first quarter, pending Canadian competition approval. Second, we're integrating the recently acquired Cactus III pipeline and expect to drive synergies related to that system to improve EBITDA. And third, we're streamlining the organization with a focus on efficiency and improving our cost structure. Over the past several months, we have advanced our streamlining initiatives and are targeting $100 million of identified annual savings through 2027, with approximately 50% expected to be realized in 2026. The key drivers of these efficiencies are outlined on Slide five and include reducing G&A and OpEx to reflect a more simplified business, consolidating operations, and exiting or optimizing lower-margin businesses. One example that illustrates our focus on higher-margin businesses is the sale of our Mid-Continent lease marketing business in 2025 for a total consideration of approximately $50 million with minimal impact to EBITDA. This sale removes working capital needs associated with line fill, simplifies operations with an improved cost structure while adding long-term contracts to our business. While this transaction is relatively small, it illustrates an opportunity that we have executed on to streamline our business, improve margins, and do more with less. On the bolt-on acquisition front, in January, we acquired the Wild Horse Terminal in Cushing, Oklahoma, from Keyera for a net cash consideration of approximately $10 million, which includes an upward purchase price adjustment of approximately $65 million upon the closing of the pending NGL divestiture. This asset adds approximately 4 million barrels of storage adjacent to our existing terminal assets and is expected to generate returns well above our internal thresholds. Looking to 2026, and as highlighted on Slide six, we are providing adjusted EBITDA guidance of $2.75 billion net to Plains at the midpoint plus or minus $75 million, with an oil segment EBITDA midpoint of $2.64 billion net to Plains, which implies a 13% growth year-over-year in the crude segment. We expect the $100 million of EBITDA from the NGL segment assuming the divestiture closes at the end of the first quarter and $10 million of other income. We forecast Permian crude production to be relatively flat year-over-year in '26 with overall basin volumes remaining about 6.6 million at the end of the year, similar to 2025 levels. That said, we expect growth to resume in 2027 underpinned by more constructive oil market fundamentals driven by ongoing global energy demand growth and diminishing OPEC's spare capacity. Regarding capital allocation, we recently announced a 10% increase in the quarterly distribution payable on February 13 for both PAA and PAGP. On an annualized basis, the distribution represents a 15¢ per unit increase from the November level bringing the annual distribution to $1.67 per unit representing an 8.5% yield based on the recent equity price for PAA. With the simplification and streamlining of our business, stable cash flow contributions from the Cactus III acquisition, and reduced commodity exposure following the NGL sale, we are modestly reducing our distribution coverage ratio threshold from 160% to 150%. This reflects improved visibility for our business, better alignment with peers, and it paves the way for future distribution growth while still maintaining a prudent level of coverage. Our targeted annualized distribution growth remains 15¢ per unit, and the lower distribution coverage gives us more confidence in our ability to deliver increasing returns to our unitholders. Al will cover specific CapEx guidance for the year, but we expect a meaningful reduction in gross spending versus 2025 levels and maintenance capital will naturally decrease following the NGL divestiture. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our asset base, maintaining a flexible balance sheet, and returning cash to unitholders via our disciplined capital allocation framework. With that, I'll turn the call over to Al to cover our quarterly performance and other financial matters. Al Swanson: Thanks, Willie. Slide seven and eight contain adjusted EBITDA blocks that provide additional details on our performance. For the fourth quarter, we reported crude oil segment adjusted EBITDA of $611 million, which includes two months of contribution from the Cactus III acquisition partially offset by a full quarter impact of recontracting on our long-haul systems. Moving to the NGL segment, we reported an adjusted EBITDA of $122 million reflecting a seasonal uptick that was moderated somewhat by warm weather impacts on sales volumes and relatively weak frac spreads. A summary of 2026 guidance and key assumptions are on Slide nine. We remain focused on making disciplined capital investments and expect to invest approximately $350 million of growth capital and approximately $165 million of maintenance capital net to PAA in 2026. Key drivers for EBITDA year-over-year include full-year contributions from acquisitions primarily Cactus III, efficiency and optimization gains partially offsetting the impact of the NGL sale and recontracting as provided on Slide 10. Importantly, I would note that while headline EBITDA will decline slightly from the divestiture, distributable cash flow is expected to increase approximately 1% driven by lower corporate taxes and maintenance capital. As illustrated on Slide 11, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate approximately $1.8 billion of adjusted free cash flow excluding changes in assets and liabilities and excluding sales proceeds from the NGL divestiture. With regard to the potential special distribution previously communicated, we expect the Cactus III acquisition to mitigate a significant portion of the expected tax liability to unitholders resulting from the NGL sale. From this perspective, we now expect a special distribution of 15¢ per unit or less after closing and pending board approval. Regarding our balance sheet, in November, we issued $750 million senior unsecured notes consisting of $300 million due in 2031 at a rate of 4.7% and $450 million in 2036 at a rate of 5.6%. Proceeds were used to partially fund the EPIC acquisition. Additionally, in the fourth quarter, we paid off the $1.1 billion EPIC term loan assumed as part of the EPIC acquisition by issuing a $1.1 billion senior unsecured term loan at BAA. As a reminder, since we invested $2.9 billion to acquire Cactus III, the majority of the proceeds from the NGL sale will be used to reduce debt. Post-closing, we expect our leverage ratio to trend toward the middle of our established target range of 3.25 to 3.75 times. With that, I'll turn the call back to Willie. Willie Chiang: Thanks, Al. 2025 is a transformational year for Plains. And we're taking steps to further strengthen our company for the future. Despite a complex macro backdrop, we proactively executed several major transactions and implemented efficiency initiatives to position Plains as the premier North American pure-play crude oil midstream company. 2026 will be a year of execution and self-help as we focus on closing the NGL sale, advancing our efficiency initiatives, and driving synergies on the Cactus III system. Collectively, these actions will help position Plains more competitively for the future. I also want to take this moment to express thanks to our Plains team whose dedication and professionalism showed through and through as we also achieved our best-ever safety performance as measured by our best TRIR safety rate as well as the lowest severity of injuries as measured by total loss workdays. In closing, I would like to reiterate that we remain committed to our efficient growth strategy, simply stated, generate significant free cash flow, maintain a flexible balance sheet, and return capital to our unitholders. I will now turn the call back over to Blake to lead us into Q&A. Blake Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as in our available time this morning. The IR team will also be available after the call to address any additional questions you may have. Victor, we're ready to open up the call, please. Operator: Thank you. And to answer the question, you may press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by. We provide the Q&A roster. Moment for our first question. First question will come from the line of Manav Gupta from UBS. Your line is open. Manav Gupta: Good morning, guys. I actually wanted to focus a little bit more on the Cactus pipeline and all the synergy benefits you're talking about. And, also, I know it is not the right macro, but, eventually, the macro will turn, and I'm trying to understand what's your ability to expand Cactus III without actually putting more pipe in the ground. If you could talk about some of those factors. Thank you. Jeremy Goebel: Manav, good morning. It's Jeremy. First on the synergies question, the $50 million of synergies we disclosed we believe we're already on run rate for that now. Roughly half of that was associated with G&A and OpEx reductions as well as removing things like insurance and other things that the pipeline had to keep because it was a private equity-backed entity. Those are gone. So half the synergies were achieved in the fourth quarter as we shed those costs. The other 25% are associated with filling the pipeline with supply that we have, doing shorter-term deals, just to build out available capacity. Associated with quality management. Those were ramping up now. So we would imagine during the first quarter, we'll be substantially there on the run rate for the $50 million, and we should hit that number this year. As to your second question on the ability to expand the pipeline, our team, as we recontract the base pipeline to add term and improve rates for that uncontracted capacity now. In parallel, Chris's team is taking a look at all the capital-efficient ways to optimize our upstream connectivity, our downstream connectivity, and then for incremental expansions of the pipeline that don't require new pipe and that do require new pipe. So we're looking at the most capital-efficient ways to do that. We should finish that during the first half of this year. And in parallel, like I said, we are recontracting for term the rest of the pipeline then we'll be in a position to discuss expansions with our customers, etcetera. But first, it's stabilize the base pipeline, and then it's look at capital-efficient expansions from there. In increments that make sense to grow with the base. Willie Chiang: Manav, this is Willie. I think one key point that Jeremy highlighted is it's not a binary expansion at one time. We've got an opportunity to do it in phases and really match the capacity to demand that's out in the market. Manav Gupta: Perfect. My very quick follow-up is can you also talk a little bit about the, you know, $100 million in cost savings through 2027 efficiencies and other initiatives that you are undertaking at the franchise level. Thank you. Chris Chandler: Good morning, Manav. This is Chris Chandler. So the sale of our NGL business in Canada really creates a unique opportunity for us to rethink how our company is structured and organized. So that business, as you might expect, carried a fair amount of operational and commercial complexity. That simply won't exist once the assets are sold. So we're taking a fresh look, from top to bottom at how we're organized, where we're located, a fresh look at, you know, some of the maybe non-core businesses that might be better in somebody else's hands or, for example, outsourced to third parties that could do it more efficiently. So it's really an across-the-board look that, you know, you don't get the opportunity to do this very often. As far as the capture rate, it's a $100 million run rate by the end of 2027. So we expect to achieve $50 million of that in '26. Another $50 million in 2027. Manav Gupta: Thank you so much for taking my questions. I'll turn it over. Blake Fernandez: Thanks, Manav. Operator: Thank you. One moment for our next question. Our next question comes from the line of Brandon Bingham from Scotiabank. Your line is open. Brandon Bingham: Hey. Good morning. Thanks for taking the questions. Maybe first, just looking at the Permian Basin outlook and kind of some of the commentary you just went through, just trying to harmonize it with some of the larger producer commentary from recent earnings calls. How is the sentiment among your producer customers? And maybe what are some of the current discussions like assuming that $60-$65 WTI scenario in your guide? Jeremy Goebel: Good morning, Brandon. This is Jeremy. First, I would say that $60 to $65 is 10% higher than it was a few weeks ago. So it's a very volatile time period. But what I would say is the larger the producer, the less sensitive they are to the plus or minus $5 swings that we used to incur. So I'd say cautiously optimistic. Because if you look consistently across the producer landscape, what used to hold the Permian Basin flat was 325 rigs with less production. Now it's 230 rigs, so you can see those efficiencies are working through the system. There what I would tell you is that they're working to preserve an inventory. They're working to continue to get more efficient with how they develop it. Improve recoveries. All of those things are good for stabilizing earnings for us. And we remain consistent that while 2026 may be flattish, we think a more constructive environment for 2027 and beyond for growth. And that's very consistent with taking a pause, getting better at doing things, becoming more efficient. So that continues to be the case for us. Willie Chiang: And, Brandon, this is Willie. Think a little couple other things to point out. You know, as we develop these basins, it's an exercise in constraint removal. So one observation is gas has been tight there's a number of projects that are there to alleviate that. And when you alleviate the gas constraint, actually, the breakevens for the producers improve, which allows them to be able to be more durable going forward. And I think just to reinforce your point, you know, we've had some consolidation in the upstream section with a couple of producers recently announced. And for us, we like that because it bolsters the producer environment to develop the basins in a more thoughtful way. And I'm actually very, very encouraged by some of the technology improvements that some of the majors are focused on resource recovery. So when you factor all that in, we're very confident and constructive on the ability for the Permian to be a key part of the incremental supply for the world for quite some time. And then would expect growth to come back as fundamentals improve. Brandon Bingham: Very helpful. Thank you. And then maybe just looking at the capital allocation priorities, would be curious to hear if maybe there's a shift in any of them versus what they have been. And specifically thinking around the payout ratio is that 150% level more so to just continue the bolt-on strategy or other priorities? Or is there room to maybe further reduce it and maintain that 15¢ per unit distribution growth cadence a little bit longer? Al Swanson: Brandon, this is Al. Our view on capital allocation has not changed. I think I noted in the prepared comments, there's two ways to look at it. We got the net proceeds coming from the divestiture. We've really redeployed that already in the Cactus III. So the proceeds there, I'll go to pay down debt. When you look ahead post that, it's all the same viewpoints that we had before. Our primary way of returning cash to shareholders is gonna be through distribution growth. That's part of the 160 to 150. We're comfortable with the 150 level. We think it's actually consistent with a large number of our peers. And so we'll be looking to continue looking at bolt-ons where they make economic sense. Distributing cash through distribution growth. Secondly, we do have some preferred securities as well as common unit repurchases. Those will be more on an opportunistic basis. Brandon Bingham: Very helpful. Thank you. Willie Chiang: Thanks, Brandon. Operator: One moment for our next question. Our next question comes from the line of Michael Blum from Wells Fargo. Your line is open. Michael Blum: Thanks. Good morning, everyone. Maybe you could stay on the distribution coverage conversation. I'm really just wanting to get a little more of your thought process on you landed at 1.5 and know, not 1.4 or 1.3. Just exactly there any kind of formulaic way we should be thinking about this? You know, you mentioned some of your peers, but, you know, I could take one peer off the top of it. Top of my head that, you know, says 1.3 is the right coverage. So just trying to get a little more insight into your thinking on that. Willie Chiang: Willie, this is Willie, Michael. You know, when you think about how we came up with the $1.60, right, that was in November '22. And it was intended to be a coverage threshold that was conservative, reflecting in our focus on the balance sheet, I wouldn't try to read too much into the delta. Other than at $1.50, it's still a conservative approach to distribution. And for us, it sets a nice balance for us as we look forward on the ability for multiyear distribution growth. So I would look at it as kind of a reset to the a modest reset, consistent with our peers. As we go forward, we think we have a much more durable cash flow stream, and it's really set there to allow us to feel good about our multiyear distribution growth. Michael Blum: Got it. Thanks for that. And then just wanted to ask on the growth CapEx of $350 million I guess, twofold. One, can you give us any details about any discrete projects that make that up or just some color around what's in that number? And then is this a good way to think about a run rate going forward now that you're really focused in the current markets? Thanks. Chris Chandler: Good morning, Michael. It's Chris Chandler. So, yes, our guide for 2026 is $350 million. That brings us into our more typical $300 to $400 million range, which do think is a good number going forward absent any large investments, which we would call out separately. When I think about how we got to $350 and comparing it to prior years, we, of course, finished up the NGL Fractionator Expansion Last Year In Canada. We finished up a number of Permian crude oil infrastructure projects, and we finished a project to unload Uintawax crude in the Mid Continent. So those obviously all brought the number down on a year-on-year basis. As far as how we build up into the 350, we have a healthy Permian program that's ongoing. In 2025, we connected more wells than we connected in 2024, and 2026 looks to be on a similar pace so far. We're also of course, doing some modest investment to integrate the Cactus III pipeline. To capture synergies as Jeremy mentioned, with additional connectivity and opportunities for quality optimization and cross-connecting between our other cactus pipes. For energy efficiency. And then we see some good opportunities to potentially invest capital into our Canadian crude oil business. We're pursuing a number of potential contracts that would underwrite expansions there and have assumed some of that moves forward in 2026 as part of our capital spending. Michael Blum: Thank you. Chris Chandler: Welcome. Operator: Thank you. One moment for next question. Our next question will come from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Thanks for the color today. I just wanted to take a step back here, and there's been some geopolitical developments recently, you know, particularly up, you know, what's been happening in Venezuela. And it seems like there could be a domino effect in a lot of different directions of what happens. So I just wondering if you might be able to share any thoughts on how things could unfold, how could it impact Plains flows on assets, utilization, or even repurposing of assets? Jeremy Goebel: Hey, Jeremy. Jeremy Goebel. How are you? I was calling I mean, the idea around Venezuela, think it was the initial response of 50 million barrels sold into The US Gulf Coast, a significant portion. Do you restructure some of the slates and get consistent with what maybe Pascagoula or the St. James Refiners or the Houston Refiners that run that immediate impact was widening of Canadian differentials in the Gulf Coast the other heavy sour differentials, the Mid Continent and Canada. That creates opportunities more opportunities for quality optimization, cross-border flows, and other movements. Going forward, if you look out a few years and maybe add two to three hundred thousand barrels a day, that might change some buying habits that shouldn't be enough with the commodity prices where they are to change Canadian flows materially. They'll have to price to move. So that would probably be a little bit wider Canadian differentials than otherwise would have been. It would take materially more than that to probably repurpose pipelines. But if you look if you added a million barrels a day, that does different things. Right? That now may push Canadian barrels to the West Coast. That may create other to repurpose pipes from the Gulf Coast to other markets to feed heavy sours into those. So I think it's there's no easy answer because first, you need stability in the government. You substantial reinvestment. Near term, I think it creates some opportunities around quality management. And use of our cross-border pipes. Intermediate term, it creates some logistical opportunities for us as well. But longer term, I think it's gonna take substantial investment in time repurposing, but we're certainly monitoring and paying attention to it. Jeremy Tonet: Got it. That's very helpful, Dan. And one other high-level question if I could. Plains has been active in, you know, industry consolidation bolt-on M&A, what have you over time. And I was just wondering, from your perspective, Willie, where do you think what inning are we in right now for consolidation in the crude oil infrastructure industry, bolt-on, larger consolidation, what have you? Willie Chiang: Well, I would say it's not a perfectly smooth trajectory if you think about consolidation. And you know, and specifically for us, we've made a couple of large transactions. Our focus right now is really to execute on those. We look at all kinds of opportunities that are out there. So you can be assured that as we look at things, we'll stay capital on being able to acquire things. But I do think there will be more opportunities that are out there. And, frankly, you know, to your earlier question, when you think about the macro and you look at the North American infrastructure, you asked about Venezuela. Everyone has a different outlook and view of what might happen there. I personally think it's gonna be very challenged to get a amount of growth out of Venezuela, which leads, know, leads us to a more constructive, crude oil environment going forward. When you think about the infrastructure that we have in ground and the ability to repurpose, if it makes sense, there's a lot of need opportunities there. And know, I mentioned this on one of the last calls. If you think about the basins that you wanna be involved in, the Permian Basin, obviously, is key, close to markets, growth, low breakevens, but you also have Western Canada. And everyone's aware of the desire for them to go to the West Coast. And, you know, we stay very involved in potential of bringing more barrels down to the US. So there's a lot of need opportunities, and you can expect us to stay on track at looking at those with financial discipline. Jeremy Tonet: Got it. That's helpful. Thank you. Willie Chiang: Thanks, Jeremy. Operator: Thank you. One moment for our next question. Next question will come from the line of Keith Stanley from Wolfe Research. Your line is open. Keith Stanley: Hi. Good morning. Wanted to ask on coverage. So the release specifically says that the change in threshold to 150% provides a multiyear runway for 15 cent increases. I wanna confirm, should we interpret that as the plan would be 15 cent increases for at least two more years? And if that's right, it implies a fair amount of growth. Since, you know, you'd have to stay above that 150%. Can you just talk to some of the growth drivers you see in the next twenty-seven and twenty-eight that would support that? Willie Chiang: Yeah, Keith. This is Willie. You're very astute as you did your calculations. The message we wanted to send is we have the ability to continue to grow beyond 2026. If you think of our EBITDA this year, we've got a $100 million of NGL contribution. And if you think about '27 plus, we've got self-help that chews up easily half of that. Our comments earlier about additional growth in the Permian gives us confidence in that. And, we know we're gonna be able to extract additional efficient growth synergies out of that. So out of our asset base. So we are telegraphing that we think we can grow beyond 2026. Keith Stanley: Okay. Great. And then one other coverage one. So you've talked to the rationale for 150% of DCF. When you assess where you wanna go from a coverage perspective, do you look at it on a free cash flow basis too? Because you have pretty steady $300-$400 million a year of investment capital. Just how do you look at it, I guess, on a free cash flow perspective as well? Al Swanson: Keith, this is Al. We've really set it based on DCF. In the view that the DCF coverage of say, one sixty or now one fifty would allow us to fund what we would call routine organic capital, the $300 to $400 million kind of range that we think is more of a normalized level. Plus a small bit for bolt-ons. So we think of it more of the coverage funding routine investments. Clearly, if we see investments that are outside of what is routine or larger, that we'll use the balance sheet for that. So it's not a precision on free cash flow. It's really a percentage of free cash flow, but we are allowing for that kind of self-funding of what we think is a routine kind of profile of investment capital. Keith Stanley: Thank you. Willie Chiang: Thanks, Keith. Operator: Thank you. One moment for our next question. Next question comes from the line of John McKay from Goldman Sachs. Your line is open. John McKay: Hey, guys. Thank you for the time. I wanna touch on the long-haul Permian volume guidance for a second. It's a little maybe if you can just talk a little bit about the year-over-year bridge. I think it's a little stronger than what we were looking for, but maybe the overall margin intact. So a little bit of that volume versus margin mix and bridging us to that pretty high 26 number. Thanks. Jeremy Goebel: John, good morning. It's Jeremy. There's three components to it. First, you've got the full-year run rate of the Cactus III integration into the system. Second, you've got a significant uptick in contracted capacity on the basin pipeline system. And so that would explain some of the lower margins just because the rate from Midland to Cushing is lower than that to the Gulf Coast. And then third, you'd have the BridgeTex pipeline full-year run rate. John McKay: That's very helpful, Jeremy. I appreciate that. Second one, maybe just looking a little more near term. What did you guys see in terms of storm impacts on volumes across the board? I think that the visibility on the gas side has been clear. But maybe just walk us through kind of what you saw the last week or two and kind of where the recovery stands right now. Jeremy Goebel: Thanks, John. To start with the recovery, that's already happened. So it was roughly a seven to ten-day period. When you had back-to-back freezes. A lot of that impacted the gas infrastructure, made it difficult. And once gas infrastructure is impacted, it shuts in the crude. So we saw almost like a reverse check mark type recovery went down and slow to come back. I would say that basin as a whole probably lost 10 to 12 million barrels production. The crude side and NGLs may be half that. Over that seven to ten-day period, but we're back we're out of that trough and have been for a few days. John McKay: Super interesting. I appreciate the color. Thank you, guys. Jeremy Goebel: Thank you. And that's all been considered in our guidance. So just for the record there, that impact has been considered. Operator: Thank you. Our next question will come from the line of Sunil Sibal from SIP Global. Your line is open. Sunil Sibal: Yeah. Hi. Good morning. Thanks for the time. Most of my questions have been hit, but just a couple of clarifications. So in regards to your lowering of distribution coverage to 150%, So, obviously, you're in a more contracted cash flows coming in through Cactus. But I was kind of curious if there is anything else in terms of, you know, how you manage your other assets in terms of contracting that we should be thinking about there. Al Swanson: Sunil, this is Al. No. I mean, we are comfortable with the one fifty. We think the crude segment is a stable cash flow stream. Clearly, the epic contract is highly contracted. But as we look at it, we think the one fifty coverage is actually still remains a conservative coverage level. Relative to our company, and we also think it funds what I described as a routine kind of investment capital going forward. Sunil Sibal: Okay. Thanks for that. And then I think in your prepared remarks, you mentioned about some storage acquisition, the Wildhorse Terminal. Could you walk through that a little bit again, I think you said 4 million barrels of storage. But what's the approximate cost for that? Jeremy Goebel: Sunil, hi. This is Jeremy. Good morning. What I would say. So that's four to 5 million barrels for functional right now. It's adjacent to our existing facility. Our net cost is in his to be $10 million. It'll may take us some time to integrate the facility. It's got an existing operation today. We feel like we have sufficient demand. Our existing Cushing facility is fully contracted to downstream partners. We would just think of this as an addition to that business with a low-cost basis. For us. We could not build those tanks for $10 million. So we're excited about the opportunity to grow our relationships with our customers. Sunil Sibal: Okay. Thanks for that. Operator: Thank you. One moment for our next question. Our next question will come from the line of AJ O'Donnell from TPH. Your line is open. AJ O'Donnell: Hey. Thanks for your time, everyone. Just one question for me. I'm not sure where the developments of Venezuela kind of fit on the timeline of your budget. But just curious as you sit here today and think about where dips are and how quality dips have moved. Just curious how you think about the market-based opportunities trending above or below kind of that $50 million mark that you outlined in your deck? Jeremy Goebel: AJ, good morning. What I would say is the current market reflects what our budget is. So those happened towards the end of last year, giving us the opportunity to lock in spreads across the board. So it significantly derisked the opportunity for us, and they moved out. So things move all the time. But when you have a movement like this, it gives you the opportunity to lock some things in. So I'd say it firmed up part of our plan. AJ O'Donnell: Okay. Thanks for the color. Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi there. Thank you for squeezing me back in. Just a couple quick ones if I could add. We talked a good amount about the 60% of business at the Permian, but just wondered if you could provide maybe a little bit more color on the other 40% of business and what trends you're seeing there. And I get that there's cross currents or it's influenced by, you know, cost cut savings you're seeing there. And that will have some impact. But just how do you think about volumes and EBITDA for that other 40% of business kinda trending over time? Jeremy Goebel: Jeremy, good morning. What I would say is let's start from the north. Excited about Canada, as Chris mentioned. Opportunities around our rainbow system to expand our rangeland system, more activity. The rest of the business is largely flat in Canada. So if you take our Rockies position, everything North Of Cushing and West Of Cushing, that's relatively stable and contracted, so flattish would be the view of that position. Cushing throughput continues at all-time highs year over year for us. So we think that those assets in Cushing and the refinery feed assets consistent with the refiners' performance, that should perform well this year. The South Texas is really somewhat of an extension of the Permian Basin business. It's a wellhead gathering business trucking to support it. And so that stepped down from the cactus contract did impact that business as well. As far as volumes and opportunity set following Ironwood Cactus III, and the integration with our legacy system, we're excited about what we see in South Texas. Now East Of Cushing, the cap line system and Liberty in Mississippi, those are assets we're looking to fill longer term and working on some longer-term contracting. And St. James continues to perform and with the expectation of growth in the Uinta Basin over the next eighteen months to continue to come through to our St. James facility. So think we've got exciting things across that platform. It's not as volatile, and it's not much growth in the other, but you'll see some potential capital investments there as we get contracts to support. Jeremy Tonet: Got it. That's helpful there. Thanks. And, Jim, just one last one if I could. As it relates to the sensitivities for the 100,000 barrels per day change in total Permian production having a 10 to 15 million impact, on the business. Just wondering if there's any more color you could provide there, if, how that sensitivity might change if volumes grow over time, is it linear or could there be an inflection realizing there's an interplay with differentials there? But just any other color, I guess, on how that could fall out. Jeremy Goebel: Jeremy, here's what I'd say. I think the business is very large. Right? So when we talk a 100,000 barrel a day out of a basin, that's over 6 million barrels a day, the impact of the gathering system is gonna be relatively modest. So that's 10 to 15 million of 100,000 barrels a day probably still applies. The integrated benefit may grow over time. I think that's more of the impacts of the price to go to Midland and what could change it might be on the margins, some differentials around WTI. But I think just because of the size of that business, it's probably gonna stay in a very tight band. The impact might be to the long-haul margin since we've been reset to what is the new market. Our expectations would be those would widen out over time. So you might see more of an impact to the long-haul business. Jeremy Tonet: Got it. That's helpful. All you've been there. Thanks. Willie Chiang: We'll see you next time, Jeremy. Operator: Thank you. I'm not showing any questions in the queue right now. I will now turn it back over to management for closing remarks. Blake Fernandez: Thanks, Victor, and thanks to all of you for dialing in. We look forward to visiting with you on the road, and I hope you have a safe weekend. Operator: Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Lluc Sas: Good morning, and thank you for joining Sabadell's results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow a similar format as in previous quarters. First, our CEO will walk us through the key highlights of the year. Then our CFO will go into the financials and the balance sheet, before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session where you can ask your questions. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc, and good morning, everyone. We announced yesterday that the Board of Directors of the bank and I have agreed on my resignation as Sabadell's CEO, while Marc Armengol has been appointed new CEO. These changes will take place around May, following our AGM, and once regulatory approvals have been obtained. Until then, I will remain as Sabadell's CEO, and Marc will remain TSB's CEO. And I think now is the right moment for me to step down, and I say that absolutely sincerely. Our current strategy -- strategic plan is solid and well-defined and supported by everyone, including Marc, who has been a great part of its construction. Targets for '26 and '27 are ambitious but achievable, and we are in course. And now it's all about execution, execution and execution of the current plan and planting seeds for an exciting future. Therefore, the bank is on the right track to deliver its targets. And just very briefly, on a more personal note. Look, I had opted for retirement 6 years ago. And the opportunity of joining Sabadell was so tempting that I couldn't let it pass. I was called for this project. I could not refuse. It has been far more exciting and rewarding than I could have expected. And I think now, it's the time to go. But on top of delivering on our plan, Sabadell also needs to start thinking about this future beyond 2027. There's an increasing number of opportunities from banks arising from technology in general, and from artificial intelligence, in particular. I think we have done a tremendous development in digitalization, but AI goes beyond, and that plan needs to be accelerated and it will transform the bank not in the next year, but in the years to come, and this transformation will be profound. In this context, my dear and friend, Marc Armengol, is the perfect CEO to deliver our targets for '26 and '27 because he has the managerial skills. But beyond, Marc brings strategic vision and delivery, combining CEO experience with developing and executing corporate strategy in the U.S. and in U.K. He has proved his commercial mindset at TSB, where he has improved competitiveness by getting even closer to customers. He also brings exceptional technological, operational and digital expertise from business integrations to large case transformations in Spain, U.K., U.S. and Mexico. And very important, he knows everything about Sabadell. He is definitely not a newcomer. As a matter of fact, this is the first internal CEO appointment since Sabadell went public over a quarter of a century ago. And I think this proves maturity for this great institution. All in all, that is the right time for the bank to address this change. It is the right moment for me, and it is the right moment for Marc. And before moving to the result presentation, let me repeat it one more time. We have announced my resignation and the appointment of a new CEO, but we remain fully committed to delivering our plan and reaching our financial targets for '26 and '27. Key messages for the next full year, we are in Page 4. Given that the TSB sale is expected to be completed during the second quarter of 2026, we are presenting figures with reference to the ex-TSB perimeter. First, volumes grew at mid-single digit during the year, performing loans increased by 5.4% and customer funds by 6.4%. Second, core revenues performed in line with expectations with NII at EUR 3.6 million, while fees were up by 3.6% year-on-year. Third, asset quality continued its positive trend. Total cost of risk declined by 16 basis points and stands at 37 basis points. Moreover, NPAs decreased by 17% year-on-year, while the NPA coverage ratio stood at 64%, up 2 percentage points versus last year. Fourth, this year's shareholder remuneration is EUR 1.5 billion. We have already distributed EUR 700 million through 2 interim cash dividends. And in addition to this, we will allocate EUR 800 million to a new share buyback program. We have already received authorization from ECB and the program will start on Monday. Finally, return on tangible equity stands at 14.3% and the core Tier 1 ratio is 13.1%, after deducting the excess capital that will be distributed. During '25, before dividend accruals, we generated -- I think this is a big number, 196 basis points of capital. Slide 5. And this is a little bit of a reason why. Let me explain why Sabadell is well positioned to keep improving its profitability looking forward. We have a clear strategy that supports profitable growth, as we shared last July during the presentation of our strategic plan. Our ongoing transformation focuses on delivering growth alongside improved asset quality. Although this means marginally lower loan yields, these are more than offset by a much lower cost of risk. Overall, this results in both profitable growth and stronger capital generation. This is a structural and permanent looking forward. Let me explain a little bit further on this. I mean the probability of default is now at the levels of which we wanted. That is done. And the impact on the P&L is immediate because, of course, you lose income, because you're doing less risky assets. But the benefits of that come over time, and it depends also on the duration of the different portfolios. We will still see tails for a long time in terms of -- in the different products. We will see tails of improvement of the risk cost, and we will see tails of improvement of the capital generation due to this. And this is perfectly in line, as we said, with the strategy, and I think it will yield over the course of the year. And furthermore, it makes the bank very sound. But however, and now going to the right-hand side of the slide, following the tender offer period, our business was a bit less dynamic than expected for a time. And we have now clearly regained our commercial momentum. For instance, month-on-month evolution of on-balance sheet funds in December '25 was better than in December '24. And new lending to SMEs was also higher in December '25 than '24. And -- furthermore, and this is meaningful, customer acquisition in December '25 was also significantly higher than in '24. To sum up, we have solid fundamentals and a clear strategy that will support profitable growth and capital generation going forward. Let's go to Slide 6. Performing loans excluding TSB remained flattish quarter-on-quarter and grew by more than 5% year-on-year. At TSB, lending volumes at constant FX remained flattish in the quarter as expected. Moving on to customer funds. On balance sheet, funds regained momentum and increased by 3.4% in the quarter. And this momentum, as we just saw, was more towards the last part of the quarter. Off balance sheet funds also continued to perform well, rising by 1.9% in the quarter and 14% in the year. All in all, in '25, we increased our loan book by EUR 6 billion and our customer funds by EUR 11 billion ex-TSB. This represents mid-single-digit growth, which is in line with our guidance. And this in combination with the growth of capital because growing capital generation but not growing the business is not as attractive as doing both things at the same time. Let's move to Slide 7, loan origination in Spain. In Q4, new mortgages decreased by 3% year-on-year. We have been reducing our market share in new mortgage lending over the past few months as front book yields have compressed. We remain focused on managing our new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. New customer loans -- consumer loans in Q4 increased by 8% on a year-on-year basis. In the whole year, new lending of consumer loans increased by 16%. Quarterly new loans and credit facilities granted to SMEs and corporate decreased by 15% year-on-year. This results in a slight decline of 5% if we compare with the full year of '25 with '24. On the other hand, origination of working capital finance remained broadly stable in the year. All in all, a strong performance in new lending during the year delivered loan book growth across all products and segments. If we move to Slide 8, regarding payment-related services in 2025, card turnover increased by 6% year-on-year, while point-of-sale turnover increased by 2%. Let me share that the merchant acquiring business will remain within our perimeter looking forward. Therefore, we will keep this fee income stream. Regarding savings and investment products, we reached a total stock of EUR 70.6 billion in December '25. This represents an increase of EUR 4.2 billion in the year, driven by an increase in off-balance sheet products of EUR 6.5 billion, most of it becoming -- EUR 4.6 billion coming from net inflows. In Slide 9, the breakdown of performing loan book across segments and geographies excluding TSB. In Spain, performing loans fell by 0.9% in the quarter. Mortgages and consumer loans posted positive growth in the quarter. On the other hand, the SME and corporate lending fell by 3.6% quarter-on-quarter, mainly due to the fact that these firms have been growing less heavily on their credit facilities. Year-on-year, performing loans in Spain increased by 5.2%. The mortgage book grew by 5%, consumer loans delivered double-digit growth and the stock of SME and corporate loans increased by 2.4%. The international operations also delivered strong momentum, with performing loans rising by approximately 15% year-on-year at constant FX. If we move now to Slide 10, the U.K. business. As expected, TSB's performing loans and customer deposits remain broadly stable on both quarter-on-quarter and year-on-year. Looking at the main lines of the P&L, NII increased by 7.2% in the year, in line with high single-digit guidance. Fees, which are less relevant for the U.K. business, declined by 15% year-on-year. Total cost decreased by 2.6% in the year, also in line with the guidance, in line with the 3% decline guidance. Provisions increased by around 50% year-on-year. Let me remind you that in '24, TSB recorded releases related to the improvement of macroeconomic assumptions. The resulting cost of risk in 2025 was 13 basis points, considerably better than the 20 basis points guidance. All in all, TSB's net profit reached GBP 61 million in the quarter, translating into almost GBP 260 million for the full year. This implies growth of around 25% in 2025. Stand-alone return on tangible equity was 13.5% despite maintaining a high level of solvency, with a core Tier 1 ratio of 16.7%. Finally, tangible net asset value increased by GBP 154 million between April and December. This, together with the additional TNAV to be generated until the closing of the transaction, will be added to the GBP 2.65 billion sale price, ensuring that TSB continues to contribute to Sabadell until the transaction closes. On Slide 11, a summary of our results. In '25, we posted net profits of EUR 1.8 billion. This represents a 3% decline year-on-year. It is worth noting that when adjusting 2024 net profit for extraordinary items, net profit actually increased by 3.4% year-on-year. All lines have been performing in line with the expectations. Sergio will explain the P&L in more detail shortly. To conclude this section of the presentation, I will outline our shareholder remuneration. The amount for 2025 has been improved to EUR 1.5 billion. This is 9% of our market cap. 2025 remuneration includes EUR 700 million in cash, which have already been paid, and EUR 800 million in share buyback. Last year, we paid 2 interim cash dividends, one in August and one in December of EUR 350 million each. These distributions will be followed by a final dividend of EUR 365 million as well as a EUR 435 million of excess of capital. These amounts to EUR 800 million via share buyback program scheduled to begin next Monday. No doubt, exceptionally, the final dividend will be distributed entirely through a share buyback. The main reason is that we believe that the stock is currently trading at a discount to its fair value, making a buyback the best option to reward our shareholders. We expect to distribute EUR 2.5 billion across '26 and '27, which also represent 9% of the market cap each year, once we deduct the extraordinary dividend related to the sale of TSB. All in all, we are on track to deliver on our commitment to distribute a cumulative EUR 6.45 billion of remuneration over '25 and '27. On top of that, we reiterate our commitment to deliver an annual cash dividend per share above EUR 20.44 from '26 onwards. I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance. Sergio Palavecino: Thank you, Cesar, and good morning, everyone. Let me begin by presenting the full detailed P&L. As we will explain during the presentation, the annual performance shows an alignment with our year-end targets. We recorded a net profit close to EUR 1.8 billion or EUR 1.46 billion when excluding TSB. Before we go through each line, I'd like to highlight a few extraordinary items and reclassifications recorded this quarter. Firstly, on the trading income line, we recorded an expense of EUR 15 million related to the exchange rate hedging on the full proceeds from the sale of TSB. This impact will be recurrent until the transaction closes. Secondly, and following the termination of the agreement to sell the merchant acquiring business, we have reclassified EUR 23 million from other provisions to depreciation and amortization. The impact of this on net profit is neutral. Finally, on the gain on sale of asset line, we adjusted EUR 20 million related to certain IT and software assets. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 15. We recorded EUR 3.6 billion in NII for the year, fully aligned with our guidance. In the quarter, Sabadell ex-TSB delivered close to EUR 900 million, broadly stable versus the previous quarter. Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right, customer NII had a positive impact of EUR 2 million. Within this, the customer margin decreased by EUR 7 million due to the negative repricing of variable rate loans. Although interest rate pressure on loan yield has already eased significantly. The good news is that volumes more than offset the customer spread compression. ALCO, liquidity and wholesale funding contributed by EUR 3 million, supported by lower refinancing needs and lower spreads. Other items had a combined impact of minus EUR 9 million. This mainly reflects the negative impact of certain interest rate hedges related to the fixed rate mortgage portfolio. TSB added EUR 11 million positive this quarter, reaching EUR 314 million as the contribution from the structural hedge was higher than the depreciation of the sterling. For 2026, we expect NII to increase by more than 1% with a clear acceleration throughout the year. In fact, we expect NII to bottom in first quarter '26, mainly due to fewer calendar days and the final repricing of the variable rate loans. From that point, it should grow steadily quarter after quarter, being the fourth quarter of '26 mid-single digit higher versus the fourth quarter of '25. For these estimates, we are assuming interest rates to remain at the same levels as at the end of 2025. We are expecting volumes to perform in line with what we have seen this year, around 6% growth in loans and between 3% to 4% in on-balance sheet funds. Loan yield could decline some basis points in the first half of the year, but should return to current levels driven by higher growth in consumer and SME lending. On cost of deposits, we still see room for further improvement as we reprice the last part of the term deposits. And finally, the impact from the sale of TSB bonds in the ALCO portfolio will be offset by savings in wholesale funding as we will have lower MREL funding needs after the sale. Leaving the NII line aside and moving on to fees. Fees and commissions within the ex-TSB perimeter increased by around 4% year-on-year. Asset management and insurance fees were the main contributors, growing by 15% year-on-year. This performance was driven by strong volume growth in off-balance sheet funds, with -- fully aligned with what we presented at our Capital Markets Day. The fourth quarter was the strongest of the year, with ex-TSB fees rising by 6% quarter-on-quarter, supported by a strong commercial activity and the seasonal uplift in asset management and insurance fees, including a success fee component of EUR 12 million. Looking ahead, we expect fees to increase by mid-single digits in 2026. This growth will be, again, largely driven by asset management and insurance fees. Moving on to the costs on Slide 18. Total ex-TSB costs increased by EUR 44 million in the quarter, mainly driven by 2 factors: first, a reclassification of EUR 23 million from other provisions to amortization following the termination of the merchant acquiring agreement with Nexi. Consequently, going forward, the quarterly run rate for ex-TSB amortization line is expected at around EUR 100 million. And second, the special remuneration in shares to all employees related to the end of the takeover bid amounting to EUR 16 million. All in all, total costs at ex-TSB increased by 2.5% year-on-year. This evolution is totally consistent with the target of low single-digit growth, despite the reclassifications recorded at the one-off personnel costs I have just explained. For 2026, we expect total costs including amortization, to grow by around 3%, fully in line with the strategic plan targets. Moving on to Slide 19. We will now cover credit cost of risk and other provisions. Total cost of risk for the year 2025 was 37 basis points, better than the already improved guidance of 40 basis points for the ex-TSB perimeter. Meanwhile, credit cost of risk fell to 24 basis points, which represents 9 basis points reduction in the year. Now looking at the bridge of the different components of the total provisions for this quarter, on the top right-hand side, we booked EUR 107 million of loan loss provisions, excluding TSB. Then we had EUR 8 million positive impact by driven -- impact driven by real estate asset disposals, [indiscernible] double-digit premium. NPA management costs remain in line with the usual run rate. Other provisions, mainly related to litigations and other asset impairments, were impacted this quarter by the EUR 23 million reclassification previously mentioned. And finally, TSB provisions were EUR 18 million this quarter. For 2026, we expect total cost of risk to remain at around 40 basis points, underpinned by positive asset quality dynamics and the gradual impact of our risk management measures. This better asset quality will offset the potential shift in business mix as we expect stronger growth in companies and consumer lending. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 21, we can see that nonperforming loans and coverage ratio continued to improve during the year. Within the ex-TSB perimeter, NPLs decreased by close to EUR 700 million over the year, demonstrated continued success in portfolio derisking and proactive credit risk management. As a result, the NPL improved 66 basis points to 2.65%. The reduction in NPLs is also consistent with the improvement in Stage 2 loans, which declined by more than EUR 1.3 billion in the year. Finally, the coverage ratio increased by 3 percentage points, reaching 69%. Moving on, in terms of foreclosed assets, net NPAs as a percentage of total assets remained comfortably below the 1% threshold, confirming the bank's structurally improved risk profile. The stock of NPAs declined by 15% year-on-year, equivalent to more than EUR 800 million in absolute terms. Meanwhile, the coverage ratio has improved by 2 percentage points. The sales of real estate assets continued their positive trend as 23% of the stock was sold over the last 12 months with an average premium of around 10%. On Slide 23, we are happy to see the continued improvement in asset quality over the past 2 years, explained by 3 favorable dynamics: a consistently declining NPL ratio, a quarter-on-quarter improvement in the cost of risk, along with a higher coverage ratio. Turning now to liquidity and credit ratings. In short, liquidity buffers have remained broadly stable over the year, with credit ratings improved, as you can see on this slide. Standard & Poor's upgraded our rating by one notch to A- with a positive outlook. During the year, Moody's and Fitch also upgraded our rating by one notch to Baa1 and BBB, respectively, both with a stable outlook. Turning to the next slide, we can see our current MREL position, which stand well above the required levels. It is also in line with the buffer of more than 200 basis points set as a threshold in our strategic plan. It is important to note that in 2025, we issued a total of EUR 3.1 billion across the capital structure as well as through covered bonds. We also carried out 3 securitization transactions with significant risk transfer during this year using both synthetic and cash instruments. Let me highlight that once the TSB sale is completed, we will deconsolidate TSB's risk-weighted assets. And therefore, our funding needs will be lower this year. Note that we currently have excess buffer in AT1 even excluding the EUR 500 million issuance that we have just announced that it will be called in March. On the next slide, we can see that we have been able to generate 196 basis points of capital while growing our loan book at mid-single digits. Looking at the quarterly evolution in more detail, we recorded 20 basis points of capital generation before deducting the accrued dividend. This includes 25 basis points from organic CET1 generation after deducting AT1 coupons minus 6 basis points from higher risk-weighted assets, mainly from the update of operational risk, representing minus 14 basis points, and partially offset by the release obtained through the SRT transaction completed in Q4. Then the accrual of a 60% dividend payout ratio had a minus 29 basis points impact, bringing the capital ratio to 13.65%. Given that we are distributing EUR 435 million of excess capital, 54 basis points must be deducted, which takes the CET1 ratio to 13.11%, and in place, an ample MDA buffer close to 400 basis points. With that, I will hand over to Cesar, who will conclude today's presentation. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. On Slide 28, you can see the achievement of our 2025 targets, a summary of the new guidance for '26 and the reconfirmation of our 2027 strategic plan targets. As we have seen throughout the presentation, the 2025 results have been in line with our year-end guidance. For '26, the guidance we are giving the main P&L lines points to recurrent return on tangible equity ex-TSB of around 14.5%, considering tangible equity of roughly EUR 10 billion. Of course, the return on tangible equity that will be reported will be higher because it would include the TSB impact. Our business model, which is built around strong capital generation, allows us to reconfirm shareholder remuneration of EUR 2.5 billion across '26 and '27. Last but not least, we are reconfirming every single one of the targets for '27 that we presented at our Capital Markets Day. And to conclude the presentation, I would like to summarize a little bit of our equity story. First, Sabadell is a franchise that pursues growth while preserving asset quality. This has been a major turnaround of the last years. Since the tender offer finished, we have been regaining commercial momentum, and we have room to gain some market share in a growing market in the products and segments of our choice. Second, we have strong capacity to generate capital while continuing to grow, which enables us to offer attractive shareholder remuneration. Third, it's all about execution, and this team knows about that. We've been consistently delivering on our guidance since '21, and we are now -- and we now have a clear path towards a 16% return on tangible equity in 2027. And all of this comes while we are trading at a discount to peers in terms both of total shareholder yield and multiples such as PE. Our distribution yield, meaning dividends plus excess capital returned to shareholders, was around 9% in 2025, and is expected to remain around that level in '26 and '27. This compares with a peer average of below 6% for '25. When looking at PE multiples, it's important to adjust Sabadell for market's cap for the extraordinary dividend associated with the disposal of TSB. Many market participants, we believe are not fully doing this. Once adjusted, Sabadell is actually trading at below 9x earnings, while Spanish peers are trading well below -- well above 10 times. There is therefore a clear opportunity here with considerable upside potential for Sabadell's stock. That's why the entire amount pending distribution to shareholders, the final dividend and the excess capital will be executed through a share buyback starting on Monday. It will be equivalent to more than 5% of our market cap, significantly higher than any other Spanish peer. And with this, I hand over to Lluc. Lluc Sas: Thank you, Cesar. We will now open the Q&A session. Given the limited time available, we would appreciate if you could please keep your questions to a maximum of 2. So operator, could you open the line for the first question, please? Operator: First question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: [Audio Gap] in target? Could you walk us through the mathematics? And the second one is on deposit growth. Ex-TSB, it has slowed in the fourth quarter and grew below the sector average. Can you please walk us through your thinking on why this is happening? And what will you do to recover growth? Sergio Palavecino: Thank you very much, Maks, for these questions. In order to help with the mathematics of the NII for 2027 that we are confirming, it will be at around 3.9%. We've been sharing in Slide 16, what are the expected dynamics on the quarterly NII. And as you can see in the slide, we expect the trough in the first quarter of the year because we will have a fewer number of days. We still have the last part of the repricing of the variable rate loans, the ones replacing with Euribor 12 months. But then from there on, we will have the tailwinds that we are currently enjoying for volumes that cannot be seen in NII because of the headwinds of customer spread. Customer spread will stabilize. And then by the second half of 2026, volumes will be on -- compared to the quarter of the previous year, already growing at the mid-single digit. That dynamic in our view, will continue into 2027. And as customer spread will increase a little bit, we are still expecting our customer NII to get close to 300 basis points in 2027. Also, the rates today are somewhat more positive as we see that Euribor 12 months in 2027 will steepened somewhat. So the dynamics that we show for the end of 2026 will continue into 2027. And yes, in our mathematics, they will lead us to NII that will be close to around EUR 3.9 billion. And then the second -- your second question was deposits -- deposit growth. Deposit growth, it was, year-on-year, at 3.6%. It has accelerated from the third quarter, as you mentioned, but this is rather due to very strong growth, really strong growth in the fourth quarter of last year. So when we look at our dynamics on customer funds, we see that currently are strong. Customer growth -- customer funds have growth more than 6%, that's EUR 11 billion growth, a bit skewed towards the -- of balance sheet products: EUR 6.5 billion growth in the off-balance sheet products, EUR 4.5 billion growth in the on-balance sheet. The -- when you do the average growth of deposits, it's actually EUR 4.5 billion. So as Cesar has mentioned, we have acknowledged that we got some minor impacts during the tender of a period in September or October. But we have -- we're very happy to see that we have fully recovered the commercial momentum and December has been very good, and all commercial feedback getting into the new year is good. So we are positive on the volume growth that we are sharing with the market today. Cesar Gonzalez-Bueno Wittgenstein: I think, indeed, that's spot on. And I think that at the core -- at the helm of the hostile takeover, of course, there were some decline in balances, but we see very clearly the recovery, the momentum and everything is on track for the future, and that's why we're very positive. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: So first of all, congratulations, [indiscernible] 2 questions for me. First of all in a year -- I want to ask about the quarterly NII bridge in Slide 15, particularly on the core also others with EUR 9 million of interest rate hedges then you can give details on these hedges, what impacted in '26. If that should unwind in '27 or not. Also, if you can comment on the impact from the TSB, MREL and quantify, and the impact in '26 and '27. Also [indiscernible] NII and the improvement in the customer spread, that just said by end of '26 despite reducing the cost of deposits [indiscernible]. So how do you plan to achieve that? Do you think that you have been overpaying for online deposits in '25 and you will adjust your digital offering? And will you grow deposits even if you make less? And then my second question is on costs. Your 3% cost guidance for '26. I understand you include the full year impact of the D&A related to the merchant business, excluding that to cost inflation of just 1%. What type of efficiency measures will you implement to get there? And how can you reassure that you will not be under-investing in the technological transformation? Sergio Palavecino: Thank you, Paco, for your questions. Let me see if we got them all. The first one is regarding the hedges that we show in Page 15. I think we already shared with you guys in the third quarter that we're having an impact on the hedge that we have of the fixed rate mortgage portfolio. As you know, the Spanish market now for a number of years and us in particular, we have been originating virtually everything in mortgages in fixed rate. And now it's been a number of years and recently quite a strong production. So that's a lot of duration, and therefore, we've been hedging that duration. That means that the hedges we pay fixed as we get pay fixed in the mortgage. And we received Euribor 6. So these hedges -- we pay fixed, we received Euribor 6. Euribor 6 has been trending down for a number of quarters, but the good news is that this has been the last quarter, the way we see it, because Euribor 6 has been already flat in the fourth quarter. So in the -- going forward, we no longer expect impact from the hedge, of course, connected with Euribor 6 and then if Euribor 6 goes up and down, of course, it will have an impact. But so far, with the current level of rates, it should be flat. And then your second question was on MREL. MREL currently -- the MREL bonds of TSB are roughly EUR 1.4 billion, and the spread is around 200 basis points. That MREL then is -- MREL that we raised in group in the capital markets. So when this -- we will no longer have this income, but we no longer have the cost in the wholesale funding. This may take some quarters, but at the beginning, we will also have the help of the price that we will get from the sale. Initially, it will be close to EUR 5 billion. If you add up the price of the shares and the price of the bonds, and that will yield in the treasury account, and that will also help to -- that will combine with the savings in the wholesale funding, altogether will offset the impact of the lower MREL of TSB in the ex-TSB perimeter. And for deposits, yes, we expect, as we have written in the presentation, still somewhat reduction in the cost. And this is not only connected with the online, of course, it's also connected with the online. On the online, we have a strategy like any other one-off acquiring, having a very attractive offer, acquiring customers, and then we manage the acquisition. Connected with that, we have an offering, then the price of the book will go down in March, and we will keep on having new offerings. It's a dynamic, of course, product. And we're quite happy because it's been quite successful. The reduction is more coming from term deposits 1 year, 2 years that will come due, either have already matured at the end of the last quarter or will mature in the first quarter of 2026. And we -- when this is renewed, when this is -- the price is lower, connected with the lower prices that we have in the market. And finally, cost that you mentioned, the reclassification of EUR 23 million that we did is permanent because we are not considering the sale of the payment business. The payment business is going to remain within the perimeter. So therefore, the -- it's apple with apples. So the comparison with 2026 and the increase in the 3% is not going to be distorted by that. So in the 3% rate and CAGR that we already shared with the market in the Capital Markets Day, there are 3 major components: salaries, we are expecting salaries to grow at inflation and that is, let's say, close to 2%; then we are seeing general cost flattish, thanks to the different efficiency initiatives that we are running in the bank; and then amortizations connected with the investment in IT are going to be higher, probably at mid-single digit or so. So we are really allowing ourselves with the room that we need in order to keep investing into the business so that we ensure that we make this business growth as we expect. And I don't know, Cesar, if you want to add something? Cesar Gonzalez-Bueno Wittgenstein: Yes, just on the -- I think it. Just on the digital account and to explain a little bit the rationale and the commercial rationale of all of it and so forth. First, more than 50% of our new client acquisition comes from digital, and we think that, that is a phenomenal success. And when interest rates were at 4%, we paid 2%. But now that interest rates are at 2%, we are going down, as you mentioned, Sergio, to 1% starting on March. This is very attractive because it's a full service and with all the gadgets current account that at the same time has a remuneration, but it is capped at EUR 50,000. And therefore, what it is doing, it is attracting customers with 50% of their payrolls, 45% of them do payments every day. And we are getting them to be part of the bank in an attractive way. So this is not a funding strategy. But nevertheless, because the volumes are starting to be significant, now it is the time to reduce the payment from 2% to 1%. It has already been announced to clients. It needs a lead period until you can implement from the moment you announced, and it will happen on March, and it will have progressively impact -- some impact. It's around EUR 30 million year-on-year over the course of the year. Lluc Sas: I would kindly suggest to switch off the microphone when the analysts are asking the questions because we've been told that they cannot hear the questions when they talk. So operator could you open the line to next question, please? [ Technical Difficulty ] Sergio Palavecino: Thank you, Britta. Regarding the MREL dynamics, that the maturities in the group are quite front loaded. So actually, what we are seeing is that by the fourth quarter of 2026, the impact of the sale of the TSB bonds will have already been -- will be already -- being offset by lower funding needs in group already in the fourth quarter of 2026. Regarding the volume developments that you wanted to discuss. At the end of last year, as you can see, we're seeing mortgages growing at a 5%, consumer at a high double digit and SME corporate is growing at a low single digit, right? We are seeing corporate and SME poised to accelerate growth. So in our expectation of 6% growth of the loan book, we are considering still consumer loans to grow at a double digit, SMEs and corporates to accelerate from the current low single digit to mid-single digit. And we expect some -- this acceleration on the growth of mortgages from the currently 5% to maybe something between 4% or between 3% to 4%. Those are our assumptions and those are the assumptions that give a combined net growth of 6% in the loan book. And I think there was a last question? Cesar Gonzalez-Bueno Wittgenstein: That was about the liability side, but let me just add a couple of comments here. I think this is what Sergio explained, is just in line with what we did during the during the Strategy Day, corporates and SMEs above, mortgages in line, and consumer loans well above. And on the liability side, I think what we are expecting is a larger growth than we originally expected from the on-balance sheet part, and that will partially compensate. On the mortgages, I think there has been a lot of hype around this. And I have to say that when the interest rates of the new production were above the 8-year swap, we were gaining market share. We got to a point in quarter 3 '24 in which we went -- when this gap was still positive, we went to almost a 9.5% market share of new acquisition. We are down to 7% purposely, strategically, so we are not gaining market share. We have been declining over the course of the quarters until for Q4 '25 in which we landed at 7% market share of new production. And that is purposely because despite the fact that they have positive RaRoC of above 20% or around 20%, their margin is negative and the investments and the upfront costs are important. So their value creation in the longer term, but they have a negative impact in the short term on the P&L and certainly, in NII, they are not the most exciting thing. But nevertheless, with the cross-selling, they become attractive. So this confirms in a line that has had a lot of discussion, which is mortgages that we will be in line with our current market share, which is approximately 7%, and adapting up and down depending on the attractiveness and the pricing of the market. Sergio Palavecino: Yes. And I think your last question was regarding our expectations of the ALCO book. When we say it's the ALCO book, it's mainly connected with our liquidity and with our ALM. Liquidity is expected to remain strong because on top of this dynamics of loans and deposits, we will have the inflow of the price of the TSB transaction. So when we look at the expected evolution of liquidity will be positive, and that we also expect liabilities, current accounts to grow. So we expect a marginal growth on the ALCO book in line with the balance sheet. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Congratulations. I just have one question on costs and one question on capital. So looking to costs. I was just wondering whether at a given point in time, you could consider using part of the capital generation that you have to fund an early retirement plan or a voluntary scheme so that you can -- have to compensate on that side, the investments that you have in IT? And the second question on capital generation, I mean going forward, is there any lever that could accelerate the capital generation that we see for 2025 around 200 bps? Then anything that we could have in terms of DTA that could accelerate the capital generation going forward? Cesar Gonzalez-Bueno Wittgenstein: I think -- on the first one, I think there has been a long time since we did the restructuring in '21. That means that the age of part of the population here at Sabadell is 4 years older. And therefore, I think we are starting to consider, starting as there's nothing final yet as ongoing and without nothing extraordinary, but we are starting to consider that there could be some early retirements from now on. And as I say, it's not a major thing probably, but we are looking into it as we speak. Sergio Palavecino: And regarding capital generation, Ignacio, it's been quite strong as we have explained in 2025, 196 basis points. It has also -- it has benefited from the impact of the first application of CRR3, also from the 3 securitizations that we have done. And it's important to take into account that we are self-financing the growth in the loan book. So going forward, we are actually looking at fantastic opportunities of keep increasing the loan book. So of course, that has been taken into account in our projections. And therefore, we think that they both consider profitability, but also growth. And of course, growing the loan book, it weighs on capital, but we believe that it's a very good opportunity to actually improve profitability going forward. So the capital generation is connected with both the increased level of profitability and the good momentum in the loan book growth that we're seeing. [ Technical Difficulty ] Lluc Sas: Matthew, we cannot hear you. I don't know if you have unmuted your mobile. Could you please check that? Okay. Yes, we can hear you now, yes. Unknown Analyst: Sorry for that. So yes, I have 2 questions, basically. The first one is on the EUR 2.5 billion distribution accumulated in '26, '27. If you can give a bit of color on the mix between cash buyback? And the second one, a bit more generic, on the impact. Do you think the neobanks, fintechs, new entrants are having in terms of the deposit cost environment in Spain. So we're seeing a lot of banks actually launching digital campaigns like you guys, Bankinter, et cetera. So I'm trying to understand, actually, to what extent that is also driven by the fact that you have new players exploring that type of segment? Cesar Gonzalez-Bueno Wittgenstein: So on the first one, and you can complete, of course, Sergi. The EUR 2.5 billion, the distribution between what is dividends and what is share buybacks, of course, will depend on final decisions of the Board and we cannot anticipate that. But what we have is a commitment of distributing 60% of the proceeds through dividends and no less than EUR 0.20-plus per share per year. And we expect in excess of capital generation over that. And it would make sense at that point in time that, that would be share buybacks. Neobanks have been in play for a while. I think they have an impact. I think I was very close to that because the first kind of neobank was ING Direct, 25 years ago. And they continue having an impact. They acquired a lot of customers, and that's mainly the account opening, where they have more success. The challenge for them, and that doesn't -- it's not a negative comment at all. The challenge for them is cross-selling, deep selling, having savings, having a number of things. So we certainly see that there is a challenge there, but we continue seeing very successful, as I mentioned before, that our digital account is bringing a significant number of clients, and it will be at 1%, as I mentioned before, not for the acquisition, which will still have promotions and the forth. And it's 50% of our acquisition. So we can live with them, and we congratulate them because, of course, in terms of number of accounts, they are doing extremely well. Operator: Next question is coming from Carlos Peixoto from CaixaBank. Carlos Peixoto: Yes. Actually just a couple of follow-up questions on my side. So when you're discussing the outlook for NII in 2027, you mentioned 300... Lluc Sas: Carlos, Carlos, I don't know if you could check your microphone, please, because we cannot hear you very well. Could you check that or speak louder, please? Carlos Peixoto: Yes. Lluc Sas: Yes, much better, much better, yes. Thank you, Carlos. Carlos Peixoto: Okay. So as I was saying, that basically a follow-up question. So the 300 basis points customer spread improvement to 300 basis points that you mentioned is it something that you see as being achievable already before year-end 2026? Or something that you intend to get to by 2027? And also, along with that or in those lines, I might have missed it, how much do you expect volume growth, loan growth and deposit growth to occur? And how much you expect in 2027, you see at a level similar to the 2026 levels? Just trying to get a closer -- better reach to the EUR 3.9 billion in 2027. Sergio Palavecino: Yes. Yes. Thank you, Carlos. Of course, we'll do our best. The customer spread at the end of this year has been 288 basis points. And it will -- in our model and our expectations, it will be marginally higher, but probably very few basis points at the end of 2026. And then it will keep on gradually growing until reaching the -- around -- at around 300 basis points that actually we share with you guys at the Capital Markets Day. Regarding the composition of the expected volume growth behind that assumption at the end of the day, we, in Capital Markets Day, we guided for a CAGR of mid-single digit of loans and deposits. I think we were at a rate of 4%. So I think we are on track to get to those volume growth. In 2025, the Spanish economy performed very well. GDP expanded by 2.9%, in 2026, the consensus is already above 2%. So connected with this growth, we expect a similar levels of growth in the loan portfolio and in the deposit book. So similar rates of growth we are assuming for 2026 at this moment in time. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: I have a couple of questions on the NII outlook, please. So firstly, I understand that after the sale of TSB, your MREL requirements may be lower. So maybe there's some opportunity for funding cost savings in case you're able to amortize more expensive MREL issuances? And then my second question would be on the digital deposits. If you could kindly provide the amount outstanding of the digital deposits. And also, what are your expectations for the costs and the volumes of digital deposits going forward? And lastly, I would like to ask on, if you could provide details on corporate CapEx outlook and investment from corporates in Spain, please? Sergio Palavecino: Thank you, Borja, for your questions. Regarding the first one, connected with MREL. MREL requirement will not decrease after the sale of TSB, but it's a percentage of the risk-weighted assets. What we -- what it will go down are the risk-weighted assets once TSB is sold. And then as a matter of fact, once we have less risk-weighted assets, we will have a lower total amount of MREL requirements, right? So that's why we're saying that after the sale, we will issue -- we will have lower funding needs, and therefore, we will have -- we will be issuing less in the market. So the -- we will sort of fix this by not rolling the coming maturities. So it will be very natural. And yes, we will have savings from not rolling the maturities and therefore, having a lower fund -- lower capital -- lower wholesale funding needs. And then for the digital deposits, would you like to take this one, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, on digital deposits, we have, from the beginning, decided not to give the exact numbers. And what I can say again and repeat is that this is more than for the volumes, it is for the customer acquisition and for the whole relationship that comes with it and the cross-selling that comes with it. I already shared that the new pricing and review the pricing will give us a saving of around EUR 30 million on full year terms, and that starts on March. It's 50% of our acquisition, it's relevant, and I think we can leave it at that. In corporates and SMEs, we closed the year at a growth -- with a growth of 2.4%. And as we mentioned before, looking forward, loan demand from corporates and SMEs remain solid, and we have particularly a strong pipeline of medium- and long-term loans. Therefore, we are confident that the growth will accelerate back to mid-single-digit levels. And by the way, the front book yields and spreads remain stable. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: My first question -- your guidance for -- you mentioned an insurance worth... Lluc Sas: Pablo, so sorry to interrupt. I think -- we cannot hear you very, very clear. It looks like the sound is -- I don't know if you could check your mobile or could you try again, please? Pablo de la Torre Cuevas: Is it better now? Lluc Sas: I think so. Can you start the question, please? Pablo de la Torre Cuevas: Yes. Sure. And my first question was degrowth in 2026, you mentioned... Lluc Sas: Pablo, Pablo, I'm afraid, it doesn't work. I don't know if you could please send us or send me an e-mail, and we'll -- I will read the question for you, if it's possible. I'm sorry for that. So operator, could we move to the next question, please, while Pablo is sending us an e-mail? Operator: Next question is coming from us from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: Can you hear me? So my 2 questions. So first of all, on OpEx, I mean the 3% -- and I'm talking about slide, I think it's 28. So the 3% CAGR seems like an acceleration versus '25. And when you've talked about the moving parts, staff growing, inflation, there have been flat D&A growing, I think, mid-single digits. So I just can't see how we get to 3%. I get to more something like a 2%, 2% in EBIT. So is the guidance too conservative on OpEx? And the second question is similar. Cost of risk. You have a slide where the total cost of risk keeps coming down, ended at 37, but then the guidance assumes you pick up to 40. Again, are you being a bit too conservative there or not? Sergio Palavecino: Yes. Thank you, Hugo, for your questions. We try to be prudent and the guidance on cost has the components that we have just gone through. What we would say is that we are very comfortable with the 3%, and this means that we're not going to be higher than that. So we will work, and Cesar mentioned, some different work streams that we are already exploring so that we can improve the outlook for growth in costs and therefore, improve efficiency going forward. Regarding cost of risk, in 2025, we have reported a 37 basis points cost of risk. 24, credit, 13, others. For 2026, again, we're very comfortable with the 40. We think that credit cost of risk is not going to be higher than 30 basis points, and the -- all the rest is going to be around 10. So again, it's a very comfortable cost of risk that takes into account that we are seeing a very growth momentum in things like consumer and SME, and that may marginally add a little bit more because we are not seeing any increase in cost of risk in the different products. But of course, the cost of risk of consumer is higher than the ones in mortgages, for instance. So growing progressively more in consumer has an impact. Actually, that impact is rather offset by the good performance in the cost of risk of each different product. So what -- I think what I would say is that we feel very comfortable in the guidance of this cost and cost of risk. Could you agree with that, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, I agree fully. And I think the perfect expression is we feel very comfortable with the 40 basis points. Is it conservative or not? The time will tell. But as I think we tried to explain during the presentation, the fact that we have reached a much clearer and lower levels of probabilities of default across all product lines has a lagged effect on cost of risk and on capital generation. And therefore, that's a tailwind that should help the cost of risk. How much of that will be offset by a change in mix into more profitable and better yielding products like the consumer lending and the SME lending in which we expect marginally more growth and significant more growth than the market in consumer lending? How much that will offset that? It's difficult to know. But in general, I think the perfect expression is that we feel confident with the 40 basis points. Lluc Sas: Okay. Then we also have the questions that Pablo sent to me. The first one is regarding the asset management and insurance business. So if we could elaborate a little bit more on the assumptions that we've made in terms of market impacts and others when we guided for this fee growth for 2026? And the second one is regarding the breakdown of the on-balance sheet funds between fixed term and current accounts going forward. Cesar Gonzalez-Bueno Wittgenstein: Yes. I think we'll share this one. From a qualitative perspective, I think we are growing very handsomely already in asset management. And I think we are in record productions in terms of insurance. Over the course of the years, I think we are going to see that fees gradually increase as a percentage of core banking revenues and therefore, reduce somewhat the bottom line P&L sensitivity to interest rate movements, and that's on the back of asset management and mortgages. Sergio Palavecino: Indeed, in 2025, we had a very sound growth in Asset Management and Insurance. This was 14% growth. And the growth that we see in fees connected with that was 15%. So we are seeing that clearly, the revenue is fully connected with the volumes. And for 2026, we're expecting a similar pattern with double-digit growth in insurance and asset management. Very happy, very successful performance in the business. Regarding on-balance sheet funds, Out of the EUR 128 billion, I think, of on-balance sheet ex-TSB, roughly 1/3 of that is remunerated. So more than 2/3 are non-remunerated. So more than EUR 80 billion are stable and transactional current accounts, not remunerated, and the other 1/3 is term deposits or remunerated current accounts. And that is connected with the different customers that we have and the different franchises. Of course, the remunerated part is the part sensitive to interest rates. Operator: Next question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: Congratulations, Cesar, on your trajectory, and also wishing you all the best for the next stage. So my first question is a follow-up on a recent question. Looking at recent trends, the new production has been largely dominated by mortgages and consumer lending. And you also expect, during the call, and in your strategic plan, your intention to grow in corporate and SMEs. And I was just wondering if you were able to specifically tell us what's the cost of risk you are observing in SME and corporate lending, and also in consumer lending where you have been expanding quite rapidly? And then just a small one on fees. I just wanted to make sure that the fees from your payment business have been included in the fee line for the entire 2025. So just wondering if the 5% growth is like-for-like '26 versus '25? Sergio Palavecino: Let me take the second one, and thank you, Cecilia, for your questions. Regarding the fee lines, yes, fully comparable. So the payment business fees are included in the 2025 reported figures and the expected growth considers the same. So the answer is yes. Cesar Gonzalez-Bueno Wittgenstein: On the first one, I don't think we have given a specific cost of risk for consumer lending or SMEs. The only thing I can tell you is that the PDs have gone down by 50% since '24. And that is the major driver for the cost of risk. And we are at the level in -- we have reached the levels of cost of risk that we want to have on the longer term, although as I said before, they will take some time to go fully through the P&L, both in terms of cost of risk and capital generation. Lluc Sas: Okay, we've got one final question. So operator, please? Operator: Last question is coming from Lento Tang Bloomberg. Lento (Guojing) Tang: I have a follow-up on the hedging on the NII. So the EUR 9 million, I'm just wondering how long is this hedged? And what is the sensitivity to Euribor? And then another question on your ambition of the international business. Lluc Sas: So I guess, Lento, the last question is regarding the international business, the strategy, okay. Sergio Palavecino: Okay. Let me take the first question, the hedge of the fixed rate mortgages. I think we just mentioned that hedge is connected with this fixed rate and is a hedge where we pay fixed, we receive a floating Euribor 6. As Euribor 6 has been going down, that is the source of the impact. But the good news is that Euribor 6 months has been already stable for a number of months. So this will be -- this effect will fade completely in the next quarter. And Cesar, would you like to take the one on the international business? Cesar Gonzalez-Bueno Wittgenstein: Yes, I think -- well, Mexico and Miami represent more or less, give or take, 5% of our capital each. And we are seeing currently quite a lot of opportunities for growth. They are profitable. They have positive returns on tangible equity. And we have been seeing that the growth in '27, I mean, our expectations of our growth for '27 are higher than the national growth, but that doesn't mean a change in our ambition. It's marginal. It's not very significant. It's just that we are seeing opportunities there. They are very linked to our verticals in which we have a lot of expertise. They are linked to Spanish customers. So it's difficult to separate what is international and what is national. And the 2 verticals in which we do extremely well is, especially, hospitality and energy and to a lesser extent, civil engineering. Lluc Sas: Right. So that concludes our presentation today. Thank you, Cesar and Sergio, and thanks to all of you for joining us today. If you have any further questions, the Investor Relations team is always here to help. Have a great day. Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. Sergio Palavecino: Thank you.
Preben Ørbeck: Good morning, and welcome to Aker Solutions presentation of our fourth quarter and full year results. My name is Preben Orbeck, and I'm the Head of Investor Relations. With me today is our CEO, Kjetel Digre; and our CFO, Idar Eikrem. They will take you through the main developments of the quarter and the full year. After the presentation, we have time for questions. Those of you who are following the webcast can submit your questions via the online platform. And with that, I leave the floor to Kjetel Digre. Kjetel Digre: Thank you, Preben, and welcome to everyone tuning in. As usual, let me start the presentation with the main messages for today. First and foremost, I'm once again pleased to report that we continue to deliver solid financial results in a period of high activity. Our fourth quarter revenues were NOK 16.7 billion, which takes our full year revenues to more than NOK 63 billion, the highest in Aker Solutions' recent history. Our EBITDA margin for the quarter was 7.9% or 7.5% if you exclude the net income from SLB OneSubsea. Our net cash position increased to NOK 3.7 billion at the end of the year. This was fueled by strong cash generation in our segments and substantial dividends from our 20% ownership in SLB OneSubsea. Looking at 2025 as a whole, we have made good progress on our project portfolio and on our strategy. The Aker BP portfolio is progressing well with all key milestones met during the year. And I'm also encouraged to see high demand for our engineering and consultancy services, leveraging our 5,000 strong engineering muscle to solve energy challenges for a wide range of customers across the globe. Our life cycle business is well positioned to continue its strong development, underpinned by long-term frame agreements with strategic clients. And lastly, I also want to highlight our ownership in SLB OneSubsea, a leading player in the growing subsea market. The company is delivering strong cash generation, enabling solid dividends to Aker Solutions. So as you can see, 2025 has been a very important year for Aker Solutions. Going forward, we continue to expect revenues to decline from peak levels in 2025, and we are taking steps to adjust capacity and costs accordingly. Our financial position is robust, and the Board of Directors has decided to propose a dividend of NOK 3.6 per share for 2025, up from NOK 3.3 per share in 2024. I'll talk more about how we are positioning the company to continue delivering shareholder value. But first, I wanted to take a step back to reflect on our journey since 2020. When we merged Aker Solutions and Kvaerner back in 2020, we set ambitious targets for the period ending in 2025. As you can see from the graphs, I think it's safe to say that we have delivered. Since 2020, our revenues have grown from about NOK 20 billion to more than NOK 60 billion. And equally important, our margins have also improved significantly over the period. In 2025, we delivered an EBITDA margin of 8.4% or 7.3%, excluding net income from OneSubsea. This is an increase of about 500 basis points from 2020. We also secured several important new orders in 2025 with an order intake of about NOK 66 billion during the year. Our order backlog was about NOK 65 billion at year-end, dominated by projects under the Aker BP Alliance model and reimbursable contracts. And it's great to see that these results have generated solid returns to our shareholders. Since the announcement in July 2020, the value of Aker Solutions has increased sevenfold. This includes about NOK 13.7 billion in dividends and share buybacks distributed to our shareholders during the last 5 years. So how are we creating value? Well, since 2020, we have delivered strong operational and financial performance across our business segments. In Renewables and Field Development, we have seen the top line grow more than 4x since the merger. And going forward, we are broadening our customer base and geographical exposure. We do this mainly through our engineering and consultancy business as well as selectively targeting renewables opportunities with balanced risk reward profiles. Our second segment, Life Cycle has also had an impressive journey, delivering double-digit revenue growth with improved margins. With an asset-light business model characterized by reimbursable contracts with low investments, Life Cycle is an important contributor to Aker Solutions' performance and cash generation. Going forward, the segment is well positioned in a growing brownfield oil and gas market with a strong backlog dominated by long-term frame agreements with strategic customers. Lastly, I wanted to touch upon our ownership in SLB OneSubsea. In late 2023, we announced the closing of the transaction to create a leading global subsea player. Since then, SLB OneSubsea has delivered strong financial performance and cash generation. The company has an attractive dividend policy where all excess cash is distributed to shareholders. And as I will come back to, this is just the starting point. Supported by a strong subsea market, the company is well positioned for growth and value creation in the years to come. So let's go deeper into some of these important value drivers. A key element in our strategy is to safeguard the delivery of our projects. So how are we doing this? An excellent example is the Aker BP projects we are executing in the alliance model. There are several benefits working in this model. By aligning our incentives, sharing risk and rewards, we create win-win situations that drive innovation and efficiency. This way of working closely together with our strategic partners helps us deliver high-quality projects faster, which in turn means more energy to the markets quickly and responsibly. The Aker BP project portfolio consists of 4 new platforms with a combined weight of about 90,000 tonnes. This includes Hugin A, the largest topside ever assembled at Stord. And we're also delivering the Valhall PWP platform and the smaller Hugin B and Fenris platforms from our yards. In addition, we are involved in several projects within modification of existing assets such as Skarv as well as being delivery partner for One Subsea for the fabrication of subsea equipment. I'm very pleased to report that all critical milestones on these projects were met during 2025. This includes the delivery and sailaway of the jacket substructures for both Hugin A and Valhall PWP in the summer and the arrival of several large topside modules to Stord for final assembly. At Stord, we are progressing as planned with the stacking program preparing the topside for sailaway during 2026. In order to safeguard the delivery of these other projects, Aker Solutions is applying new ways of working, enabled by automization and digital solutions. These are not ends in themselves, but rather means of improving efficiency and safety in execution. One example is the use of augmented reality or AR for short. By overlaying the technical drawings with real-world construction, inspectors can spot issues earlier when it is easier and less costly to mitigate them. Another example is the use of virtual reality or VR, where engineers from our different locations around the world can meet virtually inside the digital model they are working on to collaborate and identify the best solutions. The technology has multiple use cases, including replacing offshore surveys in a range of operations. This frees up man hours otherwise spent on transport, reduces personnel on board and saves costly helicopter transport. These are just a couple of examples of how we turn digital ambitions into practical applications that can save both time and cost for our customers. As for the alliance model, I believe that the achievements for the alliance are a clear testament to the value of working closely together with aligned incentives. This in turn enables us to deliver quality projects with faster time to first energy. Another key pillar of our strategy is to grow our engineering and consulting business. At Aker Solutions, we are currently having more than 5,000 engineers with unique competencies across market segments covering all phases of the asset life. Our spearhead in emerging markets and client relationships is Entr, our consultancy arm. The core team at Entr currently consists of about 350 people, but draws on the competencies and capacity of the entire organization. A unique selling point for our engineering and consultancy services is how we are pioneering new digital solutions and data analytics powered by AI, artificial intelligence. By shifting from manual to automated processes, we can make better use of historical data and scenarios to design innovative solutions that unlock value for our customers. One example is a recent FPSO concept study. Here, our engineers were able to identify more than 200 potential improvements, significantly reducing both weight, costs and delivery times. From our key engineering hubs in Norway, U.K., U.S., Canada, India and Malaysia, we deliver consulting and engineering projects to a wide range of customers across the globe. Within oil and gas, we are actively engaged in several FPSO projects that we believe will move into next phases of development over the next 1 to 2 years. We're also seeing strong demand for our onshore, midstream and downstream capabilities. In these markets, we benefit from the experience and track record from our Indian office, where we have more than 1,000 engineers delivering projects across the globe. Likewise, we see that our track record in both CCS and offshore wind enables us to engage early with new clients in different geographical regions. In both offshore wind and CCS, we are now engaged in the second generation of projects. Compared to the first generation, which have been both operationally and commercially challenging, the new generation is progressing well, delivering healthy margins. So what has changed? Firstly, we have managed to negotiate commercial terms with balanced risk reward profiles and joint incentives for successful project deliveries. This means that we have moved away from traditional lump sum models to a model where both risks and upsides are much closer tied to our own performance. Secondly, we have managed to move away from customized one-off projects to leveraging standardization across several projects. One example is the Norfolk portfolio, where we are seeing the benefit of designing one and build several. For instance, both engineering and fabrication hours are significantly reduced on the second topside compared to the first. The same applies for our CCS portfolio, where learnings from the first wave of capture and storage projects are now being implemented at the Northern Lights Phase 2 and the Hafslund Celsio carbon capture and storage projects. All in all, I'm pleased to see that our focused approach is yielding positive results, positioning us in the markets with significant growth potential in the years to come. Moving over to our life cycle business. The segment has since 2020, delivered double-digit revenue growth with improved profitability and strong cash generation. At year-end, the backlog stood at about NOK 23 billion, dominated by long-term frame agreements and reimbursable modification projects on existing onshore and offshore assets. The segment also delivers hookup and commissioning services to ensure efficient and safe start-up of new oil and gas facilities and offshore wind components. Our long-term engagements on these critical assets enable us to expand our capabilities, offering unique technology-enabled services. This includes autonomous drone inspection, remote operations and AI-powered analytics. And talking about long-term engagements. I'm happy to report that we have secured several new long-term frame agreements for maintenance and modification services over the past months. Why is this important for Aker Solutions? For one, it creates transparency on activity levels for several years to come. As you can see on this slide, the recently awarded agreements in Norway have a duration of more than 10 years, including options. We are also working side-by-side with key international clients such as Exxon, Shell and BP to maintain and modify their critical infrastructure in Canada, U.K., Angola and Brunei. I believe one of the main reasons we've been awarded these contracts is our demonstrated ability to drive improvement. And we are not just talking about doing the same things we did yesterday only faster, we are talking about fundamentally challenging what we do and how we do it. That means not just applying new technology, but applying the right technology and digital solutions, where we truly move the needle and deliver measurable results. It is also about understanding our clients, how they think, how they prioritize and what matters most to them. Our deep understanding of the assets also positions us for modification projects, for instance, related to subsea tieback or the decarbonization through electrification. In Norway alone, Equinor expects to develop more than 75 subsea projects over the next decade. So to summarize, I'm impressed by how Life Cycle has developed over the last 5 years and believe that the segment is well positioned to continue its transformation journey in the years to come. Moving over to SLB OneSubsea. As mentioned, the company was established through the merger between SLB and Aker Solutions Subsea divisions with the ambition to create the leading subsea company in the world. The financial performance of the company speaks for itself, delivering strong margins and solid cash flows. The company has a very attractive dividend policy. And during 2025, SLB OneSubsea had paid out more than $400 million in dividends to its shareholders. After these payments, the company still has a robust financial position with net cash of more than $0.5 billion. And the outlook for the company is strong with global subsea spending expected to increase by around 25% over the next 5 years. Tendering activity is high, both within Subsea production systems, Subsea processing solutions and umbilicals and cable systems. SLB OneSubsea also has a highly resilient life of field service offering, enabled by the largest installed base of subsea equipment in the industry. The company recently announced targets of cumulative bookings exceeding $9 billion over the next 2 years, positioning the company for growth from 2027 and onwards. So as both the proud co-owner and delivery partner for OneSubsea, Aker Solutions sees great opportunities for continued strong value creation in the company going forward. And talking about shareholder value. As you can see from the graph on the left-hand side, share prices among players with exposure to the subsea equipment market have increased markedly during the last 6 to 12 months. If one uses such peer trading multiples, one may argue that our 20% ownership represents a significant upside to Aker Solutions current trading. In addition, Aker Solutions currently holds more than 5 million shares in SLB, which were used as considerations for the Subsea transaction. Since the closing of the fourth quarter, we have seen a substantial increase in the value of these shares. So to summarize, I am pleased to see that we continue delivering strong financial results that we have a solid backlog of healthy projects and that we continue positioning the company for the future. Finally, our financial situation is robust. This gives us a strong foundation to continue developing the company while generating solid returns to our shareholders. And with that, I leave the word to Idar, who will take you through the financials of the quarter and for the full year. Idar Eikrem: Thank you, Kjetel. I will now take you through the key financial highlights of the fourth quarter, the full year figures, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kroner. So let me start with the income statement. The fourth quarter revenue was NOK 16.7 billion. Full year revenue were NOK 63.2 billion, a 19% increase from 2024. The underlying EBITDA in the quarter was NOK 1.3 billion with a margin of 7.9%. During the quarter, Aker Solutions have taken provisions for restructuring costs of NOK 194 million in relation to the announced capacity adjustments. This is treated as a special item. The net income from OneSubsea was only NOK 80 million in the quarter. This was affected by one-off costs related to integration and restructuring. If adjusting for these one-off costs, the net income from the entity was in line with previous quarters. Full year EBITDA for the group was NOK 5.3 billion with a margin of 8.4% or 7.3% if you exclude the net income from SLB OneSubsea. The underlying EBIT in the quarter was NOK 940 million, up from NOK 888 million a year ago with a margin of 5.6%. The full year EBIT was NOK 3.8 billion with a margin of 6.1%. For the full year, net income, excluding special items, was NOK 2.9 billion, representing an earnings per share of NOK 6.1. This is somewhat lower than in 2024, mainly driven by lower interest income after the sale of liquid funds used for the payment of extraordinary dividend in 2024. As Kjetel mentioned, the Board of Directors will propose an ordinary dividend of NOK 3.6 per share for 2025, pending approval of -- in our Annual General Meeting in April. This represents approximately 60% of net income, excluding special items. Moving to our segment performance. For Renewables and Field Development, the fourth quarter revenue was NOK 12.4 billion. Full year revenues was NOK 46.1 billion, representing a year-on-year growth of 21%. The underlying EBITDA in the quarter was around NOK 1 billion with a margin of 8.1%. EBITDA for the full year was NOK 3.7 billion, representing a margin also of 8.1%. The legacy lump sum projects continue to be a drag on the margins throughout 2025. These projects are now in the offshore commissioning phase and commercial discussions are ongoing. And as previously mentioned, the second-generation renewable projects contribute with healthy margins in the period. The order intake in the period was NOK 11.6 billion, leading to a secured backlog of more than NOK 40 billion at year-end. Based on the secured backlog, we expect the revenues in this segment to be between NOK 30 billion and NOK 35 billion in 2026. For the Life Cycle segment, revenues in the fourth quarter was NOK 3.8 billion. Full year revenues was NOK 15 billion, an increase of about 13% from 2024. The underlying EBITDA was NOK 293 million in the quarter, representing a margin of 7.7%. This was enabled by continued solid performance on ongoing modification projects and long-term frame agreements. EBITDA for the full year was NOK 1.1 billion with a margin of 7.2%. The order intake in the quarter was NOK 7.7 billion, representing a book-to-bill of about 2x. During the quarter, Life Cycle was awarded long-term frame agreements with both ConocoPhillips in Norway and ExxonMobile in Canada. The secured backlog at the end of the year was NOK 23 billion, providing a good visibility for future activity levels. This, however, does not include the announced long-term frame agreement with Equinor awarded in the first quarter of 2026, representing additional intake of more than NOK 10 billion. Based on the secured revenues and backlog, we expect Life Cycle revenues to remain relatively stable in 2026 at around NOK 15 billion. Moving to our financial performance of SLB OneSubsea. In the fourth quarter, SLB OneSubsea delivered revenues of about NOK 10.5 billion. For the full year, revenues were about NOK 40 billion. EBITDA in the quarter was about NOK 1.9 billion, representing a margin of about 18%. For the full year of 2025, the company delivered an EBITDA margin of 19.4%. Net income before PP&A adjustment was NOK 527 million in the quarter. This was negatively affected by the mentioning provisions for one-off costs. After PP&A adjustment, Aker Solutions recognized NOK 80 million for our 20% share. The backlog for the entity is currently at NOK 47 billion. As mentioned, tendering activity is high, and the company has an ambition to exceed $9 billion in new orders over the next 2 years. In the fourth quarter, Aker Solutions received dividend of more than NOK 400 million. This was significantly above previous quarters, reflecting the solid financial position and performance of the entity. This takes me to our cash flow for the full year. Cash flow from operation was NOK 2.6 billion, mainly driven by EBITDA contribution from our operational segments offset by a reversal of working capital of about NOK 1.3 billion. CapEx for the full year was about NOK 500 million or 0.8% of revenues. For the full year, Aker Solutions received NOK 841 million in dividends from our 20% ownership in SLB OneSubsea, significantly above previous guiding from the company. Lastly, we have distributed about NOK 1.6 billion to our shareholders in 2025, in line with our ordinary dividend policy. The financial position remained robust with a net cash position that increased to NOK 3.7 billion during 2025. So to sum up, in 2025, Aker Solutions delivered record high revenues with solid margins and strong cash generation. As Kjetel mentioned, we continue to expect activity levels to come down in 2026, forecasting revenues between NOK 45 billion and NOK 50 billion for the full year. At this early stage, we expect the EBITDA margin to be in the range of 7% and 7.5% for the full year, excluding net income from SLB OneSubsea. CapEx is expected to be around 1% of revenues. While working capital is expected to continue its normalization to a level between negative NOK 4 billion and negative NOK 6 billion over time. Based on our robust financial position, the Board will propose a cash dividend of NOK 3.6 per share for 2025, pending approval in the Annual General Meeting to be held in April. Thank you for listening. That was the end of our presentation. In a few moments, we will open up for questions. Preben Ørbeck: Okay. We will start with a few questions from Martina Kverne in Nordea. The first question is if you can give an update on when the legacy lump sum projects are finished? Kjetel Digre: They are all currently in offshore mode. We have installed them, and they are completed structurally, and we are currently working on the commissioning part of the project and we completed all of it in 2026. Preben Ørbeck: Moving on to two questions on the tender pipeline. Whether Wisting is included. And also, if you can elaborate a bit on the split between Renewable, Field Development and Life Cycle. Kjetel Digre: Start by saying that Wisting is really high on our agenda, and we are working closely with Equinor on behalf of the license owners to look at the optimal concept and really helping them to make this a viable project. That's a super important work for us. It's not currently included in the tender pipeline numbers because it's in an early phase still. And then the split is, I would say, balanced. We are working on the classical greenfield oil and gas projects. But perhaps link it common to Life Cycle. We have in the start of 2026 and now we've gotten the important continued relationship with Equinor with many exciting agreements and tasks. And part of those agreements is actually not specific yet on what kind of work. So they are sort of empty contracts. But we know that with the ambitions of Equinor and other operators on the Norwegian continental shelf with, for instance, 75 subsea tiebacks that can potentially be filled with quite a lot of life cycle work going forward. Preben Ørbeck: Moving over to a few questions on OneSubsea. They announced a target of $9 billion in cumulative orders. Can you talk a bit about the timing and maybe also elaborate on the dividend expectations? Idar Eikrem: Thank you. I will. And the $9 billion is in U.S. dollars. So that is important. And the $9 billion is a target for the next 2 years. So '26 and '27 to secure $9 billion in new orders. In addition, SLB OneSubsea is sitting with an order backlog of $4.7 billion. So achieving $9 billion over the next couple of years with the current backlog is providing a solid and good visibility for activity level going forward. Currently, they are around $4 billion a year and with healthy margin close to 20%. And as we have seen, we received NOK 841 million for dividends from SLB OneSubsea during 2025. And the dividend policy is a good dividend policy for the shareholders. All excess cash is going to be distributed to the shareholders. And the current cash position at year-end was at NOK 5.7 billion. So with, call it, cash generation from the earnings that we expect in 2026 together with the cash position they're sitting on, we expect healthy dividends also for 2026 and onwards. Preben Ørbeck: Moving to a question on the Aker BP projects where you are noting good progress. Any upside to the margins in 2026? Idar Eikrem: For a project like this, there are incentive mechanism in place. And normally, they -- most of the sort of incentive mechanism are towards the end of the project lifetime and also linked up to start-up. We don't disclose or come with guidance on margins on specific contracts or segments. But as you can see from our guidance for 2026, we are guiding a margin of 7% to 7.5% at this stage. And with Life Cycle being a business that is currently at around 7.2%, you will understand that the Renewable and Field Development segment will be in the range that is in line with the group estimates. Preben Ørbeck: Thank you. Then moving over to a question from Oscar Ronnov in Kepler. If you can comment on how margins of new contracts signed in 2024 and also now in the beginning, '25 and into '26, how does that compare to the legacy portfolio? And if you're seeing a material step-up in underlying margins or risk returns on new awards? Idar Eikrem: I think the most important thing that we did and we communicated that clearly is some of those contracts that we signed in '21, '22, didn't have the right risk reward balance. We have, therefore, communicated that we will be very selective and make sure that we have the right risk reward balance on contracts that we are signing. That is what you have seen of the contracts that we have signed in '24, '25 and now into '26 with healthy margins. Renewables portfolio, we have not been satisfied with those on a historical one. However, that was the first generation. The second generation has healthy margins. And renewable projects are competing with oil and gas projects for our own internal resources. And we are requiring margins on renewable projects in line with our oil and gas projects. So healthy margins in the portfolio. Preben Ørbeck: Next question, how do you look at the potential future projects in the U.S.A., especially in wind industry under the Trump administration? Did the sentiment changed after the recent rhetoric? Kjetel Digre: It's quite obvious that the sentiment and the opportunities in this period of Trump administration has changed. And our role in this is obviously to work closely with our key clients, and they are looking at changing focus just now that has been seen and particularly towards Europe and back to what we are tendering for and potential project, that's where the major wind opportunities are currently worked on from our side. Back to U.S., we do have office in U.S. and with consultancy Entr focus. And there, we are working on exciting new opportunities around, for instance, CCS, but also within classical oil and gas industry. And just to make another connection, those kind of jobs in the U.S., particularly onshore, is also supported from our experienced Indian engineering muscle. Preben Ørbeck: Then a question from Martin on the structural competitive advantage of Aker Solutions that you believe can support a sustainable returns above cost of capital. Kjetel Digre: Well, that's a big question. It's almost our whole strategy. But I think what you see is that we tend to be sort of a key and closest partner to our clients, and that's the role we want to grow further. And I think we are preferred in many instances on that because we have the totality of the engineering through our very experienced engineering organization. We're also the ones that are handling and orchestrating the totality of the project puzzle when it comes into execution. Back to our strategy, what we are also careful about is that we know what we are really good at. We have a core business that we are improving, but also growing and also do that around our existing hubs so that we are taking careful steps outside those. And then I think also as a company, we are in a place where we have taken onboard the challenge and realized that we have to change, we change together with clients, but also orchestrating change and improvements in the whole supply chain. I think there are a few companies that can take that role, and we are one of them, for instance, within maturing and developing a digital and AI-based operational model and bringing that out to the rest of the supply chain. Preben Ørbeck: Maybe then elaborating to Idar if there are any key drivers of returns on invested capital expansion in terms of margin development, capital intensity and reinvestment efficiency. Idar Eikrem: Yes. I think I sort of point back to my guidance for next year or this year in '26 where we have put out our guidance NOK 45 billion to NOK 50 billion in turnover and then with a margin of 7% to 7.5% range. CapEx is going to be sort of lower than what we have had recently. We are now capitalizing on our CapEx and investment that we have done over the last few years. So we expect CapEx to be around 1% of revenues. We expect the working capital to normalize a bit more than what it is currently at minus 6.5% to a level of around minus 4% to minus 6%. When you combine all this, we should be in a position that generate healthy cash flows also going forward, being able to serve our shareholders as well. And in addition, as we spoke about earlier in this call, healthy dividends are coming in from our ownership in SLB OneSubsea close to NOK 850 million for last year. Preben Ørbeck: Moving then over to a question from Jorgen Lande. If you can elaborate on the NOK 80 million net income from OneSubsea and the details of the provisions for one-off costs related to integration and restructuring. Idar Eikrem: Yes. What you should read into this is when the 2 companies combined, Aker Solutions and SLB, there was certain plans for taking out synergies and restructuring part of it, and this is part of that program. So this quarter, a bit more than what you have seen historically and you should consider this as a one-off cost in the quarter. And as we have stated in our comments to this, if you adjust for this, the earnings is more in line with previous quarters. Kjetel Digre: Perhaps I'll just add. Preben, you know, we are following this closely, obviously. And we are doing a very good and optimal things both when it comes to structure and system harmonization on the people structure and then also the actual facilities taking out the synergies that Idar is alluding to. Preben Ørbeck: Okay. Should we then move to -- there's a few questions from Erik Aspen Fossa in Sparebank. As visibility into next year improves, what is the outlook for 2027? Idar Eikrem: Yes. I can probably start. First of all, we have provided our guidance for 2026. We have secured order backlog around NOK 15 billion for 2017. However, we have a tender pipeline of around NOK 80 billion. And of course, a result of those tenders will impact '27. In addition, the frame agreements in Life Cycle. And as you have picked up, we was awarded the frame agreement from Equinor, now in the first quarter in January 2026. That will also come on top and have impact for '27 as well as other contracts that we are currently in the tender phase that will be concluded shortly. So we expect, of course, the backlog to increase when we come a bit closer to '27. Kjetel Digre: So perhaps add on the MMO part of us, having these long-term frame agreements, not only Equinor but also the ones that we won last year. That's a starting point with an expected volume. We are then becoming close to the assets and the organization on the client side, and that positions us really well for projects that are mature and comes on top of the already planned volume of work. Preben Ørbeck: Thank you, Kjetel. I see there's a few similar questions on what the strategy and ownership agenda for our 20% holding in OneSubsea. Is it a long-term part of Aker Solutions asks Martin Huseby Karlsen. Kjetel Digre: Yes. As I said, you are closely linked and collaborating with SLB OneSubsea. We have to also remind ourselves that we are actually an important supplier from both our Egersund yard and our organization at large towards the tasks and projects that OneSubsea picks up. So that's a good position to be. And then obviously, our ambition is to build them to be the largest subsea player worldwide. Idar Eikrem: Yes. And there was also a question about SLB shares that we are owner of. And those shares was allocated in connection with the transaction to us or part of the payment. We consider that as cash and cash equivalent like and can be converted to cash quite quickly if we want to do that. And when it comes to the shareholding, 20% shareholding that we have in SLB OneSubsea, as we have spoken about, this is a good business. It's a growing business and interesting business to be in. And therefore, there is no sort of plan to exit from that one. Preben Ørbeck: A few questions from Victoria McCulloch from RBC on OneSubsea. If you can comment a bit on your views or your expectations in 2026 in terms of margin, in terms of order intake and market share. If you can elaborate a bit more on the targets and the performance of the entity. Kjetel Digre: Well, first of all, on the outlook, a bit more general. They are world-class in both the sort of subsea production system delivery part. They are class in umbilical and cable part. They are world-class in, I would say, really world leading on the subsea processing kind of projects and also in the more sort of Life Cycle aftermarket service segment. And my take is that the way forward looks promising, and we are currently winning work from that side, which makes the months and years ahead, looking really good also, capturing projects with new clients that broadens the footprint and opens up new opportunities. Preben Ørbeck: Then a question from Kim Uggedal. If the Q4 dividends from OneSubsea is a new run rate? Or what should we think about it in 2026? Idar Eikrem: Yes, the Q4 dividend was more than NOK 400 million in 1 quarter. I guess that is a bit higher than what we expect to see every quarter. However, the yearly sort of effect that is there is at least within reach when you look at the cash conversion that SLB OneSubsea is able to do. Preben Ørbeck: Then moving on to a question from Kim Uggedal on the order intake in Renewable and Field Development, which was very strong consider that we did not announce any contracts. And whether this is predominantly related to scope on the NCS portfolio or additional scope on HVDC platforms or other projects? Idar Eikrem: There are increased scope in some of the projects, and it's also a growth in the portfolio. However, the largest element is a catch-up effect from third quarter. Aker BP updated our CapEx forecast in the third quarter. We were allocated a substantial part of that one in the fourth quarter. So there is a catch-up from third quarter, that is the majority of the figures that is unannounced in fourth quarter for us. This has to do with approval of milestone -- new updates on the CapEx estimate and allocating it to the suppliers. Preben Ørbeck: Question from Martin Huseby Karlsen, DNB on the tender pipeline of NOK 80 billion. Is that as end of Q4 or as of today? And how much of the volume is related to Equinor? Kjetel Digre: Well, that tender pipeline is as of end of Q4. And now currently, as we said a few times now, the Equinor MMO volume is the starting point really for those contracts is the expected volume planned that are already. And then on top of that, as I said, we will compete for jobs then that are larger and linked to, for instance, all the subsea tiebacks they are planning. Preben Ørbeck: And maybe elaborate that it's the -- what we expected and not the full tender value that was set out to all the participants in the tender. Idar Eikrem: And just remind everybody about that one, then we booked it now in the first quarter, and it's more than NOK 10 billion on that contract. Preben Ørbeck: Then a question on the margin guidance, Idar, whether it includes provisions or incentives or for the incentives for projects. Idar Eikrem: Yes, the margin guidance for 2026 is for the group. And as I mentioned earlier on today, this is a combination, of course, of -- and this is excluding OneSubsea and the ownership of that one. So the earnings from that comes on top, but the 7% to 7.5% is then for the remaining part of the group, and it consists basically of Life Cycle that has currently delivered 7.2% last year. And then it's -- the rest is basically in Renewable and Field Development. So meaning Renewable and Field Development is having a margin that is more or less in line with the group figures. Preben Ørbeck: Thank you, Idar. It seems that we have no further questions. So from us here, it's time to close off the session. And thank you all for listening in.
Lluc Sas: Good morning, and thank you for joining Sabadell's results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow a similar format as in previous quarters. First, our CEO will walk us through the key highlights of the year. Then our CFO will go into the financials and the balance sheet, before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session where you can ask your questions. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc, and good morning, everyone. We announced yesterday that the Board of Directors of the bank and I have agreed on my resignation as Sabadell's CEO, while Marc Armengol has been appointed new CEO. These changes will take place around May, following our AGM, and once regulatory approvals have been obtained. Until then, I will remain as Sabadell's CEO, and Marc will remain TSB's CEO. And I think now is the right moment for me to step down, and I say that absolutely sincerely. Our current strategy -- strategic plan is solid and well-defined and supported by everyone, including Marc, who has been a great part of its construction. Targets for '26 and '27 are ambitious but achievable, and we are in course. And now it's all about execution, execution and execution of the current plan and planting seeds for an exciting future. Therefore, the bank is on the right track to deliver its targets. And just very briefly, on a more personal note. Look, I had opted for retirement 6 years ago. And the opportunity of joining Sabadell was so tempting that I couldn't let it pass. I was called for this project. I could not refuse. It has been far more exciting and rewarding than I could have expected. And I think now, it's the time to go. But on top of delivering on our plan, Sabadell also needs to start thinking about this future beyond 2027. There's an increasing number of opportunities from banks arising from technology in general, and from artificial intelligence, in particular. I think we have done a tremendous development in digitalization, but AI goes beyond, and that plan needs to be accelerated and it will transform the bank not in the next year, but in the years to come, and this transformation will be profound. In this context, my dear and friend, Marc Armengol, is the perfect CEO to deliver our targets for '26 and '27 because he has the managerial skills. But beyond, Marc brings strategic vision and delivery, combining CEO experience with developing and executing corporate strategy in the U.S. and in U.K. He has proved his commercial mindset at TSB, where he has improved competitiveness by getting even closer to customers. He also brings exceptional technological, operational and digital expertise from business integrations to large case transformations in Spain, U.K., U.S. and Mexico. And very important, he knows everything about Sabadell. He is definitely not a newcomer. As a matter of fact, this is the first internal CEO appointment since Sabadell went public over a quarter of a century ago. And I think this proves maturity for this great institution. All in all, that is the right time for the bank to address this change. It is the right moment for me, and it is the right moment for Marc. And before moving to the result presentation, let me repeat it one more time. We have announced my resignation and the appointment of a new CEO, but we remain fully committed to delivering our plan and reaching our financial targets for '26 and '27. Key messages for the next full year, we are in Page 4. Given that the TSB sale is expected to be completed during the second quarter of 2026, we are presenting figures with reference to the ex-TSB perimeter. First, volumes grew at mid-single digit during the year, performing loans increased by 5.4% and customer funds by 6.4%. Second, core revenues performed in line with expectations with NII at EUR 3.6 million, while fees were up by 3.6% year-on-year. Third, asset quality continued its positive trend. Total cost of risk declined by 16 basis points and stands at 37 basis points. Moreover, NPAs decreased by 17% year-on-year, while the NPA coverage ratio stood at 64%, up 2 percentage points versus last year. Fourth, this year's shareholder remuneration is EUR 1.5 billion. We have already distributed EUR 700 million through 2 interim cash dividends. And in addition to this, we will allocate EUR 800 million to a new share buyback program. We have already received authorization from ECB and the program will start on Monday. Finally, return on tangible equity stands at 14.3% and the core Tier 1 ratio is 13.1%, after deducting the excess capital that will be distributed. During '25, before dividend accruals, we generated -- I think this is a big number, 196 basis points of capital. Slide 5. And this is a little bit of a reason why. Let me explain why Sabadell is well positioned to keep improving its profitability looking forward. We have a clear strategy that supports profitable growth, as we shared last July during the presentation of our strategic plan. Our ongoing transformation focuses on delivering growth alongside improved asset quality. Although this means marginally lower loan yields, these are more than offset by a much lower cost of risk. Overall, this results in both profitable growth and stronger capital generation. This is a structural and permanent looking forward. Let me explain a little bit further on this. I mean the probability of default is now at the levels of which we wanted. That is done. And the impact on the P&L is immediate because, of course, you lose income, because you're doing less risky assets. But the benefits of that come over time, and it depends also on the duration of the different portfolios. We will still see tails for a long time in terms of -- in the different products. We will see tails of improvement of the risk cost, and we will see tails of improvement of the capital generation due to this. And this is perfectly in line, as we said, with the strategy, and I think it will yield over the course of the year. And furthermore, it makes the bank very sound. But however, and now going to the right-hand side of the slide, following the tender offer period, our business was a bit less dynamic than expected for a time. And we have now clearly regained our commercial momentum. For instance, month-on-month evolution of on-balance sheet funds in December '25 was better than in December '24. And new lending to SMEs was also higher in December '25 than '24. And -- furthermore, and this is meaningful, customer acquisition in December '25 was also significantly higher than in '24. To sum up, we have solid fundamentals and a clear strategy that will support profitable growth and capital generation going forward. Let's go to Slide 6. Performing loans excluding TSB remained flattish quarter-on-quarter and grew by more than 5% year-on-year. At TSB, lending volumes at constant FX remained flattish in the quarter as expected. Moving on to customer funds. On balance sheet, funds regained momentum and increased by 3.4% in the quarter. And this momentum, as we just saw, was more towards the last part of the quarter. Off balance sheet funds also continued to perform well, rising by 1.9% in the quarter and 14% in the year. All in all, in '25, we increased our loan book by EUR 6 billion and our customer funds by EUR 11 billion ex-TSB. This represents mid-single-digit growth, which is in line with our guidance. And this in combination with the growth of capital because growing capital generation but not growing the business is not as attractive as doing both things at the same time. Let's move to Slide 7, loan origination in Spain. In Q4, new mortgages decreased by 3% year-on-year. We have been reducing our market share in new mortgage lending over the past few months as front book yields have compressed. We remain focused on managing our new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. New customer loans -- consumer loans in Q4 increased by 8% on a year-on-year basis. In the whole year, new lending of consumer loans increased by 16%. Quarterly new loans and credit facilities granted to SMEs and corporate decreased by 15% year-on-year. This results in a slight decline of 5% if we compare with the full year of '25 with '24. On the other hand, origination of working capital finance remained broadly stable in the year. All in all, a strong performance in new lending during the year delivered loan book growth across all products and segments. If we move to Slide 8, regarding payment-related services in 2025, card turnover increased by 6% year-on-year, while point-of-sale turnover increased by 2%. Let me share that the merchant acquiring business will remain within our perimeter looking forward. Therefore, we will keep this fee income stream. Regarding savings and investment products, we reached a total stock of EUR 70.6 billion in December '25. This represents an increase of EUR 4.2 billion in the year, driven by an increase in off-balance sheet products of EUR 6.5 billion, most of it becoming -- EUR 4.6 billion coming from net inflows. In Slide 9, the breakdown of performing loan book across segments and geographies excluding TSB. In Spain, performing loans fell by 0.9% in the quarter. Mortgages and consumer loans posted positive growth in the quarter. On the other hand, the SME and corporate lending fell by 3.6% quarter-on-quarter, mainly due to the fact that these firms have been growing less heavily on their credit facilities. Year-on-year, performing loans in Spain increased by 5.2%. The mortgage book grew by 5%, consumer loans delivered double-digit growth and the stock of SME and corporate loans increased by 2.4%. The international operations also delivered strong momentum, with performing loans rising by approximately 15% year-on-year at constant FX. If we move now to Slide 10, the U.K. business. As expected, TSB's performing loans and customer deposits remain broadly stable on both quarter-on-quarter and year-on-year. Looking at the main lines of the P&L, NII increased by 7.2% in the year, in line with high single-digit guidance. Fees, which are less relevant for the U.K. business, declined by 15% year-on-year. Total cost decreased by 2.6% in the year, also in line with the guidance, in line with the 3% decline guidance. Provisions increased by around 50% year-on-year. Let me remind you that in '24, TSB recorded releases related to the improvement of macroeconomic assumptions. The resulting cost of risk in 2025 was 13 basis points, considerably better than the 20 basis points guidance. All in all, TSB's net profit reached GBP 61 million in the quarter, translating into almost GBP 260 million for the full year. This implies growth of around 25% in 2025. Stand-alone return on tangible equity was 13.5% despite maintaining a high level of solvency, with a core Tier 1 ratio of 16.7%. Finally, tangible net asset value increased by GBP 154 million between April and December. This, together with the additional TNAV to be generated until the closing of the transaction, will be added to the GBP 2.65 billion sale price, ensuring that TSB continues to contribute to Sabadell until the transaction closes. On Slide 11, a summary of our results. In '25, we posted net profits of EUR 1.8 billion. This represents a 3% decline year-on-year. It is worth noting that when adjusting 2024 net profit for extraordinary items, net profit actually increased by 3.4% year-on-year. All lines have been performing in line with the expectations. Sergio will explain the P&L in more detail shortly. To conclude this section of the presentation, I will outline our shareholder remuneration. The amount for 2025 has been improved to EUR 1.5 billion. This is 9% of our market cap. 2025 remuneration includes EUR 700 million in cash, which have already been paid, and EUR 800 million in share buyback. Last year, we paid 2 interim cash dividends, one in August and one in December of EUR 350 million each. These distributions will be followed by a final dividend of EUR 365 million as well as a EUR 435 million of excess of capital. These amounts to EUR 800 million via share buyback program scheduled to begin next Monday. No doubt, exceptionally, the final dividend will be distributed entirely through a share buyback. The main reason is that we believe that the stock is currently trading at a discount to its fair value, making a buyback the best option to reward our shareholders. We expect to distribute EUR 2.5 billion across '26 and '27, which also represent 9% of the market cap each year, once we deduct the extraordinary dividend related to the sale of TSB. All in all, we are on track to deliver on our commitment to distribute a cumulative EUR 6.45 billion of remuneration over '25 and '27. On top of that, we reiterate our commitment to deliver an annual cash dividend per share above EUR 20.44 from '26 onwards. I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance. Sergio Palavecino: Thank you, Cesar, and good morning, everyone. Let me begin by presenting the full detailed P&L. As we will explain during the presentation, the annual performance shows an alignment with our year-end targets. We recorded a net profit close to EUR 1.8 billion or EUR 1.46 billion when excluding TSB. Before we go through each line, I'd like to highlight a few extraordinary items and reclassifications recorded this quarter. Firstly, on the trading income line, we recorded an expense of EUR 15 million related to the exchange rate hedging on the full proceeds from the sale of TSB. This impact will be recurrent until the transaction closes. Secondly, and following the termination of the agreement to sell the merchant acquiring business, we have reclassified EUR 23 million from other provisions to depreciation and amortization. The impact of this on net profit is neutral. Finally, on the gain on sale of asset line, we adjusted EUR 20 million related to certain IT and software assets. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 15. We recorded EUR 3.6 billion in NII for the year, fully aligned with our guidance. In the quarter, Sabadell ex-TSB delivered close to EUR 900 million, broadly stable versus the previous quarter. Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right, customer NII had a positive impact of EUR 2 million. Within this, the customer margin decreased by EUR 7 million due to the negative repricing of variable rate loans. Although interest rate pressure on loan yield has already eased significantly. The good news is that volumes more than offset the customer spread compression. ALCO, liquidity and wholesale funding contributed by EUR 3 million, supported by lower refinancing needs and lower spreads. Other items had a combined impact of minus EUR 9 million. This mainly reflects the negative impact of certain interest rate hedges related to the fixed rate mortgage portfolio. TSB added EUR 11 million positive this quarter, reaching EUR 314 million as the contribution from the structural hedge was higher than the depreciation of the sterling. For 2026, we expect NII to increase by more than 1% with a clear acceleration throughout the year. In fact, we expect NII to bottom in first quarter '26, mainly due to fewer calendar days and the final repricing of the variable rate loans. From that point, it should grow steadily quarter after quarter, being the fourth quarter of '26 mid-single digit higher versus the fourth quarter of '25. For these estimates, we are assuming interest rates to remain at the same levels as at the end of 2025. We are expecting volumes to perform in line with what we have seen this year, around 6% growth in loans and between 3% to 4% in on-balance sheet funds. Loan yield could decline some basis points in the first half of the year, but should return to current levels driven by higher growth in consumer and SME lending. On cost of deposits, we still see room for further improvement as we reprice the last part of the term deposits. And finally, the impact from the sale of TSB bonds in the ALCO portfolio will be offset by savings in wholesale funding as we will have lower MREL funding needs after the sale. Leaving the NII line aside and moving on to fees. Fees and commissions within the ex-TSB perimeter increased by around 4% year-on-year. Asset management and insurance fees were the main contributors, growing by 15% year-on-year. This performance was driven by strong volume growth in off-balance sheet funds, with -- fully aligned with what we presented at our Capital Markets Day. The fourth quarter was the strongest of the year, with ex-TSB fees rising by 6% quarter-on-quarter, supported by a strong commercial activity and the seasonal uplift in asset management and insurance fees, including a success fee component of EUR 12 million. Looking ahead, we expect fees to increase by mid-single digits in 2026. This growth will be, again, largely driven by asset management and insurance fees. Moving on to the costs on Slide 18. Total ex-TSB costs increased by EUR 44 million in the quarter, mainly driven by 2 factors: first, a reclassification of EUR 23 million from other provisions to amortization following the termination of the merchant acquiring agreement with Nexi. Consequently, going forward, the quarterly run rate for ex-TSB amortization line is expected at around EUR 100 million. And second, the special remuneration in shares to all employees related to the end of the takeover bid amounting to EUR 16 million. All in all, total costs at ex-TSB increased by 2.5% year-on-year. This evolution is totally consistent with the target of low single-digit growth, despite the reclassifications recorded at the one-off personnel costs I have just explained. For 2026, we expect total costs including amortization, to grow by around 3%, fully in line with the strategic plan targets. Moving on to Slide 19. We will now cover credit cost of risk and other provisions. Total cost of risk for the year 2025 was 37 basis points, better than the already improved guidance of 40 basis points for the ex-TSB perimeter. Meanwhile, credit cost of risk fell to 24 basis points, which represents 9 basis points reduction in the year. Now looking at the bridge of the different components of the total provisions for this quarter, on the top right-hand side, we booked EUR 107 million of loan loss provisions, excluding TSB. Then we had EUR 8 million positive impact by driven -- impact driven by real estate asset disposals, [indiscernible] double-digit premium. NPA management costs remain in line with the usual run rate. Other provisions, mainly related to litigations and other asset impairments, were impacted this quarter by the EUR 23 million reclassification previously mentioned. And finally, TSB provisions were EUR 18 million this quarter. For 2026, we expect total cost of risk to remain at around 40 basis points, underpinned by positive asset quality dynamics and the gradual impact of our risk management measures. This better asset quality will offset the potential shift in business mix as we expect stronger growth in companies and consumer lending. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 21, we can see that nonperforming loans and coverage ratio continued to improve during the year. Within the ex-TSB perimeter, NPLs decreased by close to EUR 700 million over the year, demonstrated continued success in portfolio derisking and proactive credit risk management. As a result, the NPL improved 66 basis points to 2.65%. The reduction in NPLs is also consistent with the improvement in Stage 2 loans, which declined by more than EUR 1.3 billion in the year. Finally, the coverage ratio increased by 3 percentage points, reaching 69%. Moving on, in terms of foreclosed assets, net NPAs as a percentage of total assets remained comfortably below the 1% threshold, confirming the bank's structurally improved risk profile. The stock of NPAs declined by 15% year-on-year, equivalent to more than EUR 800 million in absolute terms. Meanwhile, the coverage ratio has improved by 2 percentage points. The sales of real estate assets continued their positive trend as 23% of the stock was sold over the last 12 months with an average premium of around 10%. On Slide 23, we are happy to see the continued improvement in asset quality over the past 2 years, explained by 3 favorable dynamics: a consistently declining NPL ratio, a quarter-on-quarter improvement in the cost of risk, along with a higher coverage ratio. Turning now to liquidity and credit ratings. In short, liquidity buffers have remained broadly stable over the year, with credit ratings improved, as you can see on this slide. Standard & Poor's upgraded our rating by one notch to A- with a positive outlook. During the year, Moody's and Fitch also upgraded our rating by one notch to Baa1 and BBB, respectively, both with a stable outlook. Turning to the next slide, we can see our current MREL position, which stand well above the required levels. It is also in line with the buffer of more than 200 basis points set as a threshold in our strategic plan. It is important to note that in 2025, we issued a total of EUR 3.1 billion across the capital structure as well as through covered bonds. We also carried out 3 securitization transactions with significant risk transfer during this year using both synthetic and cash instruments. Let me highlight that once the TSB sale is completed, we will deconsolidate TSB's risk-weighted assets. And therefore, our funding needs will be lower this year. Note that we currently have excess buffer in AT1 even excluding the EUR 500 million issuance that we have just announced that it will be called in March. On the next slide, we can see that we have been able to generate 196 basis points of capital while growing our loan book at mid-single digits. Looking at the quarterly evolution in more detail, we recorded 20 basis points of capital generation before deducting the accrued dividend. This includes 25 basis points from organic CET1 generation after deducting AT1 coupons minus 6 basis points from higher risk-weighted assets, mainly from the update of operational risk, representing minus 14 basis points, and partially offset by the release obtained through the SRT transaction completed in Q4. Then the accrual of a 60% dividend payout ratio had a minus 29 basis points impact, bringing the capital ratio to 13.65%. Given that we are distributing EUR 435 million of excess capital, 54 basis points must be deducted, which takes the CET1 ratio to 13.11%, and in place, an ample MDA buffer close to 400 basis points. With that, I will hand over to Cesar, who will conclude today's presentation. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. On Slide 28, you can see the achievement of our 2025 targets, a summary of the new guidance for '26 and the reconfirmation of our 2027 strategic plan targets. As we have seen throughout the presentation, the 2025 results have been in line with our year-end guidance. For '26, the guidance we are giving the main P&L lines points to recurrent return on tangible equity ex-TSB of around 14.5%, considering tangible equity of roughly EUR 10 billion. Of course, the return on tangible equity that will be reported will be higher because it would include the TSB impact. Our business model, which is built around strong capital generation, allows us to reconfirm shareholder remuneration of EUR 2.5 billion across '26 and '27. Last but not least, we are reconfirming every single one of the targets for '27 that we presented at our Capital Markets Day. And to conclude the presentation, I would like to summarize a little bit of our equity story. First, Sabadell is a franchise that pursues growth while preserving asset quality. This has been a major turnaround of the last years. Since the tender offer finished, we have been regaining commercial momentum, and we have room to gain some market share in a growing market in the products and segments of our choice. Second, we have strong capacity to generate capital while continuing to grow, which enables us to offer attractive shareholder remuneration. Third, it's all about execution, and this team knows about that. We've been consistently delivering on our guidance since '21, and we are now -- and we now have a clear path towards a 16% return on tangible equity in 2027. And all of this comes while we are trading at a discount to peers in terms both of total shareholder yield and multiples such as PE. Our distribution yield, meaning dividends plus excess capital returned to shareholders, was around 9% in 2025, and is expected to remain around that level in '26 and '27. This compares with a peer average of below 6% for '25. When looking at PE multiples, it's important to adjust Sabadell for market's cap for the extraordinary dividend associated with the disposal of TSB. Many market participants, we believe are not fully doing this. Once adjusted, Sabadell is actually trading at below 9x earnings, while Spanish peers are trading well below -- well above 10 times. There is therefore a clear opportunity here with considerable upside potential for Sabadell's stock. That's why the entire amount pending distribution to shareholders, the final dividend and the excess capital will be executed through a share buyback starting on Monday. It will be equivalent to more than 5% of our market cap, significantly higher than any other Spanish peer. And with this, I hand over to Lluc. Lluc Sas: Thank you, Cesar. We will now open the Q&A session. Given the limited time available, we would appreciate if you could please keep your questions to a maximum of 2. So operator, could you open the line for the first question, please? Operator: First question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: [Audio Gap] in target? Could you walk us through the mathematics? And the second one is on deposit growth. Ex-TSB, it has slowed in the fourth quarter and grew below the sector average. Can you please walk us through your thinking on why this is happening? And what will you do to recover growth? Sergio Palavecino: Thank you very much, Maks, for these questions. In order to help with the mathematics of the NII for 2027 that we are confirming, it will be at around 3.9%. We've been sharing in Slide 16, what are the expected dynamics on the quarterly NII. And as you can see in the slide, we expect the trough in the first quarter of the year because we will have a fewer number of days. We still have the last part of the repricing of the variable rate loans, the ones replacing with Euribor 12 months. But then from there on, we will have the tailwinds that we are currently enjoying for volumes that cannot be seen in NII because of the headwinds of customer spread. Customer spread will stabilize. And then by the second half of 2026, volumes will be on -- compared to the quarter of the previous year, already growing at the mid-single digit. That dynamic in our view, will continue into 2027. And as customer spread will increase a little bit, we are still expecting our customer NII to get close to 300 basis points in 2027. Also, the rates today are somewhat more positive as we see that Euribor 12 months in 2027 will steepened somewhat. So the dynamics that we show for the end of 2026 will continue into 2027. And yes, in our mathematics, they will lead us to NII that will be close to around EUR 3.9 billion. And then the second -- your second question was deposits -- deposit growth. Deposit growth, it was, year-on-year, at 3.6%. It has accelerated from the third quarter, as you mentioned, but this is rather due to very strong growth, really strong growth in the fourth quarter of last year. So when we look at our dynamics on customer funds, we see that currently are strong. Customer growth -- customer funds have growth more than 6%, that's EUR 11 billion growth, a bit skewed towards the -- of balance sheet products: EUR 6.5 billion growth in the off-balance sheet products, EUR 4.5 billion growth in the on-balance sheet. The -- when you do the average growth of deposits, it's actually EUR 4.5 billion. So as Cesar has mentioned, we have acknowledged that we got some minor impacts during the tender of a period in September or October. But we have -- we're very happy to see that we have fully recovered the commercial momentum and December has been very good, and all commercial feedback getting into the new year is good. So we are positive on the volume growth that we are sharing with the market today. Cesar Gonzalez-Bueno Wittgenstein: I think, indeed, that's spot on. And I think that at the core -- at the helm of the hostile takeover, of course, there were some decline in balances, but we see very clearly the recovery, the momentum and everything is on track for the future, and that's why we're very positive. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: So first of all, congratulations, [indiscernible] 2 questions for me. First of all in a year -- I want to ask about the quarterly NII bridge in Slide 15, particularly on the core also others with EUR 9 million of interest rate hedges then you can give details on these hedges, what impacted in '26. If that should unwind in '27 or not. Also, if you can comment on the impact from the TSB, MREL and quantify, and the impact in '26 and '27. Also [indiscernible] NII and the improvement in the customer spread, that just said by end of '26 despite reducing the cost of deposits [indiscernible]. So how do you plan to achieve that? Do you think that you have been overpaying for online deposits in '25 and you will adjust your digital offering? And will you grow deposits even if you make less? And then my second question is on costs. Your 3% cost guidance for '26. I understand you include the full year impact of the D&A related to the merchant business, excluding that to cost inflation of just 1%. What type of efficiency measures will you implement to get there? And how can you reassure that you will not be under-investing in the technological transformation? Sergio Palavecino: Thank you, Paco, for your questions. Let me see if we got them all. The first one is regarding the hedges that we show in Page 15. I think we already shared with you guys in the third quarter that we're having an impact on the hedge that we have of the fixed rate mortgage portfolio. As you know, the Spanish market now for a number of years and us in particular, we have been originating virtually everything in mortgages in fixed rate. And now it's been a number of years and recently quite a strong production. So that's a lot of duration, and therefore, we've been hedging that duration. That means that the hedges we pay fixed as we get pay fixed in the mortgage. And we received Euribor 6. So these hedges -- we pay fixed, we received Euribor 6. Euribor 6 has been trending down for a number of quarters, but the good news is that this has been the last quarter, the way we see it, because Euribor 6 has been already flat in the fourth quarter. So in the -- going forward, we no longer expect impact from the hedge, of course, connected with Euribor 6 and then if Euribor 6 goes up and down, of course, it will have an impact. But so far, with the current level of rates, it should be flat. And then your second question was on MREL. MREL currently -- the MREL bonds of TSB are roughly EUR 1.4 billion, and the spread is around 200 basis points. That MREL then is -- MREL that we raised in group in the capital markets. So when this -- we will no longer have this income, but we no longer have the cost in the wholesale funding. This may take some quarters, but at the beginning, we will also have the help of the price that we will get from the sale. Initially, it will be close to EUR 5 billion. If you add up the price of the shares and the price of the bonds, and that will yield in the treasury account, and that will also help to -- that will combine with the savings in the wholesale funding, altogether will offset the impact of the lower MREL of TSB in the ex-TSB perimeter. And for deposits, yes, we expect, as we have written in the presentation, still somewhat reduction in the cost. And this is not only connected with the online, of course, it's also connected with the online. On the online, we have a strategy like any other one-off acquiring, having a very attractive offer, acquiring customers, and then we manage the acquisition. Connected with that, we have an offering, then the price of the book will go down in March, and we will keep on having new offerings. It's a dynamic, of course, product. And we're quite happy because it's been quite successful. The reduction is more coming from term deposits 1 year, 2 years that will come due, either have already matured at the end of the last quarter or will mature in the first quarter of 2026. And we -- when this is renewed, when this is -- the price is lower, connected with the lower prices that we have in the market. And finally, cost that you mentioned, the reclassification of EUR 23 million that we did is permanent because we are not considering the sale of the payment business. The payment business is going to remain within the perimeter. So therefore, the -- it's apple with apples. So the comparison with 2026 and the increase in the 3% is not going to be distorted by that. So in the 3% rate and CAGR that we already shared with the market in the Capital Markets Day, there are 3 major components: salaries, we are expecting salaries to grow at inflation and that is, let's say, close to 2%; then we are seeing general cost flattish, thanks to the different efficiency initiatives that we are running in the bank; and then amortizations connected with the investment in IT are going to be higher, probably at mid-single digit or so. So we are really allowing ourselves with the room that we need in order to keep investing into the business so that we ensure that we make this business growth as we expect. And I don't know, Cesar, if you want to add something? Cesar Gonzalez-Bueno Wittgenstein: Yes, just on the -- I think it. Just on the digital account and to explain a little bit the rationale and the commercial rationale of all of it and so forth. First, more than 50% of our new client acquisition comes from digital, and we think that, that is a phenomenal success. And when interest rates were at 4%, we paid 2%. But now that interest rates are at 2%, we are going down, as you mentioned, Sergio, to 1% starting on March. This is very attractive because it's a full service and with all the gadgets current account that at the same time has a remuneration, but it is capped at EUR 50,000. And therefore, what it is doing, it is attracting customers with 50% of their payrolls, 45% of them do payments every day. And we are getting them to be part of the bank in an attractive way. So this is not a funding strategy. But nevertheless, because the volumes are starting to be significant, now it is the time to reduce the payment from 2% to 1%. It has already been announced to clients. It needs a lead period until you can implement from the moment you announced, and it will happen on March, and it will have progressively impact -- some impact. It's around EUR 30 million year-on-year over the course of the year. Lluc Sas: I would kindly suggest to switch off the microphone when the analysts are asking the questions because we've been told that they cannot hear the questions when they talk. So operator could you open the line to next question, please? [ Technical Difficulty ] Sergio Palavecino: Thank you, Britta. Regarding the MREL dynamics, that the maturities in the group are quite front loaded. So actually, what we are seeing is that by the fourth quarter of 2026, the impact of the sale of the TSB bonds will have already been -- will be already -- being offset by lower funding needs in group already in the fourth quarter of 2026. Regarding the volume developments that you wanted to discuss. At the end of last year, as you can see, we're seeing mortgages growing at a 5%, consumer at a high double digit and SME corporate is growing at a low single digit, right? We are seeing corporate and SME poised to accelerate growth. So in our expectation of 6% growth of the loan book, we are considering still consumer loans to grow at a double digit, SMEs and corporates to accelerate from the current low single digit to mid-single digit. And we expect some -- this acceleration on the growth of mortgages from the currently 5% to maybe something between 4% or between 3% to 4%. Those are our assumptions and those are the assumptions that give a combined net growth of 6% in the loan book. And I think there was a last question? Cesar Gonzalez-Bueno Wittgenstein: That was about the liability side, but let me just add a couple of comments here. I think this is what Sergio explained, is just in line with what we did during the during the Strategy Day, corporates and SMEs above, mortgages in line, and consumer loans well above. And on the liability side, I think what we are expecting is a larger growth than we originally expected from the on-balance sheet part, and that will partially compensate. On the mortgages, I think there has been a lot of hype around this. And I have to say that when the interest rates of the new production were above the 8-year swap, we were gaining market share. We got to a point in quarter 3 '24 in which we went -- when this gap was still positive, we went to almost a 9.5% market share of new acquisition. We are down to 7% purposely, strategically, so we are not gaining market share. We have been declining over the course of the quarters until for Q4 '25 in which we landed at 7% market share of new production. And that is purposely because despite the fact that they have positive RaRoC of above 20% or around 20%, their margin is negative and the investments and the upfront costs are important. So their value creation in the longer term, but they have a negative impact in the short term on the P&L and certainly, in NII, they are not the most exciting thing. But nevertheless, with the cross-selling, they become attractive. So this confirms in a line that has had a lot of discussion, which is mortgages that we will be in line with our current market share, which is approximately 7%, and adapting up and down depending on the attractiveness and the pricing of the market. Sergio Palavecino: Yes. And I think your last question was regarding our expectations of the ALCO book. When we say it's the ALCO book, it's mainly connected with our liquidity and with our ALM. Liquidity is expected to remain strong because on top of this dynamics of loans and deposits, we will have the inflow of the price of the TSB transaction. So when we look at the expected evolution of liquidity will be positive, and that we also expect liabilities, current accounts to grow. So we expect a marginal growth on the ALCO book in line with the balance sheet. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Congratulations. I just have one question on costs and one question on capital. So looking to costs. I was just wondering whether at a given point in time, you could consider using part of the capital generation that you have to fund an early retirement plan or a voluntary scheme so that you can -- have to compensate on that side, the investments that you have in IT? And the second question on capital generation, I mean going forward, is there any lever that could accelerate the capital generation that we see for 2025 around 200 bps? Then anything that we could have in terms of DTA that could accelerate the capital generation going forward? Cesar Gonzalez-Bueno Wittgenstein: I think -- on the first one, I think there has been a long time since we did the restructuring in '21. That means that the age of part of the population here at Sabadell is 4 years older. And therefore, I think we are starting to consider, starting as there's nothing final yet as ongoing and without nothing extraordinary, but we are starting to consider that there could be some early retirements from now on. And as I say, it's not a major thing probably, but we are looking into it as we speak. Sergio Palavecino: And regarding capital generation, Ignacio, it's been quite strong as we have explained in 2025, 196 basis points. It has also -- it has benefited from the impact of the first application of CRR3, also from the 3 securitizations that we have done. And it's important to take into account that we are self-financing the growth in the loan book. So going forward, we are actually looking at fantastic opportunities of keep increasing the loan book. So of course, that has been taken into account in our projections. And therefore, we think that they both consider profitability, but also growth. And of course, growing the loan book, it weighs on capital, but we believe that it's a very good opportunity to actually improve profitability going forward. So the capital generation is connected with both the increased level of profitability and the good momentum in the loan book growth that we're seeing. [ Technical Difficulty ] Lluc Sas: Matthew, we cannot hear you. I don't know if you have unmuted your mobile. Could you please check that? Okay. Yes, we can hear you now, yes. Unknown Analyst: Sorry for that. So yes, I have 2 questions, basically. The first one is on the EUR 2.5 billion distribution accumulated in '26, '27. If you can give a bit of color on the mix between cash buyback? And the second one, a bit more generic, on the impact. Do you think the neobanks, fintechs, new entrants are having in terms of the deposit cost environment in Spain. So we're seeing a lot of banks actually launching digital campaigns like you guys, Bankinter, et cetera. So I'm trying to understand, actually, to what extent that is also driven by the fact that you have new players exploring that type of segment? Cesar Gonzalez-Bueno Wittgenstein: So on the first one, and you can complete, of course, Sergi. The EUR 2.5 billion, the distribution between what is dividends and what is share buybacks, of course, will depend on final decisions of the Board and we cannot anticipate that. But what we have is a commitment of distributing 60% of the proceeds through dividends and no less than EUR 0.20-plus per share per year. And we expect in excess of capital generation over that. And it would make sense at that point in time that, that would be share buybacks. Neobanks have been in play for a while. I think they have an impact. I think I was very close to that because the first kind of neobank was ING Direct, 25 years ago. And they continue having an impact. They acquired a lot of customers, and that's mainly the account opening, where they have more success. The challenge for them, and that doesn't -- it's not a negative comment at all. The challenge for them is cross-selling, deep selling, having savings, having a number of things. So we certainly see that there is a challenge there, but we continue seeing very successful, as I mentioned before, that our digital account is bringing a significant number of clients, and it will be at 1%, as I mentioned before, not for the acquisition, which will still have promotions and the forth. And it's 50% of our acquisition. So we can live with them, and we congratulate them because, of course, in terms of number of accounts, they are doing extremely well. Operator: Next question is coming from Carlos Peixoto from CaixaBank. Carlos Peixoto: Yes. Actually just a couple of follow-up questions on my side. So when you're discussing the outlook for NII in 2027, you mentioned 300... Lluc Sas: Carlos, Carlos, I don't know if you could check your microphone, please, because we cannot hear you very well. Could you check that or speak louder, please? Carlos Peixoto: Yes. Lluc Sas: Yes, much better, much better, yes. Thank you, Carlos. Carlos Peixoto: Okay. So as I was saying, that basically a follow-up question. So the 300 basis points customer spread improvement to 300 basis points that you mentioned is it something that you see as being achievable already before year-end 2026? Or something that you intend to get to by 2027? And also, along with that or in those lines, I might have missed it, how much do you expect volume growth, loan growth and deposit growth to occur? And how much you expect in 2027, you see at a level similar to the 2026 levels? Just trying to get a closer -- better reach to the EUR 3.9 billion in 2027. Sergio Palavecino: Yes. Yes. Thank you, Carlos. Of course, we'll do our best. The customer spread at the end of this year has been 288 basis points. And it will -- in our model and our expectations, it will be marginally higher, but probably very few basis points at the end of 2026. And then it will keep on gradually growing until reaching the -- around -- at around 300 basis points that actually we share with you guys at the Capital Markets Day. Regarding the composition of the expected volume growth behind that assumption at the end of the day, we, in Capital Markets Day, we guided for a CAGR of mid-single digit of loans and deposits. I think we were at a rate of 4%. So I think we are on track to get to those volume growth. In 2025, the Spanish economy performed very well. GDP expanded by 2.9%, in 2026, the consensus is already above 2%. So connected with this growth, we expect a similar levels of growth in the loan portfolio and in the deposit book. So similar rates of growth we are assuming for 2026 at this moment in time. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: I have a couple of questions on the NII outlook, please. So firstly, I understand that after the sale of TSB, your MREL requirements may be lower. So maybe there's some opportunity for funding cost savings in case you're able to amortize more expensive MREL issuances? And then my second question would be on the digital deposits. If you could kindly provide the amount outstanding of the digital deposits. And also, what are your expectations for the costs and the volumes of digital deposits going forward? And lastly, I would like to ask on, if you could provide details on corporate CapEx outlook and investment from corporates in Spain, please? Sergio Palavecino: Thank you, Borja, for your questions. Regarding the first one, connected with MREL. MREL requirement will not decrease after the sale of TSB, but it's a percentage of the risk-weighted assets. What we -- what it will go down are the risk-weighted assets once TSB is sold. And then as a matter of fact, once we have less risk-weighted assets, we will have a lower total amount of MREL requirements, right? So that's why we're saying that after the sale, we will issue -- we will have lower funding needs, and therefore, we will have -- we will be issuing less in the market. So the -- we will sort of fix this by not rolling the coming maturities. So it will be very natural. And yes, we will have savings from not rolling the maturities and therefore, having a lower fund -- lower capital -- lower wholesale funding needs. And then for the digital deposits, would you like to take this one, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, on digital deposits, we have, from the beginning, decided not to give the exact numbers. And what I can say again and repeat is that this is more than for the volumes, it is for the customer acquisition and for the whole relationship that comes with it and the cross-selling that comes with it. I already shared that the new pricing and review the pricing will give us a saving of around EUR 30 million on full year terms, and that starts on March. It's 50% of our acquisition, it's relevant, and I think we can leave it at that. In corporates and SMEs, we closed the year at a growth -- with a growth of 2.4%. And as we mentioned before, looking forward, loan demand from corporates and SMEs remain solid, and we have particularly a strong pipeline of medium- and long-term loans. Therefore, we are confident that the growth will accelerate back to mid-single-digit levels. And by the way, the front book yields and spreads remain stable. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: My first question -- your guidance for -- you mentioned an insurance worth... Lluc Sas: Pablo, so sorry to interrupt. I think -- we cannot hear you very, very clear. It looks like the sound is -- I don't know if you could check your mobile or could you try again, please? Pablo de la Torre Cuevas: Is it better now? Lluc Sas: I think so. Can you start the question, please? Pablo de la Torre Cuevas: Yes. Sure. And my first question was degrowth in 2026, you mentioned... Lluc Sas: Pablo, Pablo, I'm afraid, it doesn't work. I don't know if you could please send us or send me an e-mail, and we'll -- I will read the question for you, if it's possible. I'm sorry for that. So operator, could we move to the next question, please, while Pablo is sending us an e-mail? Operator: Next question is coming from us from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: Can you hear me? So my 2 questions. So first of all, on OpEx, I mean the 3% -- and I'm talking about slide, I think it's 28. So the 3% CAGR seems like an acceleration versus '25. And when you've talked about the moving parts, staff growing, inflation, there have been flat D&A growing, I think, mid-single digits. So I just can't see how we get to 3%. I get to more something like a 2%, 2% in EBIT. So is the guidance too conservative on OpEx? And the second question is similar. Cost of risk. You have a slide where the total cost of risk keeps coming down, ended at 37, but then the guidance assumes you pick up to 40. Again, are you being a bit too conservative there or not? Sergio Palavecino: Yes. Thank you, Hugo, for your questions. We try to be prudent and the guidance on cost has the components that we have just gone through. What we would say is that we are very comfortable with the 3%, and this means that we're not going to be higher than that. So we will work, and Cesar mentioned, some different work streams that we are already exploring so that we can improve the outlook for growth in costs and therefore, improve efficiency going forward. Regarding cost of risk, in 2025, we have reported a 37 basis points cost of risk. 24, credit, 13, others. For 2026, again, we're very comfortable with the 40. We think that credit cost of risk is not going to be higher than 30 basis points, and the -- all the rest is going to be around 10. So again, it's a very comfortable cost of risk that takes into account that we are seeing a very growth momentum in things like consumer and SME, and that may marginally add a little bit more because we are not seeing any increase in cost of risk in the different products. But of course, the cost of risk of consumer is higher than the ones in mortgages, for instance. So growing progressively more in consumer has an impact. Actually, that impact is rather offset by the good performance in the cost of risk of each different product. So what -- I think what I would say is that we feel very comfortable in the guidance of this cost and cost of risk. Could you agree with that, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, I agree fully. And I think the perfect expression is we feel very comfortable with the 40 basis points. Is it conservative or not? The time will tell. But as I think we tried to explain during the presentation, the fact that we have reached a much clearer and lower levels of probabilities of default across all product lines has a lagged effect on cost of risk and on capital generation. And therefore, that's a tailwind that should help the cost of risk. How much of that will be offset by a change in mix into more profitable and better yielding products like the consumer lending and the SME lending in which we expect marginally more growth and significant more growth than the market in consumer lending? How much that will offset that? It's difficult to know. But in general, I think the perfect expression is that we feel confident with the 40 basis points. Lluc Sas: Okay. Then we also have the questions that Pablo sent to me. The first one is regarding the asset management and insurance business. So if we could elaborate a little bit more on the assumptions that we've made in terms of market impacts and others when we guided for this fee growth for 2026? And the second one is regarding the breakdown of the on-balance sheet funds between fixed term and current accounts going forward. Cesar Gonzalez-Bueno Wittgenstein: Yes. I think we'll share this one. From a qualitative perspective, I think we are growing very handsomely already in asset management. And I think we are in record productions in terms of insurance. Over the course of the years, I think we are going to see that fees gradually increase as a percentage of core banking revenues and therefore, reduce somewhat the bottom line P&L sensitivity to interest rate movements, and that's on the back of asset management and mortgages. Sergio Palavecino: Indeed, in 2025, we had a very sound growth in Asset Management and Insurance. This was 14% growth. And the growth that we see in fees connected with that was 15%. So we are seeing that clearly, the revenue is fully connected with the volumes. And for 2026, we're expecting a similar pattern with double-digit growth in insurance and asset management. Very happy, very successful performance in the business. Regarding on-balance sheet funds, Out of the EUR 128 billion, I think, of on-balance sheet ex-TSB, roughly 1/3 of that is remunerated. So more than 2/3 are non-remunerated. So more than EUR 80 billion are stable and transactional current accounts, not remunerated, and the other 1/3 is term deposits or remunerated current accounts. And that is connected with the different customers that we have and the different franchises. Of course, the remunerated part is the part sensitive to interest rates. Operator: Next question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: Congratulations, Cesar, on your trajectory, and also wishing you all the best for the next stage. So my first question is a follow-up on a recent question. Looking at recent trends, the new production has been largely dominated by mortgages and consumer lending. And you also expect, during the call, and in your strategic plan, your intention to grow in corporate and SMEs. And I was just wondering if you were able to specifically tell us what's the cost of risk you are observing in SME and corporate lending, and also in consumer lending where you have been expanding quite rapidly? And then just a small one on fees. I just wanted to make sure that the fees from your payment business have been included in the fee line for the entire 2025. So just wondering if the 5% growth is like-for-like '26 versus '25? Sergio Palavecino: Let me take the second one, and thank you, Cecilia, for your questions. Regarding the fee lines, yes, fully comparable. So the payment business fees are included in the 2025 reported figures and the expected growth considers the same. So the answer is yes. Cesar Gonzalez-Bueno Wittgenstein: On the first one, I don't think we have given a specific cost of risk for consumer lending or SMEs. The only thing I can tell you is that the PDs have gone down by 50% since '24. And that is the major driver for the cost of risk. And we are at the level in -- we have reached the levels of cost of risk that we want to have on the longer term, although as I said before, they will take some time to go fully through the P&L, both in terms of cost of risk and capital generation. Lluc Sas: Okay, we've got one final question. So operator, please? Operator: Last question is coming from Lento Tang Bloomberg. Lento (Guojing) Tang: I have a follow-up on the hedging on the NII. So the EUR 9 million, I'm just wondering how long is this hedged? And what is the sensitivity to Euribor? And then another question on your ambition of the international business. Lluc Sas: So I guess, Lento, the last question is regarding the international business, the strategy, okay. Sergio Palavecino: Okay. Let me take the first question, the hedge of the fixed rate mortgages. I think we just mentioned that hedge is connected with this fixed rate and is a hedge where we pay fixed, we receive a floating Euribor 6. As Euribor 6 has been going down, that is the source of the impact. But the good news is that Euribor 6 months has been already stable for a number of months. So this will be -- this effect will fade completely in the next quarter. And Cesar, would you like to take the one on the international business? Cesar Gonzalez-Bueno Wittgenstein: Yes, I think -- well, Mexico and Miami represent more or less, give or take, 5% of our capital each. And we are seeing currently quite a lot of opportunities for growth. They are profitable. They have positive returns on tangible equity. And we have been seeing that the growth in '27, I mean, our expectations of our growth for '27 are higher than the national growth, but that doesn't mean a change in our ambition. It's marginal. It's not very significant. It's just that we are seeing opportunities there. They are very linked to our verticals in which we have a lot of expertise. They are linked to Spanish customers. So it's difficult to separate what is international and what is national. And the 2 verticals in which we do extremely well is, especially, hospitality and energy and to a lesser extent, civil engineering. Lluc Sas: Right. So that concludes our presentation today. Thank you, Cesar and Sergio, and thanks to all of you for joining us today. If you have any further questions, the Investor Relations team is always here to help. Have a great day. Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. Sergio Palavecino: Thank you.