加载中...
共找到 17,085 条相关资讯
Operator: Greetings. Welcome to the Fourth Quarter and Fiscal Year 2025 Cummins Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Note this conference is being recorded. I will now turn the conference over to Nicholas Arens, Executive Director of Investor Relations. You may now begin. Nicholas Arens: Thank you, Rob. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the fourth quarter and full year of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck in our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently filed annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Nick. Good morning. I will start with a summary of 2025, discuss our fourth quarter and full year results, and finish with a discussion of our outlook for 2026. Mark will then take you through more details of our fourth quarter and full-year financial performance and our forecast for this year. As I reflect on 2025, I am pleased to share that we delivered strong financial performance despite weak demand in North America truck markets, ongoing trade tariff volatility, and an uncertain regulatory landscape. Our results underscore the disciplined execution of our strategy, the dedication of our employees, and the commitment to deliver strong financial performance. I am proud of what Cummins accomplished for our stakeholders and remain energized by the opportunities ahead as we continue to advance our strategic priorities and deliver on our financial commitments. Our strategy continues to be the right one, pursuing many paths forward to meet our customers' evolving needs today and in the future. Our strong and diverse position across geographies, markets, and technologies continues to differentiate us and provides the flexibility to adapt in a rapidly changing environment. In 2025, we further strengthened our position by evolving our portfolio to continue investing in innovative solutions that meet our customers' evolving priorities and long-term requirements. In our engine business, we introduced the much-anticipated X10 as a part of Cummins Helm platforms. This engine replaces both the L9 and X12 engine platforms and will deliver a new level of performance, durability, and efficiency for heavy and medium-duty customers. Alongside the X15 and B Series, the X10 provides customers with the power solution to meet their unique operational requirements while maintaining the performance and reliability for which Cummins is known. In addition, we unveiled the new Cummins B 7.2 diesel engine that brings the latest technology and advancements to one of our most proven platforms. The new engine will feature a slightly higher displacement and is designed to be a global platform, which creates flexibility for different applications and duty cycles. Both the B 7.2 and X10 engines will be manufactured for North America markets in the Rocky Mount engine plant in North Carolina. In our Power Systems business, we continue to advance hybrid solutions for mining customers through two significant actions this year. We acquired the assets of First Mode, a leader in retrofit hybrid solutions for mining and rail operations. This technology represents the first commercially available retrofit system for mining equipment, significantly reducing total cost of ownership while advancing decarbonization in operations. Additionally, we announced a collaboration with Komatsu to develop hybrid powertrains for surface hauling mining equipment. This joint development effort will leverage the breadth and scale of Komatsu's global capabilities to enable the acceleration of optimized hybrid solutions for mining. We are excited about the opportunity to bridge current operational needs with future low-carbon goals to support our customers' sustainability efforts. Additionally, within Power Systems, expanding on the success of our acclaimed Sentum Series generator sets, we launched the new 17-liter engine platform generator that produces up to one megawatt of power. The S17 Sentum genset was developed to produce a large power output within a compact footprint to meet the growing power demands in urban environments, where compact design and high performance are critical. The new genset is designed to support a wide range of critical market segments, such as commercial properties, healthcare facilities, and water treatment plants. Along with completing the Centum Series lineup, we also completed our capacity expansion on the 95-liter ahead of schedule, positioning us to meet rising demand and support a wide range of customer needs. Lastly, as we navigate this long and dynamic transition with our customers, we remain committed to pacing and refocusing our investments on the most promising paths, as the adoption of zero-emission solutions slows in some regions around the world. As we mentioned last quarter, we initiated a review of our electrolyzer business within the Accelera segment to streamline operations and focus investments amid policy-driven shifts in hydrogen demand. In the fourth quarter, this led to additional recorded charges, which you will see reflected in our results. We remain committed to our multi-solution strategy while pacing and focusing our investments as the zero-emissions landscape evolves. The actions we have taken will lower costs going forward. Now I will comment on the overall company performance for the fourth quarter of 2025 and cover some of our key markets. Revenues for the quarter totaled $8.5 billion, an increase of 1% compared to 2024, as continued high demand in our global power generation markets, higher pickup truck volumes, and improved pricing more than offset lower North American heavy and medium-duty truck volumes. EBITDA was $1.2 billion or 13.5% compared to $1 billion or 12.1% a year ago. Fourth quarter 2025 results included $218 million of charges related to the strategic review of our electrolyzer business within our Accelera business segment. This compares to the fourth quarter 2024 result, which included $312 million of charges related to the strategic reorganization of our Accelera business segment. Excluding those items, EBITDA was $1.4 billion or 16%, compared to $1.3 billion or 15.8% a year ago. EBITDA percent improved compared to 2024 as the benefits of higher power generation and pickup truck volume, pricing, lower compensation expenses, and operational efficiency more than exceeded lower North America medium and heavy-duty truck volumes, higher product coverage costs, and the dilutive impact of tariffs. 2025 revenues were $33.7 billion, down 1% from the prior year as lower North America heavy and medium-duty truck demand more than offset higher power generation volumes and improved pricing. EBITDA was $5.4 billion or 16% of sales, compared to $6.3 billion or 18.6% of sales in 2024. The 2025 results included $458 million of charges related to our electrolyzer business within our Accelera business segment. This compares to 2024 results that included the gain related to the separation of Atmos, net of transaction costs and other expenses of $1.3 billion, charges related to the Accelera reorganization of $312 million, and $29 million of other restructuring actions. Excluding those items, EBITDA was a record $5.8 billion or 17.4% of sales for 2025, compared to $5.4 billion or 15.7% of sales for 2024, as the benefits of higher power generation volumes, pricing, lower compensation expenses, and improved operational efficiency more than exceeded lower North America heavy and medium-duty truck volumes and the negative impact from tariffs. EBITDA reached record levels in both our Power Systems and Distribution segments. Power Systems delivered a record full-year EBITDA of 22.7% of sales, up from 18.4% in 2024, while distribution achieved a record 14.6% of sales, up from 12.1% in the prior year. I am proud of these remarkable results with record earnings despite a downside for North America truck markets and the achievement of our 2030 financial commitments ahead of schedule. This reflects the strength of our strategy and our disciplined focus on execution. As you will see from our 2026 financial guidance, we are well-positioned to build on this momentum. As we look to 2026, we continue to operate in a dynamic trade and regulatory environment, but we are getting greater clarity on important areas for our industry. EPA's confirmation of the 2027 Low NOx Rule is an important step in advancing regulatory certainty, and we are well-positioned with our product plans. Now let me provide our overall outlook for 2026 and then comment on individual regions and end markets. We are forecasting total company revenues for 2026 to be up 3% to 8% compared to 2025, and EBITDA, including the dilutive impact of tariffs, to be 17% to 18% of sales compared to 17.4% the prior year. For our markets, we expect continued weakness in first-half demand in our North America heavy and medium-duty truck market but anticipate other markets, particularly power generation, to remain strong throughout the year. Industry production for heavy-duty trucks in North America is projected to range from 220,000 to 240,000 units in 2026, flat to up 10% year over year, with the second half of the year higher than the first. In the medium-duty truck market, we expect market size to be between 110,000 to 120,000 units, also flat to up 10% compared to 2025. Our engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 in 2026, down 5% to up 5% year over year. In China, we project total revenue, including joint ventures, to decrease 1% in 2026, with weakness in heavy and medium-duty truck demand partially offset by growth in data center demand. For China heavy and medium-duty truck demand, we project a range of down 10% to flat. While we expect export demand to remain high, we anticipate the domestic demand will decline as a result of lower impacts from NS4 scrapping policy stimulus. In India, we project total revenues, including joint ventures, to decrease 5% in 2025. We expect industry demand for trucks to be down 10% to flat for the year with weak replacement demand and limited infrastructure spending. For global construction, we expect a range of down 5% to up 5% year over year, as we anticipate domestic demand in China and North America to be roughly flat, and export demand in China slightly down given geopolitical uncertainties. We project our major global high horsepower market to remain strong in 2026. Revenues in our global power generation markets are expected to increase 10% to 20%, driven by continued high demand in the data center market and the successful execution of our capacity expansion, which was completed in 2025. Sales of mining engines are expected to be flat to up 10%, driven by replacement demand. For aftermarket, we expect a range of up 2% to 8% for 2026, with increased parts consumption from aging fleets and higher rebuild demand. In summary, 2025 was a strong year with record earnings, excluding one-time items, despite a down cycle in North America truck markets. In 2026, we expect North America truck demand to be slightly better than 2025, particularly in the second half of the year, along with continued strength in our power generation, industrial, and aftermarket businesses. Cummins remains well-positioned to invest in future growth, deliver strong financial returns, and return cash to investors. As I close, I would like to officially announce that our Analyst Day is now scheduled for May 21, in New York City, and expect invitations to be sent out shortly. I look forward to sharing updates on our financial guidance and further discussing our strategy then. Now let me turn it over to Mark, who will discuss our financial results in more detail. Mark Smith: Thanks, Jen, and good morning, everyone. We delivered strong operational results in 2025, achieving record EBITDA and earnings per share, excluding one-time items, despite the down cycle in North America truck markets and ongoing tariff volatility. These results reflect the effectiveness of our strategy, our disciplined focus on financial performance, and the hard work of our employees. Now let me go into more detail on Q4 and the full-year performance. Fourth quarter reported revenues were $8.5 billion, an increase of $89 million from a year ago. EBITDA was $1.2 billion or 13.5% of sales compared to $1 billion or 12.1% a year ago. In the fourth quarter, our strategic review of the electrolyzer business and Accelera resulted in charges of $218 million. This compares to 2024, which included $312 million of costs related to the reorganization of Accelera. Stripping those out, looking at underlying performance, we delivered EBITDA in the fourth quarter of $1.4 billion or 16% compared to $1.3 billion or 15.8% of sales a year ago, even as North America heavy and medium-duty truck engine volume declined by a combined 30%. Fourth quarter revenues increased from 1% a year ago as continued high demand in our global power generation markets, higher pickup truck volumes, and improved pricing more than offset lower North American truck volumes. Sales in North America were down 2%, while international revenues increased 5%. Foreign currency movements positively impacted sales by less than 1%. Fourth quarter EBITDA improved to 16% compared to 15.8% a year ago. Higher power generation and pickup truck volumes, pricing, lower compensation expenses, operational improvements, and higher joint venture and other income, lots of things higher, all helped more than offset lower North American medium and heavy-duty trucks, higher product coverage costs, primarily in Accelera, and the dilutive impact of tariffs. Now I will summarize some of the impacts by line item in the income statement. Gross margin was $2 billion or 22.9% of sales, up compared to 24.1% a year ago as lower North American truck volumes, higher product coverage, and the dilutive impact of tariffs more than offset stronger power generation demand, favorable pricing, and operational efficiency. Selling, admin, and research expenses were $1.1 billion or 13.3% of sales, compared to $1.2 billion or 13.7% last year, primarily due to strong cost control as truck markets weakened and lower compensation expenses. Joint venture income of $116 million increased $46 million, primarily driven by higher volumes in our China joint ventures, on and off-highway. Other income was negative $58 million compared to negative $196 million a year ago. 2025 other income included $80 million related to the electrolyzer charges, while 2024 included $171 million related to the Accelera reorganization costs. Excluding these items, other income increased by $50 million, driven by marked-to-market gains on investments related to company-owned life insurance, a modest gain this quarter compared to losses a year ago. Interest expense was $82 million, a decrease of $7 million from the prior year, driven by lower weighted average interest rates. The all-in effective tax rate in the fourth quarter was 21.6%, which included $69 million or $0.50 per diluted share favorable discrete items. All-in net earnings for the quarter were $53 million or $4.27 per diluted share, which includes $215 million or $1.15 per diluted share of charges related to the strategic review of the electrolyzer business. Excluding these charges, EPS was $5.81 per diluted share. Operating cash flow in the quarter was an inflow of $1.5 billion, up $112 million from a year ago. For the full year 2025, revenues were $33.7 billion, a decrease of 1% from a year ago. EBITDA was $5.4 billion or 16% compared to $6.3 billion or 18.6% of sales in 2024. 2025 included $458 million of charges related to our electrolyzer business within Accelera. This compares to 2024 results that included the gain related to the separation of Atmos, net transaction costs and other expenses of $1.3 billion, charges related to Accelera of $312 million, and $29 million of restructuring. A lot of moving parts in those comparisons. If you strip those out, the underlying EBITDA percentage improved by 170 basis points year over year, primarily driven by higher power generation volumes, pricing, lower compensation expenses, and operational improvements, all of which more than exceeded lower North American truck volumes and the diluted impact from tariffs. All-in net earnings were $2.8 billion or $20.50 per diluted share, compared to $3.9 billion or $28.37 per diluted share a year ago. Excluding previously mentioned one-time charges, 2025 net earnings were $3.3 billion or $23.78 per diluted share, compared to 2024 net earnings of $3 billion or $21.37 per diluted share. Capital expenditures in 2025 were $1.2 billion, flat compared to 2024, as we continue to invest in new products and capabilities to drive growth, particularly related to the on-highway Helm platforms within our engine and components business in North America, and also incremental capacity adds within our Power Systems business to serve the growing demand for data centers. Our long-term goal is to deliver at least 50% of operating cash flow to shareholders in the form of share repurchases and dividends. In 2025, we focused our capital allocation on organic investment, dividend growth, and returning $1.1 billion to shareholders via the dividend and maintaining our A credit rating metrics. I will now summarize the 2025 results for the operating segments that exclude the electrolyzer strategic review costs, and I will provide guidance for 2026. For the Engine segment, 2025 revenues were $10.9 billion, down 7% from a year ago. EBITDA was 12.7% of sales compared to 14.1% of sales a year ago, primarily due to lower North American heavy and medium-duty truck volumes. In 2026, we project revenues for the engine business will be flat to up 5%, with weakness continuing in North American heavy and medium-duty trucks in the first half of the year, with an anticipated strengthening in the second half of the year. 2026 EBITDA is expected to be in the range of 12% to 13%. Our component segment revenues were $10.1 billion, down 10% from the prior year, and EBITDA was 13.8%, up compared to 13.5% in 2024, as the impact of lower truck volumes was more than offset with cost reduction improvements. For 2026, we expect total revenue for the components business to be flat to up 5%, primarily driven by the expected improvement in North American heavy and medium-duty truck markets in the second half of this year. The EBITDA margins are expected to be 13% to 14%. In the Distribution segment, revenues increased 9% from a year ago to a record $12.4 billion, and EBITDA was also a record of 14.6%, up 250 basis points from a year ago, driven by higher power generation volumes and pricing. We expect 2026 distribution revenues to grow 5% to 10%, driven by continued strength in power generation markets and higher aftermarket demand. The EBITDA margins are expected to be in the range of 13.25% to 14.25%. In the Power Systems segment, revenues were also a record $7.5 billion, up 16% from the prior year, driven primarily by demand for power generation equipment, especially in data center applications in North America and China. EBITDA was a record 22.7%, up 430 basis points from 2024, driven by stronger volumes, favorable pricing, and a continued focus on operational performance margin improvement while improving capacity for future growth in demand. In 2026, we expect Power Systems revenues to be 12% to 17%, driven by continued strength in power generation and EBITDA in the range of 23% to 24%. Accelera revenues increased to $460 million in 2025. We had a net operating loss in this segment of $438 million compared to $452 million the prior year. While we lowered costs in existing operations through our restructure actions, this was partially offset by higher product coverage costs in this segment in the fourth quarter. In 2026, we expect Accelera revenues to be in the range of $300 million to $350 million, and net losses to decline to $325 million to $355 million, reflecting our ongoing efforts to streamline the business and lower costs while ensuring we are set up for long-term success in those product lines where the prospects are more promising. We currently project 2026 company revenues to be up 3% to 8%. Company EBITDA margins are expected to be approximately 17% to 18%, as the benefits of modest second-half recovery in truck strength and power generation are somewhat offset by the dilutive impact of tariffs. I should have added that in this spirit of saving time, I did not acknowledge that tariffs diluted the EBITDA percent of every single segment in 2025 and will continue to do so on a percent basis in 2026, even though we did well to mitigate costs and largely recover them. Our effective tax rate is expected to be approximately 24% in 2026, excluding discrete items. Capital investments will be in the range of $1.35 billion to $1.45 billion this year as we continue to make critical investments to support growth. To summarize, we delivered record profitability in 2025, excluding one-time charges, even as demand in North America heavy and medium-duty truck markets declined sharply. This performance was driven by strength in execution in our core business, with power systems and distribution delivering record profitable growth, and the engines and components segments particularly managing costs well through the trough. In Accelera, we took further actions to reduce costs going forward in light of weaker demand while maintaining investments where we believe more promising returns lie ahead. Cash generation has been and will continue to be a focus, enabling us to continue investing in new products for current and future markets during times of uncertainty and continuing to return cash to shareholders while maintaining a strong balance sheet. We look forward to updating our long-term financial targets at our upcoming Analyst Day in May. Thank you for your interest and your patience as we got through quarters, years, and full guidance outlook. Now let me turn it back to Nick. Nicholas Arens: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Operator: Thank you. Our first question comes from the line of Jerry Revich with Wells Fargo. Please proceed with your question. Jerry Revich: Yes, hi. Good morning, everyone. Jennifer Rumsey: Hi, Jerry. Good morning. Jerry Revich: Can you update us on how you are thinking about potentially adding capacity in power systems for the diesel variant and also what are the updated thoughts around potential natural gas product? And can you update us on where lead times stand now as well? Thank you. Jennifer Rumsey: Yep. Happy to do that, Jerry. So, you know, we continue to see very strong demand in our power generation business. And as noted in the comments, we completed the doubling of our capacity of the 95-liter engine and genset that we supply, which is very popular in the data center market. We have completed the launch of our Sentum product line, and we continue to see benefits of those investments as well as ongoing operational efficiency performance in power systems and DBU, which is leading to the guide for this year. We had record order intake in Q4 for power generation. We are taking orders now well into 2028. So the demand remains very strong for diesel backup power, and we are well-positioned with the product and channel support that we offer to provide that. We are continuing to look at opportunities to increase capacity. For this year, you can expect the benefit of those things that I already outlined to come through full year and in smaller improvements and efficiency in how we leverage what we have. We will be talking more in May at our Analyst Day about where we think we may have the opportunity to continue to leverage the capacity and products that we offer and if there are any additional investments into new products. But as you would expect, we are very thoughtful and disciplined in how we think about that. Mark Smith: And I would just add, even with it, whilst the total of our CapEx outlook in the last three months has not really changed, we have allocated more incrementally to power systems in the last few months, Jerry. You know, and really right now, we are a low-risk weighted play on the AI boom because we are making modest incremental internal investment for which there is high and growing visibility for demand. So we feel confident about our approach. Jerry Revich: Thank you. And I got my voice back. You are talking about power systems gets me all choked up. I am wondering, Mark, can we just talk about the guidance outlook for 2026? Really good performance this year across engine components of distributions. You are guiding for up sales, but softer margins at the midpoint. Can you expand for us on the comment you made on tariffs? What is the impact of the pass-through and any other puts and takes around guidance in light of the strong performance of '25? Mark Smith: It is no surprise to anyone that the gross impact of tariffs accumulated through the year, the headlines were one thing, but it took time for those costs to start filtering through the supply chain, managing, negotiating, optimizing, but the fourth quarter was, you know, clearly the biggest gross impact. We have done well to offset that. But as we look forward with the current regime of tariffs, that is full-year dilutive on an absolute basis, Jerry, it is about 50 basis points mostly through sales and recovery, not dollar losses. And so we will see more of that on a percent basis in engines and distribution in particular going into next year. So that is a modest percentage tailwind into those two areas. Otherwise, there is nothing fundamentally changing. It is obviously a very busy period for engines and components, all the new product development going on ahead of the 2027 emissions regulations. And then in distribution, we do have some modest investments in systems upgrades, particularly in our international regions. So those are the things. But, yes, we look at the numbers the same as you do. We are delighted with performance given all the combination of conditions, variations, complexities of 2025, and fundamentally, underneath what there is a strong business with strong strategic position, high visibility to growth in power systems, hopefully, coming off the bottom of a truck market. Again, we will continue as the truck cycle moves off this bottom to expect results to improve not just this year, but going forwards too? More meaningful and sustained improvement as truck fundamentals improve. Operator: Thank you. The next question will be coming from the line of Rob Wertheimer with Melius Research. Please proceed with your questions. Rob Wertheimer: Just a quick question on the sequential revenue in Power Systems from 3Q to 4Q. I do not know whether that was any capacity issues, timing issues, or anything else. Obviously, you are growing next year. So I was just curious about the relative lack of growth. And then more generally, you mentioned demand into 2028 for data centers, which is great. Is there any change in the shape of what is happening? Is there more behind the meter that might demand more backup? Is there any trend in the design of data centers that either favors or not diesel backup? Thank you. Jennifer Rumsey: Yes. On your first question, what I would say is we were able to deliver the 95-liter capacity expansion ahead of schedule. So we saw more benefit of that sooner last year. And then as we went into Q4, we had a few down days that are not atypical at the end of the year and things that you do at the end of the year within plants. A little bit of softening in aftermarket. So those things had some impact on top-line performance. And then the other dynamic we had in Power Systems in Q4 was tariffs are still changing. Let us just acknowledge that while there may be some places where we are getting more clarity, that is still changing in the India tariff. In Q4, it had a negative impact. We are working to recover those costs, but as things change over time, there is typically a lag in how we manage through that with our customers. In terms of diesel backup, you know, there continues to be a desire for most, you know, really all data center customers to have diesel backup power available to just ensure a level of uptime and reliability that they need, and the conversations are more around how do we use the product line that we have to meet the strong demand that is out there. Rob Wertheimer: Thank you. Operator: Our next question is from the line of Jamie Cook with Truist Securities. Please proceed with your question. Jamie Cook: Hi, good morning. I guess, Mark, just two questions, if you could just unpack the margins or implied lack of incremental margins in 2026 for the engine business? I understand we have tariffs, but I thought we were getting pricing through and perhaps some benefit from Section 232. So is there anything else in there? Is there a first half, second half story there? We are exiting the year incremental margins higher. I am just trying to understand how you think about incremental margins through this cycle relative to your 25% target that you guys laid out for engines? And then my last question on just distribution. Again, the implied margins are below 14%. You talked a little, I think, in the last answer about growth or sorry, investment in that business. So how much is the investment? Where is it going to? And just again, exiting margins exiting 2025, the fourth quarter with a 15.1% margin, and ending implied 2026 below 14% just does not make a lot of sense. Thank you. Mark Smith: We have had a lot of discussions about the distribution margins. And the performance over a number of years has been really good. So we are really thrilled with the distribution leadership team continuing to grow earnings and margins. The tariffs throw a little bit of a spanner in the works from a percentage basis. You know, we are in tens of basis points of dilution there. It is taken longer to work through distribution. And then the recoveries. And yet, there is a little bit of investment. Nothing underlying has fundamentally changed. So we still think the distribution business is going to be a dollar and a percent grower over time. There can be some, yeah, modest investments in a over a short period of time, but nothing fundamentally changing there. And then in the engine business, yeah, there is not a lot of pricing this year. There has been a lot of tariff recovery work and tariff mitigation work going on in 2025. But not this year. We are really in preparing for more demand whilst preparing for new product launches. All of those things are going on at the same time. Little bit of dilution from tariffs. And then there is not nothing is happening significant we do not expect on the JV income line, maybe even be down in on-highway a little bit in China, maybe up a little bit the power systems JV earnings in China. So the net guide is at close to zero for JV earnings for the company, but it may be a little bit of dilution embedded in the engine business guidance and a little bit of enhancement embedded in power systems overall, but nothing dramatic or changing. But yes, overall, I would say pricing is not a big feature of 2026. Jennifer Rumsey: I will just add, Jamie, on the $232 tariff. First, we are, of course, very supportive of the U.S. Administration's focus on strengthening manufacturing and some of the things that they are doing as part of February to make sure that for companies like Cummins that are manufacturing for the U.S., and the U.S. and even manufacturing in the U.S. for export, that there are incentives to do that. And they are still working through the details of the engine offset program. So we are waiting for clarity on how that will work as well as how they define U.S. content. So there is some uncertainty built into that range that we have on our margins in the engine business and components that will depend on how those details work out, and we hope to have more clarity after Q1. Operator: The next question is from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions. Angel Castillo: Hi, thanks for taking my question. I just wanted to start out maybe on the supply side of power gen or actually the supply demand. One quick one on the demand side. You mentioned record level of orders in the fourth quarter. Can you size your backlog exactly at this point and maybe provide a little bit more color on what the growth rate was either year over year or sequentially to your in terms of orders or the backlog? Then on the supply side, we have been hearing about capacity investments from perhaps other competitors. How are you kind of thinking about what that means for the competitive environment out there? And impact your decision to invest in capacity as well? Jennifer Rumsey: Yes. I mean, we do not quantify the size of our back order. So all I can say is we had a record in Q3, we set another record in Q4 in terms of that demand intake and multiyear strength and continued discussions with our data center customers on how we can meet their multiyear needs and what they are doing. So there is at this point, we see plenty of demand and, you know, some of the investment questions is just defining the plan that we think is efficient use of the capital we have as it relates to natural gas or other things having confidence in the multiyear outlook. On what, the market demand may be. We do feel pretty confident that we will see strong demand continuing for diesel backup power. And so there really is that developing the detailed plan of what we think we can do and also our suppliers' abilities to invest and keep up with what we are doing in our own facilities. Angel Castillo: That is helpful. And then maybe just on capital allocation a little bit here. So your net debt to EBITDA seems to be below one and you are taking some charges on Accelera reducing some investments there. I think your R&D expense, if I am not mistaken, should be coming down post EPA engines. So I think that is 2028. Can you also have your truck market bottoming here and hopefully starting to improve. So how should we think about capital allocation as we kind of progress into 2026? I know you are mentioned reviewing some of these investments that you will talk about more at Investor Day. But assuming you are able to deploy some of maybe Accelera type of investments or others, into that power gen. Should we expect buybacks to come back in the order of magnitude there that we should kind of think about product capital allocation would be helpful. Mark Smith: Yes. What I would say is we have worked hard over the last couple of years to restore our credit metrics post the drivetrain business or formerly Meritor acquisition. So we are in a strong position. We have financial flexibility. Most well, all of what we are investing in today in the current year can be funded within our current cash flow operations. So we do have that flexibility. We talked about them kind of a minimum goal of 50% back to shareholders. And we do have that flexibility to deploy more capital to shareholders going forward. So if we see the right balance of opportunities. Operator: Thank you. The next question is from the line of David Raso with Evercore ISI. Please proceed with your question. David Raso: Hi, thank you. On the tariff impact, can you take us through the cadence? I think you alluded to the fourth quarter was your highest gross impact. The 50 bps that you gave is the drag. I assume that was a net number, that was not just gross. Is that correct? Mark Smith: 50 bits the 50 bits was the net full-year drag for 2026. David Raso: So if the net drag is, call it $175 million for the full year, can you take us through the cadence? We are just trying to get a sense of obviously, the margin guide is a bit disappointing, and people are just trying to figure out where at least we think you are exiting 26% on the margins. Mark Smith: You are doing some kind of net drag there, I think, David, and that is not right. So the drag is really on, let us call it, inflated revenues and inflated recovering and inflated COGS. Incurring costs. It is not not just the market one would be a it is a not a dollar block. Jennifer Rumsey: Yeah. We are our strategy is to work to recover dollars. And that return from the end the revenue number. David Raso: If sorry. Yeah. The revenue number will move depending on what the tariff dollar is as well our recovery. Nicholas Arens: So what is it you want to know, Dave? David Raso: Well, I am curious. What is the revenue the price offset? Like, we are just trying to figure out how much is it price cost, and also more trying to figure out how we exit the year. Mark Smith: You are talking you are talking about less you are talking about less than 2% year-over-year revenue increase due to the annualized impact of tariff recovery? David Raso: Helpful. And the pricing comment, I think you made a comment. Not much pricing in '26 or something like that. I apologize. Sure exactly what you are referring to. The tariff impact, was that something that maybe did not raise price quickly enough? I am just kind of curious how you are thinking about ability to capture about pricing ex tariffs. Mark Smith: Tariffs is not pricing in my mind. So I am just saying other than puts tariffs to one side, we have done a good job mitigating that. The net impact to our P&L through all the actions we took was modest. But overall pricing given that we are mostly selling out existing products, right? This current year that we have done a lot both on pricing in the past few years and the recovery on top. This is we are not anticipating this is going to be a big year for net pricing x tariffs. But we are moving towards the transition to new products, which is a whole different angle and that is for next year, not for this year. Operator: Thank you. The next question is from the line of Steven Fisher with UBS. Thanks. Good morning. And sorry, just to clarify again, I know the message previously had been going into Q4, expect to beat price versus cost neutral on the prior existing tariffs, and then it was going to take a little time to get the latest round. So what are we thinking? Is it sort of just a net neutral on price versus cost on the tariffs as you see them today for the year? I guess maybe to start there. Mark Smith: Yes. Give or take. A few dollars. Not exactly perfect dollar for dollar, but yes. It is not. But a significant dollar hit year over year, but the magnitude of the annualization of the sales and the cost of sales is dilutive to the EBITDA. Since other I will send another way, if we had no tariffs if they suddenly evaporated, our EBITDA percent at the midpoint would be half a point higher, but it would be on lower revenues. Steven Fisher: Right. Okay. That is helpful. And then I guess just related to this, since you mentioned India, I am curious what you actually have baked into the guidance for India given some of the changes that we have heard about very recently. Mark Smith: I mean, you are talking about India. Right? Now you are talking I mean, we are talking tens of millions of dollars related to India. And a lot of it was moving global product around because we you know, it is a more international business. Right? And the largely power generation markets where we are shipping products all around the world. So yeah, we are in the tens of millions, but we cannot go through every individual tariff by country or we will be even longer than we would enjoy. Nicholas Arens: I think, Steve, just to add to that, this is Nick. What I would say is Q4 for power systems was more transitory impact of India tariffs coming through. But to Mark's point, as we move into '26, we feel well-positioned on that particular element to hit our Q4. Mark Smith: That is where the margins would one of the reasons why the margin down just a little bit in Q4, and you can see from the guide we have got margin expansion built into the guidance there. Operator: Our next question is from the line of Kyle Menges with Citigroup. Please proceed with your question. Kyle Menges: Thanks for taking the question, guys. I did want to ask on EPA 27 now that we have gotten more clarity on that and we have heard from various others in the industry that it could lead to a plus or minus $10,000 of increase just to the cost of a truck. So trying to think about how that would actually impact Cummins, I guess, on just engine pricing margin and then also just how to think about the impact to components volume, just given the added content as well as pricing? Jennifer Rumsey: Yeah. Great. Let me break this down in a couple of things. You know, first, we are committed to always delivering innovative efficient solutions to our customers to meet their needs and with the regulation. And for those of you that have been around the industry for some time, it is quite unusual to have this level of uncertainty, this close to a regulatory implementation date. So the EPA indication late last year, as you noted, that they will move forward with the 27 NOx rule was an important step to give more regulatory certainty. And I think the EPA has worked hard to balance with regulatory certainty and allowing those that have made big investments in products to launch in '27, not only to comply with the regulation but to bring other values to our customers to move forward while also looking at reducing the cost impact to the end customer. And so they have given some indication of what that looks like. We think we are very well positioned with our Helm engine platforms and the new products that we are going to be launching around those regulations. There is still a lot of work underway that we are active in with the regulators, with our customers, with our suppliers on the details of those changes that they are going to make and that we complete our validation and certification process in accordance with those. So we are working through that. And just will note, you know, we work with multiple OEMs. The most OEMs on our B series product, which is in a, you know, high variety of different applications. So that is one in particular that we are focused on. Net of that is we are all moving forward toward that gaining the additional clarity that we need and it will still result in content ad in engine business and in the components business after treatment. In particular, ACT is estimated $10,000 to $15,000 for a heavy-duty truck ad associated with that, and the majority of that will be in the powertrain. So it will split for us in our content ad between the engine business and the components business. And we will see that coming in with those new product launches. But again, they are also bringing more efficiency, more power, advancing our digital solutions, excited about the value we are going to bring to our customers along with that regulatory change. Operator: Our next question is from the line of Noah Kaye with Oppenheimer. Please proceed with your question. Noah Kaye: That is a perfect lead into my question, which is now that we have a little bit more certainty that this is going to happen, even if we are still looking for the fine points of it, what is the guide embed for, any kind of prebuy for '26? Jennifer Rumsey: Yeah. I mean, it is a big question and part of what I would say is will influence the range and how much the second half comes back. But we are assuming we will see some prebuy in the second half of next year. There is a combination of the natural coming out of the down cycle for the truck market, the more stability and tariffs that will cause customers to start buying trucks again, and then prebuy in the second half of the year. But we are really watching to try to how much will that be. You saw strong orders in December. Improvement in orders last month. But how that flows over the course of the year, I think we are all cautiously optimistic is what I would say. And then, you know, demand does start to strengthen, how quickly can the supply base flex back up because it dropped quite dramatically last year. So those are the things to watch. Mark Smith: Yeah. Fundamentals have improved a little bit. It has been a long dry spell. So hopefully that continues in addition to buying some product ahead of the changes. Jennifer Rumsey: May mean some more even performance as you go from the second half of this year into next year, though. Noah Kaye: Okay. And then I guess the tie into that just again around the engine margins. You mentioned the preparing for new product launches. But I know a lot of investment has gone into preparing the platform. So is it an incremental headwind to margins, the investment and the preparation costs for launch in 2026? Or are we actually starting to lap that? Mark Smith: We are starting to lap it to some extent, but said another way, we are essentially in some cases running with parallel operating systems. Some of the engine platforms are going to change quite significantly as we work through the introduction. So as we get through the other side of the launches, yes, we would expect the margins to step up once we convert over. Operator: Thank you. Our next question is from the line of Tim Thein with Raymond James. Please proceed with your question. Tim Thein: I will just kind of package these together. Question one is just on Mark going back to the comments earlier about the capital allocation flexibility that you have. I am curious as part of that, maybe it does not factor in or not, but your joint venture partner in your AMT venture announced a potential or likely spin-off of that business. I am just curious if that impacts could that give rise to potential option for Cummins if it wanted to increase its stake there. Maybe just thoughts around that. And then I guess part two is the data center revenue in total in '25. Can you help us on that? And then what is embedded in 2026 across power systems and distribution? Thank you. Jennifer Rumsey: Yeah. You know, of course, we have an important partnership with Eaton, as you noted, in the Eaton Cummins joint venture. I think it is premature to say how that will happen. We would expect continued partnership with that portion of their business going forward, and that joint venture and really making sure that we have optimized powertrains for our customers. Nicholas Arens: And then specific to your question on data center revenue, we had alluded, last call and $2.4 billion, $2.6 billion of total company revenue and expectations that would grow 30% to 35%. We did hit the upper bound of that. So for 2025, we are at about $3.5 billion between our power systems business and then also our distribution business. Operator: Thank you. Our last question comes from the line of Chad Dillard with Bernstein. Please proceed with your question. Chad Dillard: Hey, good morning, guys. So with the restructuring you took in Accelera, can you talk about how that changes the cost structure? Where do breakeven margins go? And then just maybe a little more color on just what the actions were. Jennifer Rumsey: Yes. So with this, the actions in the fourth quarter were really focused on our electrolyzer business. And just frankly, with the policy changes in green hydrogen, the demand for green hydrogen has dried up, dramatically lower. And so that has had a relook at our participation. You know, we have commitments to customers that we have made, but we will stop future commercial activity. And so what that means and even with some of the that are starting to flow through that we took a year ago is we have meaningfully lowered losses for this year, but some of these things take time to fully play through just based on existing business and commitments that we have, but we have meaningfully reduced our participation in hydrogen. And we continue to feel like we have got some good capability in battery electric powertrains and pacing our investments there. Given the slowing in the market, but the anticipation that that will continue to grow over time is really where we are focused. And then, of course, we never stopped investing in the engine side of our solutions. And so, anticipate more strength there for longer. Mark Smith: Yeah. And I think you will see in our disclosure some of the breakdown of cost was a combination of some people actions, some inventory write-downs, some contract exits. It is a whole combination of things. Whereas the Q3 charge is really just a goodwill impairment. This was related to specific actions that lower the cost going forwards. So as Jen said, what, you know, permanently reducing the rate of participation in electrolyzers going forward, but observing commitments we have already made. So that should have a positive trend to it over time. Chad Dillard: Got it. That is helpful. And then I wanted to revisit the gross tariff conversation. Can we just go back to talking about the seasonality of that from like first half versus second half? Mark Smith: Somebody else is responsible for the seasonality of that. But this is what I would say, like think of if you look at over the course of last year, you saw growing, especially in the second half, tariff cost through and recovery increasing as we negotiated commercial agreements with our customers that becomes hopefully more stable and steady this year. Although there are still some new tariff announcements. And as I noted, details around engine offset and 232 that we will need to work through. So we are continuing to spend a lot of time on how this is moving in. The agreements that we have with our suppliers and customers and fundamentally, maintain our goal of recovering at a dollar level our actual cost. Mark Smith: But the degree of variation has moderated here between the quarters. We were able to deliver the net, you know, mostly recovered in the fourth quarter that anticipated, which contributed to the solid results overall. So from the seasonal, it is more just the pacing of how long it took to work through the supply chain. And of course, there were a number of changes up and down. Operator: Thank you. At this time, we have reached the end of our question and answer session. I will turn the floor back to Nicholas Arens for closing remarks. Nicholas Arens: Thank you. That concludes our teleconference for the day. Thank you all for participating in your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you.
Operator: Good day, everyone, and welcome to the Thomson Reuters' fourth quarter earnings call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead. Gary Bisbee: Thank you, Melinda. Good morning, and thank you, everyone, for joining us today for our fourth quarter 2025 earnings call. I'm joined today by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following their remarks. [Operator Instructions] Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth before currency -- revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS and other supplementary financial measures, which are discussed on this special note slide. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations department. Before I turn it over to Steve, let me provide two quick updates. First, we have tweaked the naming for 2 of our segments to better represent their current focus and operations. Tax & Accounting Professionals is now known as Tax, Audit & Accounting Professionals, and Reuters News is now Reuters. The changes are name only with no impact on the composition or measurement of their results. Second, please note that starting with our first quarter 2026 results, we will be making minor changes to where certain product revenue sits within the Big 3, reflecting how certain customers are managed. There is no impact on our consolidated results. For your convenience, we have posted to the Investor Relations section of our website a schedule that reflects our revised full year '23, '24 and '25 results and 2025 quarterly results in the manner we will begin reporting next quarter. Let me now turn it over to Steve Hasker. Stephen Hasker: Thank you, Gary, and thanks to all of you for joining us today. Let me begin by commenting on the AI competition concerns that have led to recent share price volatility. We have growing confidence in the value of our content and our expertise for delivering professional-grade AI solutions. Our second quarter call in August, we discussed why Thomson Reuters is well positioned to win with Agentic AI. We bring comprehensive proprietary content, deep domain expertise and leading workflow software, which we combined with advanced reasoning models to complete complex multistep tasks. Our unique and high-quality content grounds the AI outputs and our deep subject matter expertise trains and fine tunes the AI. Professional-grade results cannot be delivered without this content and expertise. On our third quarter call in November, we discussed the durable differentiation we believe exists with Westlaw. Its unmatched breadth of proprietary, editorially enhanced legal content, together with sophisticated tools to verify the AI deliver the comprehensive, accurate and up-to-date output needed for high stakes litigation. General purpose models cannot meet this standard. Since those discussions, our optimism around Agentic opportunity has strengthened. The launch of Westlaw Advantage has gone extremely well with early sales and customer feedback indicating we have created a new standard in legal research capabilities. And more importantly, we have proven that we can leverage Agentic deep research capabilities to unleash our content and our expertise to clearly differentiate our AI solutions. We are working to bring these advanced Agentic capabilities in the full power of Westlaw and Practical Law to CoCounsel legal by midyear and to our other legal tax and risk offerings in the future. We see legal AI workflows as a significant white space opportunity for TR and one that is largely incremental to our traditional research and know-how stronghold. We remain the clear leader in research and content. And we believe that we are a leader in the AI workflow market today. Looking forward, our strategy is clear. We will continue to aggressively innovate with a focus on leveraging our proprietary content and deep domain expertise along with the latest AI capabilities to deliver highly specialized Agentic workflows that we believe will be difficult for those without the same content or expertise to replicate. I'll now turn to the fourth quarter. 2025 was a year of continued progress at Thomson Reuters. So let me start by reviewing some of our key accomplishments. First, we delivered another year of good financial results meeting our key targets. Full year organic revenue grew 7%, driven by 9% growth for the Big 3. Our adjusted EBITDA margin expanded by 100 basis points to 39.2%, meeting our outlook, and we delivered $1.95 billion in free cash flow, slightly ahead of expectations. 2025 saw continued acceleration in our pace of innovation with several foundational product launches, including Westlaw Advantage, the CoCounsel Legal unified solution and CoCounsel for Tax & Audit to name a few. Initial customer feedback and sales activity across these offerings has been encouraging, and we're excited about our road maps for 2026 as we work to bring deep research and Agentic capabilities more deeply into our portfolio. Overall, commercial momentum across our AI-enabled offerings continues to build, highlighted by several large [ CoCounsel ] wins, including Microsoft, an important validation of our strategy and the market shift towards trusted domain-specific AI. We're also excited about initiatives we are driving to leverage AI internally to reimagine how we work, fostering a "tech + talent" mindset to drive productivity and speed. As I will discuss in a moment, we have delivered several early successes, including in software engineering, customer service, content operations and our General Counsel's office. This progress provides confidence in the long-term opportunity to become a more productive and nimble organization. Our capital capacity and liquidity remain a key asset we are focused on deploying to create shareholder value. In 2025, we invested $850 million into M&A including 4 strategic bolt-on acquisitions, bolstering key franchises and talent. We executed a $1 billion share repurchase program last fall. And this morning, we have announced another 10% increase in our annual common stock dividend. We remain committed to a balanced capital allocation approach, and we continue to assess a number of inorganic opportunities. Our estimated $11 billion of capital capacity through 2028, we are positioned to be both aggressive and opportunistic. Looking forward, our conviction around the medium-term growth potential for Thomson Reuters remain strong. As Mike will discuss in more detail, we are reaffirming our 2026 outlook for organic revenue growth of 7.5% to 8% including approximately 9.5% for the Big 3. We expect healthy margin expansion and strong free cash flow even as we continue to invest in innovating, serving our customers. Now to the results for the quarter. Fourth quarter organic revenues grew 7%. Organic recurring and transactional revenue grew 9% and 8%, respectively, while Print revenues declined 6% in line with expectations. Adjusted EBITDA increased 8% to $777 million reflecting a 110 basis point margin increase to 38.7% due to healthy operating leverage and good cost discipline. Turning to the fourth quarter results by segment. The Big 3 segments delivered 9% revenue growth. Legal organic revenue again grew 9% despite softer government growth, continued momentum from Westlaw and CoCounsel were the key drivers. Corporates organic revenue grew 9%, driven by offerings in our legal, tax and risk portfolios and the segment's international businesses. Tax, Audit & Accounting organic revenues grew 11%, driven by UltraTax, our Latin American business and CoCounsel. Reuters organic revenues rose 5%, driven by growth in the agency business and our contract with LSEG. Lastly, Global Print organic revenues declined 6% year-on-year. In summary, we're pleased with our Q4 results. Full year organic revenues grew 7%. Organic recurring and transactional revenue grew 9% and 4%, respectively, while Print revenues declined 5%. Adjusted EBITDA increased 6% to $2.9 billion, yielding a margin of 39.2%. Adjusted earnings per share for the year was $3.92 compared with $3.77 per share in the prior year. Let me finish on the results for the full year by noting that we have met or exceeded all of our 2025 guidance metrics with the [ loan ] exception of interest expense. This was higher than our forecast due to the pace of our share repurchase program and declines in market interest rates, which led to lower interest income. As you know, we have talked a lot about AI from a product and an innovation perspective in recent years. I'd like to close my comments today by briefly discussing another important AI-driven initiative here at Thomson Reuters, namely leveraging the technology internally to reimagine how we work. Since 2023, we have invested heavily in AI tools and training. We created Open Arena, internal AI platform providing all employees with access to leading AI models and capabilities, and we are leveraging multiple third-party AI applications. We have held several TR-wide AI-focused learning days, offered AI certification programs and taken steps to encourage and foster a culture of experimentation with a test-and-learn approach. This enabled our employees to not only build skills, but also test the impact created by the AI tools. Last year, having matured from experimentation to execution, we implemented a disciplined top-down approach to driving transformation at scale through AI-driven automation. Our AI initiatives are now purpose-based with specific business targets, and we have created 3-year AI road maps for all segments and functions. We are leveraging key talent, process and learnings from our successful execution of the change program to reimagine how we use technology, simplify complexity, optimize our footprint and commercial systems and evolve our work with the "tech + talent" mindset. We are pleased with our progress to date as we are seeing broad engagement and a growing number of successes. For example, more than 85% of our employees are active users of Open Arena and our other AI tools. We have more than 300 AI use cases in development across all areas of the company. Let me share 4 specific examples where AI is already driving measurable business impact at Thomson Reuters. Let's start with software development. Over 80% of our engineers actively use AI-powered tools, making AI a core part of our development life cycle. This goes beyond cogeneration. AI is accelerating security remediation, modernizing legacy systems, automating quality assurance and enabling predictive incident management. These capabilities have transformed how we build and deliver products, reducing lead times and improving quality at scale. Moving to customer support by pairing third-party AI tools with internal development, we have automated knowledge search and content creation and added agent assist chatbots. These tools are accelerating routine work and improving outcomes for both our customer service agents and our customers. This includes having reduced call average handle time by 15% and boosted first call resolution by 10%. In content operations, we're leveraging proprietary AI tools to extend our differentiation and content advantage. Our content creation process requires deep legal expertise and proprietary technology. Over the past 18 months, we've developed specialized AI tools specifically engineered for legal content processing. These tools now automate complex tasks like document ingestion, classification and citation conversion for judicial cases and legislative updates. These advancements improve our speed and quality of proprietary content we deliver. For example, we have accelerated U.S. content delivery to Westlaw by 25%, giving customers faster access to critical legal updates. And importantly, the increased automation also frees up resources that we are refocusing on driving further product enhancement and accelerated innovation. And finally, our General Counsel's office continues to excel in leveraging Thomson Reuters AI-enabled legal tools. They were early adopters of CoCounsel and our other AI-enabled offerings, which they leverage for contract review and drafting legal research and more. I'll provide one concrete example with CoCounsel tabular analysis, a recently launched feature that automates the review of up to 10,000 documents at a time. Following the close of an acquisition last year, the team used this capability to review thousands of customer contents, completing this complex task in hours rather than weeks and saving significant time and resources. It also allowed for a much quicker assessment of the ongoing obligations and risk profile of the acquired business. Mike will share some incremental commentary, but let me conclude by stating we have growing confidence that this reimagination of how we work will bring significant benefits to TR over the next few years, increasing our productivity, accelerating our decision-making and improving our customer experiences. I'll now turn it over to Mike to review our financial performance. Michael Eastwood: Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency and on an organic basis. Let me start by discussing the fourth quarter revenue performance for our Big 3 segment. Organic revenue grew 9% in the fourth quarter, continuing the strong trend from recent periods. Legal Professionals organic revenue grew 9% again this quarter despite slower growth from government as we discussed last quarter. Key drivers from a product perspective remain Westlaw, CoCounsel and Practical Law. Government grew 5% in the quarter, though we expect this to slow in Q1 based on the government cancellations we discussed last quarter. Our Corporate segment grew 9% organically, driven by 9% recurring and 7% transactional growth. Indirect Tax, Practical Law, Pagero and our international businesses were key contributors. Tax, Audit & Accounting organic revenue increased 11%. Recurring and transactional revenues grew 12% and 3%, respectively. Our Latin America business, UltraTax, CoCounsel for tax and audit and SafeSend were key drivers. Moving to Reuters. Organic revenue rose 5% for the quarter driven primarily by growth from the news agreement with the Data & Analytics business of LSEG and $5 million of generative AI-related transactional content licensing revenue and our agency business. Finally, Global Print revenues decreased 6% on an organic basis. On a consolidated basis, fourth quarter organic revenues increased 7%. At the end of Q4, the percent of our annualized contract value or ACV from products that are GenAI-enabled was 28%, up from 24% last quarter. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $709 million, up 9% from the prior year period with the margin rising 130 basis points to 43%. Reuters adjusted EBITDA was $48 million with a margin of 21%. Global Print's adjusted EBITDA was $54 million with a margin of 39.6%. In aggregate, total company adjusted EBITDA was $777 million, an 8% increase versus Q4 2024, reflecting a 110 basis point margin increase to 38.7% despite $19 million of severance expense related to our initiatives to reimagine how we work. Turning to earnings per share. Adjusted EPS was $1.07 for the quarter versus $1.01 in the prior year period. Currency had a $0.01 negative impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. For the full year 2025, our free cash flow was $1.95 billion, slightly ahead of our approximately $1.9 billion outlook. EBITDA growth was the primary driver of the year-over-year increase in free cash flow. I will now provide an update on our capital structure and several capital allocation items. From a liquidity and capital structure standpoint, we remain in an enviable position with below target leverage and healthy cash flow. This strong financial position is illustrated by our December 31 capitalization. We had approximately $500 million of cash on hand at year-end. We have an undrawn $2 billion revolving credit facility. We also have $1.7 billion available for issuance under our Commercial Paper program. Our December 31 leverage ratio was 0.6x, below our 2.5x internal target, as noted in our value creation model. Looking forward, we forecast $11 billion of capital capacity through 2028. We remain focused on value creation, and we expect to continue with our balanced capital allocation approach that includes annual dividend growth, strategic M&A and capital returns. I will provide several updates. This morning, we announced a 10% increase in our annual dividend for 2026 to $2.62 per share, up $0.24 from $2.38 in 2025. This marks the 33rd consecutive year of annual dividend increases, and the fifth consecutive 10% increase. In 2025, we completed 4 acquisitions for approximately $850 million. SafeSend and Additive brought key capabilities to our Tax, Audit & Accounting segment with small bolt-ons of TimeBase and Imagn Images bolstering our Legal business in Australia and Reuters, respectively. In October, we completed the $1 billion share repurchase program or NCIB, we announced in August retiring 6 million shares. For the year, we returned slightly more than 100% of our 2025 free cash flow through dividends and buybacks, ahead of our 75% return commitment. Looking forward, we have ample capacity to continue to execute against all 3 of these capital allocation strategies in 2026 and beyond. We remain highly focused on strategic M&A, but expect to again deliver to the 75% free cash flow return commitment in 2026. I will conclude with a few thoughts on our outlook. We are reiterating the 2026 financial framework we discussed last quarter, and providing additional detail with our 2026 guidance. We forecast total and organic revenue growth in a range of 7.5% to 8%, driven by approximately 9.5% growth for the Big 3. Our outlook calls for modest organic revenue growth acceleration for both total TR and the Big 3. We are confident in delivering this improvement, which benefits from positive underlying momentum, the execution of our innovation road maps and to a lesser extent, easier comparisons in several areas including at Reuters and Corporates. We continue to forecast our adjusted EBITDA margin in 2026, rising by 100 basis points from 39.2% in 2025. We expect our 2026 effective tax rate to be approximately 19% with our cash tax rate roughly 5% below this book tax rate. Moving to capital intensity. We see 2026 accrued CapEx as a percent of revenue of approximately 8%, in line with the trend in recent years. This level of investment is supportive of our continued focus on investing in product innovation, as we strive to deliver stronger revenue growth. We expect 2026 free cash flow to be approximately $2.1 billion, up from $1.95 billion in 2025 as growing profitability and stable capital intensity more than offset higher cash taxes. We are reiterating previously provided 2026 organic revenue growth targets for the Big 3 segments as follows: Legal Professionals growth of 8% to 9%; Corporates of 9% to 11%; and Tax, Audit & Accounting Professionals of 11% to 13%. As it relates to Steve's discussion of leveraging AI to reimagine how we work, I will add a few comments. First, as I stated earlier, our Q4 results included approximately $19 million of severance as we take steps to drive automation and productivity throughout the company. We expect an additional $10 million in the first quarter. While it is early in our automation drive, we have growing confidence in the opportunity ahead. Combining our underlying operating leverage with expected productivity gains, we now expect to deliver 100 basis points of annual EBITDA margin expansion, not only in 2026, but also in 2027 and 2028 even as we continue to invest in innovation and driving revenue growth. Turning to the first quarter. We expect organic revenue growth of approximately 7% and our adjusted EBITDA margin to be approximately 42%. Looking beyond Q1, we expect revenue growth to strengthen, primarily driven by building momentum from a number of our AI-enabled products. Let me now turn it back to Gary for questions. Gary Bisbee: Thanks, Mike. Melinda, we're happy to begin the Q&A. Operator: [Operator Instructions] And we'll go right to Jason Haas with Wells Fargo. Jason Haas: To start, I'm curious if you could comment on the Legal recurring growth. It did slow from 3Q to 4Q, so curious what drove that. And then can you just outline what sort of government headwinds you're expecting in 2026? Michael Eastwood: Sure, Jason. Your first question, the answer is associated with our Government business. The second question, which is more broader, I will expand. Jason, if you look at Legal Professionals, excluding Government, we have clear momentum driven by the pace of AI-driven innovation including our Westlaw and CoCounsel products. With that said, when we incorporate the full impact of Government cancellations we discussed during Q3, we do see the Government growth slowing in Q1 from the 5% we reported in Q4 of 2025. We are confident Legal Professionals will achieve 8% to 9% for full year 2026. However, there could vary -- could be variations within that range quarter-by-quarter in 2026 due to the Government. So hopefully, Jason, that helps with both questions. I'll just reemphasize, when we look at Legal Professionals, excluding Government, we have terrific momentum there. It will be offset somewhat with the Government cancellations, but we're very confident in delivering that full year '26 of 8% to 9%. Gary Bisbee: Mike, if I could just add one more comment, Jason, you might have seen the transactional growth at Legal was really strong. That was actually driven in large part by Government. And so there was a bit of a shift within the quarter from recurring to transactional within the Government segment as well. Jason Haas: Okay. Great. Yes, I was wondering about that, too. So that's very helpful. And then as a follow-up question, I was hoping to take a step back and curious if you could walk us through what is the moat around Westlaw and Practical Law? And why can't those be easily replicated by some competitor that's using an AI tool to try to do so? Stephen Hasker: Yes. I'll start that, Jason. Thanks for the question. If you go back to our prior earnings call, we went into some depth with regard to specifically Westlaw. So I want -- I'll try not to repeat too many of those comments, but let me make a few comments because I think this is obviously a hot topic broadly and particularly a hot topic this week. So the first comment I'd make is we have not seen a change in competitive dynamics in our areas of core franchise. So that's legal research and know-how, Westlaw and Practical Law and the various tax calculation engines that we see and, for that matter, our risk, fraud and compliance data set. So as it pertains to legal, we have not seen new entrants into the legal research space of any measure or importance. Where we have seen more competition is in a white space area for Thomson Reuters, which is this AI-driven workflow area, where the legal assistants have emerged since the rise of generative and now Agentic AI. Now the reason that we are confident and growing in confidence is a couple fold. Firstly, we believe and all the evidence in the marketplace today supports the fact that a general purpose model cannot do what professional-grade AI can do. So our starting point here, which we believe is a very strong starting point, is that we have 2 highly differentiated assets. The first, we have decades and in some jurisdictions, centuries of unique content sets that have been created by highly skilled, highly trained and qualified lawyers based on case-law and based on best practices and know-how and improved and refined, curated and delivered over decades or centuries, so the first is our content sets, we think, very difficult to replicate. And the second is our deep domain expertise. So thousands of attorney editors on staff who create this content, and we have retrained to use that expertise to train our agents. And so as I said in my opening remarks, we have growing confidence here. And that growth in confidence comes from the fact that in August of last year, we launched Westlaw Advantage, which is a deep research Agentic product. Based on early sales and customer feedback, it has reset the bar in the legal research space. To this day, it is unmatched and very significantly more sophisticated, more accurate and more useful than the next best tool. And secondly, in putting this product successfully forward, we have cracked the code, we believe, on leveraging our content and our deep domain expertise to train agents. And so the opportunity for us going forward and this runs through our product road map in '26 and beyond is to take that leveraging of content and expertise to train agents to our other flagship products, starting with CoCounsel, to launch a fully agentic version in the coming months through to our other franchise products. And so I'd finish by saying there is a marked difference between professional grade AI and general purpose model AI. Professionals -- the stakes for professionals are extraordinarily high. They must be correct. They're doing expert fiduciary work and they require data privacy and security. And ultimately, they are accountable for being correct. And so that's really a basis of our confidence, not only in our core Westlaw and Practical Law franchises, but also in our ability to extend leadership into AI-driven workflows, which, as I said, is a white space opportunity for us. Operator: [Operator Instructions] We go next to Tim Casey with BMO Capital Markets. Tim Casey: Given the share price action certainly of this week, could you talk a little bit about how share buybacks, return of capital transactions things like that are -- I guess, how are they stacking up in your pecking order? I know you detailed your priority of strategic M&A, but given what's gone this week, how are you thinking about buybacks more specifically? Michael Eastwood: Yes. Tim, I'll start overall, as you referenced in my prepared remarks, I did mention we will continue with our balanced capital allocation, the 3 vectors of annual dividend growth, which we increased 10% today, strategic M&A and capital returns. Tim, we agree with your comment and assessment that share repurchases are definitely attractive at the current levels, and we look forward to continuing our ongoing discussions with the Board in that regard. Lastly, I would mention, Tim, that we plan to deliver on our commitment to return 75% of our free cash flow to investors in 2026. In order to achieve that 75%, we would need about $500 million of share repurchases to achieve this commitment, which is in addition to the dividends previously mentioned. So just to reiterate, Tim, we agree share repurchases are attractive at the current levels, and we'll continue to discuss that option with the Board. Operator: We go next to Manav Patnaik with Barclays. Brendan Popson: This is Brendan on for Manav. Just wanted to see if you could help us at all with the kind of how the size of the CoCounsel, if that's even possible to split out and kind of the -- it's how much in legal versus tax? And then also, just any comment on the progress of adoption of Westlaw Advantage and kind of what kind of uplift -- adoption uplift you expect that's kind of baked into the guidance? Stephen Hasker: Yes, Brendan, I'll start. It's Steve. Thanks for the question. So we haven't and don't plan to sort of provide specific dollar ACV numbers for those products as it's relatively early days. What I would say though is that we are very encouraged by the reception of CoCounsel legal by both the general counsels that we serve and aspire to serve and their teams and also the law firms. And that is both the largest law firms in the world, medium firms and small firms. And I think Steve Assie and [ Lucy Mikh ] and Aaron Rademacher have done a great job as is Karan Tewari in terms of penetrating CoCounsel into legal community. So we are very pleased with the progress, and we think we are keeping pace or outpace the competition in what is a white space area for us. And I'd echo those comments as it pertains to CoCounsel for Tax & Audit. On the back of the Materia acquisition and particularly the integration of Kevin Merlini and Lucas Adams from Materia into [indiscernible] fully Agentic products that they bought with them and have been able to develop with the help of our content and expertise have been very well received by tax and accounting professionals firms, small, medium, large, in-house tax departments and also the professional firms themselves. So I think it's early days in terms of the development of these [indiscernible] change management within the customer set. But we're off to a great start, and we're looking forward to both further investing and innovating and having our fantastic sales team to bring those products and services to market. Michael Eastwood: Brendan, I think you had a second question in regards to the Westlaw Advantage. I would say the trajectory there is based on actually higher than prior releases of Westlaw. Steve and I had a chance to spend time last week with Mike Dahn. Mike Dahn leads the Westlaw Advantage and also spent time with Emily Colbert. Maybe I'll expand your question which is likely to come, Brendan, in regards to our confidence level in 2026. These GenAI offerings that we've recently launched is a key ingredient. Several items there, Westlaw Advantage, the CoCounsel Legal that Steve talked about, Steve also talked about Coke Council for Tax & Audit. I would add Ready to Advise, which is within Elizabeth Beastrom's Tax, Audit & Accounting Professionals. And then we just launched Ready to Review with Kevin Merlini there. So that's one of the key reasons, Brendan, why we're confident in our 2026 revenue guidance. Along with that, Elizabeth is scaling the recent acquisitions of SafeSend and Additive. The last component of that revenue growth acceleration in 2026, I mentioned in the prepared remarks, easier comparisons, specifically for Reuters, given the onetime GenAI content licensing revenue, it was lower in 2025. 2024 was $33 million. 2025, it was $13 million. So that lower Reuters onetime GenAI content licensing revenue, contributes about 30 basis points to total TR if we look at the walk of revenue between 2025 and 2026. Sorry to expand there, Brendan, but I thought that might be helpful just to give you a broader view on our revenue acceleration in 2026. Operator: Our next question comes from Drew McReynolds with RBC. Drew McReynolds: Either for Steve or Mike, with respect to strategic M&A, I think you guys, as a company, clearly have been in AI for a long time and have been successful doing tuck-in M&A. Is it incorrect to assume the pace of all the AI innovation, including from the frontier models is accelerating. So does that make strategic M&A trickier to do? And then when you see a pullback like we've gotten this week across the broader software space, have multiples in the private market -- do you expect them to come in? And just your level of confidence of making sure you're doing the right strategic acquisitions, just given, again, the pace of AI evolution underneath the hood? Stephen Hasker: Yes, Drew, thanks. It's a great question. Look, in my view, M&A of any stripe and any size is tricky, and it always has been and it always will be. And that's one of the reasons that we've kept, as I think you know, the bar very high. I mean we look for acquisitions that are first and foremost, additive to our customer experience. Secondly, they've got modern tech. The financials need to work for us, not just the exiting shareholders. And last but not least, we look for executives and teams leading those companies that we think will be additive to sort of TR's culture and talent base. And so we've done a series of these acquisitions, as you've seen. But I think have -- we've kept our powder dry 9 times out of 10 relative to the pipelines and that which we look at. And I would suggest that will continue because M&A is hard and integration is hard, and we take it very, very seriously. And we're proud of the sort of [ batting average ] that we've achieved in terms of integrating the acquisitions we've made over the last 5 or 6 years. As to sort of what happens in the private markets with valuations, as we've shared before, we focus on the best targets and the best products and teams. And so we're not in the market sort of looking for sort of cheap deals and subpar products. The prices of those assets held in private hands have stayed high in my view. I don't think the private equity firms have sort of readjusted their expectations. Here, we sit with $11 billion of capital to deploy between now and the end of 2028. And I think that's an advantageous position because it should the events, particularly this week, but over the last couple of months in terms of downgrading the valuations of software and AI-related businesses. I think we should be able to take advantage of that, should it occur. But I've been wrong before in terms of how fast the private markets would move. And so we won't overstate the point. What would you add, Mike? Michael Eastwood: Good summary. Thank you, Steve. Operator: We'll go next to George Tong with Goldman Sachs. Anna Wu: This is Anna Wu on for George Tong. We are in an environment where many enterprises are keeping headcount flat or even down. How do you monetize your AI product innovations further to capture the increased AI-driven consumptions in pricing. As you look to 2026, how should we think about pricing trends compared to the approach you took in '25? Stephen Hasker: Yes. Anna, thanks for the question. I'll let Mike answer the pricing question. But in terms of the headcount, so let me make something really clear, which we often state, but I can't be clear enough and that is we do not price on a headcount basis. So we don't sell seat licenses. So to the extent that our tools and this broader sort of Agentic AI transformation drives greater efficiency and ultimately, headcount reduction within either in-house legal tax audit departments and so forth or the firms that serve corporations. We will be a beneficiary of that, not a victim of that. And the reason we'll be a beneficiary of that, and I used the example in my prepared remarks, of how Norie Campbell's team saved weeks in terms of their due diligence activities and contract review on a potential acquisition is that we price -- we're increasingly looking to price to value. Now it's early days in this AI journey. And so there's still a sort of a level of experimentation in terms of pricing as customers become accustomed to these tools and start to learn the impact and play through. But we should be a beneficiary of that, not a victim of that. And we're always looking to be -- to base our pricing as much as we can on the ultimate end impact. Michael Eastwood: Anna, I'll address 2 additional points I think you raised. One is in regards to how we monitor our GenAI investments. Certainly, Steve just touched on pricing, which I'll go into more detail in a second. Pricing, which we monitor very closely with our segment presidents, Raghu Ramanathan, Laura Clayton McDonnell, Elizabeth Beastrom for the Big 3 segments. I think another indicator, Anna, is our continued EBITDA margin expansion. As we mentioned and you saw today, EBITDA margin expanded 100 basis points in 2025,and we've made commitments to continue the 100 basis points of margin expansion in '26, '27 and '28. Hopefully, that gives you indicators that we're closely monitoring all of our GenAI and really all investments period. I think that's a strong signal of the return that we're getting. On your second question on pricing, we estimate a slightly higher overall pricing yield in 2026 versus 2025. And when I say that, that is a composite of our full portfolio, not just the GenAI offerings, but all of our offerings. So slightly higher pricing yield in '26 versus '25, Anna. Anna Wu: Super helpful. Just as a follow-up, I'm wondering what are you hearing from your customers on the rollout of AI solutions in T&A? What's your take on the potential experimenting with other newer or smaller GenAI point solutions that's becoming more available in the market, specifically in areas like invoice extraction or accounts receivable automation versus staying with a scalable and more integrated platform like Thomson Reuters is offering? Stephen Hasker: Yes. So Anna, your question is, are we hearing customers sort of experiment with general purpose AI solutions in areas like e-invoicing and AP automation? If that's -- if I would answer it correctly, the answer is no. As you know, we acquired Pagero, which is, we believe, world's leading e-invoicing solution and as mandates roll out through Europe and increasingly in the Middle East and Southeast Asia and Latin America, we very much like the trajectory of that product and that offering given its inherent product advantages. And our tax solutions, including our indirect tax solutions and our e-invoicing solutions are lightning fast, very accurate and priced efficiently. So the idea that sort of a general-purpose AI tool is going to come in and perform that core task more quickly and efficiently at a lower price is not factually true and not the concern. I think the opportunity for us is to use AI as we're doing in the Tax & Accounting space with Ready to Review and Ready to Advise is to use AI to build out the entire value chain of activities around the tax calculation engine. And so that's a playbook that we're rolling out first in Tax, Audit & Accounting Professionals, and we will extend into our ONESOURCE proposition, e-invoicing and indirect tax and ultimately direct tax. And so it's early days for that. But we've got a playbook, and we like the early feedback we've gotten from customers around Ready to Review and Ready to Advise. Michael Eastwood: Anna, just to supplement to your point, specifically on e-invoice and which Steve commented on. If you look at our indirect tax solution, Pagero solutions, which are included within our corporate segment, those offerings fully met our revenue expectations in 2025 and that trajectory will continue into 2026. Operator: We'll go next to the line of Aravinda Galappatthige with Canaccord Genuity. Aravinda Galappatthige: Just to go back to sort of, Steve, you comments about the moat. I was wondering if it's worthwhile differentiating the position with respect to your customers and larger law firms as opposed to the smaller law firms. Is there a material difference with respect to the threat from these new generalized services? And then as my follow-up, perhaps, Mike, on clearly noticed the GenAI enabled products as a percentage of ACV jumped a little bit more than in prior quarters, 28%. How should we think of sort of the high watermark for that? Obviously, there's a bunch of products that will never be AI, Global Print and so forth. Maybe just help us imagine what -- how far that number could go? Stephen Hasker: Thanks, Aravinda. I'll take the first, Mike the second. So traditionally, when we put out a new version, for example, of Westlaw or an upgraded version of Practical Law, the largest law firms and the largest general counsel offices were the first to kick the tires on those and ultimately take them up. And then that would sort of work its way down through the customer set. And you've heard over time, Mike and Gary talk about percent of ACV that these products occupy and typically, it reached the limit in the sort of 70-odd percent range. I think what we're seeing is a slightly different dynamic in this sort of AI-driven era insofar as we have just as much demand in our most advanced AI-driven tools from small firms as we do medium and large because they instantly see the impact in terms of accuracy, quality, and ultimately, the sort of impact to their bottom line. And the small folks see that as quickly. I mean I've been in sales meetings where we've had sole litigators in the Midwest, for example, the U.S., say, see a demo of the latest Westlaw and/or CoCounsel and say, where do I buy? And when I've asked them, why such a quick decision? They've said because, look, I've been thinking about hiring another paralegal or another associate. And this does the work in many cases. And it's easier and cheaper for me to do this than go down that hiring path. So that dynamic has been slightly different. But the demand is uniformly [ keen ] across all 3, which I think is slightly different than previous iterations. Mike? Michael Eastwood: Aravinda, in regards to your question on GenAI-enabled products, just for everyone's benefit, I'll say context. We've initially provided this metric in November of 2024 with the Q3 '24 call. Initially, it was up 15% of our annual contract value. As noted today, it's now 28%. To specifically address your question, if you can visualize a graph, I think we will see continued steady rise in the percent of ACV that's GenAI-enabled throughout 2026, 2027. I think the second thing I would do on that visual in regards to the trend line, there will be points in time over '26, '27, where we will add AI to more of our existing products. So at those points, you could see -- begin to see some uptick that's higher than the current trend that we have. So 2 points there. We'll see -- we'll keep rising steadily. And then as we AI-enable more of our products, you'll see some spikes over the time horizon. But we're certainly pleased with that continued uptick, Aravinda, and there is a direct correlation to my comments earlier as to my confidence in achieving the 2026 targets with the progress and momentum that we have with the GenAI offerings. Is that helpful, Aravinda? Aravinda Galappatthige: Absolutely. Operator: We'll go next to Kevin McVeigh with UBS. Kevin McVeigh: Great. Congratulations on the execution and a lot of uncertainty -- perceived uncertainty. I wonder if you could maybe just go into -- because I think one of the parts that maybe isn't fully appreciated by the market is the complexity of the data aggregation. And then ultimately, the overlay of your in-house counsel to draw kind of conclusions. And just trying to get a sense of how difficult it is to aggregate the data, not only from obviously digital but also linear perspective? So maybe talk to that a little bit, and then I think the importance of, I think, it's at 1,700, 1,800 in-house attorneys you have and how critical that curation process is to the ultimately delivery, Steve, to your point, kind of how important it is getting it right and having the most comprehensive view? Stephen Hasker: Yes. Thanks, Kevin. It's sort of obviously renewed interest in this question. I would say the vast majority of value in our data sets, particularly but not limited to our lead [indiscernible] comes from the IP and the added value from our attorney editors. And these are large teams of terrifically talented, highly dedicated folks spread throughout the world. And just a couple of sort of anecdotal points. I mean the first is we have in some jurisdiction centuries worth of content and decades and decades of content that was never digitized. So it required someone to go to the court, step to the courthouse and record that first instance. Secondly, to the extent that some of the case information is published by a particular circuit court or a particular courthouse. Oftentimes, it includes a sort of a summary of the judgment. It doesn't include, for example, dissenting opinions and all of the fact base sitting beneath that. And we've captured that over time. But most importantly is the way our editors interpret that information, quantify that information, categorize it and add the expertise that helps determine, for example, is this patent relevant to other situations and which is the relevant precedent and which isn't. That's where a lot of the real IP is added, and it is a very, very significant added value add over that sort of base level information that's more publicly available. And that is certainly the true in Legal and it's true in Tax & Accounting. The second thing I would add, I've mentioned this a couple of times, but it's worth reiterating is that under Leann Blanchfield's leadership with help from David Wong and Joel Hron and Emre and many others, we have trained our attorney editors, Tax & Accounting editors to take their expertise not only to produce the content that I just described, but also to train our agents. So if you think about a particular transaction, legal transaction, we've broken it down into the 25 or 30 or 100 different steps. And then the agents are trained by our experts to behave as a world-class best practice practitioner, and the agents can then behave in sequence and in parallel to work their way through that problem in a very, very advanced way. And so that, I think, is another example of how this human expertise that's been developed here at TR over many, many decades is highly relevant to this AI era and a differentiator. Operator: Our next question comes from Doug Arthur with Huber Research. Douglas Arthur: Yes. Let me ask a numbers question. Mike, the $19 million in severance, a, was that expected? B, where does it show up in the segments? And given the AI productivity displacement, and you mentioned something about $11 million in the first quarter, are we likely to continue to see these kind of small hits as 2026 unfolds? Michael Eastwood: Yes. Doug, let me hit each of those points. The $19 million, if we go back to the November earnings call, I did foreshadow that we would have some onetime incremental investment. The $19 million is slightly higher than we anticipated at the time of the November earnings call. As I mentioned today, we estimate $10 million of severance in Q1. If I look for the remainder of the year, I think another $10 million is a reasonable estimate for total Q2 through Q4. That $10 million would be kind of spread along. So directionally, an estimate of $20 million for the full year. Let me bounce back to 2025. You asked about the $19 million and how it's spread. It is spread among segments and functions throughout total TR. The reason for that, as Steve mentioned during the prepared remarks, we have initiatives across every segment and every function to drive productivity for total TR. Douglas Arthur: Okay. So it's not in any specific segment per se? Michael Eastwood: It's not in any specific segment. Once again, Doug, that $19 million is spread among the segments. Operator: We'll go next to Stephanie Price with CIBC. Stephanie Price: I'll maybe ask on the EBITDA margin expansion. Mike, it was good to see the '26 preliminary guidance reiterated. Just curious how you're thinking about the pacing of internal AI investments and cost improvements? And what's driving the confidence to kind of extend that margin expansion through to '27 and '28? Michael Eastwood: Yes, Stephanie. Just to confirm, we did say 100 basis points of expansion in each year, '26, '27 and '28. I think Steve has touched on a few of these points, but I'll expand on it in regards to the confidence level. Stephanie, if you go back to '21 to 2023 when we had our Change Program, we have many members of that leadership team, including Andrew Pearce, Pradeep Lankapalli, Mike Goddard, Liz Bank, who were all heavily involved in the Change Program. So we have leaders who have proved in regards to their ability to galvanize the team, influence, encourage the team to deliver. So that is a really, really important point. The second point, Stephanie, we have been working on these initiatives for a period of time. They're just not beginning right now. So we go into 2026 with momentum across total TR, as I referenced a second ago with Doug's question. Customer segment, every function in TR with a number of use cases. I think Steve referenced 300 use cases during the course of his prepared remarks. So once again, those 300 use cases we've been working on throughout 2025. So we're not in exploration mode. We're in execution and delivery mode across all of these 300-plus use cases, Stephanie. In regards to the level of investment, that will happen throughout 2026. All of that is reflected within the guidance. There will not be surprises in regards to incremental investments to actually drive and execute against these initiatives. Did I touch on each of your questions, Stephanie? Stephanie Price: You did. Operator: We go next to Andrew Steinerman with JPMorgan. Andrew Steinerman: We look at your most sophisticated legal clients in terms of using AI broadly, are these clients consuming more or less content and spending more or less time on Westlaw and why? And I'll just get my follow-up as well. And on my follow-up, I just wanted to get a little more color at a segment level about that first quarter organic revenue guide of 7%. Stephen Hasker: Yes, Andrew, it's Steve. What a great question. So I don't know that I can give you a sort of the timestamped answer, right, like-for-like as to the talented attorneys spend more time in Westlaw and more time in the AI tools. Certainly, the penetration of these products is growing nicely. And as they are adopted, yes, the time goes up. But like-for-like, I think it's a little too early to tell. What I would say is a couple of things. The legal profession continues to by and large be in good health in terms of demand for its services. And my own view for what it's worth is that AI will create many, many complex legal issues. And therefore, the sort of headline demand for the profession will continue to grow. And so within that, these tools are going to play larger and larger roles, and there will be more and more attorneys using them more often each day. And so we think we'll go from a situation where Westlaw would be used by litigators in the context of a particular litigation to a situation where it plays larger and larger roles in the execution of that litigation. And also lawyers are -- one of the first things they do during the day is open up CoCounsel and start using it. And one of the last things they do is sort of shut it down and go home. So as I've said to you before, we see AI as a means to take our highly differentiated assets and enable us to play a larger role in the success of our customers. And I think what we don't know and what nobody knows is what will the profession's headcount be in serving that. But my bet is the demand for their services will go up, the complexity of questions that general counsels need to cope with will go up, and the adoption of these tools will grow significantly, particularly as they execute over the next 18 to 20 months, the change management required internally, just as we are doing, to ensure that we get -- extract full value from the tools. Michael Eastwood: Andrew, in regards to your second question, we don't break down our Q1 guidance by segment, consistent with Q1 and prior quarters, I just provided the total. So we don't provide a breakdown by segment. Gary Bisbee: We have time for one more question. Operator: We'll take Toni Kaplan with Morgan Stanley. Toni Kaplan: I want to put Westlaw aside for a second because I do think that it's easier to conceptualize what the moat is there versus the CoCounsel products. And so I guess with regard to CoCounsel, you're seeing a lot of growth there right now, but there is a lot of innovation in the space from competitors, and I know you're sort of considering them general AI competitors. But I guess if someone is thinking about summarization or drafting or are these like sort of other use cases outside of core legal research, I don't know that it's totally clear why you need the technical expertise for those types of functions. And so I think that, that's leading to like will the AI product suite eventually either get commoditized or harder to monetize. And so like, I guess, I just wanted to hear your thoughts on how that plays out over time and sort of the risk to growth because of that potential for commoditization? Stephen Hasker: Yes. Toni, thanks for the question. I think we've touched upon a couple of these points, but let me take a shot at that. I think the first thing you've got to start with in legal is the stakes associated with being a practicing attorney, and the sort of rights and obligations that come with that, the fiduciary responsibilities and the expertise required. And all of those things, the data privacy, the security and ultimately, the accountability for the advice that you provide. All of those things lead to the need to be correct, and not to allow proprietary information to bleed into an AI model or out into the [ ether or heaven ] forbid in the hands of the other side of the litigation or a transaction. And so the stakes are extraordinarily high, firstly. Secondly, the single best way to ensure that the AI output is correct is by training it on a highly curated, trusted, accurate data source. And we have that and very few, if any, of the new entrants have access to such a data source. That's the second part. I think the third is as we move into this agentic environment and the tools are able to perform more and more tasks and higher sophisticated tasks, whether that be summarization or drafting or production of briefs or rebuttals, motions to dismiss and so forth. In order to perform those tasks, the products need to be agentic. And in order for those agents to behave as a world-class expert would behave and meet the rights and obligations of a practicing attorney, those agents need to be trained by deep experts, and we have them and have invested very heavily over decades in those folks. And as I said in my remarks, have, in a sense, retrained those folks in addition to producing the content also to train the agents. So that's why we are confident. And we think that our sort of leadership position and heritage in around research and know-how is a great launching pad for us to be a leading player in the workflow tools as well. And we think that more and more customers will look to integrate those particular areas, including research and know-how, and they will want a tool that does both to a very high standard. Toni Kaplan: Makes sense. And then when you think about the Tax & Accounting business, I think it'd just be helpful. You've done this in the past, but maybe just to hear from your words, how you're thinking about the sort of differentiation or moat there? Because I do think that, that is a little bit of a different animal than legal in terms of what you're providing and differentiating. Stephen Hasker: Yes. Yes. No, I agree, Toni. I think it is -- there are some similarities, but there are also some differences clearly. So the basis of differentiation is the tax calculation engines that we operate and we provide to customers. And those tend to be very sticky because tax season -- tax filing system seasons come up quickly, and they're incredibly stressful moments for our customers. And so the idea of sort of swapping out the tax calculation engine is not all that attractive for a tax and accounting professional or the head of tax within a corporation. So we operate a number of these products that are leading in their categories, including UltraTax and GoSystem Tax and ONESOURCE. And so those calculation engines are lightning fast. They are fed by constantly and in many cases, instantly updated content, and they are extremely accurate. And of course, they have the last number of years of tax information embedded in them and feeding through them to ensure that accuracy and relevance to a particular customer. But all of those things make them both difficult to replace and also unattractive to replace because they are very, very high performing. The opportunity for us is to take that position in tax calculation and extend it into the sort of shoulder activities. So whether that's the collection and ingestion of all the source material that goes into a tax return and SurePrep obviously will do that whether that's the e-filing process that SafeSend performs well or whether it's the sort of integration of these activities that Materia has done so well. And so we think there's an opportunity to take that starting position with the tax calculation engines and to solve a critical problem for the industry, which is an acute talent shortage. As we've talked about before, Toni, the tax and accounting firms, whether they're the Big 4 or whether they're a high street firm, just can't access the talent as they could 25, 30 years ago, when there were lots of kids coming out of programs wanting to be CPAs. There are far fewer now. So the technology has to fill a significant gap, particularly as the number of returns goes up, the sophistication of returns goes up, the number of audits goes up and the sophistication goes up and the stakes around those things go up. And so that's why we're bullish about both our Tax, Audit & Accounting Professionals business that Elizabeth runs and also the various indirect and direct tax componentry within our Corporates business that Laura runs. Gary Bisbee: Thanks, everybody. Good day. Michael Eastwood: Bye. Operator: This concludes today's conference. We thank you for your participation. You may disconnect your lines at this time.
Kenneth Hsiang: Hello. I am Ken Hsiang , the Head of Investor Relations for ASE Technology Holdings. Welcome to our fourth quarter and full year 2025 earnings release. I'm joined today by Dr. Tien Wu, our COO; and Joseph Tung, our CFO. Thank you for attending our earnings release today. Please refer to our safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please do not ask questions or you may leave the session at this time. I would like to remind everyone that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk, and our actual results may differ materially. For purposes of this presentation, dollar figures are generally stated in new Taiwan dollars unless otherwise indicated. As a Taiwan-based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiaries. For today's presentation, Dr. Wu will be delivering the company's keynote. I will be going over the financial results, and Joseph will then provide the company's guidance. We will then be available to take your questions during the Q&A session that follows. With that, let me hand the presentation over to Dr. Tien Wu. Tien Wu: Good afternoon. I would like to give you a 2, 3 years' outlook for the ASE business. This represents the best perspective that we have as of today from our partner as well as customer. Let me talk about the megatrend and future opportunities. The AI server cycle continues, primarily led by hyperscaler and the data center development. There's a lot of activity in the physical layers via edge applications. For example, we're seeing more design perspective regarding to the robotics and the drone, also the equipment surrounding the automotive and the smart manufacturing. And I think the volume will gradually show up in the next 2 years. which is what we're looking for. We are seeing last year, the mainstream business recovered. We believe the mainstream, namely the IoT, the automotive, the general sector, the mainstream business will recover better this year comparing to last year. The second category is what I call the ASE and the Taiwan cluster. I would like to give you 2 backgrounds. Many of you have raised the questions, there seems to be a very fast evolution in technology as was demand. So the question is, how will ASE and the Taiwan cluster react to the fast evolution of technology and manufacturing requirement? The second question is, there seems to be a lot of constraints in substrate and maybe memory. And how would that change our perspective regarding to the manufacturing for our partner? I will try to answer that using a longer time frame. I think there's no question about the leadership in semiconductor manufacturing in Taiwan for this year as well as a few years down the road. I don't think there's any question about our position, Taiwan as was ASE. We also understand that what is driving the business in AI is mainly the system optimization, which includes chip level optimization, packaging level optimization as well as power delivery, silicon photonics, manufacturing efficiency as well as thermal. I would like to remind you, Taiwan has manufacturing leadership in all sectors. In other words, not only we exemplify the strength in each sector, there's a lot of cross-collaboration, co-design, co-optimization and co-manufacturing in this era. This is particularly true when there is a supply constraint. The leadership will have a first-mover advantage when there is a supply constraint. In the fast evolution, amidst all uncertainty, customers tend to go for the leader to manufacturing the first product in order to maintain the leadership position. So ASE and Taiwan collectively will have competitive advantages over our competitor in this space. Many of you ask if ASE is going to ramp up last year, this year, as was potentially 2027 and beyond, how can we manage all of the factory space, CapEx, resource management? It is a difficult question, but ASE is not doing this alone. In Taiwan, let me give you a few examples, there's a lot of technology collaboration with our partner, upstream and downstream. In terms of factory space, yes, we are building factory from scratch. We're also acquiring existing factory from our partner, even with clean rooms already installed. Resource planning, you have to look at the whole cluster. So here, I am particularly grateful to our customer as well as our partner for supporting us, helping us to ramp up. Now once again, when there is a supply constraint, when there's a fast evolution, where everything is running against time, the Taiwan cluster has demonstrated the best efficiency and speed in terms of manufacturing ramp-up. This will set the stage for many of the conversations that we will have throughout this call. Lastly, I want to talk about ASE's Taiwan Plus One. Many of you have asked, what is our strategy in terms of Taiwan Plus One? Our objective is to support all of our customers, satisfying their manufacturing requirement on the global footprint. Here, I want to give you a very simple classification from ASE's perspective. In the future 5 to 10 years, there will be wafers out of Taiwan. There will be wafers not coming from Taiwan. For wafers that are coming from Taiwan, ASE has a very good opportunity to do packaging and testing inside of Taiwan. Might not be all true, but that is the assumption. Now for wafers that are not produced in Taiwan, they might also come to Taiwan, but they might also not come to Taiwan. So ASE is building footprint primarily in Penang, mainly for the automotive and the future potentially robotics, to capture customers and wafers that are not produced in Taiwan, but would like ASE to use our automation as well as all of our advanced technology to help them produce the system package and the system optimization. We're also building footprint in Korea and Philippines. But Penang will be the main sector that we'll be ramping up simply because the Penang cluster has been well established second to Taiwan. With that, I would like to give you the 2025 recap. The consolidated revenue grew 12% at a holdco level with ATM revenue up 23% led by Leading Edge Advanced Packaging services and Testing business. The LEAP services reached $1.6 billion, accounting for 13% of ATM revenue, up from $0.6 billion in 2024 or 6% of ATM revenue. The general segment grew 13% year-on-year. Testing business grew 36% year-on-year in 2025, supported by expanding turnkey and leading-edge test. Machinery CapEx totaled $3.4 billion. Building facilities automation CapEx was $2.1 billion in 2025, mainly driven by LEAP services and testing investment. Next page, 2026 outlook. Our CFO will give you more elaboration after this highlight. We expect revenue uptrend to continue 2026 and beyond, driven by leading-edge solutions and broad-based semiconductor demand related to AI proliferation and general market recovery. ATM business, leading-edge assembly packaging service to double from USD 1.6 billion to USD 3.2 billion, with roughly 75% from packaging and 25% from testing. General segment continues to grow at a similar pace as last year. Overall, ATM revenue to outperform the logic semiconductor market. Stepping up CapEx expenditure that Joseph will talk about numbers with the investments in R&D, human capital, advanced capacity and smart factory infrastructure to support the multiyear growth. So our view is ASE is in a very good position together with our customer as well as Taiwan partners, and we understand the short-term need, we're trying to run against time to fulfill the supply. Long term, we are deploying our floor space outside of Taiwan to capture the next-generation opportunity. Thank you. Kenneth Hsiang: Thank you, Tien. For the fourth quarter from a financial perspective, our ATM factory loading was slightly better than originally anticipated. With higher loading, we were able to extract higher operating leverage. Our ATM factories in Taiwan ran at or near full capacity with LEAP and traditional advanced packaging utilization rates outpacing that of wirebond. Non-Taiwan utilization rates continued to show improvement. Our overall ATM utilization rate was around 80%. Our EMS business slowed slightly due to underlying product seasonality. Revenue and profitability was aligned to our initial outlooks. Please turn to Page 6 where you will find our fourth quarter consolidated results. For the fourth quarter, we recorded fully diluted EPS of $3.24 and basic EPS of $3.37. Consolidated net revenues were $177.9 billion, representing an increase of 6% sequentially and 10% year-over-year. On a U.S. dollar basis, our sales increased by 2% sequentially and 14% year-over-year. Our gross profit was $34.7 billion with a gross margin of 19.5%. Our gross margin improved by 2.4 percentage points sequentially and by 3.1 percentage points year-over-year. This sequential improvement in margin is primarily due to higher loading in our ATM business and NT dollar depreciation. The annual improvement is primarily due to higher factory utilization offset in part by the annual appreciation of the NT dollar. We estimate that foreign exchange had a positive 1.1 percentage point impact to our gross margins sequentially, and while having a negative 1.2 percentage point impact annually. Our operating expenses increased by $1.4 billion sequentially and $1.6 billion annually to $17 billion. The sequential and annual increases in operating expenses are primarily due to higher R&D labor-related costs. Our operating expense percentage increased 0.3 percentage points sequentially to 9.6% and edged up 0.1 percentage points annually. Operating profit was $17.7 billion, up $4.5 billion sequentially and $6.5 billion year-over-year. Operating margin was 9.9%, up 2.1 percentage points sequentially and up 3 percentage points year-over-year. During the quarter, we had a net nonoperating gain of $0.6 billion. Our nonoperating gain for the quarter primarily consists of net foreign exchange hedging activities, offset in part by net interest expense of $1.7 billion. Tax expense for the quarter was $3.2 billion. Our effective tax rate for the quarter was 18%. Net income for the quarter was $14.7 billion, representing an increase of $3.8 billion sequentially and $5.4 billion annually. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Excluding PPA expenses, gross margin would be 19.8%, operating margin would be 10.4% and net margin would be 8.7%. Basic EPS, excluding PPA expenses, would be $3.55. Please refer to Page 7. Here, you will find our 2025 consolidated full year results versus 2024 full year results. Fully diluted EPS for the year was $8.89 while basic EPS was $9.37. For 2025, consolidated net revenues improved 8% as compared with 2024. Our ATM business improved by 20%, while our EMS business declined by 5% annually. Our ATM business was 60% of our consolidated net revenue, up from 54% in 2024. Gross profit for the year was $114.2 billion, improving $17.3 billion year-over-year or by 18%. In 2025, our consolidated gross margin improved 1.4 percentage points to 17.7% principally as a result of higher ATM revenue mix and higher factory utilization of our ATM equipment, offset in part by appreciating NT dollar and higher utility costs. Operating expenses increased $5.7 billion for the year and came in at $63.4 billion. Our overall operating expense percentage edged up 0.1 percentage points to 9.8%. As a general trend, we believe our spending in R&D on an absolute dollar level will continue to increase as the technological complexity of services we offer continues to progress. However, as our R&D investments start yielding associated incremental revenues, such as those in our LEAP business, we should see increasing operating leverage. Currently, we see our 2026 ATM operating expense percentage declining by near 100 basis points with our consolidated operating expense percentage dropping 80 basis points. Operating profit for the year was $50.8 billion, increasing $11.6 billion. Operating margin for the year was 7.9%, representing an improvement of 1.3 percentage points from 2024. Our ATM business accounted for 87% of our 2025 operating profit, up from 80% in 2024. We recorded a net nonoperating gain of $0.5 billion for the year, including a net interest expense of $5.6 billion versus $4.9 billion in 2024. Most of the net nonoperating gain was associated with our foreign currency hedging activities. Total tax expense was $9.5 billion, the effective tax rate for 2025 was 18.4%. We expect our effective tax rate for 2026 to be about 18%. Net income for the year increased by 25% to $40.7 billion. On a full year basis, we estimate that the appreciating NT dollar had a negative 0.9 percentage point impact to our consolidated gross and operating margins. Removing the effect of PPA depreciation, our gross margin would be 18%, our operating margin would be 8.4%, our basic EPS would be $10.07. On Page 8 is a graphical presentation of our consolidated quarterly financial performance. Our ATM business driven by expanding LEAP services continues to outgrow our EMS business. Looking into 2026, we continue to expect our ATM business to outgrow our EMS business. As such, we believe that ATM revenues and profitability will continue to become a larger share of our consolidated total and continue to positively impact our consolidated margin structure. On Page 9 is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. For the fourth quarter of 2025, we had record revenues for our ATM business of $109.7 billion, up $9.4 billion from the previous quarter and up $21.3 billion from the same period last year. This represents an increase of 9% sequentially and 24% annually. Our test business' growth as a whole continues to outpace that of our assembly business. Test revenues grew 13% sequentially and 33% annually. Gross profit for our ATM business was $28.8 billion, up $6.1 billion sequentially and up $8.2 billion year-over-year. Gross profit margin for our ATM business was 26.3%, up 3.7 percentage points sequentially and 3 percentage points year-over-year. The sequential gross margin increase was primarily due to higher equipment utilization, depreciation of the NT dollar and the end of higher summer utility rates. Meanwhile, the annual gross margin improvement was primarily due to higher equipment utilization, offset in part by the depreciation of the NT dollar. During the fourth quarter, operating expenses were $12.7 billion, up $0.9 billion sequentially and $1.6 billion year-over-year. The sequential and annual increases in operating expenses are primarily related to higher R&D costs and labor expenses. Our operating expense percentage for the quarter was 11.6%, decreasing 0.2 percentage points sequentially and down 1 percentage point annually. The decline was primarily the result of higher revenues during the quarter. During the fourth quarter, operating profit was $16.1 billion, representing a sequential increase of $5.2 billion and an annual increase of $6.6 billion. Operating margin was 14.7%, up 3.9 percentage points sequentially and up 4 percentage points year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 26.7% and operating profit margin would be 15.3%. On Page 10, we have our ATM full year P&L. During 2025, we continue to see impressive growth of our LEAP-related services, but we also started to see a strong recovery of more traditional services toward the middle of the year. Full year 2025 revenues for our ATM business improved by 19% and with our packaging business up 17% and our test business up nearly twice a packaging at 32%. Gross profit for the year improved 25% to $91.4 billion. Gross margin for the year was 23.5%, up 1 percentage point from 2024. Margin improvement was the result of higher factory efficiency, offset in part by the impact of the appreciating NT dollar. We estimate that depreciating NT dollar had a negative 1.4 percentage point impact on margins here. Adding that back, gross margin for the year would be well within our structural gross margin range. Our operating expenses increased by $6.1 billion during the year, led primarily by higher labor-related expenses. However, our operating expense percentage decreased by 0.5 percentage points to 12.1%. Operating profit improved $12.1 billion to $44.1 billion while our operating margin improved 1.5 percentage points to 11.3%. Without the impact of PPA-related expenses, gross profit margin would be 24% and operating margin would be 12.1%. On Page 11, you'll find a graphical representation of our ATM P&L. We believe we have had 2 main drivers for our improvement trend in gross margin, higher utilization of factory equipment and a higher mix of LEAP services and revenues. Looking forward, we expect to continue to see a rising mix of LEAP-related business. On Page 12 is our ATM revenue by 3C market segments. There aren't many changes here. On Page 13, you will find our ATM revenue by service type. Here, you can see the 2 service types which pertain to our LEAP services. Bump and flip chip and testing, both are becoming a larger component of our overall business. Traditional advanced packaging with LEAP now accounts for more than half of our overall ATM business. Wirebond now accounts for less than 1/4 of our overall ATM business. Meanwhile, our test business during the fourth quarter reached 19% of ATM. On Page 14, you can see the fourth quarter results of our EMS business. During the quarter, EMS revenues were flat sequentially at $69 billion, while down 8% year-over-year. The annual decline was the result of differing underlying device seasonality. Sequentially, our EMS business' gross margin declined 0.2 percentage points to 9%. This change was principally the result of product mix. Operating expenses within our EMS business increased by $0.4 billion sequentially and $0.1 billion annually. The increases are primarily the result of a higher head count and fluctuations related to our profit-sharing program. Our fourth quarter EMS operating expense percentage of 6.2% was up 0.6 percentage points sequentially and annually. The sequential operating expense percentage increase is primarily from increases in compensation due to head count and related bonuses and profit sharing. Operating margin for the fourth quarter was 2.8%, down 0.9 percentage points sequentially and up 0.1 percentage points year-over-year. Our EMS fourth quarter operating profit was $2 billion, down $0.5 billion sequentially and flat annually. On a full year basis, our EMS operations revenues declined 5%, gross profits for the year declined 3% with gross margin improving 0.1 percentage points to 9.1%. Operating profit declined 5% with operating margin staying flat at 2.9%. As the electronics industry pivots towards various applications of AI, so will the focus of our EMS business. For the coming year, we'll see our EMS business continued to extend its system capabilities further into AI and AI adjacent applications such as server, optical and power solutions. There are a number of EMS projects in various stages of development that will help position the business for growth this year and beyond. On Page 15, you will find a graphical representation of our EMS revenue by application. There was a slight shift from consumer devices to computing, automotive and industrial devices. The shifts here are generally due to underlying product seasonality. On Page 16, you will find key line items from our balance sheet. At the end of the year, we had cash, cash equivalents and current financial assets of $102 billion. Our total interest-bearing debt increased by $22.7 billion to $272.9 billion. Total unused credit lines amounted to $400.6 billion. Our EBITDA for the quarter was $38.3 billion. Our net debt to equity this quarter was 46%. On Page 17, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the fourth quarter in U.S. dollars totaled $733 million, of which $485 million was used in packaging operations, $218 million in testing operations, and $28 million in EMS operations and $1 million in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter, we also spent $456 million on facilities, which includes land and buildings. For the year 2025, machinery and equipment capital expenditures in U.S. dollars totaled $3.4 billion, of which $2.1 billion was used in packaging operations, $1.1 billion in testing operations, $139 million in EMS operations, $13 million in interconnect materials and others. For the year 2025, we additionally spent $2.1 billion on facilities, which include buildings and land. With that, I'll hand the presentation over to Joseph to present the company's outlook. Joseph Tung: Thank you, Ken. Let me go over the first quarter guidance. For '26 first quarter, we will be seeing a much stronger than normal seasonality for both our ATM as well as EMS businesses. Based on our current business outlook and exchange rate assumption of USD 1 to NTD 31.4 versus last quarter it was about NTD 30.9. Management projects overall first quarter performance in NT dollar terms to be as follows. On a consolidated basis, first quarter revenue should decline only by 5% to 7% quarter-over-quarter. First quarter gross margin should decline by 50 basis points to 100 basis points quarter-over-quarter. Our first quarter operating margin should decline by 100 basis points to 150 basis points quarter-over-quarter. For ATM business, our ATM first quarter revenue should decline only by low to mid-single-digit percentage quarter-over-quarter. Gross margin should stay in our structural margin range but fall between 24% to 25%. The sequential decline in both revenue and gross margin in first quarter is largely due to less working days and higher labor costs as a result of higher overtime during Lunar New Year holidays. For EMS business, our EMS first quarter revenue and operating margin should be similar with first quarter 2025 levels. With that, let me give you some color for the full year. For ATM, as Tien mentioned, we expect 2026 leading-edge revenue to at least double compared with last year, while demand continues to significantly exceed supply. As for general market, last year's growth momentum will continue this year given AI proliferation and automotive and industrial sector recovery. On ATM profitability, we're expecting a favorable pricing environment for the year. And as operating leverage continues to improve, we expect ATM gross margins to stay within our structural margin range throughout the year and to improve every quarter, while second half gross margin to reach the upper end of the range. With increasing mix of lead services and overall testing, expanding scale as well as automation, we are optimistic on our mid- to long-term profitability. Lastly, on CapEx, we will remain aggressive in CapEx spending to support the strong business prospects for 2026 and beyond and to further extend our lead over competition. This year, we plan to add another USD 1.5 billion in machinery on top of last year's USD 3.4 billion, of which about 2/3 will be for leading-edge services. Also needed investment in buildings and facilities is expected to be at a similar level versus last year's USD 2.1 billion. With that, thank you. Kenneth Hsiang: Thank you, Joseph. During the Q&A session that follows, we would appreciate if your questions could be as clear and concise as possible and ask singularly. We will start by taking questions from live participants and then alternating questions from our online participants. I, as the moderator, will be receiving each question and repeating and directing each ask question. After participants' initial question, he or she may ask a follow-up question, clarifications of the earlier question or another question entirely. Then we will move to the next participant. Participants may return to the queue for any additional questions or clarifications. Thank you. Questions? Can we get the microphone over to Sunny here? Sunny Lin: Thank you very much. Hopefully, not too late to say Happy New Year. So to kick off, so on your LEAP business, you just guided revenue to double to $3.2 billion for this year. So appreciate a bit more color on maybe breakdown by OS, outsourcing, full process and also test. Kenneth Hsiang: So you're looking for a breakdown of our LEAP incremental business for the year. Joseph Tung: I think Tien just mentioned that we're at least going to double our LEAP revenue next year -- this year, I'm sorry. And the momentum continues to be strong. I think there is still further upside if we're not constrained by a lot of the capacity build that we're scrambling at today. In terms of the breakdown, I think we'll predominantly still be in OS and also on test side will be on the wafer sort. And I think the full process, which is going on track, and we do have engagement with multiple customers, but we're going to start seeing the meaningful revenue contribution by later of the year. And we expect to triple our full process revenue this year to reach about 10% of the overall LEAP service revenue. In terms of final tests, I think we will also be putting a lot of -- most of our focus right now on the wafer sort. In terms of final tests, I think we will start to have a meaningful revenue as well by the later part of the year, and we should have roughly 10% of the business coming from final tests of the wafer -- of the test business coming from final tests. Sunny Lin: Very helpful. And so I think one highlight from earnings was very strong margin expansion in Q4, given improving utilization rate and also better product mix. And so how should we think about from here? You just guided the IC ATM gross margin to trend towards the high end, maybe towards like high 20% or even 30%. But how should we think about from there? Meaning LEAP gross margin should be higher than the structural gross margin trend. And I do think your LEAP gross margin will continue to improve, given better scale and also improvement mix. And so how should we think about maybe going to next 2 to 3 years, how high could the gross margin get to? Kenneth Hsiang: So Sunny, you're looking for a longer-term guidance on overall margins. Tien Wu: We would like to take 1 year at a time. So we'll talk about this next year. Thank you. Kenneth Hsiang: Thank you, Sunny. Let's give the microphone over to Haas there. Haas Liu: This is Bank of America, Haas. Congrats on the good results and also guidance. I think first one is just regarding your mainstream business outlook for this year. You mentioned you will grow at a similar pace compared with last year. And in the near term, you also have that part of the business above seasonal. So just wondering what are you seeing regarding shipment versus pricing benefiting on that above seasonal in the near term and also for full year, the breakdown between shipment and also pricing outlook for that part of the mainstream business? And then, I think also related on IC ATM, it's just you mentioned that you will exceed at least USD 3.2 billion for the LEAP business for this year. I remember last year, you only mentioned you will reach $1.6 billion. So it doesn't sound like that you're already fully factoring in the potential upside in the LEAP business. Could you also comment on that? Kenneth Hsiang: So Haas, you've asked 2 questions here. Going against the rules, huh, very aggressive. So the first question is relating to mainstream business and what we see in the mainstream business in terms of growth. And I'll summarize your second question after this. Tien Wu: The mainstream business has two sources. The first source is from IoT, automotive, industrial. Those are the general sector that we are familiar with. Not surprisingly, part of the general loading does come from the AI data center. For example, the power management, the switch router. So as they're building the data center, we have a difficult time to track which part of the general sector loading comes from the AI data center, which part comes from the general, right? But in general, when we talk to our customers, our general sector loading has been quite decent. The pricing environment, I would say, friendly. I will not comment on pricing increase or any customer-specific information. The only thing I might comment is, the gold price, the substrate price, whatever the price is going up, then it's up to us and the customer. We do have long-term service agreement. In general, it's a friendly environment. Should I answer the LEAP? Well, the second question is the, last quarter, we talked about $1.6 billion, most likely will go to $2.6 billion. And this time, we revised to $3.2 billion. And you're asking what happened? Because 3 months later, we have a better visibility about our factory space. I have already said many times, actually, the demand is far beyond the capacity that we're capable of building. And I remember last year, one of you asked us, if this is so good, why don't you just do it? We are. However, we have to manage the quality, the delivery, all of the resource planning, and these are complicated progress. Processes, equipment lead time and all of the management and also the engineering training, they're not easy. And we just try to do this very, very carefully. So right now, our CFO and myself, our best view is we believe we can achieve $3.2 billion comfortably, right? And over time, if we have any good news, you'll be the first one to know. Kenneth Hsiang: Let's see if I can go online. Operator: We have Mr. Gokul Hariharan from JPMorgan. Gokul Hariharan: Can you hear me? Operator: Yes. Tien Wu: We can't hear him. Gokul Hariharan: Can you hear me now? Operator: Yes, you are on the line, but we had some technical issues here. The audience on the floor cannot hear you? Tien Wu: Let's ask Gokul to hold off for 1 second. We can pass -- as you guys fix the technical issue, let's transfer over to Charlie over there. Charlie Chan: Ken, let me try to fill the void. And Dr. Wu, Joseph, good afternoon. So my first question actually is about your subsidiary, USI, they announced the acquisition of EugenLight for the CPO repeat component, the optical engine. So I'm wondering what does it mean to the ASE group overall for your CPO business? And going forward, how you're going to split the process between yourself and also USI? Kenneth Hsiang: Charlie, you're asking about our fiberoptic acquisition at EMS, EugenLight. Do we have a comment on that? Tien Wu: The optical business is an important direction for the industry. Everybody understands that. At ASE, we're working with our foundry partner as well as the end customer, trying to implement the silicon photonics part of it, which is a CPO. At a system level, it is not a CPO. However, the optical, it needs to go through from the chip to the packaging as well as to the system as well as to the optical transceiver as well as to the rack and beyond. So I think the optical technology as well as business, it goes very pervasive and very, very long. I think what you mentioned is USI is trying to piece together early deployment in terms of the future optical road map, and this is part of it. And I announced the silicon photonics quite a few years ago. The whole industry is trying to do early deployment and development and positioning. And I think we are going to see some early volume on the silicon and the CPO part of it. And if that goes well, and I believe the volume will start catching up. So the technology development, the manufacturing capacity development needs to happen well before that. So I think this is the USI and the ASE story. There is no conflict. However, it is important that if we can manage the silicon, the CPO, the packaging, we need to have a good know-how as well as inside knowledge on the system level such that we can support our customers on the overall system optimization if we need to switch hybrid or electrical all the way to optical, right? It's a very long question, I gave you a longer answer. Charlie Chan: So it seems like ASE get involved deeply, right, in the CPO supply chain. And we do hear there are some kind of technical challenging, for example, put together, there's a major compute die with those FAU together on a substrate. So I'm wondering is ASE very critical to solve this problem? Or it's more like your foundry partner figure out how to work it and then outsource to you guys with the missed production. Kenneth Hsiang: Charlie, you're looking for clarification on the actual processes that we can be involved with on CPO? Tien Wu: It's a very difficult question because at the silicon level, the technology complexity is very, very different. So the foundry partner, they can be working on like a really, really complicated issues, right? And this, you're dealing with at the silicon level, how they convert the light out. So I will not comment on that. So I have partner addressing those. I also have partner addressing more traditional way. If you do the photo or if you do the electrical separately, and those are more existing. So at our level, we have to manage the really complex PIC, EIC together or separately and via different kind of stacking configuration. For example, chip-to-chip, chip-to-packaging, chip-to-rack. So at the packaging level, I will not say it is easier or more difficult. I think packaging level is easier. However, you have to go much, much deeper because you have to deal with different alternative of the electrical source, the light source and different configuration, different memory and who connects to what, right? At a system level, I will not say it's easier, but you got to go deeper. So the beauty about Taiwan is, we have the chip, we have the CPO, substrate. We also have the system. So in terms of sharing co-optimization trade-off, I believe within this ecosystem, you have a much better chance to hit the first product. Charlie Chan: Thanks for your clarification. So my next question is to Joseph. Kenneth Hsiang: I think you got your 2 questions there. Sorry. Let's try to go see if we can get to online again. Is it working? Gokul Hariharan: Hello? Can you hear me now? Operator: Yes, I can hear you. But the audience on the floor cannot hear you. Kenneth Hsiang: Can you put the microphone to your ear piece. Operator: Can you try again, Gokul? Gokul Hariharan: Is it better now? Operator: Still doesn't work. Can you write down your questions in the Q&A session? Gokul Hariharan: Yes, I'll do. Kenneth Hsiang: Do we have further questions over here? Let's go to Rick over here. Rick Hsu: Dr. Wu, Joseph and Ken, I just got 1 question here. Regarding your EMS, it seems to me it has been quite muted over the past 2 years. Are you guys strategically downsizing your EMS business only focusing on what adds the most value? The reason why I'm asking is because I remember you used to fund a big chunk of your EMS from consumer, like a SIP, for example, wearable, et cetera. So can you give us more color about your strategy about your EMS going forward? Tien Wu: The EMS business has a few angles, all right? First is your competitive landscape. The competitive landscape inevitably have to deal with the geographical location. And then the second angle will be either the consumer AI or the futuristic sector. And then you will talk about the synergy between the ATM business and the USA business. And I'll try to answer this in a very, very brief way, okay? So what has transpired in the last few years is, we understand our consumer business has ramped to a level that we're comfortable with. But we are facing competition. Also, we're feeling constrained. At the same time, this AI sector and also the AI emerging general sector, I really don't know how to describe it. In the AI data center, for example, you have the glass, as one example, which is really not a consumer, it's more related to the AI space. Then you have the optical, which optical has been there forever. But because of the data center, we're pushing the system-level optimization to a brand-new level. And I can give you a few examples. The optical is one example, power supply, absolutely is the second angle. You will have optical transformation or upgrade or paradigm shift. You have a power delivery paradigm shift. All of this are hinting us with AI, also the system level optimization. There are good opportunities we can divert the resource and start more synergistically with the ATM part of the business, and that's called the realignment or recalibration. So what we have hinted, which we will report in the next few quarters is, in the AI space of consumer what are the activity that we're engaging. Also in the AI data center or AI enable or AI motivated system-level optimization what are the efforts that we're making. So I think in the next few years, you will see a much stronger vintage in that direction. So no, we're not trying to downsize, but the market is shifting the geographic positioning is changing, the requirement of customers changing. So we just have to change accordingly. Rick Hsu: Just one quick follow-up. So how long would this transition take? So meaning that this year, your EMS will continue to undergrow your ATM? How long this transition would take before your EMS catch up the corporate average? Tien Wu: I think this year, we are growing. Yes, this year, we're -- well, okay. So the question is the, okay, your ATM is growing very fast. I view that as a good news because the sector change, you tend to go to leadership and ASE happened to be a member, a key member of this leadership cluster. And then I think you were seeing some significant input on the EMS part of it. For the last few years, there has been a lot of design in pipeline, and hopefully, we can give you a better view into the revenue contribution. But as soon as this year, it's not the -- yes. Kenneth Hsiang: So do we want to give a try? Operator: I can read out your questions. Kenneth Hsiang: I think we're trying to use a speaker phone methodology to microphone, very, MacGyver like. Gokul Hariharan: Okay. Third time lucky, I guess. Kenneth Hsiang: Perfect. Gokul Hariharan: All right. You could finally hear me. Kenneth Hsiang: Great. Gokul Hariharan: Thanks for going through all the trouble. First question, Dr. Wu, given this very strong CapEx continuing in '26, could we understand how much of this is going to full process packaging. And when we look forward, how big is your full process business likely to scale from the 10% of LEAP this year? Can it get to like 30%, 40% of the total revenue eventually in like a 2- to 3-year time frame? And I also wanted to understand whether it aligns with your partners' future plans? Because right now, there is a bit of a division of labor between you and your partner, but full process kind of a little bit of competition with them, but just wanted to understand how it aligns with their future plans. Kenneth Hsiang: Gokul wants to know about our full process plans and such. Tien Wu: Well, as Joseph already talked about, out of the $3.2 billion, we're looking at about 10% full process revenue by the end of this year. There are a few clarifications. We're not competing. And this is part of the cluster ideas, right? Because the wafer level, the foundry partner they will have the first right, the first knowledge and the first need to come up with the different configuration, 2.5D or 3D packaging. The long-term prospect or motivation, how long or how big do they want to grow the business is up to the foundry partner. Our understanding is, if we're fully capable of executing customers as well as partner would like to have second source, right? Therefore, there will be technology sharing not on the OS side, but also on the full process. Now the configuration is a big question, right? It's complicated. As the HBM and also the TPU size grows, the wafer level, the panel level, they have all different configurations of stacking big panel substrate. So the technology also evolved very, very quickly between the foundry process and know-how, between the customer cost, architectural and design requirements and the packaging. This is where the co-optimization and the collaboration will come in. Now everybody has the question, why you're spending so much CapEx? What if the customer switch? First, you have to understand it's not a one customer thing. They are mainly many customers. Are they competing? In a way. But in a way, they're not competing. They're trying to fulfill the diversification of the AI space in all kinds of inference, all kinds of learning large language model. It's a very, very big market. This is the beginning. What we are trying to do is as fast as we can come out with alternative and the toolbox. So our partner, the designers will have the total freedom to pick and choose whichever way they want to put this together for whichever application. I'm telling you 90% of the application we couldn't see yet. This is why the AI is so exciting, right? So with that, I think our CapEx is fine. The partnership collaboration, competition is healthy. All the iteration and the fast evolution of technology from our customer is not a penalty for us, it's actually very, very healthy for the industry. And being the first mover in the Taiwan, first-mover cluster, you will have some natural advantage. So I believe this is the good time for us to do this. Gokul Hariharan: Thanks, Dr. Wu. That's very clear. Second question, we did mention we are expecting the mainstream demand to keep growing similar to 2025, 10-plus percent. Within that, obviously, PC and smartphone related, especially smartphone-related is a pretty big chunk, and some of your larger customers have been turning down on the smartphone demand for the last few weeks or so. So how does this kind of sit within this expectation of mainstream demand continuing to grow at a similar pace? I'm sure you've done your math and come up with this assumption, but can you explain a little bit. Kenneth Hsiang: So Gokul is looking for characterization of our outlook on our mainstream market. Tien Wu: The mainstream market, the ASE has a large market share on the communication or the cell phone. Again, it's a good news, right? And thanks to our customer and long-term support. That sector will continue. There could be some fluctuation that I will not go into detail. But please remember, we are fully loaded. The AI data center now has the FPGA, microcontroller, power management, router and all kinds of loading coming to ASE. And you understand that we have signed -- we bought 2 factories for Infineon. We have also announced we are buying another factory in Penang for ADI. We already announced that. That is most likely to close in Q2 this year. With all of this, the Infineon loading, the ADI loading, they're also coming to us as part of the acquisition, also the co-optimization and the co-design for today's device and system as well as for the next-generation device and system. So when I talk about there's a general sector recovery, I truly mean it. I have seen industrial automotive recovery. On top of that, I have unknown demand, could be AI data center, could be not, from the same guys asking us to run up the loading. And of course, because our fully automated general process, we could be gaining market share. And that we have to look at ASE versus our competitor in all different spaces. I will not comment on that. But in general, we feel comfortable for 2026 and beyond for our general sector recovery. Kenneth Hsiang: Do we want to go to who, another online Laura? Chia Yi Chen: Congrats for the great results. I also have questions on the LEAP business. Actually, we see that there's various different type of advanced packaging as Dr. Tien mentioned that. Definitely, we see the great chance as he has seen promising growth with the AI chip involving, but we see that the chips and die sizes are getting more compact, and there are various different type of, like a panel base, even some are talking about the chip-on-wafer-on-PCB. So can you share with us your plans on various packaging type and also your strategic focus? And how should ASE fit and leverage your technology to get into these different type of packaging going forward. Kenneth Hsiang: All right. So the question, again, it's a loaded question. Now because of the AI system demand, there are 2 family of thoughts. We believe that the chip will get bigger. Therefore, the wafer size will get bigger. Therefore, the chiplet size will get bigger. And therefore, the 3D, the 2.5D and the HBM will get bigger, which is why you need the silicon photonics, which is why you need a new conceptual power delivery method to provide the vertical power supply. That's one family thought. The second family thought is because of the efficiency of design, everything will go smaller, okay? I will not get into that debate. All I can tell you is the last 4 years, things just got bigger, right? Therefore, ASE will prepare both. If you can handle this in the 300-millimeter wafer form, we got that already. But if the chiplet size, the requirement are going unreasonably large, we will have the 310x310 panel to give you a better relief. Now will the 310x310 go to 620x620? Depending on the volume, also the technology requirement. Also, our process capability, can we handle a larger panel size with the kind of resolution and I/O count they require? But ASE's job is by the end of this year, we will have a fully automated 310x310 in production. Today, we already have manual. But in my view, the manual process doesn't count. I can only count in this space, it needs to be fully light out. By the end of this year, we'll have that. That will provide the first try in the throughput and cost improvement on all of the wafer level process that we do. Now our foundry partner and our customer will continue to drive the different configuration. I cannot comment. Our job is to provide all the toolboxes. So pending on your resolution I/O and cost requirement, we will give you different options. And I'm comfortable to say that Taiwan cluster overall, we have the most toolbox and the best option with capacity in place. We will be the fastest to ramp up in the world. ASE being part of this ecosystem on the packaging world, we are responsible to provide more packaging level toolbox, including panel, including CPO, including the next-generation power delivery for the VRM though we have not talked much about it. But the whole idea is, we will leverage this opportunity to strengthen our portfolio and the R&D in-depth understanding about the system requirement. It's not just CoWoS. It's not just the full process. It's after this AI boom, the following through system-level paradigm shift improvement, we need to put all of this in place. And this is part of the ASE's vision. We will co-work with foundry as well as our USI EMS arm as well as the other system assembler partner and trying to come up with a total solution from chip all the way to system long term. Chia Yi Chen: Very comprehensive, very exciting. My second question is about the gross margin. As we see that actually these advanced packaging contribution continue going up. And overall, we see that ASP trend is more friendly, as you just mentioned. Can we kind of expect the overall ATM gross margin later this year we'll be able to reach 30% or potentially to be higher? Kenneth Hsiang: Laura has a question in terms of the ceiling of our structural margin. Joseph Tung: As I explained earlier on, I think, first of all, this year -- starting from second half of last year, we already started to see the improvement in our operating leverage as we continue to improve our ramp-up. And I think for this year, we are confident to say that we will see throughout the whole year, every quarter, we will have our gross margin fall into the structural range. And so in the first quarter, we will see -- well, our margin will be between 24% to 25%. And then sequentially, every quarter, we will see continuous improvement in our margin. And also by a second half of the year, we will see our gross margin closing in on the upper end of the structural margin. There's further room for improvement as we continue to reach an optimal ramp-up stage and we -- in local term, as we continue to expand our leading edge services, expand our testing business, also continue to reach a full ramp-up, I think there's further room for improvement. But as Tien mentioned, in terms of the margin movement, we will take 1 year at a time and see how the product mix will shift and how the utilization will improve to see whether we need to adjust our margin guidelines. Kenneth Hsiang: I'm sorry, I don't know your name. Name and company, please. Alan Patterson: Hello Joseph and Dr. Wu. My name is Alan Patterson. I'm with EE Times. You mentioned that you're buying clean room space from foundries. And I would just like to know, is that a first? I've heard from people in the supply chain that this is something that -- advanced packaging is something that's been done primarily by TSMC. So I'm just wondering if this move into advanced packaging, like 2.5, 3D is this something new? Kenneth Hsiang: The gentleman would like some clarification on clean room specifications related to advanced packaging. Tien Wu: First of all, I said that we're buying factory with clean rooms already built from partners. I did not specify foundry partners. We have many partners. And also in terms of doing the full process, 2.5D, no, it is not new for ASE. We have been doing this for quite some time. Alan Patterson: And then maybe a follow-up question. Is Photonics a new area for you? You had mentioned that this is something that you're moving into. I mean there are many different flavors of photonics. So I wonder if there's any one that you see with greater potential for your company. Kenneth Hsiang: You would like an outlook in terms of how we view the CPO market. Tien Wu: Well, Photonics is a new technology. It represents a paradigm shift. And I think there will be a first-mover coming in, and then we will see how the first-mover fares, right? I will not comment, there are different alternatives. And we always believe that different alternatives will serve different solutions for different architectural requirements. So we will not take size in terms of the -- there's a high end, midrange and also low end and different requirements, between the scaled up, the scaled out chip-to-chip level, chip-to-package level or the package-to-package level, they're all different, right? So again, our job is to develop the toolboxes for the designers, so they can -- they have the freedom to choose based on whatever. But keep in mind, the electronic signal and also the optical signal it is continuous. You got to go through all the way. And our job is to make sure that whatever technology is not limited to any kind of segment. You just need to go all the way down at a different cost of the potential. Kenneth Hsiang: We're going to restart the queue here. So Haas, do you want to ask another question? Haas Liu: I think just a quick follow-up on your CapEx because you mentioned you have a lot of amazing demand opportunity, no matter it is in mainstream or in the AI space going forward. But just wondering if you could share with us your view just regarding the capital intensity targets because this year, you definitely grow your CapEx from the amount perspective. But your sales definitely seems to be outgrowing this year based on your guidance just now. So just wondering if you have a guidance or a view on your capital intensity in the longer term, how should we think about the pace that you are going to grow your capacity versus your customers' demand? How would you balance that? Kenneth Hsiang: Haas is looking for a financial balance in terms of how we view our capital intensity over time and how that moves and changes. Tien Wu: There is no guideline. CapEx, Joseph and I, we were very comfortable with $2 billion for the longest time. And then for some reason, we just showed up $4 billion. And then we showed up like $5 billion. And then Joseph talks about even bigger number. I'm not comfortable. I think he is not comfortable. We're all under pressure. Long term, there's a little half of me saying that, yes, there are more. Half of me saying, I'm sure we're doing the right thing. Listen, we're a human being. We struggle exactly the same way you struggle. The only way we can do is, we look at the landscape. AI is brand-new. This is like the beginning of a boom. I mean I won't call Big Bang. This is too religious, right? It's a boom. And then we are in the first-mover leadership position. We have all of the support from everybody and customer. This is our time to shine. And as we move in, we are responsible for the CapEx discipline. And then there's a financial -- I mean, Joseph is very clever, managing different instruments alone. We're learning all of this. And our guys, we have, I mean, 64,000 people in Taiwan, 100,000 worldwide. It's a good number. You want to stretch them, but you don't want to stretch it to a point that all went to hospital. So as you're doing this and the customer is giving you different voices. I mean, they're a good customer, they're not so good customer. So you're dealing with a lot of this kind of thing. Can I give you a view about 5 years from now, what's our CapEx? No. One year at a time, we would deal with the margin, execution. If anything, I do not want to disappoint my partner and customer. I will rather deliver whatever we have promised and make everybody happy going forward until the next stop. I will not stretch. Are we aggressive? Yes and no. I don't think we're pushing ourselves to the limit nor should we believe we should, all right? I'm not answering your question because I don't have an answer for you. Haas Liu: No, no, that's great. That's a great comment. And I think just a follow-on question that your LEAP business definitely has been growing quite significantly in the past few years and also this year and probably in the coming years. And as a good leading indicator, CapEx, that you have also been spending quite meaningfully in the past couple of years and also this year, so just wondering if you could share with us your metric regarding the ROIC for that part of the CapEx, especially on the advanced nodes versus your traditional business? Tien Wu: The logic is very simple, right? The CapEx is a leading indicator on technology capacity and PO, also margin. If you spend CapEx, you should come up with -- your depreciation will go up. It should at least cover that part of depreciation. Otherwise, you shouldn't be doing this, right? So if with CapEx, the margin shows improvement, that means you're on the right track. And then you add the CapEx. And not the improvement, you're on the right track, which means that the market supports you and you have a better visibility. Also, your team becomes more sophisticated, and they're ready to launch the next level of endeavor. We're engineers. We climb stories, floors, one step at a time. So you're asking 2026, we will spend more CapEx. What does that imply to 2027? I already gave you the answer. Hopefully, we can achieve that. But we will not know until third quarter, fourth quarter of 2026 that we can comfortably say, listen, this is what we have come up with. We're making calibration. As we move along, we will give you better visibility of how that calibration is. Joseph Tung: I think to sum up your question, I think we're still in this megatrend, and we're certainly not going to be shy on making the necessary investments in terms of CapEx also as well as in R&D dollars that we're going to put in to keep our lead in the -- and we are the chosen partner around this whole ecosystem here. So it's not the time for us to be conservative, I think. So this year, of course, our CapEx is much higher than last year. Last year is much higher than the year before. And we're seeing this trend actually continuing, maybe not just for this year, next year also. We will continue to spend quite large in terms of CapEx and R&D dollars. But having said that, I think we're still in a very healthy financial condition here, and we do have multiple cost-effective funding sources to support our growth and support our investments. And in terms of return, we are actually seeing that -- first of all, these leading-edge services is margin accretive and certainly return accretive as well. So we're seeing that happening already. And from last year to this, I think both on an ROE or ROIC standpoint, we are seeing improvement, although I'm not giving out any real numbers at this point yet, but we are seeing that our investments are paying off. Tien Wu: Just one more comment. The CapEx dollar and capacity are not the best entry barrier, but it is an entry barrier. Kenneth Hsiang: Charlie, do you want to follow up? Charlie Chan: So my question to Joseph, was very similar to Laura's question on gross margin, but more focused on those structural factors. So I think in the past, how you talked about utilization, FX, I think it's more short-term cyclical and you talk about the product mix improvement, I think it's more structural. How about pricing? We are hearing that for your wirebond flip chip, et cetera, it seems like there is a price hike this year. Do you think it's more like a structural price hike? And is that ASE specific? Or do you think it's kind of overall ATM industries enjoying this kind of a structural price hike? Kenneth Hsiang: Charlie is looking for commentary on the ASP environment. Tien Wu: The price hike is not part of the structure margin. During the COVID days, we have gone through that. Technology is the product mix, the value you provide is. And when Joseph comment, we have not included the price hike, the price hike is a very opportunistic approach and depending on the management philosophy, also in relation with the customer, it will be exercised when needed. But in general, we do not comment on the price increase with customers. Joseph Tung: I think our pricing, we will continue to seek the most suitable pricing strategy depending on the situation and also the requirement of -- and our return requirement. Charlie Chan: And a follow-up question on the CapEx and clean room part. So I'm wondering whether ASE have some concrete plan to solve the clean room, right? I think TSMC announced they have a piece of new land here and there. So you have so-called circa visibility, right? And if not, whether there is going to be a gating factor for your future spending for business growth? Kenneth Hsiang: Charlie is asking about the physical factory progress and development that we are working on, right? Charlie Chan: In your CapEx, if you can break down your infrastructure or clean room portion, I think that would be great. Kenneth Hsiang: Okay. With separation of machinery and equipment and facilities, CapEx? Joseph Tung: Right. This year, I think for the building and facilities, we are still looking at about $2.1 billion, which is about the same level as of last year. Yes, finding new locations and new factories, it's a bit of a challenge. We're doing all we can to look at over the island to find a suitable location for our new buildings. As Tien mentioned, that includes green greenfield factory buildings as well as buying some existing from our partners. So we are going out to find the suitable location for that. Kenneth Hsiang: Do we have a follow-up question? I think we have time for 1 more question. If we want to ask for 1 more question. If not, we can wrap it up at this time. Thank you very much for attending our full year fourth quarter 2025 earnings release. Hope to see you next time. Thank you. Tien Wu: Happy New Year.
Operator: Ladies and gentlemen, welcome to the Liquidity Services, Inc. First Quarter Fiscal Year 2026 Financial Results Conference Call. My name is Michelle, and I will be your operator for today's call. Please note that this conference call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Michael Patrick, Liquidity Services' Vice President and Controller. Please go ahead. Michael Patrick: Good morning. On the call today are Bill Angrick, our Chairman and Chief Executive Officer, and Jorge A. Celaya, our Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your questions reflect management's views as of today, February 5, 2026, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, please have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliation of these measures with their most comparable GAAP measures as available. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I will turn the presentation over to our Chairman and CEO, Bill Angrick. Bill Angrick: Good morning. We began fiscal year 2026 with strong momentum, delivering a first quarter that reflects the power of our platform, the resilience of our multichannel marketplace model, and our continued commitment to profitable technology-enabled growth. I am pleased to report that Liquidity Services, Inc. once again demonstrated the ability to scale efficiently, deepen buyer and seller engagement, and create long-term value for our customers and shareholders. In the first quarter, while GAAP revenue was flat due to the increasing share of consignment sales, our consolidated gross merchandise volume and direct profit increased to $398 million and $57 million, respectively. Our profitability expanded meaningfully with GAAP net income up 29%, non-GAAP adjusted EBITDA growth of 38% year over year to $18.1 million, and adjusted EPS growth of 39% year over year to $0.39 per share. We closed the quarter with $181.4 million in cash and no financial debt, providing strategic flexibility as we continue to invest in growth and technology. Our performance reflects disciplined execution across each segment of our business. GovDeals delivered 7% GMV growth fueled by seller acquisition and continued market share expansion, including an all-time record of over 500 new agency clients such as the Pennsylvania Department of Transportation, the State of New York, Housing and Urban Development Agency, New York Port Authority, and the City of Malibu, California. Clients continue to be attracted by the breadth and liquidity of our GovDeals marketplace, which transacts in over 500 asset categories, providing our clients a one-stop solution to optimize their surplus and idle assets. Direct profit grew 13% year over year, benefiting from enhanced services, stronger than forecast pricing on asset sales, driven by robust buyer participation and higher average commission rates. Our SCG segment achieved 3% GMV growth and a 16% increase in segment direct profit driven by strong buyer participation and improved product mix, despite a year-over-year decline in purchase model programs. Our direct-to-consumer GMV increased 40% year over year as we tap growing consumer demand. We have continued to leverage technology and process improvements to drive efficiencies as our direct profit per labor hour surged over 48% year over year in Q1, reflecting improved productivity. Our CAG segment saw 17% GAAP revenue growth supported by increased activity in industrial spot purchases and heavy equipment transactions, partially offsetting lower GMV year over year related to the prior year's unusually large energy projects. Our heavy equipment category continued its strong expansion, logging 27% year-over-year organic GMV growth and 88% growth in the number of transactions, fueled by strong buyer participation. We signed over 100 new seller clients in our CAG segment during Q1 and are expecting a steady ramp during the balance of fiscal year 2026. Machinio and software solutions continued a strong trajectory with 27% revenue growth reflecting subscription expansion and the successful integration of our auction software business. Machinio's launch of its advertising and systems offerings into the marine industry vertical is going exceptionally well. Machinio is also growing the number of service providers on its marketplace, which enhances machinio.com as a full-service destination for buyers of used machinery and equipment. Our auction solutions business is focused on building the world's most scalable, multitenant auction platform for resellers, retail liquidators, and traditional auction houses. This niche is perfectly suited for the buyers of products on our liquidation.com B2B marketplace. Our interim goal is scaling our auction software business to 1,000 customers with ARR of $10,000 or more. Across Liquidity Services, Inc., we are benefiting from the operating leverage created through our intelligent deployment of AI, data analytics, and automation, which is improving efficiency, strengthening decision-making, and enhancing the customer experience. For example, we continue to refine our asset categories and product taxonomy to improve buyer navigation and conversion. We've also leveraged AI to enhance our predictive lead scoring for new customers and engagement with our existing customers based on role-based signals. We also successfully launched Retail Rush, our new consumer auction channel, leveraging our software solution suite to expand our reach into the retail secondary market and attract new buyers and sellers to our ecosystem. Our marketplace continues to scale in both size and engagement. We now serve 6.2 million registered buyers, an increase of 9% year over year, with 983,000 auction participants and 264,000 completed transactions in this quarter alone, each demonstrating the growing relevance and liquidity of our platform. Looking ahead to the second quarter, we anticipate double-digit adjusted EBITDA growth versus the prior year, supported by a healthy business development pipeline, continued strength in GovDeals, expanding consignment activity in retail, and solid buyer demand across our categories. Our business model remains resilient, underpinned by durable long-term trends in circular commerce, sustainability, digitization, and the growing need for enterprises to manage surplus assets efficiently. We remain committed to disciplined investment in technology, data analytics, multichannel marketing, and operational excellence. As we expand our platform and capabilities, our focus remains on delivering superior outcomes for sellers, exceptional value for buyers, and sustained returns for shareholders. Thank you for your confidence and continued support. We are well-positioned to build on our early momentum and deliver another year of profitable growth. I'll turn it over to Jorge A. Celaya now for more details on the quarter. Jorge A. Celaya: Good morning. Our fiscal year 2026 is off to a solid start. Our first quarter non-GAAP adjusted EBITDA was $18.1 million, increasing 38% over 2025, which itself had grown adjusted EBITDA by 81% over 2024. GovDeals continues to grow and reported expanded margins compared to the same quarter last year, while the heavy equipment category in our Capital Assets Group or CAG segment also continued to perform strongly in the market. Our retail segment, or RSCG, generated stronger margins for the quarter as its product mix included an increased proportion of lower touch flows for both purchase and consignment. Our non-GAAP adjusted EBITDA has reflected continued growth in lower touch consignment transactions and expanding multichannel buyer outreach, particularly in our retail segment. These results also demonstrate our efforts to continuously improve our operating efficiency, with operating leverage resulting in strong fall-through again during this past quarter. Our consolidated results for 2026 include GMV of $398 million, up 3%, while revenue was slightly down by 1% to $121.2 million, reflecting the previously anticipated mix shift of lower purchase transaction activity in our retail segment mostly offset by consignment flows. Our GAAP earnings per share was $0.23, up 28%. Our non-GAAP adjusted earnings per share was $0.39, up 39%, and our non-GAAP adjusted EBITDA was $18.1 million, up 38%. GAAP earnings per share grew at a slightly lower rate than our non-GAAP profitability metrics due to performance-based stock compensation expense. We ended the fiscal first quarter with $181.4 million in cash, cash equivalents, and short-term investments. We continue to have zero debt, and we have $26 million of available borrowing capacity under our credit facility. During the fiscal first quarter, we conducted $1.5 million of share repurchases. At the end of the quarter, we had $15 million remaining on our authorization to perform additional share repurchases. Specifically, comparing segment results from this fiscal first quarter to the same quarter last year, our GovDeals segment was up 7% on GMV, up 9% on revenue, and up 13% on improved direct profit due to market share expansion rates across certain sellers while also reflecting the operating efficiency initiatives implemented over the last two quarters. Our Retail segment was up 3% on GMV, down 6% on revenue, yet up 16% on direct profit. Segment direct profit was $21.5 million, setting yet another quarterly record, following continued growth in key consignment programs, higher volumes of lower touch purchase flows, and strong multichannel buyer participation. Our CAG segment was down 10% on GMV, yet up 17% on revenue, up 7% on direct profit. The GMV to revenue ratio for CAG was in line with the low purchase activity in the fiscal first quarter of last year. These results reflect the continued growth and market share expansion in our heavy equipment consignment category, while the prior year contained some larger yet lower take rate projects in the energy category. Machinio and software solutions combined to increase revenue by 27% and direct profit by 23%, driven by increased Machinio subscriptions and pricing for its services, as well as contribution from our recently acquired software solutions business. Moving on to our outlook for 2026, we are continuing to focus on delivering profitable growth. GMV is expected to grow year over year. While we began the quarter with difficult weather conditions across the country, we expect the remainder of the quarter to deliver solid activity and still anticipate strong year-over-year growth for both GMV and profit from our GovDeals and Retail segments. We also have been implementing operational efficiencies improvements that will continue to show in higher direct profit margins compared to last year. Our second quarter outlook does include one-time costs and operating expenses of approximately $300,000 to $400,000 related to streamlining a retail operating location to continue enhancing our processing productivity for higher touch flows. The fiscal second quarter guidance also reflects the product mix within retail for purchase flows that sequentially are currently expected to be at a slightly lower margin than this past fiscal first quarter, including a modest seasonal increase in logistics costs as we enter the post-holiday season. Our low end of guidance range reflects continued double-digit growth in adjusted EBITDA compared to the same quarter last year. We also remain well-positioned based on trends in current seller flows and buyer demand as we look ahead to 2026. GAAP and non-GAAP adjusted EPS are expected to remain solid despite a comparatively low effective tax rate in 2025. These guidance ranges reflect higher margin business mix compared to last year delivered with continued operational efficiency. On a consolidated basis, consignment GMV is expected to continue to be in the low eighties as a percent of total GMV, consolidated revenue as a percent of GMV is expected to be slightly below 30%, and the total of our segment direct profits as a percent of consolidated revenue is expected to be in the mid to high 40% range. These ratios can vary based on our overall business mix, including asset categories in any given period. Management's guidance for 2026 is as follows: We expect GMV to range from $375 million to $415 million. GAAP net income is expected in the range of $6.5 million to $9.5 million, with corresponding GAAP diluted earnings per share ranging from $0.20 to $0.29 per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.29 to $0.38 per share. We estimate non-GAAP adjusted EBITDA to range from $14 million to $17 million. The GAAP and non-GAAP earnings per share guidance assumes our second quarter income tax rate will be in the mid to high 20s, and that we have approximately 32.5 to 33 million fully weighted average shares outstanding for 2026. CapEx is expected to remain consistent with recent levels of approximately $2 million per quarter, and free cash flow conversion should be in line with historical and seasonal patterns. Thank you. We will now take your questions. Operator: Thank you. And to ask a question, please press 11 on your phone and wait for your name to be announced. And if you wish to be removed from the queue, please press 11 again. If you are using a speakerphone, you may need to pick up the headset first before pressing the number. And our first question will come from George Frederick Sutton with Craig Hallum. Your line is now open. George Frederick Sutton: Thank you. Nice results. So Bill, you mentioned multiple times in your prepared comments that you're seeing tech-enabled growth, you're leveraging technology. I wondered if you could call out some of the bigger drivers that you're referring to there. Bill Angrick: Well, we've commented in the last year about improving the conversion rate of buyers, browsers that eventually become registered buyers, that eventually become bidders. That is the dynamic that drives higher recovery rate and more satisfied sellers. And there's no doubt that the investments we've made in machine-driven systems and intelligent signaling of when's the right time to show the buyer a particular asset has boosted results. The fact that that's happening in an automated way without a high content of labor makes it more productive. Another example would be the operational realm of scanning an asset and making it available for purchase online. That is historically a very labor-intensive process with defects. Did I get the right number of photos? Did I get the right number of angles? Did I get the right description? Did I append the description with the right OEM data? All of that can be automated, and we are automating it. And it's delivering a more accurate description more quickly and with less labor content. On the sales and marketing side, you know, the inbound leads, we've automated the process of identifying who are the right parties to contact, and to engage that contact through drip campaigns at the right points in time with automation. And harnessing a lot of the historical data regarding the $15 billion in sales that we've completed and bringing that data to life for prospects to make them aware of our expertise, which increases the likelihood that they're going to convert to a new customer. You heard that we signed an all-time record 500 new, 500 plus, actually, new agency clients in our government market. A lot of that has to do with what I've just described, and that extends to our commercial segments as well. George Frederick Sutton: Well, I did want to focus on that last comment specifically because it was impressive that you called out the growing number of CAG and GovDeals clients. Obviously, it would give a sense of the durability of growth. Any sense on sort of how significant the impact of bringing in these new clients are in verticals and any plans or any sort of suggestions for growth and continued additions there? Bill Angrick: I think we've got a great runway in both the public sector, government market, and in the commercial markets, not only within the Capital Asset Group, and the star being our heavy equipment category, but also the retail industrial supply chain. I mean, people are coming home to the platform, and it's not hard to understand why. We've got the most buyers delivering the highest recovery. We've got all the value-added services to help reduce supply chain costs. We've got the best data to give them appraisals of what their assets are worth. Buyers like the platform. You know, the reach and depth of what we have for sale. They can find a lot of value, a lot of end-user businesses can source what they need. So, you know, we think there's a structural improvement in buyer and seller acquisition happening in the platform. And I think as we move through 2026, I mean, there's going to be 10-digit asset sales and programs being announced with Fortune 1000 clients. That's where we live. I mean, if you're a large blue-chip company, you want a proven solution. You don't want someone learning on the job. You want trust. You want loyalty. You want something that can, you know, at industrial scale, execute. We have great compliance, by the way. There's been reports about, you know, greater fraud happening in the returns reverse logistics space and just generally, and we have tremendous experience identifying and qualifying our buyer base to essentially remove that fraud risk, and that's another reason why sellers transact on the Liquidity Services, Inc. marketplace platform. George Frederick Sutton: Alright. Wonderful. I'll turn it over. Thank you. Operator: Thank you. And the next question will come from Gary Frank Prestopino with Barrington. Your line is open. Gary Frank Prestopino: Good morning, everyone. Following up on George's question and the theme that you set forth in terms of using technology to increase efficiencies. Have you been increasing your Salesforce commensurate with the ability to drive growth in new client acquisition, or is a lot of this just really coming from the tech investments that you're making that are making it easier to drive new business? Bill Angrick: Gary, the majority would be leveraging improved automation and scoring of the right companies and delivering the messages at the right times to increase conversion. Having said that, we absolutely, in a targeted fashion, have added resources to support the sales outreach because when you have a great story to tell, it's important that you get people in the channels, heavy equipment, to spread awareness. And we're just getting started in many of our categories, which are showing tremendous promise. You know, we've been at nearly 30% compound annual growth per quarter on a GMV basis there. And we think that can be a $1 billion GMV business. And, you know, call it we're at $100 million to $110 million GMV run rate. So there's plenty of room there. We have added targeted resources in our GovDeals marketplace. I've rattled off some of those new clients. These are big structural wins when you're talking about, you know, New York Housing Urban Development, New York State Port Authority, State of Pennsylvania, Department of Transportation. And when you win these types of mandates, you know, these are agencies that do a lot of due diligence. They want to understand your ability to scale and service, you know, large flows of assets and do so in an efficient way. And so we've answered emphatically, you know, that we are the best in class for those types of clients. So with the benefit of automation, we can, you know, get some increasing operating leverage, but we're always going to be, you know, hunting for growth, and we have added resources in the areas I mentioned. Gary Frank Prestopino: So, okay. That's great. So, and you also mentioned your heavy equipment sales were up 20% or GMV was up 20%. You're offering more or less a sell-in-place solution, right, with heavy equipment. And I guess the question I would have is, you know, are you looking at niches that are not currently covered by some of the larger players in the market? I guess, what would be the competitive advantage that you have that you're able to, you know, gain this kind of share? Bill Angrick: Well, you've got, number one, lower net commission rates, lower take rates, two, lower out-of-pocket transportation and make-ready costs, three, flexibility for the seller to set the terms and conditions of sale, four, the ability to introduce data-driven reserve prices that protect the seller's downside. Fourth, you know, we've got a tremendous buyer base, and we're delivering very good recovery rates on the gross asset sales. And, you know, those things have compounded to give us that differentiation and adoption. Gary Frank Prestopino: Okay. Is it, and I remember speaking with you about this, talking about heavy equipment, does that include yellow iron? Bill Angrick: Yes. Gary Frank Prestopino: Okay. Alright. And then lastly, where do we stand with the Retail Rush product? Bill Angrick: So we're live in the first prototype with Retail Rush. It's ramping week over week, month over month. The pickup location is in Columbus, Ohio. And the really important point is that we're seeing the uptick in recovery rate for the same assets sold in the Retail Rush channel versus the wholesale channel. There's this insatiable appetite for value with consumer buyers. And so we're tapping that, and we're carefully creating an auction experience that combines, you know, value with a treasure hunt experience and automating as much of that process as we can. So we think there's a niche there. And we know from our, you know, tens of thousands of B2B buyers in the retail marketplace, you know, these are people that would love to have the same capabilities of the Retail Rush software platform. So over time, we can envision partnering with our buying customers on the liquidation.com platform by giving them a license to use this B2C auction model and set up their pickup locations in different points of presence around the United States and then eventually in Canada. Gary Frank Prestopino: Okay. Thank you very much. Operator: Thank you. And we have no further questions at this time. This does conclude today's conference call. Thank you for participating, and you may now disconnect.
Operator: Welcome to the Swiss Prime Site Full Year 2025 Earnings Conference. [Operator Instructions] I will now hand you over to your host, Marcel Kucher. Marcel Kucher: A very warm welcome to everyone on the screens. Welcome to Swiss Prime Site here on the 34th floor of Prime Tower in the heart of Zurich. It's a great pleasure to have you here. I'm here joined by Anastasius Tschopp today. He's the Deputy CEO of our group and also the CEO of Swiss Prime Site Solutions, and he will talk later a little bit more about our asset management operations. Before we start with the numbers and the actual result, let us step back a little bit and look at where we stand today. Over the last couple of years, we have been building on our Swiss Real Estate platform with the two legs of our own property portfolio and the asset management. And today, we stand here very proud of what our platform has become. Over the past years, we have built not only this platform, but we have built it in a very synergetic way, that performs very strongly, and we'll show you today why this is the case and where this comes from. And more importantly, it also performs very synergistically across the cycle, building on the resilient Swiss economy. In today's cycle, we benefit from a very supportive financial conditions with record inflows of new capital. We have seen this in particular in our asset management with more than CHF 1 billion new money and a record high of CHF 14.3 billion in assets, driven by a very, very strong organic growth. We have also seen that in terms of the transactions that we could do, all the acquisitions that we could do, in particular, in the asset management in the residential area, where we have a structural undersupply here in Switzerland, like in many other countries as well. On the other side, and managing through the cycles with our own property portfolio, we have delivered development over the last couple of years, more than CHF 40 million in top line. And we have hence been very important part of building high-quality buildings here in Switzerland for the commercial sector. Again, this year, we have shown that also in the cycle with low rates and less inflation, we can drive like-for-like growth with a very, very strong 2% growth for this year. And hence, our platform is a true flywheel, creating momentum that reinforces itself and together and building on the strong foundations we will continue to thrive in the Swiss economy. And with that, more strategic outlook. We want to go into kind of the key elements that we want to present today. You see here all the details, but I want to summarize that into four key takeaways that I think you should remember once you leave this room. The first one is, we are growing. We are growing with a 2% like-for-like growth in our own portfolio. We have reduced our vacancy to 3.7%, a record low for Swiss Prime Site, showing how strong we perform in all of our properties. And we're also growing in the asset management sector. You've seen 18% top line growth last year. So very strong momentum all organic and fueled by the strong capital markets that we see. That will bring me to the second point. We are attracting new capital. We have done a capital increase for Swiss Prime Site in spring of last year, CHF 300 million, which are fully invested today. We have been able to attract CHF 1 billion in new money, an absolute record high for Swiss Prime Site Solutions in our asset management division. And we have been able to apply that in very attractive acquisitions throughout our -- the two segments. That brings me to the third one. We are investing. We have truly built a platform that has access to the most attractive transactions in Switzerland. Having done more than CHF 550 million in acquisitions for our own portfolio. And in addition to that, CHF 1.7 billion in acquisitions and transactions in the asset management sector, getting really access to the right transactions even in a market that is very flourishing. And fourth key takeaway, we are becoming more profitable and efficient. And you see that in a 3% up from a comparable EBITDA, up to CHF 408 million for that year. We see it in a more than 30% growth in the profit for Swiss Prime Site Solutions. And you see it also in the dividend proposal that we make, which is CHF 0.05 higher than in the previous year. So we're also sharing that benefit with our shareholders. Going from these key highlights, let me step back a little bit and look at this key elements here, how that performs in key financial figures. You've seen that in the press release and in our presentation, we have a slight decrease in the rental income only due to the fact that Jelmoli building went offline together with a couple of other buildings where we lost about CHF 14 million in top line last year. On a like-for-like basis, as I mentioned before, we have seen a very strong increase of 2%. In the asset management business, as I mentioned before, a record level of almost CHF 85 million in top line, 18% growth over last year, mostly driven by the organic growth and the money that we could attract to a small degree, about 1/10 of that driven by the full year consolidation of fundamental, which we acquired in April of 2024. EBITDA consolidated on a like-for-like basis 3.4%. As I mentioned before, in absolute numbers, minus 1.2%. But given the lower interest, in particular, as well as lower taxes, that translates into a profit before revaluation and sales of 1.3% to an also attractive level of almost CHF 320 million. On a per share basis, that translates into CHF 4.22 unchanged over the last year in terms of FFO I per share, FFO II per share we see an increase of 6% to CHF 4.17 and an EPRA NTA that is up 2% to CHF 101.40, underlying the very attractive real estate that we have, which also have seen a very positive revaluation last year. On what type of market do we achieve these results? And I think I want to leave you with four key elements here. The first one is on the transactions. We have seen last year a very high level of activity on the base of a very broad institutional buyer space. This has been not only the case in residential, but also in the commercial. We see yield compression in many of these respects. And we see, in particular, also an increasing number of larger assets being on the market which is attractive for us as a commercial player with our own portfolio. Second key takeaway that I want to leave you with is we have a continued polarization in the demand on the letting side. We see a huge demand for additional space in the core segments where we are, which means in the inner cities, this is where life is where people like to be, where people like to work. And that is contrasted by probably significantly less activity, a little bit further outside which is becoming more challenging what we see. The third key takeaway is on the valuations. We've seen for ourselves an increase in valuation of 1.7%, roughly translated into some CHF 220 million. And we see that across the board with discount rates going a little bit lower, but also the effects that we see from the positive growth in rental income on a like-for-like basis, which have an impact, obviously, on the valuations. In terms of our own book, we have been able to do our sales with roughly 5% profit, which is exactly where you want to be -- being at the market, but obviously on the conservative side in terms of the valuation. And finally, fund flows. We've seen a record year for ourselves. I mentioned that before, altogether, CHF 1.3 billion across our platform, CHF 300 million for our own capital increase in February and roughly CHF 1 billion in new assets for the asset management. Pension flows is an important element for that. We see here large inflows from the pension flows, and we also see higher allocations to real estate, which is supporting the entire market. Now for the next couple of minutes, let me dive a little bit deeper into the P&L and any individual results that we have from a finance perspective. Let me start with the top line and with the resilient rental income and the strong asset management growth that I've mentioned before. We've seen real estate income from rental decreased by 1.4%, as I mentioned before, that was all due to the fact that Jelmoli went offline together with Fraumunsterpost had an impact of roughly CHF 14 million, and you see that we were able to compensate most of that with our own growth, like-for-like growth as well as the acquisitions to a smaller extent. Second element I wanted to mention is the asset management, 18% plus over the last year, a record level of CHF 84 million roughly in top line. This is all due to the further increase of the funding flows that we have seen and then hence, the transaction that we could do following that. And to a very small degree, also on the full-time consolidation of the fundamental for the full year, as I mentioned before. That is contrasted obviously by the last elements that we see from our focus on the pure real estate platform with now rental income from retail only at CHF 10 million, which is the last 2 months that we've seen for Jelmoli. And also the other income coming down significantly, which was also related to the retail business. Hence, overall, about 17% lower total operating income, but what is more important to me, because this is all what we wanted to do with the focus on our real estate business on a comparable basis. Hence, excluding the effects that you have through the closing of Jelmoli, we have been able to grow 2.6% over the entire platform to a level of CHF 540 million for the last year. If we flip the side and look at our cost base, we see a similar positive picture with a huge drop in the operating expense. However, the majority of that is due to the fact that we continued -- discontinued the operations of our department store. And hence, again, I would to look at the lowest number here, so at the lower -- number at the bottom here where we have been on a comparable basis, hence, excluding all the effects that we have from closing the department store, a lower cost base of 2.8%, showing how much we can drive synergies across the platform. One of the key elements for that will be the real estate costs. You've seen before, the absolute number in terms of rental income reduced by roughly 1.4%. We have been able to decrease the cost of real estate of 5.4%, and that shows we've become much more efficient here and this focus on the buildings in these core locations on the slightly larger buildings that we have been pursuing over the last couple of years has also a positive effect here in terms of the efficiency and the cost ratio. Now if you bring this together, then we see that the positive revaluations that I've mentioned before, I will go into details a little bit later on this where this came from, then coupled also with the sales from properties where we had a gain of roughly 5% over the last value, leaving us with an EBITDA in absolute terms of roughly unchanged, CHF 410 million. But again, for me, the more important takeaway here is the number at the bottom. So, on a comparable basis, so excluding kind of the last time effect that we have from our Jelmoli operations, we see in a comparable increase of the EBITDA of 3.4%. And hence, again, amplifying what I've mentioned before here, the strength of the platform and how we can become more efficient going forward. Now, if you go further down from EBITDA on an FFO basis and the EPRA NTA here, we keep an unchanged Funds From Operations I from per share of CHF 4.22. In absolute numbers, you see that we see an increase of 3.2% here. But given the higher number of shares, this translates then in an unchanged number of CHF 4.22, showing that we have been adding value to our capital increase already in day 1 of the capital being employed, and this will only become better over the next years. On the intrinsic value per share. Here, you see a 2% increase comes to a large degree, from the revaluation effect that we have seen and a slight reduction in leverage, which I mentioned in a minute. So, what I want to do now is provide you a little bit more details on the two key drivers on the top line and then a couple of pages on the balance sheet as well. Let's start with the top line and obviously, the most important element is our rental income. You see here the composition on how we end up with the roughly CHF 455 million. We had seen last year in 2024, really strong sales with a strong tail end here. We sold in 2024, CHF 330 million, really focusing our portfolio on our key locations and on the key cities in Switzerland. Now this obviously had an impact then in 2025 in terms of the top line. And you've seen from that sales, we also sold about CHF 15.7 million in top line. Then what is very important to us and the key focus is what can we do with our existing portfolio. You see that here in blue, with an increase of roughly CHF 8 million, and that translates and you see this here in more detail in the 2% like-for-like growth with roughly 1.6% coming from real like-for-like growth, speaking from really changes in the underlying rent and in the rental contracts that we could actually sign coupled together with a further vacancy reductions, which has an impact on like-for-like of 4.3%. A small number still comes from indexation, 0.4%, and I would expect that to stay at that level given that we have pretty much zero inflation here in Switzerland or even come down a little bit further. Then the redevelopments, I mentioned that before. This is mostly Jelmoli, but also some elements of Fraumunsterpost. These are the buildings that went offline, temporarily offline. I think that's an important addition to that. We will renovate them, and I'll provide you more details on that when they will go online again in just a minute. The acquisitions that we did, the CHF 550 million that we acquired had not yet a full effect, given that a large part of it was only closed in December and the rest April and August. Hence, you will see much more impact of that going forward. In 2025, we had an impact of roughly CHF 5 million coming from that. And then we still have the completion of new builds, which is roughly CHF 9 million which, to a large degree, translates to Alto Pont-Rouge in Geneva as well as the buildings in JED in Schlieren, as well as in BERN 131. A word on the asset management side as well. How do the 18% realized that we've seen in top line growth last year. You see here the management fees have been growing by roughly 15%. So these are the underlying fees that have a very recurring character. The same recurring character is on the construction development side, slight reduction, given the fact that last year, we completed a little bit less construction than we did before. And then obviously, on the non-recurring side, on the transaction side, that is the mirror of the high net new money that we could attract of the CHF 1 billion, which were invested in about 120 transactions. As I mentioned before, CHF 1.7 billion roughly in transaction volume that we did in the asset management. An important figure for us is, we want to build here a stable asset management operation that mirrors kind of the stability that we have on the real estate side. And hence, an important number for us is that we remain at roughly 2/3 of recurring fees, and that was also a case in last year despite the very positive market at 66% recurring income. What you can also see here in the numbers is the cost base has been stable or even decreasing slightly. You see that in particular here on the personnel cost, which are the most important cost base, these are the elements that we can still can benefit from the integration of Fundamenta. We mentioned back then that we expect some CHF 8 million in synergies, and we have now been able to fully realize those. And you see that in the number here that EBITDA grew by significantly more than the top line, 31% exemplifying here the stability and in particular, also the scale effects that we have. That translates into an EBITDA margin, which we believe is very attractive of about 66%, so about 2/3 percent, and hence, shows the power again of our platform and doing things together. Two words on the balance sheet. The first one is obviously on our real estate portfolio, which has reached new heights with about CHF 13.9 billion, so almost approaching the CHF 14 billion mark. We started with roughly CHF 13 billion. We talked about the sales. I will provide some more details on that just in a minute, of CHF 130 million, then the CHF 550 million acquisitions that I mentioned before. Total investments in our developments was CHF 222 million with a strong focus, obviously, on YOND and Jelmoli. And then the valuation result that we mentioned before of the 1.8% roughly, providing us then with a total of CHF 13.9 billion. Maybe one word on the revaluation. We've seen given the strength of the Swiss market, a slight reduction in discount factor in real terms about 2 bps, in absolute terms, a little bit more, because our valuators also reduced the expectations on the inflation by 25 bps. The latter has practically no impact on us, given that we have a very large share of our property being fully indexed. Hence, we can pass on any indexation and any inflation. The latter one does have an impact. And hence, you see it's probably about 50-50 in terms of the revaluation result in terms of what we -- what stems from the discount factor reduction and what stems from the like-for-like growth and exceeding here the expectations our valuators had in terms of the closings of new contracts. And then the last element on the balance sheet is our financing, two pages on that. We have been able for the last year to place almost CHF 800 million in new financings. And for us, as a very important highlight, we were able to access the Eurobond market for the first time. We placed in September, a EUR 500 million Eurobond at a very attractive spread, roughly mimicking the spreads that we could reach here in Switzerland. What was very supporting for that placement and made us really feel good about this market is, we were able to attract EUR 4.3 billion in demand at that interest rates that we had. So we had an oversubscription of about 8x, which is very high even for the euro market and shows just the incredible strength of our name and of our platform in Switzerland, but also abroad. Despite the fact that we have a large degree of our financing with fixed interest rate. You see that here at 86%. We have been able to reduce the average interest rate significantly from about 1.1% that we had in the previous year to 0.94% if we are precise that is, we believe, a very attractive as well. Overall, given the financing level that we have here, that translates into an LTV net for the Real Estate segment of 38.1%, which is slight reduction of 0.2 percentage points over the last year. Well, we continue is that we have a very broad set of potential financing opportunities and that Eurobond only added to that, to make sure that in any position, we are always able to refinance ourselves. You see that here, about 50% is financed through unsecured bonds, 40% of that is roughly in the Swiss market, 10% is in the euro market. We have still access to the convertible bond markets. We have very good partnerships with our core banks, 13 banks in Switzerland for the unsecured loans, and we continue to have the secured loans with the insurance companies of about 11% of our overall portfolio. Moody's rating A3 stable, and that provides us with this access that we just mentioned before. In terms of the liquidity, we have a very high liquidity reserve of CHF 1.1 billion roughly. This is fully committed, so we can exit it at any time. And that provides us with enough liquidity over the next couple of years. So we don't have to go to the market, but we will, of course, access the market in order to stay an active player here. That's for the numbers and for the financial numbers. Let me spend a couple of minutes now to dive a little bit into more details of our portfolio, before I hand over then to Anastasius to provide some more details on the asset management side. Let's start with the overview. And given the acquisitions that we did this year as well as the disposals, we have strengthened further our position in our core markets. So we have now close to 60% of our portfolio, in Central Zurich area, about 20% in the Lake Geneva area, with the two strong hubs in Geneva itself as well as in Lausanne for us and about 12% in Basel in the northwestern part. We have further reduced the number of properties despite the acquisitions that we did, and we are currently at 132 million properties, which relates into an average size of our properties of around CHF 100 million, which we feel very comfortable with going forward. And we already talked about the property portfolio of close to CHF 14 billion. In terms of the use, we have further strengthened our office segment, which we strongly believe in, in the core markets that I mentioned before and in the prime locations that I mentioned before with close to 50% currently, 20% retail and then the rest is spread between infrastructure, logistics, which also includes labs for us, hotel, gastronomy and a slightly reduced share of Assisted Living, which are mostly the Tertianum we have. We're still very proud of the diversification of our tenant base. We have about 2,000 tenants, with 50% spread among the top 30 tenants. Our three largest tenants still remain the same with Tertianum slightly reduced at a little bit over 5%, Swisscom at roughly 5% and Globus slightly reduced also at close to 5%. I'll talk about Globus in just a minute. Where you see this beautifully, the focus that we have taken over the last couple of years in this matrix, which is provided by our evaluator, Wuest & Partner, where we have over the last couple of years, if you compare this to 4, 5 years ago, really been able to put a really, really strong focus. More than 99% is in these highest brackets in terms of quality of the locations, and close to 90% is also in the highest bracket in terms of quality of the building, and that has been a significant shift and the basis for the strong like-for-like growth that we could achieve. I'll show you some pictures on the acquisition, so let's skip that. But you also see where we sold properties. This is still not in the core elements that I mentioned before. So we sold properties Aarau, Biel, Augst, Buchs and Brugg with a strong element on two segments. The first one was Retail, where we're still reducing in particular, in these non-core locations. And the second one was developments, where we felt that the best one is residential going forward. So what we typically do is in order to capture the value as we develop it up to the point where it has a building permit and then sell it to somebody who has a core focus on residential. Now talking about the acquisition and the fantastic buildings that we were able to acquire. And fantastically enough. It starts here from the left to the right, not only in terms of location, but also in terms of timing. We started the year in April with the acquisition of the Place des Alpes in Geneva, from SGS, just last week. SGS opened its new headquarters in Baar, which have been beautifully renovated in our building. And hence, this was a truly beneficial transaction on both sides. We were able to acquire this beautiful building. You see with unobstructed view to the Lake of Geneva, and SPS was able to find the new headquarters in the canton of Zug as they wanted. We are currently in very advanced discussion with tenants, focuses on a single tenant again, which we hope to be able to close in the next couple of months. But we also have alternative discussions on a multi-tenant solution. Typically, we would look at two tenants, which should move in later this year. Then on Prilly, in Lausanne, key tenants here: SAP, Ruag, really strong technology tenants. We have long contracts of almost 20 years. This is a brand-new building to the highest elements, not only in terms of architecture, but also in terms of fit-out and sustainability. We are right at the very busy new station of Prilly and also right at the new station of the tramway, which will open later this year. Zurich-West, we have a little bit too much fog. Otherwise, you could see it from here, the headquarters of the Swiss Stock Exchange just down here, the road. Key tenant is the Swiss Stock Exchange. It's currently a single-tenant building, but already built in a way for a multi-tenant, so that we have full flexibility going forward. And then the last one, which we could close as part of an asset swap was in Bahnhofstrasse at Zurich, a beautiful building. And we being the absolute best owner, given that this was originally one building where we owned the first part already. This is the ones that know Bahnhofstrasse, where the Swatch Store is in. And now we added kind of the second part of that building, which provides us with many more opportunities going forward, in terms of efficiency and efficient use and space that we can offer. Fully let with key tenant rituals. If you calculate all this, and then it includes kind of the asset swap that we did in Bahnhofstrasse, you see a net yield of roughly 3.7%, which we believe is very attractive given the quality of the buildings and obviously, is highly accretive given where our actual yield is. Hence, very attractive acquisitions that we could do over the last year. One word on vacancy. You see here, if you just look at the graph, lowest ever, 3.7%. We could, in particular, sign a couple of new leases like SGS, like Banque Cantonale de Geneve, TurbinenBrau, and a couple of major extensions, EY just down here as one of our key tenants here on the Prime Tower campus, but also with the canton of Zurich, an attractive building in Oerlikon as well as the extension of Globus. I'll mention that a little bit more detail in just a minute. The 3.7% have an underlying 3.2%, which is operational vacancy and then 0.5% for strategic development. What does that mean? Those are floor spaces that we do not actively market currently because we start to empty a building so that we can do the future redevelopment. So with an underlying say vacancy of 3.2%, which is also a record low in the history of Swiss Prime Site. One word on WAULT. You see here a very even spread of the WAULT, pretty much everyone -- everything is 10%. That has a significant change over the last period. We increased our average WAULT by almost 0.5 year to 5.3 years, mostly driven by the extensions of EY, that we mentioned before, and Globus. On the Globus, I think we mentioned that during the half year already, we have a staggered extension agreement where we have 7 years for Lucerne and 8 years for Lausanne and then the 10 years for Geneva, which then also flattens kind of the profile going outwards. Then a question that usually comes, "Are you nervous about the 9% that is on the short term?" I say absolutely not. On the opposite. I look very much forward to that. We have been in good and advanced discussions with the majority of the tenants in here. And the reason why I think this is positive is because in vast majority of the cases, we see here a very positive potential for higher rents when we entered kind of the next agreement phase. Hence, no worries on that side from our perspective. Now, let me spend a couple of minutes on our three ongoing development projects. Obviously, the most important one being Jelmoli. Just a little bit, what's the current status here. We have started construction in April pretty much right after we closed the department store operations end of February. Obviously, the first stage in the construction is that you start to demolish, kind of lay open the underground structure, and that is pretty much finished by now. Part of that was also a removal of hazardous material just to provide you a little bit of an impression of the complexity of the building. The building is not actually one building, but it's four main buildings and 11 buildings, if you look also at kind of connecting buildings, together. Now everything is open, and we've taken out the opportunity over the next 2, 2.5 years to really bring this entire building, kind of, to the next century, where we will not only convert it into the office part in the upper floors, but also really address the structural elements and really catapult it into a new area. Overall, investment is going to be roughly CHF 210 million. We can be pretty sure on that by now, because we have agreed on a channel contract in September. And we expect a staggered completion starting in summer 2028. On the rental side, obviously, we still have roughly 50% pre-let. We are in very advanced discussions with some tenants. These are really top-tier tenants. We also have signed LOIs for two floors, of the remaining office floors and we see really good demand here for those. As I mentioned before, summer of '28 staggered completion date, in particular, for the offices. Hence, we are a little bit early for the real marketing efforts, and you see this here, the active marketing will start now in summer or late after the summer of this year, but kind of the premarketing, the effect, we are already very positive on that one. Second one, a snapshot is YOND Campus. Also here, we have just signed a contract with a general contractor. Investment volume remains at CHF 150 million, yielding from that, about CHF 8 million in additional top line. So you see it's also a very attractive yield on cost from this project. We have been able to sign a number of contracts already for that. One that I really like is part from Zuriwerk Foundation, which provides a real new hub here also for inclusion. The Turbinenbrau, so we continue kind of the addition of the building of brewing water leakers and now also beer in that area and a number of other signatures are pending. And hence, we are very happy in terms of how the marketing works. Also here, we have a staggered completion as of 2028. We have currently completed the garage, so the underground parking and now, we are now start building the YOND 3 construction. This is the main kind of new building. It's about 85% of the entire new development with the YOND 2, then following later on once we have also reached here our target level in terms of pre-letting. Last snapshot, Fraumunsterpost, the building in the middle of Zurich that everyone knows. Currently, we are doing a refurbishing here, bringing it also into the next century and of about CHF 30 million. Complete in here will be summer of next year. Will, in particular, have a focus on all the sustainability elements, on the heating elements, on the insulation elements, et cetera, with a sustainability certificate that we expect of BREEAM In-Use are very good. We are in advanced discussions with a number of tenants of about 2/3 of the floor space and expect that by the time this is completed, we should also have 80% plus let as usual with our buildings. And that is on track for the completion, as I mentioned here before. Two pages on sustainability, which remains a focus of ours. And I want to mention here four elements that are important to us and to me personally. The first one is, we continue with our certification process. We have pretty much everything certified in our portfolio that is certifiable. So excluding some parking spaces, et cetera. We have now 40% of our top-tier buildings that are eligible for our Green Finance Framework and that is only buildings that have a Good or Very Good or Platinum rating. We're working on that, that this will continue and the certification gives us a very strong indication on what we need to work on, and that's why this is attractive for us, not only to provide you as investors with the full transparency but also for us to provide us with an additional element of inputs on what we need to work on. A real key element that we achieved last year, and I want to jump here one page is another 10% year-on-year advancement in terms of the CO2 reduction path. You can see here, this is our linear target that we had to 2040 CO2 neutrality. We are well on track here. We are, in fact, advanced on track, and we could add here another year with a huge milestone with a further 10% reduction weather adjusted, by the way, which is important, because we do not benefit from a, say, mild winter, but we adjust for that, so that it's really comparable. Some of the key elements that we do here is obviously heating replacements and energy modernization. We also continue to work on the Green Leases here, which means we work together with our tenants in order to make sure that not only we reduce our energy consumption, but also our tenants work together with us, and we signed these in Green Leases. We work on the improvement of the energy mix and obviously, to wherever we can district heating mix, et cetera, and then obviously, the building shells, which is an important element, as I mentioned before, with Fraumunsterpost, for example, or also Globus, Jelmoli, where we focus on that as well in the renovation path. Let me go back. On two other elements, which is the circular economy element, which is a key element as well for us. In terms of our focus area, we have completed the Bern 131 project, which is a true lighthouse in that respect. You see here the embodied emissions is 7.3 kilograms. The ambitions as per the circular economy charter is close to 12 kilos. So we have been significantly below the already super low kind of ambition that we have taken for our charter. How did we do that? Well, it's mostly wooden construction with some concrete to reinforce it. We focus here on Swiss wood. So it's not wood from anywhere, but it's Swiss wood. And then obviously, the entire building is covered with photovoltaic cells so that the building actually produces more energy than what it consumes. And finally, because we want to have this really all encompassing, we have the Green Finance Framework where we refinanced almost CHF 800 million last year, under the Green Finance Framework. And for that, we build on what I mentioned before, our certificates in terms of Good and Very Good buildings that can only be eligible to the Green Finance Framework. So, with this, I would hand over to Anastasius for some additional words on the asset management part. Anastasius Tschopp: Thank you, Marcel. Dear ladies and gentlemen, a warm welcome from my side. The next few of minutes, I will give you some details about the Swiss Prime Site Solution results 2025. As Marcel Kucher mentioned before, we grew 2025 with CHF 1 billion assets under management. We raised CHF 1 billion new money. This is more than 2023 and 2024 together. Our Real Estate transaction volume, 2025 was CHF 1.75 billion. From all these deals were 30% of market deals. So we have really good networks in Switzerland. Now I will show you the three sub pillars of the asset management part. On the left-hand side, you can see our fund management. In this fund management, we raised CHF 430 million new equity in 2025. Another highlight was our IPO with the Investment Fund Commercial in December 2025 with a premium from 10%. In the middle, you can see the sub-pillar Wealth Management or Asset Management, the products there, the investment foundation, SPR or the Fundamenta Investment Foundation. In this part, we raised CHF 590 million new equity. And another highlight in this part was we extended the contract with Fundamenta Investment Foundation by 3 years to 2029. On the right-hand side, you can see our Real Estate Advisory sub-pillar. In this sub-pillar, we gained a new mandate by around about CHF 400 million. Swiss Prime Site Solutions are the biggest independent Real Estate Asset Manager in Switzerland. Only banks and insurance companies in Switzerland are larger than us. But they have an own book of equity, we do not have that. We have more than 2,700 clients. 600 clients of this 2,700 are pension funds. Our main focus in our products, to invest 60% is Living -- housing. The last slide from my side and the key takeaways for you, the pension fund system in Switzerland are very strong. They have to invest CHF 17 billion every year, around about 23% goes in Real Estate. So around about CHF 4 billion or CHF 5 billion every year. Our market share is 12% to 15%. So we think that we can raise every year CHF 600 million to CHF 700 million new equity. We have a net immigration in Switzerland by around about 100,000 people. And the interest rates are low or going down. So you can see, the business case for Swiss Prime Site Solutions is really stable. As Marcel Kucher has mentioned before, our recurring fees are 65% the last year, and we think it will go on with this number. For growth to CHF 60 billion assets under management, as we have as target to 2027, we can benefit from the economy of scale again. Thank you for your attention, and now I hand back to Marcel. Marcel Kucher: Thanks, Anastasius. So there's only one thing to say for me. What is the outlook? So we expect the attractive Swiss market to continue. And hence, we want to provide the guidance for next year for an FFO that further improves to CHF 4.25 to CHF 4.30 on a per share basis. We will do that with a very disciplined financing policy and remain with our LTV below 39%. We do see further potential to improve our vacancy and hence guide that we will be lower than this year, so lower than the 3.7%. And as Anastasius just mentioned, we see continued growth opportunities for Swiss Prime Site Solutions with an additional addition of CHF 1 billion AUM also for 2026. Hence, a positive outlook. And with that, that was it from our side, and we would hand over to questions. Marcel Kucher: I think we start here, who would have thought. We start here in the room and then hand over to potential questions that we have on our stream. We do this in English today because on the stream, we have many people that are English speaking. And we realized that the simultaneous translation was not always that easy. If you feel more comfortable in asking a question in German, that's no problem. Just please do that, and then we'll try to translate as good as I can. So, where do we start? With you. Perfect, Matteo. Matteo Villani: Matteo, Vontobel. I have a question on Slide 22, regarding the active portfolio management. Could you tell us how large is the amount that you would still say capital recycling is possible? And why did you tell in December that you will scale back the sales? Has it to do with the market environment or did not the buyer come as you wished for? Marcel Kucher: Yes. All right. Happy to do that. Let's start with the second one. It had nothing to do with the market. I mean, the market is super strong, and we've seen that with 5% profit that we make. We will also, this year, see a number of additional transactions that we partly signed already last year. That is, in particular, the second half of the asset swap, which will only happen in 2026, because these are in cantons where the communities have a first right of refusal. So there is a gap between, kind of, when you can close that. So we expect that to close somewhere in April or something like that, for the second part. So no, this has absolutely nothing to do with the market. For us, it was important that we provide transparency that we will keep a number of the buildings in our portfolio, as we have now with the capital increase, more equity and hence a little bit more flexibility. And your first question was around whether we can further kind of suppress that in the top quadrant. Was that the question? Matteo Villani: Like what's... Marcel Kucher: The number of buildings are... Matteo Villani: And in francs. Marcel Kucher: Okay. Well, for this year, my expectation will be that we will continue to sell about CHF 250 million worth of buildings. As I mentioned before, a part was already signed last year, so about CHF 150 million was already signed last year, which will now be closed in 2026, and we have a number of additional buildings that we have in the pipeline. I think, the focus of capital recycling shifts a little bit into more, say, a regular portfolio optimization. I think with what we have done over the last 5 years, we have really concentrated our portfolio in where we wanted to be. But given the size of our portfolio, we always see opportunities where we believe we are a better owner than somebody else, or within our portfolio where we see another owner be the better owner than us. That has a lot to do also with repositioning of buildings. I mentioned that before, we always have a look also with our commercial buildings, whether they would be suited for residential. And if that is the case, then we would develop it up to a certain level, typically building permit and cost certainty with the contractor general and then sell it on the market. Matteo Villani: One more question on the asset swap of the Bahnhofstrasse. What's the net yield of the building? Marcel Kucher: In Bahnhofstrasse, I think it's 2.7%, roughly. Yes. Ken? Ken Kagerer: Ken Kagerer, ZKB. My first question is to Anastasius Tschopp. And -- Okay. Whilst I see the fact that it's very easy or it seems to be very easy to raise cash in the current environment, I'm a bit more worried about the way how to deploy this cash into 2026, especially when we know that more than CHF 9 billion were raised last year and you plan to raise another CHF 1 billion and the others are also seem to be also very active. So, now comes the question. How do you want to deploy the money with good acquisitions on the direct market at the correct yield without diluting either the payout ratio or the quality of your existing products under management? Anastasius Tschopp: Thanks for your question. No. We have a good pipeline for all products. We have some transaction done in January, good transaction and our pipeline are full for the next 4, 5 months. And we are sure we can hold the quality and the performance in the product. Ken Kagerer: Just a small add-on for you. The fundamental contract was extended, was just mentioned. Can I expect that the margins or the costs stayed flat? Anastasius Tschopp: Yes. Ken Kagerer: Okay. The next question is on Jelmoli. I've just checked the full year presentation '22, and the Capital Markets Day presentation '23. And in '22, it was mentioned that the renovation costs should be above CHF 100 million. At the Capital Markets Day, it was mentioned that the renovation cost should be CHF 130 million. And when I remember correctly, Rene was very firm that this is a number he can stick to. And now I have read that we see CHF 210 million. Now comes the question. First, is the rooftop included or not already? And secondly, what has happened with the increase in the cost and what has happened, especially to the yield expectation on the construction cost? Marcel Kucher: Yes. Happy to do that. And yes, this is the entire building, including the roof. We will have a restaurant on the roof, we will have spaces on the roof for our office tenants that they can use, and that is part of this cost. The entire roof, but that was always the case, we'll only be able to use in '33 or something like that, because we will have the until then -- until we can connect to cool city. And we, up until then meet part of the roof or the coolers, for the cooling system. But, that was always the case. That is nothing new. In terms of the cost, that we have. I think now we can be firm on that. We signed a contract. We have obviously built back everything that is internally. So, we're now back to the bone and the structure of the building. And in the course of doing so, we decided that in part, it makes sense to do a little bit more, that has elements in the atrium where we believe we can add additional floor space and make existing floor space more attractive and bringing more light in it, but that is also a parts of where we will further support the structural elements. Given the increase in rent that we see and where we are also are with the LOIs that we signed, we see purely on cost -- on yield on cost about 4%. And if you add to that, the losses that Jelmoli did over the last couple of years, you'll be more in an area of 7%, 8%. So both numbers, even just the 4%, we do believe in a location like Bahnhofstrasse is super attractive. And hence, yes, this is going to be a very valuable addition to our portfolio going forward. Ken Kagerer: This brings me to my third and last question. What would need to happen for you to do another capital increase in 2026? Marcel Kucher: Well, for us, the most important thing is that it needs to be accretive. And it should be accretive quickly, not in 5 years' time and with a lot of hope. And the last year capital increase, I think, was at an attractive timing because we've seen end of '24 falling interest rates. And hence, we increased our capital in a phase of falling interest rates where we still could benefit from attractive acquisitions as these falling interest rates were not yet fully reflected in the prices. And I do believe you need to see these opportunities that allow us to grow our portfolio in an accretive way, that will make us then to do another capital increase. And as soon as we see those opportunities, I think we've shown that we are quick to act on that. Ken Kagerer: And do you see any opportunities now? Marcel Kucher: That we'll answer once we see them. Holger Frisch: Holger Frisch, ZKB. A question -- on the half year presentation, you presented a slide with the investment volume for SPS of about CHF 1.3 billion, broken down in CHF 200 million invested, CHF 100 million committed and CHF 1 billion open. Could you provide us with an update on the current number and the breakdown? Marcel Kucher: Yes. The number has not significantly changed. We thought it is more useful to talk about the projects that we're currently working on. As you can see, these are roughly the numbers in terms of commitment. So the CHF 200 million, the CHF 150 million, the CHF 30 million, together, CHF 380 million or the CHF 390 million, of which about CHF 70 million to CHF 80 million is already built. So we have a slight increase in terms of the commitment, obviously, because now we signed the general contract on YOND as well as Jelmoli. The overall number has not significantly changed, but this includes kind of conversions that will only take place in a number of years. Most prominently, if you look at Geneva, now we extended the contract with Globus by 10 years. So that means the conversion project that we developed here, we still want to do it. But realistically, we'll only do it in 10 years. Hence, some of the elements moved a little bit further out. Holger Frisch: Then second question would be on the maturity of the financial liabilities, this went down to 3.9 years, which is the lowest for the last 10 years, I think. So do you feel comfortable with that level now? Or do you have any plans to increase the maturity? And then maybe on the maturing bond of CHF 350 million in May, what are your refinancing discussions? Marcel Kucher: Yes. Okay. A number of elements on that. Why is the majority coming down a little bit? This has mostly to do with the unsecured loan that we have with the CHF 13. And that contract still runs about 4 years, part of it 5 years. And hence, it is too early now to renegotiate that. We will do that, say, 2 years before it actually matures roughly. And hence, you'll probably see that it comes down a little bit further. Does that worry us? No. Because it's a clear maturity pipeline that we have here. We have built up now many opportunities on how we can refinance, not the least the one in the euro market, where we have seen very attractive opportunities going forward. All the rest is roughly in the same range. You've seen the euro financing where we did roughly 6 years. Or you've also seen the one that we did in January of last year at roughly the same rate. With the upcoming majority, we already did the floater end of last year, which was part of that refinancing. The rest you see we have plenty of line that we could use. Obviously, we also reserve the right to do an additional bond refinancing, which -- where we see very attractive conditions currently. Holger Frisch: And one last question on the WAULT of about 5.3 years now. Could you break down the WAULT for the different types of use like office and retail and so on? Marcel Kucher: I don't have it here by-heart. We can provide it later on, but my gut feeling is, given that retail is only 20% by now of our portfolio, it should not have a significant difference. The large part of our retail, our co-op stores and Globus, of course, now -- and hence, you've seen here just the extension, hence, should be roughly in line. But if you want a precise number, I would have to check. I don't have that on by heart. Yes. Matteo and then Andrea. Matteo Villani: A quick question on Jelmoli at the Capital Markets Day in Geneva this spring, I thought the beginning of going live again is in 2028 at the beginning. Now you said at mid of 2028. Why is there this delay? Marcel Kucher: With what I mentioned before, where we will probably do a little bit more than we originally envisioned, because we believe this is beneficial to the building and the rental income that we can generate, we need to build that. And hence, the current plan, and we are very confident now that we can stick to this plan given that construction is now in full swing. And in particular, the building is empty now. So if you walk through the building currently, you see all the walls are dismantled. You see all the structural elements. So we are really very much focused now to rebuild the building, as I mentioned before. Tommaso Operto: Since the mic is here. Tommaso Operto, UBS. Question on reversion. Since inflation is as low as it is, focus will be on reversion. So could you update what the reversion potential is for the portfolio in general and then specifically also for this new couple of acquisitions that you made? Marcel Kucher: Yes. On average, I think the simple answer is it's about 10% of the reversionary potential. We do have about 5 years WAULT, as we've seen before. We have probably an implicit WAULT, which is a little bit longer given that some of our tenants still have options where they can extend at the same conditions. So taking the 10% and divide it by maybe 6 or something like that, that yields you around 1.4%, which we have now consistently been delivering in terms of real conversion. We're working hard on that. We're doing all sorts of things in terms of how we do community management, what services we provide to our tenants. If you look here in the Prime Tower, if you've been to the elevator, you see all sorts of services on the screens that we have. We have cars here, where pretty much the entire Prime Tower campus takes part of it. We have bikes and all that make tenants more sticky, because they really like it, and that is helpful for us going forward. So we try, obviously, to exceed expectations that Wuest & Partner has. And you see that in the revaluation. I mentioned before, roughly 50% comes from the underlying higher contracts that we could close. And we expect and we work hard on that. You will continue to see that going forward. Tommaso Operto: And for the new properties? Marcel Kucher: For the new properties, some of them come with a long contract. I mentioned Lausanne with a long contract. In terms of the Place des Alpes, which is the one that is -- that we are reletting. We are very positive that it's going to be in the mid-double-digit numbers in terms of what we undersigned and where we will end up now in terms of reversionary potential. We see that this attractive space with a beautiful building, old one and new one with an unobstructed view to Lake to Geneva is really attractive in the market, and hence, we're positive on the revaluation that we get there. Tommaso Operto: So, a double-digit percent increase? Or what's the double-digit, Okay. Marcel Kucher: Yes. Tommaso Operto: And then on the CFO transition, let's expect that you wouldn't be the only one. Marcel Kucher: Okay. Key message is, I will not do a double job. So that is the key message. We want to take this very seriously. We want to do a thorough evaluation if you talk to headhunters, that takes 4 to 6 months, and that time spend will be, do roughly say, in March, and we're working towards that. Andrea? Just behind you. Andrea Martel: Andrea Martel, NZZ. I have a question about Fraumunsterpost. Are you just redoing the offices on top, because Lidl hasn't open. Marcel Kucher: Lidl is still open. Lidl remains open and is open, but we're doing the entire office part. And the key element here is on the heating system, on the cooling system, et cetera, where we will go full green. Insulation is part of it with the windows. Obviously, this is a protected building. And we want to transform it in a way so that it's fit for the next 50 years plus. We've seen very good demand so far and really top-tier tenants, where we're in the progress -- in the process here of hopefully signing them up so that they will move in when it's ready in a 1.5 years roughly. Tommaso Operto: It's a recurring question that always comes up, but is there any update on Mullerstrasse for Google tenant? Marcel Kucher: Look, Google made an announcement. It was quite prominent in the newspaper. I think it was October last year, where they kind of committed to Zurich. All we hear is that they're now further reducing the workforce. On the contrary, it seems, at least from the outside, that they're transferring some of the development on their AI engine here to Zurich. In that announcement, it was also said by Google that Mullerstrasse is a key element of their strategy. Hence, we have no indications whatsoever from Google that they don't want to keep it, and that's the current update. Tommaso Operto: Just one follow-up on the double-digit percent increase for Place des Alpes you mentioned before. That's including CapEx or just as it is? Marcel Kucher: The CapEx is not going to be huge. Because the majority of the CapEx that we're going to do that is tenant fit out. Obviously, you need to do some CapEx if we separate it and have a multi-tenant, but that should also translate in higher per square meter prices. So it's roughly the same. But we are not going to -- we're not going to invest there hundreds of million. This building is in a very good shape. It has a modern heating system. It has a modern insulation system. And the CapEx that needs to be done is mostly around fit out, which will be done in conjunction with the tenure. All right. Then let's switch to virtual. We can come back here to the room if there are more questions. Are there any questions on the web -- from the website? Operator: [Operator Instructions] Our first question comes from Ana Escalante with Morgan Stanley. Ana Taborga: I have a couple of questions, please. The first one is on your vacancy guidance. So as you said, you are -- you ended 2025 in record lows. And you said that you see further potential for declines. How low do you think it is possible to go from here? Marcel Kucher: Look, I mean, as we mentioned here, we have an underlying vacancy of about 3.2%, excluding the one which we call strategic vacancy, which we do because we are renovating building. We do see a potential that we'll bring this down further. Maybe even slightly below 3%. But obviously, it has a natural end at one point in time, you do have some turnover. You want some turnover in fact, because of the reversionary potential that we do have. But for the time being, over the next couple of, say, years, probably at least 1 to 2 years, we still see further potential to reduce our vacancy and we're working on that. Ana Taborga: And then my second question is on acquisitions, both for the own portfolio and for the asset management business. So for the own portfolio, if we look at the guidance that you gave in the Capital Markets Day, it looks like you have already fulfilled all the acquisitions pipeline. So any further updates on that? Will you try to recycle further capital into acquisitions? Or do you think you are pretty much done and maybe just the occasional strategic opportunistic acquisition? And for the asset management business, would you consider growing outside of Switzerland, given the amount of capital that you've raised, would you consider doing a bit more in Germany, for example, that you're already there? Marcel Kucher: All right. In terms of acquisitions, I mean, we are already -- we are always screening the market. And I think that is very important because we are active managers. Hence, we have to actively manage our portfolio. Hence, we are always in the market. There is no need on that to be on the selling side, because as we mentioned now a couple of times, we have been able to move our portfolio in the right quadrant, so in the place where we want to be, where we see the highest opportunities in terms of like-for-like growth and value accretion. Having said that, we do have a number of properties which are currently under development where we see residential as the best use. So, we will sell those and that will free up capital that we can invest then in new acquisitions. So it's not a static portfolio, but we work with it on a daily basis and want to realize opportunities when we see them. And in terms of going abroad, we are in Germany, yes, we have roughly CHF 1 billion in Germany. We are constantly evaluating the market there. See, a little bit of a light on the horizon currently over the last compared to the last couple of years, but we'll have to further evaluate on that, and we'll provide you with an update. If you see more opportunity than to say organic growth going forward. Operator: Our next question comes from Steven Boumans with ABN AMRO ODDO BHF. Steven Boumans: I have two. So one, could you please quantify in how many acquisition processes you are for your own portfolio today and how that compares to around this time last year? Marcel Kucher: Sorry, I can't. But in -- we are in -- let's put it like that, in an attractive number of -- an attractive value number, we are in -- we are evaluating, but we always do that. But I cannot provide you with more detail, I'm sorry. Steven Boumans: Okay. Well, and to try and maybe your question. What percentage of non-recurring asset management fees do you assume for '26 and '27? Marcel Kucher: Our focus here is that we stay at the minimum of this 2/3 that we currently have as recurring fees. Hence, about 1/3 could potentially be non-recurring fees given the opportunities that we see within the market currently that we see that as a realistic that we stay below that 1/3. The 1/3 we realized last year was in a market where, as Anastasius mentioned, we did record -- we did attract record new money, and we were still able to stay at the 66%. Hence, that is the clear focus. We mentioned right in the beginning, the stability, coupled with the plus, with the growth. And that's a key element, obviously, in that, that we keep that ratio. Operator: We currently have no further questions from the webinar. Marcel Kucher: Wonderful. Then we have an additional question here from Ken in the room. Ken Kagerer: Thank you. It's again for Anastasius. Would you be willing to share with us the EBITDA margin of the German business? Marcel Kucher: We don't disclose. I think the -- what I can disclose, it's profitable. We're not losing money. Ken Kagerer: On EBITDA level or what level do you think? Marcel Kucher: On any level that you want to mention. I think that's an element that we worked on over the last couple of years. It's not yet at the same EBITDA margin that we have here in Switzerland, but it's now at an attractive level, which is sustainable. Ken Kagerer: When you say not yet, do you expect it to ever reach those levels and on what basis? Marcel Kucher: Let's do Germany in a different part. We'll plan another Capital Markets Day, and then we'll provide some additional elements on that. But yes, what we currently see is that Germany is recovering slightly, and we want to be there to take opportunity if that materializes. Wonderful. And thank you so much for your interest for coming here. It's been a great pleasure to host you here. We see now the fog is a little bit lighter. So you have a little bit more of the view. And with now all the participants that are here in the room invite you one floor up, to 35th floor, where we have some light refreshments prepared and continue the good discussions. For everyone on the webcast, thank you so much for your interest in Swiss Prime Site and wish you a wonderful day. Thanks.
Hjalmar Jernstrom: Good afternoon, and welcome to the Pricer Fourth Quarter 2025 Investor Presentation here at DNB Carnegie. My name is Hjalmar Jernstrom, and I'm joined today by CEO, Magnus Larsson; and CFO, Claes Wenthzel. Welcome, guys. And during the presentation, questions can be submitted live and we will address these during the Q&A session. With that said, I hand over the word to you. Magnus Larsson: Thank you very much. Hello, everyone. Really happy to be here. My name is Magnus. I'm the CEO of Pricer. And with me today, as mentioned by Hjalmar, is Claes. So let me jump straight into the presentation. For those of you who haven't been paying too much attention to Pricer before, but are tempted to join the call. This is the very quick Pricer in a brief slide. So our vision is to be the preferred partner for in-store communication and digitalization. This is something that, of course, is spot on for what the physical retailers with physical stores are aiming to do now. We aim to do it the best and be their preferred partner. I will come back to a few customers that actually have selected us as their preferred partner later in the presentation. In essence, we have sold or delivered close to 400 million of our labels. We have done way more than 28,000 stores. And today, we have more than 6,000 stores on our SaaS service Plaza. We have close to 50 million ESLs connected, which, of course, gives a lot of opportunity to future sales. Looking at Q4, the first thing I would like to highlight is that we've seen a positive trend during the second half versus the first half. When I compare it now Q3 and Q4 together, we have a net sales that actually increased 20% compared to the first half, which has been, of course, very, very positive. We have seen a good intake -- order intake momentum in Q4. It's actually the highest in the year. We have been awarded with 5 new customer contracts in Q4 in the U.S., in Netherlands and in Norway. But also more importantly, what we can see is that there is a clear and tangible increase in the customer engagement basically across many markets, but it's from RFQ processes. So basically, they come to us to actually buy stuff to proactively being discussing digitalization and the way forward. Very, very positive development. Looking at our financials, you will see that we have had a major decrease in our inventories. As you might remember, and I know Claes will speak more about it, we had an excess inventory when we came into 2025 that we have now dealt with and it's been sold. So it's been contributing to our strong positive cash flow. But it's, of course, also affected our -- it's not, of course, but it has affected our gross margin due to the sale of this excess inventory. All in all, we have a year of full year profitability. We have a good EBIT. We have an EBIT margin of 2.9% on the adjusted side, and we have a net profit for the full year. So why does our customers buy from Pricer? There are quite a few trends that affect the behavior from shoppers, the behavior of our customers and retailers. And I will show you 5 examples now on the 2 coming slides. And you can see that one key driver has been the drive for strategic digitalization in the physical store. Now with AI being a very large thing, it also spills over to quite a few of the physical retailers. They see all the benefits they can do utilizing AI tools. But in order to do that, they really need to make the store physical or digital. So it's not only the fact that they want to address the operational cost, which is still a key driver. But it also what kind of gadgets, sensors, ESLs do I need in my store to actually be able to operate in a different way and be more efficient using also the AI tools. So we can see this is a quite new trend, but we can see that especially, I think, on the U.S. market, this has been a driver for some of the recent customer dialogues that we see. It's from the hyper and supermarkets, but also down to convenience stores where they want to see how can we be more effective. So what am I talking about? What are the key customer wins? The first one I'd like to speak about is the deal we got with IBM Federal and with DeCA, the Defense Commissary Agency. So that's actually the U.S. Department of Defense. It's their stores that they have for the armed forces. So in the U.S. and outside Continental U.S., they have in all the Army bases, they have the commissary stores, sorry, what they sell grocery to the serving staff and everyone working at the Army base. So this is a really big thing in the U.S. We've been vetted as a supplier by the U.S. Department of Defense or Department of War as they also are referred to. It's hard to pass that threshold. So we're extremely proud of this win. We have a planned deployment of ESLs in 57 other stores outside Continental U.S. and we have a potential of modernizing all the stores in -- it's like actually 178 ones in the U.S. market. We did receive the first order in December, and we're continuously planning together with IBM Federal on the rollout of these stores. But also in the U.S. market, having DeCA as a reference and also the fact that we've been vetted by Department of Defense is a big thing. The second one is also an American customer, Merchants Distributor store, we call them MDI. It's a wholesale grocery store distributor. They actually sell everything from groceries, wholesale, but they also do technology. They help their members to buy whatever they need to their stores. So we are -- we have an exclusive agreement with them now. We're the only potential supplier. They have 600 members. But across those members, they have 3,000 different locations or stores in 17 states. They are really active. They want to make this happen. They see the clear benefit for their members. So it will be Pricer Plaza. It will be 4-color ESLs. First orders received now in December. And above all, it's a brand-new Pricer customer. And of course, we hope to see them grow together with us during '26 and into the future. If we look at Europe, we decided to go for a direct sales model on the Nordic and Baltic market. We announced Norgesgruppen, we announced Coop Norway in October and November. If you look at Norgesgruppen, they have roughly 1,800 grocery stores. They're #1 on the Norwegian market. We are a current supplier of in-store communication and digitalization, but it's a new direct customers. So we're really happy for this engagement. We had the Coop management team over last week. We spent 2 days discussing what is the future, what are the road maps, what are the key things we're going to look at into the future. They have both do-it-yourself stores and they have grocery stores, and they have more than 1,000 stores. So also here, a new direct customer. But so here, we have an existing customer, PLUS that we won back in 2000. They've been using their system a lot and felt that it's working so good that they wanted to really upgrade it to have the most recent version of what we do. So they will buy our 4-color labels. We'll start with 100 stores this year, and we do another 165 stores in 2027. So we're basically modernizing the entire setup. But also part of this deal is the buyback of the existing labels. There will be a TED Talks on this and then positive effects when we are at the EuroShop event in a few weeks' time. But in essence, we're going to take their labels back. We will refurbish them, and we will resell them to give them a second life. So from a sustainability point of view, a very good business, but also from our point of view, also very good business. And before handing over to Claes, I would like to speak a little bit about Pricer Avenue and Pricer Avenue at the NRF show in New York. So now second week in January, we had the NRF show in New York. It's a massive retail event or retail tech event where everyone that's someone on the tech market are participating. So we now do the commercial launch of Pricer Avenue is now commercially available. We do expect the first stores to be deployed now during Q2. It's, I call it here a low-volume deploy. So we have a limited number of labels. And once again, it will be quite exclusive. So we will agree which stores will be allowed to get it. They will focus on using it for the high impact zone. So basically where they have high-value products or where they have high churn products, but areas where they see that they really want to do whatever they can on the merchandise and the promotion side. So we'll be very exciting. We'll be very exciting with also the necessary discussions that we're going to have with the suppliers that want to use this for promotion. We had a number of pilots. They were pilots for also for us to get both feedback in terms of how well does it work in the store? Do we need to make any changes to it. But also, of course, to get the customer feedback. And here, we've got a lot. So it's been embedded now in the commercial product and future releases of the commercial product. One additional thing that we launched is a new model, brand-new model to Pricer Plaza called designer. It's a tool made to actually design this extended label, but it's now also -- will be available for all our ESLs. In fact, with the designer tool, you can do pretty much what you want. We will treat any screen as a canvas, so it could be to paper, it could be paper tag, it could be billboards, it could be televisions, it could be obviously be Avenue and also ESLs. And we had some people passing by our booth from a company that typically works with paper and paper publishing. They were delighted to see the tool and said, this is something that we should have. And since everyone is moving more into the publishing direction, I think it's extremely positive. And you can also see on the picture here what Pricer Avenue looks like in real life when it's actually working. So this was maybe not talk of the town in New York, but it was definitely the talk of the NRF. We also had a TED Talk together with the Technology Officer, Rob Smith of Coop of East England, where we spoke about in-store shopper engagement and how we can actually increase that impact with the help of Avenue. But I guess, enough of bragging and promotion and over to the hardcore figures. So Claes. Claes Wenthzel: Yes. Sales slightly down in Q4 compared to last year, but at the same level in fixed currency. Gross margin decreased in Q4 with 1.5% unit compared to last year as it is negatively affected by sales of the excess inventory we had in the beginning of the year. Operating profit was SEK 19.8 million, and that has been impacted by the one-off cost of SEK 4.5 million in Q4, which is related to VAT back to 2022 and 2023 in Canada. And if you look at the cash flow, our operating cash flow for 2025 is SEK 180 million, which is more than SEK 100 million better than last year. And cash flow has a large impact from the reduction in the inventory. What is also important and what we are a little proud of is that we do not have any net debt anymore, and we have available cash of more than SEK 450 million at the end of the year. Magnus Larsson: Good. So let's wrap up then before we move into the Q&A. So once again, I want to highlight the strong order intake in Q4. It is the highest in 2025. We have a book-to-bill that is actually above 1. So we have had more orders than net sales, which, of course, anyone in a company, you want to end up in that situation. On the other side, on the flip side of the coin, we still see this uncertainty on the market. The geopolitical situation, the macroeconomics makes it a bit hard to really predict the future. We can see that there will be a near-term impact on investments with retailers. But we also see all the ongoing dialogues and the increase in dialogue. So the question is when they will actually place the order? Will it be now in '26? Or will it be in '27. But the amount of discussions has been very, very positive, and it's actually across the market. And maybe I shouldn't say it, I will say it anyway, we can see an increase on the U.S. market. It doesn't mean that we will -- you will see it commercially yet. But it's very positive to see that it's actually picking up. Commercial launch of Pricer Avenue, we do expect installs in Q2. We will be selective. We want them to really make a splash when they are installed. We want it to be clear benefit also to the retailers. So they said that this was a really good investment and that they're happy to share it. We do believe that the increased customer engagement that we see that it will create new opportunities in the second half of 2026. Of course, opportunities will come earlier, but hopefully, there will be some tangible outcome as well. It's a bit too early to say, but we are positive given the changes in dialogues that we see, more interest, more incoming interest. More customers are actually looking to make larger investments, and they're running through official procurement processes. But also having said all this, it's important to remember that we have a large number of long-term customers that is generating repeat businesses across the markets in pretty much all the areas, we have a lot of customers just working with the system, doing continuous investments. But the flip side is also on the positive flip side is that we can see that they are also looking at -- many of them are looking at the next generation. They want to go for color. They want to do Avenue. So we see that as soon as they feel that the uncertainty is shifting, I believe that there will be quite a lot of interest in modernizing existing Pricer setups. So that's pretty much everything, Hjalmar. Hjalmar Jernstrom: All right. Thank you. Yes. So let's start off with some Q&A. So I got some prepared questions, and then we got some on the line as well. But I think it's very interesting. And let's start with what you mentioned, this clearly increased interest among customers also across markets. Could you describe what phase of the process that you see this increase? Is it that new customers are reaching out for an initial contact? Or is it as far as ongoing evaluations? And where do you see this hike in interest? Magnus Larsson: It's a combination. We can see that, especially if I take the U.S. market that I spoke about, there were quite a few dialogues that we had back in '24 that were sort of paused during '25. We can see that some of those are coming back. They are gaining certainty. They feel that it's necessary to move ahead. But then there are also brand-new customers that are coming and it's inroad. They get in contact with us and said that we would be interested in a dialogue. So that has been very positive. We see also that the formal processes that has also been something we see in Europe. There are more formal processes now where people say, we are planning for an investment. But we have also seen customers that have made the a selection and said that now we're going to go with supplier X, but nothing really happens. So it's been a very odd year in that sense that we have seen -- we have been selected in processes and nothing happened. We've seen competitors being selected and then yet again, nothing happens, which makes it quite difficult to assess the situation. And I think one of the points I missed is actually that it's still very hard to predict the business, and we do expect lumpiness to continue. And I think it's also fair to say that there might be -- could be similar seasonality this year as we had last year. It's hard to say, but it could be good to mentally prepare for it at least. Hjalmar Jernstrom: Okay. Thank you. Yes, that's very useful. You mentioned also on the order intake, of course, supported by PLUS, but also the merchant distributors and IBM Federal that you spoke of. Could you -- like these -- in specific, these 2 U.S. customers, are these -- are the orders substantial to the Q4 order intake? And what could we expect going forward in terms of the ramp-up with these counterparts that you're expecting? Magnus Larsson: I say it was not substantial in Q4. With the IBM Federal, we are planning. So we do a continuous planning. So we have a very good idea of where we will land until somewhere mid-second half. But we are continuously planning. So now we have done quite a few stores planned. Order intake will come as we receive them quarter-by-quarter. With MDI, we had a first order, and there is quite a lot of discussions ongoing now for different stores. So since they work through their members, there's -- they are having other internal exhibitions. They're pushing it. Their local IT team is actually driving it because they want to make this happen. So there it will -- once again, it will be something, I believe, will be growing even I would be happy to sell to all the 3,000 stores, but I don't think that's very likely, but we do expect to take a chunk of this volume. Hjalmar Jernstrom: And considering then the reach that you can achieve if we speak of the MDI, for example, what is the size or what is the potential in the stores? Are these smaller stores? Are they supermarkets? Are there hypermarkets as well? Like how is the split? Magnus Larsson: They have a mix, but there's quite a lot of stores that are pretty much like supermarkets or very large convenience stores. But would almost be on the level that we would consider maybe not supermarkets, but almost in Europe. So it's a mix. Hjalmar Jernstrom: And staying on the U.S. market, do you see any pressure maybe from trade turmoil relating to, I mean, trade-related issues that prohibits you from -- or maybe it's a headwind to business in the U.S., but you mentioned the strength there. So I guess you're not seeing that or... Magnus Larsson: We haven't seen it really. So I mean the dialogues are starting again. So -- it might be that they feel a bit relieved that they feel that, okay, maybe the tariffs are now -- this is the levels where we'll see the tariffs. I think one big thing has been the fear will they increase further. But I think it's also been the drive to digitize. They really want to digitize the store to make it like a digital asset or the physical store. And I think maybe we're looking at the way they allocate the CapEx investment, probably more now on digitizing the physical store and doing the online presence, which they -- many of them have. So I -- at least I hope that we will see shifting budgets. Hjalmar Jernstrom: Yes. All right. Sounds promising. Let's jump to Europe then. And if we speak on France, for example, what signals are you getting here from customers? Are you picking up anything? And maybe if you can give us an update on the renegotiation of the Carrefour agreement, which, of course, is to be renegotiated this year. Magnus Larsson: Yes. So if I start with Carrefour, it's ongoing. Typically, what we have experienced during every process with Carrefour is that it takes some time. Typically, they will spend in Q1 and then maybe a little bit into Q2 for the supplier selection. So there is a lot of meetings, a lot of discussions. So we will see basically into Q2. But of course, I feel that we're having good discussions. On France in general, we see that our customers, they are having challenges with profitability. That also goes for Carrefour. But we also see that especially the business that we have, we have a very solid business with a number of retail chains through their franchise stores. So the franchise owner, we have a hunting license for a number of different chains in France. We have a team that's out every single day and then selling. And here, we can see that we have a very solid run rate of -- on the field sales activities. And then what you can get when you -- when we win Carrefour, we will get an increase of the orders from their own operated stores. When we won Brico Depot or METRO in France a few years ago, we can also see that you get this immediate impact but it's limited during the time of the deployment. But the field sales deployment that we have a very good and solid run rate business. Hjalmar Jernstrom: Okay. Yes. And then on the switch then to the direct sales approach in the Nordics and Baltics. Here, you mentioned that you have not really reached the full impact yet maybe. Could you describe this process more, maybe how much it is currently impacting order intake? And how can we expect maybe the ramp-up of this conversion going forward? Magnus Larsson: I have a positive view on the Nordics now. We have the team in place. They're fully up to speed. We have all the contracts in place, and we are selling. We have a field team now in Sweden. It's a fairly small one, but they are immensely effective. So we can see that there is a lot of activities. So from that point of view, I think that the year has been starting well. Hjalmar Jernstrom: Yes. Okay. Yes. Let's jump to some questions then on the line. First one is like you mentioned the possibility then to reuse the three color ESL or the legacy products. How would you describe the market for this product? Is it possible to find a buyer for these products? And is the commercial sense in maybe reusing these and distributing to other customers? And what is your sort of current view of that market? Magnus Larsson: So we have done it or we are doing it continuously. But what we can see is that many customers, they want to go for a new ESL, they want the latest. But then also, there are customers where they might actually have installed since before and they -- some of them, they are struggling with profitability, but they feel they would want to upgrade from an old generation from black and white to something more. And there, by doing the refurbishment, basically, we take the ESL, we would clean it, we upgrade the software, we feed new batteries and then we sell it. Well, it will be a good deal for them because they get a good label at a good price, and we get the profitability out of it. It's better profitability than, of course, on the revenue side, which is limited. But the idea of actually being able to take it for another cycle it feels very good from a sustainability point of view, but it's also good from a business point of view. Hjalmar Jernstrom: And I interpret then that it's mainly then replacement orders. Magnus Larsson: I would say then there are markets where we're customers are interested in buying refurbished labels where typically you can imagine that the purchasing power is much less, but they might not really be in our spotlight either for where I want our salespeople to go. But clearly, there is business opportunities for this also outside our existing customers. Hjalmar Jernstrom: And then we have a question on the line regarding technology and maybe technological lead, the technological position. I mean it happens so much with all the R&D spending in this market. So how would you perceive your current technological position then compared to peers? I mean, if we evaluate items like signal reliability, energy consumption and so forth. Magnus Larsson: We are -- our technology that we use, we are still by far the most efficient from an energy point of view in terms of responsiveness. We're by far the best energy consumption the same. But on the other hand, we should also see that standardization and radio is and there is an ESL standard based on radio. And I do appreciate standards. I think it's something that will drive the mass market forward, and that's, of course, interesting. So I've said before, and I will say it again, we believe in -- it's more important to speak about how the system is actually used or what protocol it is. So it's -- of course, we are looking at where should we be, what are the investments we'll need to make. So I wouldn't exclude that there will be a radio solution. I've been talking about it before. And it's an interesting area, but we also see the benefit that we'll bring to the market. So I think that maybe the future would be a combination, at least for us, where we bring the best of both worlds. Second aspect is, of course, what we do with Avenue, which is really perceived as innovative from customers, from our ecosystem players, also from competitors, where we know they are looking very actively at what we do from a form factor point of view, the way we actually have done the setup of Avenue, the way we can actually enable it to -- for additional IoT devices and functionalities. We had an innovation zone at the NRF. So we had the normal plastic rails, but it's been disturbing me a bit is for Avenue that we still have paper inlays, but now we actually had e-paper inlays. So we just demonstrated a very basic version where we're constantly changing the color. And this we had -- I think every single competitor came there. We had the ying people coming in there saying this is what we should do. So I believe that there is still much more to do, and we are really in the front now when it comes to innovation and taking ESL from this plastic display to shelf communication. And there is no one close to what we do right now. Hjalmar Jernstrom: Yes. And then we got a question maybe on the topic of Avenue. Do you expect Avenue sales to be margin accretive? I guess, if that is compare maybe to 4-color label systems or yes, similar systems that you offer, is a typical installation then for the Avenue expected to be margin accretive going forward? Magnus Larsson: We -- our expectation is that if we do it right, that we will give them one more tool. With ESL, we deal with operational efficiency. You will do that with Avenue as well. But with Avenue, we also give the possibility to increase the size of the shopper basket through promotion, but also the ability to sell the space to CPGs or people that do basically suppliers of food and grocery stuff and/or wine, that kind of supply. So yes, we will ask for a higher price. We will expect to get a clear premium for selling this because we also expect to deliver much higher value to our customers. So it should really be a win-win-win. Hjalmar Jernstrom: Yes. And then on the maybe general development of the recurring revenue, are you satisfied with the current growth rate? And maybe could you remind us again of the setup of the recurring revenue with Plaza and so forth. Magnus Larsson: So being satisfied is a very strong. I'm happy for the development. Would I like more? Absolutely. It is going really well. This year, we have converted a lot of stores from our on-prem service to Pricer Plaza for customers that, for whatever reason, want or have to stay on-prem, well, then we have changed that to subscription service. So if they want the latest version, it's only through subscriptions, also if it's in a PC. I think the development has been good. This year, we're planning to migrate more stores. And of course, almost every single store that we win are Plaza customers. We are now adding modules to be able to also increase the price of Plaza when we sell it. The next step will, of course, be to see, okay, how can we find more adjacent software functionality that we can actually sell a stand-alone. But right now, we're working a lot. We're connecting new stores or existing stores to Plaza, new stores to Plaza and then see how can we actually increase the price of what we do. Hjalmar Jernstrom: Yes. And then if we jump to Canada and the Sobeys rollout of deliveries, we have a question here, whether you expect the same level of sales in 2026 compared to 2025? I guess that also includes then the initial larger order rollout, but also you mentioned, of course, the strength in the Canadian market, so maybe potential follow-up orders. Can you give some color on this? Magnus Larsson: Since we don't give forecast, I cannot answer it specifically, but we have a positive outlook. We have a good dialogue and relationship with Sobeys. They've been very happy with the deployment. And there is a lot of interest, and we do expect to continue our deliveries to Sobeys, but I cannot go into any details on exactly how much that would be in money. Hjalmar Jernstrom: Yes. All right. No, that's fine. And then we have a question then on the gross margin impact from the inventory reduction. Is this mainly then from maybe sort of a proactive pricing towards customers? Or is this mainly relating then maybe to FX impacts on the inventory? Could you give some -- maybe some granularity on this? Claes Wenthzel: You mean the difference in margin in Q4 compared to Q3? Magnus Larsson: From the excess inventory. Hjalmar Jernstrom: The gross margin impact from the excess inventory and whether this is a result maybe of then reducing prices to the customers in order to reduce inventory or are they right otherwise? Claes Wenthzel: It's 2 things. One is that when this was brought up, it was too much higher U.S. dollar rate. So that is one negative impact, of course, when you sell it out. The other one is that to get rid of it all now before the year-end, it was also done to a lower price. Hjalmar Jernstrom: Yes. Okay. And we have a question also from the line on the current levels of inventory. Or do you feel that you -- I mean, considering your best guess on the outlook going forward, do you feel that you have excess inventory right now? Or are you on a more sort of like a level that you are satisfied with your best guess and on the outlook? Claes Wenthzel: Now at the end of the year, we do not have any excess inventory. But of course, we can always have a more optimal level of inventory. But this is, of course, also must be related to the orders we have and that we will deliver the coming quarters. Magnus Larsson: And I think actually, we -- what we have done this year is also that we have ended one of our large product lines. We sold off all the ESLs from that product line, which means that we are producing fewer varieties now. So we have a standard family and only one standard family, which means that we will not build more stock the same way or have to build the stock the same way as we did before. So by nature, we should not tie as much capital in inventories as we were forced to do before. Hjalmar Jernstrom: Yes. Okay. Then we have quite a lot of questions actually on the U.K. Do you still hold the view that U.K. is sort of like a hot market right now? I mean we see some activities in the market. If we look at it in a wider perspective, there is some CapEx investment going on, but you also previously mentioned, of course, a lot of valuations being carried out. What would you say is the current state of the U.K. market? Magnus Larsson: Some mixed feelings actually because there is a lot of activity. It is a hot market. But we also see customer wins, whether it's a winner announced and then they are selected, but nothing really happens. But so we have the procurement processes. We have a lot of inbound interest. But still, we don't see all of that materialize, which is a bit odd really. But there is a lot of interest clearly. But we haven't seen and even people being selected, but not that there are any real deployments as a result. Hjalmar Jernstrom: All right. All right. I think then we have addressed all the questions on the line and also my questions. So thank you so much, and I'll leave it to you for any concluding remarks. Magnus Larsson: Thank you very much, Hjalmar. Thank you very much for joining our quarterly presentation. I hope you found it interesting. I look forward to come back in with the Q1 presentation back in April, I guess. So until then, thank you very much.
Operator: Welcome to the Swiss Prime Site Full Year 2025 Earnings Conference. [Operator Instructions] I will now hand you over to your host, Marcel Kucher. Marcel Kucher: A very warm welcome to everyone on the screens. Welcome to Swiss Prime Site here on the 34th floor of Prime Tower in the heart of Zurich. It's a great pleasure to have you here. I'm here joined by Anastasius Tschopp today. He's the Deputy CEO of our group and also the CEO of Swiss Prime Site Solutions, and he will talk later a little bit more about our asset management operations. Before we start with the numbers and the actual result, let us step back a little bit and look at where we stand today. Over the last couple of years, we have been building on our Swiss Real Estate platform with the two legs of our own property portfolio and the asset management. And today, we stand here very proud of what our platform has become. Over the past years, we have built not only this platform, but we have built it in a very synergetic way, that performs very strongly, and we'll show you today why this is the case and where this comes from. And more importantly, it also performs very synergistically across the cycle, building on the resilient Swiss economy. In today's cycle, we benefit from a very supportive financial conditions with record inflows of new capital. We have seen this in particular in our asset management with more than CHF 1 billion new money and a record high of CHF 14.3 billion in assets, driven by a very, very strong organic growth. We have also seen that in terms of the transactions that we could do, all the acquisitions that we could do, in particular, in the asset management in the residential area, where we have a structural undersupply here in Switzerland, like in many other countries as well. On the other side, and managing through the cycles with our own property portfolio, we have delivered development over the last couple of years, more than CHF 40 million in top line. And we have hence been very important part of building high-quality buildings here in Switzerland for the commercial sector. Again, this year, we have shown that also in the cycle with low rates and less inflation, we can drive like-for-like growth with a very, very strong 2% growth for this year. And hence, our platform is a true flywheel, creating momentum that reinforces itself and together and building on the strong foundations we will continue to thrive in the Swiss economy. And with that, more strategic outlook. We want to go into kind of the key elements that we want to present today. You see here all the details, but I want to summarize that into four key takeaways that I think you should remember once you leave this room. The first one is, we are growing. We are growing with a 2% like-for-like growth in our own portfolio. We have reduced our vacancy to 3.7%, a record low for Swiss Prime Site, showing how strong we perform in all of our properties. And we're also growing in the asset management sector. You've seen 18% top line growth last year. So very strong momentum all organic and fueled by the strong capital markets that we see. That will bring me to the second point. We are attracting new capital. We have done a capital increase for Swiss Prime Site in spring of last year, CHF 300 million, which are fully invested today. We have been able to attract CHF 1 billion in new money, an absolute record high for Swiss Prime Site Solutions in our asset management division. And we have been able to apply that in very attractive acquisitions throughout our -- the two segments. That brings me to the third one. We are investing. We have truly built a platform that has access to the most attractive transactions in Switzerland. Having done more than CHF 550 million in acquisitions for our own portfolio. And in addition to that, CHF 1.7 billion in acquisitions and transactions in the asset management sector, getting really access to the right transactions even in a market that is very flourishing. And fourth key takeaway, we are becoming more profitable and efficient. And you see that in a 3% up from a comparable EBITDA, up to CHF 408 million for that year. We see it in a more than 30% growth in the profit for Swiss Prime Site Solutions. And you see it also in the dividend proposal that we make, which is CHF 0.05 higher than in the previous year. So we're also sharing that benefit with our shareholders. Going from these key highlights, let me step back a little bit and look at this key elements here, how that performs in key financial figures. You've seen that in the press release and in our presentation, we have a slight decrease in the rental income only due to the fact that Jelmoli building went offline together with a couple of other buildings where we lost about CHF 14 million in top line last year. On a like-for-like basis, as I mentioned before, we have seen a very strong increase of 2%. In the asset management business, as I mentioned before, a record level of almost CHF 85 million in top line, 18% growth over last year, mostly driven by the organic growth and the money that we could attract to a small degree, about 1/10 of that driven by the full year consolidation of fundamental, which we acquired in April of 2024. EBITDA consolidated on a like-for-like basis 3.4%. As I mentioned before, in absolute numbers, minus 1.2%. But given the lower interest, in particular, as well as lower taxes, that translates into a profit before revaluation and sales of 1.3% to an also attractive level of almost CHF 320 million. On a per share basis, that translates into CHF 4.22 unchanged over the last year in terms of FFO I per share, FFO II per share we see an increase of 6% to CHF 4.17 and an EPRA NTA that is up 2% to CHF 101.40, underlying the very attractive real estate that we have, which also have seen a very positive revaluation last year. On what type of market do we achieve these results? And I think I want to leave you with four key elements here. The first one is on the transactions. We have seen last year a very high level of activity on the base of a very broad institutional buyer space. This has been not only the case in residential, but also in the commercial. We see yield compression in many of these respects. And we see, in particular, also an increasing number of larger assets being on the market which is attractive for us as a commercial player with our own portfolio. Second key takeaway that I want to leave you with is we have a continued polarization in the demand on the letting side. We see a huge demand for additional space in the core segments where we are, which means in the inner cities, this is where life is where people like to be, where people like to work. And that is contrasted by probably significantly less activity, a little bit further outside which is becoming more challenging what we see. The third key takeaway is on the valuations. We've seen for ourselves an increase in valuation of 1.7%, roughly translated into some CHF 220 million. And we see that across the board with discount rates going a little bit lower, but also the effects that we see from the positive growth in rental income on a like-for-like basis, which have an impact, obviously, on the valuations. In terms of our own book, we have been able to do our sales with roughly 5% profit, which is exactly where you want to be -- being at the market, but obviously on the conservative side in terms of the valuation. And finally, fund flows. We've seen a record year for ourselves. I mentioned that before, altogether, CHF 1.3 billion across our platform, CHF 300 million for our own capital increase in February and roughly CHF 1 billion in new assets for the asset management. Pension flows is an important element for that. We see here large inflows from the pension flows, and we also see higher allocations to real estate, which is supporting the entire market. Now for the next couple of minutes, let me dive a little bit deeper into the P&L and any individual results that we have from a finance perspective. Let me start with the top line and with the resilient rental income and the strong asset management growth that I've mentioned before. We've seen real estate income from rental decreased by 1.4%, as I mentioned before, that was all due to the fact that Jelmoli went offline together with Fraumunsterpost had an impact of roughly CHF 14 million, and you see that we were able to compensate most of that with our own growth, like-for-like growth as well as the acquisitions to a smaller extent. Second element I wanted to mention is the asset management, 18% plus over the last year, a record level of CHF 84 million roughly in top line. This is all due to the further increase of the funding flows that we have seen and then hence, the transaction that we could do following that. And to a very small degree, also on the full-time consolidation of the fundamental for the full year, as I mentioned before. That is contrasted obviously by the last elements that we see from our focus on the pure real estate platform with now rental income from retail only at CHF 10 million, which is the last 2 months that we've seen for Jelmoli. And also the other income coming down significantly, which was also related to the retail business. Hence, overall, about 17% lower total operating income, but what is more important to me, because this is all what we wanted to do with the focus on our real estate business on a comparable basis. Hence, excluding the effects that you have through the closing of Jelmoli, we have been able to grow 2.6% over the entire platform to a level of CHF 540 million for the last year. If we flip the side and look at our cost base, we see a similar positive picture with a huge drop in the operating expense. However, the majority of that is due to the fact that we continued -- discontinued the operations of our department store. And hence, again, I would to look at the lowest number here, so at the lower -- number at the bottom here where we have been on a comparable basis, hence, excluding all the effects that we have from closing the department store, a lower cost base of 2.8%, showing how much we can drive synergies across the platform. One of the key elements for that will be the real estate costs. You've seen before, the absolute number in terms of rental income reduced by roughly 1.4%. We have been able to decrease the cost of real estate of 5.4%, and that shows we've become much more efficient here and this focus on the buildings in these core locations on the slightly larger buildings that we have been pursuing over the last couple of years has also a positive effect here in terms of the efficiency and the cost ratio. Now if you bring this together, then we see that the positive revaluations that I've mentioned before, I will go into details a little bit later on this where this came from, then coupled also with the sales from properties where we had a gain of roughly 5% over the last value, leaving us with an EBITDA in absolute terms of roughly unchanged, CHF 410 million. But again, for me, the more important takeaway here is the number at the bottom. So, on a comparable basis, so excluding kind of the last time effect that we have from our Jelmoli operations, we see in a comparable increase of the EBITDA of 3.4%. And hence, again, amplifying what I've mentioned before here, the strength of the platform and how we can become more efficient going forward. Now, if you go further down from EBITDA on an FFO basis and the EPRA NTA here, we keep an unchanged Funds From Operations I from per share of CHF 4.22. In absolute numbers, you see that we see an increase of 3.2% here. But given the higher number of shares, this translates then in an unchanged number of CHF 4.22, showing that we have been adding value to our capital increase already in day 1 of the capital being employed, and this will only become better over the next years. On the intrinsic value per share. Here, you see a 2% increase comes to a large degree, from the revaluation effect that we have seen and a slight reduction in leverage, which I mentioned in a minute. So, what I want to do now is provide you a little bit more details on the two key drivers on the top line and then a couple of pages on the balance sheet as well. Let's start with the top line and obviously, the most important element is our rental income. You see here the composition on how we end up with the roughly CHF 455 million. We had seen last year in 2024, really strong sales with a strong tail end here. We sold in 2024, CHF 330 million, really focusing our portfolio on our key locations and on the key cities in Switzerland. Now this obviously had an impact then in 2025 in terms of the top line. And you've seen from that sales, we also sold about CHF 15.7 million in top line. Then what is very important to us and the key focus is what can we do with our existing portfolio. You see that here in blue, with an increase of roughly CHF 8 million, and that translates and you see this here in more detail in the 2% like-for-like growth with roughly 1.6% coming from real like-for-like growth, speaking from really changes in the underlying rent and in the rental contracts that we could actually sign coupled together with a further vacancy reductions, which has an impact on like-for-like of 4.3%. A small number still comes from indexation, 0.4%, and I would expect that to stay at that level given that we have pretty much zero inflation here in Switzerland or even come down a little bit further. Then the redevelopments, I mentioned that before. This is mostly Jelmoli, but also some elements of Fraumunsterpost. These are the buildings that went offline, temporarily offline. I think that's an important addition to that. We will renovate them, and I'll provide you more details on that when they will go online again in just a minute. The acquisitions that we did, the CHF 550 million that we acquired had not yet a full effect, given that a large part of it was only closed in December and the rest April and August. Hence, you will see much more impact of that going forward. In 2025, we had an impact of roughly CHF 5 million coming from that. And then we still have the completion of new builds, which is roughly CHF 9 million which, to a large degree, translates to Alto Pont-Rouge in Geneva as well as the buildings in JED in Schlieren, as well as in BERN 131. A word on the asset management side as well. How do the 18% realized that we've seen in top line growth last year. You see here the management fees have been growing by roughly 15%. So these are the underlying fees that have a very recurring character. The same recurring character is on the construction development side, slight reduction, given the fact that last year, we completed a little bit less construction than we did before. And then obviously, on the non-recurring side, on the transaction side, that is the mirror of the high net new money that we could attract of the CHF 1 billion, which were invested in about 120 transactions. As I mentioned before, CHF 1.7 billion roughly in transaction volume that we did in the asset management. An important figure for us is, we want to build here a stable asset management operation that mirrors kind of the stability that we have on the real estate side. And hence, an important number for us is that we remain at roughly 2/3 of recurring fees, and that was also a case in last year despite the very positive market at 66% recurring income. What you can also see here in the numbers is the cost base has been stable or even decreasing slightly. You see that in particular here on the personnel cost, which are the most important cost base, these are the elements that we can still can benefit from the integration of Fundamenta. We mentioned back then that we expect some CHF 8 million in synergies, and we have now been able to fully realize those. And you see that in the number here that EBITDA grew by significantly more than the top line, 31% exemplifying here the stability and in particular, also the scale effects that we have. That translates into an EBITDA margin, which we believe is very attractive of about 66%, so about 2/3 percent, and hence, shows the power again of our platform and doing things together. Two words on the balance sheet. The first one is obviously on our real estate portfolio, which has reached new heights with about CHF 13.9 billion, so almost approaching the CHF 14 billion mark. We started with roughly CHF 13 billion. We talked about the sales. I will provide some more details on that just in a minute, of CHF 130 million, then the CHF 550 million acquisitions that I mentioned before. Total investments in our developments was CHF 222 million with a strong focus, obviously, on YOND and Jelmoli. And then the valuation result that we mentioned before of the 1.8% roughly, providing us then with a total of CHF 13.9 billion. Maybe one word on the revaluation. We've seen given the strength of the Swiss market, a slight reduction in discount factor in real terms about 2 bps, in absolute terms, a little bit more, because our valuators also reduced the expectations on the inflation by 25 bps. The latter has practically no impact on us, given that we have a very large share of our property being fully indexed. Hence, we can pass on any indexation and any inflation. The latter one does have an impact. And hence, you see it's probably about 50-50 in terms of the revaluation result in terms of what we -- what stems from the discount factor reduction and what stems from the like-for-like growth and exceeding here the expectations our valuators had in terms of the closings of new contracts. And then the last element on the balance sheet is our financing, two pages on that. We have been able for the last year to place almost CHF 800 million in new financings. And for us, as a very important highlight, we were able to access the Eurobond market for the first time. We placed in September, a EUR 500 million Eurobond at a very attractive spread, roughly mimicking the spreads that we could reach here in Switzerland. What was very supporting for that placement and made us really feel good about this market is, we were able to attract EUR 4.3 billion in demand at that interest rates that we had. So we had an oversubscription of about 8x, which is very high even for the euro market and shows just the incredible strength of our name and of our platform in Switzerland, but also abroad. Despite the fact that we have a large degree of our financing with fixed interest rate. You see that here at 86%. We have been able to reduce the average interest rate significantly from about 1.1% that we had in the previous year to 0.94% if we are precise that is, we believe, a very attractive as well. Overall, given the financing level that we have here, that translates into an LTV net for the Real Estate segment of 38.1%, which is slight reduction of 0.2 percentage points over the last year. Well, we continue is that we have a very broad set of potential financing opportunities and that Eurobond only added to that, to make sure that in any position, we are always able to refinance ourselves. You see that here, about 50% is financed through unsecured bonds, 40% of that is roughly in the Swiss market, 10% is in the euro market. We have still access to the convertible bond markets. We have very good partnerships with our core banks, 13 banks in Switzerland for the unsecured loans, and we continue to have the secured loans with the insurance companies of about 11% of our overall portfolio. Moody's rating A3 stable, and that provides us with this access that we just mentioned before. In terms of the liquidity, we have a very high liquidity reserve of CHF 1.1 billion roughly. This is fully committed, so we can exit it at any time. And that provides us with enough liquidity over the next couple of years. So we don't have to go to the market, but we will, of course, access the market in order to stay an active player here. That's for the numbers and for the financial numbers. Let me spend a couple of minutes now to dive a little bit into more details of our portfolio, before I hand over then to Anastasius to provide some more details on the asset management side. Let's start with the overview. And given the acquisitions that we did this year as well as the disposals, we have strengthened further our position in our core markets. So we have now close to 60% of our portfolio, in Central Zurich area, about 20% in the Lake Geneva area, with the two strong hubs in Geneva itself as well as in Lausanne for us and about 12% in Basel in the northwestern part. We have further reduced the number of properties despite the acquisitions that we did, and we are currently at 132 million properties, which relates into an average size of our properties of around CHF 100 million, which we feel very comfortable with going forward. And we already talked about the property portfolio of close to CHF 14 billion. In terms of the use, we have further strengthened our office segment, which we strongly believe in, in the core markets that I mentioned before and in the prime locations that I mentioned before with close to 50% currently, 20% retail and then the rest is spread between infrastructure, logistics, which also includes labs for us, hotel, gastronomy and a slightly reduced share of Assisted Living, which are mostly the Tertianum we have. We're still very proud of the diversification of our tenant base. We have about 2,000 tenants, with 50% spread among the top 30 tenants. Our three largest tenants still remain the same with Tertianum slightly reduced at a little bit over 5%, Swisscom at roughly 5% and Globus slightly reduced also at close to 5%. I'll talk about Globus in just a minute. Where you see this beautifully, the focus that we have taken over the last couple of years in this matrix, which is provided by our evaluator, Wuest & Partner, where we have over the last couple of years, if you compare this to 4, 5 years ago, really been able to put a really, really strong focus. More than 99% is in these highest brackets in terms of quality of the locations, and close to 90% is also in the highest bracket in terms of quality of the building, and that has been a significant shift and the basis for the strong like-for-like growth that we could achieve. I'll show you some pictures on the acquisition, so let's skip that. But you also see where we sold properties. This is still not in the core elements that I mentioned before. So we sold properties Aarau, Biel, Augst, Buchs and Brugg with a strong element on two segments. The first one was Retail, where we're still reducing in particular, in these non-core locations. And the second one was developments, where we felt that the best one is residential going forward. So what we typically do is in order to capture the value as we develop it up to the point where it has a building permit and then sell it to somebody who has a core focus on residential. Now talking about the acquisition and the fantastic buildings that we were able to acquire. And fantastically enough. It starts here from the left to the right, not only in terms of location, but also in terms of timing. We started the year in April with the acquisition of the Place des Alpes in Geneva, from SGS, just last week. SGS opened its new headquarters in Baar, which have been beautifully renovated in our building. And hence, this was a truly beneficial transaction on both sides. We were able to acquire this beautiful building. You see with unobstructed view to the Lake of Geneva, and SPS was able to find the new headquarters in the canton of Zug as they wanted. We are currently in very advanced discussion with tenants, focuses on a single tenant again, which we hope to be able to close in the next couple of months. But we also have alternative discussions on a multi-tenant solution. Typically, we would look at two tenants, which should move in later this year. Then on Prilly, in Lausanne, key tenants here: SAP, Ruag, really strong technology tenants. We have long contracts of almost 20 years. This is a brand-new building to the highest elements, not only in terms of architecture, but also in terms of fit-out and sustainability. We are right at the very busy new station of Prilly and also right at the new station of the tramway, which will open later this year. Zurich-West, we have a little bit too much fog. Otherwise, you could see it from here, the headquarters of the Swiss Stock Exchange just down here, the road. Key tenant is the Swiss Stock Exchange. It's currently a single-tenant building, but already built in a way for a multi-tenant, so that we have full flexibility going forward. And then the last one, which we could close as part of an asset swap was in Bahnhofstrasse at Zurich, a beautiful building. And we being the absolute best owner, given that this was originally one building where we owned the first part already. This is the ones that know Bahnhofstrasse, where the Swatch Store is in. And now we added kind of the second part of that building, which provides us with many more opportunities going forward, in terms of efficiency and efficient use and space that we can offer. Fully let with key tenant rituals. If you calculate all this, and then it includes kind of the asset swap that we did in Bahnhofstrasse, you see a net yield of roughly 3.7%, which we believe is very attractive given the quality of the buildings and obviously, is highly accretive given where our actual yield is. Hence, very attractive acquisitions that we could do over the last year. One word on vacancy. You see here, if you just look at the graph, lowest ever, 3.7%. We could, in particular, sign a couple of new leases like SGS, like Banque Cantonale de Geneve, TurbinenBrau, and a couple of major extensions, EY just down here as one of our key tenants here on the Prime Tower campus, but also with the canton of Zurich, an attractive building in Oerlikon as well as the extension of Globus. I'll mention that a little bit more detail in just a minute. The 3.7% have an underlying 3.2%, which is operational vacancy and then 0.5% for strategic development. What does that mean? Those are floor spaces that we do not actively market currently because we start to empty a building so that we can do the future redevelopment. So with an underlying say vacancy of 3.2%, which is also a record low in the history of Swiss Prime Site. One word on WAULT. You see here a very even spread of the WAULT, pretty much everyone -- everything is 10%. That has a significant change over the last period. We increased our average WAULT by almost 0.5 year to 5.3 years, mostly driven by the extensions of EY, that we mentioned before, and Globus. On the Globus, I think we mentioned that during the half year already, we have a staggered extension agreement where we have 7 years for Lucerne and 8 years for Lausanne and then the 10 years for Geneva, which then also flattens kind of the profile going outwards. Then a question that usually comes, "Are you nervous about the 9% that is on the short term?" I say absolutely not. On the opposite. I look very much forward to that. We have been in good and advanced discussions with the majority of the tenants in here. And the reason why I think this is positive is because in vast majority of the cases, we see here a very positive potential for higher rents when we entered kind of the next agreement phase. Hence, no worries on that side from our perspective. Now, let me spend a couple of minutes on our three ongoing development projects. Obviously, the most important one being Jelmoli. Just a little bit, what's the current status here. We have started construction in April pretty much right after we closed the department store operations end of February. Obviously, the first stage in the construction is that you start to demolish, kind of lay open the underground structure, and that is pretty much finished by now. Part of that was also a removal of hazardous material just to provide you a little bit of an impression of the complexity of the building. The building is not actually one building, but it's four main buildings and 11 buildings, if you look also at kind of connecting buildings, together. Now everything is open, and we've taken out the opportunity over the next 2, 2.5 years to really bring this entire building, kind of, to the next century, where we will not only convert it into the office part in the upper floors, but also really address the structural elements and really catapult it into a new area. Overall, investment is going to be roughly CHF 210 million. We can be pretty sure on that by now, because we have agreed on a channel contract in September. And we expect a staggered completion starting in summer 2028. On the rental side, obviously, we still have roughly 50% pre-let. We are in very advanced discussions with some tenants. These are really top-tier tenants. We also have signed LOIs for two floors, of the remaining office floors and we see really good demand here for those. As I mentioned before, summer of '28 staggered completion date, in particular, for the offices. Hence, we are a little bit early for the real marketing efforts, and you see this here, the active marketing will start now in summer or late after the summer of this year, but kind of the premarketing, the effect, we are already very positive on that one. Second one, a snapshot is YOND Campus. Also here, we have just signed a contract with a general contractor. Investment volume remains at CHF 150 million, yielding from that, about CHF 8 million in additional top line. So you see it's also a very attractive yield on cost from this project. We have been able to sign a number of contracts already for that. One that I really like is part from Zuriwerk Foundation, which provides a real new hub here also for inclusion. The Turbinenbrau, so we continue kind of the addition of the building of brewing water leakers and now also beer in that area and a number of other signatures are pending. And hence, we are very happy in terms of how the marketing works. Also here, we have a staggered completion as of 2028. We have currently completed the garage, so the underground parking and now, we are now start building the YOND 3 construction. This is the main kind of new building. It's about 85% of the entire new development with the YOND 2, then following later on once we have also reached here our target level in terms of pre-letting. Last snapshot, Fraumunsterpost, the building in the middle of Zurich that everyone knows. Currently, we are doing a refurbishing here, bringing it also into the next century and of about CHF 30 million. Complete in here will be summer of next year. Will, in particular, have a focus on all the sustainability elements, on the heating elements, on the insulation elements, et cetera, with a sustainability certificate that we expect of BREEAM In-Use are very good. We are in advanced discussions with a number of tenants of about 2/3 of the floor space and expect that by the time this is completed, we should also have 80% plus let as usual with our buildings. And that is on track for the completion, as I mentioned here before. Two pages on sustainability, which remains a focus of ours. And I want to mention here four elements that are important to us and to me personally. The first one is, we continue with our certification process. We have pretty much everything certified in our portfolio that is certifiable. So excluding some parking spaces, et cetera. We have now 40% of our top-tier buildings that are eligible for our Green Finance Framework and that is only buildings that have a Good or Very Good or Platinum rating. We're working on that, that this will continue and the certification gives us a very strong indication on what we need to work on, and that's why this is attractive for us, not only to provide you as investors with the full transparency but also for us to provide us with an additional element of inputs on what we need to work on. A real key element that we achieved last year, and I want to jump here one page is another 10% year-on-year advancement in terms of the CO2 reduction path. You can see here, this is our linear target that we had to 2040 CO2 neutrality. We are well on track here. We are, in fact, advanced on track, and we could add here another year with a huge milestone with a further 10% reduction weather adjusted, by the way, which is important, because we do not benefit from a, say, mild winter, but we adjust for that, so that it's really comparable. Some of the key elements that we do here is obviously heating replacements and energy modernization. We also continue to work on the Green Leases here, which means we work together with our tenants in order to make sure that not only we reduce our energy consumption, but also our tenants work together with us, and we signed these in Green Leases. We work on the improvement of the energy mix and obviously, to wherever we can district heating mix, et cetera, and then obviously, the building shells, which is an important element, as I mentioned before, with Fraumunsterpost, for example, or also Globus, Jelmoli, where we focus on that as well in the renovation path. Let me go back. On two other elements, which is the circular economy element, which is a key element as well for us. In terms of our focus area, we have completed the Bern 131 project, which is a true lighthouse in that respect. You see here the embodied emissions is 7.3 kilograms. The ambitions as per the circular economy charter is close to 12 kilos. So we have been significantly below the already super low kind of ambition that we have taken for our charter. How did we do that? Well, it's mostly wooden construction with some concrete to reinforce it. We focus here on Swiss wood. So it's not wood from anywhere, but it's Swiss wood. And then obviously, the entire building is covered with photovoltaic cells so that the building actually produces more energy than what it consumes. And finally, because we want to have this really all encompassing, we have the Green Finance Framework where we refinanced almost CHF 800 million last year, under the Green Finance Framework. And for that, we build on what I mentioned before, our certificates in terms of Good and Very Good buildings that can only be eligible to the Green Finance Framework. So, with this, I would hand over to Anastasius for some additional words on the asset management part. Anastasius Tschopp: Thank you, Marcel. Dear ladies and gentlemen, a warm welcome from my side. The next few of minutes, I will give you some details about the Swiss Prime Site Solution results 2025. As Marcel Kucher mentioned before, we grew 2025 with CHF 1 billion assets under management. We raised CHF 1 billion new money. This is more than 2023 and 2024 together. Our Real Estate transaction volume, 2025 was CHF 1.75 billion. From all these deals were 30% of market deals. So we have really good networks in Switzerland. Now I will show you the three sub pillars of the asset management part. On the left-hand side, you can see our fund management. In this fund management, we raised CHF 430 million new equity in 2025. Another highlight was our IPO with the Investment Fund Commercial in December 2025 with a premium from 10%. In the middle, you can see the sub-pillar Wealth Management or Asset Management, the products there, the investment foundation, SPR or the Fundamenta Investment Foundation. In this part, we raised CHF 590 million new equity. And another highlight in this part was we extended the contract with Fundamenta Investment Foundation by 3 years to 2029. On the right-hand side, you can see our Real Estate Advisory sub-pillar. In this sub-pillar, we gained a new mandate by around about CHF 400 million. Swiss Prime Site Solutions are the biggest independent Real Estate Asset Manager in Switzerland. Only banks and insurance companies in Switzerland are larger than us. But they have an own book of equity, we do not have that. We have more than 2,700 clients. 600 clients of this 2,700 are pension funds. Our main focus in our products, to invest 60% is Living -- housing. The last slide from my side and the key takeaways for you, the pension fund system in Switzerland are very strong. They have to invest CHF 17 billion every year, around about 23% goes in Real Estate. So around about CHF 4 billion or CHF 5 billion every year. Our market share is 12% to 15%. So we think that we can raise every year CHF 600 million to CHF 700 million new equity. We have a net immigration in Switzerland by around about 100,000 people. And the interest rates are low or going down. So you can see, the business case for Swiss Prime Site Solutions is really stable. As Marcel Kucher has mentioned before, our recurring fees are 65% the last year, and we think it will go on with this number. For growth to CHF 60 billion assets under management, as we have as target to 2027, we can benefit from the economy of scale again. Thank you for your attention, and now I hand back to Marcel. Marcel Kucher: Thanks, Anastasius. So there's only one thing to say for me. What is the outlook? So we expect the attractive Swiss market to continue. And hence, we want to provide the guidance for next year for an FFO that further improves to CHF 4.25 to CHF 4.30 on a per share basis. We will do that with a very disciplined financing policy and remain with our LTV below 39%. We do see further potential to improve our vacancy and hence guide that we will be lower than this year, so lower than the 3.7%. And as Anastasius just mentioned, we see continued growth opportunities for Swiss Prime Site Solutions with an additional addition of CHF 1 billion AUM also for 2026. Hence, a positive outlook. And with that, that was it from our side, and we would hand over to questions. Marcel Kucher: I think we start here, who would have thought. We start here in the room and then hand over to potential questions that we have on our stream. We do this in English today because on the stream, we have many people that are English speaking. And we realized that the simultaneous translation was not always that easy. If you feel more comfortable in asking a question in German, that's no problem. Just please do that, and then we'll try to translate as good as I can. So, where do we start? With you. Perfect, Matteo. Matteo Villani: Matteo, Vontobel. I have a question on Slide 22, regarding the active portfolio management. Could you tell us how large is the amount that you would still say capital recycling is possible? And why did you tell in December that you will scale back the sales? Has it to do with the market environment or did not the buyer come as you wished for? Marcel Kucher: Yes. All right. Happy to do that. Let's start with the second one. It had nothing to do with the market. I mean, the market is super strong, and we've seen that with 5% profit that we make. We will also, this year, see a number of additional transactions that we partly signed already last year. That is, in particular, the second half of the asset swap, which will only happen in 2026, because these are in cantons where the communities have a first right of refusal. So there is a gap between, kind of, when you can close that. So we expect that to close somewhere in April or something like that, for the second part. So no, this has absolutely nothing to do with the market. For us, it was important that we provide transparency that we will keep a number of the buildings in our portfolio, as we have now with the capital increase, more equity and hence a little bit more flexibility. And your first question was around whether we can further kind of suppress that in the top quadrant. Was that the question? Matteo Villani: Like what's... Marcel Kucher: The number of buildings are... Matteo Villani: And in francs. Marcel Kucher: Okay. Well, for this year, my expectation will be that we will continue to sell about CHF 250 million worth of buildings. As I mentioned before, a part was already signed last year, so about CHF 150 million was already signed last year, which will now be closed in 2026, and we have a number of additional buildings that we have in the pipeline. I think, the focus of capital recycling shifts a little bit into more, say, a regular portfolio optimization. I think with what we have done over the last 5 years, we have really concentrated our portfolio in where we wanted to be. But given the size of our portfolio, we always see opportunities where we believe we are a better owner than somebody else, or within our portfolio where we see another owner be the better owner than us. That has a lot to do also with repositioning of buildings. I mentioned that before, we always have a look also with our commercial buildings, whether they would be suited for residential. And if that is the case, then we would develop it up to a certain level, typically building permit and cost certainty with the contractor general and then sell it on the market. Matteo Villani: One more question on the asset swap of the Bahnhofstrasse. What's the net yield of the building? Marcel Kucher: In Bahnhofstrasse, I think it's 2.7%, roughly. Yes. Ken? Ken Kagerer: Ken Kagerer, ZKB. My first question is to Anastasius Tschopp. And -- Okay. Whilst I see the fact that it's very easy or it seems to be very easy to raise cash in the current environment, I'm a bit more worried about the way how to deploy this cash into 2026, especially when we know that more than CHF 9 billion were raised last year and you plan to raise another CHF 1 billion and the others are also seem to be also very active. So, now comes the question. How do you want to deploy the money with good acquisitions on the direct market at the correct yield without diluting either the payout ratio or the quality of your existing products under management? Anastasius Tschopp: Thanks for your question. No. We have a good pipeline for all products. We have some transaction done in January, good transaction and our pipeline are full for the next 4, 5 months. And we are sure we can hold the quality and the performance in the product. Ken Kagerer: Just a small add-on for you. The fundamental contract was extended, was just mentioned. Can I expect that the margins or the costs stayed flat? Anastasius Tschopp: Yes. Ken Kagerer: Okay. The next question is on Jelmoli. I've just checked the full year presentation '22, and the Capital Markets Day presentation '23. And in '22, it was mentioned that the renovation costs should be above CHF 100 million. At the Capital Markets Day, it was mentioned that the renovation cost should be CHF 130 million. And when I remember correctly, Rene was very firm that this is a number he can stick to. And now I have read that we see CHF 210 million. Now comes the question. First, is the rooftop included or not already? And secondly, what has happened with the increase in the cost and what has happened, especially to the yield expectation on the construction cost? Marcel Kucher: Yes. Happy to do that. And yes, this is the entire building, including the roof. We will have a restaurant on the roof, we will have spaces on the roof for our office tenants that they can use, and that is part of this cost. The entire roof, but that was always the case, we'll only be able to use in '33 or something like that, because we will have the until then -- until we can connect to cool city. And we, up until then meet part of the roof or the coolers, for the cooling system. But, that was always the case. That is nothing new. In terms of the cost, that we have. I think now we can be firm on that. We signed a contract. We have obviously built back everything that is internally. So, we're now back to the bone and the structure of the building. And in the course of doing so, we decided that in part, it makes sense to do a little bit more, that has elements in the atrium where we believe we can add additional floor space and make existing floor space more attractive and bringing more light in it, but that is also a parts of where we will further support the structural elements. Given the increase in rent that we see and where we are also are with the LOIs that we signed, we see purely on cost -- on yield on cost about 4%. And if you add to that, the losses that Jelmoli did over the last couple of years, you'll be more in an area of 7%, 8%. So both numbers, even just the 4%, we do believe in a location like Bahnhofstrasse is super attractive. And hence, yes, this is going to be a very valuable addition to our portfolio going forward. Ken Kagerer: This brings me to my third and last question. What would need to happen for you to do another capital increase in 2026? Marcel Kucher: Well, for us, the most important thing is that it needs to be accretive. And it should be accretive quickly, not in 5 years' time and with a lot of hope. And the last year capital increase, I think, was at an attractive timing because we've seen end of '24 falling interest rates. And hence, we increased our capital in a phase of falling interest rates where we still could benefit from attractive acquisitions as these falling interest rates were not yet fully reflected in the prices. And I do believe you need to see these opportunities that allow us to grow our portfolio in an accretive way, that will make us then to do another capital increase. And as soon as we see those opportunities, I think we've shown that we are quick to act on that. Ken Kagerer: And do you see any opportunities now? Marcel Kucher: That we'll answer once we see them. Holger Frisch: Holger Frisch, ZKB. A question -- on the half year presentation, you presented a slide with the investment volume for SPS of about CHF 1.3 billion, broken down in CHF 200 million invested, CHF 100 million committed and CHF 1 billion open. Could you provide us with an update on the current number and the breakdown? Marcel Kucher: Yes. The number has not significantly changed. We thought it is more useful to talk about the projects that we're currently working on. As you can see, these are roughly the numbers in terms of commitment. So the CHF 200 million, the CHF 150 million, the CHF 30 million, together, CHF 380 million or the CHF 390 million, of which about CHF 70 million to CHF 80 million is already built. So we have a slight increase in terms of the commitment, obviously, because now we signed the general contract on YOND as well as Jelmoli. The overall number has not significantly changed, but this includes kind of conversions that will only take place in a number of years. Most prominently, if you look at Geneva, now we extended the contract with Globus by 10 years. So that means the conversion project that we developed here, we still want to do it. But realistically, we'll only do it in 10 years. Hence, some of the elements moved a little bit further out. Holger Frisch: Then second question would be on the maturity of the financial liabilities, this went down to 3.9 years, which is the lowest for the last 10 years, I think. So do you feel comfortable with that level now? Or do you have any plans to increase the maturity? And then maybe on the maturing bond of CHF 350 million in May, what are your refinancing discussions? Marcel Kucher: Yes. Okay. A number of elements on that. Why is the majority coming down a little bit? This has mostly to do with the unsecured loan that we have with the CHF 13. And that contract still runs about 4 years, part of it 5 years. And hence, it is too early now to renegotiate that. We will do that, say, 2 years before it actually matures roughly. And hence, you'll probably see that it comes down a little bit further. Does that worry us? No. Because it's a clear maturity pipeline that we have here. We have built up now many opportunities on how we can refinance, not the least the one in the euro market, where we have seen very attractive opportunities going forward. All the rest is roughly in the same range. You've seen the euro financing where we did roughly 6 years. Or you've also seen the one that we did in January of last year at roughly the same rate. With the upcoming majority, we already did the floater end of last year, which was part of that refinancing. The rest you see we have plenty of line that we could use. Obviously, we also reserve the right to do an additional bond refinancing, which -- where we see very attractive conditions currently. Holger Frisch: And one last question on the WAULT of about 5.3 years now. Could you break down the WAULT for the different types of use like office and retail and so on? Marcel Kucher: I don't have it here by-heart. We can provide it later on, but my gut feeling is, given that retail is only 20% by now of our portfolio, it should not have a significant difference. The large part of our retail, our co-op stores and Globus, of course, now -- and hence, you've seen here just the extension, hence, should be roughly in line. But if you want a precise number, I would have to check. I don't have that on by heart. Yes. Matteo and then Andrea. Matteo Villani: A quick question on Jelmoli at the Capital Markets Day in Geneva this spring, I thought the beginning of going live again is in 2028 at the beginning. Now you said at mid of 2028. Why is there this delay? Marcel Kucher: With what I mentioned before, where we will probably do a little bit more than we originally envisioned, because we believe this is beneficial to the building and the rental income that we can generate, we need to build that. And hence, the current plan, and we are very confident now that we can stick to this plan given that construction is now in full swing. And in particular, the building is empty now. So if you walk through the building currently, you see all the walls are dismantled. You see all the structural elements. So we are really very much focused now to rebuild the building, as I mentioned before. Tommaso Operto: Since the mic is here. Tommaso Operto, UBS. Question on reversion. Since inflation is as low as it is, focus will be on reversion. So could you update what the reversion potential is for the portfolio in general and then specifically also for this new couple of acquisitions that you made? Marcel Kucher: Yes. On average, I think the simple answer is it's about 10% of the reversionary potential. We do have about 5 years WAULT, as we've seen before. We have probably an implicit WAULT, which is a little bit longer given that some of our tenants still have options where they can extend at the same conditions. So taking the 10% and divide it by maybe 6 or something like that, that yields you around 1.4%, which we have now consistently been delivering in terms of real conversion. We're working hard on that. We're doing all sorts of things in terms of how we do community management, what services we provide to our tenants. If you look here in the Prime Tower, if you've been to the elevator, you see all sorts of services on the screens that we have. We have cars here, where pretty much the entire Prime Tower campus takes part of it. We have bikes and all that make tenants more sticky, because they really like it, and that is helpful for us going forward. So we try, obviously, to exceed expectations that Wuest & Partner has. And you see that in the revaluation. I mentioned before, roughly 50% comes from the underlying higher contracts that we could close. And we expect and we work hard on that. You will continue to see that going forward. Tommaso Operto: And for the new properties? Marcel Kucher: For the new properties, some of them come with a long contract. I mentioned Lausanne with a long contract. In terms of the Place des Alpes, which is the one that is -- that we are reletting. We are very positive that it's going to be in the mid-double-digit numbers in terms of what we undersigned and where we will end up now in terms of reversionary potential. We see that this attractive space with a beautiful building, old one and new one with an unobstructed view to Lake to Geneva is really attractive in the market, and hence, we're positive on the revaluation that we get there. Tommaso Operto: So, a double-digit percent increase? Or what's the double-digit, Okay. Marcel Kucher: Yes. Tommaso Operto: And then on the CFO transition, let's expect that you wouldn't be the only one. Marcel Kucher: Okay. Key message is, I will not do a double job. So that is the key message. We want to take this very seriously. We want to do a thorough evaluation if you talk to headhunters, that takes 4 to 6 months, and that time spend will be, do roughly say, in March, and we're working towards that. Andrea? Just behind you. Andrea Martel: Andrea Martel, NZZ. I have a question about Fraumunsterpost. Are you just redoing the offices on top, because Lidl hasn't open. Marcel Kucher: Lidl is still open. Lidl remains open and is open, but we're doing the entire office part. And the key element here is on the heating system, on the cooling system, et cetera, where we will go full green. Insulation is part of it with the windows. Obviously, this is a protected building. And we want to transform it in a way so that it's fit for the next 50 years plus. We've seen very good demand so far and really top-tier tenants, where we're in the progress -- in the process here of hopefully signing them up so that they will move in when it's ready in a 1.5 years roughly. Tommaso Operto: It's a recurring question that always comes up, but is there any update on Mullerstrasse for Google tenant? Marcel Kucher: Look, Google made an announcement. It was quite prominent in the newspaper. I think it was October last year, where they kind of committed to Zurich. All we hear is that they're now further reducing the workforce. On the contrary, it seems, at least from the outside, that they're transferring some of the development on their AI engine here to Zurich. In that announcement, it was also said by Google that Mullerstrasse is a key element of their strategy. Hence, we have no indications whatsoever from Google that they don't want to keep it, and that's the current update. Tommaso Operto: Just one follow-up on the double-digit percent increase for Place des Alpes you mentioned before. That's including CapEx or just as it is? Marcel Kucher: The CapEx is not going to be huge. Because the majority of the CapEx that we're going to do that is tenant fit out. Obviously, you need to do some CapEx if we separate it and have a multi-tenant, but that should also translate in higher per square meter prices. So it's roughly the same. But we are not going to -- we're not going to invest there hundreds of million. This building is in a very good shape. It has a modern heating system. It has a modern insulation system. And the CapEx that needs to be done is mostly around fit out, which will be done in conjunction with the tenure. All right. Then let's switch to virtual. We can come back here to the room if there are more questions. Are there any questions on the web -- from the website? Operator: [Operator Instructions] Our first question comes from Ana Escalante with Morgan Stanley. Ana Taborga: I have a couple of questions, please. The first one is on your vacancy guidance. So as you said, you are -- you ended 2025 in record lows. And you said that you see further potential for declines. How low do you think it is possible to go from here? Marcel Kucher: Look, I mean, as we mentioned here, we have an underlying vacancy of about 3.2%, excluding the one which we call strategic vacancy, which we do because we are renovating building. We do see a potential that we'll bring this down further. Maybe even slightly below 3%. But obviously, it has a natural end at one point in time, you do have some turnover. You want some turnover in fact, because of the reversionary potential that we do have. But for the time being, over the next couple of, say, years, probably at least 1 to 2 years, we still see further potential to reduce our vacancy and we're working on that. Ana Taborga: And then my second question is on acquisitions, both for the own portfolio and for the asset management business. So for the own portfolio, if we look at the guidance that you gave in the Capital Markets Day, it looks like you have already fulfilled all the acquisitions pipeline. So any further updates on that? Will you try to recycle further capital into acquisitions? Or do you think you are pretty much done and maybe just the occasional strategic opportunistic acquisition? And for the asset management business, would you consider growing outside of Switzerland, given the amount of capital that you've raised, would you consider doing a bit more in Germany, for example, that you're already there? Marcel Kucher: All right. In terms of acquisitions, I mean, we are already -- we are always screening the market. And I think that is very important because we are active managers. Hence, we have to actively manage our portfolio. Hence, we are always in the market. There is no need on that to be on the selling side, because as we mentioned now a couple of times, we have been able to move our portfolio in the right quadrant, so in the place where we want to be, where we see the highest opportunities in terms of like-for-like growth and value accretion. Having said that, we do have a number of properties which are currently under development where we see residential as the best use. So, we will sell those and that will free up capital that we can invest then in new acquisitions. So it's not a static portfolio, but we work with it on a daily basis and want to realize opportunities when we see them. And in terms of going abroad, we are in Germany, yes, we have roughly CHF 1 billion in Germany. We are constantly evaluating the market there. See, a little bit of a light on the horizon currently over the last compared to the last couple of years, but we'll have to further evaluate on that, and we'll provide you with an update. If you see more opportunity than to say organic growth going forward. Operator: Our next question comes from Steven Boumans with ABN AMRO ODDO BHF. Steven Boumans: I have two. So one, could you please quantify in how many acquisition processes you are for your own portfolio today and how that compares to around this time last year? Marcel Kucher: Sorry, I can't. But in -- we are in -- let's put it like that, in an attractive number of -- an attractive value number, we are in -- we are evaluating, but we always do that. But I cannot provide you with more detail, I'm sorry. Steven Boumans: Okay. Well, and to try and maybe your question. What percentage of non-recurring asset management fees do you assume for '26 and '27? Marcel Kucher: Our focus here is that we stay at the minimum of this 2/3 that we currently have as recurring fees. Hence, about 1/3 could potentially be non-recurring fees given the opportunities that we see within the market currently that we see that as a realistic that we stay below that 1/3. The 1/3 we realized last year was in a market where, as Anastasius mentioned, we did record -- we did attract record new money, and we were still able to stay at the 66%. Hence, that is the clear focus. We mentioned right in the beginning, the stability, coupled with the plus, with the growth. And that's a key element, obviously, in that, that we keep that ratio. Operator: We currently have no further questions from the webinar. Marcel Kucher: Wonderful. Then we have an additional question here from Ken in the room. Ken Kagerer: Thank you. It's again for Anastasius. Would you be willing to share with us the EBITDA margin of the German business? Marcel Kucher: We don't disclose. I think the -- what I can disclose, it's profitable. We're not losing money. Ken Kagerer: On EBITDA level or what level do you think? Marcel Kucher: On any level that you want to mention. I think that's an element that we worked on over the last couple of years. It's not yet at the same EBITDA margin that we have here in Switzerland, but it's now at an attractive level, which is sustainable. Ken Kagerer: When you say not yet, do you expect it to ever reach those levels and on what basis? Marcel Kucher: Let's do Germany in a different part. We'll plan another Capital Markets Day, and then we'll provide some additional elements on that. But yes, what we currently see is that Germany is recovering slightly, and we want to be there to take opportunity if that materializes. Wonderful. And thank you so much for your interest for coming here. It's been a great pleasure to host you here. We see now the fog is a little bit lighter. So you have a little bit more of the view. And with now all the participants that are here in the room invite you one floor up, to 35th floor, where we have some light refreshments prepared and continue the good discussions. For everyone on the webcast, thank you so much for your interest in Swiss Prime Site and wish you a wonderful day. Thanks.
Hjalmar Jernstrom: Good afternoon, and welcome to the Pricer Fourth Quarter 2025 Investor Presentation here at DNB Carnegie. My name is Hjalmar Jernstrom, and I'm joined today by CEO, Magnus Larsson; and CFO, Claes Wenthzel. Welcome, guys. And during the presentation, questions can be submitted live and we will address these during the Q&A session. With that said, I hand over the word to you. Magnus Larsson: Thank you very much. Hello, everyone. Really happy to be here. My name is Magnus. I'm the CEO of Pricer. And with me today, as mentioned by Hjalmar, is Claes. So let me jump straight into the presentation. For those of you who haven't been paying too much attention to Pricer before, but are tempted to join the call. This is the very quick Pricer in a brief slide. So our vision is to be the preferred partner for in-store communication and digitalization. This is something that, of course, is spot on for what the physical retailers with physical stores are aiming to do now. We aim to do it the best and be their preferred partner. I will come back to a few customers that actually have selected us as their preferred partner later in the presentation. In essence, we have sold or delivered close to 400 million of our labels. We have done way more than 28,000 stores. And today, we have more than 6,000 stores on our SaaS service Plaza. We have close to 50 million ESLs connected, which, of course, gives a lot of opportunity to future sales. Looking at Q4, the first thing I would like to highlight is that we've seen a positive trend during the second half versus the first half. When I compare it now Q3 and Q4 together, we have a net sales that actually increased 20% compared to the first half, which has been, of course, very, very positive. We have seen a good intake -- order intake momentum in Q4. It's actually the highest in the year. We have been awarded with 5 new customer contracts in Q4 in the U.S., in Netherlands and in Norway. But also more importantly, what we can see is that there is a clear and tangible increase in the customer engagement basically across many markets, but it's from RFQ processes. So basically, they come to us to actually buy stuff to proactively being discussing digitalization and the way forward. Very, very positive development. Looking at our financials, you will see that we have had a major decrease in our inventories. As you might remember, and I know Claes will speak more about it, we had an excess inventory when we came into 2025 that we have now dealt with and it's been sold. So it's been contributing to our strong positive cash flow. But it's, of course, also affected our -- it's not, of course, but it has affected our gross margin due to the sale of this excess inventory. All in all, we have a year of full year profitability. We have a good EBIT. We have an EBIT margin of 2.9% on the adjusted side, and we have a net profit for the full year. So why does our customers buy from Pricer? There are quite a few trends that affect the behavior from shoppers, the behavior of our customers and retailers. And I will show you 5 examples now on the 2 coming slides. And you can see that one key driver has been the drive for strategic digitalization in the physical store. Now with AI being a very large thing, it also spills over to quite a few of the physical retailers. They see all the benefits they can do utilizing AI tools. But in order to do that, they really need to make the store physical or digital. So it's not only the fact that they want to address the operational cost, which is still a key driver. But it also what kind of gadgets, sensors, ESLs do I need in my store to actually be able to operate in a different way and be more efficient using also the AI tools. So we can see this is a quite new trend, but we can see that especially, I think, on the U.S. market, this has been a driver for some of the recent customer dialogues that we see. It's from the hyper and supermarkets, but also down to convenience stores where they want to see how can we be more effective. So what am I talking about? What are the key customer wins? The first one I'd like to speak about is the deal we got with IBM Federal and with DeCA, the Defense Commissary Agency. So that's actually the U.S. Department of Defense. It's their stores that they have for the armed forces. So in the U.S. and outside Continental U.S., they have in all the Army bases, they have the commissary stores, sorry, what they sell grocery to the serving staff and everyone working at the Army base. So this is a really big thing in the U.S. We've been vetted as a supplier by the U.S. Department of Defense or Department of War as they also are referred to. It's hard to pass that threshold. So we're extremely proud of this win. We have a planned deployment of ESLs in 57 other stores outside Continental U.S. and we have a potential of modernizing all the stores in -- it's like actually 178 ones in the U.S. market. We did receive the first order in December, and we're continuously planning together with IBM Federal on the rollout of these stores. But also in the U.S. market, having DeCA as a reference and also the fact that we've been vetted by Department of Defense is a big thing. The second one is also an American customer, Merchants Distributor store, we call them MDI. It's a wholesale grocery store distributor. They actually sell everything from groceries, wholesale, but they also do technology. They help their members to buy whatever they need to their stores. So we are -- we have an exclusive agreement with them now. We're the only potential supplier. They have 600 members. But across those members, they have 3,000 different locations or stores in 17 states. They are really active. They want to make this happen. They see the clear benefit for their members. So it will be Pricer Plaza. It will be 4-color ESLs. First orders received now in December. And above all, it's a brand-new Pricer customer. And of course, we hope to see them grow together with us during '26 and into the future. If we look at Europe, we decided to go for a direct sales model on the Nordic and Baltic market. We announced Norgesgruppen, we announced Coop Norway in October and November. If you look at Norgesgruppen, they have roughly 1,800 grocery stores. They're #1 on the Norwegian market. We are a current supplier of in-store communication and digitalization, but it's a new direct customers. So we're really happy for this engagement. We had the Coop management team over last week. We spent 2 days discussing what is the future, what are the road maps, what are the key things we're going to look at into the future. They have both do-it-yourself stores and they have grocery stores, and they have more than 1,000 stores. So also here, a new direct customer. But so here, we have an existing customer, PLUS that we won back in 2000. They've been using their system a lot and felt that it's working so good that they wanted to really upgrade it to have the most recent version of what we do. So they will buy our 4-color labels. We'll start with 100 stores this year, and we do another 165 stores in 2027. So we're basically modernizing the entire setup. But also part of this deal is the buyback of the existing labels. There will be a TED Talks on this and then positive effects when we are at the EuroShop event in a few weeks' time. But in essence, we're going to take their labels back. We will refurbish them, and we will resell them to give them a second life. So from a sustainability point of view, a very good business, but also from our point of view, also very good business. And before handing over to Claes, I would like to speak a little bit about Pricer Avenue and Pricer Avenue at the NRF show in New York. So now second week in January, we had the NRF show in New York. It's a massive retail event or retail tech event where everyone that's someone on the tech market are participating. So we now do the commercial launch of Pricer Avenue is now commercially available. We do expect the first stores to be deployed now during Q2. It's, I call it here a low-volume deploy. So we have a limited number of labels. And once again, it will be quite exclusive. So we will agree which stores will be allowed to get it. They will focus on using it for the high impact zone. So basically where they have high-value products or where they have high churn products, but areas where they see that they really want to do whatever they can on the merchandise and the promotion side. So we'll be very exciting. We'll be very exciting with also the necessary discussions that we're going to have with the suppliers that want to use this for promotion. We had a number of pilots. They were pilots for also for us to get both feedback in terms of how well does it work in the store? Do we need to make any changes to it. But also, of course, to get the customer feedback. And here, we've got a lot. So it's been embedded now in the commercial product and future releases of the commercial product. One additional thing that we launched is a new model, brand-new model to Pricer Plaza called designer. It's a tool made to actually design this extended label, but it's now also -- will be available for all our ESLs. In fact, with the designer tool, you can do pretty much what you want. We will treat any screen as a canvas, so it could be to paper, it could be paper tag, it could be billboards, it could be televisions, it could be obviously be Avenue and also ESLs. And we had some people passing by our booth from a company that typically works with paper and paper publishing. They were delighted to see the tool and said, this is something that we should have. And since everyone is moving more into the publishing direction, I think it's extremely positive. And you can also see on the picture here what Pricer Avenue looks like in real life when it's actually working. So this was maybe not talk of the town in New York, but it was definitely the talk of the NRF. We also had a TED Talk together with the Technology Officer, Rob Smith of Coop of East England, where we spoke about in-store shopper engagement and how we can actually increase that impact with the help of Avenue. But I guess, enough of bragging and promotion and over to the hardcore figures. So Claes. Claes Wenthzel: Yes. Sales slightly down in Q4 compared to last year, but at the same level in fixed currency. Gross margin decreased in Q4 with 1.5% unit compared to last year as it is negatively affected by sales of the excess inventory we had in the beginning of the year. Operating profit was SEK 19.8 million, and that has been impacted by the one-off cost of SEK 4.5 million in Q4, which is related to VAT back to 2022 and 2023 in Canada. And if you look at the cash flow, our operating cash flow for 2025 is SEK 180 million, which is more than SEK 100 million better than last year. And cash flow has a large impact from the reduction in the inventory. What is also important and what we are a little proud of is that we do not have any net debt anymore, and we have available cash of more than SEK 450 million at the end of the year. Magnus Larsson: Good. So let's wrap up then before we move into the Q&A. So once again, I want to highlight the strong order intake in Q4. It is the highest in 2025. We have a book-to-bill that is actually above 1. So we have had more orders than net sales, which, of course, anyone in a company, you want to end up in that situation. On the other side, on the flip side of the coin, we still see this uncertainty on the market. The geopolitical situation, the macroeconomics makes it a bit hard to really predict the future. We can see that there will be a near-term impact on investments with retailers. But we also see all the ongoing dialogues and the increase in dialogue. So the question is when they will actually place the order? Will it be now in '26? Or will it be in '27. But the amount of discussions has been very, very positive, and it's actually across the market. And maybe I shouldn't say it, I will say it anyway, we can see an increase on the U.S. market. It doesn't mean that we will -- you will see it commercially yet. But it's very positive to see that it's actually picking up. Commercial launch of Pricer Avenue, we do expect installs in Q2. We will be selective. We want them to really make a splash when they are installed. We want it to be clear benefit also to the retailers. So they said that this was a really good investment and that they're happy to share it. We do believe that the increased customer engagement that we see that it will create new opportunities in the second half of 2026. Of course, opportunities will come earlier, but hopefully, there will be some tangible outcome as well. It's a bit too early to say, but we are positive given the changes in dialogues that we see, more interest, more incoming interest. More customers are actually looking to make larger investments, and they're running through official procurement processes. But also having said all this, it's important to remember that we have a large number of long-term customers that is generating repeat businesses across the markets in pretty much all the areas, we have a lot of customers just working with the system, doing continuous investments. But the flip side is also on the positive flip side is that we can see that they are also looking at -- many of them are looking at the next generation. They want to go for color. They want to do Avenue. So we see that as soon as they feel that the uncertainty is shifting, I believe that there will be quite a lot of interest in modernizing existing Pricer setups. So that's pretty much everything, Hjalmar. Hjalmar Jernstrom: All right. Thank you. Yes. So let's start off with some Q&A. So I got some prepared questions, and then we got some on the line as well. But I think it's very interesting. And let's start with what you mentioned, this clearly increased interest among customers also across markets. Could you describe what phase of the process that you see this increase? Is it that new customers are reaching out for an initial contact? Or is it as far as ongoing evaluations? And where do you see this hike in interest? Magnus Larsson: It's a combination. We can see that, especially if I take the U.S. market that I spoke about, there were quite a few dialogues that we had back in '24 that were sort of paused during '25. We can see that some of those are coming back. They are gaining certainty. They feel that it's necessary to move ahead. But then there are also brand-new customers that are coming and it's inroad. They get in contact with us and said that we would be interested in a dialogue. So that has been very positive. We see also that the formal processes that has also been something we see in Europe. There are more formal processes now where people say, we are planning for an investment. But we have also seen customers that have made the a selection and said that now we're going to go with supplier X, but nothing really happens. So it's been a very odd year in that sense that we have seen -- we have been selected in processes and nothing happened. We've seen competitors being selected and then yet again, nothing happens, which makes it quite difficult to assess the situation. And I think one of the points I missed is actually that it's still very hard to predict the business, and we do expect lumpiness to continue. And I think it's also fair to say that there might be -- could be similar seasonality this year as we had last year. It's hard to say, but it could be good to mentally prepare for it at least. Hjalmar Jernstrom: Okay. Thank you. Yes, that's very useful. You mentioned also on the order intake, of course, supported by PLUS, but also the merchant distributors and IBM Federal that you spoke of. Could you -- like these -- in specific, these 2 U.S. customers, are these -- are the orders substantial to the Q4 order intake? And what could we expect going forward in terms of the ramp-up with these counterparts that you're expecting? Magnus Larsson: I say it was not substantial in Q4. With the IBM Federal, we are planning. So we do a continuous planning. So we have a very good idea of where we will land until somewhere mid-second half. But we are continuously planning. So now we have done quite a few stores planned. Order intake will come as we receive them quarter-by-quarter. With MDI, we had a first order, and there is quite a lot of discussions ongoing now for different stores. So since they work through their members, there's -- they are having other internal exhibitions. They're pushing it. Their local IT team is actually driving it because they want to make this happen. So there it will -- once again, it will be something, I believe, will be growing even I would be happy to sell to all the 3,000 stores, but I don't think that's very likely, but we do expect to take a chunk of this volume. Hjalmar Jernstrom: And considering then the reach that you can achieve if we speak of the MDI, for example, what is the size or what is the potential in the stores? Are these smaller stores? Are they supermarkets? Are there hypermarkets as well? Like how is the split? Magnus Larsson: They have a mix, but there's quite a lot of stores that are pretty much like supermarkets or very large convenience stores. But would almost be on the level that we would consider maybe not supermarkets, but almost in Europe. So it's a mix. Hjalmar Jernstrom: And staying on the U.S. market, do you see any pressure maybe from trade turmoil relating to, I mean, trade-related issues that prohibits you from -- or maybe it's a headwind to business in the U.S., but you mentioned the strength there. So I guess you're not seeing that or... Magnus Larsson: We haven't seen it really. So I mean the dialogues are starting again. So -- it might be that they feel a bit relieved that they feel that, okay, maybe the tariffs are now -- this is the levels where we'll see the tariffs. I think one big thing has been the fear will they increase further. But I think it's also been the drive to digitize. They really want to digitize the store to make it like a digital asset or the physical store. And I think maybe we're looking at the way they allocate the CapEx investment, probably more now on digitizing the physical store and doing the online presence, which they -- many of them have. So I -- at least I hope that we will see shifting budgets. Hjalmar Jernstrom: Yes. All right. Sounds promising. Let's jump to Europe then. And if we speak on France, for example, what signals are you getting here from customers? Are you picking up anything? And maybe if you can give us an update on the renegotiation of the Carrefour agreement, which, of course, is to be renegotiated this year. Magnus Larsson: Yes. So if I start with Carrefour, it's ongoing. Typically, what we have experienced during every process with Carrefour is that it takes some time. Typically, they will spend in Q1 and then maybe a little bit into Q2 for the supplier selection. So there is a lot of meetings, a lot of discussions. So we will see basically into Q2. But of course, I feel that we're having good discussions. On France in general, we see that our customers, they are having challenges with profitability. That also goes for Carrefour. But we also see that especially the business that we have, we have a very solid business with a number of retail chains through their franchise stores. So the franchise owner, we have a hunting license for a number of different chains in France. We have a team that's out every single day and then selling. And here, we can see that we have a very solid run rate of -- on the field sales activities. And then what you can get when you -- when we win Carrefour, we will get an increase of the orders from their own operated stores. When we won Brico Depot or METRO in France a few years ago, we can also see that you get this immediate impact but it's limited during the time of the deployment. But the field sales deployment that we have a very good and solid run rate business. Hjalmar Jernstrom: Okay. Yes. And then on the switch then to the direct sales approach in the Nordics and Baltics. Here, you mentioned that you have not really reached the full impact yet maybe. Could you describe this process more, maybe how much it is currently impacting order intake? And how can we expect maybe the ramp-up of this conversion going forward? Magnus Larsson: I have a positive view on the Nordics now. We have the team in place. They're fully up to speed. We have all the contracts in place, and we are selling. We have a field team now in Sweden. It's a fairly small one, but they are immensely effective. So we can see that there is a lot of activities. So from that point of view, I think that the year has been starting well. Hjalmar Jernstrom: Yes. Okay. Yes. Let's jump to some questions then on the line. First one is like you mentioned the possibility then to reuse the three color ESL or the legacy products. How would you describe the market for this product? Is it possible to find a buyer for these products? And is the commercial sense in maybe reusing these and distributing to other customers? And what is your sort of current view of that market? Magnus Larsson: So we have done it or we are doing it continuously. But what we can see is that many customers, they want to go for a new ESL, they want the latest. But then also, there are customers where they might actually have installed since before and they -- some of them, they are struggling with profitability, but they feel they would want to upgrade from an old generation from black and white to something more. And there, by doing the refurbishment, basically, we take the ESL, we would clean it, we upgrade the software, we feed new batteries and then we sell it. Well, it will be a good deal for them because they get a good label at a good price, and we get the profitability out of it. It's better profitability than, of course, on the revenue side, which is limited. But the idea of actually being able to take it for another cycle it feels very good from a sustainability point of view, but it's also good from a business point of view. Hjalmar Jernstrom: And I interpret then that it's mainly then replacement orders. Magnus Larsson: I would say then there are markets where we're customers are interested in buying refurbished labels where typically you can imagine that the purchasing power is much less, but they might not really be in our spotlight either for where I want our salespeople to go. But clearly, there is business opportunities for this also outside our existing customers. Hjalmar Jernstrom: And then we have a question on the line regarding technology and maybe technological lead, the technological position. I mean it happens so much with all the R&D spending in this market. So how would you perceive your current technological position then compared to peers? I mean, if we evaluate items like signal reliability, energy consumption and so forth. Magnus Larsson: We are -- our technology that we use, we are still by far the most efficient from an energy point of view in terms of responsiveness. We're by far the best energy consumption the same. But on the other hand, we should also see that standardization and radio is and there is an ESL standard based on radio. And I do appreciate standards. I think it's something that will drive the mass market forward, and that's, of course, interesting. So I've said before, and I will say it again, we believe in -- it's more important to speak about how the system is actually used or what protocol it is. So it's -- of course, we are looking at where should we be, what are the investments we'll need to make. So I wouldn't exclude that there will be a radio solution. I've been talking about it before. And it's an interesting area, but we also see the benefit that we'll bring to the market. So I think that maybe the future would be a combination, at least for us, where we bring the best of both worlds. Second aspect is, of course, what we do with Avenue, which is really perceived as innovative from customers, from our ecosystem players, also from competitors, where we know they are looking very actively at what we do from a form factor point of view, the way we actually have done the setup of Avenue, the way we can actually enable it to -- for additional IoT devices and functionalities. We had an innovation zone at the NRF. So we had the normal plastic rails, but it's been disturbing me a bit is for Avenue that we still have paper inlays, but now we actually had e-paper inlays. So we just demonstrated a very basic version where we're constantly changing the color. And this we had -- I think every single competitor came there. We had the ying people coming in there saying this is what we should do. So I believe that there is still much more to do, and we are really in the front now when it comes to innovation and taking ESL from this plastic display to shelf communication. And there is no one close to what we do right now. Hjalmar Jernstrom: Yes. And then we got a question maybe on the topic of Avenue. Do you expect Avenue sales to be margin accretive? I guess, if that is compare maybe to 4-color label systems or yes, similar systems that you offer, is a typical installation then for the Avenue expected to be margin accretive going forward? Magnus Larsson: We -- our expectation is that if we do it right, that we will give them one more tool. With ESL, we deal with operational efficiency. You will do that with Avenue as well. But with Avenue, we also give the possibility to increase the size of the shopper basket through promotion, but also the ability to sell the space to CPGs or people that do basically suppliers of food and grocery stuff and/or wine, that kind of supply. So yes, we will ask for a higher price. We will expect to get a clear premium for selling this because we also expect to deliver much higher value to our customers. So it should really be a win-win-win. Hjalmar Jernstrom: Yes. And then on the maybe general development of the recurring revenue, are you satisfied with the current growth rate? And maybe could you remind us again of the setup of the recurring revenue with Plaza and so forth. Magnus Larsson: So being satisfied is a very strong. I'm happy for the development. Would I like more? Absolutely. It is going really well. This year, we have converted a lot of stores from our on-prem service to Pricer Plaza for customers that, for whatever reason, want or have to stay on-prem, well, then we have changed that to subscription service. So if they want the latest version, it's only through subscriptions, also if it's in a PC. I think the development has been good. This year, we're planning to migrate more stores. And of course, almost every single store that we win are Plaza customers. We are now adding modules to be able to also increase the price of Plaza when we sell it. The next step will, of course, be to see, okay, how can we find more adjacent software functionality that we can actually sell a stand-alone. But right now, we're working a lot. We're connecting new stores or existing stores to Plaza, new stores to Plaza and then see how can we actually increase the price of what we do. Hjalmar Jernstrom: Yes. And then if we jump to Canada and the Sobeys rollout of deliveries, we have a question here, whether you expect the same level of sales in 2026 compared to 2025? I guess that also includes then the initial larger order rollout, but also you mentioned, of course, the strength in the Canadian market, so maybe potential follow-up orders. Can you give some color on this? Magnus Larsson: Since we don't give forecast, I cannot answer it specifically, but we have a positive outlook. We have a good dialogue and relationship with Sobeys. They've been very happy with the deployment. And there is a lot of interest, and we do expect to continue our deliveries to Sobeys, but I cannot go into any details on exactly how much that would be in money. Hjalmar Jernstrom: Yes. All right. No, that's fine. And then we have a question then on the gross margin impact from the inventory reduction. Is this mainly then from maybe sort of a proactive pricing towards customers? Or is this mainly relating then maybe to FX impacts on the inventory? Could you give some -- maybe some granularity on this? Claes Wenthzel: You mean the difference in margin in Q4 compared to Q3? Magnus Larsson: From the excess inventory. Hjalmar Jernstrom: The gross margin impact from the excess inventory and whether this is a result maybe of then reducing prices to the customers in order to reduce inventory or are they right otherwise? Claes Wenthzel: It's 2 things. One is that when this was brought up, it was too much higher U.S. dollar rate. So that is one negative impact, of course, when you sell it out. The other one is that to get rid of it all now before the year-end, it was also done to a lower price. Hjalmar Jernstrom: Yes. Okay. And we have a question also from the line on the current levels of inventory. Or do you feel that you -- I mean, considering your best guess on the outlook going forward, do you feel that you have excess inventory right now? Or are you on a more sort of like a level that you are satisfied with your best guess and on the outlook? Claes Wenthzel: Now at the end of the year, we do not have any excess inventory. But of course, we can always have a more optimal level of inventory. But this is, of course, also must be related to the orders we have and that we will deliver the coming quarters. Magnus Larsson: And I think actually, we -- what we have done this year is also that we have ended one of our large product lines. We sold off all the ESLs from that product line, which means that we are producing fewer varieties now. So we have a standard family and only one standard family, which means that we will not build more stock the same way or have to build the stock the same way as we did before. So by nature, we should not tie as much capital in inventories as we were forced to do before. Hjalmar Jernstrom: Yes. Okay. Then we have quite a lot of questions actually on the U.K. Do you still hold the view that U.K. is sort of like a hot market right now? I mean we see some activities in the market. If we look at it in a wider perspective, there is some CapEx investment going on, but you also previously mentioned, of course, a lot of valuations being carried out. What would you say is the current state of the U.K. market? Magnus Larsson: Some mixed feelings actually because there is a lot of activity. It is a hot market. But we also see customer wins, whether it's a winner announced and then they are selected, but nothing really happens. But so we have the procurement processes. We have a lot of inbound interest. But still, we don't see all of that materialize, which is a bit odd really. But there is a lot of interest clearly. But we haven't seen and even people being selected, but not that there are any real deployments as a result. Hjalmar Jernstrom: All right. All right. I think then we have addressed all the questions on the line and also my questions. So thank you so much, and I'll leave it to you for any concluding remarks. Magnus Larsson: Thank you very much, Hjalmar. Thank you very much for joining our quarterly presentation. I hope you found it interesting. I look forward to come back in with the Q1 presentation back in April, I guess. So until then, thank you very much.
Essi Lipponen: Hello, and welcome to Fiskars Group's Q4 and Full Year 2025 Results Webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Jyri Luomakoski; and our CFO, Jussi Siitonen. Let's look at the agenda for this webcast. Jyri will start with the key takeaways of the quarter and the year. After that, Jussi will continue with the financials. Then back to Jyri, who will go through business area development and also talk a bit about how this year looks like. After that, we will have plenty of time for your questions, and we will welcome questions both through the phone lines and through the chat. You can type in your questions in the chat already during the presentation. Please go ahead, Jyri. Jyri Luomakoski: Thank you, Essi, and good morning. Just briefly before we dive into the numbers and what's been happening in our two businesses. Key takeaways, there are some highlights, some lowlights as always in life. What we think was really important that our Vita business area actually had both Q3 and Q4, two consecutive quarters growing and that brought also the group numbers to a what I would call a green or black zero in terms of top line. This we need to bring into the context of Vita having had before these two growth quarters, more than 10 quarters of negative growth or flat top line. And of course, as we started in the summer, focusing on cash flow that those efforts were bearing fruit and the cash flow in the fourth quarter was also quite strong, and Jussi will go deeper into how strong and record-breaking that was. But of course, the lowlight is that our comparable EBIT declined, and that was impacted by our own actions predominantly, i.e., curtailing our production to manage the inventories to manage cash, and this had a price tag consequently on the EBIT. This morning, we also announced our plans to turn around on BA Vita's performance and also, we'll address that a bit more in depth in a few minutes. The Board made their proposal to the AGM, and that is to maintain a stable dividend as our policy is saying, stable or growing, EUR 0.84 per share to be paid in four installments. And '26, we expect our comparable EBIT to improve from the '25 level. But that was the key kind of highlights, key takeaways as an intro and I'm happy to hand over to Jussi, please. Jussi Siitonen: Thank you, Jyri, and hello, everyone. Let's start first with Q4 and then go to the full year here. When it comes to net sales there, as Jyri mentioned, we were able to report positive growth now in Q4, 1.3% at constant currencies. It was very much driven by Vita. The good thing also is that this growth was very broad-based. When we take our top 10 countries at group level, 7 out of top 10 countries were growing, including USA, Sweden, Japan, China, Australia being the ones which were at this kind of mid even to high single-digit type of growth. On EBIT, we came down EUR 10 million versus last year. Out of this approximately EUR 10 million, a bit more than EUR 4 million was Vita related. The remaining part was quite evenly split between Fiskars BA and other operations. Gross margin came down 200 basis points to 47.4%. Roughly 150 of this 200 basis points was tariff related. And as Jyri mentioned, the focus what we have had in second half, especially now in Q4, was there on the cash flow. And we are able to report now all-time high Q4 free cash flow. And actually, this Q4 was the second best quarterly cash flow overall in the recent history of this company. Moving then to full year results. So here, we came out with a flat top line. And despite this flat top line, we had countries with solid full year, high single-digit, even double-digit growth like Sweden, Japan and China. On EBIT, we were down EUR 35 million versus last year at EUR 76.4 million. There were three main reasons for this drop what we had in EBIT. The big one and the main one is low production volumes and negative variances that one that especially in Vita. Then we had more investment in demand creation, especially in marketing. That's on one topic there and tariffs, which we were then able to partially mitigate, but that was the third big reason. When it comes to full year gross margin of 47.1% there, which was 170 points down versus last year, roughly 100 basis points out of that 170 was tariff related. And despite the strong second half, especially Q4 free cash flow, our first half cash flow was rather challenging. And there, for the full year, we were short roughly EUR 5 million versus last year. Let's dive a bit deeper at these changes what we had in full year when it comes to EBIT. And let's start here on the right, BA Fiskars. So, BA Fiskars, as you can see here, the tariff impact what we had, BA Fiskars was able to fully practically mitigate the negative tariff impacts there, mainly through the OpEx efficiency improvement, but also the underlying gross margin, excluding the direct tariff impact improved in 2025. Then Vita here in the middle, you can see this gross margin negative impact there coming from those low production volumes. What I would like to highlight here that it's very production volume related, not sales volumes, therefore, this kind of promotional sales, what we have had, they have mainly been there for those categories which are end of the line anyhow. So, the big decline is very much production volumes. Moving then to the cash flow. As I mentioned, we were able to deliver strong Q4 cash flow of EUR 91.5 million here, EUR 22 million better than last year in Q4. That's mainly driven by change in inventory. So, we were able to take inventories down in Q4 by EUR 35 million approximately, which is almost the same amount more than what we had last year in the same period. Also, the tight CapEx control what we put in place, we were able to cut CapEx by EUR 6 million versus last year same period. And then on a full year basis, however, the inventories continued increasing by EUR 11 million on a full year basis. There also the CapEx was partially compensating or reduced CapEx was partially compensating this one, but the full year cash flow of EUR 76.3 million is some EUR 5.5 million behind the last year. Then on balance sheet. So net debt to EBITDA, we came down in Q4 from 3.7x to 3.3x in one period. Net debt came down EUR 92 million in Q4. And out of this EUR 92 million, roughly EUR 20 million is relating to lease terminations and the rest, roughly EUR 70 million is pure cash flow driven improvement what we had there. Of course, this 3.3 is not what we have given as a target of 2.5, but important is that we are now able to demonstrate a declining trend there when it comes to our net debt EBITDA. Then the last but not least, when it comes to our sustainability targets there, if we start first with focus more here on those environmental targets, we were able to improve slightly our circularity targets being 50% by 2030, 50% of our products and services are coming from circulated materials. So now it's 27%. So we are well up to speed to this 50% target by 2030. Of course, all these kind of, I would say, low-hanging ones are already implemented, so getting the target is getting challenging and challenging as we speak. When it comes to emissions, both Scope 1 and 2, we were able to improve. Now it's 62%, target being 60% by 2030. So, it seems that we are already there. However, this is very volume related and volume driven. And now when the volume has been a bit down, also this percent is improving. Once the volume are increasing, the 60% remains to be a good target. The only environmental target where we are behind last year related to Scope 3 emissions for transportation. Now it was 18%. The main reason is both sea and road freights in U.S.A., partially because of higher volumes, partially also because of the way our carriers defined these emissions. That's very shortly where we are with the numbers. And now giving it back to you, Jyri . Jyri Luomakoski: Thank you, Jussi. what's been up in our businesses, Vita. Net sales growth that we mentioned and also the comparable EBIT decline and what was the key driver there. So 4.6% top line growth in Q4 and 3% for the full year. And this is, of course, a prerequisite that we have growth helps turning the business around. When we look at sources of growth, D2C sales performance was good and both Danish brands, Georg Jensen, Royal Copenhagen performed nicely as did Momin Arabia. Of these 2 celebrated also big birthdays, Royal Copenhagen got 250 years last year and Moomin as a character filled 80. And when we look at the drivers behind the top line, Jussi already mentioned and we've been reading in many reports around our company that the decline in profitability would be relating to the inventory actions in terms of sellout but that's not really the case. It is really the scale down of production. And as a consequence, when you start to curtail production, you have still fixed costs that are not absorbed by the inventory, and they are expensed immediately. So it's been very active and deliberate actions that we've been doing. This morning's announcement, big changes planned for Vita. And clearly, we want to reset the brand with a structure that it's meeting our ambitions, building global iconic desirable brands and scale for profitable growth. It involves also structural changes in terms of some business unit combinations, which are not impacting the kind of sales end necessarily, but more the back office and the overhead structures within Vita. And that's extremely important. We also mentioned a few moves already that are now kicked off in terms of manufacturing in Denmark, moving our distribution center from the U.S. East Coast to more kind of e-com optimized location and at the same time, outsourcing it. So, creating a more of a variable cost structure there. So these are the key kind of actions. But then what do we expect as a result out of here? We expect a net reduction of approximately 310 roles when the program is completed. That means then upon completion, we will then have annual savings of around EUR 28 million. And of these, in H2, as we have now announced the program and the plans, this triggers employee and union rep consultations in different geographies, they take their time, then having after those processes conclusions and taking then the actions that those consultations have arrived to means that the economic benefits of the planned program start to trigger in the second half. So approximately 1/3 of the EUR 28 million is expected to be income statement effective and impact our profitability in this '26 in this year, but that happening really in the second half of the year. And then of the rest, there will be some tails flowing into '28, but the majority of the rest in '27. Our estimates of the one-off costs, which would be recorded then as items affecting comparability is in the magnitude of about EUR 9 million. Some highlights in the business. I mentioned for Copenhagen's 250 years anniversary, a big event in Copenhagen at our flagship stores, which is attracting a lot of people is the Christmas tables settings, and that's really drawing crowds and keeping the interest up in the brand. Moomin Arabia launched the -- actually the largest collection, festive moments and that was subject to pretty high demand because the MAX was sold out during December. That's what the desirable brand is. Collaboration between a fashion brand, JW Anderson and Wedgwood also delivered good engagement and commercial traction. And for New Year's Eve, if you happen to spend it at Times Square in New York, you would have noticed the Waterford crystal ball coming down, and that's also now visible in the shop-in-shop at Macy's flagship in New York at Herald Square. So, market kind of being more active and visible in the market. And as we see from the growth numbers, these things also bear fruit, which is extremely important. Moving to BA Fiskars, decline in the top line and tariffs, we were pretty much in the epicenter of the tariff topic as a business with our significant exposure to the U.S. market. So comparable net sales declined 7% in Q4, snow came a bit late for the fourth quarter in Europe and in the Nordics, which is a big kind of a seasonal market for snow tools in those years where there is a lot of snow and 4.6% for the full year. And tariff uncertainties, recall last spring when the tariffs kicked in, that was a big situation where consumers were confused and trade was confused, what's going to happen, et cetera. Excellent mitigation work by our teams and things started to stabilize. And Jussi mentioned in the U.S., actually, at the end, our business was growing. And this tariff mitigation has been an important achievement and extremely critical for having what I would call still having seen some of our competitors and peer companies reports, I think we can be proud about the margins we've been able to sustain also despite the top line decline. Some highlights, already in November, we arranged a get to know BA Fiskars event for investors and those materials have been available to the public pet care line has been well received by the market. That's important. It's about minus 10 centigrade in Helsinki, a lot of snow and many other European geographies are also freezing. So, Fiskars Power, which is now the first products have been shipped actually to stores. It's not yet the high season for these products. I don't know where I would use it, even though I'm definitely myself also personally going to buy one. But this is a type of a sample. The slide was not wide enough to bring the entire innovation fireworks to the slide, but many, many good and nice things that have gained shelf space and traction in the market are coming from our Fiskars business area. With the financial statements release, the Board also announced their proposal to the Annual General Meeting of maintaining the dividend at EUR 0.84. This is when you look at the payout ratio to EPS, indicating a very high payout ratio. We need to remember that these items also include our EPS some write-offs and so forth. But then on cash earnings per share, about 2/3 is in line with the proposal to be paid out. The change to earlier practice where we have been paying dividends in 2 installments, one in the spring, one in the autumn is actually to get into payout per quarter, so March, June, September, December payout, also matching our cash flow pattern in our normal business seasonality better. Guidance. So we are expecting our comparable EBIT to improve from the '25 level, '25 level was 76.4%. And what's behind that thinking? We recognize that the uncertainties in the global economy will persist also in '26. We clearly count for the EBIT support from the planned changes in BA Vita in the second half of the year. Our active tariff mitigation efforts have been successful last year. And based on that performance, we have a confidence that we will be also successful in '26. The flip side is that the inventories, even though we had a significant decline in our inventories, we want to further improve that net working capital item, and it will have some negative impact, and at the same time, we also know that the U.S. tariffs, remembering that liberation day was in April '25. So after -- right after the first quarter. steel tariffs came into force in August, if I recall the date correct, and those impacts then annualize into '26. We do not give quarterly guidance, but I think it's important to remember these key aspects, Liberation Day, April, so Q1 last year's comps are pretty good. Second half impact from the Vita changes and steel tariffs started in the third quarter last year. So just to keep those in mind when you are modeling how the year would look like. And this is maybe prophylactically addressing if there is a criticism that this is a Fluffy guidance, yes, it is to some extent admittedly. But if we have started this morning in the first countries, change negotiations and similar consultation process with our employees on the Vita program, they take their time and then to implement then the conclusions and the decisions as a consequence of those negotiations are topics that we thought that it's better to be coming out now with this type of guidance. And then when things advance and we know more on the precise kind of timing of certain actions and so forth, it always leaves us some room to clarify and specify more in depth the guidance. Some of our teams have been very active over also the last weekend advancing the technical part of our separation of BAs into subsidiaries. So those splits into entities in some major countries have also now taken place. So, we think that we are well on schedule with our Q1 deadline having the legal structure behind the BAs also implemented, which then will also help us in terms of the transparency measurability, for example, to the exact capital employed in each of the businesses. So, this is moving ahead as planned. And that's maybe the good segue to the paid commercial, so to speak. We are planning to arrange our Capital Markets Day on May 12 in Espoo, Finland, which would be then for institutional investors, analysts and then, of course, online attendance open on a broad basis, and this is now the plan a bit after we have completed the incorporation of the BAs and have more transparency also to shed some light into those aspects in May. Look forward to meeting you there. So, in summary, key takeaways. top line growth in EBITDA, where that was not the routine and practice over the last prior 10 or 11 quarters, now 2 consecutive ones is giving, of course, also forward-looking us confidence that we can grow. We know the elements for that cash flow, important for managing our balance sheet and capital structure. EBIT decline last year, really driven in a big way by our own actions to focus on cash flow. So that's the other side of that coin. Definitely, the beta plans now going into negotiation and thereafter to execution, dividend staying stable, moving to a quarterly payout on the dividend and then guidance growing or improving the comparable EBIT from last year. That takes us to Q&A. Operator: [Operator Instructions] Yes. Thank you, Juss and Jyri. Let's first see if we have any questions through the phone lines. The next question comes from Maria Wikstrom from SEB. Maria Wikstrom: Yes. This is Maria from SEB. I have 3 questions, and I would like to take them one by one. So I'd like to start with the top line growth in Vita. So if you could discuss a little bit more specifically, I mean, which markets you see performing better than the other markets. So which markets or geographies were behind the growth in the fourth quarter? Jussi Siitonen: Yes. So as I said, the growth was very, very broad-based on what we had in Q4. And bearing in mind that actually Vita came down and Vita was the one growing. So if I'm right, exactly, 9 out of 10 top countries for Vita were growing. So it was broad-based, big countries covering 90% of the business. At the same time also when it comes to channels we were able to demonstrate a good growth. Also when it comes to consumer, 80% pulled up and with an E-commercial only 12% up in Q4. Without going to each of the countries, is where broad-based [indiscernible]. Maria Wikstrom: So what would make you confident this time around that, I mean, making this large cost saving effort that you will actually record the savings on the EBIT line? Jyri Luomakoski: And for me, having joined this role as an interim in April, it's easy to say we haven't, I fully agree, we haven't been perfect in executing. Some of the old programs where it's been -- yes, I've seen at that time as a Board member that, yes, a lot of people have departed, but kind of gradually, there's been some type of a revolving door filling back some of the positions. And that happens quite easily when you look at different businesses and these type of programs. What I think is the key differentiator here is that there are structural changes, combining some of our business units, changing really the org structure and clarifying the accountabilities, but those structural changes drive then reductions in certain overhead functions and so forth in the marketplace. So that clearly drives the confidence that these are there to stick and it's on a very frequent loop by group management, by our Board and definitely every quarter by the market that we are executing what we have promised. Jussi Siitonen: Maria, on that one. So you're absolutely right, bottom line matters. At the same time, what we have seen is quite, I would say, even dramatic top line drop what we have had. So therefore, loosing the volumes at the same time driving fixed cost saving actions there. Many of those actions are just there to mitigate the volume drop. Maria Wikstrom: And then my final question is on the gearing as I think it surprised me and I think part of the market that you the Board of Directors decided to keep the dividend flat compared to last year, even that, I mean, the gearing is down, but we are still much above the target level at 3.3%. So when do you expect, I mean, to reach the targeted gearing level at 2.5? And what makes you so confident to pay out the last year's dividends with the current gearing level? Jyri Luomakoski: So, you refer, I think, to the leverage here and where we have set a target to be at maximum 2.5 and that target is still valid. Important is that we move towards that one. And of course, when the Board considers the dividend proposal to the AGM, they inquire management and look at our long-term plans and the capital needs and also the confidence in our plans to further reduce inventories or improve our net working capital performance. And that's typically then having set many years in the Board on the other side of the table, so to speak, to drive the confidence what is something that's good and the right balance of rewarding shareholders but at the same time, being true to the targets that the company has set and the needs of the business. And from that perspective, that has been basically the process. Jussi Siitonen: Yes. As I said, it was very encouraging what we did in Q4, getting net debt down by EUR 92 million out of EUR 70 million something was really cash flow driven, the remaining being those lease terminations. On that one, we have been also quite openly said that the potential what we have there in trade working capital, no matter what are the measures, what are the KPIs you are using and benchmarks there based on our previous performance pre-COVID time, we do have roughly EUR 100 million potential in our net working capital. The actions announced today are also targeting this excess inventories, excess working capital, what we have. So we do have sources available for internal funding. Operator: At this point. The next question comes from Joni Sandvall from Nordea. Joni Sandvall: Maybe continuing still with the cost savings program. Can you give any more color on the rightsizing of the business? I mean, are you expecting to exit some production site out of the Nordics? Or how should we view this? And what is your actual target for own production levels in Fiskars. Jyri Luomakoski: The announcement does not lift any exits per se, but rationalization, what we do and where that's one of the key parameters here. And the aim is, of course, to right size the production, the supply to match the demand and the fact that we still have inventories, as Jussi alluded to, that net working capital has some room to improve, and that's driving those. But they are now subject to the negotiations in different sites. And consequently, after those negotiations before I start to put dots to the map. And then after that, we can give a bit more flavor and update on the, say, geographic coordinates. Joni Sandvall: Then maybe a question on Fiskars BA. There has been strong mitigation of the tariffs. But how confident are you now entering into '26? And how we should view the net impact from current steel tariffs and mitigation actions for '26? Jussi Siitonen: Yes. Joni, as I said, the impacts what we had in 2025 and how they were mitigated mainly through OpEx savings so that the underlying gross margin improved. The toolbox is pretty much the same. The impact -- the incremental impact of the tariffs, of course, is the whole Q1 when it comes to those liberation-based tariffs and then impacts from the steel tariff from August onwards. The plans for Fiskars BA has in place are still targeting to mitigate these impacts there. What's the magnitude there? It's a bit -- I would say it's a bit less than what it was in 2025, but we are still talking about a significant amount we are now mitigating through those very resilient plans what Fiskars BA has put in place, including also this production re-foot printing. Joni Sandvall: And maybe a question also, you have now the new categories, the first batches sent to the retailers. So could you give any indication of what level of sales should we expect from these categories in '26? Jyri Luomakoski: We have not quantified sales by product or product category per se. As I said, on pet care, the initial feedback has been very positive when that was launched in the first market, our Ultra Axis, which was not on the slide, but one of the key launches doing a kind of a rebasing on the a wood prep category have had a very positive feedback and demand and restocked many times to key distributors also outside of Finland. So people are doing wood prep work also outside of the Nordics, as we have seen. So reception and feedback from the market have been very positive. And some of these, like power, it's a completely new category for us. Yes, we've been doing poppers, pruners, but all kinds of hand-operated, and now we are getting the help of power and electrical drives to do that. There, we don't yet have a baseline. But after the gardening season of this year, we are also happy to comment a bit more on the success and the reception, here at minus 10. I don't think too many people think about guiding tools. And in some geographies, we actually postponed the media launches just a few weeks to allow some type of spring thoughts coming into people's minds. Joni Sandvall: Okay. And maybe to Jussi, a couple of technical questions, if you can give any comment of the timing of one-off items for '26? Jussi Siitonen: As Jyri mentioned, the negotiations started just today. And therefore, it depends there. So most likely, most of that will be in the first half, but we get back more, let's say, a precise comment on that one once we are proceeding with the negotiations. Joni Sandvall: Okay. And finally, on the CapEx split for '26, you mentioned tight CapEx discipline now in Q4. So what should we expect from '26? Jyri Luomakoski: As you saw, we came down EUR 9 million in 2025 versus 2024, out of which EUR 6 million was in Q4. The full year level, what we currently have for 2026 is pretty well in line with what we had full year 2025. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Essi Lipponen: Thank you for your questions. And we do have questions in the chat as well. So let's continue with those. First, related to Vita's program. Jyri, maybe if you take this one. Do you expect any negative sales impact arising from these plants? Jyri Luomakoski: Not really. When I look at the plans and the structures, where do we want to tackle our cost position? This is something that doesn't lead to, at least in my view would have direct sales impact. Essi Lipponen: Thank you. Then Jyri, if you continue, when do you expect the production to roughly match your sales volumes in Vita... Jyri Luomakoski: Depends a bit on the category, product category, and technology. In some areas, it is likely to be this year. In some areas, it is more likely that it won't be yet this year, and we will be running the whole year with a kind of curtailed production, really to make sure that we get to our targeted net working capital structure. That's the prime focus here. Essi Lipponen: And on the same topic, but maybe I will give this one to Jussi. Is Vita's 2024 gross margin, which was about 56.5, according to at least the one who asked the question. I don't have the number right here. Is that a relevant benchmark going forward once the production rates normalize? Or is there a permanent negative impact on the GM from some factors? Jussi Siitonen: As we mentioned, the decline that we have had there, 240 basis points in 2025 versus 2024 in Vita, that's very much production volume related, not sales price volume related, but coming production. So, then, assumingly, the logic is correct without commenting on any numbers here. So once we get volumes up, of course, then this fixed cost absorption will improve. Essi Lipponen: Then, about the Fiskars segment, I will hand this over to Jyri. The first half of 2025 was challenging for the Fiskars segment, especially in the U.S. market. What is your expectation for H1 this year? Jyri Luomakoski: Well, as I said, we don't guide quarters. We don't even guide the halves. I don't see any when we had the turmoil of the tariffs in H1 last year. And after that, things have been more normalizing, and the American consumer has also been happy to shop if we leave the winter storms and those types of 1-week disturbances out of the picture. I wouldn't identify any change in the pattern that has started in H2, that New Year City would have changed that pattern in any direction. But as I said, quarterly or half-year guidance is not available, unfortunately. Essi Lipponen: Yes. Then we have already discussed the leverage, but maybe if Jyri can discuss what the focused measures are aiming to reduce leverage, given that it has remained above your target for 2 years already. Jyri Luomakoski: Three elements, I would say, when basically taking the cash flow statement, we are also guiding for improved profits to make more profits. And we need to remember leverage that's net debt to EBITDA. So it improves automatically even in the absence of net debt, not changing when the EBITDA increases. So that's key. Then, having the net debt element addressed definitely 2 key drivers. We've had some big-ticket CapEx items over the last couple of years, also partly relating to sustainability and kind of decarbonizing some of our production. And now, definitely the new launches, for example, at Fiskars, there are some tooling investments, et cetera, coming, but they are directly supporting business and the business growth, and keeping the brands relevant. But net working capital, as Jussi addressed, we have still clearly as our target to look at the net working capital turnover ratios that we had pre-COVID, then the roller coasters, a boom, and then some doom times out of that. And hence, the last few years are not a kind of acceptable benchmark for us. We set our targets higher and continue that work on the front. So EBITDA up and debt down. That's effectively what the formula also spells out. Essi Lipponen: Thank you, Jyri. And one for Jussi about the higher silver and gold prices. What is the impact on the Vita or Georg Jensen margin? Jussi Siitonen: This is very much Georg Jensen, both when it comes to gold and silver. So both metals, we have hedged. We have good hedges in place. You can imagine they are well into money at the moment because the hedge rates are coming from last year. Therefore, no immediate negative impact coming from those ones. Essi Lipponen: Thank you. At this moment, we have only one question. Let's see if we get any more. We have a question about the dividend. Maybe we can give a recap on the proposal for this year, and maybe about our policy. The question is, is the dividend going to stay at EUR 0.84 a year? Or will it change? Jyri, if you still want to give a recap on that. Jyri Luomakoski: The Board's proposal concerns the dividend payable out of last year, payable in 4 installments, EUR 0.21 each in the second half of the last month of every quarter, if I kind of remember the precise dates correctly. So from 2 to 4 installments in aggregate, the annual dividend, EUR 0.84. We are not taking any stance on dividends beyond those that are payable in '26. And the rationale relates to the policy, stable or growing dividend, our cash earnings, which are about 1.5x the proposed dividend, and that's basically the rationale in the tree. The Board considers always when making those proposals, the needs of the business, CapEx needs, and what is the outlook and confidence in the outlook. And I think that indicates also a certain level of confidence in the actions that we are taking and in the projections that we have for '26. Essi Lipponen: Great. Thank you, Jyri. And it seems that we don't have any questions at this point. So thank you for your active participation. And I wish you a nice end of the week. And still, before we end the call, I would like to...
Operator: Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year ended 31st December, 2025. Now, I will hand over to Mr. Ivor Chow, the CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin. Ivor Chow: Thank you. Hello, everyone. Thank you for joining our 2025 results announcement call. As usual, today, I'll give you kind of a low down as to how the second half of last year went as well as giving you some thoughts as to how I see 2026. And then I'm going to talk, obviously, a little bit about the DPU distribution and how I see it going forward. And then I'll hand over to Ivy, our CFO, to quickly cover the figures, and then we'll finally end it with Q&A, depending on where -- what you guys want to ask me about. Overall, if you kind of look at our results, you would say, I'm actually overall pretty happy with the 2025 results. It was obviously a fairly difficult year. The shipping market was particularly volatile given what's happening around the world, the geopolitical tensions, the tariff war and all the things that's happening around the world has had an impact to the stability of the shipping industry and the movement of goods overall. So despite kind of all of that, we achieved a throughput growth of about 3%, whereas most of our growth or almost all of our growth is driven by the growth in Yantian, almost 7% year-on-year growth, while Hong Kong kind of continue its decline that we have seen over the last couple of years. And I'll talk individually about them as well. But overall, if you kind of look at the individual trade, if you will, obviously, U.S. is affected significantly by the tariff imposed on China as well as other region -- other parts of the world. So if you look at the U.S. trade alone, especially export from Yantian is almost down 10%. The good thing is China export to the rest of the world, including Europe, continued to do quite well in 2025. And Europe was a bit of a surprise. It did actually increase 14% year-on-year in 2025 despite whatever is happening around the Red Sea and around the Suez Canal. So we can actually definitely see that China is actually pivoting away from relying on the U.S. market alone, but growing substantially is Europe, Middle East and Southeast Asian trade. And for Yantian, other than export, Yantian has also benefited a lot from the Gemini alliance, which I talked about last year as well. Yantian was picked as the transshipment location for South China and Yantian picked up a lot of transshipment, including some of the transshipment from Hong Kong as well. So, in some sense, you can look at -- there has been some shift of volume from our Hong Kong operation into Yantian. And overall, the Trust, it doesn't really suffer from that transition because Yantian margin is as good as Hong Kong. So overall, I think we did quite well. Obviously, we have refinancing done last year, which kind of increased our interest rates. And in 2026, we have 2 more refinancing to be done as well. And so we are definitely on the lookout on how interest cost is going to affect us going forward. But overall, as I said, we did quite well. Overall 2025 year-on-year from a profitability standpoint, we've done okay. I'll talk a little bit about DPU, obviously. We've decided on a full year distribution of HKD 0.115 per unit, which is slightly lower than what we had in 2024 of HKD 0.122. So it's about 4%, 5% decline versus last year. And there are a couple of reasons for that. Obviously, it is still within what I was hoping for. So we have done well on the profitability front. So our cash flow actually increased as a result of a higher profitability, but it is negatively impacted by 2 things. Number one of all, obviously, when we refi our average cost of borrowing increase last year, despite us paying down debt, that offset some of it, but interest cost, it has gone up, number one. Secondly, we're also impacted by the fact that Yantian starting with 2025, we've started with the making statutory reserve in our -- in Yantian operation, where previously with foreign joint venture, we were exempted from the statutory reserve. But because China changes company law, we are no longer -- Yantian is no longer exempted from making the statutory reserves. So we have to start making that 10% reserve in 2025. And that, in some sense, reduced our ability to dividend out almost close to about HKD 200 million in distribution, and that affected almost close to around HKD 0.02 of DPU right there. So in some sense, the profitability growth offset some of that statutory reserve requirement, and we ended up with a slightly lower DPU compared to last year. But looking at the upside, I suppose we have managed the interest cycle very well. Most of our borrowing were done 5 years ago when interest rates were around -- inclusive of the margin, we're paying close to around 2% interest cost on average. And with the refinancing, we're now looking at 4% to 5%. But I think with the final 2 refinancing done this year, we would have reached the -- I suppose we would have fully moved into the current interest cycle and with the expectation that Fed rates will come down, hopefully, further in 2026, I think this would be the peak of our interest cost in 2026 and maybe 2027. And if we can continue to grow on the volume and profitability front, then possibly 2025, 2026 will be kind of like the bottom year of our DPU and then we can start growing DPU again based on profitability. And looking out for 2026, so far, obviously, looking just in January alone, things are still good. Chinese New Year -- there's been a slight rush in Chinese New Year. But I think a lot remains to be seen what happens after Chinese New Year. Will U.S. pick back up again? Some of the new trade agreement that China will have with Europe, with Canada, will those pan out, meaning that will other trade continues to climb to offset some of the U.S. decline? Or will U.S. consumption kind of stabilize with interest rate coming down? All those questions will be on the lookout for in 2026 as well. But with those trade agreements that China will strike with the various countries, one of the things that we'll be on the lookout for is obviously on imports. Imports have been fairly weak for the last 2 years just because of the economic situation in China. So import has been on a decline. But I think that with these new trade agreements that China will have with Europe, with Canada, with rest of the world, I believe that China will not be forced, but they will be looking to boost up their import to honor some of these trade agreements. So we would be looking out for increases in import probably in the second half of this year. And currently, there is a large trade imbalance where our export outweighed our import almost 80-20. So there is a lot to -- room to grow in terms of the import size, and that's something to watch for both Hong Kong and Yantian. Hong Kong is actually quite suitable for import and the lower import is actually hurting Hong Kong. But if I talk about Hong Kong alone, last year, yes, volume has come down. But if I look at the silver lining of the Hong Kong volume, you would see that export and import coming into Hong Kong has actually remained stable. It has not declined any further, like what we have seen in 2023, 2024 after COVID. So the local market, import-export has actually stabilized in Hong Kong. What Hong Kong has been losing in 2025 was mostly transshipment volume as well as some intra-Asia volume, but mostly on the transshipment side. As I alluded earlier, a lot of that transshipment either shipped to Western Shenzhen or to Yantian. So whether Hong Kong 2026 will be kind of like the bottoming out of Hong Kong remains to be seen. But I think Hong Kong is -- has been in a transition over the last 2 years. And not just on the port alone, but on the whole of Hong Kong, I think the economy is starting to rebound a little bit. Property is on the rebound a little bit. And we're looking as to whether we can have Hong Kong kind of like remain stable this year and try to regrow that business together with Yantian going forward. So I'll pause here, and then I'll hand it over to Ivy to talk a little bit about the P&L, and then we'll move on to the Q&A. Thank you. Ivy Tong: Hi, everybody. Basically, if we talk about throughput, as Ivor mentioned, Trust has done well for 2025. So throughput is at 23 million, 3% better year-on-year, with Yantian growing by 7% and -- but offset by the drop in throughput in Kwai Tsing by 6%. If we look at the revenue front, total revenue is at $11.9 billion, 3% improvement year-on-year. In terms of the segment information, pretty much the split between Hong Kong and Chinese Mainland is roughly comparable to 2024 with a 2% point increase in Chinese Mainland for 2025. On total CapEx, there is $445 million, a 20% year-on-year increase or equivalent to around HKD 74 million. The increase is just largely due to operational upgrades that have been carried out both at Yantian and Hong Kong, such as tightening our QCs and just making improvement to support our conversion to using remote RTGCs, et cetera. If we move on then to just look at our financial position on -- in terms of debt, what you'll see in 2025, the short-term debt has increased, but that's largely just due to the 2 guaranteed notes that we have expiring in 2026, one in March and then one in September time. But if you look at the total consolidated debt, because we have continued with our deleveraging program of repaying $1 billion loan, so the total consolidated debt actually dropped 4% year-on-year to around $24 billion. And without the increase in cash that Ivor mentioned earlier, the net attributable debt has actually dropped by 6% year-on-year to around $17.9 billion. As Ivor mentioned, the Trust will be declaring a DPU for the end of the 31st of December, 2025 at HKD 0.115, and we'll be making that distribution payment on 27th of March, 2026. So, lastly, I just want to go through quickly the Trust P&L. As Ivor mentioned earlier, in terms of revenue, we had a 3% year-on-year increase. In terms of operating expenses, we actually have a 1% improvement. So that gets us to a total operating expenses of around $7 billion with operating profit having an 8% year-on-year growth to $4.7 billion. As Ivor mentioned, well, despite the fact that we refinanced our debt in February at a higher rate, overall interest cost for the Trust actually recorded a 6% saving, largely because of the lower average HIBOR during 2025, which benefited from -- for our HIBOR-based bank loans plus the deleveraging that I mentioned earlier on the $1 billion repayment. So profit before tax is 12% better at $3.8 billion and then profit after tax is 13% better at $2.5 billion, resulting in a profit after tax attributable to our unitholders at $748 million, 15% better year-on-year. And that concludes our update on our results. Ivor Chow: Let's move to Q&A. Operator: [Operator Instructions] Mr. Herbert Lu from Goldman Sachs. Herbert Lu: Can you hear me? Ivor Chow: Go ahead. Herbert Lu: Great. I'm Herbert from Goldman Sachs. At first, congratulations on these good results despite the disruption of trade in 2025. Actually, I have 3 questions. Sorry, I dialed in a bit late, so I apologize if you already covered these questions in your presentation. On the -- Yes, our net profit increased by 15%, while DPU is a bit lower than last year. I know your presentation attributed to the increase in the reserve set aside in 2025 for Yantian. Could you please elaborate more? And will this trend continue in 2026? And what's your guidance for the range of DPU in 2026? And second question is, I know it's difficult to predict the container volume, but I still want to check what's your outlook on 2026 container throughput and ASP? And the third question is on operating expense is down by $80 million year-over-year. What's the main driver? Ivor Chow: Good questions. I'll start with number one first on the DPU side. And you're correct. As I said earlier, the net profit increase have given additional cash flow, but it is offset by the statutory reserve because of the PRC requirement. What the statutory reserves are, are basically kind of -- for all PRC companies, they are required to make a reserve for, let's say, welfare fund, staff fund and all that. Typically, it's around the 10% range, okay? So every company does it in China. But because we are a Sino-foreign joint venture, we have been actually exempted previously from making these reserves, okay? So the reserve is actually a percentage of the registered capital that every company has to make. So that's the first one we have to do. But because of the change in the company law in the PRC, Yantian, even though it is a Sino-foreign joint venture, is no longer exempted from making the statutory reserve. What the statutory reserve are is basically limitation of the amount of dividend that you have given out to shareholders and the cash will have to remain at the company level rather than distribute out to the shareholders in that sense. And so every year, we do expect that going forward, we'll have to make that reserve, which is around 10% of the profitability, net profit that we have every year. And this year, we expect the amount somewhere around $200 million. I think that $200 million will have to continue until we reach the statutory requirement of 50% of the registered capital. So that will probably take around 10 years or so. So if you look at around $200 million of cash flow that we are unable to distribute out from Yantian, that would translate to around -- roughly around HKD 0.02, HKD 0.025. But we have been able to offset that -- some of that decline HKD 0.025 by -- as Ivy said earlier, we have managed our interest costs better than we have expected because HIBOR is low this year compared to the U.S. rate. So we have actually benefited from that. But HIBOR actually has climbed back up -- and therefore, we do expect some of that savings that we have interest, to be not available in 2026 as well. So hence, overall, net-net, if you take a look at the increased profitability, a little bit less interest, but offset by that statutory reserve. Hence, our actual distributable cash is only about HKD 0.115. In terms of what I see next year, a couple of factors. Number one is interest costs, whether the Fed rate will reduce. The Fed rate will be an important factor, number one. Number two is, obviously, we have 2 refinancing to be done this year and the ability to refinance at a reasonable rate will have some impact on that DPU assessment. And number three, obviously, is the profitability, and I'll answer question number 2 later on. But -- and finally, depending on the overall market, the trade war, some of the things that we're watching for is the reopening of the Red Sea, whether the Red Sea conflict will be able to resolve and how that resolution will impact trading, will have a big impact on our volume as well. So that's something that we're watching out for as well. So those are the couple of factors that I looked at, that may impact DPU next year. But overall, I'm looking at somewhere between HKD 0.11 to HKD 0.12. And my personal target is try to kind of maintain that HKD 0.115, if I can, despite having that $200 million reserve going into 2026. But if we can have volume growth as well as managing interest costs better, then there may be a chance. So that's your question number one. In terms of question number two, in terms of -- obviously, it is quite difficult to forecast -- the world is extremely volatile, especially with the tariff policy and the various new trade agreements happening around the world. But overall, I mean, if we look at industry as a whole, for baseline every year, I do look at a low single-digit, maybe 1% to 3% type of volume growth every year. And I'm still looking at that. That's something we do try to achieve every year, be it from transshipment, be it from import or export. And the shipping market in general tend to look for that type of growth as well. So that's in terms of growth in Yantian. And obviously, Hong Kong, some sense of stability in Hong Kong would be good enough for me. In terms of ASP, ASP is affected by a couple of factors. Most of our ASP growth is obviously driven in Yantian. But if you talk about ASP because the renminbi fluctuation will have an impact on ASP, that's something to watch for and renminbi fluctuation is something that we cannot forecast. The second of all is -- has to do with the mix, the trade mix, whether the growth is focusing more on U.S., European trade or whereas the growth is focused on the intra-Asia trade and Middle East trade or the growth happening in the transshipment trade, all have an impact on ASP because the margins in U.S. and Europe is a bit better, whereas the margins for transshipment obviously is lower and that affects ASP as well. So these are the factors. But overall, are we seeing underlying pricing growth? Yes, we are trying to recover a cost increase through our tariff. That's something we always do on an annual basis when we renegotiate a contract with shipping line. But again, the underlying ASP may increase, but whether renminbi increase or decline or whether the different mixes increase will affect the overall [indiscernible] but I do see underlying ASP increase. And then -- and that's not something that only Yantian is doing. If you look at ports -- North and Eastern port in Shanghai and Ningbo, my understanding is most of those ports are looking for a pricing increase and some of them to the tune of over 10% because they have not had ASP increase over the last couple of years. And Yantian being a kind of a price leader in the market where we price according to supply and demand, obviously, our competitor raising the pricing is actually good for the overall market. So that's something I would say ASP is not overly pessimistic. Finally, on the operating expenses side, most of that saving is not really from the Yantian side, more from the Hong Kong side. Because Hong Kong, obviously, with the volume coming down, we have been having some of the facility kind of underutilized. So we've been saving a lot of operating costs, shaving a lot of costs as a result of some of that volume decline. So most of that operating cost is mostly from the Hong Kong side. Obviously, if there are more downside risk on the Hong Kong side, we'll look to further shave costs. But again, if Hong Kong can stabilize this year, then I do not see that we would be expecting kind of continuing reduction in operating costs. Herbert Lu: Just a follow-up on the ASP. You mentioned the underlying ASP may increase for Yantian, that already factor in the box mix change? I mean, Yantian now has more exposure to transshipment volume, maybe -- which may have a higher -- a lower ASP actually. So you forecast the ASP to grow is already factoring in the change -- mix change? Ivor Chow: Okay. So I cannot really forecast mix change. I -- When I comment on underlying ASP, it's just underlying tariff of the shipping lines, that is kind of like inflation adjusted or CPI adjusted or even low single-digit increase on some of it. How the renminbi change, or how mix change is difficult to forecast, especially individual trade -- will Europe -- again, what I said earlier with the various trade agreements happening, will trade between China and Europe increase and how fast that increase will -- will it offset -- will it be faster than some of the transshipment or MTs increase, is really hard to forecast. So I don't typically forecast mix change or renminbi change. I only forecast kind of underlying ASP change. And so the positive side is just on the stand-alone tariff. Operator: Next question comes from [indiscernible] from HSBC. Unknown Analyst: I hope I'm coming through well. So a couple of questions for you, Ivor, and then a couple of questions for Ivy. Firstly, if you could help us understand how the throughput has trended so far this year, whatever you possibly can share on how the trends are in Yantian and in Hong Kong? Ivor Chow: Okay. So Yantian, as I said, overall, Yantian grew about 7% last year. First half was strong. If you look at the last results that we have, first half was quite decent mostly because of kind of front-loading to avoid the tariff. So we had a kind of bump of first quarter when people kind of rush out the volume ahead of the tariff. Second quarter kind of trend in line. But third quarter was actually quite slow. Third quarter was traditionally the peak season, but I think there was a lot of uncertainty as to what the Trump administration was going to do. There was a lot of uncertainty. Third quarter was quite slow. But I would say that fourth quarter was actually, in some sense, surprisingly strong. Not so much on the U.S. trade side, but Europe was a bit of a surprise. I think overall, Europe grew double-digit in the fourth quarter, helped offset some of that decline that we saw in the U.S. So it is quite volatile right now. Every quarter tracks differently just because depending on -- shippers now kind of take advantage of windows where they feel safe and windows where there's a volatility and they try to avoid -- it's very difficult to forecast. But so far, as I said earlier, January is looking okay. Pre-Chinese New Year there was still a rush in Yantian. But again, hard to say what's going to happen after Chinese New Year. Shipping lines are, I wouldn't say pessimistic because it varies. Some shipping lines are a bit more optimistic, some are a bit more pessimistic. There is not a lot of direction at this point in time. But I am a bit more confident that other markets will fare better than the U.S. market. But that can change in the flash. That's for Yantian. Hong Kong, as I said earlier, Hong Kong is actually stabilizing on the import-export side. We haven't seen decline last year on import-export. But Hong Kong has seen most of the decline on the transshipment side. And as I said earlier, most of the transshipment is either transferred to Yantian or some of them went to Nansha and Shekou. So Hong Kong did see continuing decline in transshipment. The lucky side of it is because transshipment tends to be lower margin, it doesn't hurt our bottom line as much, and we have been able to pick up the transshipment loss in Yantian. So overall, the Trust volume suffered, but Hong Kong is still negative on the transshipment volume decline side. Unknown Analyst: Okay. That's very helpful. My second question to you, Ivor, is about the Yantian East expansion. If you can provide some update on where we stand on the project? When do you expect it to commence? And if there are any further capital commitments from the Trust side towards this project? Ivor Chow: Okay. On the East Port front, yes, I forgot to mention that. East Port continue to be on track, on target. As I said on -- I think the last call as well, we are slated for trial operation in the first quarter of 2027. So we're still on target for that. And we have already completed all capital injection requirement into East Port. So there are no further capital requirement from the Trust. Unknown Analyst: Okay. And then how much if you could remind us because this has been a project which has been in the work for quite a few years. When you start off in 1Q '27, what is the kind of capacity which will come through in the early phase? And how do you expect the ramp-up to phase through over the next few quarters after it commences? Ivor Chow: Sure. Just a quick update on East Port. It's actually 3 additional berth in the eastern side of Yantian. So roughly around 3 million additional capacity. If you look at Yantian last year handled around 16 million TEU, which is a record high, by the way. And so that will add capacity to -- by about 3 million. So I would -- when we finish the whole East Port expansion, we'll be looking at kind of like a nominal capacity of around 20 million, which we're handling 16 million right now. We will be rolling out the first berth next year. So roughly around 1 million additional capacity with each berth. And then over the next 2 years, we'll expand and release one berth additional every year. And to help you think about how I think about capacity, right, if you think about Yantian, last year, we were doing 15 million. And this year we grew 7%. And we actually grew 1 million TEU this year. That's actually [indiscernible] requirement that we need in order to cater to the demand. So that just gives you a feel of how we think about capacity increase. Unknown Analyst: Okay. That's helpful. And then maybe for Ivy, if you could help us understand what the CapEx will be this year for the Trust? And where do you expect to expend it? How much of that will be maintenance? I know in the past, you've mentioned that about $500 million is the maintenance CapEx irrespective of how trade spans out. But if you could help us revisit those numbers as well? Ivy Tong: I think as we mentioned, we are currently still expecting maintenance CapEx to be around that $500 million ballpark figure. So this is what we will aim to maintain. So that's -- yes, so it's in line with the guidance that we have given in the past for 2026 as well. Unknown Analyst: Okay. And finally for you, Ivy, you mentioned in the presentation that about 52% of the debt is fixed rate. Now of the floating rate debt, how much of it is more reliant on the HIBOR versus the U.S. policy rates? Or it doesn't matter and just depends on the overall interest environment? Ivy Tong: Well, that -- I think that depends on the overall interest environment. But currently, all our floating rates are actually HIBOR-based loans. So... Ivor Chow: Not fixed as U.S. dollar. And the reason why we have swapped some of the fixed floating -- fixed rate U.S. into HIBOR is just because HIBOR was a lot lower than the U.S. rates last year, and we benefit from that. But with HIBOR coming back up, we will have to manage the spread carefully. But for us, there is no exchange risk on either front. So we swapped just more opportunistically. And especially, we have actually moved away from a higher fixed component compared to before we're closer to 75%. We're moving lower down into the 50% range just because we've -- I think -- overall, I think the market agrees that the rate -- the current interest rate environment is past the max, and we could potentially be looking at slightly lower interest rate environment. So it would be beneficial for us to kind of maintain slightly more portion of floating in our portfolio. Unknown Analyst: Okay. That's very helpful. And maybe if I can just squeeze in one more question. In the presentation, you did mention about headwinds to Chinese exports from the Mexico tariffs. We know about the U.S. relationship, but there were [indiscernible] -- first Mexico. Is that a significant route? Or is it still more U.S. and Europe exports? And if you could also remind us what the mix now is or in the second half it was for the trade exposure to Europe versus the U.S. trade lane? Ivor Chow: Yes. Well, first of all, overall, Europe -- U.S. continue to account for about 30% to 40% export, with that number now closer to the low 30s compared to the high 40s before. Europe traditionally is somewhere around 25% to 30%. I think it's creep up 1 or 2 percentage point only. But transshipment has actually picked -- where it picked up a lot. Transshipment in Yantian went up quite a bit last year. So I think it went from around 15% to around 20% right now, yes, 20% to 25%. So the pickup is mostly on the transshipment side, and that affected ASP a little bit, kind of alluding to Herbert's question earlier. In terms of the Mexican tariff question is that, when the U.S. imposed tariffs directly on the country of origin in China, Chinese exporter try to, not circumvent, but they have increasingly set up their new manufacturing bases closer to the destination, be it Mexico, be it [indiscernible] Europe. So these tariffs that are put on to kind of intermediate manufacturing locations like Vietnam and Mexico, will indirectly affect trade to the U.S. So that's why we talk about the headwind, but it mostly affect the U.S. than anything else. But as I said, European trade so far, we haven't seen a negative. In fact, we have seen positive out of the European trade, I think partially because Europe, instead of buying from the traditional European exporter -- sorry, buying from the traditional European retailers, they're actually buying more from the e-commerce companies in China just because it's cheaper there. That has attracted a lot of European trade out of Yantian, where we handle a lot of the e-commerce business to Europe. Operator: Mr. [ Paul Chew ] from [indiscernible] Research. Unknown Analyst: Just some questions on the fluidity of the supply chain. Can you just elaborate a bit when you mentioned the gradual resumption of services from Suez Canal, is that what the major liners are preparing you for? And could you maybe elaborate on the impact if it does really open, are you -- is it just that there will be a short-term congestion in Europe that is what worries you? Ivor Chow: So the question surrounds is what's going to happen with the Red Sea situation resolved. So if you look at the -- some of the news in the market is some shipping lines are already testing the Red Sea to see whether it is safe to pass through the Suez Canal already. Some lines are trying that. Just to kind of dial back a little bit. Right now, currently, almost all shipping lines from the Asia-Europe trade go through the Cape of Good Hope in South Africa. And that adds quite a bit of additional transit time into Europe. So that absorbs quite a bit of capacity [ after ] the market, and that allows the shipping lines to maintain freight rates that they have enjoyed over the last year or so. I suppose the concern here is that when the Red Sea does reopen, and the Suez is passable, then at that time, there would be ships going through -- around the Cape of Good Hope. But at the same time, there will be ship racing from Asia through the Suez into Europe. So there will be 2 sets of ships because the slot cost for shipping line going through the Suez is going to be cheaper. So the margins for shipping lines is better. And so people -- ideally, when it's reopened, everybody will rush through the Suez to try to reach Europe ASAP. I suppose, as you alluded to earlier, the concern is that what would it do to the ports on the European side. Currently, I think generally, there are port congestion in Europe already, even with the Red Sea situation. So the concern is on the Red Sea opens and there is a race to Europe through the Red Sea to the Suez, that would cause a major disruption to the ports at the destination in Europe. So that is a concern of mine, obviously. And whether the shipping line can withhold the capacity and not clock up the ports in Europe remains to be seen. But if there is a congestion, it could be a substantial one because the ships going to Europe are really the largest vessels in the world. So even 5 or 6 or even 10 vessels can potentially clock up the system, like they did during COVID for an extended period of time. And how that will impact the supply chain in terms of how you say the fluidity -- and whether some of that congestion will start to come back and hit Asia is something that I'm on the lookout for. But right now, it's really difficult to foresee when and if that will happen. The likely earliest that Red Sea will open will probably be in the second half of this year, but that is an event that we'll look out for. Unknown Analyst: My second question is, I think in the prior call, you did allude that shipments to the U.S. by your e-commerce customers, they prefer to use ships because it's cheaper with -- even with the high -- because of the high tariffs, they're using ships. Do you still see that phenomena or that has maybe [ gone ]? Ivor Chow: Well, I suppose what I saw in the second half, I suppose, obviously, U.S. trade has declined, so overall declined 10%. But I think if you look at South China versus the rest of the China, especially in Northeast, I think the decline would be higher than 10%. I don't know exactly the numbers, but as far as I know, I believe that the decline is a bit more substantial than 10%. And the reason for that, I believe, is that e-commerce because of our focus in the southern part of China, especially in Yantian, that has allowed us to be a bit better. And e-commerce continues to do well. That segment of the market, even the second half continues to do well. Obviously, that can change depending on the tariff situation and whether they tighten the tariff on the small package they are. But for now, that segment of the market continues to be okay, quite well, actually. Unknown Analyst: My -- I guess my last question is, you did -- I think the first time [ probably ] mentioning some optimism over imports. Is it the similar sentiment that you get from the shipping lines or I guess it's more of your own analysis, yes, I think? Ivor Chow: Right. On the import side, it's more of my own than anything else. We have been -- obviously, with the trade imbalance, we've always felt that China has more room to grow on the import side, especially import being a fairly small proportion of our business. But the relative margins for import and with the trade imbalance, shipping lines is much more proactive in terms of pushing for imports as well. And from my read on the macroenvironment with all these trade agreements that China is hoping to sign with European countries, I would expect that there would be a quid pro quo with a certain level of imports coming into China. But obviously, a lot of them depending on the recovery of the Chinese economy, but I'm a bit more hopeful on that front. So it's more of a personal, but I think shipping lines themselves, if there are imports, they're happy to take the balance because for them, empty -- full out empty in is not good for business. Unknown Analyst: And just a quick follow-up on the earlier question. I'm not sure if you -- or maybe you do not disclose the amount of shipments that goes to Mexico directly, [indiscernible]? Ivor Chow: Mexico directly, I don't have that number with me, unfortunately. Typically, for us, the Latin America trade is relatively small. I think it's somewhere between 10% to 15% only, at most 10% actually. Unknown Analyst: But at the same time, I think in one of your statements, you mentioned Mexico might still impact you. But if the shipment -- the direct shipments are small there, how is it kind of negatively [ impact you ]? Ivor Chow: Well, I think what we're seeing is that the growth of the Mexican trade has been quite strong over the last couple of years. So that growth will slow down. That's what we worry about. Operator: [indiscernible] from HSBC Investment. Ivor Chow: Can you hear us? No. Unknown Analyst: Can you hear me? Ivor Chow: Yes, yes. Please go ahead. Unknown Analyst: I have 2 small questions coming from my side. First, I see end of last year, you have announcement saying that you need to sell back land to Shenzhen [ YPLES ] for the redevelopment of the region for around RMB 50 million. So I'm wondering how do you see this -- first of all, I'm wondering what's the use of this land in the past? And how do you see this sale may have impact for the expansion of your volume capacity in Yantian? And do you expect any other similar land arrangement in the mid-term? And second -- my second question is that for next year or midterm, should we expect similar debt reduction at this year, which is around $1 billion debt reduction? And will this be impacted by your increase of CapEx like what we see for this year? Ivor Chow: So I'll take the first question and then Ivy can talk about the debt repayment. In terms of the land that we sell, back to the Shenzhen government, that piece of land is for -- I think I talked a little bit about last year, maybe I should repeat that here. Intermodal is something that is a strategy for Yantian for the next 5 to 10 years. Currently, we do have a dedicated rail link into Yantian in South China, where we have the -- where we're the only one that has an on-dock rail link into Yantian. But rail business only account for a fairly small proportion of our business to the tune of around 300,000 TEU, and we do 15 million every year. So it's quite small. But as I said, with China moving a lot of the coastal manufacturing into the inland, particularly in Chengdu, Chongqing, Wuhan area, increasingly, I believe intermodal will be kind of the future of where the share of the market in terms of volume, the competition will be. So the development of the rail link becomes quite an important preparation for Yantian [ view ] over the next 5, 10 years. But because rail business tends to be heavily subsidized business, it is not a profitable business. So the Shenzhen government has agreed to take back the land that we have, and they would be the one investing in upgrading the intermodal facilities that we have in Yantian. So they're I think they're investing to the tune of around [ RMB 7 billion ] in order to expand the rail link from roughly around 300,000 TEU to potentially to above 3 million TEU by 2029 if the rail upgrade is fully completed. Obviously, it's going to be done in different phases, going from maybe 300,000 to maybe about 1 million first and then slowly ramp up to eventually 3 million. So still -- compare 3 million to 15 million is still not a substantial number, but it is where the future growth for Yantian is, especially when I said earlier that we are completing the East Port development where we have 3 million additional capacity. So the rail becomes kind of like an integrated strategy in terms of expanding Yantian reach from currently around 1,000 kilometer to about 2,000-plus kilometer in land. So it is a strategy, and that's why we're selling that piece of land. So yes, we will continue to have -- I think we already -- announced already a piece of land that we have sold that we would have an impact to us this year. We have some gain. This year, we will be booking. But the important part of that selling piece of land is more of the long-term intermodal strategy for China, not just for Yantian, but for -- overall for China. And I think I talked about a little bit before, it's exactly what is like the U.S. is doing. If you have shipment into L.A. and Long Beach on the West Coast in the U.S., the rail becomes quite important of shipping that goods into the Midwest in the U.S. So I think for China, it's the same thing. Again, you talk about export coming in, but in future, there will be more import coming into Hong Kong and Yantian, connecting to rail to the inland part of China as well. And that's something for me, the rail -- upgrading the rail facility is paramount to capturing that particular growth market over the next 5, 10 years. Ivy Tong: In terms of your second question, obviously, depending on how the operations pan out in 2026, it is still our intention to continue with our deleverage program to do the $1 billion repayment in 2026. Ivor Chow: Thank you. And thank you for joining, everybody, tonight. Operator: Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Essi Lipponen: Hello, and welcome to Fiskars Group's Q4 and Full Year 2025 Results Webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Jyri Luomakoski; and our CFO, Jussi Siitonen. Let's look at the agenda for this webcast. Jyri will start with the key takeaways of the quarter and the year. After that, Jussi will continue with the financials. Then back to Jyri, who will go through business area development and also talk a bit about how this year looks like. After that, we will have plenty of time for your questions, and we will welcome questions both through the phone lines and through the chat. You can type in your questions in the chat already during the presentation. Please go ahead, Jyri. Jyri Luomakoski: Thank you, Essi, and good morning. Just briefly before we dive into the numbers and what's been happening in our two businesses. Key takeaways, there are some highlights, some lowlights as always in life. What we think was really important that our Vita business area actually had both Q3 and Q4, two consecutive quarters growing and that brought also the group numbers to a what I would call a green or black zero in terms of top line. This we need to bring into the context of Vita having had before these two growth quarters, more than 10 quarters of negative growth or flat top line. And of course, as we started in the summer, focusing on cash flow that those efforts were bearing fruit and the cash flow in the fourth quarter was also quite strong, and Jussi will go deeper into how strong and record-breaking that was. But of course, the lowlight is that our comparable EBIT declined, and that was impacted by our own actions predominantly, i.e., curtailing our production to manage the inventories to manage cash, and this had a price tag consequently on the EBIT. This morning, we also announced our plans to turn around on BA Vita's performance and also, we'll address that a bit more in depth in a few minutes. The Board made their proposal to the AGM, and that is to maintain a stable dividend as our policy is saying, stable or growing, EUR 0.84 per share to be paid in four installments. And '26, we expect our comparable EBIT to improve from the '25 level. But that was the key kind of highlights, key takeaways as an intro and I'm happy to hand over to Jussi, please. Jussi Siitonen: Thank you, Jyri, and hello, everyone. Let's start first with Q4 and then go to the full year here. When it comes to net sales there, as Jyri mentioned, we were able to report positive growth now in Q4, 1.3% at constant currencies. It was very much driven by Vita. The good thing also is that this growth was very broad-based. When we take our top 10 countries at group level, 7 out of top 10 countries were growing, including USA, Sweden, Japan, China, Australia being the ones which were at this kind of mid even to high single-digit type of growth. On EBIT, we came down EUR 10 million versus last year. Out of this approximately EUR 10 million, a bit more than EUR 4 million was Vita related. The remaining part was quite evenly split between Fiskars BA and other operations. Gross margin came down 200 basis points to 47.4%. Roughly 150 of this 200 basis points was tariff related. And as Jyri mentioned, the focus what we have had in second half, especially now in Q4, was there on the cash flow. And we are able to report now all-time high Q4 free cash flow. And actually, this Q4 was the second best quarterly cash flow overall in the recent history of this company. Moving then to full year results. So here, we came out with a flat top line. And despite this flat top line, we had countries with solid full year, high single-digit, even double-digit growth like Sweden, Japan and China. On EBIT, we were down EUR 35 million versus last year at EUR 76.4 million. There were three main reasons for this drop what we had in EBIT. The big one and the main one is low production volumes and negative variances that one that especially in Vita. Then we had more investment in demand creation, especially in marketing. That's on one topic there and tariffs, which we were then able to partially mitigate, but that was the third big reason. When it comes to full year gross margin of 47.1% there, which was 170 points down versus last year, roughly 100 basis points out of that 170 was tariff related. And despite the strong second half, especially Q4 free cash flow, our first half cash flow was rather challenging. And there, for the full year, we were short roughly EUR 5 million versus last year. Let's dive a bit deeper at these changes what we had in full year when it comes to EBIT. And let's start here on the right, BA Fiskars. So, BA Fiskars, as you can see here, the tariff impact what we had, BA Fiskars was able to fully practically mitigate the negative tariff impacts there, mainly through the OpEx efficiency improvement, but also the underlying gross margin, excluding the direct tariff impact improved in 2025. Then Vita here in the middle, you can see this gross margin negative impact there coming from those low production volumes. What I would like to highlight here that it's very production volume related, not sales volumes, therefore, this kind of promotional sales, what we have had, they have mainly been there for those categories which are end of the line anyhow. So, the big decline is very much production volumes. Moving then to the cash flow. As I mentioned, we were able to deliver strong Q4 cash flow of EUR 91.5 million here, EUR 22 million better than last year in Q4. That's mainly driven by change in inventory. So, we were able to take inventories down in Q4 by EUR 35 million approximately, which is almost the same amount more than what we had last year in the same period. Also, the tight CapEx control what we put in place, we were able to cut CapEx by EUR 6 million versus last year same period. And then on a full year basis, however, the inventories continued increasing by EUR 11 million on a full year basis. There also the CapEx was partially compensating or reduced CapEx was partially compensating this one, but the full year cash flow of EUR 76.3 million is some EUR 5.5 million behind the last year. Then on balance sheet. So net debt to EBITDA, we came down in Q4 from 3.7x to 3.3x in one period. Net debt came down EUR 92 million in Q4. And out of this EUR 92 million, roughly EUR 20 million is relating to lease terminations and the rest, roughly EUR 70 million is pure cash flow driven improvement what we had there. Of course, this 3.3 is not what we have given as a target of 2.5, but important is that we are now able to demonstrate a declining trend there when it comes to our net debt EBITDA. Then the last but not least, when it comes to our sustainability targets there, if we start first with focus more here on those environmental targets, we were able to improve slightly our circularity targets being 50% by 2030, 50% of our products and services are coming from circulated materials. So now it's 27%. So we are well up to speed to this 50% target by 2030. Of course, all these kind of, I would say, low-hanging ones are already implemented, so getting the target is getting challenging and challenging as we speak. When it comes to emissions, both Scope 1 and 2, we were able to improve. Now it's 62%, target being 60% by 2030. So, it seems that we are already there. However, this is very volume related and volume driven. And now when the volume has been a bit down, also this percent is improving. Once the volume are increasing, the 60% remains to be a good target. The only environmental target where we are behind last year related to Scope 3 emissions for transportation. Now it was 18%. The main reason is both sea and road freights in U.S.A., partially because of higher volumes, partially also because of the way our carriers defined these emissions. That's very shortly where we are with the numbers. And now giving it back to you, Jyri . Jyri Luomakoski: Thank you, Jussi. what's been up in our businesses, Vita. Net sales growth that we mentioned and also the comparable EBIT decline and what was the key driver there. So 4.6% top line growth in Q4 and 3% for the full year. And this is, of course, a prerequisite that we have growth helps turning the business around. When we look at sources of growth, D2C sales performance was good and both Danish brands, Georg Jensen, Royal Copenhagen performed nicely as did Momin Arabia. Of these 2 celebrated also big birthdays, Royal Copenhagen got 250 years last year and Moomin as a character filled 80. And when we look at the drivers behind the top line, Jussi already mentioned and we've been reading in many reports around our company that the decline in profitability would be relating to the inventory actions in terms of sellout but that's not really the case. It is really the scale down of production. And as a consequence, when you start to curtail production, you have still fixed costs that are not absorbed by the inventory, and they are expensed immediately. So it's been very active and deliberate actions that we've been doing. This morning's announcement, big changes planned for Vita. And clearly, we want to reset the brand with a structure that it's meeting our ambitions, building global iconic desirable brands and scale for profitable growth. It involves also structural changes in terms of some business unit combinations, which are not impacting the kind of sales end necessarily, but more the back office and the overhead structures within Vita. And that's extremely important. We also mentioned a few moves already that are now kicked off in terms of manufacturing in Denmark, moving our distribution center from the U.S. East Coast to more kind of e-com optimized location and at the same time, outsourcing it. So, creating a more of a variable cost structure there. So these are the key kind of actions. But then what do we expect as a result out of here? We expect a net reduction of approximately 310 roles when the program is completed. That means then upon completion, we will then have annual savings of around EUR 28 million. And of these, in H2, as we have now announced the program and the plans, this triggers employee and union rep consultations in different geographies, they take their time, then having after those processes conclusions and taking then the actions that those consultations have arrived to means that the economic benefits of the planned program start to trigger in the second half. So approximately 1/3 of the EUR 28 million is expected to be income statement effective and impact our profitability in this '26 in this year, but that happening really in the second half of the year. And then of the rest, there will be some tails flowing into '28, but the majority of the rest in '27. Our estimates of the one-off costs, which would be recorded then as items affecting comparability is in the magnitude of about EUR 9 million. Some highlights in the business. I mentioned for Copenhagen's 250 years anniversary, a big event in Copenhagen at our flagship stores, which is attracting a lot of people is the Christmas tables settings, and that's really drawing crowds and keeping the interest up in the brand. Moomin Arabia launched the -- actually the largest collection, festive moments and that was subject to pretty high demand because the MAX was sold out during December. That's what the desirable brand is. Collaboration between a fashion brand, JW Anderson and Wedgwood also delivered good engagement and commercial traction. And for New Year's Eve, if you happen to spend it at Times Square in New York, you would have noticed the Waterford crystal ball coming down, and that's also now visible in the shop-in-shop at Macy's flagship in New York at Herald Square. So, market kind of being more active and visible in the market. And as we see from the growth numbers, these things also bear fruit, which is extremely important. Moving to BA Fiskars, decline in the top line and tariffs, we were pretty much in the epicenter of the tariff topic as a business with our significant exposure to the U.S. market. So comparable net sales declined 7% in Q4, snow came a bit late for the fourth quarter in Europe and in the Nordics, which is a big kind of a seasonal market for snow tools in those years where there is a lot of snow and 4.6% for the full year. And tariff uncertainties, recall last spring when the tariffs kicked in, that was a big situation where consumers were confused and trade was confused, what's going to happen, et cetera. Excellent mitigation work by our teams and things started to stabilize. And Jussi mentioned in the U.S., actually, at the end, our business was growing. And this tariff mitigation has been an important achievement and extremely critical for having what I would call still having seen some of our competitors and peer companies reports, I think we can be proud about the margins we've been able to sustain also despite the top line decline. Some highlights, already in November, we arranged a get to know BA Fiskars event for investors and those materials have been available to the public pet care line has been well received by the market. That's important. It's about minus 10 centigrade in Helsinki, a lot of snow and many other European geographies are also freezing. So, Fiskars Power, which is now the first products have been shipped actually to stores. It's not yet the high season for these products. I don't know where I would use it, even though I'm definitely myself also personally going to buy one. But this is a type of a sample. The slide was not wide enough to bring the entire innovation fireworks to the slide, but many, many good and nice things that have gained shelf space and traction in the market are coming from our Fiskars business area. With the financial statements release, the Board also announced their proposal to the Annual General Meeting of maintaining the dividend at EUR 0.84. This is when you look at the payout ratio to EPS, indicating a very high payout ratio. We need to remember that these items also include our EPS some write-offs and so forth. But then on cash earnings per share, about 2/3 is in line with the proposal to be paid out. The change to earlier practice where we have been paying dividends in 2 installments, one in the spring, one in the autumn is actually to get into payout per quarter, so March, June, September, December payout, also matching our cash flow pattern in our normal business seasonality better. Guidance. So we are expecting our comparable EBIT to improve from the '25 level, '25 level was 76.4%. And what's behind that thinking? We recognize that the uncertainties in the global economy will persist also in '26. We clearly count for the EBIT support from the planned changes in BA Vita in the second half of the year. Our active tariff mitigation efforts have been successful last year. And based on that performance, we have a confidence that we will be also successful in '26. The flip side is that the inventories, even though we had a significant decline in our inventories, we want to further improve that net working capital item, and it will have some negative impact, and at the same time, we also know that the U.S. tariffs, remembering that liberation day was in April '25. So after -- right after the first quarter. steel tariffs came into force in August, if I recall the date correct, and those impacts then annualize into '26. We do not give quarterly guidance, but I think it's important to remember these key aspects, Liberation Day, April, so Q1 last year's comps are pretty good. Second half impact from the Vita changes and steel tariffs started in the third quarter last year. So just to keep those in mind when you are modeling how the year would look like. And this is maybe prophylactically addressing if there is a criticism that this is a Fluffy guidance, yes, it is to some extent admittedly. But if we have started this morning in the first countries, change negotiations and similar consultation process with our employees on the Vita program, they take their time and then to implement then the conclusions and the decisions as a consequence of those negotiations are topics that we thought that it's better to be coming out now with this type of guidance. And then when things advance and we know more on the precise kind of timing of certain actions and so forth, it always leaves us some room to clarify and specify more in depth the guidance. Some of our teams have been very active over also the last weekend advancing the technical part of our separation of BAs into subsidiaries. So those splits into entities in some major countries have also now taken place. So, we think that we are well on schedule with our Q1 deadline having the legal structure behind the BAs also implemented, which then will also help us in terms of the transparency measurability, for example, to the exact capital employed in each of the businesses. So, this is moving ahead as planned. And that's maybe the good segue to the paid commercial, so to speak. We are planning to arrange our Capital Markets Day on May 12 in Espoo, Finland, which would be then for institutional investors, analysts and then, of course, online attendance open on a broad basis, and this is now the plan a bit after we have completed the incorporation of the BAs and have more transparency also to shed some light into those aspects in May. Look forward to meeting you there. So, in summary, key takeaways. top line growth in EBITDA, where that was not the routine and practice over the last prior 10 or 11 quarters, now 2 consecutive ones is giving, of course, also forward-looking us confidence that we can grow. We know the elements for that cash flow, important for managing our balance sheet and capital structure. EBIT decline last year, really driven in a big way by our own actions to focus on cash flow. So that's the other side of that coin. Definitely, the beta plans now going into negotiation and thereafter to execution, dividend staying stable, moving to a quarterly payout on the dividend and then guidance growing or improving the comparable EBIT from last year. That takes us to Q&A. Operator: [Operator Instructions] Yes. Thank you, Juss and Jyri. Let's first see if we have any questions through the phone lines. The next question comes from Maria Wikstrom from SEB. Maria Wikstrom: Yes. This is Maria from SEB. I have 3 questions, and I would like to take them one by one. So I'd like to start with the top line growth in Vita. So if you could discuss a little bit more specifically, I mean, which markets you see performing better than the other markets. So which markets or geographies were behind the growth in the fourth quarter? Jussi Siitonen: Yes. So as I said, the growth was very, very broad-based on what we had in Q4. And bearing in mind that actually Vita came down and Vita was the one growing. So if I'm right, exactly, 9 out of 10 top countries for Vita were growing. So it was broad-based, big countries covering 90% of the business. At the same time also when it comes to channels we were able to demonstrate a good growth. Also when it comes to consumer, 80% pulled up and with an E-commercial only 12% up in Q4. Without going to each of the countries, is where broad-based [indiscernible]. Maria Wikstrom: So what would make you confident this time around that, I mean, making this large cost saving effort that you will actually record the savings on the EBIT line? Jyri Luomakoski: And for me, having joined this role as an interim in April, it's easy to say we haven't, I fully agree, we haven't been perfect in executing. Some of the old programs where it's been -- yes, I've seen at that time as a Board member that, yes, a lot of people have departed, but kind of gradually, there's been some type of a revolving door filling back some of the positions. And that happens quite easily when you look at different businesses and these type of programs. What I think is the key differentiator here is that there are structural changes, combining some of our business units, changing really the org structure and clarifying the accountabilities, but those structural changes drive then reductions in certain overhead functions and so forth in the marketplace. So that clearly drives the confidence that these are there to stick and it's on a very frequent loop by group management, by our Board and definitely every quarter by the market that we are executing what we have promised. Jussi Siitonen: Maria, on that one. So you're absolutely right, bottom line matters. At the same time, what we have seen is quite, I would say, even dramatic top line drop what we have had. So therefore, loosing the volumes at the same time driving fixed cost saving actions there. Many of those actions are just there to mitigate the volume drop. Maria Wikstrom: And then my final question is on the gearing as I think it surprised me and I think part of the market that you the Board of Directors decided to keep the dividend flat compared to last year, even that, I mean, the gearing is down, but we are still much above the target level at 3.3%. So when do you expect, I mean, to reach the targeted gearing level at 2.5? And what makes you so confident to pay out the last year's dividends with the current gearing level? Jyri Luomakoski: So, you refer, I think, to the leverage here and where we have set a target to be at maximum 2.5 and that target is still valid. Important is that we move towards that one. And of course, when the Board considers the dividend proposal to the AGM, they inquire management and look at our long-term plans and the capital needs and also the confidence in our plans to further reduce inventories or improve our net working capital performance. And that's typically then having set many years in the Board on the other side of the table, so to speak, to drive the confidence what is something that's good and the right balance of rewarding shareholders but at the same time, being true to the targets that the company has set and the needs of the business. And from that perspective, that has been basically the process. Jussi Siitonen: Yes. As I said, it was very encouraging what we did in Q4, getting net debt down by EUR 92 million out of EUR 70 million something was really cash flow driven, the remaining being those lease terminations. On that one, we have been also quite openly said that the potential what we have there in trade working capital, no matter what are the measures, what are the KPIs you are using and benchmarks there based on our previous performance pre-COVID time, we do have roughly EUR 100 million potential in our net working capital. The actions announced today are also targeting this excess inventories, excess working capital, what we have. So we do have sources available for internal funding. Operator: At this point. The next question comes from Joni Sandvall from Nordea. Joni Sandvall: Maybe continuing still with the cost savings program. Can you give any more color on the rightsizing of the business? I mean, are you expecting to exit some production site out of the Nordics? Or how should we view this? And what is your actual target for own production levels in Fiskars. Jyri Luomakoski: The announcement does not lift any exits per se, but rationalization, what we do and where that's one of the key parameters here. And the aim is, of course, to right size the production, the supply to match the demand and the fact that we still have inventories, as Jussi alluded to, that net working capital has some room to improve, and that's driving those. But they are now subject to the negotiations in different sites. And consequently, after those negotiations before I start to put dots to the map. And then after that, we can give a bit more flavor and update on the, say, geographic coordinates. Joni Sandvall: Then maybe a question on Fiskars BA. There has been strong mitigation of the tariffs. But how confident are you now entering into '26? And how we should view the net impact from current steel tariffs and mitigation actions for '26? Jussi Siitonen: Yes. Joni, as I said, the impacts what we had in 2025 and how they were mitigated mainly through OpEx savings so that the underlying gross margin improved. The toolbox is pretty much the same. The impact -- the incremental impact of the tariffs, of course, is the whole Q1 when it comes to those liberation-based tariffs and then impacts from the steel tariff from August onwards. The plans for Fiskars BA has in place are still targeting to mitigate these impacts there. What's the magnitude there? It's a bit -- I would say it's a bit less than what it was in 2025, but we are still talking about a significant amount we are now mitigating through those very resilient plans what Fiskars BA has put in place, including also this production re-foot printing. Joni Sandvall: And maybe a question also, you have now the new categories, the first batches sent to the retailers. So could you give any indication of what level of sales should we expect from these categories in '26? Jyri Luomakoski: We have not quantified sales by product or product category per se. As I said, on pet care, the initial feedback has been very positive when that was launched in the first market, our Ultra Axis, which was not on the slide, but one of the key launches doing a kind of a rebasing on the a wood prep category have had a very positive feedback and demand and restocked many times to key distributors also outside of Finland. So people are doing wood prep work also outside of the Nordics, as we have seen. So reception and feedback from the market have been very positive. And some of these, like power, it's a completely new category for us. Yes, we've been doing poppers, pruners, but all kinds of hand-operated, and now we are getting the help of power and electrical drives to do that. There, we don't yet have a baseline. But after the gardening season of this year, we are also happy to comment a bit more on the success and the reception, here at minus 10. I don't think too many people think about guiding tools. And in some geographies, we actually postponed the media launches just a few weeks to allow some type of spring thoughts coming into people's minds. Joni Sandvall: Okay. And maybe to Jussi, a couple of technical questions, if you can give any comment of the timing of one-off items for '26? Jussi Siitonen: As Jyri mentioned, the negotiations started just today. And therefore, it depends there. So most likely, most of that will be in the first half, but we get back more, let's say, a precise comment on that one once we are proceeding with the negotiations. Joni Sandvall: Okay. And finally, on the CapEx split for '26, you mentioned tight CapEx discipline now in Q4. So what should we expect from '26? Jyri Luomakoski: As you saw, we came down EUR 9 million in 2025 versus 2024, out of which EUR 6 million was in Q4. The full year level, what we currently have for 2026 is pretty well in line with what we had full year 2025. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Essi Lipponen: Thank you for your questions. And we do have questions in the chat as well. So let's continue with those. First, related to Vita's program. Jyri, maybe if you take this one. Do you expect any negative sales impact arising from these plants? Jyri Luomakoski: Not really. When I look at the plans and the structures, where do we want to tackle our cost position? This is something that doesn't lead to, at least in my view would have direct sales impact. Essi Lipponen: Thank you. Then Jyri, if you continue, when do you expect the production to roughly match your sales volumes in Vita... Jyri Luomakoski: Depends a bit on the category, product category, and technology. In some areas, it is likely to be this year. In some areas, it is more likely that it won't be yet this year, and we will be running the whole year with a kind of curtailed production, really to make sure that we get to our targeted net working capital structure. That's the prime focus here. Essi Lipponen: And on the same topic, but maybe I will give this one to Jussi. Is Vita's 2024 gross margin, which was about 56.5, according to at least the one who asked the question. I don't have the number right here. Is that a relevant benchmark going forward once the production rates normalize? Or is there a permanent negative impact on the GM from some factors? Jussi Siitonen: As we mentioned, the decline that we have had there, 240 basis points in 2025 versus 2024 in Vita, that's very much production volume related, not sales price volume related, but coming production. So, then, assumingly, the logic is correct without commenting on any numbers here. So once we get volumes up, of course, then this fixed cost absorption will improve. Essi Lipponen: Then, about the Fiskars segment, I will hand this over to Jyri. The first half of 2025 was challenging for the Fiskars segment, especially in the U.S. market. What is your expectation for H1 this year? Jyri Luomakoski: Well, as I said, we don't guide quarters. We don't even guide the halves. I don't see any when we had the turmoil of the tariffs in H1 last year. And after that, things have been more normalizing, and the American consumer has also been happy to shop if we leave the winter storms and those types of 1-week disturbances out of the picture. I wouldn't identify any change in the pattern that has started in H2, that New Year City would have changed that pattern in any direction. But as I said, quarterly or half-year guidance is not available, unfortunately. Essi Lipponen: Yes. Then we have already discussed the leverage, but maybe if Jyri can discuss what the focused measures are aiming to reduce leverage, given that it has remained above your target for 2 years already. Jyri Luomakoski: Three elements, I would say, when basically taking the cash flow statement, we are also guiding for improved profits to make more profits. And we need to remember leverage that's net debt to EBITDA. So it improves automatically even in the absence of net debt, not changing when the EBITDA increases. So that's key. Then, having the net debt element addressed definitely 2 key drivers. We've had some big-ticket CapEx items over the last couple of years, also partly relating to sustainability and kind of decarbonizing some of our production. And now, definitely the new launches, for example, at Fiskars, there are some tooling investments, et cetera, coming, but they are directly supporting business and the business growth, and keeping the brands relevant. But net working capital, as Jussi addressed, we have still clearly as our target to look at the net working capital turnover ratios that we had pre-COVID, then the roller coasters, a boom, and then some doom times out of that. And hence, the last few years are not a kind of acceptable benchmark for us. We set our targets higher and continue that work on the front. So EBITDA up and debt down. That's effectively what the formula also spells out. Essi Lipponen: Thank you, Jyri. And one for Jussi about the higher silver and gold prices. What is the impact on the Vita or Georg Jensen margin? Jussi Siitonen: This is very much Georg Jensen, both when it comes to gold and silver. So both metals, we have hedged. We have good hedges in place. You can imagine they are well into money at the moment because the hedge rates are coming from last year. Therefore, no immediate negative impact coming from those ones. Essi Lipponen: Thank you. At this moment, we have only one question. Let's see if we get any more. We have a question about the dividend. Maybe we can give a recap on the proposal for this year, and maybe about our policy. The question is, is the dividend going to stay at EUR 0.84 a year? Or will it change? Jyri, if you still want to give a recap on that. Jyri Luomakoski: The Board's proposal concerns the dividend payable out of last year, payable in 4 installments, EUR 0.21 each in the second half of the last month of every quarter, if I kind of remember the precise dates correctly. So from 2 to 4 installments in aggregate, the annual dividend, EUR 0.84. We are not taking any stance on dividends beyond those that are payable in '26. And the rationale relates to the policy, stable or growing dividend, our cash earnings, which are about 1.5x the proposed dividend, and that's basically the rationale in the tree. The Board considers always when making those proposals, the needs of the business, CapEx needs, and what is the outlook and confidence in the outlook. And I think that indicates also a certain level of confidence in the actions that we are taking and in the projections that we have for '26. Essi Lipponen: Great. Thank you, Jyri. And it seems that we don't have any questions at this point. So thank you for your active participation. And I wish you a nice end of the week. And still, before we end the call, I would like to...
Operator: Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year ended 31st December, 2025. Now, I will hand over to Mr. Ivor Chow, the CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin. Ivor Chow: Thank you. Hello, everyone. Thank you for joining our 2025 results announcement call. As usual, today, I'll give you kind of a low down as to how the second half of last year went as well as giving you some thoughts as to how I see 2026. And then I'm going to talk, obviously, a little bit about the DPU distribution and how I see it going forward. And then I'll hand over to Ivy, our CFO, to quickly cover the figures, and then we'll finally end it with Q&A, depending on where -- what you guys want to ask me about. Overall, if you kind of look at our results, you would say, I'm actually overall pretty happy with the 2025 results. It was obviously a fairly difficult year. The shipping market was particularly volatile given what's happening around the world, the geopolitical tensions, the tariff war and all the things that's happening around the world has had an impact to the stability of the shipping industry and the movement of goods overall. So despite kind of all of that, we achieved a throughput growth of about 3%, whereas most of our growth or almost all of our growth is driven by the growth in Yantian, almost 7% year-on-year growth, while Hong Kong kind of continue its decline that we have seen over the last couple of years. And I'll talk individually about them as well. But overall, if you kind of look at the individual trade, if you will, obviously, U.S. is affected significantly by the tariff imposed on China as well as other region -- other parts of the world. So if you look at the U.S. trade alone, especially export from Yantian is almost down 10%. The good thing is China export to the rest of the world, including Europe, continued to do quite well in 2025. And Europe was a bit of a surprise. It did actually increase 14% year-on-year in 2025 despite whatever is happening around the Red Sea and around the Suez Canal. So we can actually definitely see that China is actually pivoting away from relying on the U.S. market alone, but growing substantially is Europe, Middle East and Southeast Asian trade. And for Yantian, other than export, Yantian has also benefited a lot from the Gemini alliance, which I talked about last year as well. Yantian was picked as the transshipment location for South China and Yantian picked up a lot of transshipment, including some of the transshipment from Hong Kong as well. So, in some sense, you can look at -- there has been some shift of volume from our Hong Kong operation into Yantian. And overall, the Trust, it doesn't really suffer from that transition because Yantian margin is as good as Hong Kong. So overall, I think we did quite well. Obviously, we have refinancing done last year, which kind of increased our interest rates. And in 2026, we have 2 more refinancing to be done as well. And so we are definitely on the lookout on how interest cost is going to affect us going forward. But overall, as I said, we did quite well. Overall 2025 year-on-year from a profitability standpoint, we've done okay. I'll talk a little bit about DPU, obviously. We've decided on a full year distribution of HKD 0.115 per unit, which is slightly lower than what we had in 2024 of HKD 0.122. So it's about 4%, 5% decline versus last year. And there are a couple of reasons for that. Obviously, it is still within what I was hoping for. So we have done well on the profitability front. So our cash flow actually increased as a result of a higher profitability, but it is negatively impacted by 2 things. Number one of all, obviously, when we refi our average cost of borrowing increase last year, despite us paying down debt, that offset some of it, but interest cost, it has gone up, number one. Secondly, we're also impacted by the fact that Yantian starting with 2025, we've started with the making statutory reserve in our -- in Yantian operation, where previously with foreign joint venture, we were exempted from the statutory reserve. But because China changes company law, we are no longer -- Yantian is no longer exempted from making the statutory reserves. So we have to start making that 10% reserve in 2025. And that, in some sense, reduced our ability to dividend out almost close to about HKD 200 million in distribution, and that affected almost close to around HKD 0.02 of DPU right there. So in some sense, the profitability growth offset some of that statutory reserve requirement, and we ended up with a slightly lower DPU compared to last year. But looking at the upside, I suppose we have managed the interest cycle very well. Most of our borrowing were done 5 years ago when interest rates were around -- inclusive of the margin, we're paying close to around 2% interest cost on average. And with the refinancing, we're now looking at 4% to 5%. But I think with the final 2 refinancing done this year, we would have reached the -- I suppose we would have fully moved into the current interest cycle and with the expectation that Fed rates will come down, hopefully, further in 2026, I think this would be the peak of our interest cost in 2026 and maybe 2027. And if we can continue to grow on the volume and profitability front, then possibly 2025, 2026 will be kind of like the bottom year of our DPU and then we can start growing DPU again based on profitability. And looking out for 2026, so far, obviously, looking just in January alone, things are still good. Chinese New Year -- there's been a slight rush in Chinese New Year. But I think a lot remains to be seen what happens after Chinese New Year. Will U.S. pick back up again? Some of the new trade agreement that China will have with Europe, with Canada, will those pan out, meaning that will other trade continues to climb to offset some of the U.S. decline? Or will U.S. consumption kind of stabilize with interest rate coming down? All those questions will be on the lookout for in 2026 as well. But with those trade agreements that China will strike with the various countries, one of the things that we'll be on the lookout for is obviously on imports. Imports have been fairly weak for the last 2 years just because of the economic situation in China. So import has been on a decline. But I think that with these new trade agreements that China will have with Europe, with Canada, with rest of the world, I believe that China will not be forced, but they will be looking to boost up their import to honor some of these trade agreements. So we would be looking out for increases in import probably in the second half of this year. And currently, there is a large trade imbalance where our export outweighed our import almost 80-20. So there is a lot to -- room to grow in terms of the import size, and that's something to watch for both Hong Kong and Yantian. Hong Kong is actually quite suitable for import and the lower import is actually hurting Hong Kong. But if I talk about Hong Kong alone, last year, yes, volume has come down. But if I look at the silver lining of the Hong Kong volume, you would see that export and import coming into Hong Kong has actually remained stable. It has not declined any further, like what we have seen in 2023, 2024 after COVID. So the local market, import-export has actually stabilized in Hong Kong. What Hong Kong has been losing in 2025 was mostly transshipment volume as well as some intra-Asia volume, but mostly on the transshipment side. As I alluded earlier, a lot of that transshipment either shipped to Western Shenzhen or to Yantian. So whether Hong Kong 2026 will be kind of like the bottoming out of Hong Kong remains to be seen. But I think Hong Kong is -- has been in a transition over the last 2 years. And not just on the port alone, but on the whole of Hong Kong, I think the economy is starting to rebound a little bit. Property is on the rebound a little bit. And we're looking as to whether we can have Hong Kong kind of like remain stable this year and try to regrow that business together with Yantian going forward. So I'll pause here, and then I'll hand it over to Ivy to talk a little bit about the P&L, and then we'll move on to the Q&A. Thank you. Ivy Tong: Hi, everybody. Basically, if we talk about throughput, as Ivor mentioned, Trust has done well for 2025. So throughput is at 23 million, 3% better year-on-year, with Yantian growing by 7% and -- but offset by the drop in throughput in Kwai Tsing by 6%. If we look at the revenue front, total revenue is at $11.9 billion, 3% improvement year-on-year. In terms of the segment information, pretty much the split between Hong Kong and Chinese Mainland is roughly comparable to 2024 with a 2% point increase in Chinese Mainland for 2025. On total CapEx, there is $445 million, a 20% year-on-year increase or equivalent to around HKD 74 million. The increase is just largely due to operational upgrades that have been carried out both at Yantian and Hong Kong, such as tightening our QCs and just making improvement to support our conversion to using remote RTGCs, et cetera. If we move on then to just look at our financial position on -- in terms of debt, what you'll see in 2025, the short-term debt has increased, but that's largely just due to the 2 guaranteed notes that we have expiring in 2026, one in March and then one in September time. But if you look at the total consolidated debt, because we have continued with our deleveraging program of repaying $1 billion loan, so the total consolidated debt actually dropped 4% year-on-year to around $24 billion. And without the increase in cash that Ivor mentioned earlier, the net attributable debt has actually dropped by 6% year-on-year to around $17.9 billion. As Ivor mentioned, the Trust will be declaring a DPU for the end of the 31st of December, 2025 at HKD 0.115, and we'll be making that distribution payment on 27th of March, 2026. So, lastly, I just want to go through quickly the Trust P&L. As Ivor mentioned earlier, in terms of revenue, we had a 3% year-on-year increase. In terms of operating expenses, we actually have a 1% improvement. So that gets us to a total operating expenses of around $7 billion with operating profit having an 8% year-on-year growth to $4.7 billion. As Ivor mentioned, well, despite the fact that we refinanced our debt in February at a higher rate, overall interest cost for the Trust actually recorded a 6% saving, largely because of the lower average HIBOR during 2025, which benefited from -- for our HIBOR-based bank loans plus the deleveraging that I mentioned earlier on the $1 billion repayment. So profit before tax is 12% better at $3.8 billion and then profit after tax is 13% better at $2.5 billion, resulting in a profit after tax attributable to our unitholders at $748 million, 15% better year-on-year. And that concludes our update on our results. Ivor Chow: Let's move to Q&A. Operator: [Operator Instructions] Mr. Herbert Lu from Goldman Sachs. Herbert Lu: Can you hear me? Ivor Chow: Go ahead. Herbert Lu: Great. I'm Herbert from Goldman Sachs. At first, congratulations on these good results despite the disruption of trade in 2025. Actually, I have 3 questions. Sorry, I dialed in a bit late, so I apologize if you already covered these questions in your presentation. On the -- Yes, our net profit increased by 15%, while DPU is a bit lower than last year. I know your presentation attributed to the increase in the reserve set aside in 2025 for Yantian. Could you please elaborate more? And will this trend continue in 2026? And what's your guidance for the range of DPU in 2026? And second question is, I know it's difficult to predict the container volume, but I still want to check what's your outlook on 2026 container throughput and ASP? And the third question is on operating expense is down by $80 million year-over-year. What's the main driver? Ivor Chow: Good questions. I'll start with number one first on the DPU side. And you're correct. As I said earlier, the net profit increase have given additional cash flow, but it is offset by the statutory reserve because of the PRC requirement. What the statutory reserves are, are basically kind of -- for all PRC companies, they are required to make a reserve for, let's say, welfare fund, staff fund and all that. Typically, it's around the 10% range, okay? So every company does it in China. But because we are a Sino-foreign joint venture, we have been actually exempted previously from making these reserves, okay? So the reserve is actually a percentage of the registered capital that every company has to make. So that's the first one we have to do. But because of the change in the company law in the PRC, Yantian, even though it is a Sino-foreign joint venture, is no longer exempted from making the statutory reserve. What the statutory reserve are is basically limitation of the amount of dividend that you have given out to shareholders and the cash will have to remain at the company level rather than distribute out to the shareholders in that sense. And so every year, we do expect that going forward, we'll have to make that reserve, which is around 10% of the profitability, net profit that we have every year. And this year, we expect the amount somewhere around $200 million. I think that $200 million will have to continue until we reach the statutory requirement of 50% of the registered capital. So that will probably take around 10 years or so. So if you look at around $200 million of cash flow that we are unable to distribute out from Yantian, that would translate to around -- roughly around HKD 0.02, HKD 0.025. But we have been able to offset that -- some of that decline HKD 0.025 by -- as Ivy said earlier, we have managed our interest costs better than we have expected because HIBOR is low this year compared to the U.S. rate. So we have actually benefited from that. But HIBOR actually has climbed back up -- and therefore, we do expect some of that savings that we have interest, to be not available in 2026 as well. So hence, overall, net-net, if you take a look at the increased profitability, a little bit less interest, but offset by that statutory reserve. Hence, our actual distributable cash is only about HKD 0.115. In terms of what I see next year, a couple of factors. Number one is interest costs, whether the Fed rate will reduce. The Fed rate will be an important factor, number one. Number two is, obviously, we have 2 refinancing to be done this year and the ability to refinance at a reasonable rate will have some impact on that DPU assessment. And number three, obviously, is the profitability, and I'll answer question number 2 later on. But -- and finally, depending on the overall market, the trade war, some of the things that we're watching for is the reopening of the Red Sea, whether the Red Sea conflict will be able to resolve and how that resolution will impact trading, will have a big impact on our volume as well. So that's something that we're watching out for as well. So those are the couple of factors that I looked at, that may impact DPU next year. But overall, I'm looking at somewhere between HKD 0.11 to HKD 0.12. And my personal target is try to kind of maintain that HKD 0.115, if I can, despite having that $200 million reserve going into 2026. But if we can have volume growth as well as managing interest costs better, then there may be a chance. So that's your question number one. In terms of question number two, in terms of -- obviously, it is quite difficult to forecast -- the world is extremely volatile, especially with the tariff policy and the various new trade agreements happening around the world. But overall, I mean, if we look at industry as a whole, for baseline every year, I do look at a low single-digit, maybe 1% to 3% type of volume growth every year. And I'm still looking at that. That's something we do try to achieve every year, be it from transshipment, be it from import or export. And the shipping market in general tend to look for that type of growth as well. So that's in terms of growth in Yantian. And obviously, Hong Kong, some sense of stability in Hong Kong would be good enough for me. In terms of ASP, ASP is affected by a couple of factors. Most of our ASP growth is obviously driven in Yantian. But if you talk about ASP because the renminbi fluctuation will have an impact on ASP, that's something to watch for and renminbi fluctuation is something that we cannot forecast. The second of all is -- has to do with the mix, the trade mix, whether the growth is focusing more on U.S., European trade or whereas the growth is focused on the intra-Asia trade and Middle East trade or the growth happening in the transshipment trade, all have an impact on ASP because the margins in U.S. and Europe is a bit better, whereas the margins for transshipment obviously is lower and that affects ASP as well. So these are the factors. But overall, are we seeing underlying pricing growth? Yes, we are trying to recover a cost increase through our tariff. That's something we always do on an annual basis when we renegotiate a contract with shipping line. But again, the underlying ASP may increase, but whether renminbi increase or decline or whether the different mixes increase will affect the overall [indiscernible] but I do see underlying ASP increase. And then -- and that's not something that only Yantian is doing. If you look at ports -- North and Eastern port in Shanghai and Ningbo, my understanding is most of those ports are looking for a pricing increase and some of them to the tune of over 10% because they have not had ASP increase over the last couple of years. And Yantian being a kind of a price leader in the market where we price according to supply and demand, obviously, our competitor raising the pricing is actually good for the overall market. So that's something I would say ASP is not overly pessimistic. Finally, on the operating expenses side, most of that saving is not really from the Yantian side, more from the Hong Kong side. Because Hong Kong, obviously, with the volume coming down, we have been having some of the facility kind of underutilized. So we've been saving a lot of operating costs, shaving a lot of costs as a result of some of that volume decline. So most of that operating cost is mostly from the Hong Kong side. Obviously, if there are more downside risk on the Hong Kong side, we'll look to further shave costs. But again, if Hong Kong can stabilize this year, then I do not see that we would be expecting kind of continuing reduction in operating costs. Herbert Lu: Just a follow-up on the ASP. You mentioned the underlying ASP may increase for Yantian, that already factor in the box mix change? I mean, Yantian now has more exposure to transshipment volume, maybe -- which may have a higher -- a lower ASP actually. So you forecast the ASP to grow is already factoring in the change -- mix change? Ivor Chow: Okay. So I cannot really forecast mix change. I -- When I comment on underlying ASP, it's just underlying tariff of the shipping lines, that is kind of like inflation adjusted or CPI adjusted or even low single-digit increase on some of it. How the renminbi change, or how mix change is difficult to forecast, especially individual trade -- will Europe -- again, what I said earlier with the various trade agreements happening, will trade between China and Europe increase and how fast that increase will -- will it offset -- will it be faster than some of the transshipment or MTs increase, is really hard to forecast. So I don't typically forecast mix change or renminbi change. I only forecast kind of underlying ASP change. And so the positive side is just on the stand-alone tariff. Operator: Next question comes from [indiscernible] from HSBC. Unknown Analyst: I hope I'm coming through well. So a couple of questions for you, Ivor, and then a couple of questions for Ivy. Firstly, if you could help us understand how the throughput has trended so far this year, whatever you possibly can share on how the trends are in Yantian and in Hong Kong? Ivor Chow: Okay. So Yantian, as I said, overall, Yantian grew about 7% last year. First half was strong. If you look at the last results that we have, first half was quite decent mostly because of kind of front-loading to avoid the tariff. So we had a kind of bump of first quarter when people kind of rush out the volume ahead of the tariff. Second quarter kind of trend in line. But third quarter was actually quite slow. Third quarter was traditionally the peak season, but I think there was a lot of uncertainty as to what the Trump administration was going to do. There was a lot of uncertainty. Third quarter was quite slow. But I would say that fourth quarter was actually, in some sense, surprisingly strong. Not so much on the U.S. trade side, but Europe was a bit of a surprise. I think overall, Europe grew double-digit in the fourth quarter, helped offset some of that decline that we saw in the U.S. So it is quite volatile right now. Every quarter tracks differently just because depending on -- shippers now kind of take advantage of windows where they feel safe and windows where there's a volatility and they try to avoid -- it's very difficult to forecast. But so far, as I said earlier, January is looking okay. Pre-Chinese New Year there was still a rush in Yantian. But again, hard to say what's going to happen after Chinese New Year. Shipping lines are, I wouldn't say pessimistic because it varies. Some shipping lines are a bit more optimistic, some are a bit more pessimistic. There is not a lot of direction at this point in time. But I am a bit more confident that other markets will fare better than the U.S. market. But that can change in the flash. That's for Yantian. Hong Kong, as I said earlier, Hong Kong is actually stabilizing on the import-export side. We haven't seen decline last year on import-export. But Hong Kong has seen most of the decline on the transshipment side. And as I said earlier, most of the transshipment is either transferred to Yantian or some of them went to Nansha and Shekou. So Hong Kong did see continuing decline in transshipment. The lucky side of it is because transshipment tends to be lower margin, it doesn't hurt our bottom line as much, and we have been able to pick up the transshipment loss in Yantian. So overall, the Trust volume suffered, but Hong Kong is still negative on the transshipment volume decline side. Unknown Analyst: Okay. That's very helpful. My second question to you, Ivor, is about the Yantian East expansion. If you can provide some update on where we stand on the project? When do you expect it to commence? And if there are any further capital commitments from the Trust side towards this project? Ivor Chow: Okay. On the East Port front, yes, I forgot to mention that. East Port continue to be on track, on target. As I said on -- I think the last call as well, we are slated for trial operation in the first quarter of 2027. So we're still on target for that. And we have already completed all capital injection requirement into East Port. So there are no further capital requirement from the Trust. Unknown Analyst: Okay. And then how much if you could remind us because this has been a project which has been in the work for quite a few years. When you start off in 1Q '27, what is the kind of capacity which will come through in the early phase? And how do you expect the ramp-up to phase through over the next few quarters after it commences? Ivor Chow: Sure. Just a quick update on East Port. It's actually 3 additional berth in the eastern side of Yantian. So roughly around 3 million additional capacity. If you look at Yantian last year handled around 16 million TEU, which is a record high, by the way. And so that will add capacity to -- by about 3 million. So I would -- when we finish the whole East Port expansion, we'll be looking at kind of like a nominal capacity of around 20 million, which we're handling 16 million right now. We will be rolling out the first berth next year. So roughly around 1 million additional capacity with each berth. And then over the next 2 years, we'll expand and release one berth additional every year. And to help you think about how I think about capacity, right, if you think about Yantian, last year, we were doing 15 million. And this year we grew 7%. And we actually grew 1 million TEU this year. That's actually [indiscernible] requirement that we need in order to cater to the demand. So that just gives you a feel of how we think about capacity increase. Unknown Analyst: Okay. That's helpful. And then maybe for Ivy, if you could help us understand what the CapEx will be this year for the Trust? And where do you expect to expend it? How much of that will be maintenance? I know in the past, you've mentioned that about $500 million is the maintenance CapEx irrespective of how trade spans out. But if you could help us revisit those numbers as well? Ivy Tong: I think as we mentioned, we are currently still expecting maintenance CapEx to be around that $500 million ballpark figure. So this is what we will aim to maintain. So that's -- yes, so it's in line with the guidance that we have given in the past for 2026 as well. Unknown Analyst: Okay. And finally for you, Ivy, you mentioned in the presentation that about 52% of the debt is fixed rate. Now of the floating rate debt, how much of it is more reliant on the HIBOR versus the U.S. policy rates? Or it doesn't matter and just depends on the overall interest environment? Ivy Tong: Well, that -- I think that depends on the overall interest environment. But currently, all our floating rates are actually HIBOR-based loans. So... Ivor Chow: Not fixed as U.S. dollar. And the reason why we have swapped some of the fixed floating -- fixed rate U.S. into HIBOR is just because HIBOR was a lot lower than the U.S. rates last year, and we benefit from that. But with HIBOR coming back up, we will have to manage the spread carefully. But for us, there is no exchange risk on either front. So we swapped just more opportunistically. And especially, we have actually moved away from a higher fixed component compared to before we're closer to 75%. We're moving lower down into the 50% range just because we've -- I think -- overall, I think the market agrees that the rate -- the current interest rate environment is past the max, and we could potentially be looking at slightly lower interest rate environment. So it would be beneficial for us to kind of maintain slightly more portion of floating in our portfolio. Unknown Analyst: Okay. That's very helpful. And maybe if I can just squeeze in one more question. In the presentation, you did mention about headwinds to Chinese exports from the Mexico tariffs. We know about the U.S. relationship, but there were [indiscernible] -- first Mexico. Is that a significant route? Or is it still more U.S. and Europe exports? And if you could also remind us what the mix now is or in the second half it was for the trade exposure to Europe versus the U.S. trade lane? Ivor Chow: Yes. Well, first of all, overall, Europe -- U.S. continue to account for about 30% to 40% export, with that number now closer to the low 30s compared to the high 40s before. Europe traditionally is somewhere around 25% to 30%. I think it's creep up 1 or 2 percentage point only. But transshipment has actually picked -- where it picked up a lot. Transshipment in Yantian went up quite a bit last year. So I think it went from around 15% to around 20% right now, yes, 20% to 25%. So the pickup is mostly on the transshipment side, and that affected ASP a little bit, kind of alluding to Herbert's question earlier. In terms of the Mexican tariff question is that, when the U.S. imposed tariffs directly on the country of origin in China, Chinese exporter try to, not circumvent, but they have increasingly set up their new manufacturing bases closer to the destination, be it Mexico, be it [indiscernible] Europe. So these tariffs that are put on to kind of intermediate manufacturing locations like Vietnam and Mexico, will indirectly affect trade to the U.S. So that's why we talk about the headwind, but it mostly affect the U.S. than anything else. But as I said, European trade so far, we haven't seen a negative. In fact, we have seen positive out of the European trade, I think partially because Europe, instead of buying from the traditional European exporter -- sorry, buying from the traditional European retailers, they're actually buying more from the e-commerce companies in China just because it's cheaper there. That has attracted a lot of European trade out of Yantian, where we handle a lot of the e-commerce business to Europe. Operator: Mr. [ Paul Chew ] from [indiscernible] Research. Unknown Analyst: Just some questions on the fluidity of the supply chain. Can you just elaborate a bit when you mentioned the gradual resumption of services from Suez Canal, is that what the major liners are preparing you for? And could you maybe elaborate on the impact if it does really open, are you -- is it just that there will be a short-term congestion in Europe that is what worries you? Ivor Chow: So the question surrounds is what's going to happen with the Red Sea situation resolved. So if you look at the -- some of the news in the market is some shipping lines are already testing the Red Sea to see whether it is safe to pass through the Suez Canal already. Some lines are trying that. Just to kind of dial back a little bit. Right now, currently, almost all shipping lines from the Asia-Europe trade go through the Cape of Good Hope in South Africa. And that adds quite a bit of additional transit time into Europe. So that absorbs quite a bit of capacity [ after ] the market, and that allows the shipping lines to maintain freight rates that they have enjoyed over the last year or so. I suppose the concern here is that when the Red Sea does reopen, and the Suez is passable, then at that time, there would be ships going through -- around the Cape of Good Hope. But at the same time, there will be ship racing from Asia through the Suez into Europe. So there will be 2 sets of ships because the slot cost for shipping line going through the Suez is going to be cheaper. So the margins for shipping lines is better. And so people -- ideally, when it's reopened, everybody will rush through the Suez to try to reach Europe ASAP. I suppose, as you alluded to earlier, the concern is that what would it do to the ports on the European side. Currently, I think generally, there are port congestion in Europe already, even with the Red Sea situation. So the concern is on the Red Sea opens and there is a race to Europe through the Red Sea to the Suez, that would cause a major disruption to the ports at the destination in Europe. So that is a concern of mine, obviously. And whether the shipping line can withhold the capacity and not clock up the ports in Europe remains to be seen. But if there is a congestion, it could be a substantial one because the ships going to Europe are really the largest vessels in the world. So even 5 or 6 or even 10 vessels can potentially clock up the system, like they did during COVID for an extended period of time. And how that will impact the supply chain in terms of how you say the fluidity -- and whether some of that congestion will start to come back and hit Asia is something that I'm on the lookout for. But right now, it's really difficult to foresee when and if that will happen. The likely earliest that Red Sea will open will probably be in the second half of this year, but that is an event that we'll look out for. Unknown Analyst: My second question is, I think in the prior call, you did allude that shipments to the U.S. by your e-commerce customers, they prefer to use ships because it's cheaper with -- even with the high -- because of the high tariffs, they're using ships. Do you still see that phenomena or that has maybe [ gone ]? Ivor Chow: Well, I suppose what I saw in the second half, I suppose, obviously, U.S. trade has declined, so overall declined 10%. But I think if you look at South China versus the rest of the China, especially in Northeast, I think the decline would be higher than 10%. I don't know exactly the numbers, but as far as I know, I believe that the decline is a bit more substantial than 10%. And the reason for that, I believe, is that e-commerce because of our focus in the southern part of China, especially in Yantian, that has allowed us to be a bit better. And e-commerce continues to do well. That segment of the market, even the second half continues to do well. Obviously, that can change depending on the tariff situation and whether they tighten the tariff on the small package they are. But for now, that segment of the market continues to be okay, quite well, actually. Unknown Analyst: My -- I guess my last question is, you did -- I think the first time [ probably ] mentioning some optimism over imports. Is it the similar sentiment that you get from the shipping lines or I guess it's more of your own analysis, yes, I think? Ivor Chow: Right. On the import side, it's more of my own than anything else. We have been -- obviously, with the trade imbalance, we've always felt that China has more room to grow on the import side, especially import being a fairly small proportion of our business. But the relative margins for import and with the trade imbalance, shipping lines is much more proactive in terms of pushing for imports as well. And from my read on the macroenvironment with all these trade agreements that China is hoping to sign with European countries, I would expect that there would be a quid pro quo with a certain level of imports coming into China. But obviously, a lot of them depending on the recovery of the Chinese economy, but I'm a bit more hopeful on that front. So it's more of a personal, but I think shipping lines themselves, if there are imports, they're happy to take the balance because for them, empty -- full out empty in is not good for business. Unknown Analyst: And just a quick follow-up on the earlier question. I'm not sure if you -- or maybe you do not disclose the amount of shipments that goes to Mexico directly, [indiscernible]? Ivor Chow: Mexico directly, I don't have that number with me, unfortunately. Typically, for us, the Latin America trade is relatively small. I think it's somewhere between 10% to 15% only, at most 10% actually. Unknown Analyst: But at the same time, I think in one of your statements, you mentioned Mexico might still impact you. But if the shipment -- the direct shipments are small there, how is it kind of negatively [ impact you ]? Ivor Chow: Well, I think what we're seeing is that the growth of the Mexican trade has been quite strong over the last couple of years. So that growth will slow down. That's what we worry about. Operator: [indiscernible] from HSBC Investment. Ivor Chow: Can you hear us? No. Unknown Analyst: Can you hear me? Ivor Chow: Yes, yes. Please go ahead. Unknown Analyst: I have 2 small questions coming from my side. First, I see end of last year, you have announcement saying that you need to sell back land to Shenzhen [ YPLES ] for the redevelopment of the region for around RMB 50 million. So I'm wondering how do you see this -- first of all, I'm wondering what's the use of this land in the past? And how do you see this sale may have impact for the expansion of your volume capacity in Yantian? And do you expect any other similar land arrangement in the mid-term? And second -- my second question is that for next year or midterm, should we expect similar debt reduction at this year, which is around $1 billion debt reduction? And will this be impacted by your increase of CapEx like what we see for this year? Ivor Chow: So I'll take the first question and then Ivy can talk about the debt repayment. In terms of the land that we sell, back to the Shenzhen government, that piece of land is for -- I think I talked a little bit about last year, maybe I should repeat that here. Intermodal is something that is a strategy for Yantian for the next 5 to 10 years. Currently, we do have a dedicated rail link into Yantian in South China, where we have the -- where we're the only one that has an on-dock rail link into Yantian. But rail business only account for a fairly small proportion of our business to the tune of around 300,000 TEU, and we do 15 million every year. So it's quite small. But as I said, with China moving a lot of the coastal manufacturing into the inland, particularly in Chengdu, Chongqing, Wuhan area, increasingly, I believe intermodal will be kind of the future of where the share of the market in terms of volume, the competition will be. So the development of the rail link becomes quite an important preparation for Yantian [ view ] over the next 5, 10 years. But because rail business tends to be heavily subsidized business, it is not a profitable business. So the Shenzhen government has agreed to take back the land that we have, and they would be the one investing in upgrading the intermodal facilities that we have in Yantian. So they're I think they're investing to the tune of around [ RMB 7 billion ] in order to expand the rail link from roughly around 300,000 TEU to potentially to above 3 million TEU by 2029 if the rail upgrade is fully completed. Obviously, it's going to be done in different phases, going from maybe 300,000 to maybe about 1 million first and then slowly ramp up to eventually 3 million. So still -- compare 3 million to 15 million is still not a substantial number, but it is where the future growth for Yantian is, especially when I said earlier that we are completing the East Port development where we have 3 million additional capacity. So the rail becomes kind of like an integrated strategy in terms of expanding Yantian reach from currently around 1,000 kilometer to about 2,000-plus kilometer in land. So it is a strategy, and that's why we're selling that piece of land. So yes, we will continue to have -- I think we already -- announced already a piece of land that we have sold that we would have an impact to us this year. We have some gain. This year, we will be booking. But the important part of that selling piece of land is more of the long-term intermodal strategy for China, not just for Yantian, but for -- overall for China. And I think I talked about a little bit before, it's exactly what is like the U.S. is doing. If you have shipment into L.A. and Long Beach on the West Coast in the U.S., the rail becomes quite important of shipping that goods into the Midwest in the U.S. So I think for China, it's the same thing. Again, you talk about export coming in, but in future, there will be more import coming into Hong Kong and Yantian, connecting to rail to the inland part of China as well. And that's something for me, the rail -- upgrading the rail facility is paramount to capturing that particular growth market over the next 5, 10 years. Ivy Tong: In terms of your second question, obviously, depending on how the operations pan out in 2026, it is still our intention to continue with our deleverage program to do the $1 billion repayment in 2026. Ivor Chow: Thank you. And thank you for joining, everybody, tonight. Operator: Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the CMS Energy 2025 Year End Results. The earnings news release issued earlier today and the presentation used in the webcast are available on CMS Energy's website in the Investor Relations section. This call is being recorded. After the presentation, we will conduct a question and answer session, and instructions will be provided. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 PM Eastern Time running through February 12. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I would like to turn the call over to Mr. Jason Shore, Treasurer and Vice President of Investor Relations. Jason Shore: Thank you, Adam. Good morning, everyone, and thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer, and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the directly comparable GAAP measures are included in the appendix and posted on our website. And now I'll turn the call over to Garrick. Garrick Rochow: Thank you, Jason. And good morning, everyone. Before we get into the financial results, I'm very proud of the team in 2025. As you see from the slide, I want to highlight a few of the big wins the CMS Energy team delivered in 2025. First, I'm very pleased with our large load tariff, which was approved in November. Supplying energy for data centers is a national story, and the rush to serve is on the mind of utility leaders. I'm very proud of the tariff the team worked so hard on this year because it's strategic and thoughtful. It protects our customers and supports growth in the state. This tariff provides certainty for our data centers as we bring new load onto the system and ensures existing customers don't pay a single cent for the investments. In some cases, they will see tangible benefits as this new load supports more affordable rates as we grow Michigan. Next, we received approval for our twenty-year renewable energy plan, another area the team worked hard on to put the right plan together that meets the requirements in our state's energy law. More importantly, this approval highlights the constructive regulatory environment in Michigan and provides visibility and certainty for our long-term investments in solar and wind, providing roughly $14 billion of customer investment opportunity over the next decade. On this last one, we have a saying around here: Victory loves preparation. I want to talk about our gas business. It's been a cold start to the winter, and as always, we have been prepared to serve our customers. That doesn't happen by luck or accident. That is a deliberate commitment of our team who work every day to buy gas at the lowest price, store it in some of the largest storage fields in the nation, and deliver it safely and reliably to our customers. We're reducing the price of gas when it is needed most by our customers. This is affordability in action. This reflects our ongoing work to replace this important storage and delivery infrastructure, investing over $1 billion in the year so we are there when our customers expect us. At CMS Energy, we wake up every day committed to serve and deliver value for all our stakeholders. In 2025 marks our twenty-third year of industry-leading performance. As we prepare for these calls, we do a lot of work on slides, and we all have our favorites. This next one is mine. It highlights the team's commitment to excellence and what we are able to achieve. It shows results, proof points of the great regulatory construct in Michigan. I know you hear from Rejji and me all the time when we're on the road. Our long history of constructive outcomes, multiple years, multiple cases, then add the unique mechanisms like incentives on energy waste reduction, you know, PPAs, all of which is built into the energy law. It's an outstanding construct. More importantly, we have been successful in getting top-tier outcomes to support our long track record of performance. This year was no different. Two rate orders, electric and gas, both approved with constructive outcomes, delivering big wins for our customers, supporting critically important work to improve electric reliability and ensure gas safety across our system. Our twenty-year renewable energy plan approved over $14 billion of customer investment opportunity to achieve the state's energy law by 2040. Visibility and certainty for the recovery of our investments. We also delivered on the first-ever storm deferral mechanism approved in June. Our large load tariff was approved in November, priming the pump for growth. Like I said, my favorite slide. These important outcomes provide visibility and certainty for customer investments in our electric and gas systems. This track record of constructive outcomes continues to highlight what the CMS Energy team is able to achieve and further reaffirms Michigan's top-tier regulatory environment. I look forward, I have confidence in our ongoing electric rate case. Given the reactions to our recent proposal for decision, I would remind the investment community that this is simply a step in the process and it is not reflective or consistent with our strong track record of performance. The MPSC staff professionals have spent significant time with the testimony and merits of this case. Staff position is constructive, and I would argue much closer to the expected rate case outcome. I would also note that the commissioner's previous public comments from the bench support the need for an improved electric grid in constructive ROEs. This case is built on the fundamentals of our reliability roadmap, the MPSC Commission Liberty distribution audit, and the necessary customer investments to support electric reliability while maintaining affordability. I expect a constructive outcome for our customers and investors. I also expect the ROE to be 9.9% or better. In our recently filed gas rate case, I'm confident in the investments to ensure the gas system is safe, reliable, and clean, and the value to customers of our proposed full gas decoupling. As I shared a moment ago, our gas price is on the decline. Our residential natural gas rate is 28% below the national average, striking the right balance between investment in the system and affordability for our customers. Now onto the financials. For 2025, we exceeded our adjusted earnings per share guidance and delivered $3.61 per share. This is up over 8% from 2024's actual result and delivers that compounding of earnings you have come to expect from CMS Energy. Throughout 2025, we continue to see strong performance at the utility, largely driven by constructive regulatory outcomes and robust performance at NorthStar driving full-year results. This performance allowed us the opportunity to exceed or beat guidance at year-end, deliver better service for our customers, and derisk the business for the coming year. For 2026, we are raising our annual guidance by 3 to $3.83 to $3.90, which represents 6% to 8% growth off of 2025 actual results. We continue to guide toward the high end. Our practice of rebasing higher off of action is a differentiator in the sector and provides a higher quality of earnings for our investors. We deliver year in and year out. Easy straightforward math, compounding growth, and bringing greater value. How we've done it for years. We're also reaffirming our long-term guidance range of 6% to 8% toward the high end. As part of our total shareholder return, we'll continue to grow the dividend as we have for over twenty years, targeting a dividend payout ratio of approximately 55% over time. Finally, remain confident in our ability to manage the business and execute year in and year out regardless of circumstances. Twenty-three years now. Consistent industry-leading performance. On slide six, we've highlighted our five-year $24 billion utility customer investment plan, up $4 billion from our prior plan. These investments are necessary to deliver better customer service through improved reliability, both in distribution and supply. I want to take a moment to connect the dots on why I'm excited and confident in our ability to execute on this plan. First, we've increased our electric generation investment by approximately $2.5 billion over the previous plan. Most of this customer investment is already approved in the renewable energy plan, with the visibility and certainty I mentioned earlier. Another customer investment that I communicated on previous calls is the addition of natural gas generation in battery storage. Our integrated resource plan that we'll file in mid-2026 will detail additional capacity needed to replace retired plants and support existing and future growth. This customer investment opportunity is not contingent on new data centers, but growth already or soon to be connected to our system. We are well on our way in planning and preparation to deliver capacity in this five-year window. Second, we continue to roll more of our electric reliability roadmap into our five-year plan to strengthen our electric distribution system, which has increased by approximately $1.2 billion over the previous plan. This work and these investments are well aligned with the Michigan Public Service Commission, the results of the Liberty Distribution Audit. We've also seen constructive support for our investment recovery mechanism in the rate case process. Finally, our gas investments also increased in this plan in the amount of approximately $400 million. This aligns with our ten-year natural gas delivery plan as a result of greater demand across the gas transmission system for power generation and industrial growth. So when I step back and objectively look at our five-year customer investment plan, there is visibility and certainty around the investments. We have an efficient workforce to get the work done. The work provides significant value to our customers, and I have confidence we can do it affordably. This plan supports 10.5% rate base growth through 2030. In addition to our robust customer investment plan, we have meaningful growth drivers outside traditional rate base, which are unique to Michigan and CMS Energy and are sometimes overlooked. The financial compensation mechanism, which allows us to earn on PPAs, grows over the five-year period, offering nearly $50 million of incentives by the end of the decade. There's approximately $65 million per year of incentives through our energy efficiency programs enhanced by the 2023 energy law. We also expect incremental earnings from our nonutility business, NorthStar Clean Energy, as we continue to see attractive pricing from capacity and energy sold at Dearborn Industrial Generation, or DIG. Now we make all these investments with a strong focus on customer affordability. We have a proven track record of driving customer savings through the CE Way and digital automation, episodic cost-saving opportunities, low growth, and energy waste reduction. This creates capital headroom, which maintains affordability as we make important and needed investments in our system. To offer a few examples, in 2025, we had another great year leveraging the CE Way to deliver work more efficiently, over $100 million in savings. In 2025, our energy waste reduction program will save our customers approximately $1.2 billion, reducing our customers' bills. Because when you use less, you pay less. Our efforts here are making an impact. Today, our customers' utility bills remain roughly 3% of their total expenses or what is often referred to as share of wallet. This is down 150 basis points from a decade ago while we've invested significantly in our system to the tune of roughly $24 billion. I'm also pleased to share that our recent electric bill increases are among the lowest in the country. We are committed to keeping our residential bills below the national average, Midwest average too, and plan to be over the five-year plan period. This is an important commitment. Every penny we spend on our infrastructure investments is done with customer affordability at the center. As I've said before, Michigan is growing, and I continue to be positive and confident about the progress of the data center we announced on the Q2 call. The large load tariff was an important milestone to provide clarity for the data centers and to protect our existing customers. I'm pleased to share that there has been great progress with the data centers that are considering locating in our service area. Regarding the data center referenced on the Q2 call and depicted on the slide, we've reached commercial terms on the extraordinary facilities agreement, which is similar to an ESA or electric service agreement. We're also at near final terms in our rate agreement. Our agreements have a path to serve their peak demand. We know both the timing and incremental supply resources that are needed to serve this load. We also know the expected ramp timeline. That timeline would have their data center online as early as 2028. Keep in mind, the data center is not yet reflected in our five-year customer investment plan. In addition, we are in advanced talks with the second data center that has been public about their expansion in Michigan and specifically in our service area. We can't give more details at this point. I can say we are working with them on their needs. We are looking forward to serving this prospective customer. Our pipeline for growth is exciting and robust in Michigan and in our service area. We are well equipped and prepared to serve data centers and manufacturing customers. On that high note, let me hand the call over to Rejji to offer additional details. Rejji Hayes: Thank you, Garrick. And good morning, everyone. To elaborate on the strength of our financial performance in 2025, on Slide nine, you'll note that we met or exceeded all of our key financial objectives for the year. Most notably, our adjusted earnings per share. To avoid being repetitive, I'll just note that we successfully invested $3.8 billion largely in line with our original guidance to make our electric and gas systems safer, more reliable, and cleaner on behalf of our 3 million customers at the utility. We managed to do this while funding the business in a cost-efficient manner, largely through operating cash flow, well-priced bond and equity financings, and tax credit transfers. This prudent funding strategy enabled us to maintain our solid investment-grade credit metrics and associated ratings as affirmed by each of the rating agencies over the course of the year. Most recently by S&P for our parent company, CMS Energy, in December. Moving on to our 2026 EPS guidance on Slide 10, you'll note the rebasing off the range higher off of our 2025 adjusted EPS actuals as per our historical practice. More specifically, our 2026 adjusted EPS guidance range has increased by $0.03 per share on both ends of the range to $3.83 to $3.90 per share. Our increased 2026 EPS guidance implies 6% to 8% growth with continued confidence toward the high end of the range as Garrick noted, which is effectively 7% to 8% given our historical performance. As you can see in the segment details, our EPS will primarily be driven by the utility providing $4.28 to 4.33¢ of adjusted earnings. We plan for normal weather, constructive regulatory outcomes, and earned returns at or near authorized levels. At NorthStar, we're assuming an EPS contribution of $0.25 to $0.30, which incorporates normalized operations at DIG, benefiting from an increasingly favorable mix of capacity contracts and the completion of select renewable projects. Lastly, our financing assumptions remain conservative at the parent segment with expected equity issuances of approximately $700 million to support the increased capital plan at the utility. Our guidance in the parent segment also includes a full year of interest expense from last year's successful convertible debt offering in the fourth quarter and assumes the absence of liability management transactions. To elaborate on the glide path to achieve our 2026 adjusted EPS guidance range, you'll see the usual waterfall chart on Slide 11. For clarification purposes, all of the variance analyses herein are measured on a full-year basis and are relative to 2025. From left to right, we plan for normal weather, which in this case amounts to $0.22 per share of negative variance given the absence of favorable temperatures experienced in 2025, largely in our electric business. Additionally, we anticipate $0.37 per share of pickup attributable to rate relief driven by the residual benefits of last year's gas and electric rate cases and the expectation of constructive outcomes in our pending electric and gas rate cases. Outside of the general rate cases, we also expect to see earnings contributions from our investments in renewable generation assets in accordance with our recently approved renewable energy plan. As always, our rate relief figures are stated net of investment-related costs such as depreciation, property taxes, and utility interest expense. As we turn to the cost structure in 2026, you'll note $0.12 per share of positive variance due to the anticipation of continued productivity driven by the CE Way and more normalized storm activity in our service territory. It is also worth noting that our projected operating expenses reflect the benefits of operational pull-aheads executed in 2025, and as always, we will adjust our cost assumptions in accordance with rate case outcomes. Given the financial flexibility inherent in the forward-looking test year. Lastly, in the penultimate bar on the right-hand side, you'll note a modest variance, which largely consists of growth at NorthStar per my earlier comments. This bucket also includes the roll-off of 2025 liability management transactions and the usual conservative assumptions around parent financing costs and taxes among other items. In aggregate, these assumptions equate to a variance of negative $0.05 to positive $0.02 per share. As always, we'll adapt to changing conditions throughout the year to capitalize on opportunities and mitigate risks. To deliver on our operational and financial objectives to the benefit of customers and investors. On slide 12, we have a summary of our near and long-term financial objectives. As Garrick noted, from a dividend policy perspective, we're targeting a payout ratio of approximately 60% in 2026. And roughly 55% over the course of our five-year plan. Given the elevated cost of capital environment, and the breadth and depth of customer investment opportunities before us, we continue to believe that it is prudent to retain more earnings to fund growth. From a balance sheet perspective, we continue to target solid investment-grade credit ratings and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. As such, we intend to continue our at-the-market or ATM equity issuance program in the amount of approximately $700 million in 2026 as mentioned earlier. Over the course of the five-year plan, our aggregate equity needs will be consistent with our historical ratio of $0.40 of equity for every dollar of incremental CapEx. And equates to an average of approximately $750 million per year given a substantial increase in our five-year customer investment plan. While we do have some capacity remaining with our existing ATM program, you can expect us to file a new prospectus supplement to reflect our updated needs later this year. Lastly, we also expect select large multiyear economic development projects to begin ramping up in 2026, yielding approximately 3% weather-normalized load growth for the year. With run rate assumptions of 2% to 3% in the outer years of our plan. Slide 13 offers more specificity on the funding needs in 2026 at the utility and the parent. At the utility, we're planning to issue a little over $1.7 billion in aggregate. And at the parent, you'll note that our debt financing needs were pulled ahead in November 2025, which leaves the aforementioned equity issuance needs of roughly $700 million. Needless to say, we'll remain opportunistic throughout the year and we'll continue to monitor the markets for attractive issuance windows. On slide 14, we've refreshed our sensitivity analysis on key variables for your planning assumptions. As you'll note, with reasonable planning assumptions and our track record of risk mitigation, the probability of large variances from our plan is minimized. Our model has served and will continue to serve all stakeholders well. Our customers receive safe, reliable, and clean energy at affordable prices. Our diverse and battle-tested workforce remains committed to our purpose-driven organization, and our investors benefit from consistent industry-leading financial performance. And with that, I'll hand it back to Garrick for his final remarks before the Q and A session. Garrick Rochow: Thanks, Rejji. At CMS Energy, we deliver. Twenty-three years now of consistent industry-leading performance regardless of changing circumstances. Year in and year out. You can count on CMS Energy to deliver for all of its stakeholders. With that, Adam, please open the lines for Q and A. Operator: Thank you very much, Garrick. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you're using a speaker function, please make sure you pick up your headset. We'll proceed in the order you signal us, and we'll take as many questions as time permits. If you do find that your question has been answered, you may remove yourself by pressing the star key followed by the digit. We'll pause for just a second. Our first question comes from Julien Dumoulin-Smith from Jefferies. Julien, please go ahead. Your line is open. Julien Dumoulin-Smith: Hey, good morning, team. Thank you guys very much. As always, appreciate your infectious energy you convey on these calls. I look. If I can kick it off here as it pertains to the data center opportunity you guys alluded to here. Obviously, you're in advanced talks as you characterize it here. Can you give us a little bit more of a sense as to where we stand on data centers in Michigan? Obviously, there's been a lot of discussion in the state more broadly, maybe not necessarily specifically as the second site here. But how are you thinking about that opportunity, and how would you set expectations on the timeline? Obviously, can't give too many details, but at least from a financial update, and frankly, in terms of a roll forward of your overall plan, you've put a lot of progress in here with 10.5% rate base CAGR. Just want to see how you would marry up any kind of timing on a second data center here against your wider financial plan here ultimately. This is best you can tell right hear from you. Garrick Rochow: Yeah. Julien. Good morning. Like, I'm very pleased with the progress from a data center. And you look at that entire funnel, and that funnel has actually grown. We've had just in the last month, another two data centers joined the grouping there. Again, they're kind of at the top of the funnel. They haven't worked their way through. Even in broader economic development, there's two large manufacturing customers that are in that funnel too that are relatively new in thing. And so like, Michigan's economic development story looks very, very strong from my perspective. And then they're continuing to move through that funnel, and we pull we've blown a couple of them out in my prepared remarks. And so like, again, referencing the you know, the one we announced in Q2 with a with a you know, a tentative agreement. That's continued to move forward. The first piece is getting that data center tariff in place. That really paves the way. Right, for these. They know the they know the terms. They know the conditions. And so getting the facilities or extraordinary facilities agreement in place was a big win. And, again, that's comparable to a service agreement or electric service agreement. Other utilities. And then this rate construct or rate contract is at near near final. And that's necessary to go through the regulatory process of approving the contract. Right? And so I feel good about that. That should be a short process because we've done all these preapprovals. Right? And so, again, that's a good glide path. And we continue to work with these customers on finalizing zoning. And so everything is headed in the right direction here. Which gives me a lot of confidence about our ability to secure well, a couple data centers potentially. But, like, certainly, what I'm focused on is the one where we're closest with the with the contract terms and conditions. That helpful? Julien? Julien Dumoulin-Smith: Yeah. Absolutely. Then maybe secondly, I mean, you guys just gave this big update on the plan here. I just want to nitpick a little bit around it. In as much as it it really puts a lot of latitude within the six to eight here. So would love to think about or or walk through a little bit what's in and what's out of the plan and how you think about the pieces here. Because you get a 10.5% against the six to eight. Obviously, you guys are talking about, you know, a certain degree of dilution against that. But separately, you talked about a $50 million pretax FCM. I talked about some $65 million of energy incentives. Or energy efficiency incentives. You talk about North Star, Digby contracting. Like, if you take the rate base plus some of these other items, how how are feeling about the six to eight? What's in and what's not? Encompassed in the formal plan today? I I'm I'm cognizant much of the data center discussion we just had is not explicitly. Garrick Rochow: Yeah. Just to just to confirm that, the data center piece not, and that would be incremental, investments. And we again, we know what that timeline looks like and those resources and how to accommodate those to deliver for the customers. But Rejji will walk through a little bit of math here. In the six to 8%. Rejji Hayes: Yeah, Julien. We thought we'd get that question within the first three or so questions. So you you did meet the over under on that. So well done. Yeah. And so, I think you've got the components right. Where you've got 10 and a half percent rate-based CAGR over the five-year window. And then if you add NorthStar, opportunities as well as the FCM, both of which have grown versus the prior vintage. That adds about another point on top of that 10 and a half percent. And then there's some other puts and takes that we could certainly spend some time on offline. And so that gives you I would say, a low double-digit CAGR, with NorthStar, FC FCM plus, rate-based growth. What bridges it down to the guide of six percent eight with the confidence toward the high end, which as I said in my prepared remarks, is call it let's call it seven to 8%, and let's realistically call it 7.5% to 8%. What bridges you down to that is just the funding cost because we are issuing more equity in this plan versus the prior vintage. We've quantified that as about three and a half percent, just given our market cap today and, again, the quantum of equity. And so you're going from a low double-digit CAGR of growth netted down by that equity that, again, is around three and a half percent. The other, driver of sort of downward pressure on that growth is just the fact that we've got about $1.7 of parent refinancings over the course of this five-year plan. And it's important to remember that, unlike the prior sort of fifteen years or the first fifteen years of this century, money is no longer free. And so, unfortunately, we'll be refinancing those parent bonds at issuance levels higher than initially they were funded at. So there's a little bit of a negative arbitrage. We're not alone in this. The entire sector will be impacted by that. But needless to say, it's important to remember that the parent company, those financing costs are nonrecoverable. And so it's a combination of the equity needs and just parent refinancings that will drive us back down to that seven and a half to 8%. And the last thing I'll note is just even if you do that math out and you say, okay. Well, there's a little bit cushion. That kinda gets me to about eight and a half percent. Remember, we compound off of actuals every year. As Garrick noted in his prepared remarks, we think that's a higher quality of earnings, and you do have to build in some contingency to be able to do that year in and year out like we've done for the past twenty-three years. And then, of course, as we've talked about before, we do not have a full decoupling yet on gas or and certainly not on electric, and we have storm activity. And so you have to build in some cushion as well for weather weather risk. And so for all those reasons, we feel good about the guide today, and that's how you bridge from that high teens or sorry. Not high teens, but low double-digit, CAGR down to the six to eight and really it seven and a half to 8%. Is that helpful? Julien Dumoulin-Smith: Let me look. May I just Oh, that's actually maybe I just add some Garrick Rochow: yeah. I wanna add a little more clarity even on the to Reggie's good remarks and just reflect here on 2025. Constructive regulatory outcomes, outperformance on NorthStar, that allowed us to reinvest back in the in the business. Reggie talked about from a pull-ahead perspective. Better customer service. We're able to do that this year. Additional tree trimming, work on the gas, system. We also derisked future years, and there was upside that we're able to pass on to to our investors. And then we have the confidence to, again, compound off that. And add 3¢ to our guide. So, like, this should speak to the the strength of our plan and our confidence in the plan. And so again, don't underestimate this compounding piece, six to eight to the high end. In this compounding of growth. Julien Dumoulin-Smith: That's awesome. Thank you so much, Appreciate the comprehensive nature of that response, and I appreciate I'm on the bingo card today. Alright, guys. All the best. Operator: The next question comes from Nicholas Campanella from Barclays. Nick, please go ahead. Your line is open. Nicholas Campanella: Hey, good morning, everyone. Thanks for for the answers on rate base to to earnings walk. That was very helpful. You know, maybe, you know, maybe just a large component of the plan is also just you know, the authorized returns. And, you know, I hear the comments about you know, expecting you know, something closer to a $9.09. Just, you know, the PSD, I I would say, is just quite concerning from know, seeing an eight and change ROE significantly below the national average. Not really representative of the the cost of capital environment that you guys kinda spoke to in the prepared. So just maybe kinda talk a little bit about what the feedback from stakeholders has been since this has come out and how you're kind of viewing the decision tree in in into March here and just overall confidence for a constructive outcome? Garrick Rochow: Look. I'm not concerned about the the ALJ PFD at all. Just to be super clear, this team, the CMS Energy team has delivered and we've got a track record of performance. And credit goes to the team, and a very constructive regulatory environment. And as I shared, just to be clear, we expect a constructive outcome, and I expect an ROE of 9.9 or better. Not close to 9.9. 9.9 or better in the context of this case. And let's just take that 8.2. Like, it's an outlier. It's not well supported. It doesn't match the environment. Like, it's gonna be discounted in this case. But I will point to this. Take the revenue deficiency. That the ALJ offer. $168 million. Apply a prevailing ROE of $9.09. It's like the number goes to $3.14. Right? That's actually in the ballpark where staff is at. It's actually a lot closer. So that speaks to the merits of the case. Like, there's good justification for the capital investment. There's good justification for what we need to do in o and m and and tree trimming and storm restoration and the like. And then turn to staff's position. Alright? Like I said in my prepared remarks, professionals. Amazing public servants who are dedicated to understanding this industry. And there's lot stuff that goes on outside the cases. IRPs and REPs and reliability road maps. We're building the case like we're building outside the case for the next case, and then you go into the case. And this team, the CMS Energy team, does an amazing job of and have an our testimony in justification in business cases. For these investments. And the revenue deficiency from staff is very constructive as well. Right? It's $3.03 17. I guess an ask of $4.04 23. And so like, there is a clear path to a constructive outcome. In terms of ROEs, we've heard it. From the bench. From the chair, access has been driven out. And I believe supported by testimony, again, clear testimony supports these ROEs. That this commission sees the importance of attracting and attracting capital to Michigan, and that's important for all stakeholders. Including our customers. So that gives me a great confidence that we'll be able to achieve. A successful outcome in this rate case as well as a ROE of nine nine or better. Alright. Nicholas Campanella: Thanks thanks for those thoughts. Really really appreciate that. And then just know, on the IRP, can you maybe kinda talk about how the one to two gigawatts in final stages kinda impacts the capacity need, just or maybe just level set, you know, without this what is kind of the outlook for the capacity need out to the, you know, early 2030s And then, you know, a follow on is just when you when you would wrap in the one to two gigs, do you see it as truly incremental to the 10 and a half CAGR that you you outlined today just given the large load tariffs, should protect customers from a rate standpoint, and, you know, this should purely translate to rate additional rate base growth? Thanks. Garrick Rochow: Just to be clear on this, the data centers are not in the plan. So any growth from the data centers that are in that funnel are not included in the customer investment plan. Just to be clear about that. And so when I think about this integrated resource plan, and I've shared this in some of the calls, we got a we got a renewable energy law. Or clean energy law. And so much of that's already been approved in the renewable energy plan. So you're gonna see that within this IRP. But there's a gap in capacity. You can put all this clean energy in, but you need to fill the gaps. When the sun's not shining and the wind's not blowing. Just you just have to do that. And you're gonna do that with batteries, and you're gonna do that with you know, natural gas. That's gonna be have to be part of the mix. And so then when we look forward, we also know this. Right? We've got load growth in the state. Again, separate from those that funnel. 450 megawatts of connected load last year. That was on our slide last quarter. Right? Those have already been connected. It's 3% load growth just next year alone, and we forecast two to 3% over the over the five-year plan. And so 've gotta be able to deliver on that. Right? And then you look forward and you've got some retirements. We got current three and four. It's, you know, oil-fired peakers. They're gonna retire in 2031. Right? That's a roughly a gigawatt of capacity. And so those capacity needs that we're foreshadowing here have to play out in this next IRP and are built into this $24 billion customer investment plan. Rejji Hayes: Yeah, Nick. This is Rejji. All I would add to Garrick's good comments is that and I think we've shared this sensitivity in the past, but generally, every gigawatt of additional load we bring onto the system will need anywhere from, call it, 2 and a half billion dollars to about $5.05 plus billion dollars, and that is a combination of distribution-related resources needed to interconnect the load opportunity as well as additional supply. And I think this point that Garrick has raised is critical in our differentiation versus perhaps some of our peers. This CapEx backlog that we're laying out for you today, this five-year plan, the 24 billion not predicated on us landing these large to load opportunities So that creates incremental CapEx and direct to directly ask answer, one of the parts of your question. The rate base CAGR would in fact go up if we landed one of these opportunities and had to build out more capacity to accommodate its needs. So, obviously, a lot of opportunity on the outside looking in and look forward to giving you updates later in the year. Nicholas Campanella: Hey. Thanks a lot. That's really clear, and appreciate the time. Thank you. Operator: The next question comes from Shahriar Pourreza from Wells Fargo. Shah, your line is open. Please go ahead. Marcella Pedepran: Good morning. This is Marcella Pedepran on for Shah. For taking our question. Yeah. Good morning. Thanks. So you highlight bill growth compared to the national average and to share of wallet. As well as potential savings with a one-gigawatt data center addition And we've seen rates be a really big topic in gubernatorial elections, so thank you, Sheryl, and New Jersey, and just this week with Josh Shapiro in Pennsylvania. How are you thinking about affordability going into the election year in Michigan? Garrick Rochow: Marcel, it is a great question. The good thing is this isn't our first rodeo. We've been doing the affordability and the cost savings for a long, long time. But this this issue, as you pointed out, is not a Michigan issue. It's broader national And, frankly, when you got a k-shaped economy, like, this president gonna have some challenges in this midterm election. And so when you look at across the nation and particularly look at energy costs, it's most pronounced in PJM. Reminder, we are not PJM. We're MISO. In PJM, all those costs are flowing through the customer. All those supply and energy and capacity dynamics are flowing right to the customer. 50% of the bill. And it's happening with deregulated utilities. Right? All that flows through and impact impacts the residential customer. The good thing about us, again, we're not PJM. We're MISO. And, also, we're a regulated utility. And we own generation. So we're able to hedge that cost. And I showed on my first slide just this year alone in 2025, we saved our customers $250 million by self-generating with our own units that are a good heat rate versus buying from the market. Exposure to the volatility market. 250. And if you go back a year ago, was over 200 million. If you go back three years ago, approaching $200 million. It's in all if you go back to Q4 calls in the slide deck, you'll see all that information. So, like, that's why I say it's not our first rodeo. We do the same thing in our gas business. We buy gas in the summer. We have the net largest natural gas storage fields in the world. We deliver that low-cost gas in the winter. Keep our gas supply cost low. This affordability is not new to us. I talked about in my prepared remarks, $100 million of savings through the CUA. 450 over the last five years. 1.2 billion of customer measures from energy efficiency perspective. Right? I can go on and on about the things we do. And here's the here's some data. You can look to the Detroit News on this. Richard Zuba, old, Michigan residents, Michigan voters, and they asked about this question on cost of living. And 80% a huge number in a poll. 80% of Michigan residents said the issue with cost of living was groceries. Groceries. It wasn't energy. Like, it's a different fact pattern here in Michigan. And so we continue to focus on it, and that's why we're able to talk about being below the Midwest average and the national average because we deliver. Now brought up the important piece of this affordability in the election. And just to be clear, we've got 10 people running for governor. It's a crowded field. Right? And everyone's trying to find their little lane. And, you know, they talk about different extremes, you know, extreme politics, like, dead catting. There's all kinds of ways to describe all this stuff. Again, you gotta look at the polling numbers here. And the other important piece is so who's pulling And so we know that. We work with them. That's an important piece. But, also, remember another piece in this, there's plenty of information that shows that rate freezes in Michigan are legal. Go back to act three of 1939. Go to public act one ninety-one of 1982. Go back to case law of Michigan in Michigan, in the Michigan Supreme Court. So again, we've got a good fact pattern affordability. We've got good case law and good precedent. But that's that's not all we do. Well, like, we go meet with these candidates, these gubernatorial candidates, and I pull out two two pieces of paper, double-sided two pieces of paper, and I present them with 10 policy things. Policy and legislative things that they can do to improve affordability. And I will tell you, r like some of them, and d's like some of them, you know what? That changes the conversation. Now I'm with them. Now I'm a partner. Now we're able to provide solutions to continue to take this great affordability equation we have and make it even better. Here in our capital in Lansing, Michigan. And so like, here's part of our success. Twenty-three years of consistent financial performance. That doesn't have my my luck or accident. Right? It's because because I got good energy law. That's a big piece of it. But, also, our job is to be solution providers. To work with everybody on either side of the aisle. And when you can come and be a solution provider, man, that's how you get good outcomes. And that's why this works this investment thesis works and why we're able to do what we do. Great question, Marcel. Marcella Pedepran: Thanks. That's super helpful. I'll leave it there. Appreciate it. Operator: Next question comes from David Arcaro from Morgan Stanley. David, please go ahead. Your line is open. David Arcaro: Hey, thank you. Good morning. A bit of a follow on to that thread and a really hey. Really appreciate the comments, Garrick. I was wondering if you could touch on the data center piece of things on the large load, tariff side. And I guess one effort that we've seen, maybe getting more common, you know, data centers paying their full share of all costs. You know, we saw Microsoft, present that, that initiative on their side. But I was wondering, you know, maybe talk about the large load tariff. And are there ways I mean, there are some costs that are more challenging to allocate, whether it's the full generation cost or whether it's the full transmission cost. How can you, you know, how do you plan to inflate customers, from large loads? Are there strategies that you'd take beyond the large tariff that you've got there? Garrick Rochow: It's a great tariff to protect customers. You know, we're out in the public talking about this, and out some of the misinformation that's out there that this is not gonna raise residential rates at all. In fact, there's a benefit associated with these data centers. And so as I talked about, we're in near final terms with the rate construct. It has to be very clear. About how they're gonna pay for those facts, how they're gonna pay for the capacity in the energy, and it's how it's transmission and distribution, how it's all on their nickel. And so it's great when companies like Microsoft come out and say, hey. Gonna protect the residential customer. It aligns exactly with what this tariff is, you know, aligns greatly with the tariff. And so and we're gonna have to get approval from the Michigan Public Service Commission on these on these contracts. Right? And so it's very clear what the rules of the road are, I'm pleased to say we're making great progress on that. I won't get into specifics of how much supply and when, but, no, like I said, it can be on at the on online as soon as 2028. And, again, as that contracts get finalized, as the zoning is finalized, we'll be sure to share that with the investment community and others. David Arcaro: Okay. Great. Thanks. That's helpful. And not sure if you specifically mentioned, but has there been support from data centers on the large load tariff just in terms of continued interest in, in coming to Michigan, you know, able to work under the new provisions under that tariff? Garrick Rochow: Yes. Yes. In fact, like, I shared on some of my earlier responses, that data center pipeline is advanced. And it's even grown in size. And so, again, both positive indicators, support for this data center tariff. In Michigan's growth. David Arcaro: Great. Okay. Thanks so much. Operator: The next question comes from Michael Sullivan from Wolfe Research. Michael, please go ahead. Your line is open. Michael Sullivan: Hey, good morning. Garrick Rochow: Hi, Michael. Michael Sullivan: Hey, Garrick. Wanted to pick up on the last couple of questions just around data centers coming to to your territory. Particularly on the on the zoning front. You know, there's a lot of articles out there locally and and even nationally too. Just how how much of an impediment has that been, if at all, And how how much should we think about that as just like a gating factor to get get these things over the finish line. Garrick Rochow: I don't see this impediment at all. And just to be clear, I know the Wall Street Journal had Wall Street Journal had an article on this and referenced how Michigan Howell is not in our service territory, but your question is still very important and and very valid. Look. We've been doing business in the state for a hundred and forty years. It goes back to the Foote brothers. And we know those communities that are more pro investment, and we know the ones that are harder. And we know it's because we're building out solar. We're building out wind, we're know, we do pipeline work. And so in part, we help steer these data centers in into those areas where it's it's more accommodating to growth. But, also, the the Wall Street Journal article, I think where where they had it wrong was the more a more moratorium does not mean stopped. In fact, it's a short process. Like, these are thirty, sixty, ninety. Some are a hundred and eighty day moratoriums. But there's still progress being made. And I would suggest it's good due process, these township officials, these community officials are collecting information from their constituents They're doing research, and we just saw this in Mason, Michigan. Right, in our service territory. Had a moratorium in place. It was a ninety day. They actually came out sooner than the ninety day period. And came out with a new zoning zoning ordinance that allowed for data centers. And so again, I say finalizing zoning, we work through those things alongside with the hyperscalers with the developers, achieve success. And, again, I see that as a hold up or an impediment in Michigan. Michael Sullivan: K. That's really helpful. Appreciate the color. And then just shifting back to kind of the pending rate case and regulatory strategy. What are your thoughts on just being able to get back to more frequent settlements to to maybe just take volatility out of the process associated with with ALJs, like the one we just got. And then also, like, potential to space out cases a little bit more just given, I think, there's been commentary from the commission in the past and now whether or not rate freeze is legal, illegal, materializes, but anything that can, like, alleviate pressure on on frequency and then also yeah, just parties putting things forth. And being able to settle more preemptively. Garrick Rochow: As I've shared before, I continue to be open towards settlement and settlement discussions, and we'll continue to explore those. But, again, the merits of the case and just the fact pattern in Michigan, we wouldn't go the full distance as we did last year in 2025 with our case and get very constructive outcomes. And so I'm I'm happy to go that route. And I don't think it's reflective at all about the the environment in Michigan. Again, because at the end of the day, we're getting successful and constructive outcomes from commission. In terms of spacing out, I think a really important data point that I referenced on the call and we have this information. I think, actually, Wolf's presenting this in a different format too, is that Michigan and particularly CMS and and the other large utility, like, our rate increases are some of the lowest in the country. Right? And so can we space them out? Sure. But, like, let's do the math and, like, what's going on in these other states, frankly? And so we've got a really good story. And when we go on an annual rate cases, we're able to pass savings back to our customers We're able to make sure that those increases are more in line with inflation or better than inflation. And so smaller little bites at the at the apple is really a great approach. Now I'm always open. With the right construct if there's a way to to expand those out and go longer. But we have to have the right construct in Michigan to be able to do that. There's some talks, early talks in in that direction, but nothing that it's you know, serious at this point. Michael. Michael Sullivan: Appreciate it. Thank you, Garrick. Operator: The next question comes from Jeremy Tonet from JPMorgan. Jeremy, please go ahead. Your line is open. Jeremy Tonet: Hi, good morning. Garrick Rochow: Hey. Good morning, Jeremy. Morning. Jeremy Tonet: Thanks for all the, good color today. Just was curious, you know, with the upcoming state of the state here, we've seen in other states utilities kind of featured in some of the commentary here. And wondering if you had any expectations or any thoughts to share here, you know, given we've seen in other states? Garrick Rochow: Let me offer this. Again, I'll start with a big headline. Twenty-three years of consistent financial performance. We have that one slide on there. And regardless of the weather, regardless of the CEO, regardless of the governor, again, r's or d's, regardless of the legislature, regardless of the commission, like, we deliver. And I gotta overuse this term probably, but not by luck or accident. Right? It's energy law. Right? And a lot of that is already set. And it's typically bipartisan when it's done. But that sets a lot of the parameters. And, again, when it comes to the commissioners are on staggered terms, the six-year terms, you can only have two from one party. So that sets a lot of the parameters in Michigan. That's the great thing about Michigan. But remember, as one of the largest investors in the state, the gubernatorial candidates know that. As one of the largest property taxpayers in the state, the gubernatorial candidates know that. As one of the largest job providers, and union job providers, gubernatorial candidates know that. Right? And so we have a way of working with these candidates to find solutions. And it goes back to my earlier comment. When I come in and I can bring a gubernatorial candidate, a two pages front and back of good policy solutions what happens in that discussion? Right? Also, I'm in their boat. Right? All my I'm in there helping them be successful. And now when they're out with constituents, they can point to say, here's the three things. Here's the six things. Here's the 10 things we can do in Michigan. To help make bills even more affordable. And remember, we're starting from a really a really good starting spot. And so I mean, that's the that's the dynamic that plays out, and that's how it allows us to be successful. You know, time and time again. So, hopefully, that scratches you the itch of your question there, Jeremy. Jeremy Tonet: Got it. That's helpful. I'll leave it there. Thanks. Operator: The next question comes from Andrew Weisel from Scotiabank. Andrew, please go ahead. Your line is open. Andrew Weisel: Hey. Good morning, everybody. Morning. Garrick Rochow: Morning, Andrew. Andrew Weisel: You covered a lot of the main topics. So I've just got two sort of more nuanced ones. First, on equity. Obviously, as you kind of previewed, tick up from $500 million last year to $700 million this year to an average $750 million in the long-term plan. How should we think about that going forward? Should it be consistent? Should it be ramping up to match the CapEx profile? Or would it be more front-end loaded given the lag of cash recovery per generation relative to distribution? And does that assume additional use of hybrids or JSNs, or would hybrids potentially reduce the equity needs? Rejji Hayes: Andrew, it's Rejji. Appreciate the question. I'm getting to a point age-wise where I when I get multipart questions, I may I have to circle back. So if I miss something, just let me know. But with respect to equity, I I think you you're you've the premise of your question is right. I mean, they they tend to live increase with CapEx needs. And so this plan is 4 billion higher with 24 billion CapEx to the utility than the prior vintage of 20 billion. And so we've said with that historical sort of ratio of $0.40 of for every dollar of incremental CapEx, this plan has about a billion and a half or so of greater equity needs than the prior vintage, specifically prior vintage was $2.2 billion in aggregate. This one's about three and three-quarters. So again, that historical relationship, still highs, and that allows us to maintain that kind of mid-teens credit metric levels on a consolidated basis, which is where we like to be. With respect to junior subordinated notes, we do have a a little bit of those in the plan, over a five-year period. I'd say just over 1 billion. It's a market that we've just seen, quite pleasantly. We've just seen an increase in breadth and depth of liquidity in that market, and we've seen really strong execution, most notably over the last thirty-six months or so. So we have baked in a little bit of that in the plan, not in this year, but later on, say, more 2728. So we do have again, a little over a billion and a half of junior subs in the plan. Given the strong execution we've seen historically. And then with respect to the shaping of the needs, I would say it's, again, fairly commensurate with the capital needs, and the capital needs are somewhat front-end loaded. If you look at the details on the CapEx plan we have in the appendix, in the deck for today. And so we anticipate issuing a a good portion of that in the first three years of the plan and then at levels out. It really kind of, really drops off in the latter two years. Now we will be opportunistic as always, and if we see our stock trading at levels that are, not offensive, and I would submit they are offensive where they are today, you know, we'll be opportunistic. But the plan for this year is to dribble out that $700 million. And over time, again, if we see the stock trading at levels that we think are more reasonable, we may be a little bit more aggressive than So let me pause there and see if that's helpful. Andrew Weisel: It is. Thank you. And your memory is still intact. You you got all of those. Next one, you previously talked about a $20 billion CapEx plan $25 billion of incremental opportunities. Now you're guiding to $24 billion. Should we think of that as pulling for from the opportunities bucket into the formal plan? Or is this more like an incremental 4 billion that you've identified and you still have a similar opportunities bucket beyond the new Outlook? Rejji Hayes: Yeah. So great question. And I would say in terms of that $25 billion of backlog we've been talking about that's outside of the prior plan looking in, yes, we certainly dipped into that with the $4 billion incremental. But I would say it's it's not a perfectly symmetric equation because the reality is we have additional CapEx needs as we're preparing this new integrated resource plan that will likely drive additional CapEx needs. As Garrick and I noted earlier, our plan does not presuppose us realizing some of these large data center opportunities from a customer investment perspective. And so that would add to that backlog as well. And then I would also just note in this plan, obviously, with the growth of financial compensation mechanism related earnings, we are taking some of that CapEx opportunity and converting it into PPAs. And so we have dipped into that well, but I would say from where we sit, the well is quite infinite when it comes CapEx backlog at the utility, and it just grows every year because there's a lot lot to do on both the distribution side and the supply side. And electric and gas has quite a bit to do as well. Andrew Weisel: Infinite. Wow. That's a good word to use. Okay. Thank you so much. Appreciate it. Operator: The next question comes from Anthony Crowdell from Mizuho. Anthony, please go ahead. Your line is open. Anthony Crowdell: Hey, good morning team. Reggie, really happy that CMS is still serving caffeinated coffee in the employee kitchen. Just one one end, you're currently asking for a decoupling in your gas case. Just curious if you plan on I know I'm thinking forward, you're currently in your an electric case now. Thinking in your next electric case, do you ask for decoupling or given the load that you're showing a big increase in industrial load? In 2025 if you're less inclined to SI given the strong load growth? Rejji Hayes: Anthony, appreciate the question. And as always, we we show up for these calls well caffeinated. So, glad you noticed. Yeah. Our intent is to just focus on revenue decoupling, in the gas business. We have looked historically at the trends in terms of sales for our business and just don't see the need, to look to do that for the electric business. So the intent right now is the gas, just for the gas business That's what's embedded in this pending case that we filed in mid-December. And really, no appetite at the moment to look at that from an electric perspective. Anthony Crowdell: Great. That's all I had. Thanks so much. Rejji Hayes: Okay. Yeah. Ahead, Reggie. Anthony, the only other thing I would note is that it it is actually not permitted. To utilize decoupling in an electric business. That is actually a part of the legislation that's been passed. Anthony Crowdell: Okay. Thank you. Operator: Final question today comes from Bill Apicelli from UBS. Please go ahead. Your line is open. Bill Apicelli: Hey, good morning. Garrick Rochow: Good morning, Bill. Bill Apicelli: Had a question around the the 3% residential bill inflation inflation, maybe you could just unpack a bit when we think about 10.5% rate base growth So how much are you managing with the CE Way? And then do you have any else on the affordability side that can help? Right? So I think in the past, you've talked about some higher priced PURPA contracts that roll off. Maybe you could just speak to to other tools that are there to manage the affordability. Rejji Hayes: Yeah. Bill, thanks for the question. And I think you've hit some of the key items that drive that downward pressure on bills and rates every year. So we've been at this, as Garrick noted earlier, for multiple decades now where we really try to self-fund a lot of that rate-based growth. And for, I'd say, two decades, it's been episodic cost reductions, good decisions, and we certainly are assuming that the we do have high-priced PPAs that will be rolling off over time at some point. We'll be out of coal, and so that will drive cost savings as well. And those are a bit more episodic, but the CE Way just continues, to offer more and more savings each year. And I I'll remind everyone that we only about a decade ago, so we think we're just scratching the surface. And I remember going back to 2018, 2019, we delivered probably just under $10 million of operating expense reduction from the CUA. And we were fiving because we were in year two, one or two of, in CEUA. And as Garrick noted, just this past year, we did another year of a $100 million of savings. So a lot of opportunity there, but we're really excited about again, to in terms of levers or opportunities to just self-fund our growth is just converting on this attractive economic development backlog backlog. That to me is really the third leg of the affordability stool. We know that we're very strong in delivering on the cost performance side. But we can also convert, not even all, but just a portion this economic development backlog, you can see that it just drives great downward pressure on bills and rates and funds a lot of these needed customer investments that we have across our electric business. And that's where we provided that sensitivity. In one of the slides Garrick spoke to, we basically have shown that with a gigawatt of conversion on this economic development, backlog associated with the large load tariff, that drives about two points of reduction in that bill CAGR. So again, a lot of a lot of errors in our quiver, and we look forward to continue to executing on all of those to create that downward pressure to fund the CapEx plan. Bill Apicelli: Great. No, that's very helpful. Thank you. And I guess one housekeeping item. It looks like the DNA in 'twenty-eight, 'twenty-nine is about $100 million lower than the prior guide you had given there anything driving that or despite the fact that the CapEx is higher? So any color there. Rejji Hayes: Yeah. Yeah. My sense is it's mix. That usually what it is because you do have different depreciation rates depending on the assets, the distribution assets tend to be longer-lived than the generation assets, and so it's got to be mixed. But the IR team will certainly follow-up with you after the call to unpack that some more, Bill. Bill Apicelli: Great. Thank you very much. Operator: Thank you. This concludes today's Q and A session. So I'll hand the call back to Mr. Garrick Rochow for any closing comments. Garrick Rochow: Thanks, Adam. I'd like to thank you for joining us today. I look forward to seeing you on the conference circuit. Take care. And stay safe. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Michael Rednor: Good morning, and welcome to Carrier's Fourth Quarter 2025 Earnings Conference Call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations excluding restructuring costs and certain significant nonrecurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements which are subject to risks and uncertainties. Carrier's SEC filings, including our Form 10-Ks, quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Dave. David Gitlin: Thanks, Mike, and good morning, everyone. 2025 was an important year for Carrier. The short cycle residential and light commercial markets softened more than we expected in the second half of the year. We made meaningful progress on our strategic priorities and reached major milestones, including growing our data center business to around $1 billion. Notably, even with 10%, and light commercial down about 20%, total company organic sales were down about 1% as we continued to drive growth in our long cycle and aftermarket businesses. We also reduced channel inventory and lowered overhead, while continuing to invest in technology differentiation, salespeople, and technicians. Those actions position us for stronger growth when our short cycle markets recover. We had our fifth consecutive year of double-digit growth in commercial HVAC, while continuing to gain share and increase margins. Aftermarket was also up double digits for the fifth consecutive year. We offset tariffs with aggressive cost and pricing actions, drove strong material productivity, and took decisive overhead cost actions. And as you'll see in our outlook, the cost actions that we execute into 2025 will deliver over $100 million of savings in 2026. Finally, we distributed $3.7 billion to our shareholders through buybacks and dividends. In terms of capital allocation, we remain focused on investing in the highest return opportunities, maintaining a strong balance sheet, and returning cash to shareholders. We will continue to focus on outsized growth in products, aftermarket, and system offerings, and you can see the progress we're making on all three growth vectors starting with products on slide four. Our data center investments are delivering results with fourth quarter CSA data center orders up more than five times. We are still in the early innings, and our expanded portfolio now addresses essentially all major data center chiller applications. Our share of water-cooled chillers has increased four times since spin, and with our recently introduced Maglev bearing air-cooled chillers, we see meaningful share opportunity there as well. Key differentiators include quick restart, free cooling, and leading at elevated ambient temperatures. We introduced our first CDU for liquid cooling in 2025 and plan additional higher capacity CDUs up to five megawatts in 2026. Over the past couple of years, we have expanded our commercial HVAC engine lab and chiller manufacturing capacity globally and have added hundreds of technicians. These multiyear investments have positioned us to outgrow the commercial HVAC market as reflected in our 2026 outlook, with double-digit revenue growth, including data centers up about 50%. Aftermarket also remains a good news story for us as you can see on slide five. Our playbook works, and we continue to improve upon it. Three years ago, we had 17,000 chillers connected. Today, it is over 70,000. Our attachment rate in CSA grew more than three times last year and is now close to 60%, and our global coverage, that is chillers covered by service agreements, is up to 110,000, including Toshiba. We estimate that 70 to 80% of our high complexity chillers are under service contracts. The area within our aftermarket business where we see the highest growth potential over the next five years is modifications and upgrades. Sales last year were up 20%. With a focused team, investments, and strategy, we see great opportunities in cities globally. In 2026, we are well positioned for double-digit aftermarket growth for our sixth consecutive year. Turning to systems on slide six. HEMS offering in The United States is getting tremendous attention from hyperscalers and utilities, and it is not surprising given the magnitude of the impact that our solution can have on the grid. If our integrated heat pump battery solution were in every home and building that Carrier currently serves, we would free up nearly 15% of grid capacity during peak hours. It also weighs favorably versus alternatives in terms of time to market, cost of implementation, and affordability to the consumer. Our Carrier Energy team's progress in 2025 was significant. Through field trials in Carrier employee homes, we have been demonstrating that we can consistently provide up to four hours of battery-powered heat pump operation during peak hours. We are planning market launch later this year. Likewise, in Europe, we have been working closely with our installers to offer differentiated HEMS solutions. Our SystemsProphy installers, those qualified to sell and install complete solutions, including heat pump, battery, solar PV, domestic hot water, all connected through our digital home energy management system offering, drove their sales up double digits last year. We plan to double our number of qualified Prophy installers in 2026, driving strong growth for them and us. Turning to Slide seven. In our CST business, there is no better example of an end-to-end solution than what we're seeing in our container business. Four years ago, links did not exist. Today, we have over 220,000 paid link subscriptions with over 110,000 on containers, including six of the world's top 10 shipping lines. We also recently invested in NetVaso, which provides enhanced wireless IoT connectivity on cargo ships. By combining advanced AI-driven reefer health algorithms in our LINX applications with enhanced ship connectivity, we enable shipping customers to avoid manual checks on refrigerated units and to predict and avoid failures before they occur. This end-to-end solution is expected to help smooth the container and provide meaningful recurring revenues while delivering differentiated customer value. Let me turn now to discussing some of our shorter businesses starting with CSA resi on Slide eight. Over the long term, residential remains a significant opportunity for Carrier. It is a large replacement-driven market with secular tailwinds in and heat pumps, and our leading brands, channels, and installed base are unmatched and position us for outsized earnings growth as demand normalizes. In this market, we estimate demand in a typical year to be around 9 million units. Between 2020 and 2024, our industry averaged 9.7 million units for a cumulative overage, so to speak, of about three and a half million units. Last year, we estimate our industry delivered about 7.5 million units, so we absorbed about 45% of that overage. We are assuming that we absorb the balance in 2026. Our assumption for the year is essentially no change to the macro conditions that we exited last year with. Little change to mortgage rates, consumer confidence, or new and existing home sales. That would result in total industry units down 10 to 15%. With that industry assumption, our sales would be down high single digits as we benefit from the absence of destocking in 2026 compared to 2025, combined with low single-digit price realization. Turning to CSE Residential on Slide nine. The good news in this market is that the transition from boilers to heat pumps is underway with heat pumps growing double digits as anticipated. The bad news is that the total heating market has been in a cyclical downturn for the past few years. Like The Americas, the industry has been absorbing overage that we saw in the 2022, 2023 time frame. We expect continued softness in total heating units in 2026, resulting in expected flat sales with our growth initiatives being offset by lower industry volumes. When unit volume stabilizes, we are well positioned to drive strong earnings growth given our strategic initiatives and the cost actions that we have taken in this segment. Turning to Slide 10 for what this all means for our full-year guidance. With respect to revenue growth, we expect that about 40% of our portfolio, commercial HVAC and aftermarket, will continue to grow double digits. Expected continued softness in our higher margin short cycle businesses, especially CSA residential and light commercial, is expected to largely offset that growth, taking the total to about 1% organic growth for the company. On the profit side, mix is expected to be a headwind somewhat offset by the cost actions that we took last year. Patrick will take you through the guidance in more detail, but we will continue to focus on controlling the controllables all across all aspects of growth, cost, and productivity. We are the best-positioned company in our industry when our short cycle recover, which they surely will, and we are poised to see outsized gains when they in fact recover. We enter 2026 energized and focused on outgrowing our markets, delivering best-in-class solutions for our customers, and driving productivity as we always do. With that, I will turn it over to Patrick. Patrick Goris: Thank you, Dave, and good morning, everyone. I'll provide some color on our results and then move to our 2026 outlook. Please turn to Slide 11. For the quarter, reported sales were $4.8 billion, adjusted operating profit was $455 million, and adjusted EPS was $0.34. As expected, the year-over-year decline in these financial metrics was largely due to much lower volumes in our higher margin CSA residential and light commercial businesses, leading to an overall 9% decline in organic growth partially offset by a 3% tailwind from foreign currency translation. Total company orders were up over 15% in the quarter, driven by strength in CSA Commercial underscoring continued strong demand for our products in this market. Adjusted operating profit was down 33%, mainly reflecting lower organic sales and the unfavorable business mix I just referred to as well as much lower manufacturing output, partially offset by strong productivity. The adjusted EPS decline mainly reflects lower adjusted operating profit, a lower share count, and somewhat higher interest expense and tax rate. We have included the year-over-year adjusted EPS bridge in the appendix on Slide 21. Free cash flow in the fourth quarter of about $900 million reflected a large reduction in inventories and accounts receivable, and full-year free cash flow of about $2.1 billion was in line with expectations. As to full-year results, you can see that our organic sales were down about 1% due to weakness in our shorter cycle businesses, which represent over 50% of our portfolio. Very strong growth in global commercial HVAC, up 14%, helped mitigate the short cycle business' sales decline. Moving on to the segments, starting with CSA on Slide 12. This segment had a very difficult quarter. Organic sales down 17%. Commercial delivered another strong quarter, with sales up 12%, but this was more than offset by lower resi and light commercial sales. Resi sales were down close to 40% with volume down over 40%, offset by regulatory mix and price. Light commercial sales declined 20%. Segment operating margin was just under 9%, a decline of about 10 points versus the prior year, reflecting the impact of lower sales, and significant under absorption in our resi manufacturing facilities, which had less than half the output compared to Q4 of last year. At year-end, field inventories for resi were down roughly 30% year over year in line with our expectations. And we believe that field destocking is now substantially behind us. Similarly, light commercial distributor inventories were down 25% year over year. For the full year, CSA Commercial had another excellent year with sales up over 25% offset by resi down nine and light commercial down twenty percent. Moving to the CSE segment on Slide 13. Organic sales were down 2% with commercial up mid-single digits, offset by mid-single digits declines in resi light commercial. The residential heating market continues to be challenging in this region, particularly in Germany, which is our largest market. Transition to electrification and heat pumps is happening, as reflected by growth in heat pump sales and a decline in boiler sales. Segment operating profit and margin were both up year over year on lower organic sales reflecting the impact of cost actions. Turning to Climate Solutions Asia Pacific, on Slide 14. Strength in India and Australia was more than offset by ongoing weakness in resin light commercial in China, leading to an overall 9% sales decline. Overall sales in China were down about 20%, with Resi and Light commercial down about 30%. Where we intentionally reduced distributor inventory during the quarter while commercial in China was down mid-single digits. Segment operating margin of about 12% was up 100 basis points, primarily driven by strong productivity offset by the impacts of lower sales. Moving to Transportation on Slide 15. This segment had a strong quarter with 10% organic sales growth driven by continued exceptional growth in container. Global truck and trailer was flat in the quarter with growth in North America offset by weakness in Europe and Asia. Segment operating margins, expanded by 30 basis points year over year primarily driven by strong productivity, partially offset by business mix. Turning to Q4 orders. On Slide 16. Total company orders were up 16% for the quarter, with strength driven by commercial HVAC globally which was up over 45% and particularly in CSA, where commercial orders increased 80% reflecting some large data center wins. Applied orders within CSA commercial more than tripled compared to last year. Light commercial orders were up 70% with resi orders about flat. As you can see on the slide, orders were flat to up in every segment. Moving on to Slide 17, and shifting to 2026 organic sales guidance. We expect flat to low mid-single digit organic growth and reported sales of approximately $22 billion. This includes a roughly $350 million year-over-year revenue headwind from the exit of Riello mainly reported in the CSE segment. We announced the sale in December and our guide assumes the transaction closes at the end of the first quarter. Also, Dave mentioned earlier, our outlook reflects continued double-digit growth in commercial and aftermarket globally, offset by continued expected softness in our shorter cycle businesses. In commercial HVAC globally, we expect the first half to be up low to mid-single digits and the second half up mid-teens reflecting comps and customer delivery timing. This back half acceleration reflects conversion of data center wins and delivery of our broader commercial backlog. By segment, we expect CSA and CSE to be up low single digits while CS AME and CST are expected to be about flat. Within CSA residential, we expect a very difficult first half followed by growth in the second half as we benefit from the absence of destocking. CSA Commercial is expected to remain strong. And as I just mentioned, accelerating in the second half as we deliver more of our data center wins. Within CSE, our outlook for a flat RLC business largely reflects expected continued overall heating market weakness. Within CSAME, expected declines in China are offset by growth in the rest of the segment. And in Transportation, declines in container as 2025 was a record year are expected to be offset by modest growth in our global truck and trailer business as well as Sensatec. Moving on to Slide 18, profit and guidance. Profit and cash guidance. Total company adjusted operating profit is expected to be about $3.4 billion. The benefit of modest organic growth and productivity, including prior year overhead cost actions are partially offset by unfavorable business mix given high single-digit declines in CSA resi and light commercial and investments. We expect free cash flow to be approximately $2 billion which will be second half weighted, reflecting our normal seasonality. Finally, we intend to repurchase about $1.5 billion in shares. Moving to Slide 19, We expect adjusted EPS of approximately $2.8 up high single digits versus 2025. Adjusted EPS growth includes about $0.15 from increased operating profit as I just outlined, as well as tailwinds from a lower tax rate and a lower share count which are partially offset by higher net interest expense NCI and the exit of Riello. As usual, additional guide items are in the appendix on Slide 23, and our guide assumes no change to the macro, including the current tariff environment. Finally, let me provide some additional color on the first quarter. As we've communicated previously, CSA resi faces a very tough compare. We anticipate total company Q1 revenues to be about $5 billion with organic revenue down high single digits, including CSA resi down over 20%. We expect Q1 company operating margin to be about 10% largely reflecting the sales and manufacturing volume pressure in our higher margin short cycle businesses. Adjusted EPS is expected to be about $0.50 which includes the benefit of about a 0% effective tax rate due to a discrete tax item in the first quarter. Free cash flow is expected to be a use of a few $100 million in line with our normal operating cadence. While we expect sales and EPS to be pretty well balanced between the first and second half of the year in absolute terms, the year-on-year growth in sales and EPS will obviously be second half weighted. Overall, we will continue to drive operational excellence throughout our businesses as we return to organic growth and margin expansion and remain focused on executing in 2026. With that, I would like to ask the operator to open it up for questions. Operator: We will now begin the question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Nigel Coe with Wolfe. Your line is open. Please go ahead. Nigel Coe: Thanks. Good morning. Wow. What a year. Thanks for all the details. I did want to maybe, Patrick, dig a little bit deeper into the one Q you know, sort of mix? And can you just maybe talk about you know, the CFA margins? And I it it looks to me if if I just eyeball the numbers, it looks like maybe close to 10% maybe maybe low double-digit margins in CSA. And number one, is that correct? And secondly, just run through some of the drivers for that. So, you know, the fixed cost absorption headwinds that you're facing, any kind of raw material impacts, you know, just, you know, kind of what's driving that margin. And maybe the the the recovery part from there? Patrick Goris: Yes. There's a lot there. I'll start with CS expected margins in Q1. And from an overall company, we expect them to be close to about 15% in Q1. Point of view, the way you can think about Q1 is Q1 actually looks very similar to 2025. But with a bit higher sales at about $5 billion. And about a point higher of an operating margin point of view. In Q4, our resi sales were down about 40% and we expect them we expect resi sales in Q1 in The Americas to be down about 20 to 25%. And so that explains a little bit of the uptick in margin in Q1. And then in Q1, because of the 0% effective tax rate, that is about a 10¢ benefit versus so about 15¢ improvement Q4. Five points 5¢ of that is better CSA performance. 10¢ of that is a lower tax rate. Nigel Coe: Okay. Just the 10¢ the 10% overall operating margin is what threw me off there. So maybe talk talk about the other segments, other downside drivers in the other segments. Patrick Goris: Yes. If I go through the other segments, the Transportation segment is expected to have similar margins to the prior year. About 14%. Asia, had very strong margins in the '25. We think the margins will be similar to what we've seen in the 2025, so about the 10%, 11% range. And Europe, we think that the margins will be similar in Q1 as they were in Q4. So generally, similar margins as to what we've seen in our businesses in the fourth quarter of the year. The Americas a little bit better. It's less of a headwind of resi. Nigel Coe: Okay. Thanks, Patrick. Patrick Goris: Thank you. Operator: Your next question comes from Julian Mitchell with Barclays. Your line is open. Please go ahead. Julian Mitchell: Hi, good morning. Maybe just wanted to understand a little bit more that full-year guidance for the CSA residential business. Maybe help us understand what you're seeing in the market on pricing and how you see industry discipline on the price front. And maybe help us clarify kind of how much volume share gain or outperformance you're expecting this year relative to that double-digit I think, sell-in market decline? David Gitlin: Yeah. Julian, let me let me kinda walk you through how we came up with our forecast and guidance for for this year. So we're assuming at the highest level that industry conditions are the same as last year. So no improvement on interest rates, consumer confidence, newer existing home sales. We assume that the second half of 26 industry units are the same as the second half of 2025. So on a two-year stack, that would mean a 30% decline in industry units which is what we assume for the 2026. So all the result there is that in the first half of this year, industry units would be down year over year by twenty year to 25%. And in the second half, industry units would be flat. To the 10 to 15%. Now, Julian, what it means for us is that we believe that the distributor inventory destocking that occurred in the second half of last year is substantially behind us. So, therefore, we think that in the first half of this year, we'll be down 20, 25% consistent with movement. And in the second half, sales will be up our sales will be up 10% given the absence of last year's second half destocking. So a bit complicated, but what that all means is the net result of all of this is that we expect our sales and our our sales and our volume to be down high single digits year over year with our sales including about a low single-digit benefit from pricing. Julian Mitchell: That's super helpful. Thanks very much. Maybe my question would go on a different topic around CS You know, you had this dynamic in 2025 where decent heat pump growth offset by a boiler price and and sort of mix headwind. Just wondered what you're dialing in for that CSE RLC market for the year ahead. And how you see your own internal dynamics vis a vis heat pump and and boilers playing out? David Gitlin: Well, look. I think the mix up is essentially playing out as we thought. You know? So, the issue is that what we're predicting for this year, for 2026, is that the industry overall in Europe will be down mid to high single digits. Now we guide it to flat because we do get the benefit of mix up, you know, heat pumps up double digits, boilers down low to mid single digits. We'll see aftermarket up double digits, which drops through at a point in a point or two. And then we have our growth initiatives and our revenue synergies, are are frankly playing out well. The big issue that we've been having, frankly, is in Germany where we're, of course, overweighted. So remember, we were thinking that the German market would go from something like 715,000 to 660, then we thought 640,000, and it ended up around 600,000. If you look over historically, the German market is about 800,000. So just like in The US, we do think there will be a reversion to to the mean. We just don't think it happens this year given some of the continued ambiguity and uncertainty around some of the heating laws in Germany. Julian Mitchell: Great. Thank you. David Gitlin: Thanks, Julian. Operator: Your next question comes from the line of Scott Davis with Melius Research. Your line is open. Please go ahead. Scott Davis: Hey. Good morning, guys. Morning, Scott. Morning. I'm looking at slide eight, and I'm just trying to figure out how far below normal do you think channel inventories are in CSA resi? David Gitlin: Yes, Scott. We as we sit here today, we ended we ended January versus January down about 30 per 32%. So we we did go to great lengths with our channel partners. To end at the field inventory levels that we had we had said. And, you know, that's putting us at, like, twenty eighteen type levels. So the good news is that the field inventory that we targeted to get down we got down, and we've continued to take it down. Here in January. Scott Davis: Okay. Helpful. And moving to to more fun stuff, data center, is obviously usually helpful here. But it no. I don't know how far out you're booking orders, but when you think about the billion-dollar revenue numbers that you put up, 60% up orders kind of implies 1,000,000,006 for '26. Is that somewhere in the ballpark? And perhaps there could be some orders in '27 and and stuff. I'm sure it's not perfect, but I'm just trying to get a sense of that how that orders flows through through revenues and '26. David Gitlin: Yes, Scott. That's about right. I what we're guiding is to 1 and a half billion for this year. So you're in the ballpark. Okay. So we we saw great orders, last year. I mean, phenomenal orders in April been good. So we feel, very well positioned. Now the reality is that we have a lot more in March and April. We would love to see a little bit more pulled in. But right now, that's when the customers that, that we've had great wins with are are are looking for the deliveries. We feel really good about data centers for this year. Scott Davis: Okay. Helpful color. Thanks. Best of luck, guys. Appreciate it. David Gitlin: Thank you, Scott. Yep. Operator: Your next call comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead. Joe Ritchie: Hey, guys. Good morning. David Gitlin: Hey, Joe. Good morning, Joe. Joe Ritchie: Hey, Dave. Can we just talk about the, the inventory dynamic just a little further So so clearly, you saw a pretty big reduction in your inventories q on q. I think it was 17%, but the inventory levels were up year over year about 8%. And so is that a function of just building inventories in the parts of your business that are growing? Just give us any more detail on that dynamic. Patrick Goris: Hey, Joe. Patrick here. You you may recall that we decided last year to keep our US resi manufacturing facilities running at minimal levels. Because it was more economical than shutting them down for several months and then having a cold start. As a result, is a couple 100,000,000 more inventory on our books at the end of the year than we otherwise would. And our current guide assumes that that gets liquidated through the year. Quarter over quarter, inventories actually dropped. Joe Ritchie: Got it. Okay. Great. That's that's that's helpful, Patrick. And then and then and then one last question. I know we were kinda being a dead horse here on the on the resi side. But this, like, six and a half million unit industry average, I mean, assuming whatever you wanna assume for new new new housing starts you know, call it somewhere in that million, a million and a half zone. Really kind of res assumes a replacement rate that's, like, north of twenty years for this year. It just seems you know, seems it it seems conservative at first blush. Just any thoughts around you know, if you go back even further, Dave, and you take a look at you know, where the industry was even before that kinda 2020 time frame, like, you know, do you really think that for the year, you're gonna need to flush out this much demand in order to get back to equilibrium? Or trying to be conservative to start the year? Thank you. David Gitlin: You know, Joe, what what we start with are some of those bigger picture, analyses, you know, the average you know, with new home construction of nine, nine point seven and three and a half overage, last year, seven and a half. So we kinda use that for triangulation. Then we go towards what we're seeing with boots on the ground in the marketplace. And we're seeing that what we ended last year, a lot of those macros we did not assume that we'd wake up on January 1 and they'd all be suddenly better and different. So that's why we did the analysis that I kinda took Julian through of what we assumed in the second half. We just assumed for the second half this year because, you know, it is a seasonal business. We can't assume sec something for the second half and apply those volumes to the first half. So we tried to be as pure as we could about the analysis that that we applied, and then we applied that two-year stack to 24. So look, you know, we, we we've guided to down, high single digits for us, the market down 10 to 15. And if things play out exactly as they did in the second half, that's about where we would end up this year. Do we hope it's better? Of course. But that's that's how we're planning. Joe Ritchie: K. Very helpful. Thank you. Thank you. Operator: Your next question comes from the line of Steve Tusa with JPMorgan Chase and Co. Your line is now open. Please go ahead. Steve Tusa: Hey, guys. Good morning. David Gitlin: How are you? Hey, Steve. Steve Tusa: Good. Good. Just on on the on the resi side, I I haven't done the math, but what do you what do you think for the, you know, like, for the year now, like, Movement ended at? You know, in in the channel. And what are you assuming? Movement is for next year? Like, help me with what Movement was in Sorry. Like like like like sell out sell out. Sell out. Sorry. Sell out. Yeah. Steve, Steve, Moomit was down about 30% in q, '4. Okay. That's so that's the sellout number. Okay. And then what are you guys assuming for in for in inflation in total company price? And are you how are you marking the commodities? Are you marking them, like, to market today or year end? Or maybe just some color on the inflation side? Patrick Goris: Steve, in terms of pricing, Dave mentioned about low single digits, so give or take close to a point. For the total company. In terms of commodities, we block on a a rolling four quarters. And today, as of today, we have about a $60 million headwind related to copper, steel, and aluminum headwind for this for this year, and that is net of our blocking position. That headwind is about equal across the four quarters. And we're about 50 a little over 50% blocked for the full year. Steve Tusa: Okay. And the one percent's in resi as well? Is resi a little higher than one? Patrick Goris: Low single digits. So in that range. That range. David Gitlin: Great. You know, we That's good. See, we announced a price increase of up to, I think, five or six effective in in March. And we think we'll realize in that low single-digit range. Steve Tusa: Great. Thank you. David Gitlin: Thank you. Operator: Your next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is now open. Please go ahead. Andrew Kaplowitz: Hey. Good morning, everyone. Hi, Andy. Dave, you obviously talked about the 100,000,000 of cost benefits expected in '26 that you actioned in '25. Maybe you could talk about how the benefits are layering in in '26 and if, for instance, CSE residential or CSAME continues to drag, what can you do to protect the margin improvement you have in your guidance? Patrick Goris: K. I I'm gonna I wanna make sure I get but I'm gonna walk you through the profit walk '26 versus '25. At the at a high level, we're targeting about a $100 million of incremental operating profit. Volume mix combined is a headwind of about 100,000,000 We talked earlier about price So price is about a point as I combine that with some of the tariffs about a $102,100,000,000 dollars. Productivity, including the cost actions that we have taken, is close to $400 million. You offset that with some of the inflation that I mentioned, annual increase in merit and then investments. And basically, you get to about $100 million increase in operating profit. And then, of course, the segments each have their targets and are working on contingency plans depending on how they perform versus their targets for the year. Andrew Kaplowitz: It's helpful, Patrick. And maybe you can touch on the guide for CSA, I mean, and the confidence level there for flat 26%. As you know, China RLC revenue was down 30% in Q4 twenty five. You talked about destocking, but it looks like your orders bounced back a little and maybe decompensated. So us more color on what you're seeing there versus the rest of Asia. David Gitlin: You know, for AME for '26, Andy, we we're guiding flat. We expect China to be down about high single digits. We think RLC softness continues. We we think that's down about 20 with the CHVAC business in China being up low single digits. And then the rest of Asia to grow high single digits. We've been doing very well in places like India, and The Middle East. Japan you know, those have been that are watching us for the last two years, Japan actually grew 8%. And frankly, when we bought that Toshiba business, very little growth with margins pretty close to zero. And by the end of this year, our EBITROS should be in the mid-teens. And last year, we grew 8%. So a lot of good work outside of China. Resi in China remains tough. We tried to take some action in the fourth quarter to decrease the amount of inventory in the channel on the residential side. So hopefully, helps us a bit going into next year, but the macros in that resi channel business are still tough. Andrew Kaplowitz: Appreciate the color. David Gitlin: Thanks, Andy. Operator: Your next question comes from the line of Deane Dray with RBC Capital Markets. Your line is open. Please go ahead. Deane Dray: Hey, David. Good morning, everyone. David Gitlin: Hey. Deane Dray: Dave, if we just step back in terms of all the dynamics in the d destocking, what's your expectation when we come into the typical cooling season? There's still a sense there's pent some pent up demand on the resi side and channel inventory at eight-year lows. Will there be any chance of stock outs? Just it sounds like the the channel in could be some channel inefficiencies. And just kinda how are you prepared for that? David Gitlin: You know, it's one of the the things that we put a lot of on, obviously, forecasting, but also operational agility. So as we get into the season, we have our forecast. You know, we've, assumed, for example, that the first quarter is down in the 20, 25% range, and January was kinda consistent with we with what we thought was gonna happen for the first quarter. As you get into the season, what we we learned from last year is that things can surprise you to the upside or or downside, so we just need to be ready If we get into the season and weather is a very positive factor, we have inventory levels in the channel quite low. Demand starts to pick up. We will we will be positioned, operationally to support that but we think we've tried to plan in a way consistent with what we've been seeing over these last six months. Deane Dray: Alright. That's good to hear. We'll be listening to Al Roker. Yeah. And then Yeah. On the data center side, what are the implications on the recent comments from NVIDIA regarding chiller demand you know, does that change your expectations for the mix between water and air chillers? Does it change any of the configuration economics of the configurations that you're you're modeling in today? David Gitlin: You know, we actually have been very, very fortunate to work very closely with NVIDIA. Frankly, earlier this week, in Vegas, our team was meeting, with NVIDIA. We've been working together on a number of climate optimized reference designs and thinking very closely about the chilling requirements for their future chip, the verruban. What I would say, Dean, at the highest level is that number one, data centers will require a combination of and traditional cooling, and we are confident that NVIDIA agrees with that. If you look at the Blackwell chip and the new 55 degrees C. Both so both need some form of cooling. The Vera Rubin chips will be more efficient and delivers a lot more output but the inlet the input temperature will be about the same. And that power translates directly heat, so both designs require the same amount of heat dissipation. So working closely with NVIDIA and, of course, our hyperscaler and colo customers. We're working on both liquid cooling traditional cooling, the combination through our Quantum Leap offering. And, yes, there's gonna be depending on the customer, some prefer water cooling, if you have access to more water. And then a lot of our recent wins have been on the air-cooled side. Deane Dray: Good to hear. Thank you. David Gitlin: Thank you, Dean. Operator: Your next question comes from the line of Chris Snyder with Morgan Stanley. Your line is open. Please go ahead. Chris Snyder: Thank you. I wanted to follow-up on on some of that conversation around speaking to the channel partners. Do you think your channel partners plan for the same level of spring purchasing that they have done in prior years? Or do you think would maybe be a more spread out cadence throughout Q2 and Q3 just given all the volatility that they've had to work through over the last twelve months. Because, you know, while channel inventories, you know, have returned to twenty eighteen levels, per some of the comments, It seems like demand could be tracking below 28. 18 levels. Thank you. David Gitlin: Yeah, Chris. I think that our channel partners are planning the year very consistent with how we're planning the year. So I think after what we all saw in the second half of last year, where frankly, we all got surprised by the magnitude of the decline. I think there's a reticent for a reticence for anyone to get out over their skis. So everyone went to great lengths to get field inventory down. Our our channel partners and us working with them We think that we're balanced, and it'll all now be a function of underlying demand as we get into the season. So I think that clearly, there will be more demand as we get into the season than off season. I think it would be a typical ramp but off a lower base. Thank you. I I appreciate that. And then maybe if I could follow-up on Americas margins. I think Patrick said Q1 of about 15%. So if my math is right, it seems like, you know, you guys are calling for Q2 to Q3 to to to get back to that mid-range. You know? And, obviously, that's a level that you guys have gotten to consistently in the past. But can you just maybe talk about the path to get there? Because it feels like there would still be some level of absorption headwinds you know, volume's still down, and just continued cost inflation in the market. Thank you. Patrick Goris: Yes, Chris. So Most of the under absorption year over year this year will be in Q1. For resi. And then sequentially, given the seasonal build, which there will be a seasonal build, that typically happens in the second quarter, late in the first quarter. That is the reason, frankly, why sequentially, we expect margins to improve in that mid-20s range as you mentioned, for CSA. And so it's a combination of less headwind from under absorption, as well as an improvement in sequential sales, which is typical for CSA, even though in absolute terms, organic sales will be lower than the year before. Chris Snyder: Thank you. Patrick Goris: You're welcome. Operator: Your next question comes from the line of Amit Mehrotra with UBS. Your line is open. Please go ahead. Amit Mehrotra: Thanks. Thanks, operator. Hi, everybody. Dave, I just had a maybe, a philosophical question, and then I wanted to get, a follow-up on incremental margins if I could. So first, folks sometimes never waste a good crisis. And what I mean by that is is that you know, given kind of the environment that you've had to endure, has that offered an opportunity to kinda rethink how the company approaches some of the structural costs? Is there anything that you're doing or wanna do with respect to cost that that that's born from this environment of just hyper cyclicality in the market? David Gitlin: Oh, for sure, Amit. I mean, I love I I love the question because as you just said, you never wanna let a good crisis go to waste. So we certainly, from a cost perspective, we did take out which is very, very difficult, but the right thing to do, we did have to reduce 3,000 heads last year, mostly in the second half of last year. We, we always look at our footprint and had to rationalize our footprint, and there will be more of that as we go forward. Then we look at our overall way of doing business. So we're using AI across our functions to drive more productivity. There's a lot of demands on our people. So it's easy to to to just sort of try to, take out cost. The hard thing is to drive better productivity while taking out cost. So the team's done a great job embracing AI as well to drive more productivity. Then we've looked across everything. We've looked at our forecasting. We've looked at how our whole growth process and how we look at specific campaign by campaign and introducing new products into the marketplace to ensure we win. And we've looked at product platform platforming. So how we can use a back office COE concept for engineering to drive product platforming, So we've made a lot of changes. Look. Our formula works since our spin. Got surprised in the second half of last year by some of the residential downturn. We are not pleased that we missed in the second half. It's not who we are. We plan for that never to happen again. That's not who we are as a company, and we went to great lengths to to learn from that in the second half to do everything in our power to make sure it never happens again. Amit Mehrotra: Great. And and just a a follow-up highly related to that. If I look at the decremental margins, obviously, very, very high in the fourth quarter could have implied quite high in the first quarter as well. You know, the the counterpoint to that is high decrementals sort of also imply high incrementals. And and and I'd just be curious, you know, when this thing turns, and eventually it will turn, how much cost do you have to do you think you have to bring back, and can we be looking at you know, the same type of margin just incrementally as opposed to decrementally, if you can talk about Patrick Goris: Yeah, Chris. Maybe a little bit about the Q4 decrementals and if look at the decrementals, it looks like it's a 70% decremental. It's impacted by currency. If you yank out currency, which is about a $150 million in sales with no earnings, our decrementals are 50%. Still really high. But not, of course, close to 70%. The 50% of the represents or reflects sales reductions in resi and light commercial in The US and the under absorption. So as those businesses recover, which as you said at some point, they will recover, we expect to have high incrementals. And you mentioned how much of the cost we've taken out do we have to add back Our current guide includes about a $100 million of incremental investments. Throughout this period, we continue to invest in sales resources and digital capabilities And so I do not expect we have to add a lot of incremental cost that we've taken out this year. As business improves. We will continue to increase our annual investments, but I don't see a a step up after what we've done last year. Amit Mehrotra: Right. Great. Wonderful. Thank you, guys. Good luck. Appreciate it. David Gitlin: Thank you. Operator: Your next question comes from the line of Joe O'Dea with Wells Fargo. Your line is open. Please go ahead. Joe O'Dea: Hi. Good morning. Thanks for taking my questions. Dave, can you just taking a step back and thinking about the resi cycle and 6,500,000 units and underlying support for nine Just talk about the building blocks to to get back to to nine, the degree to which what we're seeing this year is just replacement that happened maybe sooner than it needed to in that twenty twenty to twenty four period, what you think about in terms of repair versus replace, dragging things out a little bit in '26, But most important, you know, that path to get back to nine. David Gitlin: Yeah, Joe. I think it comes back to the fundamentals. You know? Once you start to see the thirty year start with a five or less, you know, it's been starting in the low sixes. A little bit of tailwind on consumer confidence, a pickup in new home construction, especially on single-family side, and existing home sales A lot of those elements, once you start to see that underlying demand pick back up, we should start to see a a reversion to the mean of that overall 9 million units. I think in terms of repair versus replace, I have no doubt that we saw an uptick in repair last year. We don't think that that's a long-term trend. And I would say for for three reasons, Joe. Number one is that the economics will almost always weigh better in favor of a replacement. A typical repair can cost a thousand dollars. The compressor can be a few k. But it only extends the unit's life by one to three years. So in general, a consumer will be better off with a full replacement Number two, it it was particularly impacted by low sale of existing homes because it hurts you on both ends from the the homeowner that's been waiting to buy a new home is a little bit reluctant to have a full replacement a year two before they sell their home. So they may be waiting and limping along with a repair And once they buy the home, they will often negotiate a replacement of the HVAC product as part of the the full replacement. So that decrease in existing home sales has put probably more pressure on repair versus replace. But as existing home sales starts to pick up, which it eventually will, you'll get back into that replacement cycle. And the third piece I'd mentioned is what you typically see in an industry is with a refrigerant chain, you do refrigerant change, you see more repair versus replace. It takes a while for the channel to get trained on the new refrigerant. Last year, we had a canister shortage with the four fifty four b, which impacted things a bit. And then the old refrigerant eventually becomes more expensive, and it's harder to access. So that that it will lead to more replacement over time. So we need the macros to recover. We don't see repair over replace as a long-term trend. And once that happens, which it eventually will, and we'll be ready operationally to support our customers, the conversion on that will be quite positive. Joe O'Dea: That that's helpful color. And then, just on CDUs, like, why why do you win on CDUs? You know, we hear kinda talk about a pretty fragmented competitive environment, just the degree to which for you a sale tends to be more of a system sale with a with a chiller and air handling. You know, what that means for kind of margin profile of a CDU and if that's dragging things down at all, just to explain that a little bit. David Gitlin: Yeah. No. No margin, drag at all from CDUs. You know, I'm really proud of the team because we looked on the liquid cooling side, we've looked at both organic and inorganic. And we've opted for a couple of VC investments. You know, we still have a percentage of Zutor Corp. Which has a two-phase solution. On the CDU side, we decided to produce our own. It's essentially a mini chiller. We introduced one megawatt or 1.3 megawatt last year. We've already had a really nice wind down in the, Southern part of The United States. We just got a handshake on a new one earlier this week. For another one in South America. So we feel good about what we've introduced organically. We have a three and a five megawatt coming out later this year. There's a lot of interest. And I think that part of it is our relationship with customers, but part of it is that BMS interaction not only between traditional cooling and liquid cooling, but the entire cooling cycle with our with our chip customers as well. So we're really excited about what we have going on. Liquid cooling and Quantum Leap. We're in the first inning. But we see this as a real differentiator for us going forward. Joe O'Dea: Thank you. David Gitlin: Thank you. Operator: Your next question comes from the line of Tommy Moll with Stephens. Your line is open. Please go ahead. Tommy Moll: Morning, and thank you for taking my question. David Gitlin: Hey, Tommy. Morning, Tommy. Tommy Moll: Wanted to circle back on the comments about MVMT. Two-part question here. Was the down 30 in fourth quarter, is that a a volume number or a revenue number? And then as you think about movement in '26, Dave, if I'm trying to read between the lines here, I think you're essentially saying that channel inventories are pretty balanced currently. And so I think the takeaway there is movement on a track your sales pretty closely through '26, but correct me if that's not right. David Gitlin: It's generally right. What I would say first of all, Tommy, four Q, volume was down a little bit north of 40. Our sales were down in the high thirties because, you know, we got a mid-single digit benefit from, price and mix. The movement if you think about this year, movement will generally track our sales except in the second half, we get a bit of a benefit from the absence of destocking that happened in the second half of last year. Tommy Moll: Okay. Thank you for for that verification. The Q4 number we said was volume was units. The Q4 moment is down below 30% is volume. Yep. Okay. And just sticking with Resy for a follow-up here. Obviously, there there have been a lot of headwinds on the volume side. We can all make guesses as to what the drivers are. But one that hasn't been mentioned squarely that I just wanna mention now is Diagon, which obviously lost a lot of market share toward the 2024. You were one of the clear beneficiaries of that. And so granted the industry demand levels are are pretty poor right now, But could your volumes also not just be reflecting the fact that they've been able to take back some of that share and that not that's not a a fault of anyone. That's just a reality that there's a mean reversion in place, and so you're gonna see some of that in volume headwinds at carrier. David Gitlin: We don't we don't think so, Tommy. We we understand what you're saying that we know that there's been some changes in share in the industry over the last five years. If you look at us versus spin, we're probably up a few 100 basis points since we spun. And if you look at our share last year, I would call it flat from a movement perspective, a sellout perspective. So we saw no change in share last year. We understand there's some movement in terms of some folks that may have lost some share and picked it up. From our perspective, up a few 100 bps since we spun, and last year, we held steady at that number. And we expect to hold steady at that number. If not, increase. We have bunch of new products coming out. We have a new fan coil that showed a lot of there was a lot of interest in in Vegas earlier this week. The team's done really well with our channel partners to position us, so we have no intent of losing any share while maintaining price. And, we wanna ensure that we are on that track of of gaining share. Tommy Moll: Thank you, Dave. I'll turn it back. David Gitlin: Thanks, Tom. Operator: This concludes our Q&A session. I will now turn the call back to David Gitlin for closing remarks. David Gitlin: Well, listen. Thanks to all of you. We could not be more energized about this year. We did take the opportunity to learn from some things from last year and apply those to position us for a tremendous year in '26. So my thanks to our nearly 50,000 teammates around the world, and thanks to, our investors for your continued confidence. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
[speaker 0]: Good morning, and welcome to the Snap on Incorporated Fourth Quarter and Full Year twenty twenty five Results Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sarah Verbsky, Vice President of Investor Relations. Please go ahead. [speaker 1]: Thank you, Drew, and good morning, everyone. We appreciate you joining us today as we review Snap on's fourth quarter and full year results which are detailed in our press release issued earlier this morning. We have on the call Nick Pinchuk, Snap on's Chief Executive Officer. And Aldo Pagliari, Snap on's chief financial officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we've provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the webcast viewer as well as on our website, snapon.com, under the Investors section. The slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs or that otherwise discuss management's or the company's outlook, plans or projections are forward looking statements, and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward looking statements are contained in our SEC filings. Finally, this presentation includes non GAAP measures of financial performance which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick? [speaker 0]: Thanks, Sarah. Good morning, everybody. Oh, well, I'll start by saying these times are some. Seems like every day brings a new twist of considerable Fluctuating tariffs with big swing. Unpresident in domestic and international events that dominate the news. Prolonged government shutdowns. We just avoided another one that hits just keep on coming. But as we speak about the period, I believe you'll see that in the middle of it all, snap on shine through. With strength. I'm gonna tell you, about that as we review the quarter. It's a story of resilient markets, sales progress, profitability, and continuing investments that further fortify our advantages in product and brand and in people. And so as I cover the highlights of the last three months, I'll give you my perspective on the reason on the on the performance. On the markets, and on the progress we've made. Then Aldo will move into a more detailed review of the financials. Our fourth quarter was incurred. We believe it emphatically serves as testimony that our balanced approach growth and improvement is effective enough. Our advantages are powerful enough and our team is experienced, capable, and committed enough to perform even in the most challenging of environment. So here are the numbers. In the fourth quarter, sales were 1,000,000,231,900,000.0. Up 2.8% from last year as reported, including 1.4, 1.4% organic increase and 15,600,000.0 favorable foreign currency. Positive growth against the wind. And our OpCo operating income, OI, for the quarter was of 265,200,000.0 was equal to last year's. And the OI margin for the period was 21.5%. 60 basis points short of last year. The impact of unfavorable currency combined with additional investments in brand building and product development development. For financial services, OI of 34,400,000.0 was up 7,700,000.0 or 115% from last year. Doing a large part to the fifty third week in the two thousand twenty five fiscal calendar being uniquely beneficial to the credit And when combined with Opco, the overall earnings for the corporation of $339,600,000 was up 2.3% versus 24 and total margin was 25.3%. Our overall quarterly EPS it reached $4.94, up 12¢ from the 42 recorded last year. The quarter shows the same resilience demonstrated over the years as as we've paid dividends every quarter since 1939. Without a single interruption or reduction. In fact, in November, it was with clear belief in our future. That we raised our dividend by 14%. The sixteenth straight year of increase. It was not a strong and tangible estimate [speaker 1]: to Snap on's consistency, [speaker 0]: right through a variety of environments. Well, those are the numbers. Now to the market. We believe the automotive repair remains very favorable. And that's validated by the average age of the car park. Now at eight twelve point eight years, and it's continuing to rise. By the growing numb by the growing complexity of new platforms driving more difficult and time consuming repairs, and by the ongoing climb in household spending on vehicle repair, it's up again. And the vehicles and fixers all over are cashing in on the surge. Tech wages are up. Again. [speaker 1]: Extending a, you know, fairly positive trend. [speaker 2]: Hours worked in the in in in the in the in the bays are also on the rise. We believe technicians are financially stronger than ever, and their prospects just keep getting better. It's unmistakable. There's a growing demand for for capable vehicle repair. Shop owners tell about tell us all the time. They need more tech, and we believe the need to continue for and we believe this this need will continue for several years. You know, in fact, there's a good piece, I think. A a recent article in The Economist ditched test books and leave how and learn how to use a wrench to AI proof your job. That piece emphasized the considerable need for more technicians and the solid security provided by the profession. And it cites vehicle repair as one of the most AI proof of jobs. Work is pretty challenging, both physically and mentally. Each repair is different with variations and conditions that never seem to be the same. And as such, a mechanic needs a mastery of a massive repertoire of procedures. Must summon the logic to troubleshoot puzzling failures, and must be able to navigate intricate mechanical setups. With precision. It's a job that's getting more [speaker 0]: complex [speaker 2]: every day. The techs need help and keep it up. And Snap on's well well positioned to do just that. Now, a related but different segment, shop owners and managers are also adapting, continuing to invest in in in the advanced commit equipment and specialty tools required to attend the latest vehicles. This is where repair assistance information or the RSNI group resides. It's a target rich environment. It's a target rich environment for our capable undercar and collision equipment, and it's a great and growing opportunity. For our expanding array of software and data products. It's an arena where Snap on is well positioned with our extensive line of proprietary and comprehensive databases. Billions of data points. Now leveraged with large language models, language machine learning programs that search the the exhaustive and complex information matching the problem signature with just the right repair procedure in a split section. [speaker 0]: Second. [speaker 2]: Greatly expediting the vehicle fix, increasing shop productivity, and getting the vehicle back on the road faster than ever. Again, this again, this quarter, I had the opportunity to meet with with our with franchisees from coast to coast. They're a great barometer. They were all positive about the new about the now. And very enthusiastic about their futures. Sure. They still encounter the the ongoing hesitation of text have toward long term payback for, you know, purchases. But at the same time, they're energized by the success of the tools group execution pivoting the faster payback items, rolling out a continuous steam of innovative offerings that are making difficult and critical repair work faster and much easier. Now in the current environment, tool storage remains the most category. But we do see demand for smaller boxes and our large range of accessories are starting to roar. In fact, the the fourth quarter showed kind of some significant improvement in originations. They were almost flat in the quarter. It's a clear game that bodes well for a future. It appears that our pivot is working. So despite the challenges, automotive repair remains robust, and we believe we're well positioned to capitalize. Now let's turn to critical industries where our commercial and industrial or C and I group operates with a focus on taking Snap on out of the garage to places where work is very critical. Justifying a Snap On level product. Complex tasks performed in in heart and grueling environments from oilfields to subsea subsea floors, the clean rooms for chip manufacturing, and to tightly controlled bays for rocket manufacturing. This arena relies on our extensive catalog of products that provide precision, durability, reliability, and repeatability, all characteristics required to get the job done where the tasks are essential and critical. We believe we have a decisive advantage in this critical areas, and we keep investing to make it even stronger. And the fourth quarter was no exception. This is also in the market where [speaker 0]: with the largest global footprint for us. [speaker 1]: And, you know, that creates challenges in navigating the international [speaker 2]: headwinds like government protocols, varying economies, and currency fluctuation During the quarter, Europe saw the continuing impact of the Ukraine war, And Asia was marked by the general loss of confidence in the Chinese economy. And the impact of the evolving US terrorist terrorist regime. Changes all the time. More than any group, C and I encounters these logical these obstacles from country to country, and it does cause some adversities across the group. But we're confident we have the strengths to overcome the variation and keep progressing. Making the most of the abundant opportunities in this critical sector. So that's an overview of our markets. Resistance against turbulence filled with opportunities. And we're well put, I should say resilience and resistance. Against the turbulence and it's filled opportunities. And we're well positioned to leverage the possibilities. Progressing down our runways for growth, efforts that are fortified by our SNAPA evaluation processes, safety, quality, customer connection, innovation, and rapid continuous improvement or RCI. The core activities that underpin our perform performance, enabling it to hold fast despite the difficult headwinds of these days. Now for the operating groups. Let's start with C and I. Fourth quarter sales of $398.1 for the group were up $18,900,000 or 5% with our organic gain of 2,800,000.0 and seven point nine million of favorable foreign currency translation. [speaker 0]: Our Power Dual division led the way with that growth [speaker 2]: with double digit gains. Moving forward on the market enthusiasm for our new innovative power solutions that make work much easier. And especially torque business was also up, driven by the the ever growing need for precision instruments. And in the critical industries, come back. Our industrial operations overcame the impact of the prolonged US government shutdown. It kinda cut off things for a while. Things were kinda slow for a while. They they overcame that wielding, its increasingly powerful custom kitting operations like never before. To come roaring down the stretch, registering a positive volume and catching up. I mean, you should have seen this team seen them working on catching up. It was a wowza. A why for the for CNI was 60,600,000.0. Included in included a benefit of $4,500,000 related to the refinement of our footprint. And compared and it compared with the 63,500,000.0 registered last year. The OI margin was 15.2% versus the 16.7% in 02/2024, primarily due to material cost increase and stronger sales in some of the group's lower margin businesses. As I said, the sales group was the sales growth was fueled by new innovative power tools. Engineered by our team in Murphy, North Carolina and Kenosha, Wisconsin. In the back half of the quarter, [speaker 0]: For example, in the back half of the quarter, [speaker 2]: we launched our new NanoAxis cordless slugger. I mean, this baby is groundbreaking. Developed from insights gained from customer connections right in the shots at point of work. The Nano is a compact power tool. And when I say compact, I mean, small enough to fit right in the palm of your hand, and it can be carried everywhere in a a small pocket to be always on hand when the need arises. The big advantage is the techs change positions across the shop. Or venture out into the yard. [speaker 3]: The unit has an internal also has an internal ampere [speaker 2]: hour battery that that drives over 600 fasteners. 600 fasteners on a single charge. You see, from our customer connections, we know that most inspections and general repairs are low torque applications like removing panels, clamps, and fasteners under the dash and and in crowded engine compartments. For these common tasks, the nano has the power for rapid renewal removal, the control to avoid stripping the fastener, and has the right size to fit where no other power tool can go. It's a real time saver and a fast payback item And it's right on target for the environment. [speaker 3]: The initial [speaker 2]: release featured two two models, one straight and one ninety degree 90 degree pistol driver. [speaker 3]: Both [speaker 2]: and both units [speaker 3]: set new records [speaker 2]: for new power tool rollouts. [speaker 3]: Pretty strong. [speaker 2]: Also in the quarter, our city of industry factor in California launched our new Control Tech plus torque wrench. It's a unit that has high precision has the high precision needed for critical industries and performs a great liability in the harsh conditions that are often empowered outside the garage. It's it's robust. All steel construction is durable. [speaker 3]: Perfect for heavy duty use. And the design includes a large LED [speaker 2]: a large LED display that's visible in bright sunlight or in dark work areas. Anywhere an industrial tech plies their trade. And that unit is is intrinsic, and and the unit is intrinsically safe, meaning it's certified to work in flammable areas. An important feature for critical applications. And the internal rechargeable battery battery ensures the device is always powered up and ready for work. Our new Control Tech Plus, accurate, durable, easier to use, and safe. Taking Snap on out of the garage and helping deliver the C and I quarter. Well, that's C and I. Sales up. A powerful comeback wielding our critical custom kit capacity. Mighty Mike power tools and precision torque. Rising all rising to new levels. Now on to the tools group. Quarterly sales of 505,000,000. For instance, quarterly sales were of 505,000,000 were debt down from the we're at 505,000,000, down from the 506,600,000.0 of last year. But the OI was a 107,300,000.0, up from the 106,900,000.0 last year. And the OI margin was 21.2%, rising 10 basis points. The fluctuating tariffs, the prolonged shutdown, and the constant period of big bang actions and ideas coming out of Washington has stoked technician uncertainty and reinforced reluctance toward longer payback items. But the tools group but the tools group's ongoing visit [speaker 3]: has [speaker 2]: wanted a series of shorter payback items that that are are [speaker 3]: bringing high value and strengthened margins for the shop. [speaker 2]: And that positive is evidenced by the by the group's gross margins of 6.1%, a gain of a 150 basis points over last year despite the flat volume. [speaker 3]: Boom shackalacka. [speaker 0]: This is an eye pop. [speaker 2]: And at the same time, even in the turbulence, we remain committed toward investing Even in the turbulence, we remain committed toward investing in the band network. Maintaining our advantage in product and branding and people. So the quarter in the tools group in the quarter, spending on on operating expenses rose a 140 basis points. Helping to ensure that the group will be at full strength when the uncertainty thaws [speaker 3]: But the Snap on Pour the core of our business here is our powerful product line. [speaker 2]: Now over 85,000 strong across the corporation, over 40,000 just in the tools group. And the period saw a number of great new examples in the tools group. During the quarter, our Milwaukee, Wisconsin facility released a new line of impact flex sockets. Customer connection identified a range of tasks. We're removing components We're we're removing components to access the fix was burning a lot of tech time. Arm to that insight, our engineers have designed the new three zero seven RIP LMS a seven piece impact socket set featuring extra long reduced diameter shafts. And low profile hex head. [speaker 3]: Now its design enables easy access to deeply recess fasteners, and it provides a clearance around blocking obstruction. All without removing additional parts. It's an ideal tool for speeding up routine tests like like brake caliper removals, catalytic converter replacements, and extracting exhaust Our new long shaft impact socket set set is a winner. It increases productivity, creates quick paybacks, and the technicians have noticed. Making this design another hit product, $1,000,000 hit product. [speaker 2]: Also rolling out of the Algona, Iowa plant, [speaker 3]: a new two storage configuration. The KTL one zero two one, a 54 single bank master series role play cab. But with the unique features that all seven drawers span the full width of the box. [speaker 2]: And those drawers are equipped with heavy duty [speaker 3]: heavy duty dual bear ball bearing slides unit has the space and the strength to handle additional storage without within a compact footprint, 9,300 square inches to be exact. Now space and strength define a storage utility [speaker 2]: and the new unit has plenty of space for for our foam organizing trades at TexFlub and a low capacity of nearly three and a half tons [speaker 3]: Big. [speaker 2]: It's an offering with powerful capabilities at a mid range price point, and it's just the storage product [speaker 3]: for this environment. And as you might expect, it was a great success. Success. Some of what you see in the originations come from this. Well, that's the tools. Matching techno preferences, leveraging customer connection, [speaker 2]: investing in our strengths. All in the turbulence. Now for RS and I. Sales in the quarter were 467,800,000.0. Up 11,200,000.0 compared to 2,022, and including on our organic sales gain of 4,800,000.0. The group's fifth consecutive quarter of growth against the turbulence. [speaker 3]: Higher volume with vehicle OEMs and dealerships and gains within information databases [speaker 2]: independent garages led the way, more than offsetting [speaker 3]: lower sales and big ticket diagnostic units. [speaker 2]: Morris and I are operating earnings for the quarter were 117,700,000.0 and the operating margin was a strong 25.2%. But [speaker 3]: it was down 140 basis points [speaker 2]: from the 26.6% recorded last year. [speaker 3]: You know, that [speaker 2]: that reduction represents very robust investment in software development and brand building. Similar to Tools Group, 46.9%, about equal to last year despite cost increases. And just like tools, the groups the group invested to build its advantage in both hardware and software software, helping the radio helping driving the operating expenses a 130 basis points over last year. Thus, the numbers. But we believe the spending will be well worth [speaker 3]: and will make our advantages even stronger going forward. You see, [speaker 2]: growing vehicle complexity paired with an aging car park makes understanding the different vehicle setups very difficult. Especially with the variations of creature comforts and safety equipment found in modern vehicles. And this is where RSI itself converting billions of data points within microseconds, and delivering it into the hands of the tech, enabling enabling them to diagnose the [speaker 3]: problem and execute the fix. [speaker 0]: Quickly. [speaker 3]: And it's already happened. [speaker 2]: In the quarter, the grocery the group released the all new MT. It's not about MT 2,600. [speaker 3]: Diagnostic platform offering a quick payback unit position that's a powerful entry level device [speaker 2]: for the for the diagnostic arena, for the automotive diagnostic arena. The new unit's capable of community communicating with 50 different OEMs from around the globe on models dating back to 1983. In other words, it handles a wide range of vehicles, and it is fast. [speaker 3]: With live data graphs, functional tests, the capability to reset service and check engine and check engine lines. Plug into this vehicle's diagnostic data into a vehicle's diagnostic port, and press go. It's ready to go. No time wasted loading software. [speaker 2]: It auto and it automatically identifies the vehicle VIN specific information. You know, just because the same make it just because it's the same make and model. Doesn't mean the vehicle's the same in the repair [speaker 3]: world. Models are not the same in the repair world. One could have been [speaker 2]: one could have been ordered with options like parking assist and the other with air ride suspension. But there's and and [speaker 3]: but there's no need to look it up. Now. The m t 2,600 knows the unique differences instantly without any additional input. And it's a real time saver. It's a productivity advancer. And it's a pay raiser. For entry level techs. The Snap on m 2,600, a powerful feature set and a price aligned [speaker 2]: to match current techno technician preferences. And it was a hit with franchisees and with the customers alike. [speaker 3]: So that's RSNI. [speaker 2]: Trends remain robust. Aging car park. [speaker 3]: Vehicle technology. Continuing to advance, making repairs complex, abundant opportunities for growth. And Snap on is the position and the product lineup to take advantage and we're investing to extend that lead. That's our fourth order. [speaker 2]: Performance in the midst of turbulence. C and I sales up, critical industries impeded by the shutdown, but roaring back to report a positive. Substantial gains with new power tools and precision torque products, The tools grew about flat [speaker 3]: attenuated by tech uncertainty, by growing gross margins, up a 150 basis points without a volume boost, [speaker 2]: Continuing investments in products, and brands and its people. RS and I, fifth straight quarter of growth gains with OEMs and independent shops, strengthening its database and its software and the overall business. [speaker 3]: Sales up 2.8% as reported, 1.4% organically, and an EPS of $4.94 up again over last year. Progress in investment in a difficult market. It was an encouraging quarter. [speaker 0]: Now I'll turn the call over to Aldo. Aldo? Thanks, Nick. Our consolidated operating results for the fourth quarter are summarized on Slide six. Net sales of $1,231,900,000 in the quarter represented an increase of 2.8% in 2024 levels. Reflecting a 1.4% organic sales gain and $15,600,000 of favorable foreign currency translation. Sales in our commercial and industrial sector or the C and I group increased year over year led by strong performances with critical industry customers and robust sales by our power tools operation. In our automotive repair market, sales gains with repair shop owners and managers were somewhat tempered by slightly lower activity our franchise van chain. Consolidated gross margin of 49.2% compared to 49% in the fourth quarter last year. The decline of 50 basis points primarily reflected higher material and other costs as well as higher sales and lower gross margin businesses within the C and I group. These headwinds were partially offset by benefits from the company's RCI initiatives And while Snap on is relatively advantaged in the current tariff environment, generally, manufacturing products in the markets where they're sold our costs can be affected by trade policies. Operating expenses as a percentage of net sales of 27.7% compared to 27.6% in 2024. Operating earnings before financial services of $265,200,000 in the quarter were unchanged from last year. As a percentage of net sales, operating margin before financial services of 21.5% compared to the 22.1% reported in 2024. As you may know, Snap on operates on a fiscal calendar, which results in an week being added to our fiscal year every five to six years. Accordingly, the 2025 fiscal year contained fifty three weeks of operating results [speaker 3]: with the extra week [speaker 0]: relative to the prior year occurring in the fourth quarter. While the impact of this additional week was not material, to Snap on's consolidated fourth quarter total revenues and net earnings, financial services segment did earn an additional full week of interest income from its financing portfolio. At the consolidated level, the net earnings benefit from the additional week of financial services interest income was largely offset a corresponding additional week of fixed expenses primarily personnel related costs. With that said, financial services revenue of $108,000,000 in the fourth quarter including $7,400,000 of revenue resulting from the extra week of interest income compared to $100,500,000 last year. While operating earnings of 74,400,000.0 compared to $66,700,000 in 2024. Consolidated operating earnings of 339,600,000.0 compared to $331,900,000 last year. As a percentage of revenues, the operating earnings margin of 25.3% compared to twenty five point five percent twenty twenty four. Our fourth quarter effective income tax rate was 22.3% in 2025, and 22.5% in 2024. Net earnings of $260,700,000 or $4.94 per diluted share compared to $258,100,000 or $4.82 per diluted share in 2024. Now let's turn to our segment results for the quarter. Starting with the C and I group on Slide seven, Sales of $398,100,000 rose $18,900,000 compared to 2024 levels, reflecting a 2.8% organic sales increase and $7,900,000 of favorable foreign currency translation. [speaker 1]: The organic gain includes a mid single digit increase [speaker 0]: in activity with customers in critical industries, a double digit rise in power tools, a mid single digit improvement in specialty tour. [speaker 3]: These gains were partially offset [speaker 0]: by lower sales to The United States markets by the Asia Pacific business. Overall, the organic sales gain largely reflects success new product launches from our power tools operation, and continued improving demand from our critical industry customers. Including those in The United States and international aviation, heavy duty, and technical education. Despite delays associated with the government shutdown in October and November, sales into military and defense applications rebounded, and were down only slightly for the quarter versus last year, with activity increasing as we exited the fourth quarter. Gross margin of 38.6% compared to 41% in 2024. This decline was primarily due to higher material and other costs increased sales and lower gross margin businesses and 30 basis points of unfavorable foreign currency effects, partially offset by savings from RCI initiatives. During the fourth quarter, the C and I group refined its footprint and go to market strategy resulting in a net benefit to operating expenses of $4,500,000. As detailed on Slide seven, these actions included a net gain on the sale of a building that was partially offset by cost to retire certain trademarks, and by restructuring charges. [speaker 3]: As such, [speaker 0]: operating expenses as a percentage of sales of 23.4% in the quarter including the net benefit, compared to 24.3% last year. Operating earnings for the C and I group of 60,600,000.0 compared to $63,500,000 in 2024, and the operating margin of 15.2% compared to 16.7% last Now turning to Slide eight. Sales in the Snap on Tools Group of $55,000,000 compared to $506,600,000 last year. Reflecting a seven tenths of a percent organic sales decline largely offset by $1,800,000 of favorable foreign currency translation. The organic decrease reflects a low single digit decline in The United States, partially offset by a high single digit gain in the segment's international operations. During the quarter, we believe our ongoing pivot to featuring the benefits of shorter payback items continued to mitigate the persistent uncertainty of technician customers in the current environment. Gross margin improved 150 basis points to 46.1% in the quarter, from 44.6% last year. Mostly due to a year over year shift in product mix, including higher sales of new products, and savings from the segment's RCI initiatives. Operating expenses as a percentage of sales of 24.9% compared to 23.5% in 2024 largely reflecting increased brand building and other costs. Operating earnings for the Snap on Tools Group of 107,300,000.0 compared to $106,900,000 in 2024. The operating margin of 21.2% improved 10 basis points from last year. Turning to the RS and I group shown on Slide nine. Sales of $467,800,000 compared $456,600,000 a year ago. Reflecting a 1% organic sales increase and $6,400,000 of favorable foreign currency translation. The organic improvement includes low single digit gains in activity with OEM dealers and in sales of diagnostics and repair information products to independent repair shop owners and managers. While our undercar equipment sales were flat with last year, the business experienced improving activity in all of our product lines outside of collision repair, continue to be down year over year. Gross margin for the 46.9% compared to 47% last year. The savings from RCI nearly offset the effects of tariffs, and higher material costs. Operating expenses as a percentage of sales of 21.7% compared to 20.4% in 2024, largely reflecting increased activity and higher expense businesses and a rise in other costs. Operating earnings of a 117,700,000.0 compared to a $121,400,000 last The operating margin of 25.2% compared to 26.6% reported in 2024. Now turning to Slide 10. Revenue from financial services of $100,000,000 compared to $100,500,000 last year. As previously stated, this includes $7,400,000 of higher revenue resulting from a full additional week of interest income due to our fifty third week fiscal year. Financial services operating earnings of $74,400,000 compared to $66,700,000 in 2024 largely reflecting the additional interest income. Financial services expenses of 33,600,000.0 compared to $33,800,000 last year. As a percentage of the average financial services portfolio, [speaker 2]: expenses [speaker 0]: were 1.3% in the 2025 and '24. In the fourth quarter, the average yield on finance receivables of 17.6% in 2025 compared to 17.7% in 2024 while the average yield on contract receivables was 9.1% in both years. Total loan originations of $285,100,000 in the fourth quarter were unchanged from last year and on a year over year basis reflected stable originations of tool storage products. Moving to Slide 11. Our year end balance sheet includes approximately $2,500,000,000 of gross financing receivables with $2,200,000,000 from our US operation. For extended credit or finance receivables, The US sixty day plus delinquency rate of 2.1% is up 10 basis points from the 2024. Additionally, it is also up 10 basis points from last quarter reflecting the typical seasonal increase between the third and fourth quarters. Trailing twelve month net losses for the overall extended credit portfolio of $72,100,000 represented 3.67% of outstandings at year end. We believe that these portfolio performance metrics remain relatively balanced, get considering the current environment. Now turning to slide 12. Cash provided by operating activities of $268,100,000.0 in the quarter decreased $25,400,000 from comparable twenty twenty four levels. Primarily reflecting a $52,700,000 increase in net cash paid for income taxes partially offset by a $23,000,000 decrease in working investment. Net cash provided by investing activities of $25,900,000 included proceeds from the sale of a building a net decrease in finance receivables of $11,200,000 as well as capital expenditures of $13,500,000 Net cash used by financing activities of 200 and $500,000 included cash dividends of 126,700,000.0 and the repurchase of 227,000 shares of common stock for $80,400,000 under our existing share repurchase programs. As of year end, we had remaining availability to repurchase up to an additional $260,000,000 of common stock under our existing authorizations. Turning to Slide 13. Grades and other accounts receivables of $881,400,000 represented an increase of $65,800,000 from 2024 at year end levels. And included $25,300,000 of foreign currency translation $19,800,000 related to the previously discussed sale of a building, and a higher mix of sales with longer payment terms. Day sales outstanding of sixty seven days compared to sixty two days at year end 2024. Inventories increased by $81,800,000 from 2024 year end levels, and that included $41,400,000 of foreign currency translation. On a trailing twelve month basis, inventory turns to 2.4 were the same as last year. [speaker 3]: And [speaker 0]: Our year end cash position of $10,000,006,245,000,000 dollars compared to $1,000,000,360,500,000 at the end of 2024. Addition to our existing cash and expected cash flows from operations, we have more than $900,000,000 available under our credit facilities, There were no amounts borrowed or outstanding under the credit facilities during the year. Nor was any commercial paper issued or outstanding in the at the end of the year. That concludes my remarks on our fourth quarter performance. Now have a few outlook items for 2026. With respect to corporate cost, we currently believe that the expenses will approximate $28,000,000 each order, We expect that capital expenditures for the year will approximate $100,000,000 and we currently anticipate that our full year 2026 effective income tax rate will be in the range of 22% to 23%. I'll now turn the call back to Nick for his closing thoughts. Nick? [speaker 3]: Thanks, Aldo. [speaker 0]: Bless the quarter. [speaker 3]: Sales growth, solid profitability and expanded investments in fortifying our inherent advantages. [speaker 2]: All in a time of turbulence, tariffs, [speaker 3]: shutdowns, and conflicts, [speaker 2]: considerable uncertainty. C and I sales, were up 5% as reported [speaker 3]: 2.8% organically. A late comeback for [speaker 2]: critical industries, recovering some of the shutdown impact, great and great new product [speaker 3]: in power tools and specialty torque. Tools group, [speaker 2]: volume down 0.3% as reported, 0.7 per percent organically, about flat. OI margin of 21.2%, up 10 basis [speaker 3]: points, and gross margins of 46.1%, up a 150 basis up 150 basis points against the impact of higher material costs and inflation. And RS and I sales up 2.5% as reported [speaker 2]: 1% organically. OI margin's down, but still strong. [speaker 3]: At 25.2%, and gross margin's about flat. Resistant to the pressure of cost rises and tariffs. Making gains in on our making gains on our advantage in both software and data. It all came together for diluted EPS of $4.94, up from the $4 and 82 percent cents reported last year. [speaker 2]: It was [speaker 3]: as I said, many times, this [speaker 2]: this call an encouraging quarter. [speaker 3]: Going forward, [speaker 2]: we believe we'll benefit from our continuous investment in building our advantages. The uncertainty appears to be in for a thought, and we believe the resilience of a [speaker 3]: of our markets will continue essential and critical. As as they are. We are [speaker 2]: in this we are [speaker 3]: building our advantages. And they are in our all our advantages, and they are powerful. With our advantage in product to tools really do solve critical tasks we have more than 85,000 of them with new entry entries always coming. Our advantages in brand. Step on really is the outward sign of pride and dignity of working that working men and women take in their professions. It's re it's a respected and preferred and preferred many. And with our advantages in people. Skill, committed, battle tested, and enlisted in the expectation of success as a standard. We believe these strengths will set us apart, will enable us to overcome the turbulence and will drive Snap on to extend its positive trajectory throughout this year and well beyond. [speaker 2]: Before I turn the call over to the operator, I'll just speak directly to our franchisees and associates. When I refer to our advantages, both now and in the future, I think of you. The quarter was encouraging. And your conviction and hard work has made it so. [speaker 3]: For your success, once again, [speaker 2]: in offering another positive performance, you have my congratulations. For the intense energy and extraordinary capability you bring to bear every day [speaker 3]: you have my admiration. And for your continued commitment to our team, and your unfailing confidence in our shared future. You have my thanks. [speaker 2]: Now I'll turn the call over to the operator. Operator? [speaker 0]: Thank you. We will now begin the question and answer session. To ask a question, on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Scott Stember with ROTH Capital. Please go ahead. Good morning, and thanks for taking my questions. [speaker 3]: Mister Scott Stemper, how are you? [speaker 0]: Good. Thank you. Thank you. Hopefully, the the same for you. Question on the the tools group. You know, we you know, saw a little bit of a rebound in the previous couple of quarters, and returned a little bit negative here. Just trying to get a sense, are you seeing any increased level of technician softness, or is this you guys just having a greater availability of these quicker payback item and we're just seeing a little a little bit more of a mix towards the lower Actually ticket items? [speaker 3]: That's a great question. I look. I I think I think this. I think you know, it's about flat. [speaker 2]: We're up a little bit the last time. You know? So you could look at that as a back [speaker 3]: But we don't see it that way. We see that the quarter was pretty turbulent. [speaker 2]: You know, you might think that the shutdown doesn't affect the tools group, but you should have been there talking to the the franchisees of Maryland and Virginia. [speaker 0]: They didn't think it had any effect. They didn't think it was a no effect situation. [speaker 2]: And then and then the tariffs are getting pretty turbulent. And just think about Canada. There have been 29 different presidential or prime minister pronunciations since the beginning of the year, about changing the tariffs with Canada. And the other tariffs are not are not [speaker 3]: the way they are. And then you have this news every time you get up in the you look at the noise, you see things. So that affected [speaker 2]: their [speaker 3]: think, their general view. And then we heard a little bit about that. So I think that was part of it. [speaker 2]: Now I think I said in the in the in in the in the call, I think sooner or later, [speaker 3]: people gotta get used to this. So you could kinda expect a thought coming [speaker 2]: You saw green shoots, I think, in one in the in the originations. The originations being kind of flattish [speaker 3]: year over year and down a little bit, [speaker 2]: but it it it but but [speaker 1]: that's [speaker 2]: better than it's been. So you kinda you kinda believe that, boy, things are that's a change. And part of it is pivot. [speaker 3]: But some of it may be some thaw. [speaker 2]: So we see that. And then one of the things I think that [speaker 3]: eye popping, I said so in the call, is [speaker 2]: jeez, in this time, your gross margins are up a 150 basis points. [speaker 0]: Wowza. [speaker 2]: You know? So they so whatever the tools group is doing and executing, they're doing pretty well within the conditions they've been handed. [speaker 0]: Gotcha. And I think you alluded to tool storage, actually. I think you said it was kinda flattish in the quarter. Can you you talk about actual hand tools? Diagnostic, just some of the other subsegments? [speaker 2]: Sure. Look. Look. I'm not gonna give you exact numbers. I don't wanna [speaker 3]: you know, pin myself to that cross. But but but I think look. This I didn't really say that tool storage is up. I said that originations [speaker 2]: which is not what the tools group does. Remember, group sells to the franchise and the franchisee on sells. And the and that's [speaker 3]: becomes an origination. [speaker 2]: So the originations are more an indication of what's happening at the level between the franchisee and the customer. So that was sort of flattish, which is, you know, all the same positives I said. The tool storage was still down some. Year over year in the in the tools group selling to the franchisees. Tool hand tools is better. [speaker 3]: Diagnostics was down. Power tools is up. [speaker 0]: Oh, okay. Sorry about that. And then just last question. Sales onto the van versus off of the van? [speaker 2]: You know, I hate talking about this, Scott. You know, because no no month is significant, really. Fully significant. We always say that it has a lot of variations from month to month, but it all comes out in a wash in the end. And generally, what we sell on the van equals what we sell up. [speaker 3]: But this quarter, sales were up [speaker 2]: over up [speaker 3]: you know, kinda substantially bigger [speaker 2]: don't know if you call it substantial, but but, clearly, clearly with with with quite a bit of room bigger off the van [speaker 3]: than our sails to the van. So I think that's a better I would say that's that's a nice data point, better than a pokemon eye with a sharp stick. But I'm not gonna hang my hat on it. But it is if you [speaker 2]: if you wanna classify green shoots, maybe this is a green shoot. [speaker 3]: I just hope the rabbits don't eat the green shoot. You know? But I but I but I think you know, it's a positive thing. [speaker 0]: Got it. That's great. Thank you so much. [speaker 3]: Sure. [speaker 0]: The next question comes from Luke Junk with Baird. Please go ahead. [speaker 3]: Good morning. Thanks for taking the question. Maybe if you could just jump off on one of the things you just said, Nick, diagnostics. I think you said it was down in the Tools Group in the quarter. Can we just maybe double click on that? I'm not sure if we should think there is some pull forward just from the launch strength that you saw in the middle part of this year, or is there just maybe some inherent lumpiness? Wanna kinda just separate the Well, there's kind of I think I think it's more I look. I think it's more inherent lumpiness driven by the [speaker 2]: the the characteristics of the launch. You know? So in the third quarter, [speaker 0]: second and third quarter, toward the end of the second quarter, we've launched the Triton. I think that's gotta [speaker 3]: price. I don't know. It must be 4,000, $4,500. It's a massive and powerful unit. And this quarter, we we launched the MT 2,600, which is an entry level [speaker 2]: thing, which is substantially lower in price. But, you know, a sale is sort of a sale for the franchisee. [speaker 3]: You know? Yeah. Maybe he has to work a little harder for the bigger ticket item. You know? But not still probably gotta put in the same amount of time for either one. [speaker 2]: And so he's [speaker 3]: he spends he does his pitch. [speaker 0]: You know? He does his his his show and [speaker 2]: explains everything, and he gets $1,500 or $4,000. Think that's pretty much what you're seeing this quarter. [speaker 3]: Okay. Helpful. I wanna switch gears to C and I. Critical industries. Do you know if you look a quarter ago, we returned to kinda modest growth, now tracking up mid single exiting 25. But it sounds like [speaker 2]: actually maybe even was higher in December given what you mentioned around the shutdown. Any reason to think that that momentum doesn't now carry over into next year in critical industries? [speaker 3]: Well, I think we have we have great optimism [speaker 2]: for our power in critical industries. We think our [speaker 3]: our array of custom kits keeps growing and therefore we have a greater span of sale. Our custom kitting capacity, we keep increasing it. And one of the things I I didn't fully, I suppose, tease out in this in this, in this comments is that's what allowed us to catch up at the end. We really pumped it up. I mean, if you looked at October and November, it was [speaker 2]: a it wasn't the greatest time. You know? Things had had the military business, which is a nice business for them, had gone to a crawl. [speaker 3]: And then they came roaring back. Like I said, you had to see these guys out there working. [speaker 2]: The jet you know, the the the the head of the the division was out there and is younger, but he's working. Packet. So I I think I think this is you know, yes, you should see momentum coming out of this quarter. Now you know, we don't give guidance so this is one data point that we are positive. And they didn't fully catch up [speaker 3]: So, therefore, you would expect to have some catch up coming out. We'll see how that plays out over three months. But I feel good about it. [speaker 2]: Last thing kinda coming across in both [speaker 4]: DNI and the tools group, just the our tool strength. I mean, that's been under pressure for a while here. Pretty short bounce back in the quarter. It's want to unpack maybe shorter term impacts given the product launch momentum that you mentioned and just maybe your historical experience in terms of the tails of that momentum leaking into into future periods? Thanks, Nick. [speaker 3]: Well, I I know. I look. I think I think again, we don't give guides, buddy. You know? But but but the last time we've launched a product like this, like the Nano, [speaker 2]: oh, years ago. You know, it's a while ago. This kind of uniqueness of it and it had quite a bit of legs. [speaker 3]: It went on for a while. [speaker 2]: It's not it's it's it's a whole different line. You know? So that tends to have more legs to it. [speaker 3]: If you're talking about other products like the long neck ratchet, which which I didn't mention on this call, I mentioned last call, 13 inches of [speaker 2]: neck long, 30% longer than anybody else, tremendous power at a distance. [speaker 3]: But [speaker 2]: that one, you know, can be more episodic. And so you have to you have to sell you know, find the people who don't have it already if you're a franchisee. And then to some extent, it is episodic, like [speaker 0]: like, [speaker 2]: the diagnostics. I do think, though, that you're gonna see that more and more in power tools today for us because there was a period when we turned our power tools engineers and some of our engineers partially away from new products and said, this is the period in which we couldn't get components. And so you had to re you had to use engineering time to re to to target [speaker 4]: the [speaker 2]: components that were actually you could actually get, where they actually were available. And that meant design change, and it eats up time. And so now we've got everything full strength, focused [speaker 3]: on new product, and they seem to be hitting the ball out of the park with [speaker 2]: repeatability. [speaker 3]: So I feel pretty good about it. I think the nano's got legs [speaker 2]: but generally, power tools can be upside. [speaker 4]: Understood. I'll, I'll leave it there. Thanks, Nick. [speaker 2]: Sure. [speaker 0]: The next question comes from Sherif El Sabahi with Bank of America. Please go ahead. Hi. Good morning. I just wanted to touch on some of the brand [speaker 4]: building expenses that you had had called out, particularly in the tools group. [speaker 5]: What exactly is is in embedded in those costs, and how do you expect them to look how do you expect them to look going forward? Is that sort of an ongoing cost [speaker 0]: I'm not gonna give you exactly what's in the cost. You know? [speaker 2]: Because you'll be asking me how much I'm spending every quarter on each of those categories. I'm not gonna say that. But but look. Here's the kinds of things [speaker 5]: we worked on. [speaker 3]: We worked on training [speaker 4]: You know, this is the kind of thing training in our in our business. We worked [speaker 3]: some on advertising for the brand. The advertising is up. We worked on building software which spreads across this business and the RSNI business. We worked on social media [speaker 2]: the use of social media more correctly. I mean, these guys are all individual businessmen. The the 3,400 bands. And, you know, some of them are great at this stuff, and some of them are not. So we worked on those things. [speaker 3]: That's the that was the kinds of things we we spent on in [speaker 2]: in the tools. [speaker 5]: Understood. And I know the the fifty third week wasn't, necessarily impactful to the financials. Were you able to give us sort of a a ring fence the size of it and the impact of the year? [speaker 3]: Sure. One thing you gotta know. It's vastly different between the financial company and the operating company. For the financial company, it's a bonanza. I think Aldo said it's like $7,000,000 extra profit. You know, that was pretty much fifty third week. If you look at the operating companies, you gotta understand where it is, and it's during the Christmas you know, the holiday period. And these are [speaker 2]: these are expenseful [speaker 3]: sales week. [speaker 0]: Period. [speaker 2]: So it generally is a loser. You have most you have a lot of the expenses flowed through your p and l. They're just there like clockwork. And you don't get any sales. That's what happens. So they're a negative. I will tell you that when you when you roll that out, it's not [speaker 3]: it's not what do we call it? It's not significant. It's not a significant thing for us. Maybe yeah. But it's a little bit of a wait actually. A little bit of a negative, but not significant. [speaker 5]: Understood. Thank you. [speaker 3]: Sure. [speaker 0]: The next question comes from David MacGregor with Longbow Research. Please go ahead. [speaker 5]: Yes. Good morning, everyone. [speaker 2]: Nick, I guess I wanted to [speaker 5]: hey. Good morning. I I wanted to, just ask you about, last quarter, had talked about the SFC, and you had said there were great orders. You were up mid single digits. But that we're not getting money. I think that was the exact quote. You're not getting much of that at all. So, I guess I'm having trouble reconciling that with essentially flat second half sort of Snap on Tools segment organic growth. Can you just understand the dynamics and also maybe what you saw in the way of fourth quarter growth in the non SFC fulfillment business? [speaker 3]: Yeah. Look. I think yes. It it remember, I think I say that the SFC are orders, not sales. So there could there could cancellation. That you fulfill in the second half, Nick. And so in and and so what second half? I don't know. Do you do you mean the second half or the quarter? For the fourth quarter? Second half of the year. You just [speaker 2]: well, the second half of the year is is not [speaker 3]: supported by the SFC. The SFC pretty much, you know, starts to starts to blink out in terms of effect just as you cross over the year end. [speaker 2]: There isn't there isn't an effect You see what I mean? It's all in it's all in the half. So you could ask, why we didn't do better in the fourth quarter if we had mid single digits in the SFC. [speaker 3]: And that and that's because [speaker 2]: the actual orders end up being a cocktail of about three things. There are there are the they're the SSC for the [speaker 3]: for that half that we refer to. There's the kickoff for the second half, the big bang events, and then there are a bunch of bunch of usual programs that that flow flow out at different times. They're big promotions. And then [speaker 2]: there's the monthly meetings. For the franchisees that roll out promotions in each one of those. So the combination of those is what makes the quarter. So if you say, if you say that the SFC orders were 5.8 per you know, it was worth was like [speaker 3]: mid single digits. And okay, you're not really not necessarily gonna get those. They could be canceled, but they could all be taken up. [speaker 2]: And you could have weakness in one of the promotions. Or just everybody say every every month, oh, I got enough. I'm not gonna take anything this month, or I'm gonna take a lot less this month. That is that's what makes it so hard to predict. Now [speaker 3]: SFC and kickoff, you you feel good if you get more orders, but it's not [speaker 5]: definitive. [speaker 3]: I think I say that [speaker 2]: you know, when when when this happens. So that's that's a look at it. [speaker 3]: So it's a it's a cocktail of a bunch of different selling efforts. That result in the flat quarter. [speaker 5]: Yeah. Maybe I'll follow-up with you offline on that. Is there anything you can say about the regional kickoffs, Nick? And how they're going? [speaker 0]: Well, they're over. First of all, so No. I know they're over. They're they're behind us. I'm asking how they went. They okay. [speaker 3]: They they were they were in it. [speaker 2]: Were in the first quarter, so don't comment on future. [speaker 3]: But the one I went to was very positive. People people were people were very enthusiastic. And I would say that our reports from around the country, Aldo went to one. [speaker 2]: And his his was similarly [speaker 3]: positive. So we think they came out well. I think like the s I think the orders were reasonably robust. But like the SFC, they're not definitive. [speaker 2]: You know? So if you were just gonna base your view of the future, on the on the kickoff, you would feel pretty good. [speaker 3]: I I think I think, you know, what we what I'd say what I'd say, David, is [speaker 2]: more or less [speaker 3]: that this was a particularly turbulent time in terms of uncertainty. But if you look at the the gross margins, the execution seems to be pretty good. If you look at the or if you look at the [speaker 2]: the originations, it seems like the pivot is working because people buying some of those small boxes. You know, at least off the van. If you look at the sales off the van, and you say, well, yeah, it's only one quarter, but it's you know, better than the sales to the van. That seems like a positive. And if you look at the the nature of the world, you wonder if people aren't getting tired of being uncertain, things won't go off. So I think we're kind of optimistic going forward. [speaker 5]: Okay. Last question for me is just on the balance sheet. I mean, you get a billion 6 of cash. [speaker 4]: You know, a little over 400,000,000 of net cash. [speaker 5]: Generating a billion dollars a year of free cash flow. I mean, you're doing an extraordinary job here. Are you gonna go with the cash? What what remind us on your priorities for m and a. Okay. Priorities are like this. Well, [speaker 3]: as you know, I bet you've been looking at it so long, you noticed dead nuts. But but the the if you if you look at it, we're we're working capital hogs. So we always have to have you know, a pretty good dollop of cash to make sure. [speaker 2]: In case things should explode in terms of sales, we wanna be ready to fund it because we are not working capital [speaker 3]: We're not among the small working capital. You know, great. Inventory turnover, for example. But we that's the bare that's our model. And so you got that. You got enough cash for that. Then the whole thing is the dividend. We have as I said in my call, we have we have declared dividends every year since 1939, and we have never reduced it. [speaker 2]: So we think about the perpetuity of the dividend. And we think with sixteen straight consecutive increases, we always look at in those contexts. And then you've got acquisitions. We always review we're always reviewing acquisitions now. Quite often, you look closer and you find out so many warts you don't want it or it's selling into a segment we don't want. But we do look at acquisitions consistently, and we have made several of the car aligner, for example, Norbar. [speaker 3]: Bunch of different things over the years. And then we look at is Aldo took you through, I think we spent 80,000,000 plus in share buybacks last year. Got it. [speaker 5]: Well, thanks very much. Good luck. Sure. The next question comes from Bret Jordan with Jefferies. [speaker 0]: Please go ahead. Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our question. [speaker 4]: Within tools group in in The US, could you talk a bit more about what you're seeing in the competitive landscape? Any notable shifts in strategies as far as pricing or mix or marketing? [speaker 2]: Why do you always ask about the competitors? [speaker 3]: That's what I wanna know. But but anyway anyway, look. I no. We're not seeing I don't I don't think we're seeing so much about that. I mean, I think I think [speaker 2]: we have less pressure from [speaker 5]: from tariffs than almost anybody else. [speaker 3]: I I'm not sure that everybody's gross margins are up in the tools group, but I'm not hearing people talk about pressures. But that's normal. I'll tell you this. When I get on a van, [speaker 2]: and I do all the time or I meet franchisees or it's they never mention the competition. [speaker 3]: They always you know, I I shouldn't say never. [speaker 2]: But they seldom mention the competition [speaker 3]: And it's because Snap on is kind of out [speaker 2]: in a different area. People decide to buy a Snap on product. Or they decide to choose from a bunch of other alternatives. [speaker 3]: That's really the way it is. We're not actually competing with those guys for the same people. [speaker 0]: I don't I don't we don't we don't see our guys don't see it that way. Now I I don't know. I think I think [speaker 2]: you know, knowing where they source from and you know, some have had difficulty in making in The United States. I think the tariffs have gotta give them [speaker 3]: fits. [speaker 0]: They haven't given us fits. [speaker 2]: So I would think we'd be in a better position [speaker 3]: Well, I'm not sure. I mean, they might absorb it in profitability. Nobody said to us that anybody's dropping price Nobody said to us, oh, people are raising a price, and it makes a difference to us. [speaker 2]: Because we're always above them anyway. [speaker 0]: Great. That that's all for us. Thanks, guys. This concludes our question and answer session. I would like to turn the conference back over to Sarah Verbsky for any closing remarks. [speaker 1]: Thank you all for joining us today. A replay of the call will be available shortly on snapon.com. As always, we appreciate your interest in Snap on. Good day. [speaker 3]: The conference has now concluded. Goodbye. [speaker 0]: Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the AGCO Corporation 2025 Fourth Quarter Earnings Call. All participants will be in a listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. In consideration of time, please limit yourself to one question and one follow-up. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Corporation Head of Investor Relations. Please go ahead. Greg Peterson: Thanks, and good morning. Welcome to those of you joining us for AGCO Corporation's fourth quarter 2025 earnings call. We will refer to a slide presentation this morning as posted on our website at www.agocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. Demand, product development, and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm income, production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates, and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide two in the accompanying presentation. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO Corporation's filings with the SEC, including its Form 10-K and subsequent Form 10-Q filings. AGCO Corporation disclaims any obligation to update any forward-looking statements except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our chairman, president, and chief executive officer as well as Damon Audia, our senior vice president and chief financial officer. With that, Eric, please go ahead. Eric Hansotia: Thanks, Greg, and good morning to everyone joining us today. We closed the year with another strong quarter, delivering an adjusted operating margin of 10.1%, and fourth quarter net sales of $2.9 billion which were up 1% year over year or up nearly 4% excluding the grain and protein divestiture. EEM continued to be a powerful driver delivering 8% growth and extending its multi-quarter record of strong performance. On a full-year basis, we delivered a 7.7% adjusted operating margin. Adjusted earnings per share were $5.28, on sales of $10.1 billion, reflecting a 13.5% decrease versus 2024, or just 7% excluding the divested grain and protein business. These results highlight the disciplined execution of our global teams driven by our three high-margin growth levers, sustained cost discipline, and the positive impact of our multiyear structural transformation. We operated at intentionally low production levels and despite a soft market environment, that weighed on industry demand, we ended the year with significantly lower company, and dealer inventories compared to 2024 a favorable outcome that strengthens our position and demonstrates meaningful progress. Our adjusted operating margins are among the best in AGCO Corporation's history. And the strongest we've ever delivered at this point in the cycle. We have nearly doubled our adjusted operating margins from prior troughs and are close to prior industry peaks. Clear evidence that AGCO Corporation has structurally changed to a higher performing and more profitable company. I want to thank the AGCO Corporation team for their disciplined commitment and impressive execution throughout the year. Their agility allowed us to maintain solid performance, repeatedly exceed our expectations, and continue advancing our farmer-first priorities. Building on the transformational actions taken in 2024, including the formation of the PTX business, the divestiture of the majority of grain and protein business, 2025 was a year focused on advancing our strategic ambitions in agriculture machinery, and precision ag technology. Our redefined portfolio and focus are where AGCO Corporation wants to be. Poised to continue serving farmers and investors better than anyone else when demand strengthens. Our PTX brand continued to gain significant momentum. During 2025, we introduced 14 new products across the crop cycle. Expanding the industry's most comprehensive retrofit precision ag portfolio. We also made substantial progress expanding our dealer network. Ending the year with more than 70 global PTX Elite dealers, more than doubling the amount from the start of the year. These dealers sell both precision planting and PTX Trimble products, enabling us to broaden product coverage and deepen customer engagement. This independent retrofit network focused on the mixed fleet remains an absolute clear differentiator providing the comprehensive product expertise and the broad equipment compatibility that today's farmers require. These PTX Elite dealers are supported by more than 300 Fent, Massey Ferguson, Valtter equipment dealers. 200 CNH dealers, alongside continued sales to more than 100 OEM customers. This expanding footprint is strengthening our global market presence. Increasing the number of farmers we can reach, with our industry-leading smart farming solutions. Vent delivered a standout year of market performance in almost every region, In North America, we gained large ag market share underscoring the strength of FENT portfolio and the power of our team of experts and dealers. With some of our largest dealers switching to the ideal combine last year, it further emphasized the strength of the Fent full line product offering, and our ability to accelerate our performance when North America large ag begins to recover. Our parts and service business continued to perform well. Across challenging market conditions. The Farmacore model, combined with digital engagement, twenty-four seven online parts access, machine configuration tools, servicing capabilities, and industry-leading parts fill rates, continue to support this high-margin growth lever and drive meaningful progress. Strong execution also drove meaningful cost actions in 2025. Resulting in a $65 million bottom line savings through continued operating efficiency across the organization reflecting a real focus on performance improvement, We anticipate a further $40 to $60 million of incremental savings in 2026. Our overall confidence in the business is reflected in $250 million of share repurchases in the fourth quarter. Part of our $1 billion capital return program announced last year. As we look at 2026, we will continue to navigate a dynamic phase of the industry cycle. Trade patterns and record global crop production continue to compress farm margins. With corn, soybean, and wheat prices near breakeven levels. Despite this environment, our operational discipline positions us well continued progress. Over time, we continue to expect increased adoption of precision ag technologies as farmers constantly look for ways profitably increase yields. Entering 2026, current market conditions continue to moderate demand across most equipment categories. Yet we remain able to advance our technology strategy and expect long-term positive industry progress. Slide four details industry unit retail sales by region for 2025. Industry retail sales across all major regions were lower in 2025 as the market adjusted following several years of elevated demand. In North America, industry retail tractor sales were 10% lower compared to 2024. With larger horsepower categories accounting for a greater portion of the change as the year progressed. Combined unit sales were 27% lower year over year. Current farm income dynamics evolving green export demand, and elevated input costs continue to guide purchasing behavior. Particularly for larger equipment heading into 2026. In Western Europe, industry retail tractor sales were 7% lower than 2024, with most major markets experiencing double-digit percentage movements. Looking at 2026, relatively stable farm income levels and an aging equipment fleet are expected to support industry volumes growing modestly above the 2025 levels. In Brazil, industry retail tractor sales were 2% lower than the prior year. Growth in smaller and midsized equipment partially offset the modernization in larger tractor categories. Crop production remains healthy, and certain trade developments provided opportunities for farmers, demand for larger equipment has not yet shown renewed growth. As in prior cycles, industry demand is expected to recover over time. While farmers are currently prioritizing productivity improvements across their existing fleets, the need to increase yields and meet global agriculture demand remains unchanged. Precision agriculture plays a critical role enabling that productivity, and our award-winning portfolio positions AGCO Corporation well to capitalize on that long-term opportunity. AGCO Corporation's production hours for 2025 are shown on slide five. To ensure year-over-year comparability, grain and protein production hours have been excluded from the 2024 baseline. Fourth quarter production hours were modestly higher, than 2024 as increases in Europe and South America more than offset the significant production declines in North America. For the full year, total production hours were down 12% versus 2024. With North America accounting for the largest portion of that adjustment. Reinforcing our disciplined approach to balancing output, and market needs. For 2026, we expect production hours to be broadly flat year over year. With a modest lift in the first half reflecting easier year-over-year comparisons and a modest decline in the second half. This cadence ensures production remains well aligned with retail demand and supports ongoing dealer inventory normalization. Turning to regional inventories. In Europe, we ended 2025 with dealer inventories at approximately four months of supply. Aligned with our target levels. Being at these inventory levels in our largest and most profitable region is an important positive especially with the industry projected to grow in 2026. In South America, dealer inventories increased to about five months relative to our three-month target. This reflects adjustments to lower forward sales expectations as industry conditions evolved during the fourth quarter. However, year-end dealer inventory units were down modestly from the third quarter levels. In North America, we achieved another quarter of sequential progress in inventory management. Ending the year at seven months of supply compared to eight months at the end of the third quarter. While still above our six-month target, we reduced dealer inventory units by over 9% during the quarter and by more than 30% for the full year. We have significantly strengthened the quality of channel inventory heading into 2026, and we will continue to adjust production to better align dealer inventory levels. Slide six summarizes how our strategy continues to deliver even in a muted demand environment. Over the past several years, we've reshaped AGCO Corporation into a more resilient higher-performing company. One that generates stronger margins at the trough, and greater earnings power through the cycle. The results we delivered in 2025 are clear proof of that. Our three growth levers, high-margin products, technology-driven differentiation, and a world-class aftermarket business, continue to perform well this year. Each of them contributed meaningfully despite the softer industry backdrop. Demonstrating that our model scales regardless of where we are in the cycle. This framework is also what positions us and gives us confidence to consistently deliver mid-cycle adjusted operating margins in the 14 to 15% range. It's a structurally different AGCO Corporation. More focused on innovation, more disciplined on costs and investments, increasingly driven by high-value revenue streams. Finally, the strength of this model supports 75 to 100% free cash flow conversion. That financial capacity allows us to keep investing in innovation, advancing our go-to-market transformation, and returning capital to shareholders. All while maintaining disciplined operational execution. Taken together, these levers explain why AGCO Corporation is executing at a higher level today than ever before at this point in the cycle. And why we're well-positioned to outperform as the cycle normalizes. Slide seven highlights key takeaways from our premier precision ag event. PTX's 2026 winter conference. It's an event that brings together thousands of farmers and dealers on-site and virtually. And this year was the first showing of the full breadth and depth of the PTX portfolio. More than 4,000 farmers most under enormous pressures currently, focused on learning practical solutions and strategies for technologies that can be implemented immediately to improve productivity, efficiency, and returns. A high-value opportunity in today's market environment. As you would expect, the feedback on the event and new product introductions was exceptional. As farmers could clearly see how we were innovating to make them more productive and more profitable. This year, three technologies delivered notable impact. First, Symphony Vision, Our vision-based spray technology uses intelligent cameras to continuously adjust application rates based on weed severity. Delivering a 60% chemical and cost savings. This year, we introduced Symphony Vision Duo, a dual nozzle system that allows farmers to spot spray contact herbicides while simultaneously variable rate applying residuals. Fertilizers, or fungicides a single pass, supporting better input management and higher field efficiency. This is a one-of-a-kind injection system that mixes the solutions not only delivers meaningful cost savings from reduced chemical usage, but also delivers significantly higher uptime for farmers than other systems just can't offer. As with our broader precision planting portfolio, farmers own the technology. With no per acre recurring fees, reinforcing a strong value proposition. Second is AeroTube, a breakthrough seed delivery system designed to improve plant orientation at placement. Conventional systems drop seeds randomly into the furrow. Which can lead to uneven emergence and leaf alignment. Arrow tube places seeds in an optimal orientation while controlling depth, spacing, and singulation. Enabling each plant to capture more sunlight and reach its yield potential. A clear productivity advantage, When you think about the significant yield decline for plants that emerge just 48 hours later than the others, the opportunity is huge for our farmers. Third is PharmEngage. Launched in 2025, our farmer-facing digital platforms integrate machine connectivity agronomic insights, and task management across brands and platforms. PharmEngage brings together functionality from AGCO Connect, and FENT one, and will be included in all model year 2026 FENT and Massey Ferguson machines sold in North America. Serving as a central hub for day-to-day farm operations. Each of these innovations reflect how we listen to the farmer, to understand the issue then deliver practical scalable solutions that address real on-farm needs and help farmers operate with greater productivity efficiency, and profitability. I couldn't be more excited about the portfolio of award-winning products we have for our farmers and I look forward to further introductions later this year I'm even more confident that we will continue to be the most farmer-focused company in the industry offering industry-leading smart farming solutions. With that, turn the call over to Damon to cover the financials in more detail. Damon Audia: Thank you, Eric. Good morning, everyone. Slide eight provides an overview of regional net sales performance for the fourth quarter and full year. Net sales for the fourth quarter were 3% lower year over year excluding the favorable impact of currency translation. For comparability, we also excluded the $75 million of sales associated with the divested grain and protein business in 2024. Breaking fourth quarter net sales down by region. Europe Middle East net sales were 1% lower than the same period in 2024, excluding currency impacts. Lower sales across many Western European markets were partially offset by growth in Germany and The UK, Lower sales in tractors were partially offset by better performance in hay tools. South America net sales were 9% lower, excluding currency translation. Results reflected moderate industry demand, with reduced sales of tractors and implements offset in part by growth in combines. North American net sales were down 9% excluding currency translation. Results reflected moderated industry demand and our deliberate production discipline to support dealer inventory normalization Lower sales of sprayers and midrange tractors accounted for most of the year-over-year change. Asia Pacific Africa net sales were up 3% excluding currency translation impacts. Higher sales in Australia were partially offset by lower sales across several Asian markets. Finally, consolidated replacement part sales were $440 million in the fourth quarter, up 5% year over year on a reported basis and down 1% excluding favorable currency translation. For the full year, parts revenue was $1.9 billion reflecting 2% growth on a reported basis and flat growth excluding favorable currency effects underscoring the strong value and consistent progress of this important growth driver. Turning to Slide nine. The fourth quarter adjusted operating margin was 10.1%, up 20 basis points from the prior year. The improvement reflects excellent and resilient performance in Europe, Middle East, again this quarter. And consistent discipline across other parts of our business. Margin performance continued to be shaped by factory under absorption and discounting across the industry. Despite that environment, higher sales and production volumes in Europe and our continued cost discipline supported better total company adjusted operating margins during the quarter. By region, Europe Middle East income from operations increased by $57 million compared to 2024, with operating margins approaching 17%. Results were driven by effective pricing execution and a favorable sales mix. North America income from operations decreased by $33 million year over year and operating margin remain below breakeven. The results reflect lower sales volume and factory under absorption associated with reduced production levels of over 50% aligned with dealer inventory normalization representing disciplined management of this business. South America operating income was $21 million lower than the prior year with margins nearing 3%. Reflecting lower sales and higher engineering expense. Asia Pacific Africa delivered relatively flat operating income with operating margins near 8%, supported by effective cost management and lower SG and A expenses. Slide 10 shows our full year free cash flow for 2024 and 2025. As a reminder, free cash flow represents cash provided by or used in operating activities less purchases of property, plant, and equipment. Free cash flow conversion is calculated as free cash flow divided by adjusted net income, offering a clear and consistent measure of performance. We generated record free cash flow of $740 million in 2025. Up more than $440 million versus 2024. This strong improvement was supported by better working capital execution, higher fourth quarter sales and lower capital expenditures year over year reflecting effective operational Our capital allocation priorities remain consistent. Reinvest in the business, maintain our investment-grade credit profile, consider acquisitions where we can accelerate technology adoption, and return capital directly to our shareholders. A framework that continues to deliver favorable long-term outcomes. Following the TAPI resolution last year, we've shifted our philosophy on direct returns to investors with a focus on share repurchases rather than our special variable dividend program. With this focus, we executed a $250 million accelerated share repurchase in 2025, under our $1 billion repurchase authorization demonstrating our commitment to shareholder returns. Given the strong free cash flow generation in 2025, we will evaluate further opportunities during our normal capital allocation review later this year. We also paid a regular quarterly dividend of 29¢ per share throughout the year, totaling approximately $87 million in dividend payments for 2025. Reinforcing a reliable and healthy capital return program. We continue to deploy capital with the discipline to drive long-term shareholder value supported by the increased flexibility afforded by our repurchase program. Slide 11 summarizes our 2026 market outlook across three major regions. For North America, we forecast large ag industry sales down approximately 15% from 2025's already low levels. The USDA's elevated January crop supply estimates resulted in significant declines in commodity prices in both soybean and corn prices remain below the long-term average. Farmers are delaying new equipment purchases due to elevated input costs, and tighter profit margins. The US government's $12 billion farmer bridge assistance program is helping to shore up farmers' balance sheets but it's not translated into new equipment purchases at this time. The North American small tractor segment offers a more positive counterbalance as livestock and hay economics remain comparatively resilient and the older fleet points to emerging replacement opportunities in 2026. We expect smaller tractors to be up modestly. In Western Europe, stability from the subsidy framework provides a solid foundation and offsets softer wheat prices and geopolitical crosscurrents. Early season exports improved. Profitability is expected to rise in '26 and winter seeding conditions have been supportive across many markets. The EU continues to benefit from lower interest rates versus other key ag regions, providing a more favorable operating position. We expect Western European tractor volumes to be up modestly in 2026. Brazil's crop environment remains constructive. Led by a large soybean harvest and healthy export demand. At the same time, interest rates credit availability, corn margins, and weather in select regions will pressure demand in 2026. Our plan assumes relatively flat demand for the year, with some pressure early in the year and a stronger second half due to potentially improved government support. Slide 12 highlights the key assumptions underlying our full-year 2026 outlook. We expect global industry demand to remain relatively flat compared 2025 with the industry increasing from 86% of mid-cycle to around 87% in 2026. Our sales plan assumes share gains, a 2% FX benefit, and between 23% in pricing. At 3%, our pricing is designed to cover material inflation and tariff costs on a dollar basis, but will be margin dilutive even at the high end of the range impacting our 2026 operating margins and our year-over-year incrementals. Dealer destocking advanced in 2025. And we continue to prioritize strong channel alignment in 2026 particularly in North America, reinforcing a disciplined and balanced go-to-market approach. Our guidance reflects current tariff regime and mitigation through cost actions and pricing ensuring a well-managed framework for navigating policy dynamics. We will adjust our outlook if policy actions change. Engineering expense is planned to increase by almost $50 million over year, representing approximately 5% of sales and ensuring an investment level that fuels the flywheel of innovation across the portfolio. As Eric mentioned, we expect further benefits from our restructuring actions of $40 million to $60 million in 2026. Production hours in 'twenty six are expected to be broadly in line with 2025. Maintaining healthy balance between production rates and retail demand to support ongoing inventory discipline. We expect adjusted operating margins between 7.58% reflecting positive structural improvements to the portfolio and benefits from our ongoing cost initiatives, but muted due to the price versus cost and tariff equation this year as well as higher engineering spend. Our effective tax rate is anticipated to be 32 to 34% for 2026. Turning to slide 13 for our 2026 outlook. Our full-year net sales outlook is expected to range from $10.4 billion to $10.7 billion Based on this sales outlook, flat production volumes continued cost discipline and pricing execution we are targeting adjusted earnings per share in the range of $5.5 to $6 This assumes no material changes to existing trade measures. Capital expenditures are estimated to be around $350 million positioning us for future demand inflection while maintaining investment discipline. We continue to target free cash flow conversion of 75% to 100% of adjusted net income supported by strong working capital management and ongoing inventory efficiency. For the 2026, we expect net sales modestly up year over year as we align production with demand and continue to realize the benefits of our cost efficiency initiatives, we anticipate first quarter earnings per share between $0.40 and $0.45 We expect profitability to strengthen as the year progresses reflecting improved absorption, continued operational execution, and the timing of our cost actions. As Eric noted, 2025 performance demonstrates consistent execution on our strategy in a more resilient better-positioned business through the cycle. We are confident in delivering continued progress across net sales, adjusted operating margin and adjusted EPS while navigating the current industry backdrop. With that, I'll turn the call over to the operator to begin the Q&A. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star. Then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. And the first question today will come from Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann: Great. To think about what you're planning relative to inventories in The U. S. I guess you're still about a month ahead of where you'd like to be. How long does that process take from here? Yeah. Excuse me. Good morning, Steve. So I think as we as you hit on, we we did finish the year a little bit above our six-month target. So we will have some underproduction here likely in the first half of the year in North America trying to right-size the dealer inventories. We'll see how the outlook for the balance of the year goes, but at least right now, I would expect sort of underproduction probably in the around 10% range, give or take. As we continue to rightsize here. Understood. Okay. I think overall that I said in my comments, we did a really good job. We took units down by 9% or so. But just given that twelve-month forward outlook we give you, the months didn't really move materially. They only dropped down one month to despite the 9% reduction in units. Understood. Okay. And then, Damon, you mentioned your prepared comments some discounting, and yet you guys are looking for, I think, 2% or 3% price for '26 Just square those two for me. What what are you seeing in terms of the discounting, and and how do you still get that price? Damon Audia: Yeah. So, Steve, I think overall, we've seen some competitive pressures especially in certain markets like South America. It was definitely a more aggressive market there. When I look at the the team though, despite that, our fourth quarter came in exceptionally strong. If you may recall, I start at the end of the third quarter call, we guided, I think, price in the range of 0 to 1%. We finished the year just north of 1%. So the team gained share took the took dealer inventories down, and had pricing better than our plan coupled with the volume. So the team's done an exceptional job in managing and selling the value of our products relative to the competition. And so when I look at the pricing that we have carryover this year going into 2026, we have north of 1% of that two to 3% sort of already embedded into our into our base here. So, you know, overall, as we think about the new product introductions coming, what we see in Europe, we we feel comfortable in that two to 3% range to at least start the year. Operator: The next question will come from Kristen Owen with Oppenheimer. Please go ahead. Kristen Owen: I wanted to start here with your outlook for Europe I mean that has continued to outperform for you guys. You just give us a sense of what's happening on the ground there? I mean, we've seen a little bit of compression in some of the dairy margins recently. So maybe just give us a sense of farmer sentiment there. What you're seeing in terms of demand, and maybe ask you to double click on on the the pricing acceptance that you're seeing there. Eric Hansotia: Sure. Yeah. I'll take that one, Kristen. You know, if we take a start like, at the industry to start off with, and one of the things that we watch is average age of the fleet. And it's been climbing steeply in EAM as has it as it's been in North America. But let's stay on EM for now. It's almost back to its record peak age, and that's creating just a lot of pent-up demand for new products. And and as so that's number one. That's kinda where the fleet is. Farmer sentiment is actually relatively positive. We had a far a field tech days this fall. Spent time at Agrotechnica. And the spent time with thousands of farmers at AgriTechnica. The the feedback that we were getting was more positive than we expected. So although the SEMA barometer is kinda just hovering in the same spot, which is one of the prediction models, we're bullish we think the market's gonna be up in in this year. And I think, Kristen, if I go to your other questions here, Damon Audia: overall, the demand profiles remain relatively strong. Their dealer inventories, as I made on the comments or Eric made, were right around four months. So we're right where we want to be from a dealer inventory standpoint. Pricing in Europe finished the year quite strong. We had over 3% price in Europe in the fourth quarter on top of that strong volume growth with expectations as well. And so we have relatively good carryover going into 2026 in Europe pricing as well. And then you layer on the new product introductions that we showed at AgriTechnica We've got some great new products out there, the FENT 800, is gonna be a hugely successful product coupled with some of the other ones. So again, the European team has continued despite the backdrop here. The European team is continuing to hit on all cylinders doing very well in gaining share holding their margins at exceptionally high levels for us, and gives us a lot of confidence as we as we go into '26 in that market. Kristen Owen: That's great. Thank you for that color. And then my my follow-up question just is here on the cost savings actions. I think you called out $65 million bottom line benefit in savings in 2025. Another $40 million to $60 million in 'twenty six. Can you just remind us where the big buckets of those cost savings are coming from and maybe tie that back to what you outlined for the 2029 targets, where you're seeing those cost savings come through? Thank you. Damon Audia: Yeah, sure. Good question, Kristen. And geographically, I would say they're very similar to our revenue split. So we're seeing them across all of our four regions. The the vast majority of this is coming through or in the g and a bucket. So a lot of as AGCO Corporation's a company that had been built through acquisitions, we spent a lot of time in the last couple years really trying to standardize and simplify our processes Once we've done that, how do we move them into lower cost opportunities, either offshoring them to other AGCO Corporation locations or potentially outsourcing them to third-party providers who can do that well for us And so we've seen a lot of savings coming from that shift And at the same time, we've really been trying to leverage artificial intelligence more and more within the company where we can automate those processes streamline that, making it easier for our dealers, easier for our customers, easier for our associates. So we're seeing some good momentum on the AI side of the house as well. By just streamlining the work and moving it into a more advanced product. You're right. We did about $65 million in savings this year. We have another $40 to $60 million in savings coming in 2026. As I've mentioned on some prior calls, given the industry downturn, we've been looking to accelerate some of those cost actions that we saw in '26. Into 2025. Excuse me. And that was part of the benefit that we saw in the fourth quarter. So as I think about where we are at the end of 2025, the run rate savings is about a $190 million. So we're already in line with what we told the investors in December 2024. As to how we would run rate out of 2026. So we pulled some things in. Now we got a lot of that in the fourth quarter, so you're still gonna see the absolute dollars come to the bottom line here in 2026. From a run rate savings, we're already at about $1.90. So we'll probably get a little bit north of that 200 by the '26. So very well positioned for that particular bucket. On delivering to the 14 to 15% adjusted operating margin at mid-cycle that we talked about at our last Investor Day. Eric Hansotia: Yeah. Maybe I'll just add a little bit on that one. This is Project Reimagine that Damon was describing, and you know, 700 projects that are all managed very tightly going through the stage gates, that's taking out the $200 million in overhead. What's still in front of us is more work left to do on AI. As Damon's talked about. We've got about a 160 agentic AI projects in flight right now, 50 of them completely done. But a lot of them in flight. And then shift to low-cost country. That's still in front of us as well. We're we're aggressively going after that in '26 and '27. Much of our supply base is in high-cost countries. We're we're aggressively moving that. So overhead kinda towards the tail end and very mature, we're going after product cost really aggressively. Operator: Again, if you have a question, please press star. Then 1. Next question will come from Mig Dobre with Baird. Please go ahead. Mig Dobre: I I I found your comments on on 2025 being a the biggest year of share gain to be really interesting. And I'm wondering if you can maybe give us a little more context there. As I understood it, it's North America. What's sort of specific to some of the things that you've been doing relative to maybe competitors pulling back from the market if if that at all was a factor. And PTX, you know, can we talk a little bit about how you see that progressing as well? It seems like the market, to some extent, are starting to stabilize here. Do you think PTX can be a source of outgrowth, especially on the retrofitting part the business as we think about '26 and even '27? Eric Hansotia: Yeah. Thanks, Vic. Few comments. One, overall, AGCO Corporation turned in the highest market share in our history in 2025. And that's global. So all over, when you take a look at where farmers are seeing value, they voted with their their order book to come to AGCO Corporation. What's underneath that? Net promoter score which is our customer feedback to AGCO Corporation, hit its all-time high in '25. So the the the this the perception of the overall value of the product, the dealer performance, the services, the data, management, data platform, all of that is coming together. And and we feel like it's it's, fueled for growth. We had a record patent filing in 2025. So we think we've got a great set of innovations continuing to come through. So that's the macro. Then you drill into North America, it was the largest one-year gain in market share for large ag in in North America. Largely, our portfolio has been what it is. It's it's now working with the dealers. To get the most out of our our partnership with our dealers to serve customers. We've got several focus areas. It's not so much about conquering white space. It's largely about penetrating the space the dealers are already in. And so we've been looking at performance by county and getting a very granular work plan together with our our major dealers and saying, how do we go change how we're how we're, supporting the farmers About 85% of our big dealers now have their have adopted Farmer Core, at least the early phases of it. They're showing where their service trucks are and, doing much more of the work on farm. So you know, that farmer core combined with detailed work with our dealers matched up with a industry-leading product portfolio we think is starting to show the early days. We we also made a bit of an org change to even sharpen our focus on North America. So that's kind of the machinery side of the business. Now if we switch over to 14 product launches. There's essentially an innovation an education side to that business as well. On innovation, we had 14 product launches, way ahead of what we would have expected a year or two ago. The the feedback at winter conferences I talked about, I go to that every single year. Super strong. Some of the best farmers in the world I think it was one of our best winter conferences. So the innovation engine is going strongly. But the the bulk of the work now is is on channel development. And, establishing our our elite dealers, which is those dealers that carry the full product line. They're the tech dealers. They don't sell tractors and combines. They just sell tech. Establishing them, we've grown that to a little over 70 dealers now. We only had about 40 and, we added about 40, yeah, in 2025. So it's a channel story there as well. If you look at retrofit, it only is down about a third as much as the overall market. So our thesis all along about serving farmers serving the mixed fleet, serving every farmer regardless of brand, is playing out. As long as you keep innovating, that that, farmers are thirsty to be whether they're in a peak or a trough market, they're thirsty to be more productive and profitable. Mig Dobre: Appreciate the color. That was really helpful. And then, I guess my follow-up going going back to EMEA, can you talk a little bit about how how we should think about margins? I mean, margin here in '25 surprised at least relative to our model pretty consistently. Should we be thinking additional margin expansion in '26 especially as maybe volumes here get a little bit better? Thank you. You. Damon Audia: Yeah. Nick Nick, overall, I think you're gonna see the European margins stay relatively consistent here in 'twenty six versus 2025 on an annual basis. May mix a little bit in quarter depending on production schedules, timing of pricing actions, but but generally speaking, would expect to see Europe right around that percent operating margin where they finished last year. Operator: The next question will come from Jamie Cook with Truist. Please go ahead. Jamie Cook: Hi, good morning. Nice quarter. I guess Damon, just two questions. You just answered the question on e margins. Just wondering how we're thinking about margins or sorry, losses in North America in 2026 relative to 2025, given the top line outlook and how where we end up in South America with concerns about some of the discounting I guess then on the positive, I think operating cash flow number, it was very strong in the fourth quarter for the year. So was there anything unusual in that? Is there any reason to believe free cash flow conversion has opportunities to improve from here? Thank you. Damon Audia: Yeah. Good morning, Jamie. And, I think on on North America, we're as I in one of the earlier questions, we will be underproducing relative to retail in in the first half of the year. So you're gonna see the the North American margins are are gonna be negative likely for the first two to three quarters. A little bit too early to to see how they play out in the fourth quarter right now given the the industry outlook, but I think for us, we'll see Q1 and Q2 will likely be worse than Q1 and Q2 last year given the underproduction and the decline in the large ag market. And then hopefully, we'll start to see the margins improve year over year, but still be down in Q3, which is likely a negative for the full year. So but we'll see how that fourth quarter starts to pan out Fourth quarter free cash flow, again, I so I've said in my comments, just great performance, record free cash flow for the year. A lot of that was to do with the incremental volume that we saw flow through in North America and the significant volume increase we saw in South I'm sorry, in Europe. As you know, Jamie, we sell those receivables to AGCO Corporation Finance so that receivable translates into cash for us very quickly. So great result for us there. As I think about twenty-six, we still feel comfortable in that conversion ratio of 75 to a 100% of of adjusted net income. So we'll stick with that for, for 2026. If I think about working capital, here for '26, again, I expect us to continue to refine our inventory, but we'll see how the build comes up The team has done a really nice job with forecasting, and getting the scheduling in our factories better, helping take out some of that working capital in the system. So I'm hopeful that there's a little bit of a modest improvement in working capital 26 as well. Eric Hansotia: Thank you. Operator: The next question will come from Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everybody. I wonder if we could just talk about your Precision Planting product lines specifically. What kind of demand are you anticipating for this planting season? How does 26 versus 25 look for that product on a retrofit and first fit? Basis, if you mind. Eric Hansotia: Yeah. We're we're expecting, you know, the market in general to be down in North America as we you know, the overall market kinda moves in the same direction. But we think that there's gonna be enough attention on the retrofit business that it won't move down as much. And there's a lot of interest in AeroTube. That's the new seat placement launch that we had where you it places the seed tip down and at the right orientation. So when it comes out of the ground, it it perfect emergence and the leaves have more capture of sunlight. That's all. That's unique to precision planting. There's nothing else like it in the in the world, and and we think that that's gonna generate a lot of attention. But so is the dual boom spray system. So we we're we're pretty bullish Those two, hardware products combined with our PharmEngage platform we think that there's a lot of interest in the precision planning market. Especially those two are predominantly biggest hits for North America. Damon Audia: Yeah. And, Jerry, just to put some numbers, I know we've had a couple questions on PTX. So 2025, the PTX team, did an exceptional job. They they hit their numbers. They finished the year right around $860 million. So credit to the team, they were on forecasts or above every quarter, so a little bit better than where we finished 2024. And for 2026, again, Eric alluded to, we do see the retrofit market doing better than the equipment market. And I I would say right now, we see the, the '26 PTX revenue flat to to modestly up versus the $8.60 that they finished, this year here. So good performance by the team and a lot of new products as Eric touched on giving us some good momentum especially on that retrofit channel. Jerry Revich: Well, that's that's a good year given the backdrop. And in terms of the overall cost structure, obviously, you folks have done a lot of work. Can you talk about any incremental opportunities that you're considering? You know, obviously, the the tariff headwinds are pretty painful. Do we see more potential opportunities if we think about the cost structure exiting '26 versus starting '26? Damon Audia: I think, Jerry, for us, from the SG and A standpoint, what we've sort of communicated to the here for the 60 for the 40 to 60,000,000 of incremental costs, I think we got fairly really good visibility on that. Eric alluded to more on the cost of goods sold side. And I wouldn't say that's necessarily connected to the tariff environment. But as we think about how do we make ourselves more efficient without compromising to the farmers, we do think there are some opportunities to evaluate our sourcing. Now that may come to certain that may help us from a tariff standpoint, but as we think about that, it's identifying suppliers who can deliver the quality that our farmers demand but doing it in a way that's lower cost for us and really leveraging the economies of scale that we have with our Massey Ferguson and our Vulture brands. Globally globally. And so we see some opportunities for that helping improve the cost of goods sold. And helping position the margins for Massey and Vulture more, especially as these volumes start to pick up hopefully in '27 and beyond. Operator: The next question will come from Tami Zakaria with JPMorgan. Please go ahead. Tami Zakaria: Hey. Hey. Good morning. Thank you so much. I wanted to get some color on how you're thinking about operating margins by the different regions. If if you could provide some color there, North America, Brazil, Europe, how to think about you know, as the year progresses, like, first half for back half. So any color you can give on regional margins as it relates to first half and back half would be helpful. Damon Audia: Yeah. Sure. No worries, Tammy. I think for as Mig asked in the question, I think Europe should stay right around that 15% margin for the full year and similar to what we've seen in the individual quarters. As the other question came up on North America, think you're gonna see North America, let's say, directionally down in a loss position position probably in that sort of high single, low double-digit range for '26 based on the industry forecast. It's gonna be worse year over year in the first half given the industry and the underproduction and then probably a little bit better than what we did last year in the back half of the year. And then South America, that's kind of, as you know, a little bit uncertain right now. Overall, for the full year, I think it'll be our fourth forecast shows it being modestly better versus versus 2025 on a full-year basis. Gonna start worse off because we gotta do some underproduction here. We've gotta get the dealer inventories, and we've got some weaker mix right now and then sort of picking up to be a little bit stronger in the back half of the year given what we saw here in the back half of 2025. So I'd say margins for the full year relatively flat, maybe a little bit above but more of a shift between first and second half, and then Asia being relatively flat relative to last year from an overall margin perspective. Tami Zakaria: Understood. That's very helpful. And quickly, I think there's been some announcements on Indian tariffs going down. Any any thoughts on whether that could be a tailwind for you And overall, like, could you remind how much of tires and pack is currently baked in so we can kind of keep track if if other tariff rates come down. We can sort of calculate this off with that. Damon Audia: Yeah. Absolutely. So if we think about the incremental tariff cost that we're gonna to see in our P and L in 2026 versus 'twenty five, and it's just the tariff costs themselves, that's about a $65 million headwind year over year. And if I think about what we incurred in our P and L last year, it was around $40 million So the absolute total tariff cost in '26 will be just around $105,110,000,000. So we've set around 1% of our sales. So that's sort of directionally where we're at. But about 65 of that will be incremental to 2020, to 2025. And that's what's compressing our year over year margins because when you look at our pricing guide of two to 3%, as I said on the call, at 3% when you look at inflation plus tariffs, we're only going to cover that on a dollar basis at the three. So that's actually margin dilutive and if you look at the midpoint of our pricing guide we would actually be negative from an earning standpoint and it would be margin dilutive. So that's sort of what's in the numbers right now. Based on what we know. If what was communicated related to India does come to fruition. Probably not gonna have a big effect on us Tammy. It's a couple it would be a couple million dollars of a positive but not a not a big mover to that $65 million that I just quoted. Operator: Please go ahead. And the last question today will come from Angel Castillo with Morgan Stanley. Esther O'Shaneya: Hi. This is Esther O'Shaneya. On for Angel. Congrats on a good quarter. My question is, maybe going back to tariffs, could you maybe give us like kind of the cadence, each quarter going to 2026? Do you see more happening in the first half or second half? Or is it kind of equally, divvied up? Damon Audia: Yeah. Good morning, Esther. So, overall, given the timing of the tariffs last year, again, as I think about that $65 million incremental, it's going to be heavily weighted here in the first half of the year because if you remember the timing of when tariffs rolled in last year, coupled with the level of inventories that we had and our dealers had we really saw that start to pick up in the third quarter and more into the fourth quarter. So you're sort of looking at probably the majority of that 65 sitting in the first half. And then the balance of it sort of rolling in in the third quarter and then being somewhat neutral in the fourth quarter. Esther O'Shaneya: Okay. And just a follow-up, are there any limiting factors in your ability to under produce at a greater degree just to kinda fix some of the excess inventory you mentioned in the call today? Eric Hansotia: So there's no Damon Audia: there's no inhibitors for us in reducing our production. But I think you have to understand the complexity of a full portfolio And as we talk about the industry, the planter industry, industry is different than the combine industry, which is different than a low horsepower, medium horsepower, high horsepower. So depending on which industry is fluctuating and what that dealer has on his or her yard will influence our production. So we don't have any take or pay contracts with suppliers. We don't have any issues that prohibit us from slowing our production, but it's more as the different types of products have different dynamics that influence them that's what may adjust the inventory or the the, the months on hand that we then have try to adjust. Operator: This concludes our question and answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. Eric Hansotia: Great. So I just want to thank everybody for joining us today and, some of the really good questions. 2025 reflects a meaningful progress year that we've made in transferring AGCO Corporation. Into a more resilient, better-positioned company We're executing with discipline and focus on what we can control. In a pretty volatile market. And we're always staying focused on our farmer-first strategy, to to that creates purpose for our employees. Our global team delivered a 7.7% adjusted operating margin in 2025. That's a high watermark and notable achievement at this stage of the ag cycle, best we've ever performed at the trough. I'm really appreciative of the commitment and results of our team and our dealer organization. We remain focused on delivering for all stakeholders. For our farmers, our innovation flywheel continues to spin fast. With solutions designed to solve real on-farm problems. We recorded a record net promoter score, and have a record set of patent filings. So farmers like what we've got, and we've got more coming. For shareholders, we exceeded, executed a $250 million accelerated share repurchase in quarter four as part of our $1 billion program, and we're in a new chapter in that regard, with our ability to to do share buybacks. And share buybacks are probably coming more in the future. Because we had a record free cash flow of 07/2025, all-time high mark for for AGCO Corporation. Our 2026 outlook reflects our ability to keep earnings earning the trust of farmers and OEMs. Transforming our dealer network gaining market share, driving our high-margin growth levers, and executing structural changes, and cost initiatives that will position us well for when demand recovers. 2025 was the bottom of the trough and the fleets in our major markets are at the peak of their age. So we expect that the the future looks brighter. Thanks for everybody's participation today. Operator: Thank you for joining the AGCO Corporation earnings call. The call has concluded. Have a nice day.
Operator: Good morning, everyone, and welcome to Orion Energy Systems Fiscal 2026 Third Quarter Conference Call. [Operator Instructions] In this call, Sally Washlow, Orion's CEO; and Per Brodin, its CFO, will review the company's third quarter results and its fiscal 2026 and fiscal 2027 outlook. We will then open the call to investor questions. Today's call is being recorded. A replay will be posted in the Investors section of the company's website, orionlightning.com. I will now turn the call over to Per Brodin, Orion's CFO. Please go ahead. John Brodin: Thank you, Michelle. First, a reminder, prepared remarks and answers to questions include statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally include words such as anticipate, believe, expect, project or similar words. Also, any statements describing future objectives or goals, company plans and outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to differ materially from our current expectations. Risks include, among other matters, those that Orion has described in its press release issued this morning and in its SEC filings. Except as described therein, Orion disclaims any obligation to update or revise forward-looking statements made as of today. In addition, reconciliations of certain non-GAAP financial metrics to their nearest GAAP measures are also provided in today's press release. Now I'll turn the call over to Orion's CEO, Sally Washlow. Sally Washlow: Thank you, Per. Good morning, everyone, and thank you for being with us today. I am delighted to report our results for Q3, our fifth straight quarter of positive adjusted EBITDA. In our last investor call, I said that we were on track to achieve 3 milestones in FY 2026. Milestone one, maintain our NASDAQ listing and maximize our opportunity for growth and shareholder value. As our shareholders can attest, we have checked that box. Milestone two, by the end of third quarter, the enactment of a growth, profitability and cost containment initiative that enables Orion to become a recognized long-term market leader. As today's earnings report can attest, we have checked that box too. And milestone three, by the end of the fourth quarter, $84 million in revenue at or near a positive adjusted EBITDA for the full fiscal year. As we announced 2 weeks ago, we believe we are on track to meet or exceed this milestone. The most illustrative way to bring you up to date about Orion is to review the 2 news items we announced a couple of weeks ago. First, we upticked our guidance range for our current fiscal year and set expectations for increasingly profitable growth in our next fiscal year, which begins April 1. We raised our FY '26 outlook to a range of between $84 million and $86 million in revenue at positive adjusted EBITDA. Again, that's up from our previous outlook of $84 million in revenue at or approaching positive adjusted EBITDA. Our guidance range increase was sparked by our Q3 expectations of about $21 million in revenue and our fifth straight quarter of positive adjusted EBITDA, which are indeed the results that we are reporting today. Additionally, we now expect positive adjusted EBITDA for the full FY '26, which ends March 31. We expect continued up and to the right profitable growth in FY '27 with positive adjusted EBITDA on revenue between $95 million and $97 million. We based our uptick on increasing orders and the success of our recent cost structure improvements. A few of these recent orders include an exterior lighting project valued between $14 million and $15 million beginning now in our current Q4 with the bulk of it completed in the first half of our FY 2027. This is an example how we expand our scope of work within our current customer base. We expect more of this expansion in FY '27, along with more new customer wins as well. Our strategy to expand the products and services we provide is exemplified by the recent 3-year renewal of a maintenance contract as well as our growing backlog. We grow our business by listening to our customers and developing the products and services they need. Another area of focus that we are continuing to quote and win more and more work is within electrical infrastructure, which we define as integrated offerings within our LED lighting and EV charging lines of business. An emerging example of this for some customers is our initial integration of a localized battery storage solution that enables facilities to minimize cost and maximize efficiency by drawing on stored energy. Another example is the Orion Voltrek announcement just this week of our latest work for the Boston Public School System, a $4 million installation of 105 EV charging stations and related infrastructure. Orion Voltrek is a recurring partner in the BPS initiative to electrify 100% of the district's 750 school buses, the largest school bus electrification program in the Northeast. As I've said before, a number of industrial, commercial and public sector facilities operated by some of the largest enterprises in the United States rely on Orion. Year after year, our largest long-time customers stay with us and grow with us because we deliver unsurpassed quality and unsurpassed ROI on an ongoing basis. One reason that they rely on us is that we are reliable, in part because our proprietary supply chain enables us to maximize efficiencies, minimize dwell times and avoid choke points. As they also know that our built from the ground-up supply chain also helps insulate us from the risk factors associated with the headlines of the day. Another reason our customers rely on us is that we earn more of their confidence the more we do with them. That includes retailers, 2 of the largest automakers on earth and one of the biggest school systems in America. Customers require the most demanding standards of efficiency, reliability and compliance, repeatedly increase our scope of work because we deliver on time and on budget. We see increasing market -- customer and market demand ahead of us as evidenced by our uptick expectations of growth and profitability through FY '27. We expect to benefit from market tailwinds, especially in building, reshoring and refurbishing industrial facilities ranging from data centers, to manufacturing plants, to big box retail stores and public sector buildings. EV fast charging continues to be an area of opportunity according to Paren research. While the U.S. EV charging market faced uncertainty in 2025, the most recent Paren report expects 8% growth in 2026. Paren also cites growth trends in ports per site and rip and replace of existing EV charging infrastructure. It foresees what it calls a private-led expansion and improved CPO economics. The report puts a premium on execution, quality and asset efficiency. We believe we have rightsized and recalibrated Orion for that environment that Paren describes, and we believe that puts us in position for market expansion, product extensibility and profitable growth. We could not be more energized about the remainder of the current fiscal year and the entirety of the next year. With that, let me turn to Orion's CFO, Per Brodin, to review our financial performance and outlook. John Brodin: Thank you, Sally. Today, we reported fiscal Q3 '26 revenue of $21.1 million compared to $19.6 million in Q3 '25. LED lighting segment revenue was $12.1 million compared to $13.2 million in Q3 '25, reflecting decreased project activity and ESCO channel sales, partially offset by an increase in distribution channel sales. Orion's expanded LED lighting project pipeline and efforts to drive growth in the distribution channel are expected to continue to contribute to higher revenues in Q4 '26 and into fiscal '27. In addition, we are expecting a very strong Q4 from the turnkey Group. Lighting achieved a Q3 '26 gross margin of 30.6% versus the 30.2% in Q3 '25 with pricing increases, cost reductions and sourcing initiatives amplified by a more favorable Q3 '26 project and revenue mix contributing to this performance. Maintenance segment revenue increased 13% to $4.4 million in Q3 '26 from $3.9 million in Q3 '25, reflecting the benefit of new customer contracts and the expansion of some existing relationships. We achieved a maintenance segment gross margin of 25.5% in Q3 '26 versus 26.4% in Q3 '25. EV charging solutions revenue was $4.7 million in Q3 '26 compared to $2.4 million in Q3 '25, reflecting the expected completion of a significant project within the quarter. EV achieved a gross margin of 36.7% in Q3 '26 versus 30% in Q3 '25. Our overall gross profit margin increased to 30.9% versus 29.4% in Q3 '25, reflecting pricing and cost improvements in all segments, particularly LED lighting and EV. We expect our overall gross margin to remain strong in Q4 '26 and throughout fiscal '27 that will likely vary on a quarterly basis due to revenue mix and volume. Total operating expenses declined to $6.1 million in Q3 '26 from $7 million in Q3 '25, reflecting ongoing overhead and personnel expense reductions. Reflecting stronger gross margin and lower operating expenses, Orion's Q3 '26 net income was $160,000 or $0.04 per share compared to a net loss of $1.5 million or $0.46 per share in Q3 '25. Adjusted EBITDA improved to positive $761,000 in Q3 '26 versus $32,000 in Q3 '25, reflecting continued cost control and financial discipline. As Sally mentioned, this was Orion's fifth consecutive quarter of positive adjusted EBITDA. That puts our trailing 12-month adjusted EBITDA at $1.6 million on sales of $81.5 million. Year-to-date cash provided by operating activities was $400,000 through Q3 '26 compared to $1.3 million in the prior year period. During the year, we have also had a $1.3 million net paydown of our revolving credit borrowings. Net working capital was $8.9 million at Q3 '26 versus $8.7 million at year-end. Available financial liquidity was $11.8 million versus $13 million at year-end. Notably, we recently raised net proceeds of approximately $6.4 million through the issuance of 500,000 shares of common stock, which provides us with growth capital and the ability to pay down amounts outstanding on our revolving credit facility. Regarding our outlook, as Sally noted, last month, we increased our expectations for growth and profitability for our current fiscal year and set expectations for increasing growth and profitability in our next fiscal year, which begins April 1. We raised our fiscal '26 outlook to a range of between $84 million and $86 million in revenue at positive adjusted EBITDA. That's up from our previous outlook of about $84 million in revenue at or approaching positive adjusted EBITDA. And now we expect positive adjusted EBITDA for the full fiscal year '26, which ends March 31. We also announced that we expect a continued increase in profitable growth in fiscal '27 with positive adjusted EBITDA on revenue between $95 million and $97 million. And this concludes our prepared remarks. Operator, would you please now commence the question-and-answer session. Operator: [Operator Instructions] Our first question comes from the line of Eric Stine with Craig-Hallum Capital Group. Eric Stine: So maybe just starting with the external lighting project, the $14 million to $15 million, obviously, very good to see. Just curious, I know some contribution in Q4, but maybe just for help on our side, any early thoughts on kind of linearity of revenue 1Q, 2Q of fiscal '27. And then it also sounds like you're pretty optimistic that -- I know you've been doing work with -- significant work with Home Depot over time, but that this $14 million to $15 million has some expansion potential with it as well. John Brodin: Eric, it's Per. I think maybe the way to think about it is we did start with some of those projects in, say, late January of this quarter. We expect that effort to ramp in January, February and March and have said we expect the majority of that revenue to hit in the first half. And actually, we expect to be complete by the end of July. So I would think that there's some initial revenue ramp in the fourth quarter here of '26, then I would expect that over those first 5 months of fiscal '27, it will be a little bit more of a steady earnings on revenue. Eric Stine: Got it. That's helpful. And then the expansion potential [indiscernible] that project, if there is some, then maybe expand on that. Sally Washlow: Yes. Eric, we think that there's potential expansion, as we've noted with -- in this customer. We work closely with them day in and day out. That probably would not be in the, we'll call it, the first half of the year as we continue to be a partner with them. Eric Stine: Okay. And then just second one quick. Very good to see the OpEx come down again. Per, I believe you termed it as a result of ongoing cost reduction initiatives. So where could that potentially go? I mean is this kind of a quarterly run rate we should think about? Or is there a potential further reduction? John Brodin: We'll continue to try to manage those operating expenses as closely as we can. I think a lot of that effort, as you would suspect, ends up being finding cost savings to mitigate other cost increases. So I would think that ongoing expenses would be at that level or potentially slightly more, but probably at least in Q4 that that operating expense number would start with a 6. Operator: [Operator Instructions] Our next question comes from the line of Gashi Rowe with Singular Research. Gowshihan Sriharan: Can you hear me? Sally Washlow: Yes. Gowshihan Sriharan: Congratulations on your quarter. On the maintenance side, you clearly had some big win at a large retailer. I'm curious as to about the next tier of customers. Are you seeing those smaller midsized enterprises adopt a similar preventative maintenance model? Or is this still more of a one customer phenomenon at this stage? Sally Washlow: Thank you. So no one to the scale that this large retailer is for us in that division, but we are seeing increases month-over-month within some of our other customers and continue to pursue new customers and contracts within the space. Gowshihan Sriharan: Got you. And with the strong run of contract wins with a handful of large customers, can you talk about how you are underwriting the execution risk? I know in the past, you've seen some -- experienced some delays. Any kind of orders or penalties? How much room is there in your margins and guidance if one of these programs experiences the kind of delays that you have seen in the past? John Brodin: I think that risk exists on an ongoing basis, and we say, temper our outlook with that potentiality. So I would say that we have tried to take into account any issues that might arise that we have at least some visibility to at this point. Operator: Our next question comes from the line of [ Matt Dunn ] with Tieton Capital Management. Unknown Analyst: Great. That's Matt Dane with Tieton Capital. I wanted to ask about the distribution segment. You referenced that you're seeing some success there. Just wanted to get a little bit more color around that. What's driving that success? And what type of runway do you see with that as well? Sally Washlow: Matt, so driving that success, we're out there with the customers expanding our relationships. As noted, we expanded the team that calls on that channel earlier this year, and that's proving to bear fruit. And also, we're looking at developing products from the request of customers in that channel as well. So we expect to engage further in the channel and deliver the products that they're asking for us to deliver as well. Unknown Analyst: Great. I did also want to ask about the infrastructure opportunity, electrical infrastructure opportunity. How much revenue are you getting from that newer area of your business to date? And I guess I just have a hard time really sizing how large the opportunity is over time. What can you share around all that? Sally Washlow: So the shape of the revenue that we get is certainly evolving from what traditionally we'd say product sales and some of that even comes from the EV segment and the installation that we do there. But where -- and we're developing this. So I guess I don't have a hard number for you. But where we're getting some of these projects from is expansion within maybe an installation job that we had and there's expanded work to do on site. We're there, and they're requesting us to do that expansion of work, which can be 7 figures in terms of the scope of those jobs that they ask us to do. So initially, when we got there, we didn't expect it, and then it's further grown. Unknown Analyst: Okay. And so is it -- how significant is the revenue that is contributing so far? Or is it still -- it's really not a huge amount of revenue and it's more of a future expected additional revenue that is going to add? Sally Washlow: Yes. We're continuing to build it. And as we build out our plans for next year, we look at what the potential of this could be. John Brodin: Maybe a different way to think about it, Matt, is we have had some good wins on that standpoint, both from, I'll say, an overall win on a couple of jobs. And we've also had, to Sally's point, a couple of expansions on what started as lighting projects that is not yet fully in our results through the end of Q3. A lot of that is, I'll say, one business, but some of that will be recognized in Q4, and some of that will go into fiscal '27, and we're hoping to build on those successes as we go. So it's a little hard to size it at this point. Operator: This concludes the question-and-answer session. I will turn the call back over to Sally Washlow for concluding remarks. Sally Washlow: I want to thank everyone again for taking time to join us today. We look forward to updating investors on our fourth quarter call in early June. Between now and then, we look forward to meeting with many of you or to meet whether it's in person or virtually. We will be presenting at a number of conferences, so please watch for our forthcoming announcements regarding scheduling. Please also reach out to our Investor Relations team to set up a meeting or for any other information. Their contact information is at the bottom of today's press release. Many thanks again for your interest in Orion. I look forward to continuing to update you on our progress. Operator: Thank you. This concludes today's conference call. You may all disconnect. Everyone, have a great day.
Operator: Good morning, and welcome to Ladder Capital Corp. Earnings Call for 2025. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter and year ended December 31, 2025. Before the call begins, I'd like to call your attention to the customary Safe Harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10 for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's president, Pamela McCormack. Pamela McCormack: Good morning, and thank you for joining us today. I'm pleased to report Ladder Capital's fourth quarter and year-end results for 2025. This past year marked a significant milestone for our company. We became the only investment-grade rated commercial mortgage REIT, underscoring our strong balance sheet management and conservative approach to leverage. Our robust positioning enables us to enter 2026 with a dedicated focus on driving earnings growth and financial strength. During the fourth quarter, Ladder generated distributable earnings of $21.4 million or $0.17 per share. Adjusting for a $5 million realized loan loss that had previously been reserved for, the fourth quarter earnings were $26.4 million or $0.21 per share. For the full year, Ladder generated distributable earnings of $109.9 million, delivering a 7.1% return on equity, with adjusted leverage at a modest 2.0 times, stable book value, and robust liquidity. These results reflect a solid year of performance and financial strength. Achieving investment-grade status in 2025 with ratings from Moody's and Fitch significantly enhanced Ladder's access to deeper and more stable capital markets. This achievement lowered our cost of funds and strengthened our liquidity profile. Building on this momentum, we are pleased to see S&P upgrade Ladder to double B plus, just one grade. Our $850 million unsecured revolving credit facility remains a cornerstone of our funding strategy, complementing our unsecured bond issuances by providing same-day liquidity at a highly competitive rate. This facility includes an accordion feature that allows for expansion up to $1.25 billion. We are pleased to share that we recently secured $100 million of additional commitments to exercise the accordion, with closing anticipated later in the quarter. Together, these funding sources enable Ladder to maintain a predominantly unsecured capital structure, operating independently of repo and CLO markets, and position us to capitalize on future opportunities with confidence. In 2025, we originated $1.4 billion in new loans, our highest annual volume since 2021. The second half of the year was particularly strong, with nearly $950 million in new loan originations representing our best two-quarter performance in over three years. During the fourth quarter alone, we made over $870 million in new investments, including over $400 million in securities, a $25.8 million equity investment, and more than $430 million in new loans, at a weighted average spread of 340 basis points. At year-end, our loan portfolio totaled $2.2 billion, representing 42% of total assets. Our investment strategy remains focused on stable income-producing collateral, primarily multifamily and industrial properties, with no drift on credit quality. Notably, office loan exposure declined from 14% to 11% of total assets by year-end. While we have reduced overall office exposure, we've selectively pursued new investments as capital returns to the sector. In 2025, we made three new loans totaling $68 million, collateralized by recently acquired office properties. Additionally, and as previously mentioned, we made a $25.8 million investment for a 20% non-controlling interest alongside a strong operating partner to acquire a 667,000 square foot Manhattan office property located just one block away from Grand Central Terminal. Momentum has carried into 2026 as acquisition activity improves in the commercial real estate market. We've already closed over $250 million in new loans, with more than $450 million under application and in closing. During the fourth quarter, we acquired $413 million of primarily AAA-rated commercial real estate securities. As of year-end, the securities portfolio totaled $2.1 billion, representing 39% of total assets. Our $966 million real estate portfolio delivered consistent performance in 2025, generating $14.8 million of net operating income in the fourth quarter and $57.3 million for the full year. This steady income was supported by active leasing and proactive asset management, which improved both occupancy and overall portfolio stability throughout the year. In 2025, we issued our inaugural $500 million investment-grade unsecured bond at a fixed rate of 5.5%, with pricing tightening from 200 basis points over treasuries to 167 basis points at issuance. Since then, our bonds have tightened by over 60 basis points to approximately 100 basis points over treasuries, outpacing comparably rated equity REIT bonds by nearly two times and distinguishing us from higher leverage mortgage REITs and property REITs with first-loss exposure. Historically, commercial mortgage REITs faced skepticism from bondholders and shareholders of traditional equity REITs due to concerns over leverage composition, external management, and limited insider ownership. Ladder stands apart. We offer a differentiated investment proposition: an investment-grade internally managed company, with management and the board owning over 11% of the public company, a portfolio comprised of senior secured assets, and a capital structure anchored by unsecured debt with conservative leverage of two to three times. As of year-end, 71% of our debt was unsecured, and 81% of our assets were unencumbered. We maintained $608 million in liquidity, including $570 million of undrawn capacity on our unsecured revolver. Having now converted traditional equity REIT bondholders, we believe we offer a meaningful alternative to traditional equity REIT shareholders as well, by providing a clear and compelling value proposition for investors seeking stability, alignment, and attractive risk-adjusted returns. Building on our momentum, our focus now shifts to loan origination and earnings growth as the primary catalyst driving our story forward. With this stronger narrative, we aim to attract high-quality equity REIT shareholders, aligning our valuation with equity REIT peers to further reduce our cost of capital. In closing, 2025 was a landmark year for Ladder. We achieved investment-grade ratings, enhanced our capital structure, and delivered consistent performance across our portfolio. In 2026, we plan to drive growth by increasing loan originations to enhance returns, support dividend growth, and create shareholder value, all while maintaining the balance sheet discipline that defines Ladder. Thank you to our investors for your continued support, and to our team for their dedication throughout this transformative year. With that, I'll turn the call over to Paul. Paul Miceli: Good morning, and thank you, Pamela. Expanding on the topics Pamela highlighted, I'll be providing additional detail on our operating performance and strategic positioning as 2026 begins. During the fourth quarter, Ladder generated distributable earnings of $21.4 million or $0.17 per share. Excluding a realized loan loss previously reserved for, fourth quarter earnings were $0.21 per share. In 2025, we achieved our long-standing goal of attaining investment-grade credit ratings, as Moody's upgraded Ladder to BAA3 and Fitch to BBB-. With S&P upgrading Ladder to BB+ in January subsequent to year-end, Ladder is now the only investment-grade rated mortgage REIT, a distinction that underscores our disciplined approach to balance sheet and credit management, prudent leverage, and the durability of our diversified commercial real estate platform. These ratings enhance our access to investment-grade capital at tighter spreads, validate our commitment to the use of unsecured debt to finance our balance sheet, and overall further solidify Ladder's industry leadership. In July 2025, we issued $500 million of senior unsecured notes maturing in February with a 5.5% coupon, representing a 167 basis point spread over the benchmark treasury. This transaction was oversubscribed by more than five and a half times, with orders exceeding $3.5 billion, executing at the tightest spread in Ladder's history. This transaction firmly established Ladder in the investment-grade bond market, expanding our access to a deeper, more stable pool of capital. As Pamela mentioned, but it's worth repeating, the bond has continued to perform well in the secondary market, trading as tight as 100 basis points over treasury since closing. As of year-end, our adjusted leverage ratio was 2.0 times, and we maintained robust liquidity of $608 million, including $570 million of revolver capacity. Our unencumbered asset pool represented 81% of total assets as of December 31, 2025, of which 87% was comprised of first mortgage loans, investment-grade securities, and unrestricted cash and cash equivalents, providing significant balance sheet flexibility. As of December 31, 2025, Ladder's undepreciated book value per share was $13.69, which is net of $0.37 per share of CECL reserve established. In 2025, we repurchased $928,000 of common stock for 88,000 shares at a weighted average share price of $10.57. In total, in 2025, we repurchased $10.2 million of common stock or 965,000 shares at a weighted average share price of $10.60. As of December 31, 2025, $90.6 million remains outstanding on Ladder's stock repurchase program. In the fourth quarter, Ladder declared a $0.23 per share dividend, which was paid on January 15, 2026. For the full year, we achieved 96% dividend coverage, excluding the loan write-off, while simultaneously allowing our loan portfolio to grow following a record year of paydowns in 2024. Our dividend remains stable, reflecting the strength of our balance sheet and our ability to grow earnings as our asset base transitions into newly originated loans and reaches full capacity. Furthermore, as our investment-grade story continues to gain traction, we see potential for our dividend yield to tighten relative to other investment-grade REITs with comparable credit ratings, further underscoring the value of our differentiated model. Building on Pamela's overview of our performance, I will highlight a few additional insights on how each of our segments fared for the fourth quarter. As of December 31, 2025, our loan portfolio totaled $2.2 billion with a weighted average yield of 7.8%. As of year-end, four loans totaling $129.7 million or 2.5% of total assets were on nonaccrual, including one loan added in the fourth quarter collateralized by an office property in Portland, Oregon, the Weatherly Building. The loan has a carrying value of $5.8 million or $88 per square foot, which is net of a $5 million loan loss reserve realized in the fourth quarter. Subsequent to year-end, we resolved one nonaccrual loan with a $61 million carrying value through foreclosure. The loan is collateralized by a three-property 158-unit multifamily portfolio in the Harlem neighborhood of New York City with 60 parking spaces built between 2017 and 2020. The properties are currently 87% occupied and generate healthy net operating income. Our CECL reserve otherwise remains steady at $47 million or $0.37 per share. Taking into consideration the continued ongoing macroeconomic shifts in the U.S. and global economy, we believe this reserve level is sufficient to cover any potential losses in our loan portfolio. Ladder's CECL reserve level has been, and we believe will continue to be, the result of a disciplined approach to credit risk management, allowing us to remain well-positioned to navigate market challenges while protecting shareholder value. As of December 31, 2025, our securities portfolio totaled $2.1 billion with a weighted average yield of 5.3%. Notably, 99% of the portfolio was investment-grade rated, and 97% was AAA-rated, underscoring its high credit quality. As of year-end, approximately 66% or $1.4 billion of our securities portfolio remained unencumbered, providing an additional source of liquidity for Ladder, complementing our same-day liquidity of $608 million and reinforcing our strong balance sheet and ability to focus on offense. In 2025, our $66 million real estate segment continued to generate stable net operating income. The portfolio includes 149 net lease properties comprised of primarily investment-grade credits, committed to long-term leases with an average lease term of 6.7 years. For further details of our fourth quarter and full-year 2025 operating results, please refer to our earnings supplement presentation available on our website and our annual report on Form 10-K, which we expect to file in the coming days. With that, I will turn the call over to Brian. Brian Harris: Thanks, Paul. 2025 was a pivotal year for us, and we reaffirmed our commitment to an unsecured liability structure after upsizing our revolver and issuing our first investment-grade bond. With predominantly unsecured debt now and attractive borrowing costs, we expect 2026 to be a year where we complete our business plan to grow our loan portfolio along with our earnings. We've already begun to grow our asset base, increasing it by 16% in 2025 and 10% in the fourth quarter. Our growth in assets has been partially offset by large payoffs in our loan portfolio over the last two years, with $1.7 billion in payoffs in 2024 and $608 million in 2025. But I would note that in 2025, we received only $107 million in payoffs, our lowest quarterly total in the last two years. With payoffs slowing, our accelerating loan originations become more visible as growth in our loan book takes center stage. We originated $511 million in new loans in the third quarter and $433 million in the fourth quarter, with an additional $251 million originated in January 2026. This totals $1.2 billion of new loan originations over the last seven months. Turning to our securities portfolio, in 2025, we successfully reallocated capital from T-bills into AAA securities, increasing our holdings by over 90% to $2.1 billion despite taking in $535 million in paydowns. We expect our securities portfolio to continue to experience robust paydowns as capital markets have become more constructive around refinancing commercial mortgage loans and issuers exercise cleanup calls due to deleveraging of AAA classes. This is the class we have a preference for, as seen in our holdings. We expect to use the proceeds from these paydowns in our securities book, combined with the sales of securities and our access to unsecured capital, to provide much of the liquidity needed to fund our growing loan origination pipeline. This plan is not new. It is simply an illustration of the business plan we outlined last year. We believe it was critical to prepare the company's liability complex for the loan growth we've been expecting, and we're now seeing this play out in real time. While we will always be on the lookout for opportunities to improve our cost of funds, we believe most of our efforts in the year ahead will be focused on growth in our loan portfolio and, by extension, earnings. We think we are well-positioned to take advantage of the lending opportunities we see emerging. Rising stock prices and a more balanced liquidity picture in commercial real estate markets should provide Ladder with many opportunities in the year ahead. Our diversified mix of investments has weathered the storm felt in the CRE markets as rates rose quickly after being near zero for years. We believe our stable book value over the last several years has validated our credit acumen along with our multi-cylinder approach towards allocation of capital. Now fully on offense, we plan to grow our earnings over time and our book value. We can take some questions now. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Jade Rahmani with KBW. Your line is now live. Jade Rahmani: Thanks very much. 2026 seems to be off to a pretty volatile start, and there are jitters in sectors of the economy around the impact of AI on key areas, all the CapEx spend big tech is targeting, and volatilities in interest rates. At the same time, CRE loan spreads have continued to tighten. So just wanted to start off by asking if Ladder's planning to do anything different in light of the potential volatility. Brian Harris: This is Brian, Jade. Thanks for the question. I don't think we're planning to do anything differently given the volatility. It's been pretty volatile, although, in the beginning of almost every year, spreads tend to tighten after the stock market has hit some records at the end of the year before. Because I think there's rebalancing, and I think the insurance companies have fresh allocations of capital that are usually larger than the ones before because of the stock market rebalancing. But we're not overly impacted by that. We are not a fan of data centers as far as calling them real estate assets. So we weren't doing that before, so I don't think we're gonna do it now. I do think that a lot of the private credit lenders in the CLO market and on corporates below investment grade, you know, they may be impacted more by that. And I think naturally, you get dragged when you're in some ETFs with them. But overall, no. I don't think it. If anything, I think if the market is getting concerned about the spend on AI and data centers, there is probably a place in the world for a safe dividend that is based on bricks and mortar and utility for, you know, normal everyday people as opposed to the next great wave of technology. So I don't think this volatility does much for us other than present opportunities, because I think that a lot of the big operations, the big asset managers will sit down and decide, you know, how they want to allocate capital here. And, of course, they'll pull the real estate guys into that conversation too. But at Ladder, we're independent. We're not having any trouble with this. Jade Rahmani: Thanks. And in terms of the plan to drive earnings growth and that being the main focus, what ROE do you think is achievable within the current capital structure? And where do you see maybe the loan portfolio going in size by year-end? And do you plan to grow the real estate equity portfolio? Brian Harris: I'll try to take those in order and maybe in backwards order. We do plan to grow the real estate equity portfolio. We've been doing that a little bit more lately than in quarters past. We're selective. We're not just making an overall call on real estate coming back, but there are some opportunities. Typically, when we make an investment, there's a little bit of capital tension involved in the capital allocation of it. It might be the prior lender. It might be the owner. It might be a mezz owner. We're pretty comfortable making investments, especially when they've been reset on the valuations. A lot of the buildings we've invested in in New York on the office side, we're investing at levels that, you know, these buildings were purchased at thirty, thirty-five years ago. And, just a quick report card. The first one we did in New York, the first office building we invested in went from 55% to over 90% in under a year and a half. So we'll probably refinance that pretty soon, and that might create some capital too, a capital event. So, yes, we do plan to grow that. As far as the loan portfolio, given our penchant for lower leverage models, I suspect we can probably get the assets as opposed to loans. I'm rather agnostic as to how we go about getting to the levels, but I suspect we'll take the portfolio up a little over $6 billion by year-end. And what was the first part of the question, Jade, if you don't mind? Jade Rahmani: ROE. Brian Harris: ROE, I would say nine to ten. And that will largely depend on how much of a resurgence of the conduit comes back. You could easily go above that. Some of our real estate may be ready to harvest some gains too. So we may have some one-timers that will drive the ROE higher. Not really anticipating anything getting worse. I think the visibility we have into our portfolio is good enough that I don't see any negative surprises coming our way. We're aware of any problems that may exist, and they don't look too bad to us. Jade Rahmani: Great. Thanks so much. Operator: Our next question comes from Timothy D'Agostino with B. Riley Securities. Your line is now live. Timothy D'Agostino: Quarter over quarter, obviously, net interest income ticked down. Looking at top line, interest income, it was about $3.5 million lower. Obviously, SOFR has come in over the past couple months, but I was wondering as well, like, is the pressure at the top line also attributable to maybe loans being funded that were written in 4Q being funded 1Q? Just kind of understanding that dynamic a little bit better. Thank you. Brian Harris: Okay. I think that we had a reasonably good quarter as far as loan originations go in the low 400s, followed by the third quarter in the low 500s. I've always said these can be a little bit lumpy, and then if you just look at a ninety-day period, you might get confused. But if you actually stretch it out over a quarter in front and a quarter in back, it actually is a pretty smooth process. We did fund a lot of our loans at the end of December. That was not by design. I don't know why that happened. Maybe people get a little more serious about getting closed before year-end. So we didn't really enjoy the net interest income from a lot of our new originations, but we will pick it up in the first quarter. And I think the second thing that happens with net interest income is the payoffs, anything that comes in and pays off. There was only $107 million in the fourth quarter, but payoffs tend to have relatively high rates compared to, you know, the newer loans that we're writing. And that's oftentimes because a lot of them have been modified, and they're cash flow sweeps, and these things are being refinanced. So but the good part is while we do see a slight dip from those loans and spread, we're happy to see them go because we've been in triage with a few of them, and we're very happy with the results generally on how our asset management team is doing a great job of getting capital back into the building. And we think that'll continue, and we are not having too much trouble anymore finding suitable investments on the outside for new loan originations. So, again, I think we'll pick that up as we go on. I think we already had $250 million in the month of January 2026. So, again, I don't take too much offense to looking at one quarter as a possible dip. I suspect the heavy refinances are over, and so we're now gonna be converting a lot of cash out of the unsecured lines as well as our cash positions and sell some securities. We will be funding, you know, more loans that have higher yields than the fuel that we get them from being the unsecured line as well as a securities book. The securities book is paying off rather quickly. And that kinda makes sense. Because as the defroster went on in the commercial real estate refinance market, a lot of loans paid off. And as those loans pay off in those CLOs, the AAA portion dips, you know, and you have large subordination. That happens to be what we own mostly, and they're being called. So they're being refinanced into new CLOs and with old and new loans. So, again, very healthy part. So while payments are slowing, debt payoffs are slowing down in the loan book, they're picking up in the securities book. And that's right on schedule. That is nothing unusual about that. That's what we were anticipating, and we expect that to continue. Timothy D'Agostino: Okay. Great. Thank you so much. That's all for me. Operator: Our next question is from Steve Delaney with JMP Securities. Your line is now live. Steve Delaney: Thank you. Good morning, everyone. The shift towards a more lending-focused business model moving out into 2026, remaining diversified, but a reemphasis on lending. When I look at the commercial mortgage REIT group, 22 companies, I mean, the losses on bridge loans over the last three to five years have just been huge. And I guess, Brian, when you look back over the last, say, five or six years, what were the biggest mistakes in underwriting? I mean, just on a very high level, simplistic term, I guess, what are you going to do in your underwriting of your bridge loans moving forward to ensure that we don't have the kind of carnage that we saw with all those post-COVID generation of bridge loans within the industry? Just appreciate your thoughts on lending discipline and what those bridge loans look like going forward. Thank you. Brian Harris: Okay. I'll try to, you know, bear what's in the cupboard here as to the warts and all conversations that we get into sometimes. But I think that many of the losses that occurred across the financial sector really were as a result of a deadly combination of low cap rates driven by zero interest rates delivered by the Fed, and people were lots of liquidity as the Fed was making alternatives get out of the banks. Right? You couldn't keep your money there because there was no return. So it got a little bit undisciplined and low. We know apartment buildings in particular were being purchased at three caps. And then the other part of that deadly combination I mentioned is rapidly rising interest rates. So whereas a lot of the rents in those apartment buildings did go up, the operating expenses and the refinance what's required for a debt yield went up more. So that was a bit of a rather easy to look back and see what happened there. The work-from-home phenomenon caused some problems too. And I think that there had been maybe a little bit of overinvestment in a lot of cities. As you know, we tended to avoid those, they used to be called gateway cities, where you had large airports, big population centers, large downtown corporate, and you throw a crime wave into that, and those get into trouble pretty quickly, especially with people that are working from home. I think the largest part of that is over. There's a few cities that are probably still going through it. And listen, if I have to be honest, our losses have been de minimis compared to others. However, not compared to our models. We think we made some mistakes, and we want to make sure we don't make them again. If I had to look back on one theme that I wish we had not done, I think you have to be very careful when you're writing a bridge loan, you're refinancing one of your competitor's bridge loans. Because if the competitor knows more about it than you do, and if it was that good of a loan, he'd keep it. You know, he's just gonna take the payoff and make another loan. So if he really liked the loan that you're writing there, you might get into trouble. We got into a couple of loss situations in the office sector. Really minor, though. I mean, I'm pretty happy with the way we underwrote them, but our losses over the years, while quite small relative to the portfolio, we had Wilmington, Delaware, Portland, Oregon this quarter. Yep. I suspect we will have a small loss on a building in Minneapolis. And San Francisco has certainly caused its set of problems in these portfolios. But the good part is, Ladder focuses oftentimes on what is called flyover cities, where there are population centers that are quite stable, but most people have never been to those cities. So we do like the Midwest. We've always liked the Southeast. Texas, we're comfortable with in certain places, but you have to always be careful. And when you're the industry leader in volume, which, unfortunately, a lot of operations try to be, all you're really telling me is you paid more for things than anyone else would. And when it whiplashes back at you and goes the other way, you suffer the biggest losses. So you might remember when we started this company, you know, we were sometimes asked why we don't have a big parent company to support us during difficult times. And we call these things kickstand REITs. So you've got giant asset managers with these small REITs. And, you know, you saw Apollo recently roll up, you know, sell a loan portfolio to an insurance company internally. We don't have that at Ladder. And so the other side of that is we don't have a parent company suggesting the loans we should be making. And so we are very independent in how we operate, and with the insider of the company. It really is people with first and last names making loans. And if you just look at how our book value has held up relative to what I'll consider our former peer set, we've just done much better. And that doesn't surprise me, after years in the business. I'm proud of it. But on the other hand, we're still quite wary about things that could go wrong. So I think to sum up quickly on your question, I think I'll be much more cautious. We were always cautious, but more cautious on large cities with unionized workforces and a fair amount of crime. I think we'll also be very cautious around refinancing competitor bridge loans that have been on their balance sheet for three years, and the obvious question is, well, why aren't they refinancing it? So lessons learned. Thank you. They weren't learned with anyone dying, but they were learned with small losses relative to competitors. However, we still feel like our losses were unacceptably high. Steve Delaney: Got it. So bridge loans doesn't have to be a four-letter word. Right? You do it. Brian Harris: No. Not at all. Steve Delaney: Thank you for the comments, Brian. Operator: As a reminder, if you'd like to ask a question, please press 1 on your telephone keypad. Our next question comes from Gabe Pogie with Raymond James. Your line is now live. Gabe Pogie: Hey, good morning, everybody. Thanks for taking the time. Brian, I wanted to ask a question, kind of piggybacking on what Steve just asked about. Can you talk about the competitive landscape as it pertains to banks in particular? Regional banks getting back in the fray, you guys made 12 loans in the fourth quarter, three forty over. So that's super attractive. But kind of how you think about the go forward in '26 with a return of some bank competition, that'd be helpful. Thank you. Brian Harris: Sure. First of all, the banks are becoming more competitive. Yes. However, what we're seeing is they're making more construction loans. And we're very comfortable refinancing properties that are in lease-up and that are brand new. So when I look at the landscape of our loan portfolio and the buildings that secure those loans, they're clearly newer and recently built and much, much better than the ones that went into the downturn when interest rates were zero, where everybody thought they could buy a garden apartment complex from the 1970s and spend a few dollars and raise the rent, and that was gonna be no problem. So we do move to higher ground during periods of volatility, which is why we own AAA securities as opposed to BBB securities. And in addition to that, we make loans on newer properties. And the good part now is almost everything we do has a level that has been reset. And the expectation of the borrower is more sober than it was, you know, when everybody was competing for low cap. If you take a look at the names of the borrowers that show up in a lot of the syndicated loans that got into trouble, and I won't name them here, but I will tell you they're largely absent at Ladder. And the reason why is because they were shopping around asking for 80 to 85% financing. And they had several willing participants in that. We did not. I asked Adam Seifer, our head of originations, how did we avoid these guys? And he goes, those packages submissions wound up in the garbage because it started with 80%. And he said, we didn't feel like we had to do that. So that was a nice bit of underwriting there that avoided problems. But I would also tell you, the banks are not really competing on the bridge loan side. Some insurance companies are. But I think with the amount of regulators in the bank's office that are looking to criticize loans, if anything looks amiss, anything but a stabilized cash flow is not really landing in the banks at all. So and a lot of the competitive set that we used to deal with, they are, I would call them permanently smaller unless they go out and raise capital. I mean, they don't have a valuation problem. They've lost money. And that shows up in the discounted book value. So we believe, and I don't want to get too many secrets out of the kitchen here, but we think that the single asset world, you know, $250 million and over, is being handled by the large banks that you know, are on Park Avenue and San Francisco. But the loans that we do, we historically have had an average loan balance of about $25 million. You'll see that tick up a little bit. And the orphan in the world right now for getting a loan from a large bank or from a bridge lender, at around $80 to $100 million. A little too big for single, it's too big for conduit, it's too small for a single asset, and it's too big for a regional, but it fits us just fine. So we're pretty comfortable. In fact, you know, when we said in this earnings call that we had $430 million in loan originations, we did have a $200 million loan fall out of application during the quarter. And if it had come in, you know, then we'd be talking about $630 million instead. But I still wouldn't think that would change our opinion of anything other than, you know, on a certain date, we have a certain amount of loans closed. So, yeah, but they're back. They're competing again. And I think that, you know, their cost of funds is still rather high, but when the Fed got rid of T-bills at 5.5%, that is probably the single biggest event that helped the regional banks. Because they became more competitive on deposits. Whereas, you know, when they had to raise their deposit rate and as you know, banks have a five-year conveyor belt where the higher rate loans pay off as rates are falling. That really did help them a lot. And if you remember, we had $2 billion worth of T-bills at 5.5%. We moved that into securities. And now we're gonna move out of those securities into bridge loans and conduit. The conduit business is the wild card. As to because that's a stabilized cash flow, and that does compete with regional banks. So and that business is still, I would call it soft. Right? There's just not a lot of volume there. If you look at conduit deals, there's seven, eight, nine originators in those pools. So but we're having the beginnings of those discussions, and it feels a little bit like 2008 and 2009 to me. Because it will come back. I mean, as these properties come out of that recession that we went through, and the low cap rate environment, these cash flows will start to stabilize at higher rates. And that should be a tailwind for the conduit business at large and also Ladder's participation in it. Gabe Pogie: Thank you. Very helpful. Operator: Okay. We have reached the end of the question and answer session. I'd now like to turn the call over to Brian Harris for closing comments. Brian Harris: Thank you for all the support in 2025 and understanding our thematic way of piecing one act into another as we make our investment decisions. But we laid the groundwork that we'll be here for years by becoming an investment-grade company and largely financing ourselves with unsecured debt. We're gonna keep doing that. We are the only investment-grade company in the space. We will not be the last, I don't think. But, you know, we are very happy with the way we performed and also how ready we are now to move forward into a reset level of prices for real estate and a liquidity set that you don't want no liquidity. You don't want no competitors, but you also don't want too many at one time. The private credit world is largely controlled by large asset managers, and most of them are not writing loans that compete with us. So, we think we've got a very, very positive runway ahead of us, and we look forward to 2026. And we are completely on now. No more T-bills. No more triple A's. We're gonna start moving into lending of real estate, as well as capital markets activity in securitization. So long-winded answer there, but a big thank you to all of our investors. And we do, we have an organic plan in place to get the market cap of this company higher through earnings. Operator: Okay. This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Patrick Industries Fourth Quarter 2025 Earnings Conference Call. My name is Julian, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may begin. Good morning, everyone, and welcome to our call this morning. Steve O'Hara: I am joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Matt Feiler, SVP Finance and Chief Accounting Officer. Andy Roeder, Chief Financial Officer, is also on the call and will be available for Q&A. Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. The company undertakes no obligation to publicly update any forward-looking statement whether as a result of new information, future events, or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-Ks for the year ended 12/31/2024 and the company's other filings with the Securities and Exchange Commission. I would now like to turn the call over to Andy Nemeth. Andy Nemeth: Thank you, Steve. Morning, everyone, and thank you for joining us on the call today. I want to begin by expressing my gratitude to the entire Patrick team for their leadership, dedication, passion, hard work, and relentless commitment to serve and partner with our customers throughout 2025. This team continues to elevate the standard at which we operate in alignment with our better together values. Their commitment is what has continued to drive and deliver strong operating and financial results in a very dynamic environment. Our businesses once again proved resilient in 2025, and our focus over the past two years on product development and innovation efforts paid off in the form of meaningful content growth with the 2026 model year changes as we continue our ongoing evolution toward our full solutions model. Our teams remain focused on disciplined execution, scalability, strategic capital allocation, and reinforcing our customer relationships, enabling us to further drive content gains in partnership with our customers across our outdoor enthusiast markets. In 2025, despite macroeconomic uncertainty due to the tariff environment, we welcomed Medallion Instrumentation Systems, Quality Engineered Services, Aegis Group, and Lilypad Marine to the Patrick family. These teams and businesses bring new technology, innovation, deep entrepreneurial spirit, strong engineering leadership, and additional aftermarket content and runway to Patrick. All four of these organizations complement our existing marine full solutions platform, enhancing the value and breadth of products and services we can bring to our customers. Additionally, early in 2025, we strategically complemented our existing investments in composites through the acquisition of Elkhart Composites. We continue to highlight the many benefits of these materials relative to the standard wood products used by both RV and marine industries and are increasingly optimistic that we are just scratching the surface related to the long-term opportunity for composites. We expect to debut further manufacturing capabilities in alignment with our industry-leading lamination and composites innovation and platform in 2026 that reinforce Patrick's leadership in providing next-generation solutions to our markets. Turning to the aftermarket, our growing aftermarket business has helped support both diversification and resilience through the cycle, enhancing our margin quality, deepening customer relationships and insights, and enabling us to better capitalize on demand for replacement and upgrade components. This year, as noted, we increased our presence in this space through various channels and now have more than 500 Patrick SKUs on the RecPro site from across our outdoor enthusiast end markets. Simultaneously, we have formalized our unified aftermarket strategy and structure across Patrick, leveraging expertise from multiple facets of the organization to identify white space opportunities, target M&A candidates in the pipeline, and continue the rollout of aftermarket products to consumers and dealers. We also continue to invest in and use leading technologies to further embed our customer-first solutions. I want to introduce our industry-leading full-scale virtual design and reality solution that we call the Experience, which Jeff will further highlight, and which builds on our existing design platform at our Product Showcase Studio in Elkhart. This technology provides actual scale modeling and product development technology to further deepen our collaboration and partnership with our valued customers. Moving to our financials. In the fourth quarter, net sales improved 9% to $924 million, primarily driven by solid organic growth and acquisitions, partially offset by wholesale shipment declines in each of our RV, marine, and housing markets. Adjusted earnings per diluted share was $0.84, including approximately $0.06 of dilution from our convertible notes and related warrants. For the full year, net sales increased 6% to approximately $4 billion, and adjusted earnings per diluted share was $4.44, including additional dilution of $0.26 related to the convertible notes and related warrants. Our solid balance sheet and strong consistent cash flow generation continue to provide us with meaningful financial flexibility to thoughtfully execute our capital allocation strategy. We delivered free cash flow of $246 million this year, enabling us to reinvest in the business, pursue strategic acquisitions, and continue to take advantage of our scalability when market conditions improve. We further increased our dividend by 17.5% this year with our regular quarterly dividend in November, reflecting the strength and resilience of our model and our continued confidence in our cash flows in the markets we serve. We are committed to redeploying capital back into the business in ways that support long-term value creation, including accretive M&A, organic investments, and returning capital to shareholders when appropriate, all while maintaining a disciplined leverage profile. Next, I want to take a moment to thank Andy Roeder for his leadership, partnership, dedication, and contributions to Patrick. He is a tremendous talent, and we wish him continued success and are excited for him in his next chapter. We are also extremely confident that Matt Feiler's deep financial expertise, organizational leadership, and extensive knowledge of Patrick and our end markets solidifies us and positions us extremely well for the future as he steps into his new role as CFO. And lastly, as we look ahead to 2026, we are focused on delivering profitable growth through the continued execution of our model while investing in the capabilities that differentiate Patrick. Our ability to consistently support our customers' evolving end market conditions while managing costs, maintaining balance sheet strength, and allocating capital with discipline is more important than ever. With a strong foundation in place and significant opportunities ahead, we believe Patrick is well-positioned to deliver sustainable profitable growth and create long-term value. I'll now turn the call over to Jeff, who will highlight the quarter and provide detail on our end markets. Jeff Rodino: Thanks, Andy, and good morning, everyone. Demand in each of our end markets continues to be shaped by a combination of macro uncertainty and tariff volatility, resulting in cautious consumer behavior. OEMs and dealers have shown tremendous discipline while OEMs have remained thoughtful in aligning production schedules with retail demand. Dealers have prioritized well-managed inventory levels and selective ordering patterns. Additionally, our team's commitment to supporting customers through scalability, product solutions, customer service, and the goal of a good, better, best product offering have never wavered. This continues to help OEMs operate efficiently, execute model year changeovers, and meet consumer expectations for designs, enhanced features, and highly engineered products. Fourth quarter RV revenues increased 10% to $392 million on a year-over-year basis, representing 43% of consolidated sales. RV content per wholesale unit for the full year was $5,190, which increased 7% from 2024. On a quarterly basis, content per wholesale unit increased 13% year-over-year. For the fourth quarter, we estimate RV retail unit shipments were approximately 60,100, and according to RVIA, RV wholesale unit shipments were approximately 75,000. This implies a seasonal dealer inventory restock of approximately 14,900 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately sixteen to eighteen weeks. While this reflects a modest increase from fourteen to sixteen weeks in 2025, it remains well below the historical averages of twenty-six to thirty weeks. As discussed, we continue to invest in composites and believe they are a superior solution to wood products, which have been increasingly impacted by tariffs and other governmental actions. Teams in collaboration with our Advanced Product Group are focused on the development and production of our new composite solutions that further unlock potential avenues of content not included in our current total addressable market. Testing on our previously discussed roofing solution has been successfully completed, and we are excited about the related organic content opportunities. Finally, and as Matt will touch on more later, we have prioritized the strategic investment in composite inventory due to the expected capacity constraints in alignment with our capital allocation strategy. Reflecting our customer focus value proposition, our fourth quarter marine revenues increased 24% to $150 million year-over-year, significantly outperforming a 1% decrease in estimated wholesale marine powerboat unit shipments. Marine revenues represented 16% of our fourth quarter consolidated sales. Our estimated marine content per wholesale powerboat unit for the full year increased 11% to $4,327. On a quarterly basis, estimated CPU increased 25% year-over-year. We estimate marine retail and wholesale powerboat unit shipments were 17,333 units respectively in the fourth quarter, implying a seasonal dealer inventory restock of approximately 15,700 units. Dealer inventory in the field at the end of the fourth quarter was estimated at twenty-one to twenty-three weeks on hand, lean compared to historical averages of thirty-six to forty weeks, down slightly from the end of last year and still extremely lean for the industry. As Andy mentioned, we remain focused on expanding our marine full solutions platform, and in 2025, we strategically acquired several complementary products and solution suppliers, adding critical capabilities to our existing value chain for electrical solutions and the aftermarket. Medallion enhanced our instrumentation and control offering with digital switching, displays, sensors, and integrated electronics, while QES strengthens our wire harnessing and full electrical systems by supporting reliable power and connectivity throughout the vessel. Aegis adds engineered components for power distribution, protection, and connectivity, including terminal blocks, fuses, circuit breakers, and relays to OEMs and the aftermarket. And finally, Lilypad Marine brings patented diving boards and other award-winning products selling to OEMs and directly to the customer through aftermarket channels. Together, these businesses complement our existing product portfolio, enabling Patrick to be the supplier of choice from bow to stern. Our powersports revenue increased 39% to $109 million in the quarter, representing 12% of our fourth quarter consolidated sales. We continue to be encouraged by Sport Tech's solid performance as they increase their full-year platform-specific content by approximately 8%. This improvement was driven by the demand for Sportex cabin closure solutions and the preference for utility-focused vehicles, along with the consumer's strong affinity for more feature-rich units. This reinforces the potency of our innovation solutions spanning our outdoor enthusiast brands. I would like to also congratulate the Rockford Fosgate team on a well-received launch of their fully redesigned Punch speaker line. Bridging heritage, passion, and the modern listening expectation of today's auto enthusiast, this new lineup retains the punchy sound and enthusiast appeal that built the brand while incorporating modern design, broader functionality, and unparalleled acoustic technologies. Our housing revenue was 29% of consolidated sales in the fourth quarter and decreased 5% to $272 million. Our total housing revenues in the quarter outperformed a 10% decrease in the MH shipments and a 10% estimated decrease in total housing starts. Our MH content per wholesale unit was flat at $6,633 for the full year. We are confident in the highly leverageable and scalable nature of this business and believe the underlying demand fundamentals, particularly for affordable housing, remain strong even as the industry shipments and backlogs have softened. Our brands in this space have continued to demonstrate resilience relative to broader industry trends with a focus on market share gains and increasing content. Our aftermarket sales increased approximately 30% year-over-year and are now 10% of our total revenues versus 8% in 2024. Finally, I wanted to highlight the Experience. As Andy mentioned, we recently debuted this industry-leading investment, technology, and venue that leverages virtual reality, advanced product scanners, and a massive LED display to bring customizable life-size design product solutions and marketing showcase to our customers. This 50-foot wide by 14-foot tall screen is capable of presenting in virtual reality RVs, boats, and powersport vehicles that we specialize in at a one-to-one scale. The Experience enables customers to walk through their virtual renderings of their products and experiment with design and solutions changing in real-time, reducing the number of prototype units needed. Since the launch in late November, we have hosted over 30 comprehensive demos for our customers, and the response has been overwhelmingly positive. We are very excited about the application of the industry-leading technology and its alignment with our vast product portfolio, expertise, and capabilities to continue to deliver innovative solutions in partnership with our customers. I'll now turn the call over to Matt Feiler, who will provide additional comments on our financial performance. Matt Feiler: Thanks, Jeff, and good morning, everyone. I'd like to begin by thanking Andy Roeder for his partnership both prior to and during this transition and by saying how honored I am to be stepping into the CFO role at Patrick. I'm excited and eager to continue working with this incredible team to be their business partner and drive long-term value creation through disciplined financial planning and execution. Now moving to our financial results, consolidated net sales for the fourth quarter increased 9% to $924 million, driven primarily by market share gains and M&A. This growth was comprised of 9% organic growth and 2% acquisition growth, partially offset by negative 2% industry. As Jeff discussed in detail, our outdoor enthusiasts focused businesses more than offset a 5% decline in our housing revenue for the fourth quarter. For the full year, net sales increased 6% to approximately $4 billion. Full-year RV revenue increased 9% to $1.8 billion, and marine revenue increased 6% to $606 million. Our powersports revenue increased 9% to $384 million, and our housing revenue increased 1% to $1.2 billion. The improvement in revenues across our markets was largely supported by content per unit gains, acquisitions, including our increasing aftermarket penetration. Our housing business remained resilient despite softening MH shipments in the second half of the year. Gross margin was 23% in the fourth quarter compared to 22.1% in the prior year. The increase in margin was due to factors including leveraging our fixed cost structure through content gains realized from the model year changeover season, stronger revenues, and accretive acquisitions in the aftermarket space. For the full year, margin was 23.1%, compared to 22.5% in 2024. In the fourth quarter, adjusted operating margin expanded 110 basis points to 6.3%. This improvement was driven by stronger revenue in our outdoor enthusiast markets and increased gross profit, partially offset by higher SG&A expenses primarily as a result of acquisitions. Our full-year adjusted operating margin was 7%, in line with the outlook we provided. GAAP net income in the fourth quarter and full year was $29 million and $135 million, respectively, compared to net income of $15 million and $138 million, respectively, in the prior year periods. GAAP EPS for the fourth quarter increased 98% to $0.83, and for the full year decreased 5% to $3.90. Fourth quarter adjusted net income increased 63% to $30 million, and adjusted EPS increased 62% to $0.84. Full-year adjusted net income increased 5% to $154 million, and adjusted EPS increased 2% to $4.44. Our fourth quarter and full-year adjusted diluted EPS include approximately $0.06 and $0.26 per share, respectively, in additional accounting-related dilution from our 2028 convertible notes and related warrants. As a result of the increase in our stock price above the convertible option strike price. Last year's fourth quarter and full-year adjusted diluted EPS included approximately $0.02 and $0.10, respectively, from these instruments. As we've noted previously, we have hedges in place which are expected to reduce or eliminate any potential dilution to the company's common stock upon any conversion of the convertible notes and/or offset any cash payments the company is required to make in excess of the principal amount of any converted notes. For GAAP reporting purposes, these hedges are always anti-dilutive and therefore cannot be included when reporting earnings per share. Adjusted EBITDA increased 17% to $105 million, and adjusted EBITDA margin increased 80 basis points to 11.4% for the fourth quarter. On a full-year basis, adjusted EBITDA increased 4% to $468 million, while adjusted EBITDA margin decreased 40 basis points to 11.8%. Our overall effective tax rate was approximately 26% for the fourth quarter and 24% for the full year. Cash provided by operations was $329 million for 2025, and purchases of property, plant, and equipment were $83 million for the year, resulting in free cash flow of $246 million. For the quarter, operating cash flow was $131 million, implying free cash flow of $113 million. While free cash flow was strong during the quarter, as Jeff noted, we strategically added more than $30 million of inventory to support our investments in composites, innovation, and product initiatives. We remain aggressive in alignment with our industry-leading composites strategy and inventory in preparation for an environment where demand could outpace supply. At the end of the fourth quarter, total net leverage was 2.6 times compared to 2.8x at the end of the third quarter, reflecting our continued commitment to delever the business toward our target leverage range of 2.25 times to 2.5 times. Our strong liquidity position enables us to be opportunistic toward acquisitions that align with the company's long-term growth objectives, and our solid free cash flow generation enables us to delever the balance sheet quickly while remaining on offense. Available liquidity at the end of the quarter was approximately $818 million, comprised of $26 million of cash on hand and unused capacity on our revolving credit facility of $792 million. From a capital allocation perspective, in 2025, we invested $122 million in acquisitions that the team has already touched upon. We returned $87 million to shareholders, including the repurchase of approximately 377,600 shares for a total of $32 million and $55 million in dividends. At the end of 2025, we had approximately $168 million remaining under our current share repurchase authorization. Moving to our end market outlook for 2026. We believe a meaningful retail demand inflection likely depends on consumer confidence and interest rate improvement, and we expect OEMs and dealers to remain thoughtfully disciplined in terms of production and inventory levels in anticipation of the upcoming selling season. For RV, we estimate full-year 2026 RV retail registrations will be flat, with wholesale unit shipments increasing low to mid-single digits as a result. For marine, we estimate full-year 2026 marine retail registrations will be flat, with wholesale powerboat unit shipments up low single digits. For our powersports end market, we expect full-year unit shipments to be up low single digits, with our organic content estimated to be up low single digits for the full year, implying an overall mid to high single-digit increase for our business. On the housing side, we estimate full-year MH wholesale shipments will be flat to up 5%. In our residential housing end market, we estimate 2026 total new housing starts to be flat to up 5%. Given the current end market outlook we've provided, we estimate our 2026 adjusted operating margin will improve by 70 to 90 basis points versus 2025. We estimate our operating cash flow will be $380 million to $400 million, and CapEx will total between $70 million and $80 million, implying free cash flow of approximately $300 million or more. For 2026, we estimate our full-year tax rate will be between 24-25%. Finally, I would like to note that based on the recent trading prices of our common stock, our 2026 earnings per share would include additional dilution related to our convertible notes and warrants. That completes my remarks. We are now ready for questions. Operator: Thank you. And with that, at this time, we will be conducting a question and answer session. We do ask that you please limit yourself to one question and one follow-up. Before pressing the star keys. And our first question comes from the line of Joe Altobello with Raymond James. Please proceed with your question. Joe Altobello: Hey guys, good morning. I just want to go back to a comment you made earlier about content per unit. I think you mentioned you're seeing meaningful increases there with the new model year changeovers. Can you maybe elaborate on that a little bit more? Does that reflect larger and more content than units? Or is it largely share gains? Jeff Rodino: Yes, Joe. This is Jeff. Excuse me. This is Jeff. A little bit of a combination of both. Certainly, over our model change, we did pick up some content in a few areas with the composite starting to come into play. Some of the electronics and some further penetration on our core products. On the marine side, really the same across the board. So pickups at model change. On the RV side, we did see a little bit of help from the mix as we've seen some of the bigger higher contented units start to come into play in the third and fourth quarter. So kind of a combination of both. Very helpful. Thanks. And maybe just to shift gears a little bit, on the operating margin outlook, the expansion of 70, 90 basis points that you're calling for. Can you give us a little bit more color on what's driving that? How much is coming from volumes, from pricing, from mix, etcetera? Andy Nemeth: Hey, Joe. This is Andy. Think as we look at the business and it's a combination of both. Volumes certainly help as we're situated really nice now. And I look at the platform. When I look at our cost structure, we're just really well positioned to support a volume increase and a significant volume increase without adding significant overhead. So there's definite volume play there. I think as well, when we look at the content gains that we've got, the solutions that we're presenting and working with customers on, the opportunity to help bring a low-cost alternative through a full solution to our customers is significant out there. And so we think that's going to add value as well from an overall margin perspective, even being more competitive in pricing with some of these. So we're excited about kind of the entire platform. But leveraging volume certainly as we look forward and any upside that we see on the shipment levels, we're optimistic, especially as it relates to our cost structure today. Joe Altobello: Got it. Thank you. Operator: And our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question. Daniel Moore: Obviously, solid results in Q4. Appreciate taking the question. Following up maybe on Joe's question, appreciate the market outlook for each vertical. Can you talk about any cadence you might be expecting embedded in those growth rates in those kind of market shipping growth rates? How do we see shipments shaping up for Q1 and H1 versus H2? Kind of across verticals? And any commentary on the cadence of that margin improvement as well would be really helpful. Thanks. Andy Nemeth: Yes, Dan. As right now, I think where we see things is inventory levels are extremely lean even with a little bit of restock that we saw in the fourth quarter. We think inventories were incredibly lean at the end of Q3. And so what we're really excited about too is there's just tremendous discipline between the OEMs and the dealers today as it relates to managing inventories. And it's really positioned everybody, you know, well to be able to scale, at least us, certainly, to be able to scale going forward. And so right now as we're in the early, early parts of kind of Q1, there is optimism is what I would say, and there's, you know, we're excited about the potential that exists, but dealers are staying very, very and OEs are staying very, very disciplined to maintaining these lean inventories. And I think as we move into the selling season, in late Q1, Q2 is when we would expect to start to see things move or hope to start to see things move. And so Q1 right now is what I'm gonna say, disciplined and thoughtful. Would expect uptick Q2 and Q3 as the selling season occurs. And movement typically to that seasonal model for us where Q2 and Q3 are the highest. Q1 is patient right now is what I'd say, but thoughtfully patient. And, you know, like I said, I think we're really optimistic about where we can play in this especially with our scalability value proposition. We've positioned ourselves really well. We used our working capital in the form of inventory a little bit heavier on inventory in Q4 in anticipation of this uptick, we're going to be able to move very, very quickly when things do move. And so that's where we kinda see things. But I like the discipline that we see today. Everybody's just being really thoughtful in Q1. And so it's a little patient and tempered right now, but with optimism, that we move into Q2 and Q3, we'll see that uptick across all of our markets. Daniel Moore: Certainly helps. I'll circle back with any follow-ups. Thanks, Andy. Andy Nemeth: Sure. Thanks. Operator: Thank you. And our next question comes from the line of Craig Kennison with Baird. Please proceed with your question. Craig Kennison: Hey, good morning. Thanks for taking my question. So we're sort of coming through this period of very high inflation. Wondering if you can just give us an update on what you're seeing in terms of your cost pressure and whether that might subside and really help this affordability trend unlock. Jeff Rodino: Yes, Craig. This is Jeff. Across a lot of our products, we're seeing some stability in the pricing. We've seen that there are some commodities that are still moving, the copper, the aluminum. So we're managing through that. There are a few, I'm going to say, pieces of noise when it comes to the wood that we sell, specifically the Luon. So we're working and dealing with that. We'll see kind of the end result of where that happens probably in May. So, I mean, overall, I think we're staying pretty with our pricing with our customers. Only moving where we have to. And really, the only, I'm gonna say, three places we're seeing that are some of the commodity items and what. Craig Kennison: And then to follow-up on Joe's question about content per unit, as you look ahead, how much of your growth is tied to pricing related to cost pressures that you face versus mix and some of the acquisitions that you've done? If you could put those buckets together. Jeff Rodino: Yeah. It's gonna be a lot heavier on the mix and the organic growth on our content. It's gonna be less on the pricing at least in the near term here. From what we see on pricing based on the comments I made before the commodities that we're dealing with. Craig Kennison: Got it. Hey, thanks. I'll get back in the queue. Operator: Thank you. And our next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Please proceed with your question. Noah Zatzkin: Hi, thanks for taking my questions. I guess first just on the kind of marine revenue growth. Could you help parse out, I guess, how much of that year-over-year increase was driven by the acquisitions versus kind of legacy business? Would be helpful? Andy Nemeth: Sure, Noah. This is Andy. I think just in general, what we would say is there's definitely a piece of that related to the acquisitions, but our teams worked really hard on new product development and bringing new content to our customers. So most of it's gonna come from the form of content and the solutions that we've been bringing to the table for customers. In alignment with model year change in 2026. And a lot of this, some of this starts really at the foundation, which is our marine concepts operation, which designs tooling for new boats. And this is really the foundation that we build off of as it relates to our solutions model to be able to put together kind of a full package for customers to be able to really go into their boats and make meaningful changes, especially as it relates to the prototyping that we do. So again, we've seen it across a number of product categories, but tremendous effort by our team to really just get out there and bring new innovations to customers. So in answer to your question without giving a specific number, which we don't break down between our markets, the majority of it's come in the form of content gains with new product development and innovation. And there is a piece of it, but most of it's come through our product efforts. Noah Zatzkin: Great. Really helpful. Maybe just one on the RV side. Obviously, nice performance there, particularly kind of relative to the industry. In terms of the content per unit increase during the quarter, how much of that is this might be difficult to answer, but how much of that is kind of related to maybe share gains versus mix? And to the extent that is a bit related to mix, how do you kind of see mix playing out next year in terms of RV units? Thanks. Jeff Rodino: Yeah. So I you know, we were saying before, we don't break it out by mix and what is organic growth through market share gains. There is definitely a component that is the mix in the fourth quarter along with the market share gains that we saw through the model changeover. You know, moving forward, you know, we're keeping a close eye on the production levels right now, Noah. You know, they seem to be pretty consistent from where they were from the fourth quarter to the first quarter, you know, is looking across the spectrum. And we do see that it is starting to get a little bit closer to normalization with the spread between the fifth wheels and the travel trailer production. So I don't think we're going to see a different effect from the fourth quarter. But it's hard to say, you know, where that's gonna take us into the second quarter. As far as the mix. Andy Nemeth: You know, additionally, I think when we look at mix traditionally and historically, you know, certainly, Fifth Wheel for us is more meaningful content just due to the size of the units. And so we did see a little bit of an uptick from a mix in Q4. Fifth wheel typically around 20% of the overall towable mix. And the fields are up to 22%, 23% of that overall mix in Q4. So there's some encouraging signs I think right now, but that's all typical restock in Q4. As we kind of enter the selling season, the anticipation of you know, where buyers are gonna be. So we're optimistic. We absolutely like to see larger units from a content perspective. But, again, right now, it's just too early to tell. We think that it's seasonal, but also there are some there's a little bit of movement out there today at the retail level from at least what we're hearing as it relates to interest in some larger units. So we're optimistic but cautious. And again, I revert back to kind of where the dealers and the OEMs are at. They're just being really thoughtful, you know, about where they sit today and waiting, you know, to make sure that things are moving before they do anything, and we feel really good about that. So again, long answer, but we are seeing a little bit of movement today on that mix. For us, it's a good thing. Hopefully, it plays out further as we move into the year, but we'll wait and see. In Q2, we'll have a better feel for that. Noah Zatzkin: Thank you. Operator: And our next question comes from the line of Scott Stember with Roth Capital. Jack Weisenberger: Hey, guys. This is Jack Weisenberger on for Scott. Thanks for taking our questions. Just within powersports, can you kind of give us an update on what's driving the good content per unit increases and how attachment rates are progressing? Jeff Rodino: Yeah. This is Jeff. Attachments rates, as we've talked, continue to grow in favorability across the utility platform. We saw it in the fourth quarter. We continue to see it moving forward based on the projections we're getting from the OEMs we deal with. So we're really excited about that. That's really a big component of what's driving the growth on that side of the business. Jack Weisenberger: Great. Thanks. And then moving to the aftermarket, and the RecPro, can you give us an update on where things are showing up in the segments the most? And what is kind of ahead of your expectations so far? Jeff Rodino: Yeah. They've added quite a few SKUs to the RecPro site from our Patrick divisions. I will tell you primarily heavily on the RV side to begin the year, but then as we got into the middle end of the year, we started to get some more of the marine and powersports products online, which is really exciting. You know, we saw a pretty good increase in our aftermarket sales year over year. That we stated in their prepared remarks. And two-thirds of that came from acquisition, which was a big piece of that was a rec prone. It's come along very well in our minds. Jack Weisenberger: Great. Thank you, guys. Operator: And our next question comes from the line of Tristan Thomas-Martin with BMO Capital Markets. Please proceed with your question. Tristan Thomas-Martin: Hey, good morning. Just a couple of questions on composites. One, I was curious about the TAM and where you think penetration is and kind of what's the cadence as we move forward? And then also, like, how does it compare from a margin perspective relative to more traditional wood products? Thanks. Jeff Rodino: Yes, Tristan, this is Jeff. As far as the TAM, you know, what we've stated in the past, we think the overall TAM on a long-term basis is about $1.5 billion. I think on a short term, there's more like about $500 million of attainable. Certainly, there's a component there that has to do with the amount of capacity that we have on the composite side of the business versus what is currently wood products in the market. So we feel really good about that. As far as margins, we don't talk about specific margins with, you know, relative to products. So I will tell you that we're watching that. We, you know, we pay attention to where we're at on our margins. We're managing that very closely. But we don't talk specifically about what the percentages are versus the other products. Tristan Thomas-Martin: Alright. Thank you. Operator: And our next question comes from the line of Mike Albanese with Benchmark. Please proceed with your question. Mike Albanese: Hey. Good morning, guys. Thanks. I'm to ask about aftersales. It was kind of touched on a couple of questions ago, but if I could just follow-up briefly on that. You've obviously been adding SKUs now pretty consistently. You know, as we think about or I guess the question is, I mean, how much incremental pull-through are you seeing from these SKU additions? Or how can we think about, you know, timeline, from all these product additions in terms of when you get that incremental lift on the back end within aftersales? Really, just any context on how to think about that would be helpful. Jeff Rodino: Yeah. This is Jeff. You know, it's kind of a long-term game when it comes to getting the products onto the site. That's the easy part. Certainly, you know, the marketing and the advertising to get some pull-through on those, also looking at how to the other piece of it is, is that there are one-for-one replacements now out there for Patrick parts that weren't out there before. So think over the next, you know, six to twelve months, we'll have a better gauge on what the pull-through is gonna be on those products that we're adding. But again, we have to really get the advertising out there to be able to, you know, get the right clicks when it comes to what you're seeing on an e-commerce site like RecPro is. So it's a timing game, but certainly getting the products on there is the, I'm gonna say, the easy part. But getting the pull-through is what's gonna come next. Mike Albanese: Yeah. Absolutely. That's helpful. Have you commented previously on incremental marketing spend to kind of drive this initiative? Jeff Rodino: No. We haven't. Andy Nemeth: No. But it's okay. Here's what I'd say, Mike. It's typical to what you're seeing in our profile today. I mean, that's built into kind of the overall gross and op margins that we were seeing today. I wouldn't expect a significant change. There's not a lot of incremental, but that's going to come with incremental volume. So it should be typical to what that as an admin mix. Mike Albanese: Yeah. So, I mean, the quick answer is when I think about your 70 to 90 bps expansion rate, that's included. That's baked in there. Jeff Rodino: Correct. Mike Albanese: Thanks, guys. Operator: Thank you. And with that, there are no further questions at this time. I'd like to turn the call back over to Andy Nemeth for closing remarks. Andy Nemeth: Thank you. I want to once again just thank our team for tremendous, tremendous efforts, dedication, commitment, just tremendous contributions to the organization as a whole. Most importantly, with the partnership with our customers over the past year, which has been extremely dynamic and extremely volatile. And our teams just demonstrated tremendous resilience. We've just been shown versatility. Just feel really good about where we sit today. And our company is well-positioned. The team's in great shape, and we're really excited about what we can control going forward despite what's happened in our markets. And again, it's really reflective of the commitment from our team. But as well, want to thank our customers and partners for all of their support throughout 2025. And we're optimistic about 2026 at this point, and we're really well prepared to again capitalize on the things that we can control in 2026. So thank you very much. We look forward to talking to you on our first quarter 2026 conference call. Operator: Thank you. With that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. And have a wonderful rest of your day.
Operator: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems Third Quarter of Fiscal Year 2026 Results Conference Call. My name is Ellen, and I am your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press star 1. To withdraw your question, press star 1 again. I would now like to turn the presentation over to your host for today's call, Mr. Michael Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin. Michael Higgins: Good morning, everybody. Thanks for joining us today. With me today, I have Scott Barbour, our President and CEO, Scott Cottrill, our CFO, and Craig Taylor, President of our 10-Ks filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. I'll now turn the call over to Scott Barbour. Scott Barbour: Thank you, Michael, and good morning, everyone. Thank you all for joining us on today's call. We are excited to talk to you today and have a lot to cover, including the strong results we delivered in a challenging market environment, the acquisition of NDS that closed on Monday, and other business updates. Let me start with the third quarter results. We outperformed the market again this quarter through the infiltrator business, the Allied Products portfolio, and HP pipe sales, as we continue to drive the market share model, introduce new products, distribution, and customer programs. These strategic priorities continue to help us achieve growth in the mixed demand environment we see today and reflect Advanced Drainage Systems' strategy to prioritize higher growth, higher margin allied and infiltrator products that strengthen the resiliency in our profitability. This resulted in one of the most profitable third quarters in our history with a 30.2% adjusted EBITDA margin. Let me touch on a few highlights. Allied product sales increased 8% with growth in several key products, including the StormTech storage chambers, the Nyloplast capture structures, and the water quality products. All of which benefited from new products introduced over the last year. Infiltrator revenue increased 2% with good activity in the Southeast and the South. The Orenco acquisition is now fully lapped and its impact is embedded in our reported growth. Growth in tanks continues to be driven by conversion product line expansion, and additional distribution. Lead field sales remained resilient despite the market sluggishness and advanced treatment systems continued to gain share in residential due to new product launches and the growth in commercial systems. Pipe revenue was down slightly with growth in the HP pipe products being offset by weaker sales into the residential and infrastructure markets. Importantly, pricing remained stable, and materials are favorable compared to the prior year. From an end market perspective, sales in our core nonresidential market increased 5% with growth driven by sales in the Southeast, Midwest, and up the Atlantic Coast into the Northeast. Based on market indicators we follow, we are updating our end market demand forecast for the nonresidential market to down low to mid-single digits compared to the previous outlook of flat to down low single digits. In spite of a challenging demand environment, Advanced Drainage Systems' third quarter performance highlights the strength and balance of our portfolio and the execution of the sales team on selling the high growth products we continue to highlight. HP pipe, and the Allied products. Sales in the residential end market were down slightly as it remains under pressure. However, the infiltrator core residential business continues to significantly outperform the market due to new products and distribution. In addition, for the third quarter in a row, Allied product sales increased in the residential market driven by the multifamily construction activity. Single-family residential land development activity was better in the Atlantic Coast and Southeast but the DIY channel continues to experience significant weakness. Based on our performance in the current end market, which was down high single digits, we are confident that we have the right strategies, the right product portfolio, and the go-to-market model to increase participation in the residential market. And we will benefit as that market inevitably recovers. Moving to profitability. Adjusted EBITDA increased 9% despite the flat revenue base, resulting in a 250 basis point increase in the adjusted EBITDA margin to 30.2%. Profitability increased across all facets of the business, including pipe, allied products, and infiltrator due in part to the capital invested over the last several years and the cost improvement programs we started over a year ago. The sales team has also done an excellent job strengthening the product mix as well as managing a challenging end market environment to achieve favorable price cost in this period. We're excited to have closed the NDS acquisition on Monday of this week. NDS' products are highly complementary to Advanced Drainage Systems' stormwater capture portfolio and enhance our offering in both the distribution and retail channels. We now operate the three most relevant brands in stormwater and wastewater management: Advanced Drainage Systems, Infiltrator, and NDS. The portfolio of products available across these brands is the largest and broadest in the industry, which gives us unmatched ability to meet customer needs across applications and end markets. We are in the early days of integration, and we look forward to sharing more about the business and our synergy plan at our Investor Day this summer. And on that note, I'm pleased to share the date for our Advanced Drainage Systems third Investor Day, June 18, 2026. Management will host a presentation at Advanced Drainage Systems' Engineering and Technology Center in Columbus, Ohio, followed by a tour for in-person guests. Invitations will go out in the coming months, but at this event, you can expect us to cover growth priorities and updates to our key sales strategies. A deeper look at acquisitions, particularly of NDS and Orenco, the resiliency of our profitability, payoff from the capital deployed over the last several years, as well as the next capital programs we will invest in going forward, and, of course, new medium-term financial targets. We look forward to providing the business updates and showing off the engineering and technology center, the largest stormwater research facility in the world. It will drive innovation for many years to come. If you have questions about the event, please reach out to our investor relations team. To summarize, we continue to execute effectively in a challenging environment. Our self-help operational initiatives continue to bear fruit, as demonstrated by the profitability reported today. The outperformance year to date is driven by strong execution. I'm very proud of the team for doing so in a challenging environment. When you stack up our strengths, the scale, the product portfolio, our go-to-market strategy, and the ability to invest in our business, our people, and the industry's growth, you can see Advanced Drainage Systems' value proposition remains both relevant and powerful. While we navigate this near-term environment, we will do so with an eye toward the future. We remain firmly committed to our long-term vision and will continue investing in the capabilities that will position us for future success. Overall, the long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across North America. Now I'll turn the call over to Scott Cottrill. Scott Cottrill: Thanks, Scott. Today, my comments will focus on cash flow, capital allocation, and our updated guidance. Jumping to Slide seven. I'd like to start by highlighting the fact that year to date, we generated $779 million in cash from operations, converting more than 100% of our adjusted EBITDA into cash. Year over year, cash flow from operations increased $239 million or 44% driven by effective working capital management, increased profitability, and lower cash taxes primarily due to the benefits of the OPBBA. We ended the year with over $1 billion in cash and a half turn of net leverage. Turning to Slide eight. We highlight our disciplined approach to capital allocation over the last several years. Approximately 70% of total capital deployed from fiscal 2020 to 2026 was dedicated to growing the business through capital expenditures and strategic acquisitions. This reflects our conviction in the long-term demand outlook across our end markets, and our confidence in the returns generated from expanding capacity, innovation, and new product development, as well as continued automation and productivity improvements. The benefit of our balanced approach to capital allocation as well as our strong commercial execution over this period of time is evident in the growth and profitability of the business we experienced. In fiscal 2019, we were a $1 billion revenue company with an adjusted EBITDA margin in the mid-teens. Today, we're generating approximately $3 billion in revenue, and operating at an adjusted EBITDA margin north of 31%, which is top quartile in the industry. In addition, because of the strong cash generation profile of the business, we were able to fund the NDS acquisition this week almost entirely with cash on hand. Post-closing, our leverage is now approximately 1.5 times, and is well within our guardrails of one to two times. It is also worth mentioning we expect to access the capital markets this year due to some near-term maturities. In addition, today, we announced a new $1 billion stock repurchase authorization, bringing the total authorization to $1.148 billion. This authorization gives us the flexibility to execute the program over time while still prioritizing organic investment opportunities we see as the lowest risk and highest return use of capital as well as strategic M&A. Finally, on slide nine, based on our performance to date, current visibility, backlog of existing orders and trends, we updated our fiscal 2026 guidance ranges today. We increased our fiscal year 2026 revenue guidance to a midpoint of $3.015 billion and adjusted EBITDA to a midpoint of $945 million. The adjusted EBITDA margin is expected to be between 31.1-31.6%, up 50 to 100 bps versus the prior year. This guidance includes approximately $40 million of revenue from the NDS acquisition at an approximate 20% EBITDA margin. The fourth quarter is our most variable quarter because of the impact of weather on construction. Winter Storm Fern and the adverse weather most of the US has experienced over the past two weeks is a great example of this. We have included the anticipated impact of these storms in the updated guidance ranges we announced today. We remain focused on executing our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation. With that, I'll open the call for questions. Operator, please open the line. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. To withdraw your question, press 1 again. Please pick up your handset when asking a question. And if muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Our first question comes from the line of Matthew Bouley with Barclays. Your line is open. Please go ahead. Matthew Bouley: Good morning, everyone. Thanks for taking the questions. So just one on here on the nonresidential side because noticed you lowered your end market guide there. Correct me if I'm wrong, it looks like you increased your overall revenue guidance by seemingly more than just what NDS may be contributing. So, question is, if that's kinda more of a mark to market on what's already happened in the first nine months of the year in nonresidential or are you seeing something in your orders and backlog? And, you just mentioned the storms regarding the fourth quarter. That perhaps may be a little bit more choppy and nonresidential than what you previously thought. Thank you. Scott Barbour: Alright. So Matt, Scott Barbour, nice to hear you. Thank you for the question. A little bit to unpack in there. I think the know, the the the beat, the raise, we kinda gave gave you the beat, raised a little bit. Then gave you the NDS. I think the raised a little bit is reflective of good performance, particularly of our allied products in the HP pipe in the nonresidential segment. As you as you know, we're really scaled in that with in our in a lot of our product lines and our go to market. Is tuned for that nonresidential market. So we think we're gaining, you know, winning more more than our more than our fair share of the projects that are out there with good good products, good pursuit. The storm that you mentioned, yeah, pretty pretty darn disruptive as as you can imagine for us. So as a result of that, we took some of that to into account by widening our range because this is a a highly variable quarter for us. So we wanted to make sure that we gave ourselves enough room in the range. Make make no make no mistake. That that storm is gonna make this quarter a bit choppier for for everyone in in kind of that segment. You don't dig a lot of holes. And put pipe in it. With these kind of temperatures, kinda in in the Midwest and the North. Matthew Bouley: Okay. That that's perfect. Yeah. Great great color. So then you know, I I guess second one, I mean, stepping back a little bit as you alluded to, taking shares, a lot of new products in Allied, I mean, sounds like it's contributing everywhere across Allied. Same thing in Infiltrator and, you know, expanding product lines. So my question is is, you know, now now that you're kinda, I guess, I don't know, seasoning this this new engineering center and and you know, clearly, a lot of these projects, products are getting to market quicker. What what is the kind of future pipeline look like? So any sort of color on you know, what that incremental contribution may be today from these new products? And then what are you kinda looking at around, you know, the next twelve, twenty four months around kind of additional products coming to market? Thank you. Scott Barbour: Well, we're not gonna pre give you all the great stuff we're gonna talk about in June today. But I would tell you that you know, the I I think what you the words you used are good. You know, we're seasoning and getting better in our pace of innovation, both infiltrator Craig's here with us today and and at Advanced Drainage Systems. And know, I would say right now, you know, when we look at just kinda results over the last quarter or six months, I mean, it's tens and tens of millions of dollars. Of of revenue that that these projects that we've just engineered in the last couple years are are are contributing, which moves that needle. You know, to to growth. For these very challenging markets. And that would be in the active treatment, products that that Craig has been launching in Infiltrator. The new tank products that he's launched that we've invested capital in to do. Some new StormTech products, which are really exceeding expectations. And some new Nyloplast products. And then the water quality products, the new filtration I mean, the new separator, and the new biofiltration When you add all that up, Matt, it it's literally tens and tens and tens of millions of dollars. That are being contributed right now, and we would see that accelerating as we, you know, get better. At our pace of commercialization. Of the of those new products. Matthew Bouley: Excellent. Well, perfect. Well, we'll certainly look forward to June. I'll I'll I'll see you guys there. Thank you, Scott, and good luck, guys. Scott Barbour: Thanks. Operator: Our next question comes from John Lovallo with UBS. Line is open. Please go ahead. John Lovallo: Good morning, Thanks for taking my questions as well. The first one is, will NDS be broken out as a separate segment? Or will it flow through the current segments? And what is the cadence of that $25 million of annual cost synergies that we should expect? Scott Cottrill: Hey, John. Scott Cottrill here. So it'll be part of the Allied and Other segment. So that's where we'll have it right now. And that's where we'll put it. The $25 million of cost run rate synergies by year three, Year one will be more of kind of the investments and the beginning of the integration activity, and then you'll see it kinda ramp between year and year two and year three. John Lovallo: K. Scott Cottrill: We'll talk about that in June. We'll talk about that. John Lovallo: Okay. Yeah. Okay. No. Understood. And then it it looks like you guys raised the CapEx outlook by about $40 million at the midpoint. Is this Lake Wales related or is, you know, something else driving this? Scott Cottrill: No. Not not like whales at all. We're we're constantly moving and optimizing things within the network for sure, but this is just the timing of when the CapEx spend and, assets are being put in service. So timing. Yeah. I would say timing in our in our and and this is Scott B, John. Just our our when we can pull those things in and get the impact sooner, you know, we're gonna do it. The bonus depreciation really helps with those requirements as So We were we had our eye on on on that as well. John Lovallo: Understood. Thank you, guys. Scott Cottrill: Yep. Operator: Our next question comes from Bryan Blair with Oppenheimer. Your line is open. Please go ahead. Bryan Blair: Thank you. Good morning, everyone. Solid quarter. Good morning. I owned morning. Having owned Durango for a bit over a year now, maybe offer a little more color on integration phasing and progression above the deal model, where margins are now, if there's been any change to the 1,000 basis point expansion target that your team have laid out, I'm sure we'll get more detail on this in June, but highlights would be would be great. Craig Taylor: Good morning, Bryan. This is Craig. The acquisition of Orenco is going well. The integration of the team members into Infiltrator. We've really combined the commercial side of the business right now with the infiltrator side. And the teams are coming together. There's a lot of projects that are out in the market right now. We're quoting on. And working towards both the infiltrator product and the wrinkle product are being offered up. And that's helping towards the growth of the business. As we move forward. From a margin standpoint, what we were planning. There's some synergies that we've laid out We're working towards those synergies. Those synergies are doing well. It's actually exceeding a little bit of our expectations. Head of plan. Ahead of the plan right now. And working on that margin improvement that you had mentioned a thousand basis points. So acquisition's going well. The integration of the team members the growth expectations, and the synergies. And I would add the safety performance has been really good. Yeah. An 80% reduction in our TRIR, which is our recordable incident rates, since we've acquired the company. Which is outstanding before this is Scott. Scott Barbour, the outstanding safety performance, which was a very early early focus of Craig and his team out there. And we were very excited that it's ahead of plan. On the surgery plan and the the profitability piece. But, boy, the team there at Norinco grabbed our safety program and and implemented things quickly with a lot of support from the infiltrator folks. And Craig has done a great job of kind of cycling his senior managers out there through it. And we will follow very similar playbooks as we have with Infiltrator, Orenco, as we move into this phase with NDS. And I'll be out there next week. Looking forward to being out there. Bryan Blair: Okay. That's all all great to hear. And then curious if you could speak to infrastructure project visibility. You know, the your team has faced you know, pretty difficult comps at least on, you know, trailing basis and they're some administrative uncertainties that impacted project flow, specifically IJA funded projects there. Seems like within the transportation verticals where you have meaningful exposure, the the pipeline is is resetting or there's more optimism looking through calendar '26 even into '27. Wondering if that's showing up and what your team tracks on a pipeline basis. Scott Barbour: Scott Barber again. I would say the things we track and look at for infrastructure the activity is better from a quoting perspective. And the visibility continues to get better on that. That said, you know, it's choppy. Our win rate needs to be better. In that segment. It's not like we're not finding and seeing and looking for things. We're just frankly, it's competitive. Some things that have kinda moved through from you know, that we've already kind of had ordered and sold over the past year that made some of our comps difficult versus prior year were places where we had very high participation. Particularly around some of our allied products like airports and rail and and things like that. But when we get into road and highway, we're good in some states. We're not good in some states. And that has hurt our participation there. That said, you know, we're we're we have visibility. We're in their pitching. And the actually, our order orders are slightly better right now in that category than they were. So we're we will remain pretty focused on gaining share there. Bryan Blair: Okay. Understood. Thank you again. Scott Barbour: If you you know, you now I forgot. You know, you kinda you I think you you maybe alluded to it in the question was that government shutdown probably didn't help. You know, through those thirty eight or forty days of the government shutdown, we did see some friction created particularly in that kind of work and some other type of work through where there was just no one there to release an order or take a take a delivery, to tell you the truth. Bryan Blair: Understood. Nice, guys. Operator: Our next question comes from Garik Shmois of Loop Capital Markets. Your line is open. Please go ahead. Garik Shmois: Just on nonresidential, just wondering if you can go into a little bit more detail on what led to the reduction in the end market guidance? Is there anything that you're you're seeing specific to any regions or any categories that is is leading to the move to down low to mid single digit declines. Michael Higgins: Hey, Garik. Michael Higgins. I think Matt made the the comment in his question about that kind of mark to market. And that's I would kind of agree with that. You know, that's just more of an update. You know, hey. We're through nine months of the year. We have a pretty good idea of what it's going to look like. And so, you know, kind of on the lower end, maybe a little it'd be end market activity's been a little weaker than we thought. Looking forward, I would not take that move as a signal that we think the end market deteriorating or getting any worse. You know, it just kinda looks like more of the same as we've been telling you guys all year, highly variable by geography. And then when you get into, you know, non residential is a very broad segment. When you get in there, there are certain project types data centers always, come up that are continued to be strong. We've seen improvement in warehouse activity. Our sales are now up for the fiscal year. You know, which is good. That had been, you know, a decliner over the past couple years. And, you know, depending on the geography, we are seeing fairly solid activity in just kind of your general purpose kind of commercial type construction. Think of the things we always talk about, horizontal, low rise type construction is is where we do best in that nonresidential segment. Garik Shmois: Yep. Okay. No. Thanks for for the detail there. I wanted to ask on NDS now that it's closed. Wanted to be clear on how much you're incorporating in the four q guide with respect to sales And if there's any EBITDA contribution And then also, if you can speak to you know, what we should be thinking about for calendar '26. You know, you know, we're not, you know, in the the fiscal twenty seven guidance range just yet, but any additional you know, handholding on the expected contribution from the recently closed acquisition? Scott Cottrill: Yeah. Like we said on the the call, the, NDS and the current guide is about $40 million of revenue at a 20% EBITDA margin. So that's how we incorporated it for the last two months of our fiscal year. Ending here at March 31. As to next year, again, we'll get into a lot more detail of that at the Investor Day. But I would encourage you to go back and look at the 8-Ks that we filed a couple months ago. And in there, we we gave a little bit of detail on kinda what their performance looks like. So I think it'll give you kinda the guardrails to start thinking about it. And and how to model it. Garik Shmois: Okay. Thanks for that. I'll pass it on. Operator: Our next question comes from Trey Grooms with Stephens. Your line is open. Please go ahead. Trey Grooms: Hey, good morning, everyone. Thanks for taking my question. So with the with the $1 billion, you know, stock repurchase authorization, it's good to see that. And now with the completion of of or the closing of the deal, the NDS deal, how are you thinking about balancing buyback you know, buying back stock versus future M&A. Know, and now with the the integration, NDS integration, you know, probably going into full swing, I would think, here in short order. You know, if maybe you could talk about your appetite for for deals here, kind of you know, in the in the more medium term. Scott Cottrill: Yeah. Right now, Trey, the the folks is gonna be organic. It's it's getting, NDS integrated. I'd say it's also the reason we're hosting it, the engineering and technology centers on purpose innovation, new product introduction, really important as we go. So, again, we look at the opportunities we have organically And, again, especially within not only the pipe business, but Allied and Infiltrator, highest return, lowest risk use of our capital and how we deploy it. So that by far will be number one. Again, pro forma debt with NDS, again, we are we paid for almost the entire deal out of cash on hand. Only one and a half times levered right now. Our guardrails are one to two times. And you know what? We're gonna generate a bunch of cash over the six, nine, twelve months and and year couple years like we've been doing. So we're gonna, you know, we're gonna toggle lower to one and a half times pretty quick. So does that mean that we've got an appetite for M&A? We'll continue to look. We have a funnel, but it'll be tuck ins and bolt ons. Those are things we do really, really well. And those are things that might have an EV purchase price at $1.50 to $2.50 to maybe up to $300 million. And that's really kinda where we do really well. We excel and we leverage. And, again, we have a a great balance sheet. Extremely fortified, and the leverage to go put that to work. So organic, for sure. As well as some productivity and efficiency initiatives that we have and continue to have. But then strategic M&A is definitely something we'll look there. But right now, the priority is organic. But we're we're always looking in for the right opportunity. We've got the capacity to pull the trigger, so that's always something we'll be looking for. Scott Barbour: If I could add one thing to that is, you know, much like we saw with Infiltrator, where, you know, some capital infusion could some projects going really quickly and fast, and that's paid off wonderfully for us. We see similar things at NDS where not a lot capital has been invested over the last ten years. By the previous owner. They have some great ideas around automation, around some new products, around some other other, you know, kind of high value moves. We're anxious to get in there into look at those in more detail with them. So re and I'm only saying this, Trey, to kinda reinforce what Scott says. About the organic opportunities we have. So know, I think we're gonna stay kind of in that range we're in today of capital spending. Where we're spending some of that is likely to to shift a bit. We got a big project going on at Infiltrator right now. We've done a lot of great work in the pipe pipe network that's really paying off for us. This NDS is the next big opportunity. Trey Grooms: Yep. That's all super helpful. Thank you for all that. And just kind of circling back on the comment earlier, on accessing capital markets this year. You do have some near term maturities. Is it that you're expecting to or are you expecting to maybe bring on any you know, incremental leverage there? Or is this really just purely just taking care of the maturities? Scott Cottrill: Yeah. Right now, the primary focus is on the, the maturities. Right? So I like a weighted average maturity that's, you know, the extended. It gives us a lot of flexibility. And that's the primary focus right now. Trey Grooms: Yep. Makes sense. Okay. Thanks a lot. I really appreciate it. Scott Cottrill: You're welcome. Operator: Our next question comes from Jeffrey Reive with RBC Capital Markets. Your line is open. Please go ahead. Jeffrey Reive: Thanks. Good morning. And I appreciate all the details thus far. Really nice free cash flow generation this quarter. But working capital was a meaningful lift. Can you walk us through what drove that and maybe how we should be thinking about free cash flow for next quarter? Scott Cottrill: Yes. Scott Cottrill here. So again, the great thing about our working capital performance, it was all across the board. It was receivables. Inventory, as well as accounts payable. So really good execution by the team. As we look at that. So our cash conversion cycle came down really nicely. So, again, we target 20% working capital to sales. We're coming in well well south of that, which is what we like. So again, it's a big focus of the team. Our demand and SNOP processes continue to get better. We've talked about the you know, the investments we made in our customer service side of the house as well. So all of those things kinda lean into, kinda better working capital performance And, again, it's a lot of blocking and tackling and day by day and and little things. That add up to that kind of performance. So really good. And, obviously, on the inventory side of the house, it's not just the fact that we're dealing with a a lower resin environment. It's also, again, that effective management of the pounds that are on the ground that we have. So, again, really really good kudos to the team. Operator: Our next question comes from Collin Verron with Deutsche Bank. Collin Verron: Good morning. Thank you for taking my questions. I just to start on the mix. I was hoping you can dive a little bit further into that. Help us to really understand the top line and margin benefits there that you've seen And then can you just talk about how much of this is driven by the shift from sales port sales of pipe toward Allied and Infiltrator versus maybe a mix shift within each of the categories? And then just how are you thinking about this? Is this a structural improvement, or or could some of this roll off as we see some of the end markets pick up like Resi in particular? Scott Barbour: Good question. And this is Scott Barbour. I'll take that. So for for many years, you know, our growth algorithm has been to sell Allied at a faster pace than PIPE. Really driven by more market participation opportunities in the Allied Products because they they tended to be less mature markets versus the the pipe piece of the water the water solution set. So we've been doing this quite a quite a long time. In addition, as we've added know, kinda infiltrator in, you know, we we we want to give better resiliency to our profitability. So we would get a lot of questions around, wow. You know, you've run the profitability up. It gonna come back down? Are you just gonna ride up and down with your your materials pricing environment? And we don't wanna do that. We'd be more consistent than that. We want to be more consistent. I think we've proven that. By continuing to move our mix to these allied products and the infiltrator products. And you do that with sales efforts. You do that with new products. And programs. You we're doing that with acquisitions. In the case of Arinko and NDS, it's not to say that we don't like the pipe business. We do. You know? But we also realized that investors wanted a more resilient profit profile. So that's what we work on. It's not a one time thing. Will it move around a bit as a percentage? Absolutely, it will. But I I think we kinda like this 50% you know, or or better. In Allied and Infiltrator. We think the the the natural tendencies of the growth of these businesses will continue to take us in this direction. But if the pipe market takes off somewhere, you know, that that could bounce around a bit, and that's not gonna scare us. That's not gonna frighten us. I think we know how to we know how to handle that. I'm sure we'll talk about this at Investor Day as well. But it's just the the changing complexion of the company is we move forward. Over over these years. Collin Verron: Great. That's really helpful color. And then I guess just want to touch on the raw material costs. Based on the bridge and I think your commentary is favorable on a year over year basis. But I'm curious how it's tracking sequentially as we head into February here. And just any early thoughts on material costs and calendar year '26 just based on what you're seeing today? Scott Cottrill: I'll let Scott Cottrill handle this question. Yeah, so again, price cost, you see it in our EBITDA waterfall and our bridges for the quarter and year to date period. It's obviously something that we always look at and try to gauge. I mean, we we have a pretty good forecasting process We caught our LE, our latest estimate. So it's constantly something that we look at. But to Scott's point, it's it's not just a resin cost environment. That drives our our pricing and or profitability model. So that volume side of the house, that demand side of the house, that mix side of the house comes in pretty important when you look at that growth rate of Allied and Infiltrator and how that mixes us up from a margin, and profitability perspective. And then all the self help initiatives that we've got going on with within manufacturing, transportation, and then obviously within SG and A. So specifically to your question, I'm not gonna get into sequentially, kinda where we are, but I would just tell you through the waterfalls, it's it's it's been a nice you know, driver. Of profitability this year. Then we always look at that in our forecast as well as all the other movers when when setting our guide. And our targets. Collin Verron: Understood. Thank you. Operator: Our next question comes from David Tarantino with KeyBanc Capital Markets. Your line is open. Please go ahead. David Tarantino: Good morning, everyone. Scott Cottrill: Morning. Good morning. To tie off the discussion on margins. You're still raising the margins despite NDS having a lower margin profile, if I'm not mistaken. It seems like a lot of this is better mix. But could you walk us through on what's given the confidence here? And how you think about expanding margins moving forward as NDS contributes more meaningfully? Starts with that mix. Right? We talked about the Infiltrator and the Allied Products segment being 50% adjusted gross margin or greater businesses. So it starts with that mix. It also, you know, about 65, 70% of our cost of sales you know, sits on our balance sheet. So we know how that's gonna roll out here over the next two to three months. Obviously, the mix of the products that we sell and the segments that drive that are important to try to get right and kinda gauge that in. So that would be the the driver of the margin expansion story. As we look forward. It's what's on the balance sheet, you know, what's gonna be rolling off. That's not just the resin cost. That's our manufacturing conversion cost. All of those items as well that we look at, and then we roll it forward based on that demand forecast. And then, again, like I mentioned, that mix of allied products and infiltrator that tend to grow at kind of two x the pipe business, that really mixes us up. So those all go into it and are the drivers for that margin expansion story. Scott Barbour: I would add one other thing to that, Scott, is, you know, we sixteen, eighteen months ago, know, we started a lot of self help programs. Across the company, and it and it was in materials, conversion, logistics, recycling, the the infiltrator, you know, work at a Renco, in particular. I mean, all that stuff you know, gained momentum as we've gone through these core these three quarters. Yeah. And we've seen that contribute, and I think that gave us some confidence to to increase that part the the margins as we looked at this back half of the year, which is our toughest part of the year. I mean, the fourth quarter is our toughest quarter. We're always tend to we we wanna be, you know, pretty conservative about what we predict or see coming from a profitability standpoint. But those programs, which a lot of people contributed to, I think, worked better than we thought they were gonna work. And and it it it and it was across lots of different categories. Of stuff. Even at even even some some categories we didn't expect that were contributing nicely. And, you know, this this kinda I think it it it I quarter like we just had, isn't just the result of one you know, kind of one set of activities it's it builds up. And that's why I kinda bring that up. David Tarantino: Okay. Great. That's helpful. And maybe could you give us a better picture of the demand trend specifically within pipe? Sounds like pricing is largely stable, but you give some color on the sales declines here versus the more positive trends elsewhere in the business? Scott Barbour: Yeah. I would say that for this is Scott Barber again. You know, our our polypropylene pipe we call our HP pipe, selling quite well. Selling quite well. And, you know, those are share gains. Those are conversions from concrete. We have that specified very nicely in the high growth geographies of the country. Primarily. So that growing nicely. Our black dual wall in 12 pipe is kinda riding along at the market, maybe a little bit better than the market. The the downdraft that we're we're experiencing in pipe in particular are the agriculture segments which although had a good year over year quarter, has been has been tough. You know, year to date, and our team there has done exactly what we wanted them to do. In terms of discipline, in that market and and and and had a good year. Relative to the prior year in terms of profitability. We sell a fair amount of that single wall product through the DIY channel, which are are all kinds of different retailers. And that market has been down, like, three years in a row. So our downdraft, I'd say we're market neutral with the black dual walled in 12. We're gaining share with the HP product. Couldn't be happier with that one. With the single wall, some is market headwinds. Some are some are, you know, things that we need to go do better. But that's the one that's the downdraft. And we have programs that we've been talking about through our our our strategic planning process this fall that we're activating in that very high on our priority list. Some of those things that we we we need to do in that segment. For the pipe. So that's how we kinda look at that. We'll talk a lot about that in in June when we're together, but there it frustrates Scott You know, there are elements of that pipe segment that are super, super healthy. And then these these others that have some challenges that we gotta get on top of. David Tarantino: Okay. Great. Thanks for the color, guys. Operator: There are no further questions at this time. I will now turn the call back to Scott Barbour for closing remarks. Scott Barbour: All right. Thank you very much. We lots of great questions. We appreciate the chance to to give some color on the business and and what's going on. You know, I kinda said there a lot a lot of what we have seen this year, particularly in these last two quarters, are is really good performance. We we think significantly outpacing our and competitors and all that stuff. It's a result of work we've been doing over the last year and a half. Or two years, whether they be acquisitions, or new products like the tank and the active treatment that Craig has been working on for a long time. In the Advanced Drainage Systems side, it's the new StormTech products It's the new Nyloplast products. There's some things underneath that that that that you guys would never see that are growing very nicely for us. It's the HP pipe. It's Brett's reconfiguration of some of our sales activities. So there's a lot of work going on. We're really proud of the how it's it's it's coming to fruition in in our results here. And we're super excited about the NDS acquisition. Many of you know, we we worked on that for a long time, had our eyes on that for a long time. So Monday was quite a nice day to finally get that closed. And we're gonna be out there with that team next week. And I and I know it's gonna be a a a an equally successful kinda journey with them as some of these other things that we've done. We appreciate your attention, and we look forward to talking to you later or seeing you around soon. Bye bye. Operator: This concludes today's call. Thank you for attending. You may now disconnect.