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Ashley Serrao: Good morning. And welcome to Tradeweb Markets Inc.'s Fourth Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I will turn the call over to head of treasury FP&A and investor relations, Ashley Serrao. Please go ahead. Thank you, and good morning. Joining me today for the call are our CEO, Billy Hult, who will review our business results and key growth initiatives, and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing non-public information and complying with our disclosure obligations under Regulation FD. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release, earnings presentation, and periodic reports filed with the SEC. In addition, on today's call, we will reference certain non-GAAP measures, as well as certain market and industry data. Information regarding these non-GAAP measures, including reconciliations to GAAP, is in our earnings release and earnings presentation. Information regarding market and industry data, including sources, is in our earnings presentation. Now let me turn the call over to Billy. Billy Hult: Thanks, Ashley. Good morning, everyone, and thank you for joining our fourth quarter earnings call. I am extremely proud of the Tradeweb Markets Inc. team, which helped produce the best revenue year and quarter in our history, crossing $2 billion in annual revenue for the first time. Our 2025 performance continues our seventh consecutive year as a public company, producing double-digit revenue growth and the twenty-sixth consecutive year of record annual revenues. As I look back at 2025, a few thoughts that come to mind are our clients' focus on data-driven tools for larger and more complex trades, the acceleration of automation, and the growing interconnectedness of global markets. As we look ahead, our ethos stays the same: continue to put forth rigor and discipline to help drive more innovation across our expanding markets. Our clients are now operating with an increased level of integration and sophistication across our markets. We saw real traction in the extension of electronic trading into areas that had previously been mostly manual, from uncleared swaps and swaptions to block trading in global credit. Liquidity has become more interconnected across assets, regions, and time zones, essentially breaking down those historical silos that used to dominate our clients' workflows. At the same time, we have made significant strides alongside our key partners in moving digital assets from something built on a whiteboard to real advancement in market infrastructure and how our clients are thinking about trading and settlement. As we sit here at the intersection of TradFi and DeFi, we will continue to partner and invest across the digital asset landscape to deepen our network and drive more workflow efficiency solutions for our clients. Diving into the fourth quarter on slide four, despite tough comparisons, strong client activity, share gains, and a risk-on environment drove 12% year-over-year revenue growth on a reported basis. We continue to balance investing for growth and profitability as fourth quarter adjusted EBITDA margins expanded by 39 basis points relative to 2024. Turning to slide five. Rates produced a record revenue quarter driven by continued organic growth across swaps, global government bonds, and mortgages. Credit growth was led by strength across European credit, munis, CDS, and emerging market credit. Money markets revenue growth was led by record quarterly revenues across global repos. ICD balances continued to recover post the tariff volatility, and ICD revenues were up 11% relative to the third quarter of 2025. Equity saw growth of almost 10% year-over-year led by growth in global ETFs and equity derivatives. Other revenues grew over 90% year-over-year as our emerging digital initiatives continue to scale. Finally, market data revenues were driven by growth in our recently renewed LSAG market data contract and proprietary data products. Turning to slide six. Our record fourth quarter capped off a record revenue year in 2025. Record volumes across all asset classes translated into 19% annual revenue growth on a reported basis. The scale generated by our strong top-line results drove 64 basis points of adjusted EBITDA margin expansion, 19% adjusted EPS growth, and 32% free cash flow growth. As our growth initiatives continue to scale, we maintained our tradition of constant and focused investment. Broadly, we enhanced our existing product capabilities, added new clients, and forged new partnerships. On the capability front, we achieved many firsts. We completed the first-ever fully electronic bilateral swaptions and US multi-asset package trade across the swaps market. We launched the first electronic platform for Saudi Royal Bonds and Mexican repos, and we launched portfolio trading in the European government bond market. We expanded our ICD clients, allowing them to buy treasury bills directly through the platform. Additionally, we enhanced our RFQ offering across US credit and ETFs and rolled out our dealer algo solutions within US treasuries. Beyond our core markets, we've been very focused on the future, especially the digital asset space. We have partnered with numerous start-ups and thought leaders and we completed the first-ever on-chain US treasury repo transaction done over a weekend and the first-ever on-chain auction for brokered CDs. We believe our investments in our core and frontier markets position us well for the future and also help to make 2025 another banner year for Tradeweb Markets Inc. Moving to slide seven. 2025 continued the streak of robust revenue growth that we have worked hard to deliver for multiple years now. Specifically, while the majority of our revenues still come from rates, 42% of our annual revenue growth came from our other businesses in 2025. In fact, since the IPO, almost 50% of our revenue growth has come from non-rates businesses, with 45% of that growth from our rapidly expanding international business which grew at 20% CAGR over the same period. Our European business continues to anchor our international presence but our Asia Pacific product suite continues to scale. In 2025, our Asian client revenues grew over 35% and European client revenues grew over 25%. Strong momentum across Europe and Asia comes from connecting a global client base to local international markets. Relentless innovation has been critical to our success. Throughout our history, we have prioritized being first to market, which requires constant investment. The last five years, we've invested over $600 million in technology, to help shape the future of electronic markets, growing these investments at an average of 16% since 2020. As our investments bear fruit, adjusted EBITDA margins have expanded consistently. Turning to slide eight, This quarter saw yet another meaningful decline in intraday volatility from the elevated levels seen in prior periods. Specifically, volatility was down 27% year-over-year and 15% quarter-over-quarter. Despite the lowest intraday volatility that we have seen in the last four years, our US treasury revenues increased modestly by 1% year-over-year as continued strength in our institutional channel was offset by weaker retail trends. Our quarterly market share increased sequentially with December market share reaching the highest levels since February 2025. As we look forward, we are optimistic on a reacceleration in US treasury business as we penetrate additional parts of the voice market coupled with continued strong government debt issuance and normalization in rate volatility. Our competitive position remains strong on a relative basis. Exceeded 50% for the seventh consecutive quarter in electronic institutional US treasuries, versus our main electronic competitor. Turning to wholesale US treasuries, revenues were flat, mainly driven by lower volumes across our wholesale streaming protocol, partially offset by growth across our sessions protocol. Wholesale remains a strategic priority as we focus on onboarding additional liquidity providers and strengthening our liquidity pools in support of our multi-protocol holistic platform strategy. In equities, ETFs posted strong double-digit revenue growth as we continue to deepen integration with our clients. During the quarter, we continue to leverage client workflow connectivity by delivering a more automated ETF trading solution in partnership with ION. Our AIX automation solution has been a key differentiator with our ETF clients with average daily trades increasing over 70% year-over-year. While AIX is deeply penetrated across European ETFs, we continue to see strong adoption across US ETFs. With AIX average daily trades up 28% quarter-over-quarter. Our efforts to broaden our equity presence beyond our flagship ETF franchise continue to pay off. With record institutional equity derivative revenues up 18% year-over-year. Looking ahead, the pipeline remains strong as the benefits of our electronic solutions continue to resonate with our clients. We believe we are well-positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Turning to slide nine for a closer look at credit. Low single-digit revenue growth for the quarter was driven by strong double-digit revenue growth across European credit, municipal bonds, credit derivatives, China bonds, and EM credit, which more than offset weakness in US credit, where revenues fell year-over-year mainly due to retail corporate credit revenues that were down nearly 30% year-over-year, primarily reflecting the better relative yields our clients were getting across money markets and munis. US credit remains a key growth initiative. We are focused on maintaining our leadership position and our pioneering portfolio and session trading protocols and increasing our block market share. Perhaps most importantly, we continue to increase our RFQ share which we expect to be the number one driver of revenue growth in US credit going forward. Our deepening liquidity pool and continuously improving client experience is resonating. As we attract more clients and experience talent across the board. Our efforts to expand into RFQ are seeing early signs of success with our RFQ share of overall TRACE achieving a new quarterly record. Institutional RFQ average daily volume grew over 10% year-over-year. With growth across both IG and high yield. Also saw continued block share growth in fully electronic US investment grade and US high yield of over 130 basis points and 65 basis points, respectively. This growth was broad-based, driven by continued adoption of our portfolio trading RFQ, and sessions protocols. More broadly, we saw active user growth of 18% year-over-year during the quarter, as we continue to strengthen our US credit client network. Portfolio trading average daily volume also increased 10% year-over-year with over 20% growth across international PT. Portfolio trading has become a widely used, reliable method for executing trades and managing risk. We particularly during periods of market volatility. As the market continues to evolve, we expect adoption to expand as it further embeds itself as an essential part of Credit Trader's toolkits. Altrade had a strong quarter with over $200 billion in volume. With average daily volume up over 14% year-over-year. Our all-to-all average daily volume grew over 45% year-over-year while our sessions average daily volume rose by nearly 10% year-over-year. The team remains focused on expanding our network and increasing the number of responders on the AllTrade platform, In the fourth quarter, we saw the fourth highest level of ETF market maker participation ever across our institutional credit business. Beyond US credit, we're continuing to prioritize our emerging markets credit expansion efforts. We continue to broaden out our liquidity provider set across key markets, work with our OMS partners on key integrations, and expand the functionality around key differentiators such as asset swaps. While still early in the journey, EM credit revenues grew 25% year-over-year in the fourth quarter signaling strong momentum. Moving to slide 10. 2025 represents the twentieth anniversary of our electronic interest rate swaps platform. Back in 2005, electronic swaps trading was still an emerging idea. Two decades later, it has become an ecosystem defined by transparency, efficiency, and ongoing innovation. Our leading position in the swaps market has been built upon two decades helping to shape global regulations, maintaining a regulated global footprint, cultivating a deep client ecosystem, and expanding a broad suite of adjacent global rates products. Global swaps delivered record quarterly revenues up over 25% year-over-year, driven by a combination of strong client engagement, across our global suite of currencies that drove strong risk trading growth. And a 7% increase in weighted average duration. Our quarterly core risk market share which drives revenues and excludes compression trading, was a record rising over 70 basis points year-over-year. Total market share increased from 20.8% in 2024 to 23.3% in 2025. Due to a combination of strong risk and compression volume growth. During the quarter, we achieved the highest share in our history across Euro, other G11, and EM denominated currencies. The fourth quarter performance was driven by record revenues across Europe, APAC, and emerging market swaps, while we produced double-digit revenue growth across dollar swaps. We continue to make progress across emerging market swaps and our rapidly growing RFM protocol. In EM IRS, structural challenges like geographic dispersion, pricing opacity, and operational inefficiencies have historically made voice trading the norm. We're helping to drive more discrete, transparent, and efficient execution, especially through innovations like RFM and AIX. Our fourth quarter EM swaps revenue produced another strong growth quarter and we believe is still significant room to grow given the low levels of electronification. Our RFM protocol, which is seeing strong adoption across currencies also saw average daily volume grow more than 90% year-over-year, with further adoption picking up. Looking ahead, we continue to believe the long-term growth potential for swaps remains significant. On a DVO1 basis, electronification has continued to increase with 2025 DVO1-based electronification up more than 90 basis points year-over-year. And growing at an average rate of over 150 basis points annually since 2020 as dealers and clients move a greater share of their workflows electronically. That progress is evident in the performance of our swaps business, which has continued to deliver strong revenue growth in the fourth quarter. On a notional basis, the cleared swaps market remains approximately 30% electronic and we see significant opportunity to continue digitizing workflows alongside our clients. In collaboration with them, we expect to drive further workflow innovation in 2026, across both cleared and bilateral swaps markets. And with that, let me turn it over to Sarah to discuss our financials in more detail. Sara Furber: Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior year period unless otherwise noted. Slide 11 provides a summary of our quarterly earnings performance. As Billy recapped earlier, this quarter, we saw record revenues of $521 million that were up 12.5% year-over-year on a reported basis and 9.9% on a constant currency basis, given the weakening dollar. We derived approximately 42% of our fourth quarter revenues from international clients. And recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Total trading revenues increased 11%, comprised of 10% variable trading revenue growth, and 18% growth across fixed trading revenues. Rate fixed revenue growth was primarily driven by an increase in minimum fee floors for certain dealers and by the addition of dealers to our mortgage and US government bond platforms. Credit fixed revenue growth was primarily driven by the previously disclosed introduction of minimum fee floors and the migration of certain dealers to subscription fees. Other revenues of $13 million for the fourth quarter increased by 94%, primarily driven by growth in our digital initiatives. Specifically, we earned $6.6 million from our commercial relationship with the Canton network. From our role as a super validator on the network. We are compensated in Canton coins. Assuming similar Canton coin pricing as in January 2026, and based on our current estimate of earned coins, we would expect 2026 Canton-related revenue to be similar to 2025, which was approximately $11 million but this can vary. Overall, the other revenue line will remain variable quarter to quarter. Reflecting fluctuations in the number of Canton coins earned, Canton coin value, the number of super validators in the network, and periodic tech enhancements for retail clients. 2025 annual adjusted EBITDA margin of 54% increased by 64 basis points on a reported basis when compared to our 2024 full-year margins. Our net interest income of $18.8 million increased due to higher cash balances. Despite lower interest yields. Lastly, this quarter's GAAP results were impacted by both unrealized and realized gains across our strategic investments. Specifically, we recorded $207 million in net gains this quarter. Including $180 million of unrealized gains reflecting the mark-to-market of our Canton coin holdings and $25 million in realized gains related to our exchange of Canton coins for warrants in the digital asset treasury company, TheraMune. As a reminder, these gains are only included in GAAP EPS. And are excluded from our non-GAAP adjusted diluted EPS. Moving on to fees per million on slide 12 and a highlight of the key trends for the quarter. You can see slide 18 of the earnings presentation for additional regarding our fee per million performance this quarter. For cash rates products, average fees per million were down 5%. Primarily due to a mix shift away from US government bonds which carry a comparatively higher fee per million. For long tenor swaps, average fees per million were up 2%, primarily due to higher duration. For cash credit, average fees per million decreased 14% due to the migration of certain dealers from fully variable plans to fixed plans across institutional and wholesale US credit. And a mix shift away from retail within US credit. Which carries a higher fee per million. For cash equities, average fees per million decreased 10% due to a mix shift away from European ETFs which carry relatively higher fee per million a reduction in US ETF fee per million, given an increase in notional per share traded. Recall in The US, we charge per share and not for the notional value traded. Finally, within money markets, average fees per million decreased 6% primarily due to a mix shift away from retail CDs, which carry a comparatively higher fee per million. Slide 13 details our adjusted expenses. At a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth, and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the fourth quarter increased 12% on a reported basis, and 9% on a constant currency basis. During the fourth quarter, we continued investments in tech and communications, digital assets, consulting, and client relationship development. Adjusted compensation costs grew 5%, driven primarily by an 11% year-over-year increase in headcount. Partially offset by lower accruals for performance-related variable compensation. Technology and communication costs increased 24%, primarily due to our continued investments in data strategy and infrastructure, and increased software costs. Adjusted professional fees grew 17% due to an increase in tech consultants as we augment our offshore technology operations, and due to episodic advisory fees, related to legal, tax, and consulting services. Occupancy expenses increased 59% primarily from increased rent due to the move to our new New York City headquarters. Adjusted general and administrative costs increased 27%, primarily due to unfavorable movements in FX and a pickup in travel and entertainment and marketing expenses. Unfavorable movements in FX resulted in a $37 million loss in 2025, versus approximately a $1.1 million gain in 2024. Excluding FX, adjusted general and administrative costs grew 3%. Slide 14 details capital management and our guidance. On our cash position and our capital return policy. We ended the fourth quarter in a strong position. With approximately $2.1 billion in cash and cash equivalents and free cash flow exceeding $1 billion for the year. We delivered strong free cash flow growth of approximately 32% year-over-year, or 22% excluding a timing benefit related to the deferral of certain 2025 tax payments into 2026. We also held approximately $1.6 billion of Canton coins, with a fair value of approximately $243 million. Which is recorded on our balance sheet under digital assets and other investments at fair value. With this quarter's earnings, the Board declared a quarterly dividend of 14¢ per class A and class B shares. Up 17% year-over-year. During the quarter, as part of our 2022 share repurchase program, we repurchased approximately 990,000 shares at $106 million. Additionally, we have repurchased approximately 483,000 shares for approximately $51 million in January. There is currently $23 million remaining to be purchased under the 2022 share repurchase program. Finally, this morning, the board of directors approved the 2026 share repurchase program, which authorizes the repurchase of up to $500 million of the company's class A common stock once the remaining authorization under the 2022 share repurchase program is exhausted. Turning to guidance for 2026. We will continue to invest in the business in 2026 and are expecting adjusted expenses to range between $1.1 billion and $1.16 billion. The midpoint of this range would represent an 11% increase year-over-year. Relatively in line with our average expense growth since 2016. We believe we can drive adjusted EBITDA and operating margin expansion compared to 2025 at either end of this range. Although, we expect the incremental margin expansion to be more muted, as overall margins are higher, and we continue to focus on balancing margin expansion with investing for the future. Specifically, we continue to invest in credit, rates, international markets, ICD, and digital assets. As key focus areas with a long runway for growth. We also continue to invest in technology that allows us to sustain and build on our leading platform. Some of these investments will take time to scale, but we continue to prize innovation in creating durable long-term growth opportunities. Within adjusted non-comp expenses, we expect our quarterly tech and communications expenses to grow in the mid to high teens over our fourth quarter run rate. As we continue to invest in our data strategy and infrastructure, to support the growth of our platform and new product initiatives. We expect annual G&A expenses to be impacted by continued FX losses, primarily impacting 2026 given current FX rates. We expect the 2026 professional fees to step down sequentially by approximately $2 million from 2025 related to the previously mentioned episodic expenses. We expect annual occupancy expenses to increase approximately 35% year-over-year primarily due to the full-year effect of our new New York City headquarters and the overall expansion of our geographic footprint. For 2026, we expect net interest income of approximately $15 million which reflects the current interest rate environment, and a seasonally lower cash balance driven by annual bonus payments and the expected purchase of approximately $70 million of transferable tax credits in Q1 2026. For modeling purposes, we view 2026 as a good starting point for the rest of the year. For forecasting purposes, our assumed non-GAAP tax rate ranges from 23.5% to 24.5% for the year. We expect CapEx and capitalized software development to range between $107 million and $117 million. The midpoint of our CapEx guidance implies a roughly 9% year-over-year increase. We estimate that approximately 60% of the total spend will be on software development to support our growth initiatives, approximately 40% will be related to growth and maintenance CapEx. Acquisition and Refinitiv transaction-related DNA, which we adjust out due to the increase associated with push-down accounting, is expected to be $160 million in 2026. Lastly, we expect 2026 revenue generated under the master data agreement with LSAG to be approximately $105 million spread evenly throughout the four quarters. Now I'll turn it back to Billy for concluding remarks. Billy Hult: Thanks, Sarah. Looking toward 2026, we see a constructive market environment taking shape. Even with lower volatility, issuance activity remains strong across governments, corporates, and increasingly AI-driven infrastructure investment. Supporting relative value trading and hedging flows across markets. Alongside the current regulatory backdrop, coupled with growing cross-border activity, these dynamics play directly to our strengths. With a global multi-asset platform and deep client connectivity, we're well-positioned to support the next phase of market structure evolution and to continue delivering scalable, resilient workflow solutions for our clients. On that note, we reported record volumes and revenues in January, which translated into total revenue growth of 17% year-over-year. Recall, January 2025 had one extra trading day and also benefited from an $8 million boost in market data tied to the delivery of datasets to LSEG. The revenue recognition of these datasets in 2026 will shift to $2 million being recognized in the first month of every quarter. Adjusting for these two factors, average daily revenue growth was 26% year-over-year. Showcasing how our sophisticated clients and dealers continue to be very active across our global markets. I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter. I want to thank my colleagues for their efforts that contributed to the record quarterly and annual revenues and volumes at Tradeweb Markets Inc. With that, I will turn it back to Ashley for your questions. Ashley Serrao: Thanks, Billy. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10:30 AM Eastern Time. Operator, you can now take our first question. Thank you. We also ask that you please wait for your name and company to be announced before proceeding with your question. The first question today comes from the line of Patrick Moley of Piper Sandler. Your line is open. Patrick Moley: Yes. Good morning, and thanks for taking the question. So, Billy, I was hoping you could elaborate a little bit on your comments there you made at the end of your prepared remarks on the outlook for the market in 2026? What are some of the major themes that you're focused on this year? And then, also, I think the 17% year-over-year revenue growth in January was a lot better than people were expecting. So any color you could give on what drove the strength there would be much appreciated. Thanks. Billy Hult: Yeah. Absolutely, Patrick. Thanks for the question. Know, we're working hard, so appreciate your voice on this. It's a really good setup. For our business. And maybe for a quick second, Patrick, like, let me give a moment of context. Like, even over the last, like, kinda, like, five, six years, we've gone from kinda zero rate, zero inflation market to this kind of post-pandemic world where there was the kind of roof on rates you know, on the back of that, like, big inflation burst. You know, to kinda where we are now which is around this kind of what feels like this kind of general rates you know, framework. Like, we're you know, we're in the 4% on ten-year notes. Right? What we have is this you know, obviously, it's been a you know, a conducive Fed. I think the feeling that we have here is that there's more to do. But, you know, there still is, I think, something very important, which is it's like, you know, real debate know, on the timing of it all. And those are, you know, good outcomes for us. And then you take a little bit of a step back from there, debt markets are growing. Right? And, you know, we have this very active kind of, you know, primary activity issuance world now. You know, public sector and the private sector need funding. Right? So even this past week, as you know well, Oracle you know, $25 billion in bonds this week. You know, that leads you know, to rates trading. As investors hedge out fixed exposure. I'll make the most obvious point of the day. AI is real. Right? The hyperscalers will be selling bonds. And so when you think about the big picture of it for a second, you know, the numbers that are you know, that we're talking about, $600 billion of AI infrastructure spent. Right? That's going to lead to more rates trading. And those things from our perspective, you know, are good. You know, as the, you know, as the leading rates, you know, trading platform those are good outcomes for us, and those are things that we feel good about. So you know, as you know, for example, in January, our GlobalSwap platform was up over 40% on revenue. A really strong month for our treasury platform. Platform. Right? You can see how these things kinda work to our favor. The, you know, the geopolitical complexity kinda slash drama or not we wanna think about, like, the debasement trade or diversification away from, you know, US assets at a minimum what we're talking about, obviously, is, you know, central bank policy divergence. You know, from our perspective, what's that going to do? It's going to spur you know, more cross-border trading, more global activity. And we have, as you know well, you know, a global enterprise. You know? And our international business is exceptionally strong. So in January, we saw exceptionally good results. From our European swaps business, European government bonds, very strong numbers. Coming out of European credit. The revenues there were up 40%. Big news, obviously, happening this month in Japan. Our JGP revenues were up 30% in January. So the international business that we bring to the table that we work very hard on building, I think, is an advantage for us kinda going forward. You know, getting very just quickly into into a version of kinda what's happening with with equities doesn't take a a big leap to understand that, you know, perhaps, like, the index is full. We could be looking at at a world where there's more kind of drawdowns there. It's gonna be about kinda allocating resource into kind of more sector exposure. More country exposure. Those kinds of thoughts and that kind of theme, I think, plays extremely well to the ETF business that we've worked very hard here on building. And so our globally ETF revenues were up 40%, in January. So these are, like, good outcomes for us you know, and a good setup. And then I think as we think about maybe one of the more important components to kinda how we're thinking about '26, you know, sometimes things are kind of in our control and things can be a little bit out of our control. As you know well, there's this concept, obviously, I think is really important just around you know, the deregulation of the banks and the way that ultimately that's going to and has led to, you know, these extremely strong kinda trading operations coming out of you know, how we think about you know, the legacy banks, but really from our perspective, kind of like the partner banks. You know, for us. You know? And so I kinda say this with a little bit of humor. Like, the you know, the swag is back. You know, for for these firms, and the numbers kind of prove it. And, you know, for from my perspective, and from Tradeweb Markets Inc.'s perspective, these are great outcomes for us. These are you know, in a lot of ways, you know, twenty-five-year relationships that we've had you know, with firms like Goldman and firms like Morgan Stanley, JPMorgan, and Citi. And so as risk-taking kind of is back in vogue, and the profitability of the business for these partners of ours is, you know, high level. I think the you know, the quote that I the quote that I looked at was, you know, between Goldman, Morgan Stanley, JPMorgan, and Citi. In FICC in 2025. They made over $55 billion. Right? As a trusted partner in the markets with those kind of firms, it's an incredibly good outcome for us to see the profitability of those businesses. And so that's an important thing as we think about the outcome and setup for know, for twenty-six. Then the other thing I would just say is, like, you know, this concept of risk events is always gonna be a part of our world. And it's pretty interesting. If you think about just the way the market kinda tended to shrug off some real risk events and kinda December and January. As you know, the tenure kinda stayed between, like, 04/01/1942. You know, around some pretty big headline news whether or not that was, like, you know, the justice department with actions against Powell, or military action in Iran, these are pretty big headlines. I think there's a there's a thought process sometimes that the has the ability to only price in what's right in front of it. There are moments from our perspective where that kinda ends. And so the concept of living with exogenous risk is a part of the cadence of how markets develop And so the last piece of kind of secret sauce around how we think think things will develop is ultimately gonna be the return of good you know, risk orientation into our world. And so I step back and I say, a very good rates framework for activity going forward, kinda green light there. Continued cross-border global activity green light there. Diversified equities exposure, green light there. And then a business environment that's keyed positively in the marketplaces off of deregulation. You know? And I don't love to kinda root for, obviously, exogenous events, but we know that you know, risk comes back into the system, and that's part of you know, the cadence of our world. So I take these things, and I add them up. You know? And I think the reality is is that we form you know, a strong a strong picture you know, for our business. And so I'm pumped. You know, I'm excited for what's in store, you know, for the markets. I'm gonna excited about Tradeweb Markets Inc.'s leadership role around all of the things I just described. And we're looking forward to a, you know, to a really good '26 on the heels of a very strong January and, obviously, very early stage, but a really strong start to February. So it's a it's a good outcome for us in a good marketplace. And thanks for the question. Patrick Moley: Very helpful, Billy. Thank you. Ashley Serrao: One moment for the next question. And our next question is coming from the line of Craig Siegenthaler of Bank of America. Craig Siegenthaler: Good morning, Billy, Sarah. Hope everyone's doing well. We had a question on AI. And, you know, we know automation is a key component of your AIX solution. As you take a step back and look across the entire Tradeweb Markets Inc. platform, can you talk about your utilization of AI and also differentiate between both generative AI and predictive AI models? Billy Hult: Absolutely. And great question. You know, I'll make you kind of laugh for a quick second. As a kinda ex-English major, it's always like a pinch me moment on an earnings call to kinda have a conversation about AI. You know? So it's kinda really fun for me. But, you know, my view and the company's view is always gonna be shaped, I think, ultimately by pragmatism. You expect us to be, and we will be always kind of commercially focused. We think about AI and how it's tightly linked, you know, truthfully to how we make money. And it's always, you know, from my perspective, very specifically a bit about this kind of transition from how we think about efficiency gains to ultimately the most important thing, which I think is, like, effectiveness gains and, ultimately, what is that kind of client impact engine kind of thing. And those are really kind of important thoughts. And so as you know very well, we have this, like, very deep high-quality real-time market data. From my perspective, that's the real strength of Tradeweb Markets Inc. Our proprietary data comes from running and operating kind of markets first and foremost. And so we see extensive executable pricing RFQ response behavior, execution outcomes, and client decision-making across protocols and asset classes as key to all of this. We've always been built around providing ultimately more efficient workflow tools for our clients. And I think we would say clearly that AI is a natural extension of that. And so we, you know, as an English major, again, with pride, I'll say, you know, we we really employ a very deep bench now of the strongest kinda data scientists, the strongest minds you know, inside of Tradeweb Markets Inc. And one of the things that we, I think, have done well, and Sarah and I talk about this a lot, is the collaboration between those minds and our business. And they sit directly with our product team and working on helping ultimately deliver better analytics and smarter tools. And these are really important kind of behavior patterns, I think, for companies to do those kinds of integrations. And so on the, you know, on the predictive AI side, I would say we are kind of looking at our proprietary datasets to help unlock what we describe as, like, the next frontier of electronification. Something we find particularly valuable across how we would describe less liquid markets. And larger notional trades. So that's a focus for us where pricing signals tend to be the weakest. And that's a that's a kinda big area of focus. And so I'll go back a little bit as we're talking about kind of you know, AI or how we think about, like, superintelligence. Know, I make a point all the time which is you know, all intelligence is really ultimately about learning. And as a company, you have to be kinda continuously on this kinda learning journey, this journey about learning and getting better. And so one of the things I know that Sarah and I talk about and our XCOM talks about a lot is the ability to keep learning. I think you have to be willing to make mistakes. You have to be willing to push things into new outcomes. And that's the mindset ultimately that a company needs to continue to move forward on this amazing new path around learning. We can all get smarter. I'm very excited for Tradeweb Markets Inc. to play a very strong leadership role around how AI continues to be applied into the financial markets. And thanks a lot. Ashley Serrao: One moment for the next question. And the next question is coming from the line of Alexander Blostein of Goldman Sachs. Your line is open. Alexander Blostein: Hey, Billy. Hey, Sarah. Good morning, everybody. Sarah, one for you. I was hoping you can talk us through how you're thinking about the interplay between Tradeweb Markets Inc.'s sort of annual expense growth, trajectory and margins. So just taking the guidance you provided this morning. Obviously, the revenue backdrop started off really well this year. But as you sort of think about the goal for operating leverage for 2026, Is that still the case if revenue moderates? And if it does moderate, maybe talk a little bit about the flex you have in the expenses in order to still drive positive operating leverage. Sara Furber: Thanks, Alex. Great question. You know, I think when we talk about operating leverage and margins expenses, I think it's actually a really important reminder in terms of what's our top priority. And our top priority is investing for revenue growth through various cycles. And so when you think about that, the way we've designed our expense base is to support that and to deliver and be able to deliver positive operating leverage across all these different revenue environments and through the cycles. And so, like, what does that really mean? Means when you think about our expense base, roughly 55%, so a little bit more than half, is fixed. And the remainder, so about 45%, a meaningful portion, are variable or discretionary. So variable being things that automatically right-size with revenues, commissions, performance-driven compensation, exchange fees, Discretionary being things more like marketing T&E, the pace of hiring, philanthropy, things that are within our control. And that balance allows us to maintain operating leverage through different environments. And we can do things in both directions. We can accelerate the pace of spend, and we can decelerate the pace of spend. We can do that with the flexibility while still protecting, which I think is really that first priority, investment strategies that are often multiyear that drive long-term revenue growth. Through the cycle. And so obviously, as the size of the company has scaled and as our revenues have scaled, there's also natural operating leverage that falls to the bottom line. Billy talked about being pragmatic earlier. I would say all of this is great. Flexibility is great a theoretical point, but the reality is I think we've already demonstrated our willingness and ability to execute on that flexibility. So if you think back and you've got to think back a little bit, but if you think back to the first 2023, the environment was such that the top-line revenue for Tradeweb Markets Inc. grew about 5%. And even in that environment, we paced expenses and were able to deliver positive margins, so 43 basis points of margin expansion for EBITDA. Contrast that with just a year later in 2024, you'll remember the top line grew 29%. We were able to accelerate our investments and expenses significantly and therefore margin expansion was around 90 basis points. Last year, same thing. You had a really different environment in the first half of the year, the second half of the year. So I think we've proven our ability and flexibility. But most importantly, like our strategic lens is on continuing to invest, continuing to innovate, and having that flexibility to do it when our clients need it which means doing it through the cycle. Thanks for the question. Hopefully that helps. Alexander Blostein: It does. Thank you. Ashley Serrao: One moment for the next question. And our next question is coming from the line of Ken Worthington of JPMorgan. Your line is open. Ken Worthington: Hi. Good morning, and thanks for taking the question. My question's on mortgage. So Tradeweb Markets Inc.'s mortgage business was one of its slower-growing businesses in 04/2025. As one of Tradeweb Markets Inc.'s most dominant legacy and most electronic markets how do you think about the outlook for mortgage trading in 2026? Particularly if primary and refi activity rebounds? And then maybe as a second part to this, are the innovations that we're seeing at firms like ICE and others in mortgage tech are these innovations, possibly gonna have, an impact positive impact on your business over time? What are you sort of thinking there? Billy Hult: Hey, Ken. I feel I feel like you almost complimented and insulted us at the at the same time with that very And it's always great to hear your voice. I mean, you you've known us for for a while, and, obviously, you know me as a as a CEO. But to make you laugh for a quick second, I'm also a father too. And so you you also, I think, understand very well, like, that expression that all of us parents have. Which is kind of like, you know, all of our children are smart. All of our children are the most beautiful. We love all our children the same. All of our children are our favorite children. I think there's a possibility that, like, the mortgage business might be my actual favorite child. Which I haven't told anyone that yet until right this second. Because in a lot of ways, it kinda represents some of the best things about the company for a long time. It's the, you know, it's the most electronic market that we have. It's the market that we have the highest you know, market share in. It's the first market that we were in to have what I would describe to you something, like, very important, which is, like, real risk flow. We talk about risk, like, all of the time, the elusive risk in credit. The mortgage market, I think, for a bunch of reasons, one of which was kinda like the ethos of kinda how mortgage bankers kinda dealt in the market, was always very comfortable trading real risk electronically in comp. And those are the kinds of characteristics that play very well to electronified marketplaces. And then it was the first market that we were in that actually we wound up kind of expanding into wholesale. It was the was the starting point for us to ultimately move into the wholesale side of the market. And build out, you know, these really important near kinda liquidity pools. So it's got the kind of favorite the favorite childness around all those things. But the reality is, which you which you framed properly, is that that market can go you know, sleepy. At times. You know? It could be a sleepy market depending on where rates are. And then when it wakes up, it can wind up being one of the you know, sort of two or three most important kinda coupons ultimately in global markets. So there's very big different levels of activity depending on where we are in the in the in the rate cycle. I think the reality is we are kinda out of sleepy zone. We have primary issuance increasing. Have actively managing kind of pipeline risk adjustments around duration, and convexity exposure kinda happening. And so the market is you know, without question, kinda coming to life. We also, as you know, I think had, you know, pretty big headlines in January. You know, with the GSE commentary, you know, coming out of the administration. You know, the administration wants lower mortgage rates, and they you know, tend to get sometimes what they want. So there was a material pickup in activity in January, Our revenues were up know, 15%. I think the outlook for that business is quite strong. Particularly if we break lower on rates. And I think the future of it is gonna have ultimately I think, and very importantly, a larger group of players as participants. If you really think about it, it's kinda interesting. You know, the the systematic players that are very strong companies as you know, Ken, very well in adjacent marketplaces like government bonds. Have largely think because of the of the cycles that the business goes through, have largely stayed out of the of the mortgage market. But we see those types of companies ultimately coming into that market. And from our perspective, I think that kind of pushes things know, towards a more, you know, velocity-driven marketplace, which is good for business. I follow pretty closely things that Jeff does on the mortgage servicing side. I think he's been kinda right on his thesis all along. Tough to time it, I would say. But, ultimately, as he makes you know, origination and he makes the servicing aspect of the marketplace more efficient. Those become good aspects of know, secondary trading, and we feel like we'll ultimately also be ironically you know, the beneficiary of that as well. So in an interesting way, kinda rooting for him, you know, on the efficiency play that he's been working on, we think directionally, he's been right in terms of you know, that area of the business needing a step up in technology. But I appreciate the question, and thanks very much, Ken. Ken Worthington: K. Thank you. Ashley Serrao: Moment for the next question. And our next question will be coming from the line of Alex Kramm of UBS. Your line is open. Alex Kramm: Hey. Good morning, everyone. Billy, I I saw you on a panel on tokenization a few weeks back. Sounds like you're doing a lot on that topic, a lot of initiatives. So maybe today, can you talk a little bit more specifically what you're doing and maybe some of the timing of those initiatives that you have going, going right now? Also, you know, since I'm sure there's a lot going on, where do you actually see the biggest revenue opportunities coming out of this? And then on the other side of the coin, because I need to ask, since you're kinda pretty critical connecting buy and sell side today, as those, you know, underlying markets potentially change here and get digitized or tokenized. How do you ensure that you're not gonna get this intermediated as, you know, people may be looking for new rails, etcetera? Billy Hult: Yeah. All good questions, Alex. Appreciate it very much. I'm sure you heard me kind of on the panel, confusing everyone, let me, just for a quick second, I'm gonna I'm gonna actually kick this to this to Sarah who's been spending a ton of time on this. And I'm really looking forward to kinda hearing you, Sarah, kinda describe this, like, perfectly. So you you take it. Sara Furber: You know, as a I'll start just kind of where you left off, which is a little bit of a big picture and, you know, how do we think about disintermediation. On tokenization, we don't really view it as disintermediating what we do. We think of it as an infrastructure upgrade. It's not replacing market structure. And in particular, it doesn't really impact price discovery. So as we see things evolve, we think people still need platforms to connect buyers sellers. They need to be supported in terms of price discovery. They need to manage that risk transfer. And importantly, deeply integrate into institutional workflows which are things that we think we are still well-positioned to do given how long we've been investing in this space. And can do it, whether it be traditional rails or on these digitized, more modern rails. What we do see tokenization impacting are things like settlement and collateral mobility. And I know, Bill, you talked about this on the panel. Which we think frees up capital, increases velocity of trading over time. We've talked about potential for 24/7 trading before. All positives from RC. In terms of the big picture. More specific to us, and Billy and I and Chris Brunner here have been spending a lot of time on this, We've been at this for a while. So for the last three years, and I would add know, with my CFO hat on, in a remarkably capital-efficient way we've built out a leadership position. Whether it be digital assets, blockchain networks, or tokenization. And today, I'll give you one specific example. We feel like we are positioned to be the premier venue for tokenized trading for US Treasuries. We've talked about this, I think, on other earnings calls. We've completed multiple rounds of fully on-chain repo trades utilizing tokenized treasuries as collateral and, you know, versus stablecoins with the notion of expanding for other forms of collateral like digital cash. So that's already been in the works since the third quarter of last year. More recently, which I think is interesting and a little bit to your timing point, we think we're sitting in a unique position during what you would argue might be a milestone year. The SEC delivered a no-action letter to DTCC this December. And Tradeweb Markets Inc. is positioned as the non-venue really leading the charge for their pilot program where trillions of assets that sit at DTCC will now be tokenized on an opt-in basis from their clients. And so if you think about what that means, that program can launch at the second half of this year. That opens up a real opportunity. And we think tokenized treasuries, given what we've already put into the market, will be a place start. And from there, we'll grow. I don't think anything changes overnight. You know, Billy and I talk about that. We think clients, as we know better than anyone, take time to change. We do see interest. But I think the reality is the tokenized rails digitization blockchain will operate side by side with a lot traditional rails in the marketplace, and we think we can bridge that quite well for clients. As a result, I think from a revenue opportunity, it's early to say how it plays out, but we see opportunities to drive revenue in our traditional trading business. As a result, as well as new opportunities given our leadership position on some of these networks developing apps, and bringing other market participants, given our institutional and dealer network, onto some of these digitized rails. But And I think that's spot on, Sarah. And then for a quick second, Alex, kinda like almost like tying, you know, your question a little bit in an interesting way back to kinda what what Ken was asking about. Like, if you just think about for one one second just about the concept of, obviously, you know, the guardrails of collateral management and and and ultimately problem solving around kind of settlement. I was talking about my favorite child before, the the mortgage market, which has in a lot of ways within the fixed income complex you know, the most onerous you know, settlement cycle. And I think that settlement cycle in a lot of ways is one of the reasons why know, there are you know, the types of entities that have been performing well in other markets have tended to either stay away from or have a lower impact in that market. And for sure, as we see you know, the continued advancement of, know, of blockchain, and we've talked a lot about our partnership with Canton, As we see that continued advancement there, we've identified the you know, the mortgage market as one of those businesses where, from our perspective, a great commercial outcome would be onboarding more participants, and we see a streamlined settlement process as a very important outcome there. So that's an area of focus and attention for us. That has a good commercial outcome. And good to hear your voice, Alex. Thanks. Alex Kramm: You. Ashley Serrao: Thank you. One moment for the next question. The next question will be coming from the line of Tyler Moore of William Blair. Your line is open. Tyler Moore: Hi. I'm on for Jeff Schmitt. We have one question on share buybacks. Given the strength in the quarter in January and new authorization. So their stock down a fair amount over the last six months. I think it's now trading here near the lowest PE since going public. Is there potential for you to increase your buybacks at all? Sara Furber: Thanks, Jeff. We're definitely giving more thoughts to buybacks. I think you've heard us talk about our positioning and view of the forward market and the macro environment and our business performance. Not only in January, but that momentum continuing in February. So we remain confident in what we can drive and deliver. And we do think that you've seen the stock dislocate from some of those fundamentals. You've already seen us, and I think you're aware of this. You've already seen us be more aggressive. So in the fourth quarter and through January, we've repurchased about $150 million of stock and the board authorized an additional $500 million plan. So we think we have the flexibility to continue to do it. I think from our seat, it's one piece of our capital allocation framework. So it's one that we definitely have in our arsenal, but we also feel quite strongly that we have a lot of opportunity to grow the business organically. Have the opportunity to pursue inorganic investments and M&A and obviously share repurchases, particularly when the stock dislocates from what we think is our fundamental growth opportunity, we'll use that tool as well. Thank you. Tyler Moore: Thank you. One moment for the next question. Ashley Serrao: And the next question will be coming from the line of Simon Alistair Clinch of Rothschild. Your line is open. Simon Alistair Clinch: I was wondering if you could characterize the competitive environment in credit today? This is, you know, clearly a focus of investment community. Particularly given they have the market share data out there all the time. So what's see is the biggest catalyst for improvement in share for Tradeweb Markets Inc. going forward from this point and how that sort of competitive dynamic shapes up over the next one year to five years? Billy Hult: Yeah. Good question. I would agree completely. Know, it's competitive. And I would agree completely with you that it's a focus you know, of the of the analyst world and the investor world. I wouldn't go so far to say it's an obsession, but it's it's it's a focus for sure. And, you know, I would start by saying just a as a reiteration, like, we feel very, very comfortable competing. It's part of who we are. We've been competing day one, as we built this company over twenty-five twenty-seven years with Bloomberg. The competitive framework is is something that's comfortable to us. I think the the path forward on continuing to grow revenue and grow share is gonna be pretty straightforward. You have to be on side with the banks I described that, you know, before when I was talking about the you know, the framework going forward to '26. You know, if you're on the wrong side with the banks as this next leg of of of evolution occurs in credit, you're on the wrong side. And we think our relationships with the banks is a is a game changer for us there. You have to continue to be able to link markets. And so, again, we feel like our footprint in treasuries is kind of important there. Obviously, you know, the cross-asset piece of how we approach the market, I think, is important. Data, pre-trade data, you know, the ability to present clients with the best data, I think, is again, very important principles for us to keep in mind. And then, ultimately, I'm gonna get into kind of the two things that we feel very strongly about, which is solving for risk and solving for what we would describe to you as you know, banks' inventories and banks' trading access. And to make an obvious point, if you don't do the first three things I described at the highest level, which is partnership, the ability to bring in other other marketplaces, and ultimately have the best data, then you cannot solve for ultimately what is risk trading and what is what is complexity. And so, you know, month to month quarter to quarter, we are focused on the credit business. We grew revenues, as you know, quite well. In the month of in the month of January, so we're feeling good direct directionally about how we're positioned there. It is an enormous focus for me and for the company to continue in a competitive environment to be best in class there. And that's that's the mandate for us as a company. And appreciate it. Good question. Thank you. Ashley Serrao: Thank you. One moment for the next question. Our next question is coming from the line of Bill Katz of TD Cowen. Your line is open. Bradley Hayes: Hi. It's Bradley Hayes on for Bill Katz. Following up on tokenization as assets increasingly become tokenized, how are you thinking about the impact for the swaps market? In particular, is there risk to volume from smart contract functionality? Sara Furber: Sure. Why don't I jump in with that? I think similar to how we talked about tokenization, smart contracts really takes away the friction in the swaps market potentially that sits downstream past execution in terms of the value chain that we're in. So it really streamlines affirmations, confirmations, clearing that post-trade life cycle management, which we think is really helpful and only furthers electronification and the trading velocities in the space. But from our seat, it doesn't, you know, disintermediate or really impact the value that we are offering in terms of our markets. Bradley Hayes: Okay. That's perfect. Thanks. Ashley Serrao: Thank you. And at this time, I would like to go ahead and turn the call back over to Billy Hult, CEO, for closing remarks. Please go ahead. Billy Hult: Great. I know Sarah and I both appreciate a very busy day for everyone on the call. Appreciate your time. Thank you all very much for joining us. Any follow-up questions, obviously, please feel free to reach out to Ashley, Sameer, and our great team. Everyone, have a great day. Thanks very much. Ashley Serrao: Thank you all for attending today's program. You may now disconnect.
Operator: Welcome to conference call. [Operator Instructions]. Now I will hand the conference over to the speakers. Please go ahead. Nikolaj Sørensen: Good afternoon, everyone, and good morning to those of you dialing in from the U.S. I'm Nikolaj Sorensen, and I'm here together with Orexo's CEO, Fredrik Jarrsten. So today, we're going to go through our fourth quarter and year-end results. We will provide a business update. This time, it will be a little special because of the transaction we just completed, as most of you are probably aware of, and the divestment of ZUBSOLV. So we will have a lot of focus on the transaction and the implications on the organization and the same for the financials. The financials have a significant impact from the transaction, of course, but also the way that the financials are structured is -- makes it a little more difficult than usual to analyze and understand the implications for the company going forward and even the performance in the last quarter. So Fredrik will talk you through that. And then we will end up with a Q&A session. So very shortly, the quarter in brief. We signed a deal with Dexcel Pharma on the 31st of December after -- or we closed the deal on the 31st of December after signing it on the 23rd of December. So as you can understand that a lot of activities happened over Christmas for many of the employees and the leading positions in Orexo, both in the U.S. and Sweden. This divestment has taken a lot of efforts for the company throughout the autumn and actually even early summer. It has been intense with several companies competing more or less until the last minute for the transaction. So that has caused a lot of work for the company with both due diligence and entertaining management presentations and others during the autumn. So this has been the big focus for us in the Q4. And of course, that has some implications on our ability to go into details about Orexo moving forward right now. And we have invited for an R&D Day in March, where we'll present a little more about plans for our research and development in more details. So one of the main drivers behind the deal is, of course, to strengthen our financials, but it is to be able to focus what I would say is the core of Orexo moving forward, and that's the AmorphOX platform or the AmorphOX technology. This is, you can say, where everything will spin out of is that technology platform, which is more like a concept than individual, because for every molecule there will be some unique features, different excipients, different ways of manufacturing, but there are some core concepts that are shared across all of the projects. And this is where we need to excel. It's around that technology and our ability to bring in more products on the platform, hopefully, both in partnerships and also some of them led by Orexo throughout most of the development. I'll come back to that a little later. I will also say the Dexcel agreement closed on December 31, but it's far from over. We are in a transition process that will go throughout all of this year and maybe even into next year, where Orexo will continue to support Dexcel with certain functions and expertise to help them taking over and ensure we have uninterrupted supply of ZUBSOLV to the market in the U.S. So we have a tight and daily relationship with the Dexcel leadership. For R&D, we have -- we're starting to talk about 3 different categories. Here, we highlight 2 on this summary. It's what we call exploratory research. That's one we are working to see new application areas for our AmorphOX platform where we think there could be significant opportunities moving forward. As you know, we announced during the autumn that we're working with semaglutide, but we're also working in vaccines where we have worked a lot with Abera, but now we're ready with our increased financial strength to broaden that perspective, and we have engaged some vaccine experts that will advise the company moving forward. We then have our own projects, what we call the Orexo projects. We have a pivotal trial for 640. We are now planning that for Q4 this year. For 390, we are working a lot with our formulations, and that is to prepare for the first in-vivo proof-of-concept study, which is going to start in this quarter. And then IZIPRY, we are making good progress towards the planned filing in Q3 of this year. We'll come back to more to the financials. But of course, it's quite nice to look at the bank account when we closed the year of '25 and see that we have SEK 912 million on the bank account, which is a little increase from last -- the 31st of December, 2024. So about the ZUBSOLV transaction. As you know, it was acquired by Dexcel Pharma. Dexcel is the largest privately held pharma company in Israel, but they are now expanding heavily into the U.S. market. They have some branded, but a lot of generic products in the U.S., and they were highly interested in acquiring a full field force that would be able for them to build the portfolio around that field force. So all of our sales reps and sales managers accepted an offer from Dexcel to join them between the 23rd and 31st of December. So again, something to consider over Christmas. And we are very pleased to see that all of the employees who got that proposal accepted the offer from Dexcel. That enabled us to close the deal on December 31 and are now moving into the transition phase. One thing that you should highlight and those of you who have read the report is that we -- simply based on the IFRS way of doing accounting, we have to focus on what we call continued operations and discontinued operations. We will come back to that a little on the financials. But in the continued operations, it is our R&D, our pipeline, our existing partnerships, both the commercial products like Edluar, Abstral, ZUBSOLV Europe and now also ZUBSOLV U.S. And that means that in Sweden, that's basically all of the staff in Sweden from R&D, business development and headquarter. In the U.S. continued operations, even after the transition, we will have medical affairs in the U.S. So Chief Medical Officer will stay with the company. We will have some R&D project management working with BARDA. And we also have -- we retained some commercial resource in the U.S. and focusing on commercial strategy assessment of new opportunities and also ensuring that we have the right focus areas in our own development. During the transition, however, we will need -- we retained some resources. And this is important because if you look at the OpEx for the continued operation, that actually includes all of these transition resources that were all of the expenses associated with them for '25 is included in the continued operations. And they will continue at a certain period of time to support the transition, and that's both within finance, market access, supply, distribution, regulatory support, for example, within REMS or drug safety. All of these services are reimbursed to some extent by Dexcel. And the plan is when Dexcel build up their own capabilities, the support from Orexo will decline, and then we will restructure our organization accordingly and stepwise following the time line for Dexcel to take over full responsibility. So when you look at our continued operations, that does reflect resources and the cost associated with resources, which are not expected to stay with Orexo long term. Discontinued operations, on the other hand, that's basically what has left the company, and that's the field force from an OpEx, that's, of course, all revenues associated with ZUBSOLV, but also variable costs like marketing expenses and so forth are within the discontinued operations part. So when you look at the financials, the continued operation is not the OpEx that we expect to continue with because a lot of that is associated with the transition phase. And the discontinued operations is kind of the pure ZUBSOLV sales efforts. The time line, I talked about that before, we're signing and closing between 23rd and 31st. We are now in 2026. We'll have this transition phase, which is a lot of work right now, but we expect that to decline stepwise during the year. And we are now planning then for -- we can say, we're already moving towards that the new Orexo. We say March here, but that's where we are planning to do some of the more -- we have our R&D Day where we'll share some of the details, but also do some of the organizational changes. So in the new Orexo, the big focus, as I said before, is around the AmorphOX technology, and I will come back to some more details on this later. So coming into continued operations. So what are we going to move forward? As I said, the big focus and where we really need to excel is everything around the AmorphOX technology. How can we expand the use of the technology, and this is our core competence is that technology all the way from new formulations to manufacturing and supply in the commercial scale. And to do this, we are looking at this in 3 different buckets. So one area is what we call explore the AmorphOX technology. This is where we are finding new areas to apply the technology. What we get from that will lead to some own projects where Orexo decide that we actually start a real project. We are starting -- planning for clinical trials and a firm development plan interacting with regulatory authorities, for example. So these would be projects where Orexo will invest up to a certain point in time where we see that there is a big value inflection where it's time to get in partners. And the third area is partnering the AmorphOX technology, basically making the technology available for other companies who can benefit from the AmorphOX technology and where Orexo will then support them during their development. Moving a little into more details of that. So in the exploring space, we are basically looking at areas where we can move from, we say, incremental improvement, you can say, which is patient convenience. We want to focus more where we can transform the drug delivery. And this is why we have a big focus on larger molecules, because a lot of the large molecules today are injected, they have issues with stability. And we think with the AmorphOX, we can enable new delivery technologies, for example, through the nose, but could be other ways also. And we can definitely address some of the stability issues with these larger molecules. And while we are focusing now is simply to test how do we apply AmorphOX technology to these areas, reach what we call or show proof-of-concept. And when we've done that, then have a decision whether we should out-license the technology to our partners or start our own project. And the focus we have at the moment is on GLP-1 agonist and in particular, semaglutide, where we continue to work on the formulation. We have some brilliant ideas, I hope, for how we can improve the bioavailability even further, so making it a real competitive alternative in this space. And this is something that we are working on at the moment. We also work on vaccines. We have, as you know, worked together with different vaccines companies. The one that has been public has been Abera, small Swedish company. But with the resources we have now, we have retained or have created collaborations with research partners from -- who are active in academia, both in Sweden and the U.S. to advise us and also to work and see if we can apply our technology to some of their projects. So this is really exploratory, but again, something that we think could turn out to really interesting opportunities moving forward. The next area is our own projects or what we call proprietary projects. And that's where Orexo see that we have an opportunity to basically take some of the ideas we have into a project where we move it in with a clinical development plan, we interact with regulatory authorities. We have a dedicated team and a time line for the projects. And the focus here at the moment are well-known projects to all of you, I believe, it's OX640, where we're now planning the first pivotal clinical trial. It's a nasal allergy challenge study that we're planning for Q4. We also -- to do that, we need to upscale our commercial manufacturing and basically use the commercially manufactured product for that clinical trial. So that is ongoing at the moment. IZIPRY, we are looking for filing in Q3 of this year or second half of 2026. And we are now -- because we don't have a commercial infrastructure, we'll, of course, be looking for a partner for the commercialization in the U.S. OX390, this is an NCE, and we have to do a lot of testing in the beginning and both on formulation. And now we're planning for the first in-vivo testing, which is scheduled to start here in Q1. And then the -- we are looking -- we believe that the technology has opportunities to be used by other companies. So we are looking for other companies where they see that they have issues with the formulation while the AmorphOX technology can support their development. Here, again, we have worked, for example, with Abera that we think we can support. Some of you have been with us earlier know that we did have a project with Sobi. We have other or several others that are nondisclosed where we are in a more feasibility study. But this is an area where we think we can step up with the added resources, and we're looking to see how we can work even more intensively with business development to ensure we can expand that portfolio of partnerships where Orexo is taking very limited risk in the development. We can take some risk, but most of the risk will stay with the partner. And that is something where we can, again, apply the technology, create better utilization for our facilities and learn more about how we can expand the use of the AmorphOX technology. Long term, the ambition is, of course, to grow and have a portfolio of commercial stage partnerships where the main business model is to find partners who will basically pay upfront if it's our own projects, royalty milestones. If it's our AmorphOX technology projects, the partner will cover most of the expenses with some margin to Orexo, we hope, during the development. That's the ambition. But we also want a royalty, which reflects the patents that come with the technology all the way throughout the commercialization. Today, we have 4 revenue-generating partnerships. As you know, none of them are based on AmorphOX, but they are still generating revenues for Orexo. So ZUBSOLV U.S., we have an earn-out. Fredrik will talk more about that. ZUBSOLV Europe, it's been a little slow during this year. That's because Accord have built up their own manufacturing capacity and it's actually sitting with EMA right now for approval. If that goes through as expected, then we think Accord will be much better equipped to participate in the competitive pricing environment we have in Europe. Abstral and Edluar are both lacking towards the end of the contract in several markets and also with the patents, which is reflected in the exact revenues that Fredrik will talk about shortly. Then on our discontinued operations, this is where we normally spend most time, but this time, I just have one slide on ZUBSOLV, more to leave it. But we're pretty pleased with the development in the fourth quarter. In U.S. dollars, sales actually grew in the quarter. So we had $14.6 million compared to $14.1 million last year. If we're also looking at last quarter, we were $12 million and now we're up $2.6 million in sales. That is, as I have repeatedly talked about during the year, it's important to look at the inventory and where we were very low in inventory in Q2 and even lower in Q3 here in the fourth quarter, it's more gone back to where we started the year, even though it didn't get up to exactly the same level as last year. But still, we saw some buildup at the wholesalers. But we also saw some quite stable demand in the quarter. There was a little decline in one segment, but in -- where we've seen most of our loss in volume has been in the previously exclusive agreements with Humana and United, and that actually stabilized over the quarter. So we didn't see any decline a bit from Q3. We're also leaving with Dexcel, absolutely stellar reimbursement in this very competitive environment with nearly 100% access in the commercial segment, nearly 50% in the public segment, and that is what Dexcel will enter 2026 with. Orexo's market access team will continue -- some of them have left to Dexcel and some are still with Orexo, but we will continue to support Dexcel at least in the start of this year. Our entire sales force, as you know, have moved over. So we're quite pleased with that. And also something that we worked a lot on, and I think was important also for Dexcel is how we work to improve long-term cost of goods. So despite having inflationary pressure, we have been able to actually lower the expenses to produce ZUBSOLV tablet. And we're looking to have even lower cost of goods in the future, which is a very important part for Dexcel and a process between signing and closing was to ensure that these manufacturing partnerships that Orexo have set up would continue to support ZUBSOLV when it is moving to Dexcel. With that, I'm leaving the word to Fredrik to go through the technical aspects from the -- of the transaction. Frederik Jarrsten: Thank you, Nikolaj. So starting with some further details on the transaction. [ All in USD ], closed the transaction of ZUBSOLV U.S. business with an agreed purchase price of USD 91 million, approximately SEK 847 million. So that was paid at closing, plus the payment for value of inventory, both in Sweden and in the U.S. of a total of USD 3.8 million. Then USD 3 million was paid into an escrow account, and that is to cover our obligations for the coming 18 months after the closing, primarily in relation to returns of products sold by Orexo prior to closing. We're also entitled to an earn-out consisting of 2 payments of in total up to USD 16.8 million based on actual future ZUBSOLV net sales, both in 2026 and in 2027. So in the accounts, we have a risk-adjusted discounted estimate of the earn-outs of in total USD 8.2 million, and that is booked as a receivable. Other consequences of the transaction, as we talked about, we will be reimbursed for transition services provided to Dexcel for up to 18 months after closing. Services include finance, commercial, supply, quality, pharmacovigilance and regulatory services. And then on the corporate bond, post transaction, we will not be able to comply with the covenants in the maintenance as set out in the bond terms, which will trigger a redemption of all outstanding bonds at a set call price. And depending on decision by the Board, we expect this to happen end of Q1. Affecting the profits on the sale of ZUBSOLV, we also have additional provisions at year-end for returns and rebates to secure our obligations in relation to products sold by Dexcel prior to closing, and that's USD 7.9 million in total. So looking at what we ended up with as net proceeds in our accounts on the closing date. We will pay the purchase price of $91 million plus the inventory and then $3 million put into escrow account as deducted from net proceeds. So this ended up in an agreed purchase price of USD 91.8 million or SEK 854.5 million to be specific. And to get to the net proceeds, we also deduct transaction costs of SEK 41 million, resulting in net proceeds at closing of SEK 814 million. Now post-closing, there will be restructuring costs of operations, and this is planned to be completed by the end of the transition period. And the main part of those costs will be accounted for in Q1, but expenses will also occur during the remaining part of the transition period. And to summarize the major financial effects of the transaction, we received a significant cash inflow ended up in a cash situation of SEK 912 million at year-end and also restored group's shareholder equity of SEK 491 million. So moving to the next page where we have the P&L for continued operations. So obviously, that is the remaining part of U.S. commercial ex ZUBSOLV, as well as HQ pipeline. So on net revenues, SEK 3.3 million for the quarter. We do have lower Abstral royalties following the trend we seen as individual countries royalty agreements expire. Total lower Edluar royalties, mainly due this quarter to lower partner sales in Canada. ZUBSOLV ex-U.S. revenues were also lower, mainly explained by absence of tablet sales to Accord ahead of them starting manufacturing in Europe. On operating expenses, they reflect the cost base as of transaction, including costs expected to decrease once the organization and facilities have been aligned to meet our future requirements. They also include the resources needed to support Dexcel during the transition period. So OpEx amounted to SEK 104 million for the quarter. However, that is not comparable year-over-year unless you adjust 2024 OpEx with the impairment of intangible assets, Deprexis and Vorvida that we did last year, SEK 99 million. We also had an impairment this quarter. That is the remaining intangible assets, MODIA. The impairment was SEK 22 million, and this was allocated to admin expenses and R&D. Otherwise, selling expenses lower, partly due to weaker U.S. dollars, but also from lower marketing-related costs for IZIPRY. Admin also lower, mainly from reduced legal fees for the DOJ investigation and generally lower spending in HQ pipeline. In other OpEx there was a lower positive contribution from lower insurance reimbursement and lower partner related income, although we have the first invoice sent to BARDA for the 3 OX390 projects. Started up slowly towards the end of 2024 -- 2025, sorry, but it's expected to pick up with the cost coverage we get from BARDA as development efforts intensifies in 2026. EBITDA for continued operation negative for the quarter and by SEK 70 million. Discontinued operations, which then is presented in a note in the report, P&L shows lower ZUBSOLV U.S. sales in SEK due to lower demand and weaker U.S. dollars, partly offset by significantly higher wholesale stocking, local currency, as Nikolaj mentioned, we had higher sales at USD 14.6 million compared to USD 14.1 million last year. OpEx, obviously, reflect associated cost of selling ZUBSOLV products in the U.S. The main cost is then selling expenses, which is the sales force and sales support, which is now with Dexcel. But the main contributor to net earnings from discontinued operations of SEK 840 million is, of course, the profit on the sale of ZUBSOLV U.S. business, which amounted to SEK 769 million. And that profit is calculated from agreed purchase price, adding the market value of the estimated earn-out and then subtracting the book value of inventory sold, transaction costs, but also provisions, returns, and rebates. Move to the next page, cash flow. We reported a negative cash flow in Q4 of SEK 19 million for continued operations, mainly due to negative contribution from operating activities. But we did have a positive effect from financing activities, including a sale of SEK 10 million of our own bond. But of course, we reported significant positive cash flow from discontinued operations of SEK 830 million following the sale of ZUBSOLV business. Net proceeds, as we talked about, SEK 840 million and the rest being cash flow from ZUBSOLV operating activities. So after adjusting for a negative FX effect of SEK 4.3 million, that meant an increase in cash and cash equivalents since Q3 of SEK 807 million to SEK 912 million. And now we have -- instead of a net debt, we have a net cash of SEK 429.2 million. Okay. Final page for me. On next page, we show the outcome of our financial outlook for 2025. So we have adjusted the relevant metrics, so they exclude all effects of the ZUBSOLV transaction, and that's in order for us to be able to evaluate the outcome versus what we put up as metrics for 2025. So we can conclude that we met all the metrics for 2025. The buprenorphine-naloxone market grew 3% in 2025. We reached ZUBSOLV net sales of USD 51 million and adjusting also for the non-recurring rebate payment that we had in Q2, net sales was approximately USD 62 million. And OpEx, excluding depreciation, came in at the lower part of the range at SEK 468 million. Finally, EBITDA positive for the full year with SEK 3.2 million. Thanks. Back to you. Nikolaj Sørensen: Thank you, Fredrik. So we also want just to remind everyone that we still have the Department of Justice investigation and the subpoena issued all the way back in 2020. Of course, the situation now is a different Orexo. Our money right now are going to be invested in developing new life-saving products, and that's something we, of course, will introduce into the discussion with the authorities in the U.S. I would say it's important to say that the investigation is not following the product. It is related to the company and the company staff. So I think, and I hope that I just saw yesterday, for example, that the current administration and the White House came out with a new executive order talking about how they need to improve treatment and bring new therapies into the market for opioid addiction and that crisis. And we are the only company who are working actively with a new product for the combination or the adulterated opioids also called tranq in the U.S. that right now is the fastest-growing issue in that market in terms of overdose and potential death. So I hope that we can have a constructive dialogue with the U.S. authorities. It has been a little difficult during last year because some of the turmoil that have been in the Department of Justice with new prosecutors appointed and the like. But hopefully, we can get some kind of resolution. That's the ambition for this process during the year. Very short as a roundup. So where do we expect is going to drive profit and growth for our shareholders in the future? We are working significantly to create a new pipeline of profit-generating projects. So basically drive our projects to the right time where we will then receive upfront payments, milestones, some cost sharing maybe in development if the product is not approved and also royalty after commercialization. We're looking at partnership where we reduce risk by getting cost coverage by partners. And also in the end, when the product are then launched, we will take a royalty on the basis of the long IP that we can contribute with. And then I think it's important also when we look at risk to decrease risk in our pipeline, also to expand our collaborations with industry experts in academia, and that's something we've done for both the GLP-1 agonist, semaglutide, where we're working with some industry experts and also in vaccines where we have some both academia and industry experts coming in as adviser. We then have to work on our science base, creating scientific proof points, reaching the time when we can have value inflection. And the ones that are closest now, we believe, are OX390 in-vivo data showing that we actually have a product that can work -- that works with a nasal delivery of the product. 640, really important project to show bioavailability in allergic patients on the nasal allergy challenge scheduled to start in Q4, IZIPRY, resubmission in Q3. And then, of course, that we -- as we expand our exploratory projects in GLP-1 and in vaccines that we can show relevant in-vivo data that this actually works. So that's something you can expect and should look for during this year. Then we need to look at the situation we have right now in the organization, ensuring we have the right competencies to support our strategic focus, and this is a process that is ongoing right now. But we also need to ensure that we are downsizing where we don't need expenses, and we are adjusting our fixed expenses. And one example there is both of the Swedish and the U.S. operations will move to a more fit-for-purpose and cheaper location during this year. So overall, I think there's a lot of work that we need to do across the company that we can optimize and reduce expenses and make it a little easier to work compared to being in the commercial stage we were in before. Finally, I'll just remind that we are now -- we have sent out a save the date for an Orexo R&D date where we will have guest speakers, we will have our colleagues from the U.S., and we will talk a little more into the details of our pipeline work, and that is scheduled for March 24, and the detailed agenda will come out a little later. With that, I will open up for questions and answers. Operator: [Operator Instructions] The next question comes from Klas Palin from DNB Carnegie. Klas Palin: The first one is related to the balance sheet items. And if you could just help me out a little bit about the current assets and liabilities, you have quite significant receivables outstanding, and you also have account payables provisions. If you just could help me out what to expect from this going forward? Frederik Jarrsten: Yes. So we did an asset sale, and that we still have the balance sheet reflecting the assets prior to closing. So the balance sheet shows, obviously, accounts receivables and accounts payables and provisions all related to what has happened before closing. And that will sort of ease out of the balance sheet, if you will, as time passes here. So I mean, we believe that we have the correct provisions to cover all the obligations according to the purchase agreement. And then we have what we have in accounts receivables and payables. Nikolaj Sørensen: I think the accounts receivables -- it's basically most of the products that we sold during Q4 have not been paid for yet. So we're looking at, I think, 45 average payment terms. So I mean most of the inventory buildup were in the last month, so that will complete during the quarter. The earn-out is in the receivables also. So that's in there. And the rebate payments, again, rebate payments for most of all of Q4 are not being paid. So they will come now in this quarter. We also have, of course, some rebate payments as we talked about before, some of them come very late. So we are making best of provisions for the rebate payments again for products sold before. Since there was a build-up also in the inventory, we agreed with Dexcel that we will pay some of the rebates for January because most of the products sold in January will be from Orexo. And then over time, there is a kind of our products have a 5-year shelf life. So there will be returns associated with the products basically for the lifetime of the product, then we expect that to decline over time. But of course, that can -- that will be products, and we can quite easily follow what product has been sold before December 31 and what product has been sold after December 31. So that's why you also see the provisions, and there, we have taken a relatively conservative approach to rather make a provision today than being surprised by unexpected payments a little later in the process. Klas Palin: And then just when it comes to the continued business that you're reporting and especially the R&D expenses for 2025, how should we think about these R&D expenses for 2026? Is it possible to give some sort of guidance? Nikolaj Sørensen: I think just -- it's an interesting question, and we have discussed that a lot internally because we normally have a decent guidance on our expenses. The thing is, our fixed expenses, salaries and facilities is not particularly high. And of course, it's costs having 55 people in Sweden. But it's -- the big cost driver is really associated when we decide to run a clinical trial or when are we upscaling our commercial manufacturing. So it's triggered by that kind of events and we will look into how we're going to face that. And now when we have passed the transaction, which has changed the conditions, it now is possible for us to make a much more accelerated approach to our development than it was before the 31st of December. And I must admit that we have not done that time line and planning, but we'll have a discussion internally how we can guide in some shape or form moving forward. But it won't be an exact guidance because a lot of it is really depending on are we starting a clinical trial that is going to make a big difference if it's coming in Q4 or if it's coming in Q1. Right now, the plan is to run one clinical trial in Q4, which is going to some money. So I will have to come back on that, Klas. Klas Palin: And then just the last question, maybe you -- I missed this out. But did you say when you expect an approval of the new manufacturing process for Europe? Nikolaj Sørensen: So this is sitting with Accord, and I believe we're expecting it now during the early spring. Operator: The next question comes from Samir Devani from Rx Securities. Samir Devani: I'm not sure where to start. Maybe IZIPRY, when you did the deal with Dexcel, did you have any discussion about them potentially having a license to IZIPRY or any of your other opioid use disorder programs? Nikolaj Sørensen: We did have a discussion with Dexcel and also with other companies. There were other companies that were more keen on IZIPRY, but they wanted that together with ZUBSOLV. And the value of the 2 combined was not competitive with Dexcel's offer. But Dexcel, in turn, I think, they wanted to have a foundation in their sales where they can add some of their own branded products. And I know that they're also looking to strengthen the commercial portfolio. And I think that when they looked at the target for IZIPRY, it wasn't matching the pipeline of projects that they have. So they decided not to move on IZIPRY. Samir Devani: Okay. And so then obviously, you've updated the sort of timeline for FDA refile. What would be your best guess now in terms of partnering IZIPRY? Is this going to be, you think, an event this year or maybe next year now? Nikolaj Sørensen: We will start the process now when we -- I think we will -- just to avoid any further surprises, we will want to see that we have all the data needed for FDA in the autumn, and then we will intensify the efforts to see what we can do with IZIPRY. And that will be a big focus on the U.S. market. So the approval is expected. It depends a little on FDA, of course, but the approval is now expected in early 2027, and that's, of course, also would be perfect to have a partner in place at that time. Samir Devani: And just going back to the guidance, and I hear what you're saying about the difficulty in predicting clinical trial start-ups. But I think I just want to confirm that I think previously, you talked about post the Dexcel deal, you've got a runway of at least 2 years. Is that still the case in your current thinking? And also, you mentioned 55 people now in Sweden post the deal. How many are remaining in the U.S. office? Nikolaj Sørensen: Long term in the U.S., it's going to be a handful of people. So 5 people is the ambition. And then in Sweden, we will see in Sweden, it depends a little on the -- so we're using a lot of consultants, and it depends on kind of we -- I could rather want to have employees, but then we need to see that there's a continuous workload that motivates that. So we would also in Sweden need to look at the mix of competencies, so there could be a need for strengthening up some areas and then maybe other areas, we would have less need for the current resources, and we're looking at that. And if you look at the runway, I think it's -- we have -- right now, we are well capitalized, and we have the money needed to run the current projects unless something else happens. So it's really about a prioritization. Do we want to run -- if we are taking one more project in, then we need -- we will have a shorter run rate. If we are taking in a partner in an earlier stage, which is the ambition for our development programs, then we will have a longer runway. Of course, it could be indefinite depending on what kind of partnership that we could end up with. So the ambition is, of course, during the next 2 years is to partner and get both more cost coverage in our existing capacity, but also with the projects we have to get someone in and support the development program with rights to one or more regions. But if you just take no other income, no other deals coming in, and then I think you -- and no other unexpected surprises, I think your runway is probably accurate. Samir Devani: And then maybe just one final question, just maybe for Fredrik on the -- you mentioned about there was still some restructuring costs to be borne in 2026. I'm assuming -- are these outside the provisions you've already taken? Or maybe just help me just what would be the cash restructuring costs this year? Frederik Jarrsten: So going forward, we obviously have these restructuring costs. We expect them to -- for the whole transition period basically. But we -- and I mentioned that we will have some or maybe the main part of them already in Q1 related to the organization of facilities in the U.S. mostly. But then those will sort of come during basically the whole transition period other than that Q1. Nikolaj Sørensen: I think, Samir, one of the things or another thing is sort of, we closed the deal on December 31, and I can tell you on December 22 it was not -- I wouldn't have betted that we could make it until December 31. So it was a lot of work in the last week of the year. But that also meant that when we actually did the first wave of adjusting the organization in the U.S. that was communicated now during January and the first wave of colleagues in the U.S. have left the company by end of January. There will be some leaving also here in February. And of course, those expenses will be -- we will take provisions for those restructuring expenses when they come, and therefore, they come in Q1 rather than being together with the transaction. Thank you. Let me see if we have any written questions. We have -- we have a question here around whether we have any ongoing partner discussions for OX640. Do you see any interest from companies to be the seller of IZIPRY? So 640, we do have a discussion that some of the companies that we discussed it before was quite concerned about our financial capabilities to ensure we could support the full development program with the deal with ZUBSOLV that is helping. I also think the market for neffy, at least the latest data we saw was in Q3, was positive. In the U.S., we have seen one competitor, actually now was delayed. It wasn't a film. We got a CRL just in the week we have. So I think the competitive situation is probably looking somewhat better. And there are -- none of the partners that we have had in discussions, except for one, because they went another way, have gone. So I think there are opportunities to go back. But I also think from an Orexo perspective, there's a lot of value for us to take this one more step because we're taking away a lot of uncertainty. The clinical trial that we're doing now will be the first on commercially manufactured product. It will be the first with the final formulation also. So there's, of course, a value and exponential value add of getting more data and the proof-of-concept, which many other companies, and significantly bigger companies than those we have discussed specifically with, would want to see that we have more final clinical data, which is what we will get with the study in Q4. So there's a balancing act here, but there is some interest definitely. And for IZIPRY, I think it's -- we'll see that market has been in a lot of dynamics. But of course, again, with just the recent announcement from the White House, I believe that was yesterday, about the need for strengthening the efforts to address the consequences of the opioid addiction. I think there is a strong need for IZIPRY. It will be one of the strongest alternatives to reverse overdose with fentanyl. And I think it deserves a spot in the market, even though there are some lower dose and less strong alternatives in the market. But that one, we haven't really done any partnering with during this year because we want to be sure we have a timeline that works out, and we want to see that we can deliver on the reliability data asked from the FDA, which we feel quite comfortable with, but IZIPRY has unfortunately been delayed a couple of times. So now we want to get a little more certainty. And I can see with that I will close the Q&A. And thank you for your attention and look forward to talk to you again in about a quarter's time, if not before that. Thank you. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Nikolaj Sørensen: Thank you and goodbye.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Canada Goose Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ana Raman, Vice President, Investor Relations. Ana, you may begin. Ana Raman: Good morning, everyone, and thank you for joining us today on the Canada Goose Q3 Fiscal 2026 Earnings Call. Today, you'll hear from Dani Reiss, our Chairman and CEO; Neil Bowden, Chief Financial Officer; Carrie Baker, President of Brand and Commercial; and Beth Clymer, President, Chief Operating Officer. We'll start with prepared remarks from Dani and Neil and then open up the call for questions. Today's presentation will contain forward-looking statements that are based on assumptions and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements, except as required by law. You can read about these assumptions, risks and uncertainties in our press release issued this morning and our filings with U.S. and Canadian regulators. These documents are also available on the Investor Relations section of our website. We report in Canadian dollars, so the amounts discussed today are in Canadian dollars unless otherwise indicated. Please note, the financial results described on today's call will compare third quarter results ended December 28, 2025, with the same period ended December 29, 2024, and stated percent changes are in constant currency, unless otherwise noted. Lastly, our commentary today will also include certain non-IFRS financial measures, which are reconciled at the end of our earnings press release. With that, I'll turn the call over to Dani. Dani Reiss: Thanks, Ana, and good morning. At the start of fiscal 2026, we made a deliberate decision to invest ahead of demand. We did that to unlock long-term potential by expanding product relevance, strengthening brand equity and building the channel and geographic foundations we need for long-term growth. Those choices contributed meaningfully to our top line in Q3, which you can see clearly in our DTC business, where we delivered our fourth consecutive quarter of positive comparable sales growth. This is tangible proof that these strategic investments are fueling sustainable top line growth. We delivered strong revenue growth across channels and regions in our most impactful quarter, reflecting the momentum building behind the brand and the high level of execution across the whole company. These results also reinforce the consistency of the levers we are activating through our intentional investments driving traffic and conversion and evolving product mix. While we are pleased with the top line performance and our brand momentum, our adjusted EBIT margin contracted meaningfully. Neil will walk you through the drivers behind the margin movement and actions underway to rebuild profitability. We have made real progress in reducing corporate overhead in recent years, but Q3 showed that we have more work to do. I am committed to returning Canada Goose to margin expansion, and I'm confident in our ability to do so in fiscal '27. To be clear, delivering strong and sustainable profitability is my top priority for our organization. The best indicator of our long-term trajectory is our progress against the 4 operating imperatives we set out at the start of the year, and here's where we stand. First, expanding our product to enhance year-round relevance. In Q3, our expanded year-round assortment continued to resonate with consumers. Lighter-weight styles drove growth while down-filled outerwear remains a clear market leader in warmth, posting solid gains. Styles featuring newer fabrics like EnduraLuxe and Wool did exactly what we intended, elevating design, performance and consumer response. Newness, both in the form of new styles like our bomber jackets and new fabrics and colorways in core silhouettes performed strongly. Revenue from newness doubled year-over-year, driving high unit sales velocity across lighter weight styles, including our apparel assortment and Snow Goose collection designed by Haider Ackermann. Snow Goose also serves as a halo for the main collection and led to brand equity enhancement across the line. This broader offering contributed to a lift in both store traffic and conversion. Consumers aren't just responding to new styles and fabrications, they're responding to the elevated design direction we brought to the line this year. That's central to our long-term goal of growth in all seasons, building lasting relationships with customers and leveraging the brand's economic strength. We're very encouraged by this momentum and are progressing well with our Spring/Summer '26 collection and upcoming campaigns, which will now start to feature greater design oversight from [ here ]. Second, building brand heat through focused marketing investments. In Q3, our marketing investments delivered a clear commercial impact. We increased visibility and cultural relevance through global campaigns and high-value activations over 3 key marketing moments, the launch of our fall/winter '25 and Snow Goose collections and our holiday season campaign. This integrated approach drove higher quality traffic across retail and digital channels globally and supported the top line performance we delivered. Brand desire, brand momentum and social media velocity all moved in the right direction, supported by the intentional shift we made towards upper funnel investment this year. Brand desire exceeded our competitive benchmark in our key focus markets, especially Mainland China, with both paid and nonpaid reach as well as [indiscernible], outperforming targets. At the same time, lower funnel efficiency strengthened significantly. Despite a planned reduction in lower funnel spend, we saw a year-over-year increase in repeat customers and delivered higher return on ad spend, reinforcing brand heat and conversion. Together, this shows that our marketing strategy is working as designed, building brand heat for the long term while maintaining disciplined efficiency in the lower funnel. We intend to continue our planned brand investments through the remainder of this fiscal year and build on our success to date, starting with our second winter Snow Goose [ drop ], which launched in mid-January. As we do, we're sharpening marketing efficiency and measurement. We're tightening our media mix for more scalable impact, improving targeting and increasing alignment of our measurement architecture across the entire organization in order to achieve greater capital allocation discipline. Third, driving business expansion through strategic channel development. I'll first address our direct-to-consumer channel. Direct-to-consumer revenue grew 13% in the third quarter with comparable sales up 6% over last year. North America and Asia Pacific delivered double-digit growth. In Mainland China, our teams drove high conversion through the quarter, proof of both brand strength and strong retail execution. In Europe, we elevated key flagships, including the strategic relocation of our Milan store in the quarter, which has stronger adjacencies and with that is seeing higher traffic quality. We continue to refine our retail network across other key regions in the third quarter, opening 2 stores in China and a new store in Chicago. Operationally, the teams delivered outstanding service and stronger visual merchandising. Our inventory was well positioned across channels, and we responded quickly to the demand signals we saw through the fall, adjusting buys and production to meet that strength. While we had pockets of sold-out styles, that scarcity is part of what has always made our brand powerful. This has been a meaningful step forward in how we manage inventory with more disciplined planning and faster response across the business. Online improvements in discovery, navigation, speed and storytelling all contributed to stronger engagement and lower return rates across most regions. In our Wholesale channel, revenue grew 14% in the third quarter, largely due to shipments shifting from Q2 to Q3 and incremental in-season demand. We also saw improved sell-through of our fall/winter collection, supporting positive sales trends in the quarter. Our disciplined approach remains consistent, brand aligned partners, clean channel inventory and product newness, all contributing to healthy order books for both spring and fall '26 that reflect stronger demand for our year-round assortment. Wholesale continues to play a strategic role in brand elevation and control distribution, and we are pleased with our progress here in fiscal 2026. And fourth, operating efficiently with pace and accountability. In fiscal '26, we deliberately chose to invest in revenue-driving areas. These choices strengthen demand, but we did not strike the balance right with margin, and that showed up as cost inflation across parts of the business. Q3 made that clear. SG&A grew ahead of revenue and labor costs ran above productivity. We now sharpen our focus on leverage. Importantly, we've driven a second consecutive year of leverage in corporate overhead costs, reversing what had previously been a source of margin decline. This improvement reflects both tighter cost discipline and strong revenue growth, and it gives us a solid foundation to build from. We're also embedding greater operating discipline across the company and continue to evolve our leadership team to ensure we are fit for purpose. In closing, the third quarter demonstrated the strength of our brand and progress of our strategy. We remain focused on executing with precision, improving profitability and driving sustainable long-term growth. Thank you to our teams for everything you put into this peak season. Your passion, resilience and commitment move this company forward every single day. I'll pass it to Neil to provide our third quarter financial update. Neil Bowden: Thanks, Dani, and good morning. First, I'll cover the details of our third quarter performance and then outline the concrete actions underway to deliver operating margin expansion over the long term. Revenue for the third quarter increased 13% year-over-year to $695 million, led by strong growth in both DTC and Wholesale in North America and Asia Pacific. Turning to channel performance. DTC revenue increased 13%, supported by double-digit growth in North America and Asia Pacific. Comparable sales grew 6%, marking the fourth consecutive quarter of positive comps with contributions from both stores and e-commerce channels. Sales were strong across all major product categories. Wholesale revenue increased 14% in Q3, with revenue up 3% on a year-to-date basis over the same period last year, ahead of our expectations, supported by elevated brand positioning with our partners, well-managed inventory levels and healthier demand for our year-round assortment. Revenue in our other channel was $15 million, roughly flat versus $14 million a year ago. Moving to regional trends. In North America, revenue grew 20%. Comparable sales increased in the high single digits, supported by strong traffic in both Canada and the U.S. and conversion improvement. Retail execution was sharper this quarter, underpinned by staffing investments and improved inventory positioning. E-commerce also contributed to positive DTC performance, benefiting from solid traffic trends throughout the quarter. Wholesale benefited from shipment timing and incremental orders and other channel performance was also positive, albeit minimal in the quarter. In APAC, revenue increased 12%, led by strong DTC performance and high single-digit comp growth driven by exceptional volume. Mainland China was the largest contributor with robust consumer demand, strong e-commerce momentum on Douyin and Tmall and conversion gains in several key stores. In EMEA, revenue declined 3% year-over-year, reflecting continued softness in the U.K. consumer environment. Continental Europe performed comparatively better as our newly relocated Paris and Milan stores ramp up their activity. Comparable sales decreased mainly due to lower tourist traffic, most pronounced in the U.K. despite healthier trends in several European locations. Wholesale was softer due to planned shipment phasing that pushed more deliveries into different periods versus last year. Our focus in EMEA remains on improving conversion, tightening digital execution and sharpening marketing effectiveness to mitigate ongoing macro headwinds. Moving down the income statement, let's turn to gross profit. In Q3, gross profit grew in line with revenue and gross margin declined 40 basis points year-over-year. The primary driver was product mix. While customer demand for down-filled outerwear was strong this quarter, non-down-filled outerwear grew faster, putting pressure on overall margin. This is consistent with our strategy to expand year-round assortment. This was partially offset by a favorable channel mix with another quarter of positive DTC comp growth. While this product mix shift weighed on DTC channel margin, it supported margin in our Wholesale business as we build demand for our expanded offering with wholesale partners. Moving to SG&A. SG&A increased by $66 million to $314 million or 45% of revenue, up 450 basis points year-over-year. Two discrete items accounted for $24 million of this increase. First, a $15 million onetime bad debt provision related to a U.S. wholesale partner and a $9 million foreign exchange gain in fiscal '25 that does not recur this year. Planned marketing investments represented a further $13 million of the increase year-over-year. Outside of these items, we continue to generate leverage in our corporate cost base through disciplined headcount management and tight control over discretionary spending. Operating margin compression in our DTC channel came from both gross margin decline and SG&A investments to fuel growth. Our Wholesale channel operating margin increased year-over-year, excluding the bad debt provision. In DTC, we absorbed the planned run rate impact of new stores and relocations coming online, but the larger issue was store labor productivity during the quarter. In months of exceptionally strong traffic and revenue, we maintained labor levels that were higher than required to support demand, and this dynamic drove SG&A deleverage in DTC. Taken together, the gross margin dynamics and SG&A profile flowed through impacting our adjusted EBIT. Q3 adjusted EBIT was $204 million. This translated to an adjusted EBIT margin of 29.3%, 450 basis points lower than the previous year for the reasons I've covered. Adjusted EBIT excluded $3.5 million in earn-out costs related to the acquisition of our European manufacturer. This is the last quarter in which we'll have the earn-out related charges. Adjusted net income attributable to shareholders was $142 million or $1.43 per diluted share compared to $148 million or $1.51 per diluted share last year. We ended the quarter with a strong balance sheet. Inventory of $409 million remained relatively flat year-over-year despite strong sales growth, reflecting strong demand and tighter inventory management with turns improving to 1.1x, up 16% from last year. Net debt fell to $413 million from $546 million in Q3 last year, mainly due to disciplined working capital management, cash generated from operating activities in recent quarters and lower borrowings from our credit facilities compared to the prior year. We allocated more capital to new store builds in Q3, reflected in higher expenditures in the quarter over last year. As we look ahead, we're taking decisive steps to realign our cost base with the level of rigor our growth now demands. We've defined a clear set of actions already underway, and we expect these initiatives to support meaningful margin expansion in fiscal '27. Our first group of actions is about operating more efficiently. We've already started to make changes in the way we manage store labor, tightening our models to become more agile and drive higher labor productivity. These changes were implemented in Asia Pacific in mid-December and rolled out across the rest of the regions in January. While the financial impact will be immaterial in fiscal '26, ensuring that store payroll aligns with expected conversion outcomes is the clear path forward to creating leverage in the DTC channel. Next, we're improving marketing efficiency with the intent to reduce marketing as a percentage of revenue in fiscal '27. We will continue to invest to drive in-quarter demand and sustain brand momentum and expect to apply this year's learnings on channel mix, funnel allocation and working dollar effectiveness to our fiscal '27 plans. We are fully committed to delivering on our operating imperative and a key part of that is driving more efficiency and getting greater returns from every dollar we invest in marketing. Spending in the fourth quarter is expected to be lower than last year as a percentage of revenue, reflecting a more balanced cadence throughout this fiscal year versus the back half heavy investment last year. We will also continue our disciplined focus on minimal corporate expense growth, including headcount and discretionary spend. Our second area of focus is the optimization of our retail network. We continue to evaluate our store footprint to ensure every location supports our target brand and margin profile. Even with 4 consecutive quarters of positive comp growth, we see opportunities to further strengthen the economics of our retail network. To be clear, we will open new stores in fiscal ' 27 and the plans related to those locations are coming into focus. However, over the balance of this fiscal year, we are reviewing our entire network and expect to implement optimization initiatives in fiscal '27. Our third set of actions is centered around gross margin. This has had a modest positive contribution to EBIT margin so far this year even with limited price increases. Being vertically integrated is a core strength of the Canada Goose brand, offering several levers to expand gross margin over time, which has been evidenced in our historical performance going back many years. While there are always opportunities with sourcing and operational improvements, we have delivered cost efficiencies despite a changing product mix, which, as we have heard, has been key to our growth this year and will continue to anchor our product pillar. Finally, on pricing, we are planning to implement price changes across our markets and product assortment in early fiscal '27 as usual, which we expect will be a source of gross margin leverage. Lastly, our plan is to continue to deliver durable broad-based revenue growth as the primary driver of margin expansion. January performance remains strong, and we expect this momentum to continue with Lunar New Year shopping occurring later in the quarter versus last year. As we move into Q4 and beyond, our priorities are clear: balance the strong revenue growth we have seen in fiscal '26 with a level of investment that delivers operating margin expansion beginning in fiscal '27. Before closing, I want to say thank you to our teams. Our peak season, of which Q3 is the most important period is our most anticipated time of the year. The work you delivered in our stores, our factories and across our business shows up clearly in these results. Let's now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Oliver Chen with TD Cowen. Oliver Chen: As we look at your DTC progress, what was the complexion like for traffic relative to conversion and any callouts? Also on all the progress you're making on non-parka as well, I would love your thoughts on catalysts ahead there and also the things we should note on the margin contributions to that. And then finally, Greater China and the focus on that region, how have trends been in terms of sequential improvement and run rates that you're seeing with that volatile market? Carrie Baker: Oliver, thanks for all of your questions. I'm going to try to remember them all. First one was on traffic and conversion in DTC. So as you talked about, we made a specific investment in labor investment in those stores, and we saw that deliver. And so global store conversions has trended higher now for 4 consecutive quarters. We're seeing that being led by APAC and North America. So EMEA conversion lagged a little bit. But as we talked about, lots of initiatives underway to improve that and mitigate sort of the broader macro pressures that we see mostly in the U.K. So in e-com, we also saw strong traffic. And again, this was a direct result of the investment that we made in marketing. The job in marketing was to drive brand heat, bring back some momentum, make sure that people are seeing the new products and just showing up in a bolder way. And so that did drive the traffic. So that investment is paying off. So we're very happy with the traffic we're seeing, conversion improving, and we want to see that continue into the Q4 and beyond. In terms of products, so non-parka, we heard Neil talk about how we are making great progress with expanding our assortment being more relevant 360 days of the year. And so we saw more growth in our other categories, so non-heavyweight down. We still see meaningful growth. We saw really strong response to newness, whether that's actually new styles in some of our core categories or newness, meaning our classic bombers, our classic bestsellers in new fabrications, new colorways. So we really -- I'm very happy with the response that we saw in both of those. But the intention is to make sure that we have a product assortment that is relevant outside of just Q3, and that's what we're doing. That's what we're seeing. And from -- okay, Greater China, that was the other one that you asked about. So we're seeing -- that's one of our strongest markets. When you look at the investment that we've been making for a number of years, what we look at when we see -- when we look at the competitive set, how we're doing relative to that, we are seeing demand very strong. So the performance in Mainland China specifically continues to perform well. We see strong digital momentum. We see healthy store performance. That's both better traffic, improving conversion and again, that really strong response to our newness. So very happy with what we're seeing there. The shift, I think, in terms of Lunar New Year, we saw a bit of a shift of demand out of December and closer and moving into Q4. And so we've started to see that pick up. And as we get closer and closer to the Lunar New Year holiday, we expect that to continue. Beth Clymer: Oliver, there was a part of your question we struggled to hear a bit. Can you repeat that one for us? Dani Reiss: If there was any aspect of your question, I... Operator: Pardon the interruption. He has disconnected. Your next question comes from the line of Rick Patel with Raymond James. Suraj Malhotra: This is Suraj Malhotra on for Rick Patel. So how would you describe the level of newness in stores right now? Specifically, what share of today's floor set is new, year-round relevant product versus core product? And looking ahead, are you comfortable with where the assortment and merchandising sits today? Or do you plan to increase the mix of newness to drive more year-round relevance? Carrie Baker: Thanks, Suraj. So we're really happy with the assortment. So I'll kind of repeat what was said in some of the remarks that expanding product relevance, that is working. And so the newness, lighter weight, year-round categories, they all outperformed heavyweight down, but that shift is intentional. And so in terms of newness, the newness performance revenue doubled year-over-year. And so that's intentional. We want to bring newness to the floor. We want to be able to drive repeat visitors, bring people back to see something new. And the commentary around newness, I just want to make clear, newness, we see that as it needs to resonate as newness to the consumer. It doesn't necessarily mean we're introducing a ton of new styles. It means we're animating some of our best sellers, which I just talked about. So that is working. The response to -- people love the Chilliwack. We've had that in our product line for 20 years, but now they get it in a new fabric. Now they get it in a new puffer version. And so that is working. So I would say the balance in terms of what we're putting in store and online is a mix of that. How do we make sure that people that know and think about Canada use for protection, for work, can come into a store and get what they need as well as, "Wow, I'm surprised by something that I never knew we offered." So apparel, our everyday, our rain categories, all of our major categories are growing. And so we're really pleased with that response, and we expect that to continue. We're watching it carefully. Obviously, we don't want to get over skewed. We don't want to have a too big an assortment for the size of our offering -- our stores. But right now, we're feeling very comfortable with that mix. Operator: Your next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: Neil, helpful commentary on some of the margin initiatives you're kicking off here. I guess bigger picture stepping back, I think at one point, the discussion was around 50% plus incremental margin on DTC revenue recovery. So maybe just a broader postmortem, what's gone differently? And how quickly can you address some of the issues today on the operating margin, especially since there's 3 quarters ahead of lower seasonal sales volumes here, which typically have been tough to show progress? Beth Clymer: Jon, this is Beth. I'll take that one. Thanks for your question. I guess if we step back, it's worth framing the margin journey we've been on over the past 2 years, right? Priority #1, Phase 1 of that journey was to rightsize corporate costs. We did that, that is sustaining and is serving now for the second year in a row is really nice source of leverage. Second, driving sustained positive comps, reinvigorating that brand heat and excitement through those first 3 operating imperatives around product and marketing and D2C execution. And then third, leveraging that strength to drive meaningful margin improvement, right? Those are the 3 steps. We've achieved step 1. This year is the year we are excited to be able to say we have decisively achieved step 2. We've delivered our fourth straight quarter of positive comps. We've got really nice positive indicators in terms of sell-through new products, like you just heard from Carrie, brand heat measures like you heard from Dani in our opening remarks. So we feel that we've really got step 2 locked. Now the focus can shift to step 3. We're not done with step 3, right? So your question around the incremental profit flow-through of D2C growth, that's what comes in step 3. And so the margin results this year, I think, are helpful to see in that context. So this year, obviously, this quarter, in particular, we saw some unusual margin compression from some of these discrete nonrecurring items. Those make up 2/3 of the SG&A margin compression in the quarter. So very material. When you put those aside, we did still compress margin, SG&A as a percent of revenue by 150 basis points. But that is all the margin initiatives you heard from Neil in our opening remarks are all about improving that, driving store cost efficiency, marketing efficiency, sustaining the corporate cost leverage, getting gross margin, those are the things that will get us back towards that really attractive D2C flow-through that you described. There's nothing fundamental to our economic model that doesn't make that level of flow-through possible. But part of the reason you didn't see us achieve it yet in this quarter was that investment in the things to accomplish step 2 and really drive that sustainable positive comp growth. Jonathan Komp: Okay. I appreciate that. And then just as a follow-up around the practice for guidance here. I think part of the issue for the December quarter is it's hard to model out some of the discrete issues without more clarity. So just any thoughts still on not providing any forward visibility? And specifically on the level of margin expansion for fiscal 2027, it would be very helpful to give some context around that comment in terms of quantifying the opportunity? Neil Bowden: Sure. Yes. I mean, Jon, I think, obviously, we're just about through the end of this fiscal year. I'll give a bit of direction on what we're looking at for performance to date in Q4. As we usually do when we get to the end of the fiscal, we'll talk about what our plans are for fiscal '27. And at that time, look to give some more color and just have to stay patient for at least one more quarter. Operator: Your next question comes from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Can you help contextualize the relative contribution you expect to see from each of the 3 focus areas for operating margin into fiscal '27? What gives you confidence that you can maintain the strong top line comp and conversion momentum that you've achieved this year as you start to adjust the labor model and reduce marketing spend? Beth Clymer: Thanks for the question, Brooke. The investments we made this year and last year are investments that we believe when we made them, and we still believe now that we are seeing their impact are investments that will fuel growth in the short, medium and long term. So for example, this year, our marketing investments were very focused in the top of funnel. Changing how we show up to the consumers, changing where we show up to the consumers, the message that -- those aren't investments that pay back in the month or even in the quarter of the year. Those are investments that are changing the hearts and minds of consumers and pay back over time. And so that gives us -- and some of those are onetime investments that are repositioning, how product photography shows up, things like that. So we can pull back those investments without actually changing the frequency at which our media shows up in front of consumers, et cetera. And so there are -- because the nature of these investments were medium and long-term payback, that means that we can begin to get some leverage on them without impacting growth. And in fact, the impact of those investments will build. Same thing is true in store labor. A lot of our store labor investment this year, yes, was more staffing in critical time periods than peak, but it was also more labor in the stores in June, July, August, September so that the store brand ambassadors were trained up. That training bear fruit next year and the year after. And so these are investments that were incremental to the P&L this year, but are normal course and effect, sources of leverage as the effectiveness of them build. And so that's how we get comfortable with that. It's not like all of our incremental investment this year was a whole bunch of paid media to drive in-month conversion, right? It was much more strategic substantive focus on brand relevance, which is what gives us confidence that we can moderate those and have it become a source of leverage while simultaneously driving the top line growth. In terms of relative contribution, there's massive opportunity in all of these. And so our focus is across all of them. I think it would be premature to comment on which one might contribute more or less or faster or slower. But we have -- we believe we have real opportunity in each of these areas. And more importantly, we believe we have the plans to execute and drive margin improvement in all 3 of those focus areas. Operator: That concludes our question-and-answer session. I will now hand it back over to the management for closing comments. Ana Raman: So thanks, everyone, for joining us today, and please reach out to Investor Relations if you do have further questions. We'll close the call with that. Thank you. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Chuck Triano, Senior Vice President and Head of Investor Relations. Please go ahead. Chuck Triano: Thank you and good morning everyone. We appreciate you joining our fourth quarter 2025 earnings call. With me this morning with prepared remarks are Christopher Boerner, our board chair and chief executive officer, and David Elkins, our chief financial officer. Also participating in today's call is Adam Lenkowsky, our chief commercialization officer, and Cristian Massacesi, our chief medical officer and head of global drug development. Earlier this morning, we posted our quarterly slide presentation to bms.com that you can use to follow along with Christopher Boerner and David Elkins' remarks. Before we get started, I'll remind everybody that during this call, we will make statements about the company's future plans and prospects that constitute forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the company's SEC filings. These forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any future date, and we specifically disclaim any obligation to update forward-looking statements even if our estimates change. We'll also focus our comments on our non-GAAP financial measures, which are adjusted to exclude certain specified items. Reconciliations of certain non-GAAP financial measures to the most comparable GAAP measures are available at bms.com. Finally, unless otherwise stated, all comparisons are made from the same period in 2024, and sales growth rates will be discussed on an underlying basis, which excludes the impact of foreign exchange. All references to our P&L are on a non-GAAP basis. And with that, I'll hand it over to Christopher Boerner. Thanks, Chuck. Welcome, and thank you for joining us this morning. Christopher Boerner: 2025 was a year of focused execution across the business. We believe our results further demonstrate the ongoing strength in our growth portfolio as we advance our multiyear plan to rewire Bristol-Myers Squibb Company for long-term growth. These efforts enabled us to enter 2026 with good momentum. Let me start by highlighting our recent progress on slide four. We closed the year with strong fourth-quarter performance. Our growth portfolio grew 15% year over year in Q4 and 17% for the full year. In terms of building out breadth, with newer products, Opdualag, Breyanzi, and Camzyos each contributed over $1 billion in sales for the full year, while Reblozyl delivered over $2 billion. These are differentiated durable products early in their life cycles with meaningful runway ahead that further strengthen the foundation for long-term growth. And on a full-year basis, it is worth pointing out that despite a decline of roughly $4 billion in revenue from our legacy portfolio, the growth portfolio nearly offset all of that. CoBinfy and Qvantik also continued to progress well and in line with our expectations. With CoBinfy, we saw steady growth as we expanded access and deepened adoption across community and hospital settings. And we expect this steady growth to continue throughout the year. Qvantik continued to receive positive early feedback from users with improved practice efficiency and patient preferences as the main drivers. David Elkins will provide more detail on our portfolio's performance shortly. Turning to recent clinical and regulatory highlights. In December, Breyanzi received FDA approval as the first and only CAR T cell therapy for adults with relapsed or refractory marginal zone lymphoma. It is now approved across five cancer types, strengthening its leadership position among CD19-directed CAR Ts. In December, with our partners at BioNTech, we also shared the first global phase two data for pemigatinib in locally advanced or metastatic triple-negative breast cancer. These data showed encouraging antitumor response and a manageable safety profile in both the first and second-line treatment settings. Triple-negative breast cancer remains an aggressive disease where there is an urgent need for new treatment options. And within the overall pemigatinib development partnership, we recently announced three additional planned studies resulting in eight registrational studies we expect to have underway by year-end. We are pleased to announce that two of these studies in non-small cell lung cancer are now initiating in unresectable stage three disease and in first-line high PD-L1 expression. We also just posted details regarding our global phase three study Break Free SSC for Zolacel, our CD19 CAR T, now initiating in patients with active systemic sclerosis. Finally, we very much look forward to the first oral data presentation of Nablometastat, a potential first-in-class PRMT5 inhibitor. This will be combination data in the pancreatic setting and will be showcased at the ESMO Targeted Anticancer Therapies Conference next month. These milestones reinforce the momentum of our pipeline with more readouts to come this year, which I'll talk about on slide five. As we shared last month, this is a data-rich period for 10 new medicines and over 30 meaningful launch opportunities by 2030. The increasing pace of pivotal readouts later this year will serve to better define the potential of our pipeline candidates. We are confident in our ability to deliver an attractive and durable growth profile heading into the next decade. The breadth and depth of these opportunities are illustrated on this slide. This year alone, we expect to report top-line registrational data for six potential new products. Nilvexin in both atrial fibrillation and secondary stroke prevention, admilparent in idiopathic pulmonary fibrosis, iberdomide, where we have already demonstrated a significant improvement in MRD negativity rates, mozignamide and arlocell in relapsed or refractory multiple myeloma, and raise one zero one in second line plus GAP nets. We also anticipate meaningful pivotal line extension readouts for SOTIC two and lupus and CoBINFI in Alzheimer's disease psychosis. Most of these readouts will occur in the second half of the year. And we have more data readouts coming beyond 2026. Together, these represent an attractive set of near-term catalysts that can meaningfully enhance the long-term growth profile of our current growth portfolio. We communicated at the start of last year that getting the long term right means executing well in the near and medium terms. As you can see from our results, we continue to deliver the organization in 2025. Maintaining this strong say-to-do ratio by delivering on our commitments has now been embedded in our culture and will continue to be core to how we operate. As you have seen in our financials, we delivered on our cost savings initiative in 2025 and we'll continue to expand the use of AI to help us move faster, operate leaner, and reinvest strategically in growth. Our financial strength continues to allow us to invest in our business and bring exciting science into the company through the pursuit of high-return business development. Our North Star remains to deliver industry-leading sustainable growth into the 2030s and beyond. Now let me give you a high-level overview of our 2026 guidance on Slide six, and David Elkins will speak to it in more detail shortly. We currently anticipate 2026 revenue in the range of $46 to $47.5 billion. This range reflects continued strong performance from our growth portfolio and a projected revenue decline for our legacy portfolio of between 12-16% given the ongoing LOE impacts. Within the legacy portfolio, we project Eliquis growth this year to be in the range of 10% to 15%. This is driven by continued global demand growth and the recent price reduction which expands patient access and eliminates the associated inflation penalty. We expect lower operating expenses compared to last year, due to our ongoing cost savings program. And we expect adjusted diluted earnings per share of between $6.05 and $6.35. With that, I'll turn it over to David Elkins. Thank you, Christopher Boerner, and good morning, everyone. David Elkins: I will begin my review of our 2025 financial results focusing on our fourth-quarter performance. I will follow up with the introduction of our non-GAAP financial guidance for 2026 and some considerations to help you better understand our financial outlook for this year. We had very strong commercial and financial performance in 2025, marked by focused execution on driving top-line growth and generating strong cash flow while strengthening our balance sheet and continuing to manage our cost structure. We've entered 2026 in a position of strength with a solid foundation, which we can continue to build upon to deliver on our long-term growth strategy. Starting with slide eight, total revenue in the fourth quarter was flat year over year at approximately $12.5 billion. Our growth portfolio continued its positive momentum, with revenue increasing 15% to $7.4 billion and representing close to 60% of our total revenue in the quarter. Key brands including Reblozyl, Breyanzi, Camzyos, and our IO portfolio all achieved significant growth and were further supported by our early launches of CoBinfy and Qvantik. Within the legacy portfolio, higher revenue from Eliquis was offset by the continued impact of increased generic volumes across several other brands. All in, we are very pleased with the results in the fourth quarter and the full year. As our growth portfolio performance continues to reshape and redefine Bristol-Myers Squibb Company as we strive to be one of the fastest-growing pharmaceutical companies into the next decade. Turning to product performance on slide nine, starting with oncology. Opdivo again delivered solid growth in the fourth quarter, with revenue up 7% to nearly $2.7 billion. This was driven by new indications and continued share growth within the first-line non-small cell lung cancer setting. Qvantik's launch continued to progress well with revenue of $133 million in the quarter. With Opdualag, delivered another quarter of strong double-digit growth, driven by demand in the U.S. where it remains a standard of care in first-line melanoma. Turning to slide 10. Reblozyl delivered 21% growth with performance reflecting solid uptake across first and second-line MDS-associated anemia patients. Over the past two years, we've delivered a very strong launch for Reblozyl. In cell therapy, Breyanzi's fourth-quarter revenue continued to show impressive growth with revenue up 47%, driven by its desirable profile and continued strong demand across its approved indications. We continue to be encouraged by Breyanzi's growth prospects into 2026. Moving to cardiovascular on slide 11. Eliquis delivered nearly $3.5 billion in fourth-quarter revenue, an increase of 6%. This was driven by demand growth and market share gains with U.S. revenue increasing 4%. Turning to Camzyos, revenue in the fourth quarter grew 57% to $353 million, benefiting from continued demand growth globally. In the U.S., we expanded the number of physicians who are prescribing the drug, and outside of the U.S., we have now launched in over 50 countries. Now moving to immunology. Global revenue of Sotyktu grew 3%. We look forward to our upcoming PDUFA date for psoriatic arthritis and our phase three readouts for lupus and Sjogren's disease. I will wrap up by reviewing our product performance for the quarter on slide 12 with neuroscience. CoBinfy revenue in the fourth quarter was $51 million, with continued steady uptake among prescribers and patients. CoBinfy's uptake has surpassed all schizophrenia comparators and relevant analogs in the first year of launch, and we continue to expect steady growth throughout the year. Let's move to the P&L on slide 13. As expected, gross margin declined 210 basis points in the fourth quarter to 71.9%, driven primarily by product mix, notably Eliquis and Revlimid. Regarding our operating expenses, we made significant progress during 2025 against our $2 billion strategic productivity initiative. As of the end of the fourth quarter, we delivered on a target of approximately $1 billion in savings in 2025, and are on track to realize the remaining billion dollars over 2026 and 2027. Excluding in-process R&D, operating expenses for the full year were $16.6 billion, a decrease of $1.2 billion from 2024. This reflects our ongoing cost savings program partially offset by continued investment behind growth initiatives. Our effective tax rate in the quarter was 22.1%, compared to 19.9% in the prior year. With the effective tax rate in 2025 reflecting the one-time non-tax deductible in-process R&D charge related to the Orbital acquisition. Overall, diluted earnings per share were $1.26 for the quarter, and full-year diluted earnings per share came in at $6.15. Both include a net charge related to in-process R&D and licensing income, which totaled 60¢ per share in the quarter and $1.40 for the full year. Now turning to the balance sheet and capital allocation highlights on slide 14. Our financial position remains strong with approximately $11 billion in cash equivalents and marketable securities as of 12/31/2025. We completed our targeted $10 billion of debt paydown ahead of schedule and generated strong cash flow from operations of approximately $2 billion in the fourth quarter. In terms of capital allocation, we continue to ensure we employ a strategic and balanced approach. Business development remains a top priority, while also returning cash to shareholders through our commitment to the dividend. Now let me walk you through our non-GAAP 2026 guidance on slide 15 starting with revenue. As Christopher Boerner mentioned earlier, we estimate revenue to be between $46 and $47.5 billion in 2026. We expect our gross margin to be between 69 to 70%. This reflects the impact of product mix, notably the combination of higher Eliquis and lower Revlimid and Pomalyst revenue. We expect total operating expenses to decline from 2025 levels to approximately $16.3 billion. Our cost savings program has provided us with the flexibility to increase commercial where appropriate and support newer development programs, such as our partnership on pemigatinib and our orbital therapeutics program. Even with these investments, we expect to reduce costs year over year. We are expecting our OI and E expense of approximately $700 million, which reflects the expiry of our royalty-bearing license of diabetes products at the end of 2025. We expect to maintain our tax rate of approximately 18%. Considering these factors, we expect to deliver non-GAAP earnings per share in the range of $6.05 to $6.35. Before closing, let me provide some insight regarding our expected quarterly progression of revenue for 2026. As it relates to quarterly phasing, we expect our typical sequential revenue decrease in the first quarter due to the seasonal inventory destocking we see each year following the build in the fourth quarter. And two points on Eliquis. First, anticipate that the second-half revenue will trend higher than the first half of the year. And second, in terms of Eliquis-specific updated guidance. We currently expect 2027 Eliquis sales compared to 2026 to show a step down in the range of $1.5 to $2 billion, which is broadly consistent with analysts' existing estimates. In closing, our strong performance in 2025 demonstrated our confidence in our ability to deliver long-term value for our patients and shareholders. We remain focused on executing our growth strategy, advancing our pipeline, and optimizing our cost structure. We look forward to updating you on multiple data readouts this year. And with that, now turn the call back over to Chuck Triano for Q&A. Chuck Triano: Thank you. Operator: We'll now begin the question and answer session. And today's first question comes from Seamus Fernandez with Guggenheim Securities. Please go ahead. Seamus Fernandez: Great. Thanks for the questions and congrats on the good quarter and the guide. Now that we're past the guidance, this is a question for the overall team, but know, it's been a long time since we've seen, as you know, an overall analyst community, a series of phase three pivotal catalysts that Bristol-Myers Squibb Company has ahead of it in 2026. Christopher Boerner, I know you counted six. There may be in addition to that, potential benefits from royalty agreements around sotatercept and cadence. Just wondering if you could help us position the areas that you see the most kind of relative upside. The CELMoDs are obviously something that Bristol-Myers Squibb Company has been working on for a very long time, and we're just on the cusp of seeing the material data. We've got Novexian and a very different approach that Bristol-Myers Squibb Company took to dosing in a recent publication that plays along those lines. To sort of explain that. Ed Milperant, I think, is an underappreciated story that was maybe negatively impacted by comparisons to a competitor asset. There's just a whole host of opportunities here that we see in the overall story this year. Hoping you might be able to help position some of those for us as we move through the balance of the year. Thanks so much. Christopher Boerner: Thanks for the question, Seamus. And agree with the overall sentiment. And maybe I will start and then I'll turn it over to Cristian Massacesi and Adam Lenkowsky and they can provide their perspectives. I think that when we look at what's particularly exciting for this year, I would highlight a few things. First of all, we've got good growth just in the products that we have on the market today and I think that growth is going to continue into this year. As you know, we have a slew of data readouts coming this year, now just a few months away. For six products. And when you look at the actual number of phase threes, we could have over 10 Phase three data readouts this year alone with more coming in '27 and then another big slew of them coming in 2028. The things that I think stand out for me, you've already mentioned them actually. The CELMoD program is beginning to bear fruit. We've already demonstrated PFS data for iverdemide. We'll see follow-up data on that with PFS this year. We've got admiral burn data coming. We've got the Melvexian data and I agree also with your assessment of that where you know, I think we'll see the SSP data from a competitor today. But as I look at our profile, I think we have the potential to be best in class there. And of course, in AFib, we have the potential to be the only factor eleven oral therapy there which is obviously a big opportunity. But maybe I'll ask Cristian Massacesi and Adam Lenkowsky to quickly add anything to that. Cristian Massacesi: So thank you, Christopher Boerner. Thank you, Seamus Fernandez for the question. Let me go a little bit more on the technical side because as you said, we have a very data-rich year. With 10 at least ten pivotal readouts I like to cluster them also in terms of area therapeutic areas. In hematology, I think you mentioned Excalidari, adeptomide, we will have the PFS. MRD is already readout positive. We can share the data because, of course, the PFS was coming. We wanted to preserve the integrity of the study. But we are very confident that what we have seen in MRD can translate also benefit in PFS. We will have the second cell monitor readout, MESI, and this is an add-on study. We had MEZI on top of KD versus KD. So considering the level of activity we have seen with this drug, I am confident on this first readout with the second CELMoD, a very important drug. And then we have also Arlocell. Arlocell is a Phase II registrational study. The Phase III is ongoing. In myeloma. In patient post BCMAs GPC5D CART. This is an entry with another card that is very, very relevant for us. So myeloma, rich here, I am very, very confident in what we have seen so far and what I'm expecting. Then we go into go as you said, Amiparantha. Amiparantha I'm very happy because what I have seen is Phase III conducting and enrolling patients that are very similar to what we have seen in two. And you remember in Phase II, had a very good reduction of the risk of decline of FVC. Sixty percent in IPF and more than seventy percent in So IPF is coming this year, is closer. Actually, we'd be very, very closer compared to what we guided before. So this is very exciting. Very high medical need. Maldexygen, I think Christopher Boerner already spoke about. Stroke has already been derisked in my view from the data we will see in few hours. There is no reason to believe that we will have a different, if not better, outcome. And the AFib, the confidence is all there. Then I would not underestimate that program. The Adept program is coming by the end of the year as we guided. We are on track. All of this is moving at pace. So as you said, four different therapeutic areas where we'll have a major readout and these are very transformative regimen. Adam Lenkowsky, you want to? Adam Lenkowsky: I think, and you covered it extremely well. Why don't we go to the next? Thank you. Thank you. Operator: Our next question today comes from Christopher Schott at JPMorgan. Please go ahead. Christopher Schott: Great. Thanks very much. Just two for me. First, just elaborate on Eliquis dynamics for 2026 contributing to growth this year. Maybe just a bigger picture one on business development priorities. Just elaborate a little bit more terms of your focus right now. Is this more on deepening presence in existing therapeutic areas? Or maybe pursuing more corona-like kind of expansions into new spaces? And maybe as part of that, I know as you just highlighted, you've got a lot of important readouts coming this year. Should we think about Bristol-Myers Squibb Company waiting to see how these programs pan out and that that might help guide where you wanna go with BD, or is that not a rate limiter for the company? Thank you. Thanks for the question, Christopher Schott. I will start on the BD question. I'll turn it over to Adam Lenkowsky. So as was said earlier, BD continues to be a top priority. As you well know we have always sourced innovation both internally and externally. And the good news here is that we're in a very strong position as you alluded to with the late-stage pipeline. We don't need to chase deals. That said, we're going to continue to be looking out for opportunities to add strength and depth to our portfolio. In terms of the opportunities we're looking for, we've got a lot of opportunity to continue to build depth across each of our areas. So if an opportunity is in an area that we know well scientifically where we can add clinical or commercial value and ultimately deliver that value to patients the company and shareholders. We obviously have the financial ability and the muscle to. And so that's generally how we'll be approaching BD this year. And timing-wise, I think that obviously we're going to be opportunistic. Adam Lenkowsky? Adam Lenkowsky: Christopher Schott, thanks for the question. Let me start by saying that we continue to see strong performance with Eliquis. And this performance will continue throughout 2026. We have approximately 75% anorex share in the U.S. And we will continue to grow that. Now the broader pricing dynamics starting this year for Eliquis was the impetus for us to reevaluate our pricing strategy. And, of course, there's some pushes and pulls. Recall the IRA price was effectuated January 1, and this includes the removal of the Medicare Part D liability both in the initiation and in the catastrophic phase. We also finalized our $0 Medicaid agreement with administration and we took a step back and we're able to reassess our commercial contracting strategy as well. The roughly 40% WAC reduction eliminates inflationary penalties or CPI penalties of statutory rebates that have been accumulating over many years for the brand. And taken together, the continued increase in Eliquis market share in the United States coupled with these net pricing changes they're gonna enable Eliquis to be an important driver of growth this year. Christopher Schott: Great. Thank you, Adam Lenkowsky. Chuck Triano: Rocco, let's go to the next question. Operator: Yes, of course, absolutely. And our next question today comes from Michael Yee at UBS. Please go ahead. Michael Yee: Great. Thank you. Two questions. One on Milvexian and AFib. Previously, you've suggested that there are lower blinded safety event rates bleeding, particularly. Can you just remind us how often that study is looked at? And whether that generally continues with DSMB safety looks across blinded rates into 2026 here and how you feel about that? And then second, just following up on the BD question, I know that you obviously want to focus on key strength areas. Is metabolic obesity a fair question or a fair area that investors should be understanding of? And is that still an area that actually you would engage in? Thank you. Christopher Boerner: Thanks for the questions. Let me start with metabolics, and I'll turn it over to Cristian Massacesi. Look, metabolics is obviously an exciting area. You've seen it this week. We continue to pay attention to the evolution of that market and of course the science. That said, we're really looking at opportunities to build breadth and depth in our existing therapeutic area. These are areas we obviously know well. We can assess the science and commercial opportunities, which is significantly important, particularly as we think more broadly. And it's also an area the areas that we can best add value from a patient company and shareholder standpoint. So that's our primary focus. Cristian Massacesi? Cristian Massacesi: So thank you, Michael Yee, for the question. As you know, we completed the enrollment in Librexia as a fibrillation study. We have more than 20,000 patients. And we well passed the point for instance in which oceanic atrial fibrillation study terminated by the DMC because of lack of efficacy. And as you said, the DMC regularly continue to endorse the tire progression and this happened also very recently. They check efficacy and safety. We remain blinded to the study. What I can tell you is that recently and there is a lot of data that tell us what is the bleeding rates with Eliquis. And in AFib study, it's a net to add maldexan helquis. And we remain blinded, but what the GMC is telling us and what we see in a blinded fashion in terms of bleeding rates, give us confidence that we are still very much on target to achieve the benefit that we hope showing that Eliquis and Murbexana similar in terms of efficacy, but that Malvexan can bring a benefit in reducing importantly the bleeding risks measured bleeding risk and also non-measured clinically relevant bleeding risks. These are we are fully on track on this and the study is coming this year. Chuck Triano: Thank you, Cristian Massacesi. Next question please. Operator: Absolutely. Our next question today comes from Courtney Breen with Bernstein. Please go ahead. Courtney Breen: Hi, guys. Thanks so much for taking the question today. I just wanted to double click on Eliquis question as well as on cost savings in 2026. I know your intention is to take more cost savings in the 2026 period. And so it would be great if you can kind of perhaps characterize those relative to what you're able to achieve through the year in 2025? And then on Eliquis, thanks for giving the details around kind of some of those 2026 dynamics. I think you made some additional comments on that '26 to '27 transition of a $1.5 to $2 billion further step down. Can you just help us understand kind of what is driving that primary change at that moment time relative to this new baseline on pricing that we've just spoken through now. So much. Christopher Boerner: Thanks for the question, Courtney Breen. I'll ask David Elkins to take both and go from there. David Elkins: Yes. So on the cost savings program, as you saw this year, we've made really great progress against the $2 billion strategic productivity initiative. Achieving over $1 billion of that. And sitting here today, got really solid line of sight into the additional $1 billion which will be spread over 'twenty six and 'twenty seven. So you'll continue to see a step down our expense base. What I'd also say is it's also enabled us to reinvest in growth drivers, some up and we did last year with Probensi as well as Camzyos but also with a couple of the deals that we did with Orbital Therapeutics. As well as FUMITAMAG, we'll be analyzing those costs here in 'twenty six, and we're still reducing our cost basis as a result of that. Christopher Boerner: Do you want to just hit on Eliquis dynamics this year and then you and David Elkins can speak to '26 to '27? Adam Lenkowsky: Yeah. So I spoke about the Eliquis dynamics, and as Courtney Breen said, around the pricing changes that took place effective January 1, including the removal of the Medicare Part D liability and the 40% WACC reduction. So we wanted to guide against 2026. David Elkins will talk about our decision not to guide for 2027, which had started, you know, when Christopher Boerner initially became CEO in a decision not to provide longer-term guidance. David Elkins, do you want to expound on that? Yes, Courtney Breen, and thanks for your question. If you remember back in August 2024, when the IRA came out, there's a lot of questions about what that impact was. So we provided guidance at that point in time. We thought it was important just to update you on that 27%. So what we said this year is that we expect Eliquis to grow 10%, 15%. And as you think about next year in my prepared remarks, I said that, you should expect a similar step down about 1.5% to $2 billion from $26,000,000,000 to $27,000,000,000 which is consistent with the step down consensus has now. So hopefully, that's helpful. And Courtney Breen, just a reminder, Chuck Triano here. Remember, the EU patents largely expire late in 'twenty six, so that's going to be a factor in 'twenty seven that we'll see. As well in terms of driving the step down. Chuck Triano: Operator, can we take the next question? Operator: Absolutely. Our next question comes from Mohit Bansal with Wells Fargo. Please go ahead. Mohit Bansal: Great. Thank you very much for taking my question. I have a question on LPA1. So from the feedback we have received from some KOLs is that the talk toxicity burden that is associated with the existing standard of care, Combo therapy may be reserved for most severe patients. And for the widespread use of LPA one monotherapy, patients may still want to see some kind of efficacy benefit over existing therapies here. I don't know how you're thinking about it, but would love to get your thoughts on, like, what it takes for a new therapy like LPA one to become a new standard of care either as a monotherapy or a combo therapy in this space. Thank you. Adam Lenkowsky: Thanks for the question, Mohit Bansal. Adam Lenkowsky? Mohit Bansal, thanks for the question. So IPF and are progressive pulmonary diseases and prognosis these diseases is not dissimilar to what we see with some metastatic cancer diagnosis. In fact, there's less than fifty percent five-year overall survival rate. So there's significant need for newer therapies that provide greater and tolerability. What we're excited about with Admiralty which is our LPA1 that this is a potential first-in-class product that we believe could redefine the standard of care in pulmonary fibrosis. Offering improved efficacy and improved tolerability profile. Remember, I know it works by slowing the progression and could actually potentially halt the progression of disease. And we look at the adverse event profile we're seeing low rates of GI tolerability, which has been a real challenge for some of the older therapies as well as some of newer therapies that are recently introduced to the market. To help manage their disease. In fact, about fifty percent of patients abandon treatment by twelve months. We also see some newer agents, you know, have some formulations that may limit uptake. So we would expect to see Edmilpront used in combination and as a monotherapy similar to how we're studying the drug and we really look forward to the data readout in the second half of this year. Thanks, Adam Lenkowsky. Let's move to our next question please. Operator: Thank you. And our next question today comes from Terence Flynn at Morgan Stanley. Please go ahead. Terence Flynn: Hi. Thanks so much for taking the question. I just had two. One is just on the milvaxia and Afib study. Cristian Massacesi, wondering if you can speak to what you view as a clinically meaningful delta versus Eliquis that would be enough to support broader payer coverage there. And then just David Elkins, on the guidance the math that we're doing suggests kind of mid-single-digit growth year over year on the growth portfolio, which includes Opdivo. Just wanna know that that we're in the right ballpark there. Thank you. Christopher Boerner: Thanks for the question, Terence Flynn. Maybe Cristian Massacesi and Adam Lenkowsky combined on Novaxin and then David Elkins. Cristian Massacesi: Thank you, Terence Flynn, for the question. The study primary endpoint is showing non-inferiority versus Eliquis, that's apixaban. On efficacy. And you know, Terence Flynn, we selected those that is was very scrutinized and to balance activity, potential activity and, of course, bleeding risks. This is why we are using one hundred milligram BID. It is a dose that much higher for instance that we use in stroke. Prevention. So I would say there is a possibility that of course, MELDEX can show a better outcome. But the real and percent point is showing non-inferiority. Let's not forget about oceanic Afib actually did not was able to show that level of similar activity versus apixaban. Then after the non-inferiority will be met, we're to test the superiority for bleedings. So this is also where we want to show a clinically meaningful differentiation on the bleeding rates. I don't give you the deltas and everything. Of course, we believe that if the study will be a target, it will be clinic seen as clinically meaningful. Adam Lenkowsky, you want to? Yes, Terence Flynn, thanks for the question. So Mugaxin represents significant commercial opportunity, particularly in Afib. Afib a very large market and, you know, we believe that MobXion has the potential to replace first-generation DOACs. And this is a market that we know very well. Fear of bleeding continues to be the main reason why clinicians hold back from using factor tens in more patients. Roughly forty percent of patients remain either untreated or undertreated leaving them at risk for a stroke. And, you know, they had significant concerns around bleeding. And so we know safety is important. We believe a differentiated bleeding profile will drive demand versus standard of care. We've had a number of payer discussions already. That suggest that the potential of improved benefit-risk profile will be a strong value proposition, and we would also expect there to be an economic benefit of using Novaxin over Eliquis in terms of bleeding events. That are avoided. So we look forward to the data readout at the 2026. And we're confident this product has multibillion-dollar potential. David Elkins: Yes. And Terence Flynn, you're absolutely right. In your math and thinking about the growth portfolio. We feel really good about the growth portfolio, mid-single-digit growth. But also we have the risk of like a Red Sea and generics coming this year, which would impact that growth portfolio. But we feel really good about where we exited 2025 and about the prospects heading into '26 now. Right. Thanks, David Elkins. Let's take our next question please. Operator: Thank you. And our next question today comes from Jeff Meacham from Citi. Please go ahead. Jeff Meacham: Great. Morning, everyone. Thanks so much for the question. I have a couple. So one for Adam Lenkowsky, I guess, on CoBINCI. There's a lot of excitement earlier last year, you just given its mechanism and lack of innovation in the category, but we really haven't seen an inflection point in sales. I guess, is there a bottleneck in access that you really have to still work through? I'm just trying to figure out the steps to see sequential acceleration. And then on PUMITAMIG, I guess for maybe for Christopher Boerner or Cristian Massacesi, is there a dataset, a tipping point maybe of data that you wanna see before you really scale up the Phase III investment? And just given its foundational mechanism, what's the upper end of either Phase III studies or tumor types that you ultimately have a capacity for the drug? Thank you. We'll start with Adam Lenkowsky and then Cristian Massacesi can handle the question. Adam Lenkowsky: Great. Thank you, Jeff Meacham. So we're pleased with the progress that we made in Coventry's first full year on the market. In fact, Coventry delivered over 100,000 TRxs since launch, and that surpassed all relevant schizophrenia analogs. We have very strong access, virtually 100% access across Medicaid and Medicare and now we're approaching 70% commercial access. So that is certainly not a bottleneck. You know, we made good progress in Q4 as you're able to see with an acceleration of NRxs as well as increases in both new NRP trialists after our full field force expansion within place in both the community and the hospitals. We see continued opportunity for growth in schizophrenia. As we stated, we're confident in our ability to deliver continued steady growth and new indications are going to be the driver of inflections there. But hear from physicians, the feedback continue to remain positive. We are making very good progress with adding the number of trialists, which continue to grow steadily. And importantly, what we have seen is that those physicians who've had a positive experience with Coventry have shown an increased propensity to repeat prescribing. So this year, we'll present several new Phase four studies including a switch study later on in the quarter, which is the top question that we get from physicians on how to switch from a D2 over to Cobenfi. We'll have real-world data as well to support that and we're increasing investment in peer to. So taken together, we are making good progress. And based on all the leading indicators we're seeing, we believe Coventry has the potential to become a leading treatment in schizophrenia over time and we're confident could be a big drug for the company. Cristian Massacesi: Thanks for the question, Jeff Meacham. The let me break down your question in. The first thing is the confidence. First of all, we have data sets in triple negative and in small cell lung cancer, showing that the drug is active. And there are also very large data sets from competitive assets that reinforce the message. The second thing is more on these are two very well clinically validated targets. PD-one, PDL-one and the VEGF. And you know that when you deliver mechanism through bispecifics sometimes you increase the selectivity and this can be even more powerful than just delivering the two mechanism into two different drugs. Then when you look, we are actually already scaled up the development of this drug. The confidence is very high. We believe the strategy is very simple. We want to replace and then we want to expand. We want to replace where PD-one, PD L1 inhibitors are playing today in those indications through this bispecific. And then we want to expand because we believe that bringing VEGF on top of PD L1 inhibition so we can also tackle some of the indication where PD-one, PD L1 inhibitors are now working well enough or not at all. So this is the reason why we already have started or are in flight to start seven pivotal studies across multiple indications. And there is an eighth one that we announced in head and neck. And when you look at the indication, course, there is a concentration in small cell lung cancer, very important indication, but this goes beyond gastric colon head and neck, breast. So this is a program that as a top priority in oncology and we represent the backbone of our portfolio. The next wave will be to novel novel and that will be the next wave of studies where we will continue to improve on regimens that we are creating today. Chuck Triano: Excellent. Thanks, Cristian Massacesi. Let's move to the next question please. Operator: Thank you. And our next question today comes from Asad Haider with Goldman Sachs. Please go ahead. Asad Haider: Great. Thanks for taking the question and congrats on the quarter. Most of my questions have been answered, but maybe one for Adam Lenkowsky. Just any update on how the Opdivo subQ formulation launch is progressing? We've had four quarters on the market now, two with the J code. Do you believe you're still on track for the 30% to 40% patient conversion by 2028? And any color on the types of patients who are utilizing it would be helpful. Thank you. Adam Lenkowsky: Great. Thanks, Asad Haider. So we're very pleased with the Juvantik launch performance in its first full year on the market. We're encouraged as we're seeing use across multiple tumor types, we're seeing uptake across monotherapy indications as well as in the combination setting. So patients who are treated for RCC, GI, melanoma. As you said, we did receive our permanent J code last July, which eased the reimbursement process for physicians. And post that, we've seen a nice acceleration of new accounts adopting. We're focused on continuing to drive depth and breadth of account conversion and reinforcing the benefits that we know are there for both practices and for patients. And we're tracking well against our expectations and remain very confident in our expectation that physicians will convert 30% to 40% of the IV business ahead of the LOE. So we're pleased to performance and what this means for patients and for physicians. Chuck Triano: Right. Thanks, Adam Lenkowsky. Let's go to the next question, please. Operator: And our next question today comes from David Risinger with Leerink Partners. Please go ahead. David Risinger: Yes, thanks very much. So I have two questions please. First, with respect to Edinopuran, could you just talk about the hypotension risk and how you would contextualize that for us? And then second, would be helpful to just better understand what is in the guidance and what you're assuming for generic competition. So for Eliquis, could you just talk us through when you're expecting generic entry in major markets ex U.S? In '26 and '27. And then, for Orencia, how many players do you anticipate launching and when? Thanks so much. Christopher Boerner: Thanks for the question. I'll ask Cristian Massacesi to start and then David Elkins. Cristian Massacesi: Thanks, David Risinger for the question. The hypotension and syncope episode was one of the tolerability risks that we had with ameprantin in the Phase two. But what I can tell you that actually in the context of the Phase three, this is going very well. Let give you a little bit more context. When we run the Phase two, we tested two doses at thirty and sixty milligram. And of course, there was a dose relation outcome in terms of efficacy and also safety. But then when we completed the study, we have seen that the risk of syncope was well managed. And actually we decided to because there was a dose evaluation on efficacy, we decided to introduce in the Phase three one hundred and twenty milligram. And actually we are currently running the Phase three studies IPF and with one and twenty and sixty. And one hundred twenty there was a run-in just to assess safety and the risk of hypertension, the DMC allowed us to go in Phase three and in a blinded we didn't see any rate that raised any concern. So this is definitely associated to the profile of the drug is very well managed even when you go with a higher dose. That of course can translate it to a better efficacy. Adam Lenkowsky: Yes. Just to add, Cristian Massacesi, what we're hearing from physicians is that this is a very manageable side effect. And when you look at the totality of the drug, not only have we seen exciting results around FTC, I talked about earlier, when you look at the the rates of GI toxicity that have really plagued some of the assets that are out there today. As well as some of the newer products that are coming to the market that have significant costs, cough issues or dyspnea issues that can lead to, you know, significant exacerbations. I think, you know, we have an opportunity to truly be a best-in-class product both from an efficacy and a safety standpoint. David Elkins: Yes. And the question on Eliquis, talked about it in total that 1.5 to $2 billion step down as we go into 2016 that is driven by generic entries we're assuming are going to happen. It's really spread throughout. It's a country-by-country basis on how that goes in. We're in litigation. We're in appeals in several of those markets. So we have to see how that plays out. But we've made broad-based assumptions about generic entry. Adam Lenkowsky: Yes. And think the last part of the question, David Risinger, was around So Orencia continues to perform well with great cash flow for the organization. As far as a biosimilar for Orencia, we do know that Doctor. Reddy Labs has posted a, you know, opportunity to to file their manufacturing facility is out of India and we've had this product now since 2006. And we recognize the challenges that it takes to manufacture product like Orencia. And so, you know, we do expect to see continued cash flow from this important product for patients. David Elkins: And David Risinger, would just underscore in the EU, country by country for sure. The bigger countries are clustered around late in the year, in the November timeframe late in the year. And with that, can we go to our next question, please? Operator: Absolutely. Our next question today comes from David Amsellem with Piper Sandler. Please go ahead. David Amsellem: Hey, thanks. So wanted to ask about Combemfi and a bigger picture question there. A number of companies developing their own m one, m fours, and in some cases without a peripherally acting anticholinergic. So I wonder how you think those agents down the road could impact CoBIMP growth, if at all? That's number one. And then number two is you just talk more to how big of a priority is it to add a late-stage or commercial-ready psychiatry-focused asset or assets where you could leverage the commercial infrastructure that you've built to support Kibimpe. Again, how big of a priority? How aggressive do you wanna be here? Thank you. Christopher Boerner: Well, let me start on the business development question, then I'll ask Adam Lenkowsky and Cristian Massacesi to address the specifics of the Coventry pipeline question or competitive question. So from a business development standpoint, as I said earlier, our focus is on continuing to build out breadth and depth in each of our therapeutic areas. Obviously, we've shown willingness to do business development to build out our presence in neuroscience and I think you can expect that if there are attractive opportunities where the science is compelling and where the financials allow us to add value to the company and ultimately to shareholders in the neuro space, we would certainly be looking at it. Adam Lenkowsky? Adam Lenkowsky: Thanks for the question. When we're doing the work for Corona, we were really excited by the novel mechanism of action. Not just the fact that it was working on muscarinic, but the fact that the m one, m four component of that, which we saw brings an opportunity for increased and improved cognitive benefit and schizophrenia as well as negative symptoms. And we're seeing that in the market today. Additionally, when you look at the incredible lifecycle management program that we have in place with significant number of studies that are ongoing in Alzheimer's disease in Alzheimer's disease psychosis, Alzheimer's disease cognition as well as agitation coupled with bipolar disorder, this has the opportunity to be a very significant drug in the neuropsychiatric space. And we also have a very significant head start on other competitors coming. And I'll turn it to Cristian Massacesi to talk about Coventry and also the pipeline as well that we have from the Kuna acquisition. So David Amsellem, you raise an important point. There are many there is there are M4 agonist, there are M4 PAM positive allosteric modulators. You have other M1, M4 that are emerging. First of all, we are ahead of everybody else. This is the first point. The second is we still don't know how M4 agonist or M4 pump can can play out versus an M1, M4 inhibitor like Kuventis. And we don't still don't know if you change your peripheral radical energetic drug how this can impact brain penetration and additional the control of some of the cholinergic symptoms. We believe that Covenxi with exanomelin and Trospion has the right approach. As Adam Lenkowsky said, we have a very rich pipeline from corona from our internal research that, of course, keep investigating these mechanisms. And we will disclose at the right time how these programs are progressing. And we are focusing very much on these receptors. And of course, we have assets that go beyond that. Because some of them are as to control symptoms in Alzheimer, others are disease modifier assets. So our Alzheimer pipeline is very rich and we are very excited about it actually. Chuck Triano: Thank you, Cristian Massacesi. Next question, please. Operator: Thank you. And our next question today comes from Jason Gerberry with Bank of America. Please go ahead. Jason Gerberry: Hey, guys. Thanks for squeezing me in. So just for me on Novvexime, can you remind us why you opted not to enrich in the SSP trial for atherosclerosis? And do you think that in any way poses a risk in terms of reading across from the positive efficacy result from the buyer data later later today in SSP? Then my second question is just know, as we look at the CELMoDs and and the second line plus refractory multiple myeloma space. It's obviously getting increasingly complicated with recent data from the bispecifics. And so I'm just kinda curious how you guys are thinking about, you know, the relative positioning here if if data are confirmatory on phase three. Obviously, there's a lot to be kind of sussed out with your data, but do do you see these as agents that maybe you know, appeal more to community providers, more as, like, third, fourth line drugs, or do you think they get used earlier? Just any color on how you see it kind of positioning within an increasingly complicated space? Well, me start and I'm going to ask Adam Lenkowsky and then Christopher Boerner can chime in on your Milvaxian question. As we look at Selmab program generally, we're very excited about the data that we've already seen. And about the commercial potential, particularly in light of some of changes taking place in that landscape. But Adam Lenkowsky, do you want elaborate? Adam Lenkowsky: Thanks for the question. Just building on Christopher Boerner's comment. We've got good momentum coming off the ASH meeting last year, and we see excitement building around our overall CELMoD portfolio. Iverdamide vizigimod and glulcademide. Hematology. And this is a market, Jason Gerberry, that we know very well. This is a competitive market. It's a fragmented market. There remains a need for more effective and safe treatment options that can address the majority of patients, particularly those that are treated in the community setting. And roughly seventy percent to eighty percent of patients treated in the community. Now while Rev and POM based combinations are the backbone of treatment across early lines of multiple myeloma. There's an opportunity to improve upon their depth and durability is an opportunity to improve on their tolerability and we expect iverdemide will provide that balance of high potency manageable toxicity profile, combinability with anti CD38 with the convenience of an oral treatment. We continue to hear positive feedback from physicians. So our goal is to make both IBRA and Mezi foundational in multiple myeloma, replacing image in earlier lines of treatment. So this is going to be for iveratomized, a second line product, large used in the community in combination with daratumumab. Ultimately, longer term, we believe that these can serve as partners for TCEs and cell therapy. So we'll be studying that there. We presented data with Pfizer's TCE at ASH. So once approved, we expect good adoption over time in the community in second line as most patients just don't have access to cell therapies or bispecifics due to safety and accessibility challenges. So our teams are readying for the launch of iverteimide. We know the work that we need to do to establish both iver and Mezi in this competitive market and we're excited to bring them to patients. Cristian Massacesi: So Jason Gerberry, thank you. It's very good technical question you're asking. But let me help you to clarify. Some of the eligibility criteria set from the stroke study that Bayer is running and our Librexa stroke studies can be different. But when you look, we didn't disclose our baseline patient and disease characteristics. Like they did and in few hours we will see they also did the. But I can tell you that the two studies are very similar in patient population. When you look at the events that are causing the stroke, you have three categories, large artery atherosclerosis, these are events that are coming faster. You have events that are coming from lacunar strokes. These are when the occlusion or small arteries in the brain. And then strokes that are coming from embolic events that you don't know the source unknown source. So this will not be very different between the two studies. And we believe that there is nothing and by the way, we control the number of events coming from La Cuner. So we will not have a disproportion of that because it's capped. In terms of event. So this give us confidence that the two studies and the way we run our study at least is the right way. Chuck Triano: Thank you, Cristian Massacesi. Next question please. Operator: Thank you. And our next question today comes from Evan Seigerman at BMO Capital Markets. Please go ahead. Evan Seigerman: Malcolm Hoffman on for Evan Seigerman. Thanks for taking our question. I wanted to ask two commercial questions real quick. So first on OptoLeg, in the fourth quarter, we saw in The U. S. A particularly strong growth even relative to maybe prior years in 2024. Can you talk about some of the dynamics that may be contributing here? Obviously, the standard of care on melanoma, but are there particular physician engagement efforts that are contributing in The U. And then secondarily on Reblozol, I know highly penetrated in MDS anemia. Can you just help contextualize how much more room there is for growth in this indication? Thanks. Adam Lenkowsky: Yes, thanks for the question. So Omtolag has become a standard of care in first-line metastatic melanoma in The United States. Oplalag is now approaching four years post-launch and has over 30% market share. In fact, you look at the totality of Bristol-Myers Squibb Company market share in metastatic melanoma, we're now over 65%. So our objective is to continue to expand our share. It's still roughly fifteen percent of patients that continue on PD-one monotherapy. So there's an opportunity there to source that business this year. Additionally, we started to launch internationally in markets like Australia, UK, France, that will contribute to growth in 2026. We also expect an all-commerce indication in Europe in Q2 which will drive significant growth internationally. So we see opportunities to increase sales of Ophalaag in The U. S. And as well as ex U. S. With broader label. As far as Reblovil, as you mentioned, Reblozyl delivered continued strong growth. As you heard from both David Elkins and Christopher Boerner, Rebazil is now annualizing over $2 billion of sales worldwide. We're continuing to drive demand across first-line RS positive and first-line RS negative patients. We expect to see continued strong growth, particularly in the RS negative patients where there's an opportunity for growth. We saw a very rapid uptake initially post command in RS positive. And RS negative provides the greatest opportunity for growth in The United States. Outside of The US, in many markets, we're just starting to launch and get reimbursed in first line. So overall, we see continued solid growth for Reblozyl in first line this year and we expect strong performance. Chuck Triano: Thanks, Adam Lenkowsky. And operator, we'll have one more question then Christopher Boerner will make a brief closing. Thank you. Operator: Thank you. And our final question today comes from Stephen Scala with TD Cowen. Please go ahead. Stephen Scala: Thank you so much and apologies. This is an Eliquis question. But I don't think this product has grown double-digit in several years but then will in 2026. And it's still not absolutely clear why there will be a step down in 'twenty seven. If the 2026 is boosted by a higher commercial price, why won't that also boost 2027? I understand about OUS patent expirations, but OUS in its totality is only $4 billion and I think some patents have been off for years. I would I think it's striking for a product to go from double-digit in one year to $1 billion declines in the following. So it seems like what you're really saying is U. S. Prices coming down in twenty seven point two it's not clear why. And related to this, how did the contributing 7,000,000,000 of Eliquis API to the US government impact the P and L? Thank you. Adam Lenkowsky: Great, Stephen Scala. Thanks for the question. Just at a higher level. Number one, we continue to see strong demand performance with Eliquis and that's going to continue in twenty twenty six. When you look at the price reduction that took place in The United States, that will eliminate the inflationary penalties, CPI penalties of the rebates this year and into next year. When we look at in totality, you're right. Roughly 70% of the Eliquis business is in The US. This is a very large brand. And so we expect in November that we will lose exclusivity in Europe, and we would expect rapid and steep decline like we have seen with other small molecules outside of The US. And so that's why we would expect to see that step down in 2027. And just on your question on the strategic reserve, that's not a material impact on the overall business, just given the magnitude of the business as well as just amount of product that will be provided in that reserve. So no impact there. So thanks for the questions and maybe just in conclusion, we've spent as we've discussed on these calls for the last number of quarters significant time on execution as a company across functions. And I think what you see in the numbers we put up today is that we're doing what we said we would do. We've become much more focused. We strengthen, execute, across, all of the relevant functions in the organization. We've built a growth portfolio that has very strong momentum coming into the year. We have a pipeline as has been discussed on this call of differentiated assets that is now within months of meaningful data readout. And finally, we've continued to strengthen the company financially and that of course gives us strategic flexibility not only return capital to shareholders, but continue to add substrate for growth. I'm incredibly proud of the strong foundation we have coming into this year, which we couldn't have contributed to without the commitment and dedication of my colleagues at Bristol-Myers Squibb Company. So thank you all for joining us today. As always, the team is going to be available for any follow-ups. Have a great rest of the day. Operator: Thank you. That concludes today's conference call. We thank you all attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2026 Haemonetics Corporation Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you would need to press star 11 on your telephone. You would then hear an automated message of asking your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Olga Guyette, Vice President, Investor Relations and Treasury. Please go ahead. Good morning, and thank you for joining us for Haemonetics Third Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Christopher Simon, our CEO, and James D'Arecca, our CFO. This morning, we released our third quarter and year-to-date fiscal 2026 results and updated full-year fiscal 2026 guidance. The materials, including our earnings release, Form 10-Q, and the supplemental earnings presentation, are available on our Investor Relations website and in this morning's press release. Before we begin, I'd like to remind everyone that we will use both reported and organic revenue growth rates that exclude the impact of FX, the divestiture of the whole blood product line, and the exit of certain liquid solution products. Organic Growth x CSL also excludes the impact of the previously disclosed transition of CSL's US disposable business. We'll also refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. A full list of excluded items, reconciliations to our GAAP results, and comparisons with the prior year periods are provided in our earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's release, and in our other SEC filings. We do not undertake any obligation to update these forward-looking statements. And now I'd like to turn it over to Christopher Simon. Christopher Simon: Thanks, Olga. Good morning, and thank you for joining us today. We delivered a strong quarter and we are raising our full-year revenue, earnings, and free cash flow guidance. Nexus and TEG delivered outsized growth driven by sustained share gains, innovation-based pricing, and durable end-market demand, demonstrating the strength and resilience of these core products and our increasingly productive operating model. Third-quarter revenue was $339 million, bringing year-to-date revenue to $988 million. Reported revenue reflects the $153 million impact of last year's portfolio transitions. Allowing for these nonrecurring items, underlying performance remains strong. With organic growth ex CSL of 8% in the quarter and 10% year-to-date. Adjusted earnings per share increased 10% in the quarter and 11% year-to-date to $1.31 and $3.67 per share, respectively, underscoring both the quality and the durability of our earnings. With that context, let's review our businesses in more detail. Hospital revenue was $144 million in the quarter and $429 million year-to-date, down 1% in the quarter and up 2% year-to-date organically. As strong performance in Blood Management Technologies offset softness in interventional technologies. Blood management technologies delivered solid growth, up 8% in the quarter and 11% year-to-date, driven by sustained double-digit growth in hemostasis management. Momentum was fueled by TEG 6s disposable sales and rapid adoption of the global heparinase neutralization cartridge, which continues to accelerate account conversions and penetration. We have significant runway to upgrade legacy TEG 5,000 systems, increase TEG 6s device sales and utilization, and expand share within current indications. The launch of the HN cartridge in EMEA and Japan further strengthens our global leadership and adds international growth vectors to the $400 million plus serviceable market. Growth elsewhere in BMT was modest, with transfusion management gains largely offset by a decline in cell salvage driven by a tough comp following last year's customer migration to higher-margin technology offerings. Interventional technology revenue declined 12% in the quarter and 8% year-to-date, driven primarily by softness in esophageal cooling amid accelerating PFA adoption and OEM-related headwinds in sensor-guided technologies, which together accounted for most of the year-over-year quarterly decline. Vascular closure revenue declined 4% in the quarter, reflecting a 3% decline in MVP and MVP XL and electrophysiology, and softness in VAScADE in lower growth coronary and peripheral procedures. Performance in electrophysiology was influenced by prior share loss, order timing in several of our largest accounts in December, and ongoing shifts in the procedural dynamics that temporarily impact the growth of our addressable market. Our confidence in the IVT franchise is unchanged. We believe in the clinical and the economic differentiation of our product portfolio. And we are enthusiastic about the anticipated MVP XL label expansion and the U.S. launch of PercuSeal Elite. The vascular closure sales force is asserting itself, and taking targeted actions to strengthen execution. These commercial initiatives are gaining traction and we expect Interventional Technologies will return to growth in FY 2027. Accordingly, we now expect the hospital business to deliver reported and organic growth of approximately 4%. At the low end of our prior 4% to 7% range. Moving to plasma and blood center, Plasma performance continues to accelerate with another quarter of growth driven by our category leadership and superior innovation. Notably, the franchise has returned to growth with revenue of $139 million, up 3% on a reported basis. Despite the last remnants of customer transition headwinds. Organic growth, excluding CSL, was 20% in the quarter and 22% year-to-date with approximately half of quarterly growth driven by share gains and the remainder from collection volume and the full annualization of innovation benefits. Plasma fundamentals remain attractive, underpinned by durable immunoglobulin demand across a broad spectrum of indications. That strength is evident in the market as U.S. Plasma collections grew in the low double digits in the third quarter, with approximately 50% global market share and a differentiated integrated platform, we operate from a position of strength and expect upcoming innovation in FY 2027 further advance our competitive advantage. Given the year-to-date performance, we are raising our full-year reported revenue guidance to a decline of 2% to 4% from a decline of 4% to 7% previously. And organic revenue guidance ex CSL to growth of 17% to 19% from 14% to 17%. Previously. Blood center revenue was $57 million in the quarter and $165 million year-to-date, growing 3% in the quarter and 4% year-to-date organically. Driven primarily by international plasma demand and market leadership partially offset by order timing and continued portfolio rationalization. We are raising full-year blood center reported revenue guidance to a decline of 16% to 18% from 17% to 19% inclusive of the whole blood divestiture. And increasing organic growth to 1% to 3% from flat. As international plasma demand is expected to more than offset ongoing portfolio rationalization. Sustained strength across plasma, blood center, and blood management technologies has improved our total company outlook. Accordingly, we are increasing our full-year reported revenue guidance to a decline of 1% to 3%, from 1% to 4% previously. Reflecting the impact of last year's portfolio transitions the majority of which are now behind us and fully reflected in our year-to-date results. This translates to raising our organic revenue guidance ex CSL by 50 basis points at the midpoint to a range of 8% to 10% up from seven to 10% previously. Over to you, James. James D'Arecca: Thank you, Chris. Good morning, everyone. We delivered another quarter of strong financial performance marked by sustained margin expansion and improving cash flow. While we continue to take steps to recapture growth momentum in interventional technologies, our results highlight the benefits of our portfolio transformation structural improvements supporting profitability, and the multiple performance levers supporting continued progress toward our long-range plan objectives. Adjusted gross margin was 60.2% in the third quarter and 60.5% year-to-date representing increases of 250 and 390 basis points respectively. Similar to the prior quarters, margin expansion was driven by the adoption of Nexus, with Persona Technology, divestiture of the whole blood business and blood center and our expanding share in both plasma and blood management technologies. These same drivers are expected to support similar gross margins for the remainder of the year. Adjusted operating expenses in the third quarter were $115 million, up $3 million or 3% primarily reflecting adjustments in performance-based compensation due to continued outperformance across the consolidated results. We have also remained deliberate in prioritizing targeted investments in R&D and innovation to support long-term growth. Year-to-date, adjusted operating expenses were $343 million, modestly above $339 million last year. Largely due to the same factors impacting the third quarter. Adjusted operating income was flat versus the prior year in the third quarter at $89 million and adjusted operating margin expanded 60 basis points year-over-year to 26.3%. In the third quarter, operating margin expansion was driven primarily by the improved margin profile of our plasma and blood center businesses. Supported by share gains on NexSys PCS with Persona and the divestiture of the whole blood business. This was partially offset by modest margin pressure in hospital, reflecting continued softness in interventional technologies and the resulting impact on operating leverage. On a year-to-date basis, all segments contributed to adjusted operating margin expansion, despite some volatility in the quarterly segment performance. For the total company, adjusted operating income increased 4% year-to-date to $254 million with adjusted operating margin expanding 200 basis points to 25.7%. Based on performance to date, and continued margin tailwinds across the portfolio, we continue to expect approximately 26% to 27% in adjusted operating margin for the full year. Updated guidance also includes modest near-term dilution from the VIVUSHORE acquisition as we invest ahead of a planned commercial launch in fiscal 2027. The adjusted tax rate was 24.9% for the quarter, and 24.8% year-to-date. We anticipate a slight step up in the adjusted income tax rate in the fourth quarter and expect to finish the year with an adjusted tax rate of approximately 25%. Adjusted net income increased 2% to $61 million in the third quarter and 3% year-to-date to $175 million. Adjusted EPS rose 10% to $1.31 in the quarter and 11% year-to-date to $3.67 which includes included benefits from recent share buybacks and FX. In the fourth quarter, we expect interest and tax to be a headwind reflecting a lower tax rate in the prior year and incremental interest expense related to the repayment of $300 million of zero coupon convertible notes. We now expect our adjusted EPS for fiscal '26 to be in the range of $4.90 to $5 a share. Which reflects our strong performance to date coupled with the acquisition of VIVUSHORE. Turning to cash flow. And the balance sheet. Cash generation has reemerged as a defining strength of Haemonetics. And a core source of strategic flexibility. With our major device build-out complete, and a series of company-wide productivity initiatives now largely behind us, the business has returned to the robust cash flow profile as historically been known for. In the third quarter, we generated $74 million of free cash flow, bringing year-to-date free cash flow to $165 million driven by $94 million of operating cash flow in the quarter and $222 million year-to-date. This represents more than a threefold increase versus the prior year period reflecting both the normalization of capital intensity and continued discipline in working capital management. Free cash flow conversion reached 121% of adjusted net income in the third quarter and 95% year-to-date reinforcing our ability to convert earnings into cash. As a result, we are raising our fiscal year 2026 free cash flow guidance to $200 million to $220 million from $170 million to $210 million previously. And now expect full-year free cash flow conversion to exceed 80%. Positioning us with significant flexibility to deploy capital in a balanced fashion. Cash on hand at the end of the third quarter was up 18% to $363 million since the start of this fiscal year. Despite deploying $75 million towards share repurchases earlier in the year and making additional strategic investments. Subsequent to quarter end, we also invested $61 million to acquire VIVUSHORE. Further strengthening our interventional technologies portfolio and repurchased approximately 360,000 shares of Haemonetics stock for $25 million. Our capital structure remained unchanged at the end of the third quarter. With total debt of approximately $1.2 billion and no borrowings under our $750 million revolving credit facility. With a net leverage ratio as defined in our credit agreement at 2.37 times EBITDA. Back to you, Chris, for closing comments. Christopher Simon: Thanks, James. Before we open the line for questions, I wanna share a few summary thoughts. We are executing with discipline. Delivering solid revenue performance, expanding margins, growing earnings, and generating strong cash flow while advancing our strategic priorities and transforming our operating model. Year-to-date, our results are anchored by strong execution across two of our three growth engines, plasma, and our hospital-based blood management technologies. These businesses are delivering consistent sales growth. Continued share gains and increasing profitability. That strength provides both stability and flexibility as we take targeted actions to strengthen the interventional technologies franchise. We remain firmly committed to returning this franchise to sustainable growth in fiscal 2027. The actions required to restore growth momentum are fully funded and largely within our control. As comparisons improve, and our commercial organization rallies, the targeted actions underway will translate into stronger results. Supported by the anticipated MVP XL label expansion, and The US launch PercuSeal Elite. We expect this business to drive growth and operating leverage while strengthening its competitive advantage. Looking beyond revenue, our portfolio transformation continues to deliver meaningful results across the P&L. Since the start of this transformation, nearly four years ago now, we have expanded adjusted operating margins by 770 basis points. Including 200 basis points year-to-date enabling earnings growth despite the nonrecurring plasma and divested blood center revenue. This earnings leverage reflects a structurally improved business model and it is both durable and scalable positioning us to continue generating earnings growth ahead of revenue well into the future. Lastly, our strong and consistent free cash flow conversion supports a resilient balance sheet and long-term value creation. Our capital allocation priorities remain unchanged. Investing in organic growth, meeting upcoming debt obligations, and opportunistically returning cash to shareholders, while preserving balance sheet flexibility. Thank you. Operator, please open the line for questions. Operator: Please press 11 again. And our first question is going to come from Rohin Patel with JPMorgan. Your line is open. Rohin Patel: Hi. Thanks for taking the question. Good morning, everyone. I just wanted to start off with plasma, and you had a nice quarter here. And maybe if you could just help parse out kind of the delta between collections recovery and what the market growth looked like underlying as well as your share gains. And looking forward, I guess, think we're turning our as we turn our attention to fiscal year 2027, obviously, you've had a big benefit from share gains this year. So how are you thinking about that next year and kind of coupled with the collections growth, what can we expect to see on a more sustainable basis for plasma looking forward? And then I have a follow-up. Christopher Simon: Morning, Rohin. It's Chris. Thanks for the question. Yeah. Plasma and I don't mean to sound boastful on this, but I don't think we've ever been in a better position on the plasma business than we are today. We talk about the trifecta which is a combination of share gains. And to your question specifically, for third quarter and most of this year, share gains have carried us and, that comes in two flavors. It's both us picking up share from our direct competitor but it's also our customers enabled with the best technology gaining share from their competitors. And I think the dual benefit there is fully half of the growth you see here from us in the quarter. We still have, and this will really be the final quarter of annualizing the price benefits associated with rolling out that new technology. And then the third piece is collection volume. And what we saw on collection volume in the quarter is a further uptick above seasonality of demand there. We're now growing you know, double digits both in The US and internationally in terms of collection volume. So, you know, the trifecta, if you will, of price share and volume. You know, as we turn to FY 27, this is a point in time, I'll just remind our listeners that this is our third quarter earnings call. We've got we'll talk more in May when we issue guidance for the broader business. For FY '27. This is a point in time where we have the detailed sit-down discussions with our customers and get a clear picture for their demand. What I can tell you in the, you know, at the early stages of those discussions, they're enthusiastic about the environment. They, both their end market demand as well as the collections environment here in The US and internationally where they continue to outpace. So we're confident in plasma's ability to play its role as part of our overall growth engine going forward. Rohin Patel: Thanks, Chris. And maybe the next one question for James. I think as we look at margins in the quarter, you saw a sequential kind of step down in adjusted operating margin this quarter. I know you kind of mentioned some incremental expenses by Mass Hospital. Margins were about 200 basis points lower versus last quarter. And about 100 basis points lower year over year, so that could have also contributed a bit. So I guess as you look ahead, and specifically, I guess, longer term, do you expect the leverage to come from with kind of a more challenged hospital business? And are you expecting kind of the same level of margin expansion that you saw in fiscal twenty six next year, and beyond. And just maybe it'd be helpful if you could help frame of the puts and takes. Thanks. James D'Arecca: Yeah. Sure, Rohin. So I mean, overall, we are pleased with our margin expansion this year. As it really underscores the quality of our portfolio. As you mentioned, we're up 60 basis points in the quarter. It's up 200 basis points year-to-date. And all businesses contributed to that expansion. I would just caution you on the quarterly performance by segment. That could be uneven, you know, just due to product mix, and revenue timing, expense cadence, and so forth. So we like to look at that more on a year-to-date or a trailing nine-month to twelve-month basis. But you know, overall, you know, we are we're pleased with know, the way this is played out. Now as we move into the future, you know, we'll look to see smaller increments in margin improvement. So, like, the 200 basis points improvement that we saw this year that is going to begin to slow down as we get into the future. The increments in operating margin improvement will be less. They'll be 50 basis points or 100 basis points, you know, something more in that range. But overall, there's still room to grow here. Operating margin. And I'll just touch on the point that you brought up on leverage. So yeah, so it'd be the if the hospital business is having a slower quarter, you're going to see a leverage impact on us. And we saw a bit of that in the quarter, but plasma was so strong, it was able to overcome that. We also were able to overcome we had a performance-based compensation increment in this quarter. Due to the performance of the company overall for the year. And that also was a dynamic versus the quarter. In the previous year as well. So that added to it as well. Just to close out, as we finish the year, we held our operating margin guidance at 26% to 27% range that we came out with at the beginning of the year. We may be towards the lower end of that range, and that's all pretty much related to VIVUSURE and the timing of expenses around the launch of PercuSeal Elite. Operator: Thank you. And the next question will come from Marie Thibault with BTIG. Your line's open. Marie Thibault: Good morning. Thanks for taking the questions, and nice job on the quarter. Just wanted to ask one here. And it's really on the IVP business. I know that we're expecting to see a return to growth in fiscal year 2027. Maybe you could just give us kind of you know, more of a peek into what's actually happening on the ground. Is the competitor who was rather aggressive with pricing and free product is that sort of out of the market at this point? How has your sales team sort of found its footing? Any more details on all of that? And then any timing, I guess, on the MVP label expansion that you referenced? For taking the question. Christopher Simon: Great. Marie, it's Chris. Thank you. Yes. In the quarter, if I step back and look at IBT, holistically, it's important to understand. And we're focused on this as much as anything in the company right now in terms of returning that franchise to growth and a positive contribution. The negative in the quarter was fully 70% of the 12% decline that we experienced was a function of esophageal cooling, and the disruption from PFA coupled with a leveling out of the OEM agreement that we think largely annualized is at this point. So it's just important to keep that in mind. Eight and a half of the 12% decline is attributable to those two factors. For vascular closure, you know, it's our number one focus. I've said this recently, you know, that I wanna make sure I just reiterate. We are confident we've got the right team. The strategy and the tactics they've put forth are the right ones to return to growth. That effort is fully funded, and you see that kind of in our current P&L. And, you know, at this point, we're just putting steps together to do the things that we need to do to be able to return and see that in our operating results as we get into FY '27. And we're confident that we have, you know, the right things in place to do that. We definitely woke up the competition. And that comes in different flavors. But from where we sit, and, you know, I happen to be sitting with a group of our advisers last night in electrophysiology. There's no question that the product is highly competitive. It's a superior product to what's out there. And know, we've got the clinical support to back that up. One of the things that we're looking forward to is that MVP XL label expansion. It's with FDA. The dialogue has been very constructive. Not gonna try to handicap exactly when the release might come. But it opens up a number of things for us when it does. And I think it would allow us to more broadly promote the product. It lets us work with a number of the IDNs and increasingly with the ASCs to be able to get the product on contract. And we think that, you know, top down as well as the bottom-up grassroots work that we're already doing, bodes well for him to be an important part of the recovery to come. Marie Thibault: Very good. Thank you so much. Operator: Thank you. And the next question will come from Joanne Wuensch with Citi. Your line is open. Joanne Wuensch: Good morning, and thank you so much for answering the question. Could you give us a little bit of color on the VIVUSURE acquisition? You talked about bringing the product to market in 2027. Anything that you've learned from your initial investment that helps you position for that product launch, or is there anything on the financial aspect of it that you can share at this stage? Thank you. Christopher Simon: Thanks, Joanne. Appreciate the question. We're excited about VIVUSHORE and the PercuSeal Elite product coming to market here shortly. We consummated and acted on our option because we really believe that this will meaningfully extend our leadership in vascular closure. It gives us a credible path to category leadership across small, medium, and now large bore procedures as well. It puts us squarely in structural heart. With both TAVR and EVAR procedures. You know, French openings that push into the mid-twenties and products gonna be indicated for that. It's a really meaningful advance versus what's in the market today. So we're excited. We sized that at roughly a $300 million addressable market, two-thirds of its here in The US. It sits, as I said, at the intersection of vast closure and structural heart, which should be a true tuck-in opportunity for us. So we're gearing up for the launch. We are learning from things that went well and less well in our prior launch. And so we're taking a very measured approach. And it'll be a stepwise, progress as we go. Once we have, you know, the official, approval from FDA, we'll be very clear about our plans, but it's gonna be stepwise. We're excited about the longer-term potential. But we're gonna take the steps that we need early to position this product for long-term success. Joanne Wuensch: As my follow-up question, there was a phrase you used during your opening remarks to deploy capital in a balanced fashion. I was hoping you could provide some color on how you think about deploying capital at this stage. Thank you so much. James D'Arecca: Joanna, it's James. If I could take a pass at that. So when I think about capital deployment, we strive to be disciplined, balanced, and returns-focused. That's how we think about it. It all starts with strong and growing free cash flow. That provides us the flexibility. We had 95% free cash flow conversion to date, over $200 million in free cash flow this year. So we're well-positioned. And for the future, that should continue. The most capital-intensive phase of our transformation is largely behind us. So our priorities remain clear. And really, they're unchanged. In the near term, we prioritize organic growth. We have some debt reduction coming up here. With the convertible notes that are due here in March. And we also prioritize share buybacks. You saw us do some of that just here at the end of the quarter. So longer term, once IVT execution is restored, we then will look more towards the opportunity for additional M&A like Vivashore. But that's the overall framework about how we're thinking about capital deployment. Operator: Thank you. And the next question will come from David Rescott with Baird. Your line is open. David Rescott: Great. Thanks, and good morning. I wanted to follow-up on some of the comments around the plasma collection and a broader market growth? And curious to understand maybe the metrics or visibility you have into the forward-looking outlook for that segment? I think in the past, you've talked about how there can be ebbs and flows to the business or to the collections market. And I think prior to the past two quarters, you were maybe in that ebb period of low to no growth. And now you've got two quarters of high single and now low double-digit seemingly market collection growth. So I'm curious, one, on and again, how you're gauging, you know, the sustainability of this accelerated period? And I guess, you know, if the end period was six or so quarters, if that's right, you know, why would it be, you know, unreasonable to think that this elevated collection market growth you've seen now for two quarters should not sustain in the flow period, we'll say, for a few more quarters. Christopher Simon: I think you're right. And I think that's not dissimilar to how we are thinking about it. We work backwards from the end market. When we look at the demand for immunoglobulin-based therapy, both primary and secondary immune deficiency, as well as autoimmune diseases, there is meaningful unmet need where Ig is unequivocally still the first-line therapy. For a whole host of reasons. It works very well. It's cost-effective. Etcetera. So we look at the end market demand. We listen carefully to what our customers are saying to their shareholders and work backwards from that. That bodes very well near intermediate and longer term for this industry. When we step in and now look at what that will translate to in the inevitable cyclicality of collections and inventory levels, our view is that this meaningful uptick in demand actually began six quarters ago. And we met the early stages of that when we rolled out Persona. And a 10% yield enhancement across the industry. So that gives us confidence that, you know, where are we in the cycle? We're in a building phase, and we're, you know, absolutely enabling that. For our customers with our technology. In terms of where we go from here, you know, we'll have those discussions. We'll get very clear how many new centers, what's the volume demand, what are they looking at, and we'll back that into our forecast for FY '27. At this stage, and I think we established this, you know, earlier in the year, we're gonna guide to the things that we can control. And that's the share uptick in terms of new centers coming over, and it's a function of the price annualization. So that's what you see reflected in our guidance. We're very happy that we've been able to guide upward with each successive quarter here. But in terms of the volume, I don't disagree with anything you've asserted, but we're not gonna put that into our guidance at this stage because we don't control it directly. David Rescott: Okay. That's helpful. And on VAScADE, I'm curious more on the vascular closure market. I think you again called out increasing PFA as part of a headwind in the business. If I heard that correctly. I think the latest updates we have at this point maybe is PSA and NAF is 70% or so of the market in The U.S. So therefore, the increasing utilization of PFA is now in theory should have less of a magnitude of an impact on the broader electrophysiology market growth that's eligible for a vascular occlusion device. So interested to hear what your views are on maybe some of those PFA headwinds beginning to lap and whether the vascular closure market or the interest in vascular closure devices is continuing to step higher. And so that as you lap PFA conversion, maybe the VCD kind of market growth on a blended basis should begin to, you know, step back up to higher levels. Thank you. Christopher Simon: David, the effect you're calling out is really important. I think the PFA launch has been a defining event in electrophysiology for AFib for sure. And some of it is just, you know, we talked about it earlier, kind of sucking out, you know, all the oxygen from the room. And being all-consuming in terms of getting clinician mind share. A lot of that has played through as you highlight there is an effect ongoing with the number of access sites. Exactly where that will land, we're still understanding because we're, you know, it's new therapeutic adoption. We know that, in some cases, it's a reduction in the number of access sites. It's certainly a change in the sizing, which is why the MVP XL product and the upcoming, anticipated FDA release is so critical to be able to compete in that space. We are seeing an uptick in concomitant therapy between AFib and left atrial appendage. That's a net negative in terms of the access sites. I say all that because it will affect the overall size of it affects the overall growth rate in the category in the near term. But as you highlight, as that levels out, and I'll leave it to you and others to kind of, you know, forecast exactly when that plays out. But as that levels out, what you will see in terms of access site availability for us, which really determines the TAM, is it'll regress to the category's growth rate. And as near as we can tell, that category growth is at least mid-teens at this point, which is an uptick for us going forward and gives us optimism about our ability to return to growth in '27 and beyond. So we'll see. We'll work our way through it. We think we've got a really good product. And the main thing we need to do is execute in particular head-to-head against our competition where we have lost share. Given the underperformance we've experienced year-to-date. Think it's entirely addressable. We think we have a better product. We need to make sure our execution matches that. David Rescott: Perfect. Thank you. Operator: Thank you. And our next question comes from Anthony Petrone with Mizuho. Your line is open. Anthony Petrone: Thanks, and good morning, everyone. Making sure you guys can hear me. Have me coming in okay? Christopher Simon: Yes. We do. Anthony Petrone: Okay. Great. Two questions. One plasma, one IVT. Chris, on plasma, we're hearing, you know, the competitor in The US. There have been issues you mentioned in your prepared remarks that one of the flavors of share gains here is actually at the center level. And presumably, donors moving away from the competitor wanting to donate on Nexus. You know? So when you think about that, you know, that's a risk for CSL. What's the latest thinking on the potential that CSL, you know, comes back to Nexus in some way is that a potential? If so, what do you think that can look like? And then I'll have a follow-up on IVT. Christopher Simon: Yeah, Drew. Thanks for the question. That Yeah. I made the assertion upfront that I don't think plasma has ever been stronger across multiple dimensions. And that starts with the quality of our relationships. And I think, you know, a number of things that the team did really well through the pandemic and the recovery is they were there for folks. No stockouts. No backorders. We never failed to make a delivery on the devices or the capital, you know, the disposables. That continues. We value our relationship with CSL as we do with all of our customers. We're delighted to have 100% of their international business, to have their US software on a long-term agreement. And so, you know, we'll continue to earn all of our customers' trust day in, day out. And I think that bodes really well for our trajectory going forward. Let me just leave it there. Anthony Petrone: Very helpful. And then on IVT, one of the drivers going forward here is side of service. And ASCs are, you know, sort of a new channel here for electrophysiology. Pulmonary vein isolation specifically. It feels like that's where those surgeries are headed. But that seems like it's greenfield for vascular closure as well. So maybe just a little bit on ASC. Like, how penetrated are you there at the moment? And are those, like, new sites where really, you can kinda gain new ground here going forward? And how does that play in the world trajectory for Basketball? Christopher Simon: Yep. Thanks. I mentioned that we had our electrophysiology advisory board here with us in Boston yesterday, and several of those clinicians are running some of the largest ASCs in the country. They're our customers. We've done a bunch of things with them that I think bode well for our presence in the ASCs. When I take a step back just to put a little flesh around the efforts we have underway, one of the critical gaps that we identified earlier in the year is corporate accounts presence. Both for ASCs, as well as for IDNs. And we've meaningfully strengthened that capability over the course of the year. We think what we offer in vascular closure, particularly now that we have this full spectrum from six French to 25 French, is the opportunity to be their partner on vascular closure and increasingly push venous and arterial across the board. So conversation is know, how does this fit in in their operations? Speed of ambulation, the absence of narcotics, the reduction in rebleeds, is all very powerful value prop for the ASCs. We think that establishes a new growth vector for us heading into FY '27. We're gonna be excited to capitalize on it. Operator: Thank you. Thank you. And the next question will come from Mike Matson Needham and Company. Your line is open. Mike Matson: Yes, thanks. So wanted to ask one on in Interventional Technologies, the Savvy Wire product. I didn't really hear any commentary on that. So can you talk about maybe what the growth was with that? And what the what you need to do to kinda make that become more of a growth driver? Because it seems like a pretty unique and interesting product within that portfolio. Christopher Simon: Yeah. Mike, thanks for the question. Savvy Wire is a mixed story for us at the moment. I called out this 70% you know, fully eight and a half points of the 12 points of decline in interventional was attributed to esophageal cooling and the OEM portion of SavvyWire. And so we have a very good relationship with that we inherited when with the Opsense acquisition. Where, you know, we're providing the product for the Impella pump. There's been some releveling of that. There's a dual manufacturing site and kind of, you know, kind of rebalancing that's largely played through. We may have one more quarter of that that we have to work through. But, you know, that will ultimately regress to the growth of the underlying pump market, which we think is mid-teens or better, and we're excited about that. In the near term and in the quarter, it was absolutely a headwind for us. If I flip over to the other side of the Guidewire business, the actual, you know, structural heart play, very powerful. And we see good uptake there. The bifurcation of our efforts between closure and structural heart guidewire has helped. Although it's still, in fairness, early innings. From in into that focus. We're cautiously optimistic. We think that'll be a big part of what drives us in '27. We need to see that come through. Interestingly, we don't talk much about OptiWire, which is the other part of the Guidewire business. But one of the things we're hearing back to the prior question about the ASCs, OptiWire is very attractively priced for what it has a really clean value proposition. And seems to be gaining early traction with the ASCs. We hope be able to build upon that going forward. Mike Matson: Okay. Thanks. And then blood center was this quarter, and I think you said it was positive year-to-date. So are we now at a point where that business can stay in the green in terms of growth from here, especially given this the plasma part of the business seems like it's seeing stronger growth. Christopher Simon: Yeah. It's a tale of two halves. As we go through that. I think as it pertains to plasma apheresis, this is done by the blood center customers. So as an example, it's Egypt, but I could say the same thing about France or Canada or Turkey. We are working with local blood center customers that have partnered with one of the larger cell sourcing fractionators to help collect them, you know, help them get collected and kind of drive forward. And so we offer them a turnkey proposition. That's what's gonna drive the continued performance in blood center globally. The other half of the business is the remaining '27, but we will see a relative difference between two paths of that business going forward. Mike Matson: Okay. Thank you. Operator: Thank you. And the next question will come from Michael with Barrington Research. Your line is open. Michael Petusky: Good morning. Hey, Chris. So the guide for hospital for fiscal twenty six seems to imply that you guys deliver the best quarter in hospital on a reported basis of the year. And I'm just curious, is that mostly a function of sort of the order timing issue reversing? Or are you seeing meaningful sort of clawbacks on some of the business that you may have lost in Escrow closure. I'm just curious, it's a fairly bullish forecast relative to what you guys reported? I'm just curious what's driving that. Thanks. Christopher Simon: Mike, thanks for the question. You're exactly right. It is a bullish forecast for the fourth quarter. We felt comfortable guiding to the low end of the existing range because predominantly of the strength that we're seeing in blood management technologies this quarter. Right? TEG continues to push forward. We're, you know, we're midstream here in this PEG 5,000 system upgrade. We have line of sight to the capital there. That has us enthusiastic. And then we're seeing this really meaningful uptake on a TEG disposable basis we're generating roughly twice the usage from the existing tag successes that we did, you know, even just two years ago. So BMT is gonna have to carry the water for us for sure. In the fourth quarter, well onto the double digits. But to your question, we also need to see a beginning of the stabilization in IVT. And I think some of that is order timing. Some of that is head-to-head competition where you know, we're clawing back things we lost or stabilizing. And, you know, we talk a lot about the investments we need to make in interventional technologies. I've called those out repeatedly. I feel like we've made the investment. We're not looking at further dilution or outflows there. You'll see certain things. We've guaranteed some of these highly competitive territories. On a quota basis to get the right people in the seat and get them motivated. So there's some expense associated with that. That's already, you know, reflected in our P&L. We are also being purposeful about things that, you know, would encourage new usage without wrecking our margins. So we're going to continue to make those investments. We think we'll begin to see the stabilization of that in the fourth quarter. So we pair the losses, not entirely, but partially. And the combination of those two things, really strong, continued strong performance in BMT, with the beginnings of stabilization in IVT should get us to land where we wanna land for the year. But also set us up nicely for growth in FY '27 across the hospital franchise. Michael Petusky: Okay, great. And if I could follow-up, and you may have partially answered this question in your response just now. But you guys, a couple of quarters ago, when sort of ran into meaningful issues in vascular closure, sort of called out 50 accounts where you felt like, we sort of got our lunch eaten in some of these in these fifty accounts. And obviously, you put in a lot of changes very quickly as a response. And I'm just curious, I assume that you're probably tracking data from those 50 accounts that you guys identified six months ago. And I'm just curious, you know, is are you at this point, sort of trading punches or are you still losing a little there, but do you feel like you're sort of seeing some anecdotal evidence of the turnaround? Or what are you seeing in those accounts that you identified a couple of quarters ago? Christopher Simon: Yeah. Like, the tagline, I assure you we are giving at least as good as we get these days. One of the things we've done is really strengthen our commercial operations. We have a much better handle through some of the obvious tools, Salesforce, etcetera, that track that performance. So we are paying very close attention to the individual account wins and losses and win backs, you know, are super critical for our longer-term success. We have two very different competitors. One is the established, you know, industry standard, and they've meaningfully beefed up their commercial presence. They're working through their corporate accounts team with their new product launch in AFib. So, you know, that's formidable, and we wanna be mindful of that. We think there's a role for us as a more innovative highly legitimate number two in the category. On the other end, yeah, we talk about, you know, the mixed product and some of the things they did early on to secure a foothold. We made it easy on them. I can assure you there's nothing easy about it in that category today. We have a team that's fit for task that's out there fighting for what's rightfully theirs. We value the win backs highly, and I can tell you the balance has shifted. And that's what gives us optimism on a go-forward basis that, you know, it was never the product. And it was never the market. And therefore, you know, we control this outcome if we're committed to it. And I assure you, we have no higher priority as a company right now than to return IVT to growth and that starts with vascular closure. Especially in AFib. Michael Petusky: Great. Thanks, Chris. Operator: Thank you. And the next question will come from Andrew Cooper with Raymond James. Your line is open. Andrew Cooper: Thanks, everybody. Maybe first, wanna follow-up on something you just said there, Chris. When you said the balance has shifted. Can you give us a little bit of a sense for what is it that you're seeing that is telling you that that balance has shifted? Because I think we've all sort of known for some time that the Vascaid product MVP and XL, you know, are well thought of by clinicians. And so when we look at the data, when we look at the performance, I don't think that piece is what's changed. So what informs that view that the balance has shifted kind of ahead of seeing the volume and the revenues showing that shift? Christopher Simon: Yep. I think the bifurcation that we put in place earlier in the year is really starting to yield the results we. We have 200 field-based representatives who get out of bed every day and think first, second, and third about closure. And we know that more than two-thirds of that opportunity today is in electrophysiology in, you know, for MVP and for MVP. So, you know, we're tracking how those folks are spending their time and, you know, their win rates, and we're increasingly confident about that. You know, we still had gaps in our own field force, open territories where we had faced the most stiff competition and our folks weren't able to respond for whatever set of reasons. So as we close those vacancies, as we watch these new reps come up the learning curve, it's really powerful. And I don't think we've said this publicly before, but at this point, you know, fully 60% of our field team has been in their territory, in their current role, less than six months. That's an important number to keep in mind as you gauge our competitive response. There is a learning curve. These are very talented individuals when they were hired. Because they were fit for purpose for the task we need from them. And they have a faster uptick than you would otherwise expect, but there's still an uptick. And we've gotta give this team an opportunity to really get traction. I think, as I called out earlier, some of the key account work we're doing with the IDNs is providing them the air cover to be able to go in and pull through the business. I think that's another place where we were getting out executed by the competition. We've turned the tide on that, and I'm pleased to say we've turned the tide on that without meaningfully compromising our gross margin, our price points. We have a great product when it's properly presented and has the appropriate air cover, we win. And that's what you should expect from us going forward. Andrew Cooper: Okay. That's super helpful, and look forward to sort of seeing the fruits of all that come together. Shifting a little bit to plasma, I did just wanna ask, and I think maybe you touched on it a little. But when we look at the fiscal three q going into the fiscal four q implied numbers, looks like a little bit bigger than the typical seasonal step down in fiscal four q. So just wanna get a sense for is that conservatism? Was there any stocking around some of these fair gains or anything to think about on know, I know you had that chunky software renewal earlier in the year. Just trying to get a sense for anything that would explain maybe that step down or you know, is it really just trying to take a prudent approach to close out the year? Christopher Simon: Yeah. Prudence is the exact right word, Andrew. We had a really good third quarter, obviously, above historic seasonality, number one driver in the quarter and now year-to-date were the share gains. So there was nothing around, you know, order timing or one-offs that you need to factor in there. It's just us guiding on the things we can directly control, you know, for further share uptick in the final stages of annualization from last year's technology rollout. You know, collection volume, Yep. We'll leave it to you guys to figure out what you think is the right number to plug in there. Our guidance reflects what we can control. Andrew Cooper: Okay. Great. I'll stop there. Thank you. Christopher Simon: Thank you. Operator: Thank you. I am showing no further questions in the queue. This will conclude today's conference call. Thank you for participating and you may now disconnect.
Operator: Good morning. Thank you for standing by, and welcome to the Madison Square Garden Sports Corp. Fiscal 2026 Second Quarter Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Ari Daines, Investor Relations. Please go ahead. Ari Danes: Thank you. Good morning, and welcome to Madison Square Garden Sports Corp. Fiscal 2026 Second Quarter Earnings Conference Call. Our Chief Operating Officer, Jamaal T. Lesane, will begin this morning's call with an update on the company's strategy and operations. This will be followed by a review of our financial results with Victoria M. Mink, our EVP, Chief Financial Officer, and Treasurer. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or AOI, a non-GAAP financial measure. And with that, I now turn the call over to Jamaal. Jamaal T. Lesane: Thank you, Ari, and good morning, everyone. For the fiscal 2026 second quarter, Madison Square Garden Sports Corp. generated revenues of approximately $403 million and adjusted operating income of approximately $30 million. These results reflect positive momentum in key operating areas with per game revenues across all in-game categories including ticketing, suites, sponsorship, and food, beverage, and merchandise up as compared to the fiscal 2025 second quarter. These results also reflect higher national media rights fees as a result of the NBA's new national media deals, the impact of our amended local media rights agreements with MSG Networks, and our continued investment in our teams. As we look ahead with the ongoing momentum we see across our business, we remain well-positioned to drive long-term value for our shareholders. Now let's discuss our operations in more detail. This year, fan enthusiasm for our teams continues to be evident in results across our business. The Knicks and Rangers combined season ticket renewal rate this season was approximately 94%. In addition, we've been focused on optimizing pricing and mix of individual and group sales to maximize revenues for each game. As a result, we saw a year-over-year increase in per game ticketing revenue in the fiscal second quarter, which also reflects the increase in mixed season ticket prices following the team's exciting playoff run last year. This year, we've also been celebrating the Rangers' centennial season, with multiple generations of fans and former Rangers players joining us at the Garden for a number of curated theme nights to highlight the history of our storied franchise. This celebration will culminate with the Rangers' 100th anniversary capstone game in November. This special season has included two new additions to our merchandise collection: a centennial jersey that honors our 100 years of history, and a separate jersey that commemorates our participation in the NHL's annual winter classic, as worn by the players in that game. In addition, we have also introduced a number of other new merchandise offerings for both the Knicks and Rangers this year. We continue to partner with unique brands such as KISS and New Yorker Nowhere, for exclusive retail offerings that have been resonating with fans. In fact, when the Knicks' new kit collection launched in November, and the Ranger Centennial Collection debuted at the Garden in October, single game merchandise sales were amongst our highest in each team's history. With the help of these efforts, we saw higher food, beverage, and merchandise per cap spending during the quarter, as compared to the prior year period. Enthusiasm for the Rangers' centennial season has also extended to our marketing partnerships business. In September, the company announced a significant multiyear agreement with Game Seven. That included naming the multiplatform sports and entertainment brand, which was co-founded by Rangers great Mark Messier, as the first-ever jersey patch partner of the Rangers. Game Seven is now featured on our home, away, and centennial jerseys this year and was the presenting partner of one of the Rangers' recent centennial season theme nights. Momentum in our marketing partnerships business has also been highlighted by a number of other announcements so far this fiscal year. Over the last several months, we signed new multiyear partnerships with PwC and Polymarket and reached multiyear renewals with Anheuser-Busch and Infosys. In terms of premium hospitality, we continue to see strong new sales and renewal activity for suites at the Garden. In addition, we are seeing the benefit of incremental revenue this year from several Lexus level suites that were recently renovated. Our progress in these categories puts us on track for growth across both marketing partnerships and premium hospitality in fiscal 2026. Turning to media rights, as I mentioned earlier, the NBA's new national media deals with Disney, NBCUniversal, and Amazon began this season, which is reflected in today's results. In addition, our results reflect the Knicks and Rangers' amended local media rights agreement with MSG Networks. As a reminder, those amendments included 18% reductions in annual rights fees payable to the Knicks and Rangers respectively, which were effective January 1, 2025, along with an elimination of annual rights fee escalators. Looking ahead, ending next week, we will be proud to watch a number of Rangers compete in the 2026 Olympic Winter Games for their home countries. And on the basketball side, the Knicks have been carrying on the momentum from last year's playoff run. As you know, in fiscal 2025, the team welcomed Abu Dhabi's Department of Culture and Tourism as its new jersey patch partner. Building on this relationship, and global enthusiasm for the team, the Knicks visited Abu Dhabi for two preseason games in October. In addition, the first several months of the season were capped off by the Knicks winning the league's third annual in-season competition, the NBA Cup, in December. Coming up, we are looking forward to watching Jalen Brunson and Karl-Anthony Towns participate in the 2026 NBA All-Star Game. So in summary, our business, with its strong underlying fundamentals, continues to benefit from robust consumer and corporate demand. And we remain as confident as ever in the value of owning two iconic sports franchises. With that, I'll now turn the call over to Victoria. Victoria M. Mink: Thank you, Jamaal. And good morning, everyone. Results for the fiscal second quarter reflect preseason play and the start of the 2025-2026 regular seasons for the Knicks and Rangers. During this period, we hosted 39 pre and regular season games across both teams as compared to 35 games last year, which positively impacted our results for the quarter. This timing benefit will reverse over the second half of the fiscal year. For the fiscal 2026 second quarter, total revenues were $403.4 million as compared to $357.8 million in the prior year period, which reflected the impact of more home games at the Garden versus the prior year as well as increases across every key revenue category on a per game basis. Event-related revenues of $167.2 million, which mainly consists of ticket, food, beverage, and merchandise revenue, increased 20% year over year, while suites and sponsorship revenues of $98.5 million increased 24% year over year. National and local media rights fees of $122.3 million decreased 4% year over year. This primarily reflected the impact of our amended local media rights agreements with MSG Networks, which was partially offset by higher national media rights fees due to the NBA's new national media rights deals. Adjusted operating income increased $9.4 million to $29.7 million, primarily due to the increase in revenues partially offset by higher direct operating expenses. The increase in direct operating expenses primarily reflected higher team personnel compensation and corresponding luxury tax, higher revenue sharing expenses, net of escrow, as well as other cost increases. This was partially offset by the absence of net provisions for certain team personnel transactions recognized in the prior year quarter. I would also note that AOI for our fiscal 2026 second quarter includes $9.9 million of noncash Arena operating lease costs as compared to $9.3 million in the prior year period. Turning to our balance sheet, in November, we refinanced the Knicks and Rangers senior secured revolving credit facilities. These refinancings improved our average borrowing rate and extended each facility's maturity for a new five-year term ending in November 2030. In addition, total capacity under the Knicks revolving credit facility was increased by $150 million to $425 million with no change to borrowings outstanding. These refinancings demonstrate both the quality of our asset and the confidence in the long-term outlook for both our teams and leagues. At the end of the quarter, our cash balance was approximately $81 million and our debt balance was $291 million. This was comprised of $267 million under the Knicks senior secured revolving credit facility and $24 million advanced from the NHL. So in summary, we remain confident in the trajectory of our business and our ability to drive long-term value for our shareholders. I will now turn the call back over to Ari. Ari Danes: Thanks, Victoria. Operator, can we now open the call for questions? Operator: Thank you. We will now begin the question and answer session. If you would like to withdraw your question, simply press 1 again. Your first question comes from the line of David Karnovsky from JPMorgan. Your line is open. David Karnovsky: Hi. Doug Wardlaw on for David. I just want to ask you, given your current cash and debt balances, can you update us on how you're thinking about any potential capital returns? And should we think of this largely contingent on playoff runs for the teams? Thank you. Victoria M. Mink: Hi, Doug. Thanks for the question. So, yeah, we take all variables into account when, you know, thinking through and determining how we allocate capital. Now with that said, our long-term capital allocation priorities, you know, they remain the same. You know, first, it's to maintain appropriate liquidity to fund our operations and invest in our core business. You know, second, we want to make sure we have a strong balance sheet. Now as of December 31, there were no changes to our outstanding borrowings. But, you know, as part of our recent refinancings, we've improved our rates including lowering commitment and borrowing rates for the Rangers, and extended each facility's maturity for a new five-year term. You know, in addition, we increased the borrowing capacity under the Knicks revolver by $150 million to $425 million in keeping with the NBA's recent increase to the debt limit for teams. So and we always consider opportunities that make strategic and financial sense, you know, and think these refinancings give us enhanced financial flexibility. You know? And third, we plan to be opportunistic about other uses of our cash flow. I would not rule out a return to capital program in the future. Operator: Your next question comes from the line of Steven Chikutz from Citi. Your line is open. Steven Chikutz: Hi. Thanks for taking my question. I was wondering if you could comment if a minority interest sale remains a potential option. Jamaal T. Lesane: Good morning, Steve, and thanks for the question. We don't have any news with respect to a minority interest sale. We are confident in the value of our teams. We are cognizant of recent reported transactions in the marketplace. And those transactions serve as confirmation of our belief that these are scarce valuable assets and we don't think that that value is appropriately reflected in our current stock price. So we would never rule out the possibility of a minority stake sale. But as I said, we have nothing to report at this time. Steven Chikutz: Got it. That's helpful. And then just one more, if I may. Was wondering how you're thinking about the potential impact of the upcoming changes to the tax deductibility of compensation that's set to begin in 2027? Victoria M. Mink: Sure. Hi, Steve. You know, we continue to assess the impact of changes in tax regulations. You know? But as a reminder, you know, it becomes effective for our company the year ended June 30, 2028. But at this time, we just have nothing further to share. Steven Chikutz: Got it. Thank you. Operator: Your next question comes from the line of David Joyce from Seaport. Your line is open. David Joyce: Thank you. Could you please provide an updated outlook on the evolving RSN and local media rights landscape? Granted, you've got, you know, a flat arrangement now with MSG Networks. But in some other sports, you know, some of those rights have been, you know, getting clawed back by the leagues. Just wondering what you're seeing and what your thoughts are on the landscape. Thank you. Jamaal T. Lesane: Good morning, David. Yeah. Look. As you referenced, the RSN clearly continues to evolve, and we are, as I said, a few moments ago, we're cognizant of what goes on in the marketplace. Yeah. In that case, we continue to believe in the value of local media coverage. Especially when you consider in a large market like New York and the Tri-State area, where our fans continuously look for unique content that is tailored to them. And that, in turn, helps drive fan engagement. And, you know, we do have we have a great partner in that respect in MSG Networks who helps us to deliver that tailored local content to our fans. As a reminder, and I mentioned this earlier, our amended agreements with MSG Networks run through the end of the 2028-2029 season. And so we remain focused on maintaining that important connection we have with both MSG Networks and our local fans. And so, yeah, we'll continue to monitor the changes impacting the RSN industry. But we also remain confident in our position as a rights holder for two marquee sports franchises. David Joyce: Great. Thank you. Operator: Your next question comes from the line of Peter Supino from Wolfe Research. Your line is open. Peter Supino: Hi. Good morning. I wonder if you would talk about the Rangers. Obviously, we were all hoping for a better result on the ice, and I wonder if you could share with us if that will possibly impact the financials going forward, whether from the postseason, missing the playoffs, etcetera? Thanks. Jamaal T. Lesane: Sure. Good morning. Thanks for the question. Let me tackle that in two parts. The second part, you mentioned the financials. Look. As you can see with our results today, our business remains strong. During the quarter, we saw growth in all in-game revenue categories on a per game basis. That includes ticketing, where we have passionate fan bases who show up and cheer on their teams. That includes sponsorship and premium hospitality, where our results this year reflect the benefit of multiyear deals as well as strong renewal and new sales activity. And that includes strength in per cap spending at The Garden, where we have seen merchandise sales days amongst the highest in each team's history so far this year. Now with respect to the playoffs, you know, there are two immediate markers in the playoff run. The first is, of course, the valuable incremental home games. And then the second is that we historically have raised even ticket prices if one of our teams makes the playoffs. And so we are, of course, monitoring the standings, but as we stand here today, we are fully focused on making this as successful a season as possible. And whether that's welcoming multiple generations of Rangers fans and alumni players to honor 100 years of Rangers hockey, as we do tonight, or celebrating the Knicks' double overtime win as we did last night, we are looking forward to continuing the celebrations for the rest of the season. Peter Supino: Thank you. Jamaal T. Lesane: Thanks, Peter. We'll take one more caller. Operator: Certainly. Your final question comes from the line of Joseph Robert Stauff from Susquehanna. Your line is open. Joseph Robert Stauff: Jamaal, I was wondering if you could provide an update maybe on the opportunities from here for sponsorship growth and further suite upgrades. Jamaal T. Lesane: Sure. Happy to, Joe, and good morning. Seeing good momentum in both areas of the business. Starting with marketing partnerships, we've had a number of new deals and renewals so far this fiscal year, which include, as I mentioned earlier, the multiyear extensions with Anheuser-Busch and Infosys, and new multiyear deals with PwC and Polymarket. And, you know, I can't say enough about our new partnership with Game Seven, the multiplatform sports entertainment brand that was co-founded by Rangers great Mark Messier. You know, that jersey patch inventory is premium inventory for us. And to sell our first-ever jersey patch, in a historic season to Game Seven, just feels so synergistic for us. And it's been a thrill partnering with Mark and Isaac Chera and the rest of the Game Seven team in that regard. And then in terms of premium hospitality, after a record year of revenue in fiscal 2025, we continue to see robust demand from corporate partners. This has resulted in strong suite renewals and new sales. And from that, we capitalized on that momentum by renovating, in partnership with MSG Entertainment, several Lexus level suites ahead of this 2025-2026 season, and we are seeing the benefits of those renovations this year. And that, Joe, is in keeping with our goal of both improving the guest experience while also creating incremental revenue opportunities for our business. So overall, we're seeing positive momentum and we are currently on track for growth in both marketing partnerships and premium hospitality this fiscal year. Thank you. Operator: And that concludes our question and answer session. I will now turn the call back over to Ari Daines for closing remarks. Ari Danes: Thanks for joining us. We look forward to speaking with you all on our next earnings call. Operator: Have a good day. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to SelectQuote's Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. It is now my pleasure to introduce Matthew Gunter, SelectQuote investor relations. Mister Gunter, you may begin the conference. Matthew Gunter: Thank you, and good morning, everyone. Welcome to SelectQuote's fiscal second quarter earnings call. Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion. After today's call, a replay will also be available on our website. Joining me from the company, I have our Chief Executive Officer, Timothy Robert Danker, and Chief Financial Officer, Ryan M. Clement. Following Tim and Ryan's comments today, we will also have a question and answer session. As referenced on slide two, during this call, we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and investor presentation on our website. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company, and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release, annual report on Form 10-Ks for the period ended June 30, 2025, and subsequent filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. And with that, I'd like to turn the call over to our Chief Executive Officer, Timothy Robert Danker. Tim? Timothy Robert Danker: Thanks, Matt. Good morning, and thank you for joining us. It was a strong quarter for SelectQuote in a number of ways, which I'll summarize on slide three. As you saw from our press release, our team's execution this Medicare Advantage season drove a successful AEP. Despite another shifting backdrop for policy features, SelectQuote continues to prove its value to customers as the leading choice marketplace. As always, seniors received bespoke information and assistance from live agents to select the policy that best fits their needs. Better yet, our commitment to technology continues to arm our agents with an efficient and powerful service platform, which drove another strong quarter for agent productivity, aiding volume production and profitability. Strong operational execution and marketing efficiency drove near-record senior EBITDA margins of 39% on modest growth year over year. Congrats to the team for yet again driving an AEP quarter with strong operating leverage and another dynamic market backdrop. Beyond senior, our health care services segment continues to grow rapidly, increasing revenue 26% year over year. Most importantly, SelectRx continues to make a significant impact on the health and quality of life for America's growing senior population. The impact is real and is being increasingly noticed. This is great validation of the clinical values SelectRx provides beyond simple drug delivery. I'll speak more to that topic in a moment. Additionally, over the past month, we made two announcements to benefit our SelectRx business and capital flexibility. First, for SelectRx, we entered a multiyear agreement with one of our most important pharmacy benefit manager (PBM) partners. With this agreement, Cyclo's visibility into drug reimbursement pricing is significantly improved. This is critically beneficial to our strategic priority to expand profitability. Second, our new $415 million credit facility announced in mid-January greatly improves the company's capital flexibility, which is an important milestone in our ability to drive consistent profitable growth. Overall, we are very pleased with our results to date and have greater conviction in our ability to compound profitability and cash flow given this past month's announcement. Lastly, despite another strong quarter, recent action by a national carrier partner requires that we lower our fiscal 2026 guidance. Specifically, this carrier significantly cut their strategic marketing budget across all distribution channel partners, including SelectQuote. As we've discussed, insurance companies continue to optimize profitability for Medicare Advantage. In conversations with the carrier, the decision was designed to slow growth following above-trend growth on MA. In total, we expect the fiscal 2026 impact from this carrier action to be around $20 million. Combined with the PBM reimbursement impact we discussed last quarter, which we know now will also create an impact of around $20 million, we need to reduce our guidance ranges for both consolidated revenue and adjusted EBITDA to reflect the $40 million aggregate impact. While frustrating, it's important to note that the change by this one carrier does not impact our long-term outlook about the growth, profitability, and cash flow potential for our business. We stand by our previously announced fiscal 2026 targets of 20% plus EBITDA margins for our senior division and an annualized adjusted EBITDA exit rate of $40 to $50 million for our health care services division. Additionally, we think it's important to note substantial improvements SelectQuote has made on cash flow generation despite the PBM and the action of this one carrier. We expect fiscal 2026 to produce operating cash flow of $25 million to $35 million, which is up more than $40 million at the midpoint compared to last year. The improvement has been driven by increased cash flow from our health care services business and continued progress to optimize our capital structure. Overall, while the noise in our EBITDA driven by partner actions was not anticipated, we're very pleased with the execution trajectory of our profitability and cash flow. Put another way, SelectQuote is delivering on the goals of our strategy, and we're confident in our ability to drive value for shareholders. With that, let's move to Slide four to review our performance in AEP. Similar to the past Medicare Advantage season, we prepared early for a season of disruption given shifting policy and volume strategies across the industry. As we noted last quarter, our strategy entering AEP was to focus on tenured agent retention and proactive connection with our policyholders on their needs relative to changes in the overall policy landscape. This focus resulted in another successful season. Policy volume growth was 4%, modestly ahead of our expectations. SelectQuote's agents and technology performed well again, measured by productivity and profitability. 2% and drove near-record margins of 39%, which marks the fourth consecutive AEB season of senior EBITDA margins above 30%, despite highly varied years for Medicare Advantage policy features. We're proud of the track record and believe the SelectQuote strategy to prioritize profitable growth and cash flow has been more than battle-tested at this point. Our team delivered strong agent productivity and highly efficient marketing cost per policy once again. First, our agent population was comprised of a slightly lower albeit still strong mix of tenured agents than the previous year. Our agent retention remained steady, at north of 90%. But our tenured agent mix was lower due to additional agent hiring this past summer. Even with this higher mix of new agents, our productivity per agent remained 12% higher than two years ago, which is a testament to the effectiveness of our information and technology investments which have always been a pillar of our model. In regards to marketing, you'll recall last season's marketing spend per approved policy was highly efficient. We've continued to refine our customer targeting and have placed intentional focus on owned and operated marketing channels which provide a strong mix of attractive prospects. Specifically, our marketing cost per approved policy and this AEP was $326, which is in line with last year and 20% lower in 02/2024. To summarize, the unique strengths of our model drove significant value to our policyholders and carrier partners in another dynamic environment for Medicare Advantage. This resulted in impressive profitability and cash flow for our senior segment. On Slide five, I'd like to provide additional real-world color on how SelectQuote helps America's seniors when the market is dynamic and disruptive. At the highest level, SelectQuote's optimized technology and data empower our live agents to deliver excellent service to our customers. For the second consecutive year, insurance carriers have significantly shifted policy structures and coverage features. Additionally, this was the second straight year a significant number of plans were terminated by carriers. In each of the past two seasons, approximately 7% of the total plans in force have been canceled by the carriers, which compares to a historical average below 1%. Beyond the elevated plan termination levels, the majority of our remaining beneficiaries saw a negative impact on at least one of their plan benefits on their legacy plans. This industry-wide dynamic created a market backdrop of elevated consumer shopping and engagement. As you will recall, our strategy heading into this AEP was to replicate the success of policyholder recapture and retention compared to a year ago. Our operational focus to achieve this goal was to leverage our information and technology to work proactively with policyholders. Ahead of the season, we identified a subset of policies with higher change potential. In effect, we pulled forward as much of the work and anticipated coverage gaps based on each specific individual and disruption as possible. The end result is that SelectQuote is a more valuable broker partner both to the policyholder and the carrier. Especially in dynamic seasons like the past few years. When our customers call us looking for answers, our agents aren't starting from square one. Similarly, our carrier partners benefit from policies with better fit and persistency. We measure the success of this strategy with our recapture rate which was when our customers call us looking for answers, agents aren't starting from square one. Similarly, our carrier partners benefit from policies with better fit and persistency. We measure the success of this strategy with our recapture rate which was 33% this year. We're very proud of our recapture performance last year, this year, we delivered an even better result. This not only benefits market share, but each recapture means we preserve the cash flow from and the relationship with those beneficiaries. To summarize, in another dynamic environment for Medicare Advantage, we are proud of the service we provided to our beneficiaries, which resulted in strong customer recapture rates and retention. The unique strengths of our model drove significant value to our policyholder customers and carrier partners and aligned with optimal profitability and cash flow for our senior segment. Before we shift to health care services, let me take a moment to address last week's 2027 advanced rate notice from CMS. Several carrier partners have already voiced disappointment with the advanced rate notice, and we agree the preliminary rates don't reflect rising utilization and care costs. It's important to remember that these advanced rates are not final. Coming on the heels of two highly disruptive seasons for Medicare beneficiaries, we believe CMS will receive feedback from the industry highlighting the potential negative implications to beneficiaries in advance of the final rate notice in April. Regardless of the market backdrop, we will continue to prioritize outstanding service to our beneficiaries. SelectQuote's bespoke service model and information advantage remain highly valuable and will likely become even more important as carriers focus on optimizing returns and policyholders work to interpret plan changes. On slide six, I'd like to provide important context about the value of our SelectRx prescription drug delivery adherence service. America's medication system is increasingly inefficient, confusing, and costly. Issues that directly impact seniors' health. Recent Wall Street Journal articles highlighted two core problems. First, many seniors manage complex drug regimens prescribed by multiple physicians, which increases the risk of inappropriate medications and harmful interactions. Second, the widespread practice by many mail-order pharmacies of repeatedly early filling ninety-day prescriptions contributes to billions in waste of drugs when prescriptions change, while also creating complexity that undermines medication adherence. SelectRx was purpose-built to address these systemic challenges head-on. Our thirty-day time and date stamp medication strips reduce confusion, support adherence, and substantially cut waste when members' prescriptions change, which occurs for roughly 10% of our population each month. Just as importantly, our pharmacists review and consolidate each member's full medication profile. In 2025, they identified nearly 50,000 potential dosage or adverse interaction concerns. When such concerns arise, our pharmacists contact prescribing physicians and attempt to remediate these concerns for impacted members. These conversations with prescribing physicians have resulted in changes to tens of thousands of prescriptions, helping to safeguard the patients we serve. This integrated approach is delivering real measurable outcomes, including an observed 20% reduction in beneficiary hospital days driven by better active medication adherence. These issues facing America's seniors are exactly why we built SelectRx, and why we continue working to improve the system that has long needed meaningful change. Before I turn the call to Ryan, I'd like to briefly touch on our January credit facility announcement and what it means for SelectQuote strategically. First, for those that have followed us, the optimization of our balance sheet has and continues to be a core priority of our strategy to drive shareholder value. In short, we believe our model should command a lower cost of capital. It is our intention to achieve that through continued operational improvement, growing cash flow, and the natural deleveraging that will follow. We've made progress on this goal with previous refinancings, but to date, have been limited by the near-term debt maturities, which hindered our operational flexibility, especially in our senior Medicare Advantage business. As you can see on the charts on slide seven, the new credit facility significantly extends our debt maturities to 2031. To be clear, our strategic focus does not change, and SelectQuote will continue to prioritize profitability and cash flow over growth. This enhanced operational flexibility simply allows us to capitalize on growth opportunities when market conditions support them. With that, let me turn the call to our CFO to detail our results. Ryan? Ryan M. Clement: Thanks, Tim. I'll pick it up on Slide eight. A summary of our consolidated financial results. As Tim noted, SelectQuote had a very strong quarter with revenue growth of 12% year over year, totaling $537 million. The growth was driven by both our senior and health care services businesses, reflecting a strong AEP and continued demand for our SelectRx service. Our EBITDA results were temporarily depressed due to the PBM reimbursement headwind we highlighted last quarter. In January, we announced a new longer-term PBM agreement that provides increased visibility to these rates, which is important for our focus on predictable and profit-driven growth. The PBM headwind in healthcare services was offset by senior margins near record levels at 39%, driven by very strong efficiency in this AEP's marketing spend per approved policy. In total, the quarter was excellent. As Tim mentioned, the operating momentum within both sides of the business is evident, and SelectQuote's new balance sheet flexibility positions us well to navigate changing market conditions and capitalize on emerging opportunities. Moving to Slide nine. SelectQuote had a strong AUP despite another volatile market environment driven by carrier plan changes and terminations. Senior revenue of $262 million grew 2% on increased approved policy volumes. This AEP, we were able to increase our agent population, which modestly aided volume, and we expect these agents to become increasingly productive with experience, the season, and into the years ahead. The business was able to more than offset the productivity ramp of these new agents with strong marketing efficiency and other services revenue, which drove near-record EBITDA margins of 39% in the quarter. This resulted in senior adjusted EBITDA of $102 million, which is in line with last year's strong season. To echo Tim's sentiment, we are very pleased with the consistent execution in our senior business over the past four distinct seasons. Flipping to Slide 10, we recognize strong demand for SelectRx in our health care services segment. Members grew 17% year over year to 113,000. Revenue grew even faster, expanding 26% year over year to $231 million as recently onboarded members continue to mature and take delivery of their full prescription regimen. As we have noted, we expect growth to be more modest on a sequential basis in the near term as we continue to prioritize cash flow and profitability, much as we have in the senior business. That said, the PVO announcement earlier this year goes a long way toward providing that visibility, and we have conviction in health care services exiting fiscal 2026 at an annualized run rate of $40 million to $50 million of adjusted EBITDA. Most importantly, the demand for our SelectRx and the substantial value it provides patients, caregivers, and carriers remains unchanged. We are focused on driving profitability and cash flow over volume. And with improved PBM visibility and a more flexible balance sheet, we are well positioned to expand health care services where incremental margins are best. We will further optimize customer targeting to focus enrollments on the patients who benefit most from the SelectRx offering and also deliver the best economics to the business. As a result, we expect membership to end fiscal 2026 flat to modestly down from the current 113,000 level while still generating 20% plus year over year revenue growth. The market opportunity is clear there, and with increased attention and demand, we believe SelectQuote is very well positioned to be the partner of choice across the value chain. Turning to slide 11. I will review our life insurance business. Revenue grew 9% to $44 million driven by a strong quarter for final expense, where premiums increased 24% compared to a year ago. The business continues to execute at a high level and to deliver attractive margins and cash flow. Meanwhile, the Term Life business delivered flat premium levels in line with last year. Adjusted EBITDA for the Life segment totaled $6 million, down modestly year over year in the second quarter. Results reflect modest marketing expense pressure and increased competition within the Term Life business. Overall, the Life division continues to deliver attractive returns and cash flows for our shareholders. Speaking of the balance sheet, let me quickly detail our new credit facility on slide 12. As announced in January, SelectQuote closed on a new $415 million credit facility, which benefits us in a number of ways. First and foremost, increased balance sheet flexibility through the elimination of our 2026 and 2027 debt maturities will allow us to operate strategically. With a new maturity schedule that extends to 2031 and an increase in our peak season liquidity, SelectQuote has the optionality to invest in strategic trends like we are seeing with SelectRx and also capitalize on return opportunities within senior in real time. Lastly, we remain aligned with both equity and debt in our strategic priorities to reduce leverage and drive to a lower cost of capital in the future. The new facility provides a future path for SelectQuote to lower the term facility interest rate by up to 100 basis points. Overall, it is a significant positive for our business and the latest in a series of successes as we continue to improve our capital structure. I'll end on Slide 13 with a review of our updated guidance, which Tim touched on earlier. I'll begin with the two distinct drivers of the change. First, the PBM reimbursement change, which we disclosed last quarter, drives an approximately $20 million headwind to fiscal 2026 EBITDA. Again, this impact will not recur beyond fiscal 2026. Second, as Tim detailed, the decision to curtail marketing budget by a national carrier partner is expected to drive an approximate $20 million headwind compared to our original expectations. As a result, we are revising our fiscal 2026 consolidated revenue range to $1.61 to $1.71 billion and our adjusted EBITDA range to $90 million to $100 million. To be clear, we remain confident in our long-term outlook about the growth, profitability, and cash flow potential for our business. We stand by our previously announced fiscal 2026 targets of 20% plus EBITDA margins for our senior division and an annualized adjusted EBITDA exit rate of $40 million to $50 million for our health care services division. Lastly, as Tim alluded to, the change to our EBITDA forecast overshadows the meaningful year over year increase in operating cash flow, which we now forecast to total $25 million to $35 million for fiscal 2026. Aided by the increased operational flexibility from our significantly improved capital structure, we expect the business to continue to post meaningful cash flow gains in years to come. In fact, let me pass it back to Tim to expand on that a bit. Timothy Robert Danker: Thanks, Ryan. Before we turn to your questions, let's review our cash flow generation on Slide 14. We wanted to put a visual behind our strategic priority to drive profitable cash flow as it can be less apparent in our reported EBITDA, especially this year given the two discrete impacts to our guided range. Here we depict our EBITDA on a cash basis, which is not considered future policy renewal commissions but does consider cash renewal payments received in the period. This is a clean way to view how profitable our business is on a cash basis in the current period. As you can see in the bar chart at left, despite the impact on our reported EBITDA, which considers future receivable accruals, we forecast significant growth in cash profitability. Specifically, we expect 2026 cash EBITDA to increase by approximately 20% compared to a year ago, which will help drive expected operating cash flow of $25 to $35 million for fiscal 2026. The key driver of that improvement is the operating cash efficiency we continue to talk about in both our senior and health care services divisions. In senior, agent marketing productivity gains have driven significant cash efficiency gains, which drive operating cash flow and cash profitability. For health care services and SelectRx, the upfront nature of cash recognition relative to our Medicare Advantage business continues to drive consolidated operating cash flow as the business becomes a greater percentage of our overall mix. Cash flow is the key to driving increased shareholder value as we move through the quarters and years ahead. We believe it is important for our investors and analysts to see that we are executing well. With that, let me now turn the call back to the operator to take your questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, 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 David Windley with Jefferies. Your line is open. Please go ahead. David Windley: Hi. Thanks. Good morning. Thanks for taking my questions. I wanted to start, Tim, on the PBM deal that you were able to strike during the quarter. Can you give us a little more detail? I think you emphasized that that makes this $20 million hit that you've had to take in fiscal 2026 a one-time thing. Can I interpret that you've kind of reestablished the economics of the relationship back to where they were or just provide us with some more detail about how that relationship is now structured? Timothy Robert Danker: Yeah, Debbie. Good morning, and we appreciate you joining this morning. Yeah. We were pleased with the announcement that we made earlier in January regarding the new PBM arrangement with a large PBM. This is important for us. Really, to be able to strike a multiyear term with the PBM provided the needed stability and predictability that we need. So we're very pleased with it. We're seeing that come absolutely in line with expectations, and we believe that helps really solidify our visibility moving forward. David Windley: Okay. And then follow-up on the announcement today, I guess, on the marketing at the major carrier. I think I have a pretty strong suspicion of who that is. Wondered what you know, essentially, what risk there might be of other carriers following that pattern. Timothy Robert Danker: Yeah. So, with respect to what we talked about on the call with the carrier that we outlined, they made a decision in December to pull back strategic marketing investment as a way to significantly truncate growth. That was not unique to SelectQuote. This was a decision that was made across all third-party distribution, e-brokers, and FMOs alike. And we're confident, Dave, in our ability to navigate through this. Certainly, the carriers are going through a very challenging cycle. But the beneficiary demand is there. We've built a resilient, diversified, and agile business that can respond, and we feel like we have a lot of levers at our disposal to be able to manage this. With respect to other carrier partners, we don't anticipate anything of this level of materiality moving forward. Again, we're a very important part of the broad ecosystem. We drive high-quality volume, not just for new members, but how we perform from a retention standpoint, which is really critical in times like these when there's hyper-focus on operating margins and retention. David Windley: Got it. Thank you. Timothy Robert Danker: Thank you, Dave. Operator: Our next question comes from the line of Benjamin Hendrix with Capital Markets. Your line is open. Please go ahead. Benjamin Hendrix: Great. Thank you very much. Just to follow-up on that last question, it seems like with this MA advanced rate notice coming in a little softer than expected, and we know that there's a lot of hyper-focus on margin enhancement. I'm just wondering to the extent that there are carriers out there who acknowledge your unique capabilities and have acknowledged the fact that you promote better fit and persistency. If there's an opportunity to kind of stand out and specialize ahead of 2027 to where you may get a little bit more share of marketing spend that does come onto the kind of the DTC platform for next year. Any thoughts on kind of how you might be positioned there? Timothy Robert Danker: Yeah. Thank you, Ben. Appreciate you joining us as well. Just real quick on the CMS advance rate notice. As we said in the prepared remarks, we agree with the carriers that the current advance rate notice doesn't reflect the realities of where beneficiary utilization is and the cost of care. And we think there will be a lot of continued dialogue between the MCOs and CMS on this particular matter, and we hope that that conversation when we get to the final rate notice in April that we'll see some improvement. To your underlying question around our unique capabilities, we certainly agree. The market right now is in a period where health care has a lot of financial stress in the system. And that's a great opportunity for SelectQuote primarily around the efficiency of our model. As you can see in the second quarter results and the 39% margin for senior, or if you look back over the past three-plus years, we've really been able to deliver not only a very efficient model but a very high-quality model. And if you look at our retention results, with respect to things we highlighted today, we think the book has performed very well in what we would classify as a turbulent market backdrop. You can see our recapture rate. I think that all bodes very well for our model because carriers will continue to look for quality and efficiency. And that provides more upside opportunities for us, given our very tight relationship with all the major payers. Benjamin Hendrix: Great. Thanks. Just as a follow-up on the PBM contract. Just in general, we're seeing more acceptance of these kind of cost-plus structures in the Cigna earlier this week announcing the FTC settlement. As part of that, it would go to a cost-plus PBM and pharmacy reimbursement model. I'm just wondering if your new contract has any kind of cost-plus components to it on individual drugs and if that's something that you're seeing could be a stabilizing factor in the SelectRx business going forward? Thanks. Timothy Robert Danker: I'm ready. Robert Clay Grant: Yeah. Can a few comments. Yeah. Go ahead, Bob. Timothy Robert Danker: Sorry. Good question, Ben. I think as far as what you're seeing in momentum in the marketplace towards that, that's definitely right. I think that's where the market wants to go and where CMS wants it to go. Ours is similar to that with a guarantee. And what I mean by that is there's less there is no risk of kind of MAC pricing updates and things that could be below market. Yes, a cost-plus effectively GER is where we are, and it is a GER. So we have that. Not to the degree though of what kind of ESI is talking about. That's a standard cost-plus with a higher dispensing fee. And I do think the market is gonna move towards that. You're seeing that with the IRA drugs. I do think you'll see that overall where the justification of service levels like ours, which is very high, is paid out through that dispensing fee. So we're moving more towards that. This one is very similar to that, just not structured exactly like that. Benjamin Hendrix: Thank you very much. Operator: Our next question comes from the line of George Frederick Sutton with Craig Hallum. Your line is open. Please go ahead. George Frederick Sutton: Thank you. Tim, I wonder if you could go into more detail on what you mentioned are levers at your disposal relative to the MA options given this carrier move. Timothy Robert Danker: Hey. Good morning, George. I appreciate you being here as well. Yeah. I mean, we have a unique model. We have a 50-state direct-to-consumer business model, and we do have levers. First and foremost would be with respect to where we deploy marketing dollars geographically. That is something that our model can do versus other field-type models in an easier fashion. Also, we're gonna continue to focus our investment on certain customer segments where we think the carriers want to grow. We can use SNPs as an example, where many carriers are going, and we do a lot of SNPs business and we're well aligned to grow where they want to grow. So it's another lever that we have. And at least we forget we have a diversified model beyond our MA distribution business. We have a cash accretive SelectRx pharmacy that can also factor into how we make our capital deployment decisions. George Frederick Sutton: So you mentioned that your new agreement, your new loan agreement gives you additional operating flexibility. I wondered if you could give us a and you mentioned you'd take advantage of it when the market supports it. You're obviously operating in kind of multiple markets now. So I'm just wondering how much change we might see in terms of, for example, an emphasis on health care services versus a deemphasis on Medicare Advantage? Or I'm not sure exactly what you meant by the flexibility. So I wondered if you could give us a better sense there. Timothy Robert Danker: Yeah. I mean, we have the utility, given the diversification of our model, to pursue where we think the returns are best. Certainly, we have a highly synergistic model between our Medicare distribution platform and health care services. Right? We're garnering a lot of that SelectRx growth through the conversations that we have with seniors on our MA platform. So I think that provides us a lot of utility around capital deployment decisions. Again, we are, hopefully, you're taking from our comments our tone that we understand that there is some challenge and some noise out in the market right now, but we feel like we've built a very resilient, a very aligned, a very efficient model that gives us a lot of utility around how we deploy capital. We've also shared today, you know, we, kind of the last slide around the growing cash flow dynamic, the business, and that's something that we would point, you know, investors to despite the unfortunate events and the guide down on the six zero six EBITDA, we are continuing to grow our cash EBITDA. We are continuing to grow our operating leverage and that will be the focus for the business, and that'll be the lens in which we look around capital deployment. George Frederick Sutton: Understand. Thank you. Timothy Robert Danker: Thank you, George. Operator: Our next question comes from the line of Patrick Joseph McCann. Your line is open. Please go ahead. Patrick Joseph McCann: Hey, good morning. Thanks for taking my questions. I just wanted to ask you a little bit about the SelectRx situation. Given the scale that you've reached, I'm wondering how that affected your negotiating position in this most recent discussion. You know, maybe if you could compare that to previous agreements you've entered. You know, any significant positive effect on your negotiating position given that scale? Timothy Robert Danker: Yeah. It definitely affects our negotiating ability. I mean, we are starting to get to a point where we do have some leverage. Right? Or just say a deeper partnership. Right? We have 100 and plus thousand extremely complex members that we successfully engage with, deal with, and drive their adherence to a good place. And more actually importantly in this group, their compliance towards the times that they take those meds and things like we've showed in the past. Right? We've got data now proving that helps bend the cost curve of hospitalizations and other things. We're starting to partner even deeper to do more, whether that's enhanced MTM services, remote therapeutic monitoring where we can really make sure they are taking those at the times we think they are and other things that help drive not only data to our carrier partners but ultimately action if somebody is not managing their health care the way that they should. And with a population that has three plus chronic conditions, is on 10 or more meds, that's extremely important. So I think or we know now that has given us significantly more negotiating power and we are being viewed as a valued partner, which is why we were able to get to where we were on the pharmacy negotiation with the PBM. Patrick Joseph McCann: Great. And then, my follow-up, just staying on SelectRx. Given where the Kansas facility is and its ramp, I was just wondering if you could talk a little bit about how much incremental volume could be absorbed with that facility before you need any meaningful new capital investment there. Timothy Robert Danker: Yeah. That facility has actually really, really high kind of you can have a lot of customers in there. So lots of room for expansion, but actually a lot today in the machinery that we bought. We bought much more efficient machinery. I think we've been open about the Indivion and what that does and how many customers we can drive through that, but more importantly, how we can do it with less staff. And ultimately drive our cost down and our compliance and kind of everything else up. We're also working on a lot of new technology initiatives to try to take, you know, I call it more of an archaic industry in the way that it's designed. And modernize that to fit our needs. We have a different workflow, right, than most pharmacies. We're pretty far along in that now, and we're about to roll some really exciting things out. That should even add more to efficiency. But more importantly, that allows us to use AI and other tools to drive efficiency in the future. And that's what we're trialing in that Kansas facility. That will allow us then to kind of retrofit our other facilities to be similar. So we're very confident we can drive that down all leading to a big growing cash flow line for us. We've got a lot of gross margin there. We just would like to get our gross to net margin or net to gross margin up even higher than we have it today. We think there's a ton of opportunity there. Patrick Joseph McCann: Thank you. That's it for me. Operator: There are no further questions at this time. We will now turn the call back to Timothy Robert Danker, CEO, for closing remarks. Timothy Robert Danker: I want to thank you all for joining us today. Although we've encountered some unexpected headwinds this fiscal year, we remain focused on narrowing the spread of outcomes and controlling the controllables. We continue to execute well operationally, and with the diversification of our business model, no company is better positioned to navigate business cycles. We have the operating model. We have the competitive advantages. And we now have the balance sheet flexibility to significantly expand cash flows in the years to come. I want to thank you again. Everyone, have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the MasterCraft Boat Holdings, Inc. Fiscal Second Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Alec Harmon, Director of Strategy and Investor Relations. Please go ahead, sir. Alec Harmon: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft Boat Holdings, Inc. fiscal second quarter performance for 2026. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. With me on this morning's call is Bradley Nelson, Chief Executive Officer, and Scott Kent, Chief Financial Officer. We will begin with a summary of our second quarter results, followed by an overview of the transaction we announced this morning with Marine Products Corporation. There is a slide deck summarizing our financial results as well as the transaction in our investor section of our website, which we will reference throughout today's call. Following prepared remarks, we will open the line for questions. Before we begin, we would like to remind participants that this information contained in this call is current only as of today, February 5, 2026. The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to the safe harbor disclaimer in today's press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude items not indicative of our ongoing operations. For each non-GAAP measure, we also provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. As a reminder, unless otherwise noted, the following commentary is made on a continuing operations basis and all references to specific quarters and periods will be on a fiscal basis. Today's outlook also excludes any impact from the combination with Marine Products Corporation. With that, I will turn the call over to Brad. Bradley Nelson: Thank you, Alec, and good morning, everyone. Today marks an important step in our company's journey. Alongside our strong second quarter results, we're excited to announce that MasterCraft Boat Holdings, Inc. has entered into a definitive agreement to combine with Marine Products Corporation. A move that strengthens our marine platform through complementary market-leading brands and an expanded dealer network and a more capable advanced product development and manufacturing platform. I'll share more details about the combination in a moment. First, we'll start with our second quarter results. Delivered results that exceeded our expectations, and we are building momentum as we head into boat shows and the spring selling season. Entering this window, with right-sized dealer inventories and a team that continues to deliver on key initiatives. Bringing leading-edge innovation to market, executing on operational and cost efficiencies, and maintaining disciplined production management. As always, I want to thank each of our team members and our dealers for their focus and execution as we carry this momentum into the back half of the fiscal year. Now turning to results. Q2 net sales increased $8.4 million or 13% year over year, and adjusted EBITDA rose nearly $4 million, a margin improvement of approximately 480 basis points. This year's progress and performance is a direct result of our continued innovation and focused execution. As a result, we are raising our full-year guidance for net sales, earnings, and adjusted earnings per share which Scott will cover shortly. Due to our balanced approach to dealer health, pipeline inventory levels ended the quarter 25% improved from the prior year. While we have yet to see sustained breakout in consumer demand, our early boat show engagement and dealer feedback have been encouraging. We have not changed our original full-year assumption of retail being down 5% to 10%. However, recent trends are tracking toward the better end of that range, for our MasterCraft segment. While we are encouraged by our Q2 retail results, we remain grounded in our flexible operating model, which allows us to optimize across a range of possible demand scenarios. Turning to our brands. Within MasterCraft, momentum continues to build across the portfolio as we usher in the next generation of premium products, with high margins and advanced technology. Continuing our mission of bringing luxury, performance, and precision to the forefront of our lineup. Early boat show results have been encouraging, with particularly strong engagement at the Salt Lake City, Atlanta, Toronto, Cincinnati, and Kansas City shows. To date. Introduced recently, the completely redesigned X24 and Xstar are leading our boat show presence and generating strong demand signals across the network. Building on that momentum, we recently announced the all-new X22, which broadens choice within the X product family. Bringing the same premium experience to a more compact offering. Feedback on recent models has been positive. And we expect the X family to improve product mix through the back half of the year. Turning to our pontoon segment. We are executing with discipline. Delivering year-over-year operational improvements, enhancing margin performance, and sharpening our pipeline. We continue to align the business to current conditions, positioning the segment for sustainable growth through assertive actions, including portfolio enhancement, leadership changes, and boosting dealer support. Our luxury pontoon brand, Belize, extended its reach this year with the all-new Halo model, which is making its debut at upcoming boat shows. Now I'll hand it to Scott to review the quarter's financials and forward guidance after which I will provide more details on the Marine Products Corporation transaction. Scott Kent: Thanks, Brad. Focusing on the top line, net sales for our fiscal second quarter were $71.8 million, up $8.4 million or 13.2% year over year. The increase was primarily driven by favorable model mix and options, higher volumes, and pricing, which is in alignment with our planned production cadence for the first half of the year. Gross margin improved 440 basis points over the prior year to 21.6%, a strong result of strong operating performance across both segments favorable model mix and options along with pricing. Operating expenses were $12.8 million for the quarter, an increase of $2.1 million when compared to the prior year due to costs related to the implementation of our new ERP system, business development and consulting costs related to the Marine Products transaction, as well as increased selling and marketing costs. Adjusted net income for the quarter was $4.7 million or $0.29 per diluted share. This compares to adjusted net income of $1.7 million or $0.10 per share in the prior year. Calculated using an effective tax rate of 23% in fiscal year 2026 compared to a 20% for the prior year period. We generated $7.5 million of adjusted EBITDA in the quarter compared to $3.5 million in the prior year. Adjusted EBITDA margin was 10.4% compared to 5.6% in fiscal 2025. A 480 basis point improvement over the prior year period. We entered the quarter with $81.4 million of cash, and short-term investments, no debt, and ample liquidity. As we look ahead, based on our fiscal Q2 performance, and current expectations, we are raising the net sales earnings and adjusted earnings per share ranges of our full-year guidance. As a reminder, today's outlook excludes any impact from the proposed combination with Marine Products Corporation. For fiscal 2026, consolidated net sales are now expected to be between $300 million and $310 million with adjusted EBITDA now between $36 million and $39 million and adjusted earnings per share between $1.45 and $1.60. We continue to expect capital expenditures to be approximately $9 million for the year. For the '6, consolidated net sales expected to be approximately $75 million with adjusted EBITDA of approximately $9 million and adjusted earnings per share of approximately $0.35. As we move into the back half of the fiscal year, we expect production to accelerate in support of our new product initiatives to ensure that we are well-positioned for seasonal demand. I'll turn it back to Brad for more on the transaction. Bradley Nelson: Thank you, Scott. Our proposed combination with Marine Products Corporation represents the start of an exciting next chapter and one that we are confident will open new avenues of growth and value creation. We have long admired Chaparral and Robalo, their talented teams, and the success they have achieved in creating proven, market-leading brands in both recreation and sport fishing. Together, we expand our geographic reach across both coastal and inland markets, unlocking growth through complementary well-established dealer networks, as well as advanced product development and manufacturing platforms. The result is a stronger, diversified marine platform delivering incremental categories with a clear path to sustained profitable growth. As our results demonstrate, there is meaningful momentum underway. With focused execution, disciplined inventory and production management, and a capital allocation strategy focused on value creation, we are successfully navigating this dynamic market environment and operating from a position of strength. Like us, over many decades, Chaparral and Robalo have also built a strong foundation through its disciplined approach. Leading brands and strong dealer relationships. The transaction will deliver compelling and sustainable financial benefits which Scott will touch on in more detail. For our customers and dealers, this means a broader lineup across more price points and boat lengths. Meeting a wider range of needs, while preserving brand identities and premium positioning. Our combined network will comprise of more than 500 dealers globally, enhancing customer coverage, and improving the efficiency of market entry across key regions. Both companies value the strong relationships we've established with dealers. And maintaining those long-standing relationships and driving our collective success will remain a top priority. Operationally, we're unlocking efficiency with a unified manufacturing footprint across Tennessee, Michigan, and Georgia, with nearly 2 million square feet of production capacity. Including one of the largest single-site sport boat production plants in The United States. At the core of this combination is utilizing our respective powerful product development and technology platforms. Through leveraging the strengths of both, we expect to deliver differentiated and innovative new products to customers while also accelerating launches of new models that extend the leadership of our brands. We will preserve our distinct brand identities and keep our focus on quality, delivery, safety, and culture. Integration will protect the frontline, dealers and consumers, while we harmonize processes where it matters. And move quickly to focus on clear value opportunities. On slide 14 of the accompanying presentation, we provide a high-level view of what our combined company will represent. Together, MasterCraft, Crest, Belize, Chaparral, and Robalo make up a diverse portfolio containing five powerful brands offering 65 models, ranging from boat lengths of 16 to 36 feet. Across four distinct categories. Our business is built on three fundamentals. Strong brands, robust distribution, and compelling products. With Chaparral, we add a storied legacy, and brand equity that few in the industry can match. With Robalo, we enter one of the fastest-growing categories in marine, with a leader already recognized for performance and reliability in sport fishing. Moving to the structure of the transaction, with more detail provided on slide 12, of the accompanying presentation. Upon close, Marine Products Corporation shareholders are expected to receive 0.232 shares of MasterCraft Boat Holdings, Inc. stock and $2.43 of cash consideration per Marine Products Corporation share representing a total cash consideration of $86 million. Current MasterCraft shareholders will own 66.5% and current Marine Products shareholders will own 33.5% of the combined company. Based on MasterCraft Boat Holdings, Inc. closing share price of $23.12 on Wednesday, February 4, this consideration implies a value of $7.79 per Marine Products Corporation share. The corresponding transaction value of $232.2 million represents approximately 7.2 times Marine Products Corporation's expected EBITDA for the twelve months ending June 30, 2026, after adjusting for the elimination of approximately $6 million of public company cost corporate overhead. The combined company will be named MasterCraft Boat Holdings, Inc., and continue to trade on NASDAQ under the ticker MCFT. We intend to fund the transaction with combined cash on hand, keeping us debt-free with ample liquidity following the transaction. MasterCraft Holdings board of directors will expand from seven to 10 directors and include three new board members with Rock Lambert continuing to serve as board chair. Scott Kent will be CFO of the combined company and I will serve as CEO. The combined company will be headquartered in Von Orr, Tennessee, and will maintain Chaparral and Robalo's operating facilities in Nashville, Georgia. The transaction has been unanimously approved by the board of directors of both companies. Are expected to close in calendar 2026 subject to customary closing conditions, including regulatory approvals and the approval of both companies' shareholders. Scott will now frame the financial profile of the transaction. Scott Kent: Thanks, Brad. I would like to reemphasize our shared excitement surrounding this transaction and the opportunities we believe it will provide. Maintaining a strong balance sheet has been a key priority for us, and we expect to maintain that focus as a combined company. We will be supported by a pro forma balance sheet with no debt and significant liquidity. Well-positioned to support the continued execution of our strategic initiatives. We have provided a summary pro forma snapshot of the combined company on Slide 17 of the accompanying earnings presentation. At close, we expect a cash balance in the range of $40 million to $60 million liquidity in the range of $115 million to $135 million and no debt while continuing to be cash flow positive. As Brad previously outlined, we have identified several layers of opportunity to enhance value through synergies. Specifically, we expect to achieve approximately $6 million in annual cost savings by eliminating Marine Products' public company costs and corporate overhead. After adjusting for these expenses, we anticipate that the transaction will be accretive to adjusted EPS in fiscal 2027. We've also identified opportunities to achieve incremental revenue and cost synergies over time as we bring our two companies together, by leveraging strength across innovation platforms, complementary dealer networks, and operational capabilities. We believe our financial position post-close will provide us with the flexibility to pursue growth investments. While maintaining a disciplined capital allocation framework all of which will support our focus on value creation and returning capital to shareholders. Brad, back to you to close. Bradley Nelson: Thank you, Scott. We're doing exactly what we said we would. Innovating, executing with discipline, supporting our dealers, and building a stronger platform to drive long-term shareholder value. The combination with Marine Products Corporation unites proven market-leading brands dealer networks, and product development and manufacturing capabilities. We look forward to welcoming the Chaparral and Robalo teams to our family and continuing to deliver world-class experiences to boaters everywhere. Operator, you may now open the line for questions. Operator: And wait for your name to be announced. Our first question comes from Joseph Nicholas Altobello with Raymond James. Joseph Nicholas Altobello: Thanks. Hey, guys. Good morning. Congratulations on the here. Scott, I want to go back to your comments earlier about synergies. I guess there's some cost synergies you outlined this morning in the $6 million in public company and corporate overhead costs. And possibly some revenue synergies. And I know how much detail you want to give on this morning's call, but maybe can you dive into some of the additional synergies either on the cost or revenue side that you see from maybe expanded distribution? It sounds like there's not a lot of overlap. From a dealer standpoint, for example. And how this might accelerate the innovation pipeline, for example? Scott Kent: Yeah. I think if you look on page 18 of our investor presentation, we kinda list out some of the areas for synergies beyond just the corporate overhead costs. So we will certainly have some innovation platforms and some of the pace of innovation of new product we believe we can add, and invest in, and get a little bit faster there to get some additional certainly, revenue synergies. We've got manufacturing best practices across both groups that we already have identified some opportunities on both sides to adjust on both sides of the company. Certainly are gonna be larger in scale, so we're gonna have a little bit more opportunities on the sourcing and procurement side. We've got some vertical integration activities between both of us, some things we do differently between the two companies that we can certainly do better together. And, as well as the dealer network that you mentioned and certainly gives us a lot of opportunity time to leverage. So the good side of all of our synergies is through our diligence process. We've already got a plan, and we already have actions outlined that we're gonna have people resourcing all of these initiatives. It's surely gonna be more, especially in the SEC documents that we come out that'll get a little more specific these. Joseph Nicholas Altobello: Got it. Okay. That's helpful. And just switching gears a little bit on inventories. You mentioned earlier the progress that you guys have made. So I guess two questions here. One, is there still more destocking that has to be done here in the back half of fiscal 2026? And two, what does Marine Products field inventories look like? Scott Kent: So I think we've been saying for the last couple quarters, destocking for us is largely over. I mean, obviously, it has a little bit of what happens during the selling season and how much retail is through that period. But we really don't have plans for further destocking and MasterCraft. We're really happy with where the inventory levels are today, and as we go into the next year, I think we'll start seeing wholesale and retail, a little bit more equal. But, obviously, we're still planning on the markets to be down retail slightly, so that may drive a little bit less pipelines by the time we get the end of the year, but it's certainly not something we're driving to do any longer. And like us, the Marine Products group manages their brands really tightly with inventory as well. And they're sitting in fine shape as well from a pipeline perspective. So not a lot of changes we have to make once we finally get past closing on the way they manage their pipeline because it's pretty complementary to ours. Joseph Nicholas Altobello: Great. Thank you. Operator: Our next question comes from Craig R. Kennison with Baird. Craig R. Kennison: Hey, good morning. Thanks for taking my question. Had a question on the process itself. Obviously, you're paying a price that is below the closing price of Marine Products yesterday, you shed any light on the process that led to that outcome? Scott Kent: Yeah. I do think we've have a compelling case of how we are going to work together as a company and how and I think the other side believes in their vision as well as the ability to shepherd those brands because they've been around for a long time. Chaparral is actually even older than MasterCraft. So the mix of both cash and stock, I think, was interesting to them in the process, and it gives them also an opportunity to participate in the upside when the two companies actually consolidate. Bradley Nelson: Also, Craig, this is Brad. Good morning. We obviously consider a range of options with capital allocation and we've been pretty vocal about keeping an always-on pipeline with pretty tight criteria. We're really excited because this meets that criteria. And there are just strategic, operational, and financial benefits that come with this that's in the interest of shareholders. Expanded geographic reach, it's highly complementary. There's zero cannibalization with this. And product development manufacturing platforms. This deal really the new company will have the scale, reach, and product offerings to more than double existing market reach with a robust balance sheet that Scott described long-term strength and stability and proven time test brands and operational excellence, we just really admire from Chaparral and Robalo. Craig R. Kennison: And then if I could ask on the innovation front, you know, at your scale prior to the deal, like, there's probably some limited investments you can make on technology if you can't use it across a broad portfolio of products. Does having a larger portfolio unlock some innovation as it relates to technology and vertical integration that maybe you know, you felt like you couldn't pursue at your prior scale? Bradley Nelson: No doubt about it, Craig. I mean, we really have a boat for everyone now. So when you look at the various boat lengths, purpose-driven innovation from the ground up, for these to maximize the boater's experience in each of these specific categories. Of course, MasterCraft now gets access to a broad and vast recreation boat market in addition to sport fish and salt fish. And Chaparral Robalo now get access to performance and ski tow wake environments that are attractive. On the innovation front in particular, just the added scale provides commonization opportunities as we integrate tech stacks. And that includes working with great suppliers and third-party partners. And as we aggregate those volumes and design with purpose, there's no doubt efficiencies. And, also, Scott said it before, which is speed of innovation, which is a cornerstone of this combination. Craig R. Kennison: And if I could just go back to my first question, Brad. On the deal process itself. Was this a competitive process that was initiated by Marine Products looking to sell the business and accepting offers, or did it come about in a different way? Bradley Nelson: Really wanna get into the details of the mechanics of how that came about other than we're a company that constantly evaluates opportunities as are they. And if as we look at the market cycle right now, and project forward, we're in an attractive spot as are they. Coming together with more scale and diversity right now, which is at or near the bottom of the current cycle, projecting that forward is really attractive for both parties. Mechanically, of how it came together, of course, it's tight partnership. And high scrutiny on both sides to ensure that we're focused on shareholders. And that's exactly what we did and what the boards of both companies did. I think there's also a lot of similarities between the two companies, which is why I think both of us were interested in each entering this deal. You think of another public company in the boating space, so has no debt as well. They're they probably own the other one. So it is a nice combination. They treat their dealers the same way we do, and everything's pretty complementary between both groups, which just makes it a really nice fit from both sides. Craig R. Kennison: Great. Thank you. Operator: Our next question comes from Eric Christian Wold with Texas Capital Securities. Eric Christian Wold: Thanks. Good morning. I just have a couple of questions on the fine combination. Guess I guess, one, I know it's early, but you've done your diligence. Any early expectations for potential kind of shifts in Marine Products, model mix or model focus once integrated into MasterCraft that you feel may be more appropriate for the marketer and you feel where they are now makes the most sense? Bradley Nelson: Well, they certainly have a tremendous portfolio now, as does MasterCraft as well as the same thing in our pontoon business. And we have identified opportunities there to add some special sauce in all directions to quicken the pace of innovation, etcetera, that we know dealers and consumers will love. We do have a plan not ready to be revealed yet. That's both on the synergy side from a growth perspective the innovation side that we just spoke about, including strengthening our dealer network. But there's a vast road map of 65 models together in each category that gives us ample opportunity. Scott Kent: Is it that the, we are gonna, you know, have that as a separate independent segment running on their own. So the same leadership that has run the branch for many years is gonna be continuing with us. And so I think you'll see that you know, we're gonna just accelerate a lot of what they've already been doing and hopefully add to on top of what they already have. Eric Christian Wold: Perfect. And then just your follow-up question on the combined dealer network. With the 500 plus combined dealers, what is the opportunity to expand distribution for both brands? I guess, of that 500 ish dealer network, what percentage of those or number of those make sense to take you know, the other side's brands in house? Bradley Nelson: Yeah. As you as we evaluate that on the macro, certainly, there's opportunity. On the micro, it's market by market. Eric, as you can appreciate. And as we look at the competitor slate, existing slate, dynamic of each market, water type, water access, We've identified a pretty thorough plan already. And have identified areas of opportunity. For cross synergy for growth. And that means, addition of brands in certain areas. We're not ready to unveil that yet, but we're confident. That those growth opportunities are there. Eric Christian Wold: Understood. Thank you. Scott Kent: Thanks, Eric. Operator: Our next question comes from Anna Glaessgen with B. Riley Securities. Anna Glaessgen: Hey. Good morning, guys. Thanks for taking my question. I'd love to dig into the pro forma math here you know, for the combined entity five sixty in sales. And roughly $60 million in EBITDA. If we take out the guidance for MasterCraft itself of roughly $30 million it gets to roughly $30 million from Marine Products. For the most recent year, they reported 17 or so million as of the press release this morning. Obviously, a little bit different of fiscal year end here. But could you bridge help us bridge the gap to that 17 million to $30 million contemplated in the pro forma EBITDA? Thanks. Scott Kent: Obviously, some of this forward-looking from their perspective as well, so that's part of it. There are some differences in how we typically do that EBIT adjustment. So we factor some of that in as well. And then, obviously, we should get the $6 million of synergies really almost immediately because those corporate costs and public company costs are gonna go away pretty quickly. Anna Glaessgen: Got it. So a little bit of adjustments and then corporate costs and basically, the lift as you get into further into this fiscal year. Scott Kent: Yep. Anna Glaessgen: Okay. Got it. Thanks. And then we talked about in the press release and in the prepared comments opportunities for to increase margin or get more efficient presumably with the Marine Products business? You expand a little bit on maybe what MasterCraft does differently that you could apply to Marine Products to lift that margin over time? Bradley Nelson: Both companies exhibit proven time-tested, operational excellence. So although that's true, there's always opportunities in all directions. What the added scale and diversity gives us is the ability to share best practices at a minimum. And that's across the board on the front end of the business as well as the back end of the business. Including sourcing and manufacturing. Sharing innovation platforms is another one that can help drive that. As we continue to innovate products, and do it with scale in mind, that's where we can really get margin gains. We've done it in the MasterCraft business. They've done it in theirs as well. We see high opportunity there. We've already identified work streams and eager to get going post-close on those items as we continue to plan. There are vertical integration opportunities in pockets of the operation that MasterCraft does that they may not do. And same thing in reverse. And that's true within all of the brands. Anna Glaessgen: Great. Thanks. Scott Kent: Thanks, Anna. Operator: Our next question comes from Gregory Miller with Truist Securities. Gregory Miller: Thank you. Good morning. Going back to The U.S. Dealer footprint and looking at the map of Marine Products locations, there's a heavy concentration in places you're less represented within the Gulf Coast of Florida as well as The U.S. East Coast. I'm curious when we think about what's going on in the macro economy today, how much the regional geography of Marine Products played into your decision making. Bradley Nelson: Well, it's certainly an added strength. Yeah. You know, I believe every good marine business is built on brand, distribution, and product. And our partners here bring strength in all of those. On the second item, of distribution, there's no doubt geographically, there are opportunities in all directions. And, you know, in pockets of Florida, it's go to where the water is and where the access is and also weather advantages and types of water. There's certainly opportunities in the coastal areas that will advantage our business. And then, you know, we're strong in some of the inland markets. And so that dealer penetration is the geographic advantage, the partnering advantage, and it just brings added reach. This deal through this distribution more than doubles our market reach. And, you know, this is a upwards of a $12 billion addressable market opportunity for us that we're very excited about. Gregory Miller: Thanks. And sort of follow-up, this is perhaps similar to Anna's question. If I were to walk into a Marine Products plant, how similar or different is their manufacturing process? Compared to yours today? Bradley Nelson: There's a lot of similarities, but there are some differences. You know, one good thing operationally is we're not going from a boat length of you know, these are small to midsize boats in both in all areas. So we're able to leverage those best practices. The types of materials, the sourcing strategies, the sourcing partners, present opportunities. And they're best practice in every operation. That can be unleashed. And when we come together, sharing of those ideas will then spur additional ideas. And both companies have a track history of that. We're excited to share that. And this is not new. There's nothing about Chaparral and Robalo that is a fixer-upper. And, of course, we would say the same of our MasterCraft, Crest, and Belize brands as well. This is strength on strength. Gregory Miller: Okay. Thank you very much. Operator: Our next question comes from Noah Seth Zatzkin with KeyBanc Capital Markets. Noah Seth Zatzkin: Hi. Thanks for taking my question. I guess, first, if you think about it kind of in terms of maybe the TAM that you had in terms of industry units in the kind of, you know, planned legacy MasterCraft business. And then you think about kind of the TAM that's provided by Robalo and Chaparral, is there any way that you'd kind of break that down in terms of like, the incremental industry unit volume that this kind of unlocks for you? Thanks. Scott Kent: Yeah. We certainly we've certainly looked at that. Certainly, one of the reasons we're in these because they are complementary products and complementary markets that we don't totally participate. So now we ultimately have an opportunity to sell to almost anybody. I mean, we actually had some discussions the other day with a bunch of our consultants on the line, and we're all talking about how what boat we like, and everybody had a different one. And we are now gonna have an opportunity to sell into all those markets both from a performance base, from a MasterCraft perspective, a more leisurely product with pontoons, you know, a recreational focused boat with Chaparral as well as a, you know, a sport fishing, focused for the Robalo brand. So it couldn't hardly be a better merger for us to expand, to your point, the addressable market. Bradley Nelson: And if you look at a unit count level, across these segments, the tow ski tow wake market, roughly eight units a year right now. Here we sit at the bottom of the cycle, these numbers. Pontoon, roughly 45,000 units a year. That's on the traditional MasterCraft side as our company is today. Going forward post-close, Genrec market brings an additional roughly 8,000 boats a year from a market potential perspective. And saltfish brings an additional 20,000 units per year. Purely incremental zero cannibalization. Both those categories are highly complementary from a product perspective. Technology, perspective, boat length, manufacturing best practices, and, of course, through the dealer network. Noah Seth Zatzkin: Got it. That's really helpful. And maybe one more just looking at slide 14, it kinda me that Robalo and Chaparral have a pretty kind of wide price range. So how much did that kind of play into your thought process around the acquisition? In terms of being able to reach maybe kind of a wider swath of consumers from a kind of income perspective? Thanks. Bradley Nelson: It's an important point and high consideration in this deal. Affordability in marine is an issue. And being able to attract a wider consumer base and by the way, dealers need this too. Provides wide expansion, for us to reach a dynamic consumer, not only now, as we continue to innovate new products in the future and within market recovery, having a much wider range of boat lengths, boat types, segments, and price points is gonna be to our advantage. And do it with premium positioning. As well. Noah Seth Zatzkin: Thank you. Operator: Our next question comes from Gerrick Johnson with Seaport Research Partners. Gerrick Johnson: Hey. Good morning. Thank you. I'm gonna approach the revenue synergy question here, maybe a little bit more cynically. It seems every dealer has, you know, a fiberglass runabout brand, a pontoon brand, etcetera. So realistically, how long would it take to expand distribution because it seems if you wanted to, you'd have to push another brand out to get your brand in. And also, you know, the complementary dealerships you might be a little bit more difficult getting offshore fishing into inland and pontoons and wake ski to, you know, coastal markets. So how do you approach those issues? Bradley Nelson: Yeah. A couple things. Thanks, Gerrick. On the water types, I mean, you know, there's as we all know, there's lakes small on the freshwater side, small, medium, and large. And on the medium to large-sized water, center consoles and sport fishing vessels are on the increase. And that's where we have high penetration of inland dealers. With strong knowledge of those local markets. So there's opportunity there. But in most of the coastal markets, there's also don't wanna say untapped, but under-tapped freshwater and saltwater opportunities for our boat categories on the MasterCraft and pontoon side of the house. Now it's not easy dealer by dealer, market by market. It's not a cakewalk, but at this scale. With this attractive of a portfolio not only right now, but as we continue to refresh and innovate and differentiate on the product line, that is what's gonna create those opportunities market by market. For brand aggregation, in some cases, with the dealers. Not every dealer this is gonna work for. But there definitely are some. We've already identified key markets. And have work streams ready to go. Once the deal closes. But we're talking about over 500 dealers. And so market entry, market expansion, much more enabled with this deal than prior. Gerrick Johnson: Okay. Yeah. It makes sense. And then, just shifting gears a little bit, maybe, the uptake on Belize and the build-out of that dealer base, how's that going? And maybe after this deal, does that kinda put that on the back burner or maybe something you might you know, not continue? Bradley Nelson: Well, Belize in general, continues on its ramp. It's early. It's an ultra-premium product in a market right now that has not rebounded yet. And that consumer and dealer network and we're also in the dark part of the season, yet approaching spring. Pontoons consolidate even more so into summer selling season, Belize by itself is a modest-sized business, but there is a compelling case out there. We're seeing strong interest from consumers. Dealer feedback has been strong. It's a resilient buyer that's buying off of wealth for that product. And it's largely an incremental dealer network on the Belize side of the house. So, no, that doesn't go to the back burner. That continues to expand, especially as the market comes back. We just recently launched a new halo model, so there's now a portfolio of products in the Belize sphere that our dealers are really excited about. Scott Kent: And remember, each of our business units is gonna operate independently. So just because we pick up, you know, Chaparral and Robalo, we still have a team in pontoons that is driving their own initiatives and will continue. And Belize is an important piece of that. We are finding a few places where Belize is leading to Crest, being picked up by dealers as well. So it's creating kind of a halo effect over the entire pontoon segment and helping the entire segment. Gerrick Johnson: Okay. Okay. And lastly for me, you know, it's touching on Craig's question, I guess, there's probably no risk in this not closing considering the Rollins Estate owns two-thirds of the shares? Bradley Nelson: Well, in terms of the mechanics, we are excited about this deal. It's a compelling business case for shareholders, we believe. And it's going to work its way through the process. Now there's mechanics and all that stuff will be in our proxy. For reference. But we see advantages out there. We've highlighted a lot of them in our press release as well as in our commentary. Here today. Scott Kent: And I think everyone sees that we can be a good steward of these brands and keep that, you know, that history and the legacy of brands moving forward. So we certainly have a belief that we can get to closing. Gerrick Johnson: Okay. Thank you very much. Operator: That will conclude today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to KKR & Co. Inc.'s Fourth Quarter 2025 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, the conference will be open for questions. As a reminder, this conference is being recorded. I will now hand the call over to Craig Larson, partner and head of investor relations for KKR & Co. Inc. Craig? Please go ahead. Craig Larson: Thank you, operator. Good morning, everyone. Welcome to our fourth quarter 2025 earnings call. This morning, as usual, I'm joined by Robert Lewin, our Chief Financial Officer, and Scott Nuttall, our Co-Chief Executive Officer. We would like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. We will refer to forward-looking statements on the call, which do not guarantee future events or performance. So please refer to our earnings release and our SEC filings for cautionary factors about these statements. Beginning first with our headline financial metrics. This quarter, we are pleased to be reporting $1.08 of fee-related earnings per share, $1.42 of total operating earnings per share, and $1.12 of adjusted net income per share. The $1.12 figure includes the carried interest repayment obligation we reviewed on our last earnings call. Excluding this, ANI per share for Q4 was $1.30. Management fees in the quarter were $1.1 billion, up 24% on a year-over-year basis, driven by all of our fundraising initiatives as well as the continued deployment across the firm. Excluding catch-up fees in both periods, management fees grew by 22%. As KKR & Co. Inc. has grown, our management fee profile has become meaningfully more diversified. Looking at full year 2025, management fees were $4.1 billion with private equity, real assets, and credit each contributing approximately one-third of total fees. Total transaction and monitoring fees were $269 million in the quarter. Capital markets fees came in at $225 million, driven by activity across private equity, credit, and infrastructure. Fee-related performance revenues in the quarter were $34 million. Turning to expenses. Fee-related compensation was again at the midpoint of our guided range or 17.5%. Other operating expenses for the quarter came in at $205 million. In total, fee-related earnings were $972 million, up 15% year-over-year, and our FRE margin was a healthy 68% for the quarter, and just over 69% for the full year 2025. Insurance segment operating earnings in Q4 were $268 million. As a reminder, we report the insurance investment portfolio largely based on cash outcomes. To give you a sense of the embedded profitability here, our insurance operating earnings would have been approximately $100 million higher in Q4 if we had included the impact of marks on our investments where a significant portion of the return relates to appreciation and not just cash yields. With around $50 million of that $100 million coming from a portfolio that was purchased in the quarter that was subsequently marked out. So said another way, if you included what we think of as the more recurring performance in the portfolio, insurance operating earnings would have been approximately $320 million in Q4. One more point on Global Atlantic, I'd like to turn your attention to Page 20 in our earnings release. We introduced and walked through the supplemental page on our last earnings call. As a reminder here, Insurance segment operating earnings alone do not capture the impact of Global Atlantic recognizing the economics that show up in our asset management segment. On this page, the right-hand side, we detail the management fees we receive under our investment management agreement. Fees from IV-related vehicles, where we have over $50 billion of AUM that would not exist without GA, as well as GA-related capital market fees. Taken together, as you see on the page, total insurance economics in 2025 were $1.9 billion net of compensation, up 15% for the year. Strategic Holdings operating earnings were $44 million in Q4, and on a full-year basis, they have more than doubled compared to 2024. Perhaps more importantly, we continue to track nicely towards our expected $350 million-plus of operating earnings looking forward to 2026. Putting that all together, total operating earnings came in at $1.42 per share. These more durable and recurring earnings drove 85% of our total pretax segment earnings, again, looking at the last twelve months. Now moving on to investing earnings within our asset management segment. Realized performance income was $528 million, excluding the impact of the carried interest repayment obligation. Realized investment income is $27 million, bringing total monetization activity to north of $550 million. This activity was driven by a combination of public secondary sales and strategic transactions. Dividends and interest income, as well as the annual performance fee for Marshall Waste. After interest expense and taxes, adjusted net income was just over $1 billion for Q4, or the $1.12 per share figure I mentioned a few minutes ago. Turning to investment performance, page 10 of the earnings release details the continued performance we are seeing across asset classes both in Q4 as well as over 2025. Given our investment performance over a long period of time, in turn, you are seeing record embedded gains across the firm. This is an important point for us. Total embedded gains, so that's gross carry together with the gains that sit on our balance sheet across asset management and strategic holdings, were $19 billion at December 31. That's a record figure for us. Even with the gains that we have been realizing, total embedded gains have continued to scale at a healthy rate. That $19 billion number is up 19% compared to one year ago, and it's up over 50% compared to two years ago. Now let's turn to fundraising, which has continued to be a real bright spot for us. We raised $28 billion of new capital in the quarter, bringing full-year capital raise to $129 billion. That's the highest fundraising year in our fifty-year history and almost double where we were as a firm two years ago. We are seeing continued demand across the full breadth of asset classes and regions. Momentum continues to be strong in credit, with a record $68 billion raised across the platform in 2025, driven by our asset-based finance business as well as our insurance business more broadly. Spending a minute on Global Atlantic's third-party capital fundraising, we held the final close of our IV3 sidecar vehicle in the quarter, bringing total capital raised here to $4.5 billion. When you combine this with the $2 billion commitment from Japan Post Insurance that we discussed last quarter, we now have approximately $6.5 billion of third-party capital capacity. For some context, IV2 raised a total of $2.7 billion of third-party capital in 2023. You've seen a meaningful increase in scale, reinforcing our view that client demand for insurance-related strategies just continues to deepen. As a reminder here, the IV sidecar vehicles pay fee and carry similar to a drawdown credit or private equity fund and also allow us to grow GA in a capital-efficient way. Once this $6.5 billion of capital is fully deployed, we would expect it to translate into more than $65 billion of fee-paying AUM over time. Turning to activity in private equity and real assets. Our North America private equity fund now has over $19 billion of committed capital, and we're less than one year since its first close, already eclipsing the prior fund. Our global infrastructure flagship fund now has nearly $16 billion in commitments, also on track to be larger than its predecessor. In our view, the momentum and success we've seen despite a more challenging fundraising environment is a real testament to our differentiated investment performance, our focus on linear pacing, as well as the ability to return capital to our investors. Notably, flagships represented only 14% of our total 2025 fundraising, which speaks to the breadth and diversity of our business across our fundraising activity. More broadly in infrastructure, we've already raised nearly $4 billion of capital for the latest vintage of our Asia infrastructure fund, and we expect this to be larger than its $6 billion predecessor. Looking at another important piece of our capital raising efforts, private wealth. Our K Series suite of products brought in $4.5 billion in Q4 and over $16 billion in full-year 2025, which is nearly two times the amount raised in 2024. AUM across our K Series vehicles is now over $35 billion, including activity that closed January 1. That compares to $18 billion a year ago. Also in December, we completed the conversion of an existing vehicle to KKR Asset Based Finance Fund or KABF. Today, the ABF market is larger than the direct lending, syndicated lending, and high yield bond markets combined. The shift in our investment approach here now offers individual investors the opportunity to access this high-growth, in our view, really differentiated asset class. We also continue to feel really excited about our strategic partnership with Capital Group. The two credit products we launched last April are getting on more platforms. We filed an equity product and we're making progress on a target date fund solution as well as public-private model portfolios. Putting all of our capital raising together, we've already raised over $240 billion or over 80% of the $300 billion-plus fundraising target that we outlined for the 2024 through 2026 period at our Investor Day in April 2024. Finally, consistent with our historical practice, we intend to increase our annual dividend from $0.74 to $0.78 per share, which will go into effect alongside our first quarter 2026 earnings. This will now be the seventh consecutive year that we increased our dividends since C Corp conversion. With that, I'm pleased to turn things over to Robert. Robert Lewin: Thanks a lot, Craig. Thank you, everyone, for joining our call this morning. We had a strong 2025, and our fourth quarter results, especially our key forward indicators, give us continued confidence as we head into the New Year. 2026 is a special year at KKR & Co. Inc. as we will be celebrating our fiftieth anniversary on May 1. While we have been in this business for five decades, we still feel like a very young firm. With our three growth engines, asset management, insurance, and strategic holdings, positioning us extremely well over the long term. A critical element of our success is our highly collaborative culture, which allows us to maximize the impact of our business model and to attract and retain best-in-class talent across everything that we do. Our business model and our culture, which both reinforce and perpetuate each other, are what give us our confidence not only as we look to 2026 but over the next five to ten years and beyond. I'm going to begin today by reviewing some key operating metrics from the quarter and the very tangible signs of momentum that we are seeing across our businesses. Craig already walked you through our strong capital raising, so I will start with monetizations. We remain very pleased with our overall performance and continue to see the benefits of our focus on linear deployment and disciplined portfolio construction. In 2025, we generated $2 billion of gross monetization activity, excluding the carried interest repayment obligation that we discussed on our call. Gross realized carried interest increased approximately 30% year-on-year, and that growth came on top of what was already a very solid level of monetizations for us in 2024. Even with our healthy momentum of monetizations, our embedded gains currently stand at $18.6 billion, as Craig noted just a moment ago. That is up from $15.6 billion a year ago, or 19%. Our portfolio is in very good shape, and, ultimately, that is the most important indicator for future monetizations. Turning to deployment. We invested $32 billion of capital in the quarter and $95 billion over the course of 2025. That is up 13% compared to 2024. Our deployment was driven by a number of our key focus areas, including Asia, infrastructure, and asset-based finance. With $118 billion of dry powder, we are incredibly well-positioned to build our portfolio for the future. If anything, we feel capital constrained by the opportunities that we are seeing across the world today. Asia continues to be one of the most dynamic regions globally for us. Our full-year investment activity in the region was up more than 70% versus 2024 and spanned traditional private equity, growth equity, infrastructure, and real estate. This reflects both the scale of our local teams and the breadth of opportunity that we are seeing in that part of the world. As a reminder, we have nine offices and approximately a thousand people in Asia, with over 200 employees in Japan, which remains one of our most active investment markets globally. We also invested nearly $15 billion into infrastructure in 2025. That's a record figure for us, with over half of that activity occurring outside of the United States. The need for infrastructure investment remains massive, and this is one of the biggest growth vectors that we have as a firm. We've recently invested in a high-quality logistics facility in Korea, a European built-to-suit data center platform, and our first structured alternative transaction for our insurance business out of Europe, in the renewables space. We've also continued to lean into the opportunity within credit, deploying $44 billion in total over 2025. That's up 14% compared to 2024. Our ABF business, which today represents $85 billion of AUM, invested $19 billion of capital last year. Finally, I did want to touch on our strategic acquisition of Arctos, which we announced earlier this morning. You would have seen a press release earlier today on Arctos as well as a presentation on the transaction and all of the opportunities that we see together. I'm not going to page slip through that presentation, but I would encourage everyone to review that deck as it does a great job highlighting the quality of the business we are acquiring and the opportunities that we see together. Arctos is the leading investor in professional sports franchise stakes and a leader in GP solutions with approximately $15 billion of assets under management. We are extremely excited to partner with the Arctos management team and believe that we can build on their leading franchises and create meaningful value together by combining the strengths of our respective organizations. The transaction is valued at $1.4 billion in equity and cash, with much of the equity subject to long-term vesting. In addition, there is the potential for up to $550 million of additional long-term vesting equity that is subject to KKR & Co. Inc.'s share price and Arctos' operating performance targets. We do expect that this transaction will be accretive per share across our key financial metrics immediately post-closing. Critically, we've known Arctos' co-founder, Ian Charles, for over a decade. He has been one of the leading and most creative minds in the secondary space. We have direct experience working together on one of the industry's first structured secondary transactions, which helped launch our healthcare and technology growth franchises, businesses that today manage over $17 billion of capital. Upon closing, the acquisition immediately puts us in a leadership position in sports. Arctos is the largest institutional investor in professional sports franchise stakes and is the only firm that is approved for multi-team ownership across all five major US leagues. In addition, Arctos is a top player in GP solutions, a rapidly growing asset class focused on providing liquidity to alternative asset managers, which we expect will continue to expand. We've been asked quite a bit about the secondary space, including a few times over the years on these calls. I think it's fair to say that we have evaluated most of the secondary asset managers that have traded over the last decade. For a variety of reasons, we did not pursue any of those opportunities. However, we knew that when we found that right partner, the partner who could give us conviction that we could build a leading secondaries and solutions franchise, that we would be all in. We are confident that we have found that in Arctos. Ian Charles and his partner, Doc O'Connor, have been leaders in the sports and solutions industries for over two decades. The combination of the existing Arctos team and their reputation in the market make us incredibly excited about the business that we can build together over the course of the next decade plus. In connection with the acquisition, we will be creating a new investing vertical called KKR Solutions, which will include sports, GP solutions, and future secondary strategies. Over time, we do expect this business to reach $100 billion-plus of AUM and be a very meaningful contributor to our P&L. Importantly, as you think about this acquisition, it is highly consistent with the strategic M&A framework we have previously laid out for our investors and analysts. That includes five things of note. Number one, access to leadership positions in large addressable markets that would be difficult to build organically. Number two is long-dated capital. The vast majority of Arctos' $15 billion of AUM is long-duration in nature, with no fixed end date. It is really as close to permanent capital as it gets in the asset manager space. Number three, highly complementary capabilities with a differentiated origination and sourcing engine that we believe can be valuable across the full KKR & Co. Inc. ecosystem, in particular, our insurance business. Number four would be the synergy that exists around distribution across both wealth and institutional channels. Number five, most importantly, strong cultural alignment between our two firms. We are thrilled to be welcoming the Arctos team to KKR & Co. Inc. and are confident in the opportunities ahead. Before handing things over to Scott, I'd like to reiterate the strong momentum that we are seeing across the firm so far in 2026. At our Investor Day in April 2024, we introduced 2026 guidance across our key metrics. We are highly confident in our ability to meaningfully exceed our fundraising and FRE per share targets. As we explained last quarter, presuming a constructive monetization environment, we also continue to feel confident that we can achieve $7-plus per share of adjusted net income. However, if the environment does deteriorate, we may delay some of our monetization activity. If that were to happen, we'd be earning less in 2026, but, again, that would be in service of more earnings in 2027 and beyond. With record unrealized gains, we continue to feel incredibly well-positioned for the future. The good news here is that we will be communicating frequently on monetization through these quarterly calls and also our intra-quarterly monetization press releases so that we can track our progress together and no one will be surprised as we work through the year. With that, let me turn the call over to Scott. Scott Nuttall: Thanks, Rob. Thank you, everybody, for joining our call today. I want to begin with Arctos because it's a good illustration of how we think about building KKR & Co. Inc. We have known this team for many years. We've done deals together. We have seen how they source, how they underwrite, and how they build durable franchises. What attracted us was not just the asset classes—sports, GP solutions, and secondaries—but it's the people, the culture, and the long-term opportunity to create something exceptional inside KKR & Co. Inc. Working together, Ian Charles is one of the most experienced investors in the solutions and secondary space. His co-founder, Doc O'Connor, is a pioneer in sports management and investing. Together, they have built a team with strong origination capabilities and a clear understanding of how to scale a business without compromising performance. Just as importantly, there is strong cultural alignment. That matters enormously to us when we consider strategic M&A. We have been very intentional over the years about where and how we expand the firm. We only want to be in businesses where we believe we can be a top-tier player over time. With Arctos, we have conviction that we have a clear right to win and the opportunity to build a $100 billion AUM solution franchise that will be a meaningful contributor to KKR & Co. Inc.'s long-term earnings profile. If you step back and look at our history of strategic acquisitions—Global Atlantic, Marshall Waste, FSK, KJRM, and Healthcare Royalty Partners—you'll see a consistent pattern. These businesses diversify our earnings, extend the duration of our capital, and increase the quality and visibility of our cash flows. Arctos fits squarely within that framework. Now let me zoom out for a moment and talk about the broader environment because there's been no shortage of generalizations about markets and private capital. The period from 2010 to 2020 was characterized by low rates, low inflation, and relatively little volatility. The last five years, however, have been very different. Interest rates have risen, inflation has reemerged, geopolitical risk has increased, and dispersion has returned. In our business, today's outcomes are the result of decisions made years ago around portfolio construction, deployment pacing, and just overall discipline. We are seeing much greater bifurcation across our industry. It is becoming harder to generalize about asset classes and easier to distinguish between firms that are well-positioned and those that are not. Let me give you a few concrete examples of what we're seeing. Let's start with fundraising. Despite the headlines, 2025 was a record fundraising year for us. Five years ago, we had $50 billion, and today we have around $100 billion. In private equity, in clear contradiction to headlines, our AUM has doubled over the last five years. We're also seeing this across investor types. Sovereign wealth funds remain engaged, insurance companies continue to increase allocations, pension plans are working to close gaps in infrastructure and private credit, and private wealth remains in the early stages of adoption. Across all of these channels, investors are consolidating relationships around a smaller number of partners they trust to perform across cycles. That trend has been underway for some time, and we believe it is accelerating and continues to work in our favor. This is showing up in our management fees, which grew 18% last year, accelerating relative to the last three-year annual growth rate of 16%. Now let's talk about monetizations. There's also been a lot of market focus on how difficult exits have been in our industry. That has not been the case for us. Our portfolio is mature, global, and well-constructed. We've been disciplined around pacing and diversification for a long time, and that is showing up in record embedded gains and a healthy pipeline of realizations across strategies and regions. We are not forced sellers. If markets are constructive, we will monetize. If conditions are less favorable, we can afford to be patient. Either way, the value is there. Finally, stepping back, KKR & Co. Inc. has been through many cycles in our fifty years. We have learned, sometimes the hard way, that long-term performance is not about chasing favorable conditions. It's about building a firm and portfolios that can perform and compound through different environments. We feel very good about how KKR & Co. Inc. is positioned today across asset management, insurance, and strategic holdings. We feel even better about where the firm is headed over the next several years. With that, we're happy to take your questions. Thank you. Operator: We will now be conducting a question and answer session. We ask that all callers limit themselves to one question. If you have additional questions, you may requeue, and those questions will be addressed time permitting. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would 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. Operator: Thank you. Our first question comes from the line of Glenn Schorr with Evercore. Please proceed with your question. Glenn Schorr: I definitely agree with a lot of your big picture outlooks. I want to get to the elephant in the room and talk about how does someone like you—this is a question for everybody—but how have you re-underwritten your private portfolios, your balance sheet, even your monetization pipeline for tariffs and AI? What actions have you taken? What actions can you take to de-risk? Everyone's trying to get at the same thing of what don't we know? What's in there that, like, can't this monetization pipeline get back to get out in a strong banking environment? Sorry. I know there's a lot in there, but it's like the thing. Thanks so much. Scott Nuttall: No. I really appreciate the question, Glenn. Let me give you a couple of thoughts, and maybe Rob can add on. You asked about two things in there. One was tariffs and one was AI. On the tariff front, it's pretty straightforward. We shared some of this data. It hasn't changed. We got a little bit fortunate, candidly, during the first Trump administration. We got a little bit of a look-see as to what could be coming. That allowed us to really rethink supply chains and be thoughtful about making sure we had the right exposures. COVID obviously gave us a reinforcement of that focus. We have a single-digit percentage of our portfolio, and a lot of our business is low single-digit percentage of our portfolio that we've got any anxiety about tariffs. We feel very comfortable and relaxed on that front. On the AI front and some of the recent volatility that we're seeing, just a couple of thoughts for you. First, as you know, when we invest, especially in the private markets, we're thinking about what the world looks like five to fifteen years out. What we own today is a result of decisions we've made over the last several years. I would say the recent volatility speaks to new anxiety for the market around potential disruption risks, but it is not new anxiety for us. We've been focused on AI-driven competition and disruption risk for the last several years. We've also been focused, as we've talked about, on all the opportunities that come out of what's developing in that space. Having been through many cycles, a lot of the answer to your question is you can't pivot on a dime. We have been focused on building portfolios that have the exposures that we want. That focus on portfolio construction, I think it's a very important thing for everybody to understand. As you know, we talk about this quite a bit. We've been focused on linear pacing for the last many years. A lot of what happened in our space was over-deployment in 2021, including in tech and software names. We do not have that issue at all. We've been investing behind opportunities across industries and globally with really strong risk-reward. We took an inventory of our portfolio over the last few years, and part of the answer to your question is we have been selling businesses when we did that inventory and said, okay, is AI an opportunity, a threat, or a question mark? Where it was a threat or a question mark, we started selling assets several years ago. As a result of that, we have the exposures that we want today. Not to say there won't be surprises, but our level of anxiety is pretty low because we've been thinking through this for the last several years and built portfolios informed by those concerns. To give you a sense of the number, because I'm sure people are wondering, software is about 7% of our AUM, and that is what I would say a highly inclusive definition of software. Our concentration is well below our industry, well below broad equity and credit indices in the market right now. As you know, this happens when there's this much emotion all at once, painting everything with one brush. We would just caution that not all software investments are the same. For example, we have a great investment in a company called OneStream, which has a lot of growth ahead. We announced the sale of that business a month ago at a 30% premium, four and a half times multiple of invested capital for our clients. It's not all the same. The other thing I would just add before handing it over to Rob is just don't forget the business we're in. We have $118 billion of dry powder. Our dry powder is multiples of any exposure we have that we have AI-related anxiety about. Several multiples. This type of dislocation creates really strong return opportunities for us. Volatility always creates opportunity in our business. Our focus is on making sure we don't waste it. We just had a firm call this morning where that's part of what we talked about. We have the better part of $120 billion. How do we make sure we invest it well and take advantage of what's on offer? That's really the focus around here. As we look back in moments like this where the market gets anxious, these tend to be amazing vintage years for investments as long as they focus on what you can control. Rob, anything to add? Robert Lewin: Yeah. Glenn, just on your point as it relates to monetization activity. I think the biggest driver of the limited monetizations across the industry is what Scott talked about in the over-concentration in the 2021 vintage. As you know, we didn't have that, and that's as big a reason as any on why we have meaningfully outperformed on monetizations over the past couple of years. That momentum has continued for us. We look at where we sit today. We've got roughly a little over $900 million of visibility from signed deals or deals that have already happened to monetization-related revenue coming in. That's probably a first-half number for us. It's hard to distinguish in some of these deals whether they're going to close in March or April. I would just contrast that to where we were at this time last year on this call where that number was approximately $400 million. Our momentum on the monetization front continues to really accelerate. Operator: Our next question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question. Craig Siegenthaler: Hey. Good morning, everyone. Hope you're doing well. Our question is on the record investment result and your linear deployment model across the cycle. Was this strong 2025 result a level that you expect to build off of just given your linear approach to deployments? Also, what do you view as the key themes and factors for record deployment just given that public equities were higher and credit spreads are generally tighter than the prior two years too? Craig Larson: Hey, Craig. It's Craig. Why don't I start? Thanks for the question. In terms of activity in the quarter, you're right. We had very broad-based deployment in the quarter really across strategies, across geographies. If you add real assets and private equity together, we invested around $16 billion, just over $8 billion in PE and just under $8 billion in real assets, and then $15 billion in credit. I think you're seeing diversification and breadth. In terms of themes, I think it's worth mentioning the take-private activity you've seen broadly as well as over the last handful of years. In '25, you've seen activity here on a global basis. We executed take-privates in Japan, Germany, the UK, India, and Sweden. If you look back at this activity since 2022, we've invested almost behind 30 take-privates globally. We think over this period of time, we've been as active as anybody in our industry. Rob mentioned Asia for us. It's just an area where you're seeing a healthy amount of activity. Again, a big driver of global growth. I think you saw a transaction this week announced in the digital infrastructure space. Again, it's probably the most recent example. It does feel like our positioning in the market, I say Asia broadly, as well as Asia infrastructure more specifically, is something being recognized. I do think there are two specific transactions that are just kind of interesting. One on December 24, actually. It would have been an investment that probably would have been easy to miss. We announced in Japan the carve-out of the real estate assets from Sapporo. One of the largest announced real estate investments in Asia in 2025. Really a great example of how we can collaborate across businesses. It leveraged the relationship as well as the carve-out expertise of our real estate team, our private equity team, the activity with KGRM and their ability on financing as well as our capital market team from a syndication standpoint. A handful of weeks ago, we announced an alt transaction for Global Atlantic in Europe in the renewable space. We've talked a lot about these calls on how we're looking to use all of our sourcing to originate differentiated opportunities for GA. I think it's a great example again of the connectivity. In terms of the go-forward and what this means and the level that we're at, just a couple of stats that are interesting in this more broadly. The firm has grown a great deal. If you look at deployment as an example, in private equity and real assets, if you look at that as a percentage of our private markets AUM, those statistics are not going to be perfectly linear, but I think it's kind of an interesting statistic. If you look three, four, and five years ago, deployment was 13, 15, and 16.5% of that AUM. In '25, it was 12%. The deployment numbers, you're right, in aggregate are up on an absolute basis. No question. As you think about the opportunity set for us going forward, it's also important to think of the footprint that we have that's scaling in asset classes as well as across regions. Scott Nuttall: Yeah. Craig, thanks for the question. It's Scott. I do think you're right. Last year was a record deployment year for us. To answer your question, we expect to deploy more this year. I would note last year was a record despite some of the market hiccups around the tariff dislocation in the spring. As Craig said, you have to remember just how global we are. Last year was a record year for European deployment for us. It's just one example. As we look around the world, intra-Asia trade, power, digitalization, companies moving from capital-heavy to capital-light, which feeds our ABF insurance businesses. Japan, as a market holistically across asset classes, life sciences, infra, ABF, you name it, and that's all global. We see a lot of opportunity out there. As I said, with the dry powder we have and a little bit more volatility, we think this means the investment opportunities will be more interesting. Our earnings will be higher three to five years from now as a result. Operator: Our next question comes from the line of Alexander Blostein with Goldman Sachs. Please proceed with your question. Alexander Blostein: Hey, guys. Good morning. Just to follow up on Glenn's question and Scott, your answer. Obviously, lots of anxiety in the market. It obviously continues today. When you think about the more durable part of the business, Rob, I heard you talk about sort of confidence around exceeding the FRE target you set out for 2026. I think it was $4.50 plus. Can you talk maybe through the building blocks, your confidence levels in those building blocks? Specifically, with respect to management fees, what you expect that growth to look like in '26? Robert Lewin: Great. Yeah. Thanks a lot for the question, Alex. Let me walk you through where we stand as it relates to fee-related earnings, and I'll go component by component. We've got a lot of momentum on the management fee side of things and have been for some time growing at above industry-level growth rates. The best forward indicator that we have for management fees is, of course, capital raising. We come off a year where we had record capital raising, almost $130 billion, and we're on our way to meaningfully exceed our $300 billion-plus fundraising target that we set out from 2024 to 2026. We feel really good about the trajectory on management fees. Our capital markets business continues to generate really significant outcomes and is incredibly well-positioned in an environment where deployment across our space continues to increase. All the things that we're doing across KKR & Co. Inc. now inclusive of the Arctos business, the opportunity to do more in insurance. Last year, we generated roughly $60 million of capital markets-related fees on the insurance side. We think that business can be in the hundreds of millions annually for us. As deal flow returns in the mid-market sponsor community, I think we are very well-positioned on the third-party capital market side of our business. Fee-related performance revenue is starting to scale and I think can really inflect upward over the course of the next one, two, three years. At this point, I think it's a really important point as you talk about FRE, and that's really a margin point. We have really demonstrated an ability to hold our operating costs below our revenue from a growth perspective even as we've pursued substantial scaling across our business. I'm going to give you a stat, and we were looking at this as part of our recent budgeting process, but I think it's a helpful one. If you look from the end of 2022, so really post-COVID, through to, and I'm going to give you LTM nine-thirty numbers from a comparable perspective. We have grown our management fees by 46% relative to our operating expenses by 21%. Now compare that to our three closest peers, and it is pretty much the inverse. They've all grown their operating expense at a pace that exceeds their management fees, and in two of the three by a pretty substantial margin. Overall, when you put that all together, the different opportunities we have to scale on the fee side, plus the ability to get further operating leverage as we continue to invest back in the firm, makes us feel good about that FRE target. The last point, because I think it's also helpful in the context of thinking about our ability to achieve that $4.50 plus target or meaningfully exceed it, is when we gave that target, that was a little over two years ago. At the time, our LTM FRE per share was $2.55. Because of the momentum we have across all of those line items and our ability to get operating leverage, that's why you've seen the really substantial growth we've had in FRE over a short period of time. Operator: Our next question comes from the line of Mike Brown with UBS. Please proceed with your question. Mike Brown: Great. Thanks for taking my question. Rob, thanks for the comments on the $7 ANI target. You commented on the performance fees in an earlier question, but I wanted to ask about the investment income specifically. 2021 was a record year at over $1.3 billion. 2022 came in strong at nearly $1 billion. There were certainly some unique drivers back then, but looking ahead here, what's the potential for this line? Should we expect some balance sheet exits that could move it higher? Robert Lewin: Yes. Thanks for the question. It's a good one. The punch line is as we think about budgeting for the year, and of course, we're bottoms up, we do expect an increase in our realized investment income through the course of the year. As we look out over the next couple of years, we do expect that line item to have an upward trajectory to it, and in some cases, I think it could have a meaningful upward trajectory. However, I think it's important to understand our realized investment line item in the context of the broader firm. What we've been doing with our balance sheet over the last several years on the asset management side of our balance sheet is taking every dollar of finite capital that we have available, our marginal free cash flow, and reinvesting it back into our firm for growth. Either in strategic M&A, like you saw this morning with Arctos, insurance, strategic holdings, share buybacks—all with the goal of increasing our recurring earnings per share. Over time, while I do expect you're going to see some in our realized investment income, that line item over the long term on a relative basis should be decreasing to our more recurring earnings as that's very central to our strategy on how we're allocating capital today. Operator: Our next question comes from the line of Benjamin Budish with Barclays. Please proceed with your question. Benjamin Budish: I wonder if you could talk a little bit about the recent trends at Global Atlantic. It looks like you are a little bit above the kind of $250 million per quarter target you've talked about, but sifting through the pieces, it's a little bit hard to tell. I think we're waiting for some data from the queue when it comes out, but it looks like perhaps the net investment spread may have narrowed a little bit. The G&A came in quite a bit lower than the last '26. Is it still sort of plus or minus $250 million? Or should we see more upside? Thank you. Robert Lewin: Yeah. I'll take that one. It's Rob. All good questions. Let me work through them in pieces. We continue to think that the right level to model the business is in that $250 million-plus range per quarter over the next four quarters, but keep in mind, and we talked a lot about this last quarter, is in our transition to move our book to more of an industry average on alternatives exposure, we are taking on assets that have no yield or limited yield. We are choosing to not have that show up in our P&L by cash accounting for those outcomes. That is different than many of our industry peers. In just Q4 alone, that number was in the mid-90s of accrued that's not showing up in our P&L. As I think about our run rate today, of accrued income is closer to $250 million. As you think about 2026, as we're modeling that business, we think that accrued income number can be $300 to $350 million. Over time, if we do our jobs right, that accrued income that builds and compounds will show up in cash earnings. We expect in 2027 and 2028, you're going to start to see that. The other thing, of course, I would point you to is that whenever we're talking about insurance operating earnings, we should also think about the broader economic picture of our insurance business. We've included again on page 20 of our earnings release how we think about total economics and insurance where you see we continue to have strong growth. That's even without the mark-to-market income coming through the P&L. Across all these line items, we look over the next few years, feel really great about our ability to continue to drive a differentiated insurance business that's got multiple different ways to be able to win in the market, inclusive of our ability to drive real outcomes with third-party capital, and we're just getting going there. Operator: Our next question comes from the line of William Katz with TD Cowen. Please proceed with your question. William Katz: Okay. Thank you very much for taking the question this morning and all the disclosures. A very big picture question that's been coming up in our conversation with investors. I'd be curious about your thoughts. I don't think the stock price moves are really just about software today. I think it's more about the prospects for the industry on a go-forward basis given the uncertainty that AI seems to be putting into the broad economy. My question is twofold. One is, how do you sort of see the evolution of the flows in wealth management, which had been driven heavily by private credit over the last couple of years? Secondly, as you think about deployment across your private equity and your credit portfolios, are historical returns still the right assumptions to be presuming? Thank you. Craig Larson: Craig, why don't you start with wealth and give him some specifics, and then I'll... Craig Larson: Yeah. Sure. Bill, this is not directly related to your question, but one of the questions we've been getting a lot actually just on the wealth fund side would be helpful for people just relates to what we're seeing as we begin the year in 2026 because it's interesting for us. Look, just I know you understand this, but as a reminder, look, our North Star here is investment performance. I think we have a view that if we are able to continue to deliver attractive net returns on behalf of our clients, that these vehicles are going to have an opportunity to continue to scale at a really attractive rate. Again, you heard in our prepared remarks how K Series is scaled, etcetera. Now back to the January point, like, I think it's a point of reference in Q4, we raised about $4.5 billion. So say a billion and a half run rate. If you think of Q4, again, that's a quarter that had a lot of noise, that number was up 8% compared to '25. Again, a market environment with a lot of noise, up Q3. In terms of January, it looks as we stand here, like, the number is going to be about a billion 3. Again, given all of the volatility, that feels to us like a pretty good outcome on the wealth front. That number is up around 20% from January of last year. I think in all the volatility, both in the second half and what we've seen in January, it hasn't changed our point of view of what the long-term opportunity is for us. In the framework of wealth and what those opportunities are, I think you should continue to see us really focus on these big large asset classes. Again, brand's incredibly important. Resources are incredibly important. But I think the long-term opportunity, no change in our view. Scott Nuttall: Yeah. Just to dig up, and thanks for the question, Bill, Scott. Look, no change in our expectations from a deployment standpoint. As I said, we expect deployment to be up again this year. No change in our return expectations across asset classes. The only thing I would add just, you know, is just a broader observation and, you know, you and others on the call have lived this with us for a long time. Yeah. We've been public sixteen, seventeen years. Every time the market gets anxious about virtually anything, our space and our stock trade off. So we went back and looked. So we've been public sixteen, seventeen years. This is the tenth time we've seen our stock down more than 20% in a month. So this happens. You can look back. It's European debt crisis. It's COVID. You name it. Happy to share. But, you know, looking back and where we have two years of data, post that event to look at, just a couple observations for you. One, it tends to be a great entry point for our stock. There's an overreaction to the down. Right? So the one to two-year average returns if you invest in that period of time, have been really strong. A lot of our larger shareholders have bought our stock and done incredibly well. This kind of thing happens. So the market overreacts habitually to anxiety. As it relates to our sector. It's just been happening as long as we've been public, and it's been a great buying opportunity. Second observation, and I shared a little bit of this before, if we look back at those vintage years for us as a firm where we've deployed capital into those environments, really strong returns. So if anything, if this kind of volatility persists, I would say the return opportunity on the forward is actually greater than our average. We haven't changed our pricing deals. In our experience, the returns from vintage years, if this keeps going, is going to be a really strong one. Hope that helps. Operator: Our next question comes from the line of Brennan Hawken with BMO. Please proceed with your question. Brennan Hawken: Good morning. Thanks for taking my question. Appreciate that you reiterated the $350 million expectation for this year in Strategic Holdings. Also recognizing that the earnings doubled here this year, more than doubled. Could you help us understand what will drive that? Talking with investors, there's a little bit of a view that it's a black box. There's not a ton of disclosure. So any enhanced color around what's going to drive that substantial ramp? There's a TMT bucket that's in there. Maybe could you provide a little color around what's in that bucket given some of the anxiety and agita that's out there? Thanks. Robert Lewin: Yes, great. Thanks a lot for the question, Brennan. Strategic Holdings today is still a relatively small part of our business, of course. We're focused on exceeding $350 million of operating in 2026. Much more importantly, we've talked about generating north of $1.1 billion of operating earnings by February. That continues to be where our team's focus is, and we feel more confident today than we did a year ago in our ability to be able to exceed that number. I feel really good with the results. In terms of disclosure, I think as it becomes a larger part and percentage of our business, you're likely to see greater disclosure over time and more specific disclosure. That'll be on the common. We talk about that quite a bit and how do we make sure we're balancing that based on the size of the business today and where it's going. The punch line is we feel really good. Now what is driving it? What's driving it is we've got approximately 20 businesses now that sit in strategic holdings, all generating different levels of growth and free cash flow. Many of those investments were originated five, six, seven, eight years ago with bigger capital structures at the time. A big part of our thesis is as they delever, which they are deleveraging, they're going to be generating more free cash flow for dividends, and that is what's driving our confidence both in 2026 but especially as we look forward through 2030 and beyond. Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question. Michael Cyprys: Just coming back to some of these AI concerns in the marketplace, one of the things I think maybe doesn't get as much attention is the opportunities that you at KKR & Co. Inc. can harness from AI. To that end, could you update us on how you're deploying AI across the firm today as well as within your portfolio companies? If you could talk about how that's evolving, what sort of opportunities and benefits have you harnessed from that, and how you've also your portfolio construction around investing around the AI infrastructure layer and the benefits there. Craig Larson: Hey, Mike. It's Craig. Why don't I start? Scott may have a couple of thoughts. I think it's when you look at what we've done as a firm, I think it's important to remember, we have over 400 engineers in the firm within our tech area. These topics, back to Scott's opening, these topics aren't new. They've been front of mind for us, etcetera. As a firm, we've had two cross-functional teams, if you will. One team is focused on our portfolio companies. Again, we're a control investor in over 200 companies globally. That team is focused on sharing best practices—what works, what doesn't work, what's easy, what's hard. Our culture is one that really helps us in this as we're a very collaborative culture. Lessons travel. They travel through to our investment teams. They travel through to our investment committees at the same time because we want to make sure that we're leveraging all of these lessons, good and bad, on a global basis. The second team is one that's focused on KKR & Co. Inc. So what are the things that we as a firm can be doing a lot more efficiently at the same time? Scott Nuttall: It means that we have to continue to invest behind growth and where AI can be an important driver of growth. Scott mentioned OneStream, that's an example of a firm that was successfully able to use AI in a way that helped accelerate that growth and ultimately result in a great outcome for our investors. Michael Cyprys: Hey, Michael. It's Scott. Just a couple of quick things to add. As you know, we have over 200 meaningful equity investments in companies. We're working across all of those, and you could think of it as, like, 200 different labs where we can think about how AI can help improve efficiencies, drive growth, and it's giving us a big opportunity to learn from across the world and across different industries. We can apply that, I think, inherent in your question, to the firm. That is happening day in, day out. We've got teams, as Craig mentioned, focused and dedicated to that. We're pleased with the early results. We're seeing an uplift in the EBITDA of the underlying companies. I think sometimes that gets lost a little bit. We're actually seeing incremental value creation and revenue and EBITDA growth as a result of some of these findings. As Rob said, we're applying them here, and I think you're going to see more of that. Part of the reason you hear so much optimism in our voice around continued improving operating leverage at KKR & Co. Inc. is on the back of this. The other thing, and I know it's talked about a lot, but I don't want it to get lost, is your point about the investment opportunity that comes out of all this. I don't know how the market flipped. This became a really interesting and exciting thing to now everybody's scared. From our standpoint, nothing's changed. Data centers, power, adjacencies, cooling of data centers, we've been investing around this theme for the last many, many years. Those investments are performing very nicely. We announced another large data center transaction in Asia just earlier this week. This continues to be a big and important theme for us. Operator: Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question. Patrick Davitt: I have a question on Arctos. It sounds like the past $200 billion is probably mostly solutions and secondaries. Sorry if I missed this in the deck. Just what is the mix currently between sports and solutions in that $15 billion? If they already had such a strong secondaries team, why haven't they raised more AUM there? If it's just distribution, I assume plugging them into KKR & Co. Inc. could make it quite easy to quite quickly raise more of a mega fund there, like some of the other secondaries managers had. Thank you. Robert Lewin: Yep. Patrick, it's Rob. Why don't I start and maybe just take a step back and describe the Arctos business. It was founded in 2019 and really started initially in the sports space. That is the majority of their AUM today. They've raised two funds out raising a third, including a big sidecar fund in addition to that. That is the bulk of their AUM today. That AUM, as we mentioned, in our information, has no fixed end date. So in a lot of ways, it's close to permanent capital as they come. They are the clear leader there. As we think about the growth of sports, which is its own asset class, its own right, and that's growing at double-digit rates, we're the clear global leader. Think there's a lot of room for growth in that asset class alone. The second part of their business that they started more recently is the GP solutions part of their business. They're raising capital in the first strategy. They're having a very successful first-time fund. That will make it already one of the largest players in GP solutions. That, again, is a big asset class with a lot of growth. A lot of levers, on either side of the broader GP Solutions business, that we think, again, can be a real growth factor. As you think about the third leg of it in secondaries, this is not a business they're in today. Again, the firm's only been around for six years, seven years. However, when we think about the experience of the team and where they've come from, when we think about their credibility in the marketplace and with investors, it's really high. You combine that with our industry expertise, our access to capital, as you noted, we think that gives us a real right to win. Importantly, we really like the idea of building a secondaries platform with a blank sheet of paper. We look at the second history, and again, we've looked at the space for much of the last decade. We've talked about it on these calls multiple times. We're really glad we've waited. We think that the ability to innovate here, potentially disintermediate that space, is really a compelling one. We're really excited to be partnered with the Arctos team to be able to go after that together. It's not just one part of the business. We really think there's scale to all three parts of this business. Under Ian's leadership and alongside his co-founder, Doc O'Connor, and the rest of the team, we're partnered here with a best-in-class platform. Operator: Our next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed with your question. Brian Bedell: Great. Thanks for squeezing me in here. Most of mine have been asked and answered. Maybe just to follow up on a couple. The operating earnings goal of $7 plus, so the combination of FRE, strategic holdings, and insurance. Just wanted to get your confidence on that. If I back into that given the sort of the guide for insurance and strategic holdings, it would imply FRE maybe a little less than $5.5 a share, which, of course, meaningfully exceeds the $4.5. Just wanted to get your confidence on that $7 between those components and then a couple of cleanups just on catch-up fees in the fourth quarter and timing for the Arctos close. Robert Lewin: Yep. So why don't I just add the last two questions are easy to answer. Timing on Arctos closed, we think, is Q2. Catch-up fees in the quarter were $26 million, split roughly 24% on the management fee line item side. Ex-catch-up fees still would have been 22% growth on an apples-to-apples basis. As it relates to building blocks on total operating earnings, thanks for asking that question. Clearly, a lot of momentum as it relates to our asset management business and FRE. Think what we're doing in insurance and also strategic holdings, we talked about the $350 million guide number for '26. I think we're going to beat that number. Talked about this on the last call. Given where our strategy was in insurance when we initially talked about the $7 per share of operating earnings, this was before we made the pivot to move in the direction of alternatives in the book. Number one. Two, made the final decision that we want to cash account as opposed to mark-to-market accounting. When you think about where we're going in insurance, we talked about a billion dollars of operating earnings plus or minus for 2026, and, of course, that number can move around based on how the year goes. Very importantly, that's missing what we think is going to be roughly $350 million of, let's call it, economic outcomes from accrued returns in the portfolio that if we were showing that consistent with most other insurance companies that we compete against in the market would be showing up in the P&L. We've chosen for a variety of reasons that we talked about last quarter, the cash account and not have that show up. Just think it makes the total operating earnings metric a little bit less relevant certainly than when we initially discussed it a couple of years ago. Operator: Our next question comes from the line of John Barnidge with Piper Sandler. Please proceed with your question. John Barnidge: Thank you for the opportunity. I think you talked about this new KKR Solutions having the opportunity to get to $100 billion in AUM over time. Can you maybe talk about how large the sports business within that framework would be? Does that assume any changes in ownership limits by leagues domestically? Thank you. Robert Lewin: Yeah. Listen. No specific targets as it relates to sports versus GP Solutions versus secondaries. We think there's a lot of room to grow across each of those areas. Importantly, one of the key opportunities here for us in this transaction isn't just what Arctos can build in isolation. It's really about being able to use the presence that they have in the market, the areas they traffic to help originate across the broader KKR & Co. Inc. ecosystem. Everything from our insurance business where we see a lot of opportunity through to our investing platforms across the firm through to capital markets. In turn, if we're able to do that, we also make the Arctos business a lot more relevant in the marketplace to their partners because we provide them a differentiated toolkit. Let me give you an example of what that could look like. You think about the sports business, as an example, and the Arctos platform today owns minority stakes in a number of sports teams around the world. There is a big opportunity in areas like stadium financing, sports adjacent real estate, where Arctos just doesn't have that toolkit. We do. Everything from the high-grade parts of the capital structure, real estate, all the way through equity. Creates investment opportunity for our platform and then in turn, makes Arctos much more relevant to their partners. It's a key reason why this deal makes a lot of sense for them and for us. Scott Nuttall: Yeah. Just to add on, John, it's Scott. To your second question. Our expectation for growth in the sports business is not predicated on any change in the league rules. So it's as big as today. Operator: Our next question comes from the line of Arnaud Giblat with BNP Paribas. Please proceed with your question. Arnaud Giblat: Hi, good morning. Just going on to Global Atlantic. If we look at the flow mix, it seems as though it's getting a bit more skewed towards real estate versus the past. So a bit of a change in mix there. Could you confirm if that's the case? What is driving that mix? I'm just wondering if that has an impact on margins and on the ROE for the insurance business. Thank you. Robert Lewin: Yes. Arnaud, thanks for the question. It's Rob. No change in mix. One of the things in real estate is we noted this goes back to really early 2024. We noted that there was a real opportunity in core real estate. Given a real dearth of capital out there for core real estate transactions. Most of the competition was either core plus capital but more likely value-added capital, a much higher cost of capital. We leaned in early to mid-2024 when we thought valuations really troughed, number one. Number two, there was limited competition. On an unlevered basis, inside of GA, we were creating some compelling risk-return. Not overly sizable in the context of the broader GA balance sheet, I think will turn out to be really good investments, again, on an unlevered basis across the insurance platform. Over time, I think we'll add to our insurance operating earnings if those play out in a meaningful way. In large part because, and we talked about this, remember, at the time, these were some of our first investments that had lower yields than they did all-in returns. We were originating those transactions at, call it, a 4% running yield. Our liabilities were five to 6%. So, definitely, in our P&L, we're actually losing money. However, where we think those investments come out, there's going to be a lot of accreted income if they perform, it's going to turn into cash income over time. We're quite glad we made that pivot, but nothing that would meaningfully change our concentration to the asset class. Operator: Thank you. We have no further questions at this time. Mr. Larson, I'd like to turn the call back over to you for closing comments. Craig Larson: Christine, thanks for your help, and thanks, everybody, for joining our call. I know it's been a longer call for us. Look forward to chatting with everybody on our next quarter call. Thanks again. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good day. And welcome to Peloton Interactive, Inc.'s Second Quarter Fiscal Year 2026 Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. James Marsh, Senior Vice President of Investor Relations. Please go ahead. James Marsh: Thank you, operator. Good morning, and welcome to Peloton Interactive, Inc.'s second quarter fiscal year 2026 conference call. Joining today's call are Peloton Chief Executive Officer and President, Peter Stern, and Chief Financial Officer, Liz Coddington. Our comments and responses to your questions reflect management's views as of today only and will include forward-looking statements related to our business under federal securities law. Actual results may differ materially from those contained in, or implied by, these forward-looking statements, due to risks and uncertainties associated with our business. Please refer to our SEC filings in today's press release, both of which can be found on the Investor Relations website, for a discussion of the material risks and other important factors that could impact our results. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is also provided in today's press release. I'll now turn it over to Peter. Peter Stern: Thanks, James. This quarter, we made significant progress on our multiyear strategy of evolving Peloton Interactive, Inc. from a connected fitness company to a connected wellness company. An ambition anchored in the societal shift from a focus on lifespan to health span, Peloton Interactive, Inc.'s platform, equipment, and beloved brand position us to capture more market share within the growing $7 trillion global wellness economy and to deliver ever greater human impact. As I shared in my annual shareholder letter last month, our path forward is focused on expanding our leadership in cardio plus strength, growing our global commercial footprint, and using AI-driven personalization to help our members across a wider array of fitness and wellness domains. As we begin the new calendar year, we are more prepared for this evolution than ever, as we have built a strong financial foundation. Our cost discipline has enabled us to reduce our net debt by 52% year over year. The hard work we've done to improve our balance sheet enables us to both invest in our long-term growth and, as the year progresses, put in place an anticipated lower cost and more flexible capital structure. In the second quarter, we unveiled a number of exciting updates to our magic formula of industry-leading equipment, intuitive software powered by AI, and unmatched human instruction. This included the Peloton cross-training series, our first-ever hardware portfolio refresh, Peloton IQ, our AI-powered personalized software, and new instructors focused on innovative strength, yoga, and pilates offerings. We launched all of this going into our peak holiday sales period, which delivered 39% adjusted EBITDA growth year over year in Q2. We continue to drive higher margins and reduced operating expenses thanks to our cost restructuring efforts. This quarter also highlighted the resilience of our subscription business, as we enjoyed strong member retention. Churn was lower than expected during a quarter with a price increase, underscoring the high value members place on our integrated experience. Revenue for Q2 came in below guidance, primarily due to fewer than expected equipment sales of the cross-training series to existing members. However, we were encouraged by the mix of existing members who purchased a new category of equipment, as more than 70% of cross-training series equipment sales to existing bike owners were tread and row products. Our installed base of equipment is quite durable, and member satisfaction is extremely high, as evidenced by our consistently high net promoter scores and low churn. We believe these factors likely contribute to a longer upgrade cycle than we had anticipated. In contrast, with sales to new members coming roughly in line with our expectations for the quarter, we remain confident that our product lineup featuring the new cross-training series will continue to attract new members. We are also encouraged to see sales of the cross-training series lean more towards the plus line for our bikes, indicating that its premium features and camera vision-based personal coaching are important purchase drivers for consumers. Our current marketing focus is on product education, helping both existing and prospective members discover the full power of what we've built. Swivel screens on all hardware products, more comfortable saddles on our bikes, as well as plus line feature upgrades, including the movement tracking camera that provides form feedback, rep tracking, and weight suggestions. Reviewers from trusted publications have praised the reinvention of our product lineup, including The Wall Street Journal, Women's Health, Men's Health, PCMAG, and more. We also scaled our retail footprint to 10 microstores by October, offering capital-efficient, Peloton-managed environments that showcase our hardware and educate consumers on the cross-training series. In Q2, MicroStores drove more sales on average than our legacy showrooms, and more than eight times the legacy showroom on a sales per square foot basis. In contrast, our third-party retail sales lagged expectations, so we are working with our distribution partners to share best practices in Q3 and beyond. We're committed to growing our commercial offerings and our brand touchpoints outside the home. Our commercial business unit is well-positioned to capture more market share by leveraging the strength of both the Precor and Peloton brands. Commercial showed strong performance, achieving 10% revenue growth year over year and exceeding expectations across US and international markets. In Q2, we continued to make meaningful progress in improving member outcomes. We saw a 7% year-over-year increase in workout time per connected fitness subscription, a clear indication that our content and programming continue to resonate with our members and contributed to our member retention. We also see rapid adoption of Peloton IQ, which makes personal training more accessible and impactful by providing dynamic coaching that's responsive to each member's goals. 46% of active members engaged with their performance insights and recommendations during the first quarter since its rollout, and all-access member engagement with personalized plans was up more than 10% from Q1. Based on our post-purchase research, Peloton IQ was ranked the most compelling feature by those who purchased the cross-training series Bike plus, Tread, and Tread plus. We expect member engagement to increase further as we refine and evolve Peloton IQ to encompass more fitness and wellness domains. As strength continues to grow in popularity, in part due to the broader adoption of GLP-1s, we will continue to evolve our programming to support both cardio and strength. We welcomed three new strength instructors, all of whom premiered in December teaching yoga, sculpt, and pilates. In addition to our content, we have a robust R&D agenda in the strength category as well. This Thanksgiving, we celebrated one of Peloton's most beloved traditions, the twelfth annual turkey burn. We produced a full slate of live classes throughout Thanksgiving morning and saw a 6% increase in completed live workouts year over year. The FEAST, our strength class featuring six instructors, had a 24% increase in live workouts year over year and was our biggest live strength class of all time. Our commitment to health outcomes is further evident in the strategic partnerships we initiated. In October, we announced a partnership with Twin Health to deliver personalized guidance with recommended Peloton content to improve metabolic health and reverse type two diabetes. Several thousand Twin Health members are engaging with our cardio, strength, yoga, and meditation programming. Focusing on women's health, we collaborated with ReSpin Health on a sixty-day study with more than 200 Peloton members experiencing menopause symptoms. Results from the program, which included cardio and strength workouts by Peloton, an online community, and coaching sessions, showed that 84% of women experienced overall symptom improvement, including relief from brain fog, lack of energy, weight gain, and poor memory. This further validates the impact Peloton can have on health outcomes. A pillar of our strategy remains meeting members everywhere. Peloton was the official fitness partner of F1's Grand Prix in Las Vegas and filmed a first-of-its-kind class series on-site, bringing the high-energy race vibe to members through on-demand content and immersive experiences. These classes performed well above individual class benchmarks, and according to a search list study, the activation led to a 10% increase in brand sentiment and an 11% rise in purchase intent as online conversation pivoted toward our world-class content, instructors, and excitement for the partnership. Turning to our strategy of creating members for life, we're strengthening member ties through our new loyalty program, Club Peloton, which is designed to reward our members for their engagement and consistency. Since launching on October 1, 24% of active members engaged with Club Peloton, exceeding our 20% internal target. Benefits thus far have included Peloton apparel discounts and access to exclusive live rides, depending on the member's tier. Members using their exclusive Club Peloton apparel discounts drove nearly 50% of apparel purchases in Q2. We also launched four new official teams, Menopause Health, Hirocs, Move For Life, and Cross Training, with 25,000 members joining one or more of them in the quarter. Business excellence remains a top priority, and it shows in our balance sheet and P&L. We remain on track to achieve our $100 million run rate savings goals by the end of fiscal year 2026. As we shared in August, we are achieving this by evolving our global operating model, thereby enabling us to invest in areas that give us a competitive advantage and most directly support our long-term growth. We recently entered into a partnership with a leading global business services provider to support and deliver some of our operational work while also expanding Peloton's presence in lower-cost locations. The progress we've made in optimizing our cost shows in our meaningful free cash flow generation and continued deleveraging. Optimizing capital allocation is one of our top priorities, as we believe it is critical to achieving our growth goals. While our updated full-year revenue guidance does not turn positive for the year, our trajectory reflects a meaningful improvement compared to the declines Peloton Interactive, Inc. sustained last year. More important, we are making this progress while improving unit economics and profitability, demonstrating our discipline in pursuing sustainable and profitable growth. By prioritizing business excellence, we are doing what is right in the long term for our shareholders and our community of loyal members. I will now pass it over to Liz, who will share more details about our Q2 financial results and guidance for the remainder of fiscal 2026. Liz Coddington: Thanks, Peter. We are proud of our profitability performance this quarter. As total gross margin and adjusted EBITDA outperformed our guidance, and as Peter mentioned, we continue to benefit from the loyalty of our members, with Q2 ending paid Connected Fitness subscriptions coming in above the midpoint of our guidance range. Q2 total revenue was $8 million below our guidance. In addition to the lower-than-expected equipment sales, primarily to existing members, revenue was also impacted by longer-than-expected delivery times, delaying roughly $4 million of revenue recognition into Q3. We ended the second quarter with 2,661,000 paid Connected Fitness subscriptions, reflecting a decrease of 7% year over year and 6,000 above the midpoint of our guidance range. Q2 is typically a seasonally stronger quarter for hardware sales and a seasonally lower quarter for churn. However, we expected elevated churn in Q2 due to our subscription price changes announced on October 1. Following the announcement of those pricing changes, we observed a short-term lift in cancellations that quickly stabilized, resulting in stronger-than-expected retention. Average net monthly paid Connected Fitness subscription churn was 1.9% in the quarter, an increase of 50 basis points year over year. Our churn performance demonstrates the underlying health and resilience of our high-margin subscription business and reinforces the value and human impact we deliver for our millions of members. Our better-than-expected performance on churn was partially offset by lower gross additions, which were primarily impacted by longer equipment delivery and activation times that delayed gross additions to Q3, as well as lower-than-expected equipment sales in third-party retail channels. Total revenue was $67 million in Q2, comprising $244 million of Connected Fitness products revenue and $413 million of subscription revenue. Connected fitness products revenue decreased $9 million or 4% year over year, driven by lower equipment sales and deliveries, partially offset by a 10% increase in commercial business unit revenue and higher average selling prices for our products in our cross-training series. Subscription revenue decreased $8 million or 2% year over year, primarily driven by lower ending paid Connected Fitness and app subscriptions, and lower content licensing revenue, partially offset by the benefit of subscription price increases, which contributed a partial quarter benefit due to the timing of billing cycles, which are spread throughout each month. As we discussed last quarter, in 2026, we began assigning executive compensation and other corporate overhead expenses associated with our corporate facilities across the P&L as we focus on driving more accountability for costs at a functional level. Prior to fiscal 2026, these costs were all recorded in G&A, but are now assigned to cost of goods sold, sales and marketing, G&A, and R&D. All of the year-over-year changes discussed today are referencing last year on an as-reported basis. Total gross profit was $331 million in Q2, an increase of $13 million or 4% year over year. Total gross margin was 50.5%, an increase of 320 basis points year over year, 150 basis points above our guidance of 49%. Margin outperformance relative to guidance was driven by a larger mix of subscription revenue and higher subscription gross margin. Connected Fitness products gross margin was 13.9%, an increase of 100 basis points year over year, primarily driven by lower warranty costs and a mix shift toward higher margin products, partially offset by increases in tariff import charges and inventory reserves. Subscription gross margin was 72.1%, an increase of 420 basis points year over year. Subscription gross margin benefited from a $9.7 million reduction to accrued music royalties. Excluding this nonrecurring benefit, subscription gross margin would have been 69.7%, an increase of 180 basis points year over year, of which 100 basis points of favorability was driven by subscription pricing changes net of churn. Total operating expenses, excluding restructuring, impairment, and supplier settlement expenses, were $320 million in Q2, a decrease of $24 million or 7% year over year, reflecting the continued progress we've made in rightsizing our cost structure. Sales and marketing expenses were $152 million in Q2, inclusive of the cost assignment changes from G&A I mentioned before that began this fiscal year, driven by decreases in fixed costs for retail stores and IT and software expenses. As of the end of Q2, we had seven legacy retail showrooms and 10 microstores, down from 28 showrooms at the end of Q2 of last year. Research and development expenses were $65 million in Q2, an increase of $5 million or 8% year over year, driven by increases in personnel-related expenses inclusive of stock-based compensation and rent expense. These increases are primarily driven by cost assignments from G&A that began this fiscal year. General and administrative expenses were $103 million, a decrease of $28 million or 22% year over year, driven by decreases in personnel-related costs, inclusive of stock-based compensation and rent expenses, in part driven by cost assignments to other functional areas that began this fiscal year, as well as a decrease in professional fees. This quarter, we recognized $26 million of impairment and restructuring expenses, of which $24 million was noncash. The noncash charges were primarily related to plans to rightsize portions of our corporate office footprint. The remaining $2 million of cash restructuring charges were primarily related to and disposal costs and professional fees. Adjusted EBITDA was $81 million in Q2, which was an improvement of $23 million or 39% year over year, and $6 million above the high end of our guidance range. We generated $71 million of free cash flow in Q2, exceeding our internal expectations and reflecting a decrease of $35 million year over year, primarily driven by a greater inventory tailwind to net working capital in Q2 of last year. Free cash flow performance in Q2 of this year included roughly $25 million of timing benefits in the quarter. We ended Q2 with $1.18 billion in unrestricted cash and cash equivalents, an increase of $76 million quarter over quarter. Net debt was $319 million, a decrease of $351 million or 52% year over year. Overall, our second quarter profitability performance has enabled us to continue deleveraging our balance sheet. Our gross leverage ratio, defined as our gross principal debt outstanding divided by trailing twelve-month adjusted EBITDA, was 3.6 in Q2, a substantial improvement from 6.2 in Q2 of last year. Similarly, our net leverage ratio, defined as gross principal debt outstanding less cash and cash equivalents divided by trailing twelve-month adjusted EBITDA, was 0.8 in Q2, down from 2.9 in Q2 of last year. We believe we have more cash on the balance sheet today than we need to run the business, and are evaluating opportunities to optimize our capital structure. Peter Stern: We will pay down roughly $200 million of 0% convertible notes this month as they come due. Liz Coddington: Our $1 billion term loan has a 1% prepayment penalty through May 2026. We are mindful of this timing when this prepayment penalty expires, as we evaluate our capital allocation strategy. We expect a refinancing to deliver a lower cost of capital and more flexibility over time. Next, I'd like to share context for our financial outlook for Q3 and the remainder of the fiscal year. Our full-year fiscal 2026 total revenue outlook of $2.4 billion to $2.44 billion reflects a decrease of $30 million compared to prior guidance and a 3% revenue decrease year over year at the midpoint. The decrease relative to prior guidance is primarily driven by lower equipment sales to existing members observed in Q2. Our Q3 total revenue outlook of $605 million to $625 million reflects a decrease of 1% year over year at the midpoint and a decrease of 6% quarter over quarter as a result of seasonally lower equipment sales expected in Q3, partially offset by the benefit of higher subscription pricing recognized across the full quarter. We are raising our full-year fiscal 2026 guidance for total gross margin to roughly 53%, which is an increase of 100 basis points from our prior guidance and an improvement of 210 basis points year over year, primarily driven by a larger mix of subscription revenue as well as higher subscription gross margin. Q3 total gross margin is expected to be roughly 54%, an increase of 300 basis points year over year due to a larger mix of subscription revenue as well as favorable gross margins in both segments. We are raising our full-year fiscal 2026 guidance for adjusted EBITDA to $450 million to $500 million, an increase of $25 million from our prior guidance and an improvement of 18% year over year at the midpoint. The improvement relative to prior guidance is driven by expected favorability to gross profit and operating expenses, including recalibrating media spend in response to equipment sales trends. We also anticipate additional upside by realizing cost savings sooner than previously anticipated. Our Q3 outlook for adjusted EBITDA of $121 million to $135 million reflects an increase of 43% year over year at the midpoint and an increase of 57% quarter over quarter, primarily due to seasonally lower sales and marketing spend in Q3 relative to Q2. Our Q3 guidance for ending paid Connected Fitness subscriptions of 2.65 million to 2.675 million reflects a decrease of 8% year over year at the midpoint. Average net monthly paid Connected Fitness subscription churn is expected to improve both year over year and quarter over quarter, with a sequential improvement due to elevated subscription cancellations following pricing changes announced in Q2 that have since stabilized, in addition to Q3 being a historically seasonally lower churn quarter. Our guidance reflects an expectation that our net churn rate will be roughly flat year over year in full-year fiscal 2026, while gross additions are expected to decrease year over year as a result of lower equipment sales. Generating meaningful free cash flow remains a top priority for us. We are raising our full-year fiscal 2026 minimum free cash flow target by $25 million to at least $275 million, reflecting our continued progress in lowering operating expenses. Our free cash flow target reflects an expectation for a roughly $45 million impact from tariff exposure, in line with our expectations last quarter. Tariffs remain a dynamic situation that may change in the future. Overall, our guidance reflects continued improvement in profitability and progress in inflecting toward revenue growth. While our full-year guidance reflects a 3% year-over-year revenue decline at the midpoint, this rate of decline is moderating significantly compared to last year's revenue decline of 8% year over year. We are balancing our pace of inflection toward growth with remaining disciplined about unit economics, ensuring the customers we acquire are profitable, and continuing to optimize our costs. All of which are enabling us to invest responsibly and deliver on a path towards sustainable, profitable growth over the long term. We still expect to achieve the important milestone of positive operating income on a full-year basis in fiscal 2026. Peter Stern: Okay, before we move to Q&A, I want to address the news we announced this morning regarding Liz's decision to pursue an opportunity at a private clean tech energy company. Because of Liz's leadership, we are a significantly stronger company today than when she arrived in 2022. Liz is leaving us with a solid financial foundation and a world-class team. We've launched a comprehensive search for Liz's successor, who will have very big shoes to fill. Liz, I'd love for you to share a few words. Liz Coddington: Thank you, Peter. It has truly been a privilege to serve as CFO of Peloton Interactive, Inc. I am incredibly proud of the work we have done together to dramatically improve our financial profile, put in place a winning strategy, and position the business for the future. When I leave in a couple of months, I will do so with mixed emotions, knowing that Peloton Interactive, Inc.'s best days lie ahead. And I really want to take this moment to thank Peter, our entire board, and our team members for the opportunity to serve as your CFO. Peter Stern: Thanks for everything, Liz. Now let's open up for questions. James Marsh: Our first question comes from leaderboard name Trav Russell. His question is, do you expect hotel partners to upgrade to Peloton Pro products as assets reach end of life? And how should we think about the pipeline for new hospitality and enterprise relationships? Peter Stern: Thanks, Trav Russell. In short, yes. We launched the Peloton Pro series so that we would have products designed for light commercial environments like hotels. And this is the first time we've actually designed Peloton equipment for commercial use at all, and it's our first-ever tread that enables use outside the home. We also have an exciting roadmap of commercial equipment as we look ahead, including commercial-grade equipment designed for heavy-use environments like commercial gyms. One thing to keep in mind is that we've transitioned the management of our commercial technical support and our field service from Peloton's residentially focused organization to Precor, given Precor's expertise in providing maintenance and other services for higher-use locations. So that should help extend the life of the products that are already out there. But our commercial business unit has a really healthy pipeline of relationships across categories. You can see that in last quarter's 10% year-over-year revenue growth and our expectations for continued growth looking ahead. With regard to hospitality in particular, our research shows that many consumers make the choice of where to stay based on whether they have Peloton equipment. We have very strong relationships with Hyatt and Hilton, and we're in thousands of their hotels worldwide. And the Plus strength solution in a really compact footprint. So we feel great about what we can do for travelers. James Marsh: Great. Thank you, Peter. Our next question comes from leaderboard name Steve C109. Steve asks, how does Peloton Interactive, Inc. think about creating new revenue streams and deeper monetization of the brand beyond the core subscription and hardware sales? For example, are there $100 million-plus revenue opportunities in sponsorship, ads, in-person events, and/or brick-and-mortar expansion? Peter Stern: Thanks, Steve, for that question. I think the crux of your question is whether we can create meaningful new revenue streams and deeper monetization leveraging our brands and our relationships? And we believe the answer to that is yes. While we're not exploring advertising on our platform, which is one of the ideas you just raised, we do see additional ways to monetize our content and our brand, for example, through content licensing. The largest examples of that to date have been what we've done with Lululemon Studio and with Google and the Fitbit app, but we're actively pursuing additional opportunities. You also mentioned in-person events and brick-and-mortar expansion. Those are less about new revenue streams. They're more about making more of the revenue streams that we have, and we're doing that as part of our strategy to meet members everywhere. So for in-person events in Q2 of this just this past quarter, our instructors appeared at more than three times the number of events that they were in in Q2 of the year before. And we were able to expand our brick-and-mortar retail presence to forty-six states in Q2, including our microstores and our third-party relationships. Another vector for growth here is one that I just spoke about, which is our commercial business unit. And that's an area where the combination of both Precor and the Peloton brand is really compelling because what we hear from gym operators is that the one brand that people ask for by name is Peloton. And so that's another way that we can create revenue streams and deeper monetization of the Peloton brand. We see significant additional opportunities to expand our connected fitness business through hardware and software innovation. So those will be additional drivers of growth. And our internal market research shows that consumers have a lot of demand and trust in us in other categories. Strength, we've talked about extensively. Mental well-being, nutrition, hydration, sleep, and recovery. Those are all areas we'll share more about when we're ready. James Marsh: Great. Thanks, Peter. Operator, can you open the line for Q&A now? Operator: Yes. Thank you so much. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, press 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. And our first question will come from the line of Youssef Squali with Truist. Your line is open. Youssef Squali: Great. Thank you very much. Good morning, guys. Hi, Peter. And Liz, best of luck in your next endeavor. Maybe to Peter, so the story looks great from a profitability, from a gross margin perspective. Also, from a balance sheet perspective, you guys have done a lot, but top-line growth remains elusive as you kind of showed in your top-line report this morning. Can you maybe talk about the elements you have in place that give you the confidence that growth is around the corner? I think if my math is right, the high end of your '26 guide implies some growth, it may make, but still some positive growth in Q4. And then, I guess, the miss on the top line seems to be related to existing customers not upgrading in period rather than new customers not buying, which is good. Can you maybe flesh that out a little bit? And what's baked in in the new guide as far as that's concerned? Thank you. Peter Stern: Thanks, Youssef. There are a bunch of pieces to that, so let me try to address them all. One, we are super proud of the work that we've done on profitability and improving the balance sheet, and those are foundational for us addressing the second part of your question, which is relating to growth. It's clear from your question that you'd like us to do better on growth, and I'm with you on that. I will not be satisfied until this company is back to healthy, sustained, top-line growth. And while we didn't reach that this quarter, I will note that the full-year guidance that we just announced of the 3% decline at the midpoint compares favorably with last year's 8% and includes Q1's minus 6%. As we start to look at the trajectory here, like, you got last year at minus eight. You have Q1 minus six. You have this at minus three. Obviously, that implies continued improvement as the year progresses. Again, not enough? But progress. Let me talk about the path back to growth. And there are a number of points to that. The first one is we are developing a more complete set of product offerings across the right array of fitness and wellness categories and with the right price points. I'm not here to share our product roadmap today, and this is a hardware business, so it takes time, but we're making real rapid progress on this. And if you want a proof point of our ability to do that, I joined in January, and within months, we were shipping a completely revamped product lineup. So this is an organization that is capable of doing hard things, producing quality products on the hardware side. Second thing is that we gotta make sure that we've got appropriate pricing for our subscriptions. We took the key step on that in Q2, and I think it went according to plan, if not better. Third piece, we've gotta keep the members that we've got in order to get to growth. So we have to keep improving our net churn. And as you can see from our results and our remarks, we're projecting net churn flat this year despite the pricing action. So the underlying trends here are absolutely heading in the right direction. Fourth, we have to exploit new avenues for growth. I talked about the commercial business unit. That's, again, a proof point of our ability to generate new forms of growth. In this case, we grew 10% in the last quarter on the top line there. Then, of course, coming back to the first part of your question, we've gotta demonstrate that we can do all of this efficiently. So we have to have an appropriate overhead structure. We have to have a positive return on our sales and our marketing investments so that when we deliver the growth, it's real sustainable growth. You can see that we're on track to deliver against that, including with the full-year adjusted EBITDA guidance reflecting the year-over-year increase of over 40%. Now let me go to the third part of your question, which is to explain what's happening with the sales to existing members versus existing members. So yes, revenue missed our expectations for the quarter, but I don't think it's a reflection on the new generation of our equipment. I think that's a reflection on our old equipment. So what happened here is we simply overestimated the rate with which existing members would want to upgrade their existing equipment to new equipment. The only historical data point we had as a company on this was when we launched Bike plus a few years ago. And that was a really fundamental reinvention of the entire frame of the bike. And so we did not, as it turns out, see the same rate of upgrade from existing members. I think that just speaks to the quality and durability of the existing equipment that our members have and the satisfaction, which I've spoken about at length, with that equipment. The other side of this coin, though, is that our sales to our new members met our expectations, and so it shows that our products do resonate with prospective customers. And if we step back on this, the existing members, that sales that impacts our revenue. But it doesn't impact our subscribers because they're already existing members. So the consequence of that is that our subscriber performance was strong, and we performed 6,000 or so subscriptions above the midpoint as a result. Liz Coddington: I was just gonna add one thing. You had asked about how the existing member sales miss influences our guidance for the back half of the year. And I just want to clarify that our guidance doesn't assume any of the softness that we observed in Q2 from lower sales to existing members is timing and that we will see any of it in the second half. So, you know, with the holidays, the cross-training series launch, and our subscription pricing changes behind us, we feel we have greater visibility to revenue for the rest of the fiscal year. And, really, the changes in our guidance reflect the sales miss from Q2 to existing members, and then that is partly offset by favorable subscription revenue relative to our prior guidance. Peter Stern: That's great. Thank you both. Operator: One moment for our next question. And that will come from the line of Shweta Khajuria with Wolfe Research. Your line is open. Shweta Khajuria: Okay. Thanks for taking my questions. Let me try two, please. The first one for Liz. There's some, you know, noise in media coverage around the recent headcount reductions. So could you please clarify how much of that is incremental, if any, at all? And what is already accounted for in the guidance? Already. And then the second question is for Peter on the commercial business unit. So a commercial business opportunity. How do you view that in terms of where you see the biggest impact? Is this a retention sort of a driver where you improve net churn because those who use Peloton are going to choose hotels and places that have Peloton equipment, or is it a lead gen where you are better positioned to get new subscribers? Liz Coddington: Yeah. So let me address the first part of the question first around our OpEx and the announcement that we had last week. So when we announced in August our goal to achieve our $100 million of annualized run rate cost savings by the end of fiscal 2026, you know, this action that we took in January just last week has always been part of that plan. And so as of last week, we've completed the remainder of our run rate savings plan with changes in our workforce, as well as shifting work to lower-cost locations, including moving some work to a global business partner. And doing all of this from a P&L perspective, you know, we're reducing both G&A and sales and marketing as a percentage of revenue. And that's enabling us to reinvest more into R&D while still reducing total OpEx as a percentage of revenue. And with these actions, we are on track to deliver against our $100 million cost savings target. Peter Stern: And then, Shweta, thanks for the question about the CBU. There's been an interesting evolution in our goals regarding the Precor business since Peloton Interactive, Inc. first acquired it. When it was first purchased, it was done for essentially supply augmentation for the company. Then subsequently, there was a belief that it was essentially a way of driving new subscribers for the Peloton, let's call it residential business. But today, we've realized that the opportunity in commercial fitness is extremely large. It's a multi, multibillion-dollar market. And we have a relatively low share there. And we're now demonstrating the ability to not only grow that business but to grow that business profitably. And so we're approaching the CBU primarily as a new vector for profitable growth for the company and to generate value for our shareholders on a stand-alone basis. And let me just talk a bit about some of those opportunities. Some of that's just blocking and tackling, like we know just adding back salespeople, getting more focused on key accounts, will help grow the business. We also have the potential to bring Peloton equipment to commercial customers through new products like the Peloton Pro series and also using the Precor team's existing relationships in 60 countries and with tens of thousands of gym operators. And then we also have an opportunity to reinvest in Precor's product roadmap. For example, we just relaunched Precor's first slatted belt treadmill, and the preorders on that exceeded expectations. And we're also seeing strong performance in Precor's strength equipment, both on the plate-loaded and the free weight side. So we think this is a sustainable driver of growth on a stand-alone basis. That all being said, we know that our Peloton members are looking for Peloton equipment when they travel. And that getting Peloton equipment into gyms is a terrific way for us to generate new relationships and awareness of our product. So I would view those as an ancillary but important benefit of us achieving the success with our CBU that we're aiming for. Shweta Khajuria: Okay. Thanks, Peter. Thanks, Liz. Operator: One moment for our next question. And that will come from the line of Arpine Kocharyan with UBS Investments. Your line is open. Arpine Kocharyan: Hi. Thank you so much for taking my question, and good morning. So churn was overall better than what you had talked about earlier for the quarter, but you had also talked about flattish churn for the year. And it seems like today, you're reiterating that guidance together with a decrease in gross adds, which was also expected. Could you maybe update us now that you have a quarter behind you post price increase and kind of better churn than expected, where you were thinking gross adds trajectory could end up for the year? Liz Coddington: Sure. So we don't actually provide guidance on subscribers or on gross additions for the year. So, you know, we've talked about our Q3 guidance. First of all, I do want to reiterate the fact that our churn was lower than we expected in Q2. And as a result of that, you know, we were, you know, we were able to update our expectations around subscriptions for the end of the year. And for Q3, our outlook, you know, we shared that as well. Q3, just to give you a little bit about our guidance for that, that is, you know, 2.65. Our guidance is 2.65 to 2.675 million paid connected fitness subscriptions. That reflects an increase of 2,000 subs quarter over quarter and a decrease of 218,000 year over year. Q3 is typically a seasonally low quarter for churn. It's also a seasonally stronger quarter for new sub additions. And that is, you know, that's just something that we tend to see every year, especially with the winter months in the Northern Hemisphere. Now we're not guiding for Q3 net churn, but we do expect churn to improve year over year in Q3. And as Peter said earlier, we do expect it to be relatively flat on a year-over-year basis. Peter Stern: Arpine, this is Peter. I'll just jump in a moment on gross adds because you specifically asked about that. And reiterating Liz's point, we don't guide to it, but if we look at the last quarter, our equipment sales were roughly in line with what we expected. And we had slightly lower third-party sales but slightly higher first-party sales. And so that's kind of what comprised the sales piece. But then our activations were delayed, and Liz talked about the revenue impact of that in the quarter, but that was basically delayed by just delivery dates and then some sense that it was the holidays and people were taking some time to activate. So that had some impact on gross adds in Q2 that's then we should flow into Q3. Liz Coddington: Yeah. I just wanna reiterate that when Peter said sales were in line, he meant sales to new members were in line overall with our expectations, with the outperformance really coming from first-party sales orders, again, with that delay, and then the underperformance coming from our third-party retail partners. Arpine Kocharyan: That's very helpful. Thank you. And one quick follow-up, and I know it's probably hard to speak of exact timelines, given you just introduced a bunch of new products this fall. I was wondering if, Peter, you could talk about your broad sort of takeaways or thoughts around new hardware product roadmap that you're looking at over the next, I don't know, twelve to eighteen months and how you are thinking about the timing of a separate strength SKU. As well as your thoughts around a more affordable tread product. Peter Stern: Yeah. Arpine, I think an earnings call is not where we would make a major new hardware product announcement. But what I can say is that I remain incredibly impressed by the capabilities of our hardware engineering teams here at Peloton Interactive, Inc. And as I mentioned earlier, they have demonstrated the ability to produce really high-quality equipment in a very short period of time. That being said, hardware is, you know, it takes time not only to design and engineer it but to make sure we test it because this is the kind of equipment that, you know, that people run on it and they engage in other physical activity with regard to equipment. And so we have to be incredibly careful about it. So with all of that said, I feel very confident that we will be able to make some meaningful announcements in the next twelve to eighteen months. And that those will start to create new opportunities for us as a company. Arpine Kocharyan: Thank you very much. Operator: One moment for our next question. And that will come from the line of Eric Sheridan with Goldman Sachs. Your line is open. Eric Sheridan: Wishing you the best going forward, Liz. Building on some of the comments you've made so far, Peter, would love to understand what you prioritize from a strategy perspective when you think about building increased value across the member base? How should we be thinking about investments and product cadence around content and the services layer? And maybe even going a little bit deeper into what some of the early signals you've gotten with respect to IQ and the adoption rate there. Thanks so much. Peter Stern: Absolutely, Eric. And thank you for the question. So here are some of the things that I'm prioritizing. One is delivering even more differentiated cardio experiences. You could see that in our innovations with the cross-training series and the pro series, both of which we announced and launched on October 1. The second area is providing a much more full array of fitness and wellness experiences. So that's, of course, leaning into strength. Some of the things that we're doing with sleep and recovery, you could see that with our partnership with the Hospital for Special Surgery. Mental well-being, building on that acquisition we did with Breathworks, and then, of course, beginning to personalize our offerings for every member. Peloton IQ takes our personalized plans to the next level there. So that's another way for us to be able to add value for our members and encourage them to try, for example, more categories of content, like getting people who are principally focused on cardio to do more with strength, which we know is good for the member and good for us. In terms of your question about Peloton IQ, one, let me just start with this. I am incredibly proud of the fact that The Wall Street Journal, when they put Peloton IQ up against the AI fitness coaching from Apple and Google, we came out on top. And as a dedicated fitness company, I'd expect to beat them at our game, but it's still gratifying given that these are some pretty well-resourced companies to be compared against. As we mentioned earlier in the call, nearly half of our active members engaged with their performance insights and their personalized recommendations during the quarter, and that was the first quarter that Peloton IQ was even out there. And the engagement with personalized plans among our members with connected fitness equipment increased 10% quarter over quarter. Another thing that we're seeing Peloton IQ do is it's changing the purchasing patterns of our customers. So when we ask customers why they bought what they bought, Peloton IQ was ranked the most compelling feature by those who purchased the cross-training series Bike plus, Tread, and Tread plus. And all of this is just going to keep getting better because we plan to expand Peloton IQ to cover more domains besides strength. Eric Sheridan: Great. Thank you, operator. I think we're gonna wrap up the call at this stage so we can get this wrapped up before market open. Thank you for joining us today. Peter Stern: I'll just say a couple of words before we wrap up. Fitness and wellness isn't a quarterly goal for our members, and it shouldn't be for our business either. With Peloton Interactive, Inc.'s disciplined operational focus, we're providing the foundation necessary to fuel continued innovation. We remain committed to returning the business to sustainable growth, and we're encouraged by our steady progress. I want to highlight a few classes and programs that you may be interested in between now and the next call. First, Rebecca Kennedy launched HiLiT, a four-week high-intensity, low-impact cross-training program. For those of you who are looking to take up running this year, Kirsten Ferguson can help you with her Call Yourself a Runner program, which we also released a few weeks ago. And if you haven't tried our new strength instructors, I encourage you to take a SculptFlow, Pilates, or kettlebell class with Greta, Johanna, or Zacharias. Okay. With that, we look forward to seeing you on the leaderboard. Thank you. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Greetings. Welcome to the Sirius XM Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants will be in listen-only mode. A question and answer session will follow the formal presentation. A reminder, this conference is being recorded. My pleasure to introduce Maggie Mitchell, Senior Vice President, Corporate Communications. Thank you, Maggie. You may begin. Maggie Mitchell: Thank you, and good morning, everyone. Welcome to Sirius XM Holdings Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Today, we will have prepared remarks from Jennifer Witz, our Chief Executive Officer, and Zach Coughlin, our Chief Financial Officer. Scott Greenstein, our President and Chief Content Officer, as well as Wayne Thorson, Executive Vice President and Chief Operating Officer, join Jennifer and Zach to take your questions during the Q&A portion of this call. I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data, or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please use Sirius XM Holdings Inc.'s SEC filings in today's earnings release. Advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. Additionally, we have posted a supplementary presentation on our Investor Relations website for your convenience. With that, I'll hand the call over to Jennifer. Jennifer Witz: Good morning, everyone. Thank you for joining us today. In 2025, we delivered on our commitments and finished the year with strong Q4 results, exceeding our guidance and growing free cash flow year over year. We achieved this by strengthening our subscription offering, growing our advertising business, and leveraging the power of our broader portfolio to drive meaningful efficiencies and harness new opportunities. Following the refocus strategy we laid out in December 2024, we have remained laser-focused on bolstering our core Sirius in-car audience and expanding the reach of our ad network. As a result, we've exceeded our revised guidance, achieving $8.56 billion in revenue, $2.67 billion in adjusted EBITDA, and $1.26 billion in free cash flow, with a clear path to our target of $1.5 billion in free cash flow in 2027. Now let's dive into our subscription business. Throughout the year, we continued to deliver unique programming that drives connection and passion with our subscribers. First, we signed a new three-year agreement with the king of all media, Howard Stern. Our long-standing relationship with Howard helped to define Sirius XM Holdings Inc. in its early days, and today he's more relevant than ever, achieving a 32% year-over-year increase in earned media with A-list interviews and must-hear moments. With this new agreement, we've cemented Howard's place in our lineup for years to come. Simultaneously, we've continued to grow and strengthen our bench of influential voices across music, sports, news, culture, and more. We super-serve passionate fan bases with dedicated league and artist channels, intimate live events, and the ability to interact directly with on-air hosts. Ranging from beloved personalities on daily formats such as the morning mashup to industry heavyweights, including John Mayer, Mad Dog, and many more. Our new Metallica channel is commanding a strong audience, outperforming our benchmarks. Additionally, we're seeing very positive engagement and passion from fans listening to our Unwell music channel with Alex Cooper, part of our broader deal with the Call Her Daddy host. We also closed out the year with our fan-favorite slate of holiday channels, with even more time spent listening to these channels than last year. Our unrivaled offering of sports audio content remains a key differentiator for us. With agreements with every major North American sports league and rights to more than 100 college teams, Sirius XM Holdings Inc. gives sports fans access to more live games and events than any other single media outlet or service. Sports listening is up year over year both in-car and on streaming, with audience gains in areas including NFL, NHL, and NBA play-by-play. In Q4, we extended our agreement with the NBA and launched new shows covering everything from the business of basketball to Italy's top soccer league. As we look ahead, we will continue to build programming around major events and milestones, including the Super Bowl and the World Cup. Sirius XM Holdings Inc. has always offered a broad set of perspectives across political lines. In Q4, we launched a full-time Megyn Kelly channel, and to help kick off 2026, Chris Cuomo has joined our lineup with an exclusive daily political show on the POTUS channel. From a product and service perspective, our focus has been on enhancing what we do best. In the fourth quarter, we launched our new automotive Pandora app with a select set of partners, including GM, which builds the music streaming platform more directly into the vehicle where we have a leading position. 360L penetration further expands each year, now in more than half of new Sirius XM Holdings Inc.-enabled vehicle sales and representing an increasing portion of our self-pay subscribers and the 180 million enabled fleet on the road today. This share will continue to grow with its next-generation platform now available in all new Volvos, standard on enabled Audis, and debuting in the 2026 Toyota RAV4. 360L combined with our streaming platform provides increased observability across listening, content, and product usage. With measurable insights allowing us to improve personalization and drive deeper engagement, leading to increased customer satisfaction. We've also made major strides in simplifying the overall customer experience and driving value. In Q4, we launched continuous service, a new capability that reduces the friction subscribers experience when changing vehicles as part of our efforts to remain consumer-centric. This functionality maintains the customer's listening history, account credentials, and other attributes, and also keeps their streaming service active, giving them the ability to continue enjoying the service while they move between vehicles. We expect this will have benefits in customer satisfaction and retention while also laying the groundwork for future enhancements that make the process even easier, solving a pain point for many of our dedicated listeners. This quarter, we also introduced companion subscriptions as we continually improve the value of our plans and packages and provide greater differentiation between tiers. Our version of the family plan, companion subscriptions allow our most loyal full-price customers to add a vehicle or streaming login at no additional cost. This is another step towards offering a suite of family plans that make it easier than ever for our loyal customers to share what they love across their household. We've also seen positive growth in our newer tailored package offerings. Our multi-year automotive dealer subscription program, which first launched in 2024, is now in more than 15 brands across North America. We've also continued the thoughtful rollout of play, which is now being expanded to a broader set of our new trialers. We are seeing positive indicators that it is driving conversion interest and subscriptions across all packages, widening the top of the funnel. Additionally, our podcast plus subscription has scaled. It now includes new shows and is available for purchase across Apple, Spotify, and more. Moving to the topic of advertising, 2025 was the year we secured our leadership position in digital audio advertising across a scaled audience of 170 million listeners. Throughout the year, we continued to deepen our podcast bench with disciplined investments in top shows and creators. We are now the number one podcast network in the nation and proudly had half of the nominees in the first-ever best podcast category at the Golden Globes last month. Our podcasting ad revenue grew 41% for the full year on top of double-digit growth in 2024, a testament to all the work we've done to extend our lead in this arena. Additionally, podcast programmatic demand has continued to grow, up more than 92% over Q4 2024 as digital buyers recognize the channel's reach. Beyond our digital audio ad sales business, our advertising technology capabilities are expanding, offering services to major audio players around the world. Additionally, our cross-platform sales strategy incorporates social and video components from top creators such as Mister Balan, continuing to scale, with video and social revenue up four times year over year. As audiences increasingly engage with podcasts through video and social platforms, we are able to effectively monetize this shift, with our omnichannel capabilities allowing us to tap into brand budgets beyond audio. As we look ahead to 2026, we are maintaining our sharpened focus and our commitment to strengthening our business and our leadership in audio. Our guidance anticipates mostly flat revenue on slightly lower subscribers alongside stable adjusted EBITDA for the first time in three years, with further growth in free cash flow. We are continuing to explore and capitalize on opportunities to leverage our assets moving forward, including our talent agreements, our ad sales expertise in ad tech, our 180 million vehicles in operation, and our 35 megahertz of contiguous spectrum. Overall, 2025 was a successful year where we were able to achieve both immediate impact and lay the groundwork for long-term results across the business. We delivered exceptional listener experiences and meaningful value to marketers, exceeded our cost savings target, maintained our dividend, strengthened our balance sheet, and drove disciplined execution that improved free cash flow and positions us for continued momentum. Enabling us to maintain our financial rigor and achieve our goals for 2026 is our new Chief Financial Officer, Zach Coughlin. Zach brings significant experience driving sustainable profitable growth at a variety of public companies, and we're thrilled to have him leading our finance function here at Sirius XM Holdings Inc. He has already hit the ground running and is focused on maintaining a strong balance sheet, driving margins, and optimizing our cash flows, all with the goal of increasing shareholder value. With that, I'll turn it over to Zach for more on the financial results. Zach Coughlin: Thank you, Jennifer, and good morning, everyone. Before I dive into the numbers, I wanted to start by saying how excited I am to be here speaking with you today on my first earnings call as Sirius XM Holdings Inc.'s CFO. I officially joined on January 1, and I've been incredibly impressed by the depth of the team, the durability of this business, and the passion behind our brands. I look forward to getting to know many of you in the analyst and investor community in the weeks and months ahead. I also want to extend a sincere thank you to Thomas D. Barry for his leadership partnership and for ensuring a thoughtful and seamless transition. Tom leaves this company in a position of strength, and I'm grateful for the foundation he and the rest of the finance team helped build. Turning to the business, we closed out 2025 with solid execution against our financial and strategic priorities. We sustained healthy margins, generated strong and growing free cash flow, continued to make disciplined investments in our platform and distribution, and delivered another year of meaningful cost efficiencies. At the same time, we sharpened our focus on subscriber profitability and higher return marketing and technology initiatives. For the full year, we delivered revenue of $8.56 billion, modestly ahead of our raised revenue guidance, which we'd increased on our third-quarter call. Total subscription revenue was $6.49 billion, down 2% year over year. Results reflected the benefit of our March rate increase offset by a slightly smaller average self-pay subscriber base. Advertising revenue was $1.77 billion, roughly flat year over year, driven primarily by strength in podcasting and improving programmatic demand late in the year, offsetting ongoing weakness in streaming music advertising. Full-year adjusted EBITDA was $2.67 billion, resulting in a margin of 31% and modestly ahead of our most recent guidance, which we also increased during the third-quarter call. Net income was $805 million, marking a significant increase from the prior year's negative $2.1 billion driven by the impairment charge associated with the Liberty Media transaction. Earnings per diluted share was $2.23, also significantly up from negative $6.14 in the prior year. In the fourth quarter, we delivered $2.19 billion in total revenue, largely flat year over year. Subscription revenue totaled $1.63 billion, down slightly year over year, while advertising revenue was $491 million, up 3% compared to 2024's fourth quarter, reflecting strong growth on top of elevated political spending last year. Overall, growth was driven by continued strength in podcasting and improving demand trends late in the quarter. Adjusted EBITDA for the quarter was $691 million, up slightly year over year from $688 million in 2024. As expected, free cash flow remained heavily back-weighted. Fourth-quarter free cash flow was $541 million, a Q4 record and up 5% year over year, bringing full-year free cash flow to $1.26 billion. This means we finished ahead of our original $1.15 billion guidance by over $100 million, reflecting continued operating discipline, lower cash taxes, and lower capital spend following the completion of our two most recent satellites. Our full-year free cash flow conversion was 47%, reflecting improved cash efficiency relative to the prior year, which included Liberty transaction-related impacts. Turning to the segments. In the Sirius XM Holdings Inc. segment, we generated $1.61 billion of revenue in Q4 and $6.42 billion for the full year, including $5.96 billion of subscriber revenue. Full-year revenue declined by 2% as the benefit of the March rate increase was more than offset by a slightly lower average self-pay subscriber base and planned mix changes within our base. Segment gross profit for the fourth quarter was $955 million and $3.82 billion for the full year, both representing a gross margin of 59%, close to last year's 60% for Q4 and full year. On subscriber metrics, fourth-quarter self-pay net adds were a positive 110,000. That reflects contributions from the continuous service initiative that Jennifer mentioned earlier, as well as the earlier than planned introduction of companion subscriptions, which contributed approximately 80,000 incremental self-pay net adds during the quarter. These benefits were more than offset by the expected reductions in streaming subscribers and lower conversion rates, resulting in net adds this quarter that were approximately 39,000 lower than last year's fourth quarter. Our core subscriber base remained stable, as reflected in full-year churn of 1.5%, one of the lowest levels in our history and an improvement from 1.6% last year, supported by a durable subscriber base with over half of our subscribers having been with Sirius XM Holdings Inc. for more than ten years. We view our strong churn performance as a key result of improving our value proposition and overall customer satisfaction, and looking forward, we expect it to remain in the 1.5% to 1.6% range. From an ARPU perspective, fourth-quarter ARPU was up $0.06 to $15.17 as rate increases rolled through the base, partially offset by an increase in subscribers on promotional plans. For the full year, ARPU was $15.11, down $0.10 from last year. Turning to the Pandora and off-platform segment, fourth-quarter revenue was $582 million and full-year revenue totaled $2.14 billion. Advertising revenue continued to show momentum during the year, growing 1% year over year, driven by strong podcasting and programmatic growth. As Jennifer mentioned, podcast revenue grew 41% in 2025. Segment gross profit in Q4 was $208 million, reflecting a gross margin of approximately 36% compared to last year's 34%. For the full year, gross profit was $670 million, a margin of around 31%, representing a slight decline from last year's 33%. For 2025, we also achieved $250 million of incremental gross cost savings, significantly exceeding our $200 million in-year cost savings target. Sales and marketing expenses declined 16% year over year, as we reduced streaming marketing and leaned further into an ROI-based subscriber acquisition strategy. We tightly controlled product and technology spending, which decreased 9% year over year, driven by lower hosting and labor costs. These savings not only establish a solid cost foundation heading into 2026 but also create additional capacity for reinvestment. In 2025 and continuing into 2026, we have continued to deploy capital selectively in key areas such as the in-car customer experience, platform technology, and ad monetization tools. As part of our ongoing efforts to simplify the business and sharpen our focus on higher return initiatives, we recorded $436 million of year-to-date impairment restructuring and other charges, including $272 million in the fourth quarter, driven largely by non-cash impairment charges related to certain content-related agreements and terminated software projects. We also continue to actively manage our balance sheet and return capital to shareholders. During 2025, we returned $501 million to shareholders, including $365 million in dividends and $136 million in share repurchases. We reduced total debt by $669 million during the year, including nearly $371 million in the fourth quarter. We ended 2025 with a net debt to adjusted EBITDA ratio of approximately 3.6 times, continuing our path towards our long-term target range of low to mid-3 times, which we expect to reach by late this year. Liquidity remains strong, with continued access to our $2 billion revolving credit facility, which remains largely undrawn. Looking ahead to 2026, based on current trends, we are introducing the following outlook. We expect revenue of approximately $8.5 billion and adjusted EBITDA of approximately $2.6 billion, both largely flat to last year. And we are expecting to grow our free cash flow to approximately $1.35 billion as we take another important step towards our target of $1.5 billion in 2027. We also expect to capture an additional $100 million of gross cost savings exiting 2026 for a cumulative run rate impact of $350 million, driven by continued platform efficiencies, customer service automation, and G&A rationalization. Separately, while we're not providing specific guidance on self-pay net adds, we do expect reported self-pay net adds to be modestly lower than 2025, primarily reflecting the timing impact of the earlier than planned introduction of companion subscriptions, which contributed approximately 80,000 incremental net adds in 2025. As always, we will remain disciplined in balancing shareholder returns, deleveraging, and investments that drive sustainable long-term cash flow. In closing, I'm incredibly excited about the opportunity ahead at Sirius XM Holdings Inc. This is a business with strong competitive positioning, durable cash flow, and a clear roadmap for continued efficiency and profitability. I look forward to working with this talented team and engaging with all of you as we execute on that strategy. With that, I'll turn it back to the operator for Q&A. Thank you to everyone for joining. Operator: Thank you. We will now be conducting a question and answer session. And our first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Please proceed with your question. Cameron Mansson-Perrone: Good morning and thanks for taking the questions. Jennifer, encouraging to see the positive sub growth in the period. Taking a step back, just wondering if you could elaborate on where you think Sirius XM Holdings Inc. sits competitively today and where we are really in the evolution to provide your customers with more pricing and packaging flexibility? Jennifer Witz: Sure. Thanks, Cam. We were really pleased with the fourth quarter results, just to start off. We added 110,000 in net adds, and so this is a reflection of not only continued low churn but contribution from our new acquisition programs and the benefit of continuous service and companion plans that we launched in the fourth quarter. So going forward, our competitive positioning, I think, is incredibly strong as complementary to the music streaming services, especially because we have a unique position in the car. And remember, the vast majority of listening in the car is still to AM/FM. And we are opening up new packages, including music only at $9.99 and low cost of ads at $7 that goes squarely off against that AM/FM listening. We think we have more opportunities to take share there. So we're really well competitively positioned against the DSPs to be complementary against AM/FM in the car, which is our primary point of leverage. Cameron Mansson-Perrone: Thanks. And if I could follow-up on churn just for a second. I think Zach mentioned an expectation for it to be in the 1.5 to 1.6 range in 2026. We think about that within the 1.4 kind of record low churn in the fourth quarter? What drove the 4Q? You talked about it a little bit, but maybe elaborate on what drove the outperformance in 4Q? And then why you expect that to kind of edge back a little bit as we look forward into '26? Jennifer Witz: Yeah. We did have a one-time benefit from continuous service in Q4, which reduced our vehicle-related churn. And this program allows our subscribers to continue their service while they're moving between vehicles. It removes a lot of friction in the process. This has been one of the points of leakage in terms of managing those vehicle changes, and we have more functionality coming, likely later this year, to make that even easier. So I do think we could continue to see some tailwinds in churn related to that functionality and expanding it. But, otherwise, we've seen strong non-pay results. Our voluntary churn was flat year over year, even though we did a rate increase last year. So, you know, we're just being cautiously optimistic. We think there's a lot more we can do with the data and the capabilities we're building on the marketing side to put the right content in front of the right customers, not only to build demand but also to enhance retention as well. Cameron Mansson-Perrone: That's all helpful. Thanks, Jennifer. Operator: Thank you. The next question is from the line of Steven Cahall with Wells Fargo. Please proceed with your questions. Steven Cahall: Thank you. Good morning, Jennifer. I was just wondering if you could, and Zach, elaborate on the outlook for self-pay net adds in 2026. I think you said that you expect those to be modestly lower than 2025 due to the introduction of Companion. And I think Companion was additive in the fourth quarter. So it sounds like it's more of a drag in 2026. So maybe you can just help us understand how that flows in. And also, does it contribute to any trade down at the household level? Or is it additive at the household level? And then second, just wanted to ask about the go-to-market strategy with the OEM dealers. Can you talk about what that does for churn? I imagine pretty positive. And do you have any meaningful SAC related to those subscribers as well? Thanks. Jennifer Witz: Sure. Thanks, Steven. In terms of self-pay net adds for 2026, we have guided modestly lower companion subscriptions launched a bit earlier than we expected in December, which has been very successful. And I would expect to continue to drive solid performance there going into and through this year. That is adding value for our most loyal subscribers and positions us well for a rate increase this year. So we've seen nice results there and better than we would expect. But because we pulled it forward, it actually delivered better than expected performance on self-pay net adds in the fourth quarter and for 2025. So I think that, look, we understand the importance of subscribers. We're very focused on improving the trends. We believe we have a number of initiatives that will enable us to do so. But I would say that even if we don't, we have incredibly strong and growing free cash flow generation for years to come. And we're being very disciplined about the interaction between subs and free cash flow. But just, you know, turning back to more specifically on 2026, we also are guiding for relatively stable revenue, which, you know, in the face of slightly lower subs, obviously indicates that we believe we have more room in ARPU and pricing. So, again, we have a number of initiatives in flight. Hopefully, we'll talk more about those this morning. Some of them we highlighted on the prepared remarks. But we are continuing to expand demand through our broader price and packaging and personalization in marketing. And we are launching with more and more OEMs, our dealer three-year subscription program, as you mentioned, and we expect to see more demand there where dealers are ordering Sirius XM Holdings Inc. and customers get the benefit of that three-year subscription in their vehicles at the point of purchase. And we are already in 15 brands, and we expect to continue to expand in new end use this year. Steven Cahall: Thank you. Operator: Next question is from the line of Kutgun Maral with Evercore ISI. Please proceed with your question. Kutgun Maral: Good morning and thanks for taking the questions. First, Jennifer, you just touched on ARPU and pricing in response to Steve's question. So can you help unpack your ARPU expectations for 2026 in a bit more detail? And then on spectrum, I appreciate that it's difficult to get too granular on any process, but is there anything you can share on whether you're still actively engaged in evaluating the portfolio and how you see the opportunity set ahead for at least parts of the 35 megahertz? Thanks. Zach Coughlin: Great. Thanks, Kutgun. Maybe I'll take the first one on ARPU. ARPU is a great story for us. In the fourth quarter, we were up $0.06 to $15.17, driven by the flow-through of the pricing we had taken earlier in the year. And importantly, I think beyond just the fourth quarter, if you pull back a little bit, it's our third straight quarter of sequential improvement when comparing to last year and our second straight quarter higher than 2024. As you look forward to 2026, that momentum we do see is carrying forward into the year and expect to see strong ARPU performance in 2026 as well. Jennifer Witz: Do I take a second? Yes. Thanks, Kutgun. And just as a reminder, the total 35 megahertz of contiguous spectrum with the 25 megahertz is currently used for our core broadcast operations. And then we have five on either side for 10 megahertz of the recently acquired spectrum, which is the WCS licenses. And so, you know, as a reminder, we noted last quarter that we are evaluating multiple approaches to creating value with these assets, including new products or enhancements to our services, either ourselves or with partners. And building on core strengths, in particular in the car, this has been a key focus for us overall and with a bit more attention being paid to the CMD licenses within WCS. That's where the most near-term opportunities are. And we're looking forward to talking more as our thinking and the opportunities evolve. Operator: Thank you both. Our next question is from the line of Jessica Reif Ehrlich with Bank of America Securities. Please proceed with your questions. Jessica Reif Ehrlich: Good morning. I have two topics, I guess. First, on the podcasting advertising growth, it has been phenomenal. It's driving really strong. And Zach just said you're seeing improving air trends later in the quarter. I mean, it would be great to get some color on what you're seeing in the overall advertising market. And do both 2026% be driven maybe by the market or more a function of specific podcast inventory you're onboarding? And then on that topic, podcast profitability, I don't think you've ever said what it is. Talk about if you don't want to give a number, like how should we think about the swing factor on that? And then I have another question. Jennifer Witz: Sure. I'll take that, Jessica. So we did see really strong growth in podcasting in Q4 and last year in total. And Q4 in particular was incredibly strong based on improvement in metrics across the board. So higher podcast audio RPM driven by really record sell-through, higher CPMs, and a significant uptick in programmatic, as well as growth in our Creator Connect product, which allows us to sell video and social also. So we think there's continued tailwinds here in the industry, not only because of, you know, listening trends and our particular portfolio, but our ability to continue to improve monetization. We have incredibly high RPMs here, well above what we see on the music streaming side. And I think there's, you know, continues to be room for growth. We have great relationships with talent. We had, you know, half of the Golden Globe nominees, you know, the first time they've had a best podcast category, and Scott and his team continue to actively discuss, you know, relationships with new talent there. So we feel really well positioned in the podcast business, and just to touch on profitability, so this is a good business for us. It stands on its own. The margin has increased over time, and we think that the industry dynamics are in our favor here. And we also get added value from what we do on Sirius XM Holdings Inc., you know, not only with things like the Unwell Music Channel or, you know, Conan O'Brien's channel, but working with the creators, we've been able to define exclusive content for our Sirius XM Holdings Inc. subscribers as well. Jessica Reif Ehrlich: Thanks. Any commentary on advertising? And then I'll go to the next question. Jennifer Witz: Sure, yes. So we're cautiously optimistic for 2026. And the year has started out solid. You know, I think it has a lot to do with our trends in podcasting, but there's a few areas where we see sort of unique opportunity. Our events business, you know, we are building great packages around things like the Super Bowl with our Noah Kahan event tonight, or the World Cup. And we also have a broader set of programmatic DSPs. We launched Amazon, and we're seeing a nice uptick there. And just in terms of the categories, I mean, it's recent, but, you know, what we're seeing is tech is up the most, financial services and pharma have been strong, as well as CPG. And then where we're seeing some pressure is on retail, QSR, and education. Jessica Reif Ehrlich: Great. I'm not sure if you said Scott is on the call or not, so I don't know if this is Scott or Jennifer for you. Yeah. But, you did just resign Howard Stern for an additional three years. How should we think about the 2026-2027 content renewal calendar and the puts and takes on the content expense growth? Like where do you feel you have negotiating leverage? Where do you think you should invest more to protect your franchise? Scott Greenstein: So that's a moving target. As our lineup shifts due to many factors, you know, people could go on to other parts of careers, the economic and business models may not make sense. It's really a shifting target. So we look at it. We feel really good where the lineup is right now, both on Sirius and for sure in podcasting. But, you know, we're opportunistic where we need to be, but we're also conservative if the podcast market or anything else gets too frothy, and we're not gonna, you know, get into that, especially with the lineup we have right now. The place that I'm most pleased where we stand right now is in sports live sports rights because we're the only place where all the league rights and college and many other sports are under one roof. So, you know, down the road, sure, there could be pressure on that. We're in a pretty good spot right now where our deals stand on that. Jennifer Witz: And I just say, Jessica, we have so much more data than we've ever had before. So we can make better decisions about what's in the portfolio based on that data in terms of engagement, but also how we're increasingly using it in marketing for acquisition and retention because the real objective is to get the right content in front of the right customers. And that kind of data and analytics will be supported clearly by perceived value as well. Jessica Reif Ehrlich: Great. Thank you. Operator: The next question is from the line of Barton Crockett with Rosenblatt Securities. Please proceed with your questions. Barton Crockett: I was curious about if you could talk a little bit about how you think about what seems to be a little bit of a new development in the podcasting sector, and that is the idea of, you know, doing deals with another party like a Netflix to give kind of an expanded kind of presence for your podcast, you know, Spotify's got a deal there and iHeart. That's new. Wondering if you could talk a little bit, Jennifer, about how you guys think about that in terms of the opportunity to do something like that and how important that could be specifically in this, you know, and then maybe segue into the idea of bundling. I mean, it would seem that, you know, one of the things that's been very prominent in, like, video streaming is guys coming up with bundle deals with other services like Disney Plus, HBO Max. And that working. We don't see so much of that audio and certainly, you know, maybe less prominently with you guys. So could talk about partnerships, bundling podcasts, that'd be interesting. Scott Greenstein: Thanks. I'll take the first part on that. So, you know, our podcast network reaches one in two podcast listeners in the US. And we're number one on Edison, and it's been well documented about how dominant we are in that position. So it's been written about. It's no secret that, you know, any company looking to have our podcast, you know, we're open for business. It's just we like our position where we are. Able to maximize a lot of money for curators and us going wide with what we're doing. If they become another platform that we can monetize on, we're always open to that. If it becomes narrower or more exclusive, the economics have to dictate that for both us and the creator. So it's a work in progress, but it's something we pay attention to regularly. Wayne Thorsen: Thanks. And this is Wayne. And on the partnership side, I think the key work that we've been doing to do things such as fixing our identity stack were key in order to do more effective distribution partnerships such as hard bundles. Because, you know, when we when the main identity ends up being the vehicle versus the customer, it gets very clunky to put together a partnership where you have a hard bundle and the two services are joined. The other piece that we really needed, of course, was to have a lower overall persistent price point so that we weren't swamping our partners when we're putting together these joined-up offerings. And so now that these are in place, there's a lot of discussions that are, of course, being evaluated and underway. So more to talk through in the coming months. Barton Crockett: Okay. That's great. Thank you. Operator: The next question is from the line of Stephen Laszczyk with Goldman Sachs. Please proceed with your question. Stephen Laszczyk: Hey, great. Thanks for taking the questions. Two, if I could. Maybe first for a combination of Jennifer and Wayne, you'll be seen some nice execution on the cost savings program this past year. Curious if you could talk a little bit more about the opportunity you see to take cost out of the business here over the next year or so. And then within that, some of the high ROI investments you're making with reallocating resources within the business you see the most opportunity on that front. And then second for Zach, I'm curious just with this being your first earnings call, I'd love to get your thoughts around leverage and capital allocation. Maybe here over the next year or so, but also over the longer term, what gives you confidence in the low to mid-3 times leverage ratio? And then how should investors expect capital allocation to evolve from here? Jennifer Witz: Okay. So just on high ROI investments, I think Wayne's team has been doing a fantastic job rationalizing our product and tech spend and focusing on where we have the most opportunity. So on our in-car subscription business and our ads business. So I'll let Wayne talk a little bit about that, and then Zach can address the others. Wayne Thorsen: Yeah. There's three main areas we're focused on. It's, you know, as you can see, this is where some of the identity work comes in, things like companion, it's really improving the overall go-to-market. The second is, of course, improving the experience in the car, and this, you know, all of these are all tied to the sharpened focus from December 2024. And then I'd say the third big area that we're continuing to make a lot of investments is improving the way we merchandise the breadth of our content. So that's search, that's recommendation, and other ways we're gonna push out recommendations and let people know all the wonderful things we have, which we have a huge opportunity to improve on. And, of course, that helps with churn and conversion through trial. Zach Coughlin: Yes. And Stephen, maybe I'll sort of reorder the question just a little bit to dovetail with what Wayne had to say. I think we're really clear on our capital return strategy. As Wayne had said, we're first focused on investing in those initiatives that drive our strategy. We've got plenty of opportunities for that. That's we'll feed that first. I think the good news is then with the OpEx efficiency work we're doing, which I'll talk about in a moment, we're able to create the capacity to both invest and improve free cash flow. That's well underway. So on the deleveraging piece, you know, we made significant progress in 2025, going down to 3.6 times, and we do expect to get into our guided range of low to mid-3s by later this year. And so then if you sort of walk all the way down from there, the third return is to shareholders today, been more heavily weighted toward dividends, that will remain important to us. And so as we achieve our target leverage later this year, that'll open up additional opportunities for us. But then just to talk a little bit about cost reductions, and I think, first and foremost, obviously, it helps us to create that capacity to invest in the things that Wayne had talked about. And we're really focused on reducing more agile. So we'll call it getting lighter. There's always opportunities to do that. The most obvious piece we see is in satellite CapEx we've talked about, but even inside of OpEx, one example is the significant work in modernizing the tech stack that Wayne and the team are leading. And here, we expect to both be able to reduce OpEx and deliver more for our customers. I think we see that as a win-win. Stephen Laszczyk: That's great. Thank you very much. Operator: Our next question comes from the line of David Joyce with Seaport Research. Please proceed with your questions. David Joyce: Could you please update us on the earlier learnings from your Amazon DSP relationship? Anything that contributed in the quarter, which what do you think that can do for you in 2026? Thanks. Jennifer Witz: Sure. So we're really pleased, by the way, with our programmatic partnerships. We've had a long-standing relationship with the Trade Desk, but we also have a significant business with GB360, Yahoo! Verizon, and growing with Amazon. So, you know, the diversification is really important. Certain brands work with certain platforms for various reasons. So we are seeing an expansion of marketers as we work with Amazon, and we've seen really nice growth there in the fourth quarter and continuing into the first quarter. So I think it'll be a nice contribution to the overall programmatic business. And again, we have a lot of runway here because, as you know, with CTV or video, programmatic represents a healthy share of overall ad revenue. And for us, you know, on the streaming side of our business, it's been a long-standing, but we're just starting to build on the podcasting side. So I think there's a lot of room to continue to invest in and see returns there. David Joyce: All right. Thank you. Operator: Our last and final question will be from the line of Brian Kraft with Deutsche Bank. Please proceed with your questions. Brian Kraft: I was wondering if you could comment on where conversion rates have been running for both new and used vehicles. And as well, if you could talk about how they compare between 360L and non-360L. You know, is 360L helping there? And then separately, I was wondering if you could just talk about the trends you're seeing in used car trials. Are those still growing? Are there macro pressures? Would they be growing but for macro pressures? Any color you could provide there would be really helpful. Thank you. Jennifer Witz: Sure. So I'll start with the first one. Obviously, a healthy trial funnel is great for the business, and we saw that throughout last year. There is some pull forward perhaps because of tariffs and just general consumer demand. In '26, there does look to be perhaps the first year of reductions in consumer purchases of new vehicles, at least from the third-party estimates, the first time since 2022. So we may be facing a bit of a headwind there. But, you know, again, expansion of penetration rates and expansion of 360L are helping offset that to some extent, and I'll come back around to that. On the used car side, organically, obviously, penetration rates continue to grow there. We're at about 60%. And we have really strong relationships across our dealer network to be able to make sure that when a customer gets into their new used car, the radio is working for them. So continue to invest in those programs to ensure that they can have the best consumer experience on the used car side. Say, overall, we're not quite at fifty-fifty in terms of trial starts across new and used, but it's getting closer as used grows. So on conversion rates, we're seeing, you know, some similar trends that we've seen in the past. We have really strong programs and initiatives in place to, as Wayne even addressed, to address demand through the trial funnel. And, you know, those include things like the pricing and packaging that we put in place, whether it's low cost of ads or music only at $9.99. We're seeing healthy take rates on when we put those price points in front of customers on our full-price packages. So, it's opening the top of the funnel and getting people on the best package for them. But what's even more important is the right content in front of the right customer. So we have an incredible portfolio, but it's extensive. And we need to make sure customers can find the content they love. When we've tested this in smaller ways, we see meaningful lift and conversion. So it's really about the capabilities that Wayne's team has been building. This is taking our, it's taken longer than I would like, admittedly. We've been on this path for two or three years, but a lot of things are coming over the finish line this year that I believe will help us to really drive personalization in marketing. And we do see because with 360L, we get that data back on listening even if you are listening or aren't listening and how much you're listening and what you're listening to. And we can design our marketing and even in some cases, product recommendations to address that. So that's really core. We see, you know, 360L conversion rates better than non-360L. We even see it pretty early, but we launched 360L on AAOS, which is a platform that we can more easily update and comes, you know, at launch fully featured. So we even see better conversion rates there. So we know there's something here to unlock. It's just about getting some of these capabilities across the finish line this year to support. Brian Kraft: Thank you. Zach Coughlin: Okay. And so with that, the last question, I want to thank everybody for joining. And as we're wrapped up 2025 and report out there, I think to close by thanking the Sirius XM Holdings Inc. employees all around the world. It was a good year, and that was obviously driven by the contribution of all of you, and we're off to a good start in 2026 as well. So thank you.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2026 Prestige Consumer Healthcare Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Philip Terpolilli, Vice President of Investor Relations and Treasury. Please go ahead. Philip Terpolilli: Thanks, operator. And thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President, and CEO, and Christine Sacco, our CFO and COO. On today's call, we'll review our third quarter fiscal 2026 results, discuss our full-year outlook, and then take questions from analysts. The slide presentation accompanying today's call can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the investors link, and then on today's webcast and presentation. Remember, some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measures are included in our earnings release and slide presentation. On today's call, management will make forward-looking statements around risk and uncertainties, which are detailed on a complete safe harbor on page two of the slide presentation that accompanies the call. These are important to review and contemplate. Business environment uncertainty remains heightened due to supply chain constraints, high inflation, and geopolitical events, which have numerous potential impacts. This means results could change at any time, and the forecasted impact of risk considerations is the best estimate based on the information available as of today's date. Additional information concerning risk factors and cautionary statements are available in our most recent SEC filings and the most recent company 10-K. And I'll hand it over to our CEO, Ron Lombardi. Ron? Ron Lombardi: Thanks, Phil. Let's begin on slide five. Delivered solid results for the third quarter which reflected the benefits of our diverse business model and strong financial profile. We are pleased with these results, especially when navigating the challenging consumer backdrop we've seen year to date. Which includes consumers continuing to change where they shop in a fluid environment with tariff inflation, a government shutdown, public announcements related to acetaminophen, and more. All of this led to a dynamic environment in Q3 which we successfully managed through. Sales of $283 million were slightly better than forecast. Our diverse customer base allowed us to see solid order trends in our growing channels, which more than offset the impact of other channels that are more affected by the macro issues I just mentioned. Our broad distribution allows us to benefit from changes in consumer shopping habits no matter where they look to buy our trusted and leading brands. Another positive is that we continue to see sequential improvement in ClearEye supply for the second quarter in a row. We anticipate further improvements based on actions we've taken that I'll discuss shortly. Moving down the P&L, both gross margin of 55.5% and adjusted EPS of $1.14 were in line with our expectations provided on our second quarter call. Free cash flow was $209 million year to date, up 13% versus the prior year. This impressive cash flow allowed us to repurchase approximately $46 million in stock and acquire our strategic partner Pillar Five during the quarter, while still maintaining leverage in the mid-2s. Our disciplined capital allocation strategy continues to enhance shareholder value. Christine is going to discuss this and specifically our year-to-date share repurchases after reviewing the financials. So despite a fast-changing consumer backdrop, we have confidence in our core business which remains well-positioned and we continue to expect free cash flow growth for the fiscal year. Now let's turn to slide six for an update on eye care supply. We continue to see long-term growth opportunity in the eye care category driven by an aging population and other factors. We have faced challenges in supply for our Clear Eyes brand for the last several quarters, but we are confident that we've taken the appropriate strategic actions shown on the left side of the page to return Clear Eyes to its leading market share position. To start, over the last nine months, we've brought on two new third-party suppliers to help ensure near-term production as well as long-term backup supply. Second, we closed on the Pillar Five acquisition in December, which unlocks the opportunity to take direct control over an important element of our supply chain. Third, with the installation of a new high-speed line that began in December, we believe Pillar Five has the capability to support the majority of our eye care production internally over time. With the combination of ownership and the high-speed line, this gives the facility the ability to have unconflicted focus on producing high-volume, quality product on time for Clear Eyes, the historically number one eye drop brand at retail. With these strategic underpinnings, we believe this year is set up to allow us to shift towards a focus on accelerating total production. These priorities to achieve this are on the right side of the page. We expect to continue sequentially increasing supply through calendar 2026 as we increase efficiency levels and production to higher sustainable levels. During this period, we also expect one-time investment as we transition Pillar Five from their private ownership. As production and resulting supply improves, this will allow us to further diversify our pressure runs into an expanded assortment of SKUs versus today where the focus is on our top two selling items: Redness Relief and Max Redness. These higher production levels will allow us to refill both retailer safety stocks and our own. Lastly, the consistency and volume of production will enable marketing efforts that should help further accelerate demand growth. So in summary, we feel good about the actions and steps we've taken to improve our eye care production positioning. We believe we are positioned to continue to improve supply sequentially again in Q4 and moving forward. With that, I'll turn it over to Christine to discuss the financials. Christine Sacco: Thanks, Ron. Good morning, everyone. Let's turn to Slide eight and review Q3 year-to-date financial results in more detail. Q3 revenue of $283.4 million declined 2.4% from $290.3 million in the prior year, or 2.2% excluding FX. The revenue decline was mainly attributable to lower eye and ear care category sales owing largely to Clear Eye supply constraints. As Ron mentioned, we also benefited from our broad distribution which drove sales growth in some of our largest channels. This helped offset continued consumer volatility and softness in certain categories like analgesics, and cough and colds. Adjusted EBITDA margin remained in the low thirties. Adjusted diluted EPS of $1.14 was down slightly versus $1.22 in the prior year, reflecting the lower sales timing of A&M spend and higher G&A costs. Last, please note these results exclude an approximate $10 million write-off of a supplier loan. Although not often, from time to time, we expect to extend secured financial liquidity to our third-party suppliers, to ensure continuity of supply. In this case, we decided to make a loan to a partner in fiscal 2024 as they explored a sale of their business and we transferred our products to other suppliers. That work has been completed without any meaningful disruption in supply, but the business shut down in December. Our loan is secured by the assets of the company, and while we expect some recovery, we cannot estimate the amount. As a result, we have written the full balance off at this time. Let's turn to slide nine for a discussion around consolidated results for the first nine months. For the first nine months of fiscal 2026, revenues decreased 3.9% organically versus the prior year. By segment, excluding FX, North America segment revenues decreased 4.4% and international segment revenues decreased 90 basis points versus the prior year. The first nine-month sales decline was largely due to the anticipated impact of the Clear Eye supply chain constraint. As Ron highlighted earlier, thanks to our channel diversity, we continue to benefit from strong growth in channels like e-commerce, which have offset negative trends in most other channels. Also impacting year-to-date sales was category softness in the analgesic, and cough and cold categories. Ron will note the implications of this when reviewing our outlook for the remainder of the year. Elsewhere, our international OTC segment business declined slightly year-to-date for two primary factors. First, we were impacted by the timing of distributor orders year-to-date but continue to see positive consumption trends. Two, similar to the US, our sales results continue to be impacted by the limited eye care production. Despite these near-term impacts, we continue to have confidence in our long-term growth algorithm for 5% annual segment revenue growth. Total company gross margin of 55.7% in the first nine months was up 50 basis points versus the prior year. Looking forward, we anticipate a 57% adjusted gross margin in Q4. Our fiscal year 2026 tariff outlook is unchanged at approximately $5 million. Advertising and marketing came in at 14.1% for the first nine months. For fiscal 2026, we now anticipate an A&M spend rate of just under 14% as a percent of sales. Adjusted G&A expenses were higher for the first nine months versus prior year, primarily due to the timing of certain expenses and also an increase in bad debt allowance in Q3 for one specific customer. We anticipate full-year G&A of just over 10% as a percent of sales. Finally, adjusted diluted EPS of $3.16 compared to $3.20 in the prior year as improved gross margin, more favorable interest expense, and share count helped offset the impact of lower revenue. Looking ahead, to reflect the latest assumptions following the closure of Pillar Five, and our recent share repurchase efforts. For Q4, we expect interest expense of approximately $11 million, an approximate normalized tax rate of 24%, and a share count of just under 48 million. Now let's turn to Slide 10 and discuss cash flow. For the first nine months, we generated $208.8 million in free cash flow, up 12.9% versus the prior year. We continue to maintain industry-leading free cash flow, and are maintaining our outlook for the full year of $245 million or more. For Q4, we do expect lower year-over-year quarterly free cash flow owing to timing and investments in working capital. At December 31, our net debt was approximately $1 billion equating to a covenant-defined leverage ratio of 2.6 times. Our strong financial position and consistent business performance continues to enable multiple uses of cash flow. In Q3, this included the closure of Pillar Five, as Ron discussed earlier, for just over $110 million as well as opportunistic share repurchases. Let's turn to slide 11 to review our year-to-date share repurchase efforts and our overall capital allocation strategy. Thanks to our strong financial profile and resulting free cash flow, optimal capital deployment is a valuable driver in enhancing long-term shareholder value. These priorities are unchanged. We anticipate disciplined cash deployment against the various options of investing in our brands, M&A, share repurchases, and deleveraging to further enable the first three priorities. This year is another example of our powerful capital deployment strategy at work. Through the meaningful cash generation and resulting debt reduction we've achieved over the last few years, we have leeway for multiple value-adding priorities at once. To that point, beyond just the recent acquisition of Pillar Five, we continue to actively assess M&A and see future opportunities to acquire leading consumer healthcare brands that can enhance our portfolio. But in tandem, we've also capitalized on a unique opportunity to repurchase our shares at what we believe are particularly attractive levels while still retaining flexibility to pursue M&A and other deployment options. As part of our multi-year share repurchase authorization, we've now repurchased over $150 million in shares year-to-date, or nearly 5% of shares outstanding. As shown on the right side of the page, the majority of these came in Q2 and Q3 opportunistically at attractive return levels. This is a textbook example of how our healthy leverage position and strong and steady free cash flow allows us to be nimble in capital deployment and generate incremental value. With that, I'll turn it back to Ron. Ron Lombardi: Thanks, Christine. Let's turn to slide 13 to wrap up. As we approach the end of a volatile year, we continue to have confidence that our diversified business model and strong financial profile have set us up for long-term success. For fiscal 2026, we have narrowed our sales outlook forecasting approximately $1.1 billion in revenue. This update reflects continued consumption momentum in the growth channels of our business like mass but offset by slower order patterns in other channels that are facing shopper headwinds. We expect sequential improvement in Clear Eye Supply again in Q4 which equates to three consecutive quarters of improvement. EPS will follow sales and narrow to an anticipated adjusted diluted EPS of approximately $4.54 for the year. Lastly, we continue to anticipate free cash flow of $245 million or more. We have ample capital deployment optionality, that has a history of maximizing value for our shareholders. With that, I'll open it up for questions. Operator? Operator: As a reminder to ask a question, please press 11 on your telephone. Wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Rupesh Parikh with Oppenheimer and Company. Your line is open. Rupesh Parikh: Good morning, and thanks for taking my question. So Ron, just going back to your commentary about the shopper headwinds in the weaker parts of your distribution. Just curious, as you look at those customers, are you seeing that consumption shift to other retailers? Is this just more maybe inventory stocking that's happening in that channel? So just maybe more color in terms of that dynamic from a consumption perspective. Ron Lombardi: Sure. Good morning, Rupesh. Yeah. I think you hit it right on the head, which is, you know, we're seeing a volatile environment. Lots of things kind of distracting and impacting how consumers think about shopping. And what we're seeing is more of a continuation of a channel shift. So we're picking up the consumption based on where they end up purchasing the product. So a continuation of the trend we've talked about earlier in the year. Rupesh Parikh: Okay. So you feel good about the overall consumption trends within the business. It's just more of this inventory type of destocking that's impacting the guide. Is that the right way to think about it? Ron Lombardi: Yeah. Exactly. And, again, it's back to the benefits of our business model. Right? Diverse portfolio, a broad distribution, allows us to pick them up where they go looking for those trusted brands. Rupesh Parikh: Okay. And my last question on that topic, any sense of when this headwind may go away? Is it more Q4 specific, or do you expect it to bleed into the next fiscal year as well? Ron Lombardi: You know, we're really looking at it quarter by quarter. It's hard to predict. Right? If you go back to September, you know, we wouldn't have predicted the level of volatility we saw in the quarter ended December. So but, again, back to you know, the good news is for us is that we're well-positioned to manage through no matter what's going on. Rupesh Parikh: Okay. Great. And then maybe my last question. I know it may be early, maybe limited in what you can comment. But as you look towards your next fiscal year, is there any initial puts and takes we should be thinking about whether on the Clear Eyes side or anything else at this point that you can comment on? Ron Lombardi: Yeah. So I guess two things. The first is you know, we continue to feel good about the performance of our business on an organic basis. And then secondly, we've talked about the expectation of continued increases in the Clear Eye supply chain. So we'll provide more color and details for fiscal 2027 on the May call. Rupesh Parikh: Great. Thank you. I'll pass it along. Ron Lombardi: Okay. Thank you. Operator: Thank you. Our next question comes from Susan Anderson with Canaccord Genuity. Your line is open. Susan Anderson: Hi, good morning. Thanks for taking my question. I guess maybe just a follow-up on the eye care business. It's good to see that sequential improvement there. Feel like we're starting to see better stock on the shelves. So I guess I'm curious kind of where you're at with that restocking versus where you used to be. Not sure if you could get kind of, like, a time frame of, you know, when you think you'll be kind of fully back to stock with all of the SKUs and everything. And then, also, I was curious, was there an impact to margins during this disruption of the eye care supply? And should we expect the recovery to stay, like, in gross margin as the business gets back to normalization? Thanks. Christine Sacco: Hey. Good morning, Susan. This is Christine. So you know, in terms of Clear Eye supply, I think we continue to feel good about the strategic decision to acquire Pillar Five. Right? And we talked about bringing on two new eye care suppliers earlier in the year. And again, feel good about that. It's gonna ramp. Right? It's not a switch that we turn on. So in terms of restocking, right, it's gonna take us some time. We're gonna be probably incurring this as we work through fiscal 2027. But, again, sequential improvement expected. The third quarter that we felt it and continue to expect it for our fourth quarter as we move forward. From a margin perspective, relatively stable. We always talk about whether it's we're channel agnostic or pretty much brand agnostic. Right? We do see some mix, but it's not material. So, not expecting a meaningful change in our margin as we move forward in terms of eye care supply. Susan Anderson: Okay. Got it. And then I guess maybe a question on e-commerce. Obviously, it continues to grow pretty well. Maybe if you could give us an update where your penetration is at. And then also, are there certain areas of the business that's growing faster online than others? And where you think the penetration can be longer term? Ron Lombardi: So, Susan, our consumption grew over 10% in the third quarter, so we continue to see solid, continuing consumption growth even on top of, you know, great results year after year. You know, calling the ultimate channel share is hard to predict. Right? It depends on what shoppers choose to do in the future. But clearly, what we're seeing today is that shoppers are flocking to places where they get a broad offering of the products they're looking for. Great pricing, price transparency, and service. And that service is whether it's you know, overnight or same-day shipment or order it online, pick it up in the parking lot, or being able to get in into the store and pick up all of the things you may wanna get in a shopping trip. So you know, that we've seen that change dramatically over the last five or six years. We'll see where it goes forward. But the way we think about it is every day it's our job to work with our retail partners to help them be successful. In meeting their objectives. And if we do that, we'll win with the shopper and we'll win with our brands. Susan Anderson: Great. Okay. And then maybe one last one for me just on the women's health business. Maybe if you could give an update there. It looks like it took another dip in the quarter, but sequentially, it was better. I guess, was that category susceptible to kind of these consumer shopping patterns or retailer destocking, or is it just ordering patterns? Thanks. Ron Lombardi: Yeah. So, again, let's talk about the two different brands in women's health. Monistat continues to do well. It's at, you know, kind of historic peak levels of share these days. We continue to look at opportunities to expand the brand into care. So we've got some great new wash products that are doing very well this year. So Monistat continues to do well. Summer's Eve continues to be well-positioned for long-term growth. As you just said, we're seeing kind of volatility in year-to-year comps. And, you know, we talked about the fourth quarter last year about a spike in .com orders and then kind of the offset in the first quarter of this year. If you go back and look at TTM for the December, the women's health franchise continues to do pretty well. So we continue to feel good about it going forward. Susan Anderson: Great. Thanks so much. Good luck. Ron Lombardi: Sure. Thanks, Susan. Operator: Thank you. Our next question comes from Keith Devas with Jefferies. Your line is open. Keith Devas: Hey, good morning. Thanks for the question. I guess very quickly on the capital allocation front, I believe you guys have bought back more stock this year than in recent memory. Maybe just talk through the decision process of doing that versus reinvesting. Is this something we should be accustomed to at these levels? Just kind of the go-forward path of thinking about capital returns and the absence of M&A? If this is kind of the right level that you might be expecting to continue repurchases at. Thanks. Christine Sacco: Yeah. Good morning, Keith. So, you know, as we've talked about, certainly investing in our brands is priority number one, but we do continue to evaluate M&A. That is our secondary use of capital preference at this point. But we're gonna be disciplined. So there's a lot out there. We're looking at all of it, and we'll continue to evaluate it. But given the market reaction to our stock in recent periods, it's math. Right? We do the math, and we think we're getting a pretty good return for our shareholders by reinvesting in ourselves at this point. And so we'll continue to evaluate it on that basis. But it comes secondary to M&A. And, certainly, we don't impact the business in investing in our brands by doing it. So strong free cash flow, consistent, and we have optionality at this point, which, you know, in years past, maybe we didn't have. But where leverage is, I think we stand in a good position to continue to repurchase. Operator: Thank you. Our next question comes from Jon Andersen with William Blair. Your line is open. Jon Andersen: Hey, good morning. Thanks for the question. Morning. So I guess my first question is on sales and the outlook. I think you mentioned in the prepared comments that the sales in the third quarter were actually slightly ahead of your expectation. But then the guidance points us to the low end of the prior range. Which implies, you know, slower growth than you anticipate in the fourth quarter. Can you kind of unpack that for us a little bit? What's affecting the fourth quarter outlook? Ron Lombardi: Sure. So first, consumption for the fourth quarter, we continue to feel good about it. So it's not really a consumption issue, Jon. We're really trying to reflect the order patterns that we saw in the third quarter and the volatility. You know, the big theme we saw in the third quarter and really for this year is that the retailers and the channels that are doing well have consistent order patterns. They're growing to support their growing businesses, and the channels and the retailers with headwinds are adjusting their order patterns and their business accordingly. So we're trying to reflect that in the fourth quarter outlook, Jon. So that's really the big thing there. Jon Andersen: Okay. So I want to talk about consumption. So what did you see from a consumption standpoint in the third quarter, maybe you want to exclude Clear Eyes. I'm not sure. So the rest of the portfolio and what level of consumption growth you kind of anticipating in the fourth quarter? I'm just trying to understand, are we hitting consumption? You know, is it running at our target, what, two to 3% rate? Ron Lombardi: Yeah. So for consumption in the third quarter, right, with our portfolio, we always see brands and categories that do better than we might have expected, some in line, and some a bit behind. So we continue to have great momentum in GI. Fleet and Dramamine are doing really well. Skin is another space that's doing well. Cough cold for the third quarter, and, again, these are shipments, was fairly stable year over year, but incident levels are behind where they were last year. The two other places to call out, you've heard us talk about lice. The incident levels continue to be down year over year. But the surprise for us in the third quarter was the analgesics category. The announcements that came out of Aldon, acetaminophen, early in the third quarter really impacted the category. You know, other big brands in that space were down as much as 15%. We were down a couple of points. So although impacted slightly, it still wasn't what we would have expected or in line with recent trends. To go back and look at the three quarters ended September, the analgesic category for us was growing nicely, our brand BC, and Goodies. So, those were the outliers in the third quarter. For the fourth quarter, we anticipate the analgesics will get better. Lice will continue to be behind. Cough cold will continue to be behind. But in general, the consumption for the portfolio, you put all the pieces together, excluding the analgesics and the lice, are generally in line with what we'd expect. Jon Andersen: Okay. That's helpful. Thanks for that. Just a last one is more referencing an earlier question on kind of sales for '27. You mentioned actually, Ron, I think you mentioned kind of happy with the base business performance. Obviously, there are always puts and takes to your point across a diverse portfolio like yours. But good base level consumption. And then you have the benefit, if you will, of supply conditions improving behind your eye and ear care segment. Does that get us, you know, kind of an above algorithm year? Is that a reasonable hypothesis? Or is this kind of, hey, the consumer dynamic is so fluid. And some of these retailers that aren't maybe performing as well, you know, need to are likely to provide an offset. I'm just trying to kind of get a little bit of a handle on how you're handicapping or thinking about the top line in '27? Thanks. Ron Lombardi: Yeah. So let's break it into two pieces, and I'll talk about consumption, which is where you started with. You know, again, we feel good about the broad portfolio, and the opportunities for '27. And then Clear Eyes, as we've talked about, we expect to have more product available at retail, so that's gonna give us a lift in consumption for next year. At the May call, you know, we'll know more between now and May in terms of what to expect for the impact for retail order patterns as we get into '27. But know, it always starts with consumption and brand performance. We feel good about that base. And we'll provide more detail in May for '27. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone. And wait for your name to be announced. Again, press 11 to ask a question. Our next question comes from Mitchell Pinheiro with Sturdivant and Co. Your line is open. Mitchell Pinheiro: Hey, good morning. So just curious. We haven't talked much or at least on advertising and marketing. Do you anticipate any changes in that as e-commerce becomes bigger? I mean, are you able to take any advantage, take any money out of that bucket? Or does it require a little more focus as e-commerce grows? Ron Lombardi: Yeah. So good morning, Mitch. Thanks for the question. So our marketing is always gonna evolve based on what the consumer is doing and how best to connect with them. And in today's environment, certainly, aligning your marketing initiatives to better connect with the shoppers as they're shopping differently. Right? Increasing their purchases on .com. Through whatever retail partner we have and their .com initiatives. So it's something we've been working on for quite a while to better align those investments to connect with the shoppers. You know, we're not wired to think about, hey, can we save money by this evolving change? Right? We'll look for ways to be more efficient and effective. And if we can find additional dollars, we're gonna invest it behind long-term brand building. But evolving how we think about better connecting with the consumers is something that's always been part of what we've been doing. Mitchell Pinheiro: Okay. And then as it comes to private label, I mean, private label is always relatively nonexistent in your category, but I'm just curious whether you're seeing anything in that regard in the current environment. Ron Lombardi: Yeah. No. It's more of the same for private label share in this environment. Right? You're in a category once every year or two or three years, and you used a brand or a product the previous time you or somebody was sick, somebody in your family was sick and it worked, you're gonna continue to look for that trusted brand to treat your illness. So we don't anticipate private label share changes in this environment. Mitchell Pinheiro: Okay. And then I guess I sort of back to advertising and marketing, but as you grow your eye care business back to prior levels, is it gonna take a little more marketing? I mean, I know shelf resets are a big part of it, but is it gonna require, like, for, you know, twelve months, additional focus there? Ron Lombardi: Yeah. We'll see an increase in marketing spending and activity for Clear Eyes as more product becomes available at retail. But we'll look to shift funds around, you know, during the last year or so. We haven't meaningfully taken down advertising and marketing in total. We've shifted it to other places to accelerate activities or take advantage of other opportunities. And we'll look to move monies around. So we wouldn't expect any impact on the profile of the P&L as we get back to chasing Clear Eyes activity. Mitchell Pinheiro: Okay. I guess just one last question. I mean, you've done an excellent job sort of line extending whether it's, you know, Dramamine, and nausea, or whether it's with Summer's Eve, so on and so forth, you sort of once a year focus on a category with, you know, some extra, you know, new news. Anything you can talk about in 2027 that might be an extended focus? Ron Lombardi: Yeah. So, you know, we don't tend to talk about product until it's at retail, and we're just getting into the shelf reset timing for the year. But the one product I will point out is Compound W launched a SkinTag product and it's found at mass and .com right now. And it's quickly accelerated at mass to be the number one skin tag product. So that's an example of us stretching that Compound W brand into SkinTag treatments and the power of the brand to connect to that kind of treatment occasion, you know, expanding beyond the legacy wart products. Mitchell Pinheiro: Okay. That's great. That's all for me. Thank you. Ron Lombardi: Okay. Thanks, Mitch. Operator: Thank you. Our next question comes from Yakov Mosheyev with JPMorgan. Your line is open. Carla Casella: Hi. It's actually Carla Casella. Just a question about the charge you took for a facility loan for the supplier. Is that a facility that you would consider acquiring? Or can you give us a sense for what's the supplier for a specific segment of the business? Just any more color you can give on that would be great. Christine Sacco: Yeah. Good morning, Carla. It's Christine. So this particular supplier, you know, strategic relationship with, came to us over almost two years ago and said we're experiencing some financial difficulties. With a decent size of the business, and so immediate plans went in place to transfer out the product. But as you know, that takes some time. So over that period, we extended them about $8 million of financial assistance. That gave us enough time to get our product out of there, and they were at the time pursuing a sale. And so, you know, when I look back, I think about the return we got on that money for saving the gross margin on those particular products. They weren't concentrated in one area. There were a few products, a few SKUs within products and brands that were there. Transferred them all out successfully, and unfortunately, they did not complete a sale during that time, and they shut down in December. So highly unusual, specific situation, but kind of an example of how we work with all of our suppliers, and our focus is on continuity of supply, and I think we were successful in that. Ron Lombardi: And Carla, very different than the Pillar Five example. This was a liquid mix and fill facility. And there's plenty of competitive liquid mix and fill capacity available that we were able to move our products to. Including one moving one product to Lynchburg, our Debrox earwax removal product. We evaluated it and said, hey, this liquid mix and fill product would be a great candidate to move into Lynchburg. So we even moved one of the products there. So very different than SterilEye Care, where as we scan the supply chain landscape, there wasn't available capacity. So two very different outcomes. One where it was strategically advantageous to us going forward with Pillar Five, an example of taking advantage of capacity available out there. Carla Casella: Okay. Great. And then as you look to future M&A, are you mostly focused on brands or could some of it be vertical or facility related? Ron Lombardi: It's gonna be focused on brands and long-term brand building value. Carla Casella: Okay. Great. Thank you. Ron Lombardi: Thank you, Carla. Operator: Thank you. This concludes the question and answer session. I would now like to turn the call back over to Ron Lombardi for closing remarks. Ron Lombardi: Thank you, operator, and to everyone for joining us today. And we look forward to providing another update on our May call. Thank you. Have a good day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Regal Rexnord Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rob Barry, Vice President, Investor Relations. Please go ahead. Robert Barry: Great. Thank you, operator. Good morning, and welcome to Regal Rexnord's Fourth Quarter 2025 Earnings Conference Call. Joining me today are Louis Pinkham, our Chief Executive Officer; and Rob Rehard, our Chief Financial Officer. I would like to remind you that during today's call, you may hear forward-looking statements related to our future financial results, plans and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the regalrexnord.com website. Also on the slide, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials. Turning to Slide 3, let me briefly review the agenda for today's call. Louis will lead off with opening comments and overview of our fourth quarter and full year performance and the discussion of our recent data center wins. Rob Rehard will then present our fourth quarter financial results in more detail and introduce our 2026 guidance. We'll then move to Q&A, after which, Louis will have some closing remarks. And with that, I'll turn the call over to Louis. Louis Pinkham: Thanks, Rob, and good morning, everyone. Thanks for joining us to discuss our fourth quarter results and to get an update on our business. We appreciate your continued interest in Regal Rexnord. Before we get into the quarter, I want to provide you with an update on the CEO search. The Board Search Committee has been working diligently and our process is progressing as expected. We will update you as new information becomes available. Now on to our results. Our team delivered solid fourth quarter performance, ending the year on a high note. Fourth quarter aligned with our expectations on adjusted earnings per share. We saw tremendous order strength and a backlog exiting 2025 up 50% versus prior year giving us extremely positive momentum as we begin 2026. While our Data Center business is clearly performing exceptionally well, we also saw healthy orders in other parts of our business, especially Discrete Automation and Aerospace and Defense. Before continuing, I want to take a moment to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution, in particular, driving our new product pipelines, our cross-sell initiatives and building our commercial funnels to drive stronger and more profitable growth. Now let me provide some specifics on our fourth quarter performance, starting with orders. Orders in the quarter on a daily basis were up 53.8% versus prior year and book-to-bill was 1.48. In the quarter, we booked orders worth approximately $735 million for our new e-Pod solution, which comprises our proven power management content including switchgear, automatic transfer switches and power distribution units. You may remember, we discussed e-Pods on our third quarter call when we mentioned an opportunity funnel worth over $400 million and $1 billion funnel for our Data Center business more broadly. In Q4, we also built momentum in Discrete Automation, which saw orders grow 9%; in Aerospace and Defense, with orders up 21%; and in IPS, where orders grew over 3% and which we believe reflects outperformance in end markets that were challenged by a sub-50 ISM. Excluding the large e-Pods orders, our enterprise orders grew 2.7% in the quarter. Shifting to sales. Our sales in the quarter were up 2.9% versus the prior year on an organic basis, demonstrating accelerating organic growth. We saw particular strength in AMC, which grew over 15% organically. The AMC team did an excellent job executing its backlog and benefiting from share gains in its largely secular markets. We saw weakness in PES in the quarter, which was more severe than expected given headwinds in the residential HVAC market. IPS continued to achieve steady growth, outperforming sluggish industrial markets. Turning to margins. Our fourth quarter adjusted gross margin was 37.6%, up 50 basis points versus the prior year. Our teams overcame tariff and mix headwinds with continued strong execution on synergies, good price realization and benefits from volume leverage. Adjusted EBITDA margin was 21.6%, roughly flat versus prior year, reflecting our gross margin expansion, volume leverage and disciplined discretionary cost management, which offset higher growth investments. Adjusted earnings per share for the quarter was $2.51, up 7.3% versus the prior year. Lastly, we generated $141 million of free cash flow in the fourth quarter. We ended the quarter with our net debt leverage coming down to 3.1. In summary, a strong fourth quarter characterized by solid adjusted EPS growth, exceptionally strong orders and a rising backlog giving us positive momentum as we begin 2026. At the beginning of a new year, it is always good to reflect on the success of the prior year. In 2025, our orders grew 15.5% for the year on a daily basis, led by AMC up 53%; followed by IPS up 4%; and PES, which was down 5%. Sales for the year were up 80 basis points on an organic basis with acceleration as the year progressed, strength in aerospace and defense, discrete automation, energy, data center, commercial HVAC and an incremental $90 million of cross-sell and powertrain synergies were partially offset by headwinds in general and industrial and medical. Turning to margins for 2025. Our adjusted EBITDA margins were 22%, roughly flat to the prior year on a comparable basis reflecting good execution in a tough operating environment. Our teams overcame headwinds from tariffs, rare earth magnet availability and mix, by effectively executing on synergies worth at $54 million in addition to price realization discipline and good discretionary cost management. Adjusted earnings per share for the year was $9.65, up nearly 6% versus the prior year. Adjusted free cash flow was $893 million, including the ARS program we launched in second quarter. Our cash flow allowed us to pay down over $700 million of debt in 2025. In summary, I would characterize 2025 as a year of executing a wide range of growth initiatives, which are starting to pay off, giving us increasingly positive momentum. It was also a year of achieving margin stability in the face of external pressures outside of our control. As we enter 2026, I believe we are extremely well positioned, in particular, giving traction on our growth initiatives. One of these initiatives in the data center market is where I'd like to turn next. On this slide, we are providing additional details on the orders we received during fourth quarter for our e-Pods offering. As discussed on our third quarter call, these turnkey power management solutions, which we launched in early 2025, are designed to expedite data center construction by making the installation of power management content more plug and play. The pods, which are tailored to specific customer needs, comprised content drawn from our long-standing power management portfolio which include switchgear, transfer switches and power distribution units as well as from our thermal management offering, which includes hermetic motors and air-moving solutions. Regal is also project managing assembly of the pods, including content from third parties. So part of our value proposition is providing a single source of contact for the customer and allowing customers to procure a suite of power management content with a single SKU. As you can see on this slide, we were awarded orders for e-Pods with a base value of approximately $735 million. So why are we winning this business? It starts with our 50-year track record of quality and performance in power management. Our product solutions are tried and true. Second, our customization capabilities. This is a differentiator for Regal and ability and willingness to customize the system design to best meet the needs of our customers. Third, the strength and durability of our supply chain relationships, which help enable the next success factor, our high service levels around on-time delivery and lead time. Equally important, we have shown across our business an ability to support high service levels, while manufacturing at scale. Another driver of these wins, the scale and scope of Regal Rexnord. Orders of this magnitude are facilitated by the backing of our $6 billion enterprise. Customers value our ability to balance agility and velocity with disciplined execution as they contend with a feverish pace of AI-driven development. In short, we are seeing the power of our evolved Regal Rexnord portfolio to support differentiated growth. As part of the new Regal Rexnord, what was a $30 million power management business 5 years ago and a $120 million business today, has a defined path to roughly $1 billion in sales over the next 2 years. Viewed more holistically, these wins demonstrate that our enterprise growth strategy is gaining momentum, in particular, investing to address rising demand in targeted secular markets. We are working the strategy in many areas, which is where I would like to turn next. On this slide, we highlight key secular growth verticals where we are directing the majority of our new product, e-commerce and channel investments. In the middle column, we provide examples of new products we have launched to address relevant customer needs in each vertical. And on the right, we highlight a few notable examples where we are seeing traction in the marketplace. We already discussed e-Pods in the data center market. Our electromechanical actuators for the emerging eVTOL market which we developed through a partnership with Honeywell is another great example. Various third-party forecasts are calling for significant growth in eVTOL unit volumes in the coming years, and we are well positioned with over $200,000 of chipset potential per plane. Next, our Kollmorgen Essentials product which launched at the end of 2025, where we are leveraging our motion control technology for the ultra premium market in an offering designed for the much larger, high- and mid-premium market segment. Initial market reception has been strong, and we believe we are on track to meet our goal for $50 million of sales from this new offering by 2028. Finally, we have developed a range of differentiated solutions to support robotic actuation, which spans humanoid, cobots and robotic surgery applications. Our teams are currently working an opportunity funnel in excess of $200 million across these applications and have already been experiencing strong double-digit compounded growth in robotic actuation in recent years. The common theme here is Regal Rexnord making a range of growth investments in the high potential secular market, which are starting to pay off. What we are experiencing in data center is one, more advanced example. Positively, we see tremendous additional upside as both our offerings and earlier-stage markets such as eVTOL and humanoid continue to mature. And with that, I will turn the call over to Rob. Robert Rehard: Thanks, Louis, and good morning, everyone. Now let's review our operating performance by segment. Starting with Automation and Motion Control, or AMC. Sales in the fourth quarter were up 15.2% versus the prior year period on an organic basis, which was ahead of our expectations. The performance reflects broad-based growth but with particular strength in data center, in Aerospace and Defense and in Discrete Automation. We would attribute the strength to underlying end market momentum in these secular markets as well as to our outgrowth initiatives, including cross-sell activities, which continue to gain traction. I would also point out that the medical market was flat after 4 quarters of destocking-related declines. This is another secular market where we are extremely well positioned with high-margin, technology-rich products and are very happy to see this market appearing poised to improve. We continued to face headwinds in the quarter related to rare earth magnet availability, but these were in line with our expectations and our plans to secure alternative sources of supply are on track. Turning to margins. AMC's adjusted EBITDA margin in the quarter was 20.5%, which was below our expectations and down roughly 1 point versus the prior year. While we were pleased to see the team overexecute on its backlog during the fourth quarter, some of the incremental volume, which was weighted to OEM versus distribution sales, created mix headwinds. Orders in AMC in the fourth quarter were up 190%, primarily reflecting the large e-Pod orders, Louis discussed earlier. Excluding the e-Pods orders, AMC's orders were up 19.2% versus the prior year on a daily basis, primarily reflecting the strength in Data Center, Aerospace & Defense and Discrete Automation. Notably, orders in Discrete Automation were up just over 9% in the quarter and are up about 6% on a rolling 12-month basis, reflecting growing momentum in this market. The momentum we are building in automation bodes well for our growth and margin outlook given the above-average conversion rate on these products. January orders for AMC were up 3.9% on a daily basis. Now before I leave AMC, I'd like to emphasize that the growth we saw as we exited the year reinforces our belief that the strength of the markets served, along with our differentiated products and solutions, help set up AMC to consistently achieve the mid- to high single-digit growth that we expect from this segment. Now turning to Industrial Powertrain Solutions, or IPS. Sales in the fourth quarter were up 3.7% versus the prior year on an organic basis, which was in line with our expectations. The growth was broad-based, but with particular strength in the metals and mining and energy markets. We are encouraged by this performance, which we believe evidences share gains given the ISM remain in contraction as we exited 2025. In particular, the IPS team continues to work our various cross-sell and powertrain initiatives, and we can see these results showing up in our performance. Adjusted EBITDA margin for IPS in the quarter was 25.7%, within our expectations and just below the prior year. Performance versus prior year was impacted by weaker mix, the impact of tariffs and higher growth investments, partially offset by continued strong synergy gains. Orders in IPS, on a daily basis, were up 3.3% in the fourth quarter, the sixth quarter in a row of positive orders growth for this segment, which contributed to the backlog ending the year up 6% versus prior year. Book-to-bill in the fourth quarter for IPS was $0.96. January orders were down 0.5% on a daily basis. Turning to Power Efficiency Solutions, or PES. Sales in the fourth quarter were down 10.7% versus the prior year on an organic basis, which was below our expectation. The shortfall was due to weaker performance in residential HVAC which we would attribute primarily to more severe channel destocking after the A2L regulatory transition, which was partially offset by strength in commercial HVAC. Speaking further on the residential HVAC market, it is important to note that if you follow the AHRI market volume data, central air conditioners were down about 26% year-to-date through November, but Regal was only down about 7%. We don't believe all of this is due to share gain, but 2025 was clearly a year of strong market outperformance for PES in the resi HVAC space. Turning to margins. Adjusted EBITDA margin in the quarter for PES was 15.6%, which was above our expectations and up 30 basis points versus the prior year. This strong performance, achieved despite challenging end market conditions, reflects both strong cost management by the team as well as mix benefits. Orders in PES for the fourth quarter were down 15.9% on a daily basis, directionally consistent with views we had previously articulated tied to channel destocking and weak consumer and housing metrics. Book-to-bill in the quarter for PES was 0.91. January orders in PES were up 3.8% on a daily basis. Turning to the outlook on Slide 12. The table on the left outlines our principal assumptions for 2026. Starting with sales, our guidance assumes growth of roughly 3%, comprised of 1 to 1.5 points from the large data center project we have won and roughly 1.5 points from price, which is largely tariff related. Outside of data center, we assume that volume growth across all other end markets is roughly flat on a net basis. Several of our end markets have the potential for stronger growth in 2026, and we were pleased to see the January ISM above 50, which has generally been in contraction territory for roughly 3 years. That said, one month does not make a trend, and we are intentionally adopting a more measured approach at the beginning of the year. This allows us to carefully monitor developments and make adjustments to our assumptions and guidance only when justified by new information or changing market dynamics. For example, we would like to see the ISM remain above 50 for a sustained period of time before becoming more constructive on our market growth assumptions. Another area we are carefully monitoring is our Data Center business. We continue to actively pursue a robust pipeline of bids, which could translate into orders eligible for shipment within 2026. Additionally, as delivery schedules for the e-Pod orders already secured are finalized, there is the possibility that some of these sales may be recognized in late 2026 rather than in our current plan for 2027. Should these factors materialize, they could offer upside potential to our existing guidance. However, until delivery dates are confirmed, we will maintain our prudent and measured outlook. Our adjusted EBITDA margin is forecast to rise 50 basis points to 22.5%. The increase reflects our mid-30s incremental margin applied to the growth we are forecasting. Note, that while we fully expect to realize $40 million of cost synergies this year, we are treating those as a contingency against unforeseen P&L pressures, which we believe helps derisk our guidance. The table also outlines relevant below-the-line items. These assumptions result in an adjusted earnings per share guidance range of $10.20 to $11. The low and high ends of the range factor a combination of slower or faster top line growth and to a lesser extent, modestly lower or higher adjusted EBITDA margins. The midpoint of the range of $10.60 equates to approximately 10% adjusted earnings per share growth. For 2026, our cash flow guidance is set at approximately $650 million. This figure reflects our need to invest in working capital throughout the year to support the robust growth occurring in our data center business. Finally, regarding tariffs. Our guidance embeds all current tariffs in place today. It also reflects the recently announced update to India tariffs. With this update, our annualized unmitigated impact is now roughly $155 million. Consistent with our previous views, we expect to be dollar cost neutral on tariffs cited by the middle of 2026 and to be margin-neutral on tariffs by the end of this year. On Slide 13, we provide more specific expectations for our performance by segment on revenue and adjusted EBITDA margin, for the first quarter and for the full year. Let me flag a few key assumptions that should help with modeling. One, we assume modestly lower revenue in the first quarter relative to fourth quarter, largely reflecting normal seasonality across our businesses and expected destocking pressures in residential HVAC in PES. We expect annual sales to be weighted roughly 49% to 51% between the first half and the second half of the year. Second, we expect enterprise adjusted EBITDA margins to be roughly 21% in the first quarter and to improve sequentially, tied primarily to improving tariff-related price cost, improving mix as we gain top line traction in our AMC segment and other cost productivity actions. A more steady sequential trend is expected for IPS and AMC, while PES margins are seen tracking at a cadence similar to what we saw in 2025 with a peak in third quarter related to seasonality. Lastly, we expect first quarter to be the low point for adjusted EPS due to all of the items I just discussed. And for our adjusted earnings per share to be weighted roughly 48% to 52% between the first half and second half of the year, which is comparable to the weighting we saw in 2025. As I reflect on our guidance for the year, I believe we have outlined a compelling and achievable plan that delivers improved top line growth, some margin expansion and double-digit earnings per share growth. We attempted to balance our strong orders momentum, higher backlog, ample secular growth opportunities in markets largely at or near trough demand and a path to further margin expansion with a degree of measured prudence. This view anticipates persistent weakness in global industrial markets and volatile global geopolitical and trade policy environments. For example, our guidance does not embed any improvement to the 2025 ending ISM. Rest assured, our teams remain focused on executing the many compelling opportunities in front of them, and we are confident we can deliver a year that result in meaningful value creation for our shareholders. And with that, operator, we are now ready to take questions. Operator: [Operator Instructions] The first question comes from Mike Halloran from Baird. Michael Halloran: So can we start on the data center side of things and the e-Pods wins? Maybe frame it up in a couple of ways. One, how do you think about the margin profile of this type of business? Is it comparative to the segment level as well? And then secondarily, could you just walk through what that opportunity looks like and frame it from here? You're talking about north of $1 billion last quarter. This is a $735 million transaction. It gets you pretty darn close to that. So what does this look like? What does this run rate look like from your perspectives? And how to think about the opportunity set after we just got such a great order number? Louis Pinkham: Yes, Mike, thanks for the question. I'll start with the second question first. We're thrilled with the $735 million order, and we talked about a $400 million funnel in the last quarter call and so clearly, we outperformed here. We want to build on that, and we believe we have the capability to do that. And hence, part of the reason why we started expanding capacity and announced our capacity expansion in the last quarterly call. So we feel good about the offering here in our future potential and that it will grow from here. Now specific to margins and specific to these projects, these orders, we would expect adjusted EBITDA margins to be in the 20%-plus range. Our content is a little less than 50% of the bill of material, and we would expect our normal gross margins there. And then we are being compensated a fair margin for the product that's being sourced and then assembled and sold as the e-Pods. So again, expect adjusted EBITDA margin to be in the 20%-plus range, but then expect also that in time as we drive productivity and supply chain actions that we would expect to ramp that program margins as well. Hopefully, that helps. Michael Halloran: Yes. No, it did, certainly. And then if you ignore the data center side of things and we think back to where we were on the third quarter. Within the Industrial businesses as a whole, do you think you're seeing the right trend and trajectory to support a recovery? I know Rob's commentary said PMI 1 quarter -- 1 month doesn't make a trend, and it's not embedded in guidance necessarily any sort of improvement from here, but I'm curious if you're seeing the right signs in what you would point to in your business to support that? Louis Pinkham: It's mixed, honestly, Mike. We ended last quarter and our OEMs started accelerating, distribution slowed down. We didn't see much change of that in January, although we feel good about our order positions of January and our ability to make our guide for the year, but we didn't see a change of that. We are optimistic about the strength of the ISM coming out of January. But we'd like to see a couple more months of that strong together and then a little bit more strength in the distribution channel as well before we say we think we're on a path to strong recovery. But based on our measured approach to our guide, we feel really good. Operator: The next question comes from Julian Michael -- sorry Mitchell from Barclays. Julian Mitchell: Maybe my question -- you've given very good color on the top line. Maybe my first question would be around the margin outlook. Because I guess the margins were sort of down or flat to down in AMC and IPS in the fourth quarter. It looks like the first quarter is similar, year-on-year decline with solid revenue. Just trying to understand within IPS and AMC how we should think about the margin improvement trajectory through the year? And kind of tied to that, what are you expecting or assuming on price cost, just given what's been happening with metals prices, chip prices and so forth? Just trying to understand what kind of operating leverage step-up we might get later in the year? That would be helpful, please. Robert Rehard: Yes, Julian, thanks for the question. Let me start with a little bit. I think AMC is more of the story here than IPS and that IPS, we still see some strong margins moving forward and feel really good about where we're going there. I think AMC is one -- let me spend a minute here. Fourth quarter product and channel mix certainly were the main factors. For example, we saw some slowdown in distributor sales into the year-end as customers -- we saw them as managing the balance sheet. So that certainly played in. And we're seeing just stronger project growth. So for example, food and beverage, especially in Europe within our conveying division is one where we're continuing to see more volume that has a little bit lower margin profile. The bottom line is until we lap the mix impact from the medical and discrete automation side of the business, which is largely tied to rare earth magnet availability, we're going to continue to see a bit of pressure on our AMC margins. Now as you go into the first quarter of '26 and move to the back -- into the back half, the first half of the year, and especially in the first quarter, we do expect to see continued pressure related to rare earth magnets, especially in AMC, and that is, again, going to impact our medical side, in particular as well as some Defense and Discrete Automation. So that will continue. However, as we move to the back half of the year, we do see that improving. And overall, for the year, we see that at the midpoint, AMC margins should improve by about 40 basis points. Again, we are not embedding that any improvement in our mix at this time because we are using our current mix to project future margins. So that we just haven't embedded anything new. There is opportunity for that to improve. But at the same time, this is a business that we are going to continue to look to grow. And therefore, we do see that it could take a little bit longer to get back up to that range that we provided at Investor Day. There are really a few key things that need to happen in order to hit that number, which is about 24%-or-so. Number one, we need some more volume. Number two, we need the mix, especially in medical and defense and distribution to get back on track, which I just talked about. Rare earth magnets are about 50 basis points of headwind through '25. We need -- that's expected to go away midyear. Great. That should help us out. And then tariff margin becomes -- tariffs become margin neutral by the end of the year. That's really what needs to happen in order to get back to that 24% range. Now from a tariff impact and you asked a little bit about price cost, our assumption right now remains. Midyear, we will be price/cost dollar neutral, end of year until we get to margin neutral. Julian Mitchell: That's very helpful. And then just my follow-up. You mentioned sort of costs of growth and fully understand that approach, and you've laid out very clearly on the P&L margins. Maybe on the free cash flow side, I think you'd alluded a couple of times late last year to a $900 million-ish free cash number for this year. I think the formal guide is $650 million. So just trying to understand the delta there because it looks like the revenue and EBITDA outlook is pretty similar maybe to what you thought a couple of months ago. So just maybe flesh out that delta in the free cash flow assumption today versus maybe what you were thinking a couple of months ago? Robert Rehard: Yes. I think it's a great question, and let me draw it out for you. It really comes down to 2 main things. One is the investment that we're making that you just talked about in -- especially for this data center business. We expect about $50 million to $100 million of investment there as we move through the year. That's embedded in our current cash flow projection. The other is we really -- at the time we set that the forecast or the close to $900 million expectation, quite a bit has changed in terms of the current supply chain landscape primarily due to tariffs and rare earth and all these things, the uncertainties that we're dealing with on a daily basis. We are taking a more measured approach to setting guidance for 2026, and therefore, we have created really a guide that we think we can absolutely hit without a lot of additional working capital benefit. So we reduced our working capital impact that was in the prior forecast by roughly half. And that's the other side of what took down the guide from the prior $900 million to the $650 million. Again, it would be closer to $750 million-or-so, if it wasn't for the working capital, the investment we're making for data centers. So hopefully, that helps. It really is just those 2 things, and it's all around working capital. Operator: The next question comes from Jeff Hammond from KeyBanc Capital Markets. Jeffrey Hammond: Yes. So just back on this e-Pod. It looks like you're going to ship all of this $735 million in '27. Is that correct? And then just on Slide 7, maybe just level set us on individually or collectively, how you think what your percentage of mix of business is kind of in the secular growth bucket? Louis Pinkham: Yes. So Jeff, we do not have a firm schedule at this time. The expectation is that we would start shipping in beginning of 2027. We'll probably hang over a little bit into '28. There's also a possibility it could pull a little bit into '26 as well. So as we get more firm path, we would expect those orders would ship over a 15- to 18-month period in total. Specific to Slide 7, we talked about 40% to 50% of the markets that we serve are secular markets. Now with this data center opportunity and our acceleration of growth, that's just expanding. And so this is why we're putting so much investment in these specific markets is with new products and solutions and commercial initiatives, and we feel that this is going to help accelerate our growth for the future. Jeffrey Hammond: Okay. Great. And then just on this rare earth dynamic. It sounds like -- I just want to understand how buttoned up it is in terms of kind of coming to resolution. I know it's a headwind, maybe 1Q into 2Q, but maybe just talk through resolution? And then ultimately, how much you can get back from the headwind you had in '25? Louis Pinkham: Yes. Really, everything is proceeding as we talked about coming out of our third quarter call, Jeff. We remain on track to mitigate the majority of the exposure by end of '26 with a combination of alternate sourcing, so sourcing outside of China, shift to HRE-free alternatives that don't require China approval for export as well as permissible exports. So that would be magnets that we can ship as well as subassemblies that we can ship out of China. Right now, we're absolutely, from a supply chain perspective, on path. What we're working with, though, and it's especially in the defense area, as you can imagine, any time you make any kind of change in the components of the bill of material, you have to go through a validation process. And so we're working with a number of our OEM partners to get through that testing. And I would say it's going pretty much as expected, a little faster in some customers, a little bit slower in others. So that's what we're working through. I feel the teams are all over it. They're managing it well. And we should be -- well, we are improving as we -- every quarter getting more product and supply and the ability to ship more. We do not feel that we have lost any material levels of share here. If anything, we feel like our supply chain has been very solid. But again, you got to think about the markets that we're applying these products to. The medical market and defense markets, in particular, where the validation process for our products are pretty onerous. And so once you're embedded in the platform, you stay on the platform. And so the teams are doing a nice job, and we feel like most of this will recover by the end of the year, for sure. Operator: The next question comes from Kyle Mendez, [ Randy ] from Citigroup. Unknown Analyst: This is [ Randy ] on for Kyle. Just starting with automation, I mean, the strength in orders again in this quarter was good to see. I was just hoping you guys could give us some color on the underlying demand trends underpinning those orders and maybe bifurcating between some of your new products and the robotics opportunity between some of the more traditional automation markets and how to frame up the shippable backlog for 2026 in automation would be helpful. Louis Pinkham: Yes. So thanks for the question, [ Randy ]. Our orders were up roughly 9% in the quarter on automation. Our 12-month rolling is up about 6%. We talked about the Kollmorgen Essentials product launch in the quarter. We feel really good about that gaining momentum and acceleration. But the reality is we only saw about $1 million of orders in the quarter from that. And so it wasn't a big part of the 9% up. We continue to gain traction with humanoid OEMs and selling our subassembled [ axis ] solutions. And so from of our expectation is double-digit growth in robotics. We've seen that for the last few years, and we expect to see it for the next few years as well. Hopefully, that helps. Unknown Analyst: Yes. Got it. That's very helpful. And then just shifting over to PES. I mean it sounds like destocking was a little bit more than you expected in the fourth quarter. So just curious as to how that informs your outlook for resi HVAC in particular in 2026? And what is your confidence level and some of that pressure starting to alleviate in the second half of the year? Louis Pinkham: Yes. So our outlook really doesn't change, even though we saw more pressure in fourth quarter than we thought. We are expecting resi HVAC to be down high single digits for 2026. The compare in Q1 is a tough compare for us. So the biggest part of that down is coming in first half, with some rebounding in the second half. At some point, this business -- when you think about the market, it was down significantly in 2025. And so when you ask me the question of your confidence in the second half, the confidence comes from the compare. It doesn't come from our ability to forecast this market effectively. And so hopefully, that's a helpful perspective. Operator: The next question comes from Tomo Sano from JPMorgan. Tomohiko Sano: Regarding robotics actuations and $200 million-plus pipeline, could you share the latest developments and your expectations for orders in 2026 and 2027, please? Louis Pinkham: Yes. No, we're really excited about our pipeline. We're excited about the new products we're launching, Tomo. When we talked about the Kollmorgen Essentials that moves us into a much larger TAM market. But right now, we're not suggesting anything different than what we've said in the past, which is low double-digit growth. There's also lots of potential in humanoids, and that's gaining traction. But it's a little early for us to say it's going to accelerate. And so although we were really pleased with the order rates we saw in 2025, we feel we're nicely and well positioned with a number of OEMs in North America, but we're not going to provide any further guidance than low double digits for our automation business right now. Tomohiko Sano: That's a helpful. And just a follow up on your net leverage target for 2026. And how are you thinking about the capital allocation priorities, please? Robert Rehard: Yes. The net leverage target for 2026, as the guidance would suggest is about 2.7x by the end of the year. It means that by mid part of the year, we should be right around 3x. And then we're starting to year about 3.1 coming out of last year. From a capital allocation standpoint, we would certainly continue to prioritize debt pay down as we move through the year. Of course, we have other capital priorities as well as we've talked about earlier today in some of those investments that we're making in inventory and the like. So we expect to continue to do that and invest in great CapEx projects with very quick paybacks. But overall, that's the way we're thinking about it, and we'll continue down that path until we get to kind of our communicated range that we talked about, our target is less than 2.5x, until we start doing something that might include some other options on capital allocation. Operator: The next question comes from Nigel Coe from Wolfe Research. Nigel Coe: Covered a lot of ground. So going back to the e-Pod, just want to -- just tie that one up. So I think you said 20% EBITDA margin sort of like as what you expect. I'm guessing gross margin would be sort of like closer to the [ 30% ] there. But is that sort of like we expect to realize on an average basis or where you expect to be on a -- kind of as you ramp up and go through the learning curve because, obviously, this is a fairly new business for you guys. So I wouldn't expect you to be 20% on day 1. Just maybe clarify that. And secondly, do you have raw mats inflation protection here because, obviously, steel prices could move around pretty crazy between now and then. So just wondering what sort of protection you have on raws? Louis Pinkham: Yes. So actually, Nigel, we should start out at around 20% and then improve from there. But we don't see this as getting much beyond where our targets are for the AMC business. But our margin potential looks like it's going to start at around 20%. Specific to hedging. We do hedge. We hedge for steel. We hedge -- sorry, we hedge for copper and aluminum. You're right that we -- steel would not be one that is on our program. But we feel good about how we plan to hedge for this project. And we've embedded some risk around the supply chain and inflationary risk in the program. So right now, we feel good about the 20% margin starting point and then growing from there. Nigel Coe: Great. And congratulations on the order, fantastic news. And then maybe just a follow-up on the CEO succession. Obviously, it's now been several months in progress, so just wondering where you are on finding the person to fill those big shoes? Louis Pinkham: Yes. No. As I said in my prepared remarks, the Search Committee has been working hard at this, and they're making progress. We're down to a select few and so our expectation is that we should be able to make an announcement in the near future. Operator: Next question comes from Joe Ritchie from Goldman Sachs. Joseph Ritchie: So I'll focus my questions on the ePod offering. So Louis, I'm curious -- I know you referenced multiple data center projects, but I'm curious, are you selling into multiple customers, too, or is this one single customer? And who are your customers? Are you selling directly into just the integrators or the co-locators, hyperscalers? Just any color you can give to that would be great. Louis Pinkham: Joe, thanks for the question. Consistent with our prior practices though here, we're not going to provide a lot of detail. And of course, we have confidentiality agreements in place as well. And so we wouldn't be able to provide specifics. But you answered the question correctly. We are selling into co-lo, hyperscaler. It is multiple customers and multiple data center projects in North America. Joseph Ritchie: Okay. Great. That's helpful. And then how do I think about like the content per megawatt? So it's a big number, right, the $735 million. How many like -- what content per megawatt are you actually providing with these e-Pods? And then also, I'm just very curious, is this mostly for like low voltage, medium voltage type switchgear and other power equipment that's going inside it? Louis Pinkham: Yes, Joe, it's a great question. And unfortunately, I'm not going to be able to answer the first part of the question. I don't have the specifics there. But as we've talked about in the past, Regal has low-voltage and medium voltage switchgear, paralleling switchgear, low-voltage power distribution units and automatic transfer switches. Our part of the bill of material is around 40% to 50%. The other part of the bill of material is going to be things like the container, UPSs. And so that's what makes up the project offering. I'll make sure that I'm better prepared next time, though, on the power question you asked. But hopefully, that gives you a little perspective. Operator: The next question comes from Christopher Glynn from Oppenheimer. Christopher Glynn: Sticking with the e-Pods still. So $735 million out of a $400 million pipeline a few months ago. Curious if you could provide any color on what that pipeline looks like now? And could we see another quarter of orders like this or even more than one over the next year? Louis Pinkham: Yes, Chris, I appreciate the question. And my answer right now is likely not. The pipeline is about $600 million in size for all of our data center business. But when you think about capacity and the fact that we're pretty filled up through '27. I don't expect large orders. But I say that and our sales teams for this business are incentivized to grow this business beyond the projects that we've already won today. And so do expect that this is going to be an area of focus for Regal and that we will talk about data center opportunities for many quarters to come. Christopher Glynn: Okay. And then I'm not sure if you gave the CapEx guide, I'd like to hear that. And also on the $200 million-plus robotic automation funnel, are you incumbent there? Is that funnel stuff you're already specified on? Louis Pinkham: So I'll take the second part of your question and pass the first to Rob. The $200 million funnel, the answer is, yes. We are on some of it. We already specified on some of that funnel. And then others, we're working in building relationships. I just saw a report recently from one of our -- from our team on humanoid, as an example. There's 10 key OEMs that we're targeting in the U.S. 3 of them, we are on their platforms, and we're selling subassemblies. 7 of them, we're still working on getting integrated. And so -- my answer on the $200 million, although, maybe a little more detailed than you needed, was that it's a mix. Robert Rehard: Great. And from a CapEx perspective, we're looking at about $120 million in CapEx in the year, primarily to support growth and then some of the SCOFR activities or supply chain realignments that are currently in the plan to achieve the $40 million of cost synergies. That, as I stated earlier, are not embedded in our current guidance, but gives us a degree of risk mitigation, if you will, as we approach the year. Christopher Glynn: Okay. And then separately, and you said IPS backlog was up 6% year-over-year? Louis Pinkham: Yes, that's correct. Coming into the year, IPS' backlog is up 6% as compared to the same period last year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Louis Pinkham for closing remarks. Louis Pinkham: Thank you, operator, and thanks to our investors and analysts for joining us today. My closing message today is simple. Our growth strategy is working, and we are gaining momentum. This is apparent in our improving organic sales growth and in our tremendous order and backlog growth. And we see so much more opportunity ahead of us as we continue to execute our growth playbook across our secular market with additional upside to the extent our end markets improve. Encouragingly, we are seeing early positive signs in a number of key markets. In short, I believe we are better positioned than ever before to create increasingly significant value for our stakeholders in 2026 and beyond. Thank you again for joining us today, and thank you for your interest in Regal Rexnord. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome, everyone, to Barrick's Fourth Quarter 2025 Results Presentation. [Operator Instructions] As a reminder, this event is being recorded, and a replay will be available on Barrick's website later today. I will now turn the call over to Cleve Rueckert, Head of Investor Relations. Please go ahead. Cleveland Rueckert: Thank you, Mariana, and good morning, everyone. We hope you've had an opportunity to review the press release we issued before the markets opened this morning. This presentation deck is also now available to download on our website. Presenting our results today are Mark Hill, Barrick's President and CEO; and Graham Shuttleworth, Senior EVP and CFO. Other members of Barrick's management team will be available after our prepared remarks for Q&A. Before we begin, please note that we will be making forward-looking statements. This slide includes a summary of the significant risks and factors that could affect Barrick's future performance and our ability to deliver on these forward-looking statements. This material is also available on our website. I will now hand it over to Mark. Mark Hill: Okay. Thanks, Cleve, and thanks, everyone, for joining us for this call this morning. We finished the year in very good condition. We delivered on our 2025 operating plan, and this resulted in multiple financial records. We also completed the operational review we discussed last quarter and have taken a number of actions, which I will touch on later. We achieved a resolution to the dispute in Mali, securing the release of our detained colleagues and resuming control of the asset. Record free cash flow allowed us to repurchase $1.5 billion of our shares as well as increasing our dividends. Turning to our performance in Q4, we built on last quarter's momentum and posted strong financial results. As I said, we logged several company records included adjusted earnings per share, cash flow and importantly, shareholder returns. Production increased from last quarter to the highest level of the year, which resulted in an 82% increase in EBITDA versus last year. We increased our base dividend by another 40% and adopted a new dividend policy. Cash flow for the quarter was up 96% from last year, and we locked a year of record annual cash returns to our shareholders. Fourmile continues to grow, and we're excited about advancing this 100% owned gold asset. Finally, consistent with the announcement we made in December and following rigorous analysis, the Board has decided to move forward with preparations for an initial public offering of Barrick's North American gold business assets aimed at maximizing the shareholder value. We are targeting to complete the IPO by late 2026 and we'll keep you updated on progress throughout the year. Turning to Safety and Health, our operational and financial achievements were overshadowed unfortunately last year with 4 fatalities. Last quarter, I made that commitment to making sure safety was our top priority, and this continues to be the company's #1 focus for 2026. Clearly, there's more to be done because Q4 wasn't where we needed it to be. But our highest priority is that all our people go home safe and healthy at the end of each day, and I'll continue to work with myself and the ExCo team to achieve and maintain that goal going forward. Now moving on to the operational highlights. Operationally, our business performed well in Q4. And importantly, we delivered on our guidance to steadily left production throughout the year. Gold production was 5% higher than Q3, driven by a 25% increase at Carlin and quarter-on-quarter increases across the NGM site. Our processing facilities ran well and PV's throughput rose to another record high. Full year gold production of 3.26 million ounces was in line with our guidance. Copper production increased 13% from Q3, driven by higher throughput at Luwmana. Also, as I said before, we completed the operational review we discussed in the last quarter. There's some important outcomes of that. We've now restructured our business units, putting PV in North America region, which places all our key autoclave processing facilities on the common leadership so that we can share best practices. Tim Cribb previously overseeing Reko Diq has moved take over North America. Operational ownership, particularly in Nevada, is back in the hand of the operator. The mine plans have been reviewed from the bottom up and we're entering 2026 with high confidence in our guidance. I'll touch on this work a bit later, but now let me turn it over to Graham to discuss the financial highlights. Graham Shuttleworth: Thank you, Mark. As most of you will know, this is my last earnings call, and I must say it is a real pleasure to finish on such a high note. Quarter 4 was a record quarter across almost every financial metric. The combination of our sequential increase in production and record high gold prices added to our strong financial foundation and sets us up with a lot of flexibility going forward to continue delivering significant cash returns to shareholders. Shown here on the right, revenues increased 45% from quarter 3, driven by increased production and sales and a 21% increase in our realized gold price. Net earnings nearly doubled from the prior quarter, and we reported record quarterly cash flow, free cash flow, earnings per share and a record cash balance. For the year, we reported $7.7 billion of cash flow from operations and $3.9 billion of free cash flow, up 71% and 194% from a year ago and another company record. When you consider our gold sales volume declined 13% in 2025, with one of our key assets not operating for most of the year, those results are even more impressive and we're excited about the year ahead. Attributable CapEx ended 2025 below the low end of our guidance, as our engineering partners came on board and we refined our spending schedules, particularly at our biggest projects at Reko Diq and Luwmana. The graphs on the right-hand side of this slide highlight Barrick's financial value position. Our attributable EBITDA increased 53% versus the prior quarter on higher margins as the 21% increase in the gold price dropped to the bottom line. Importantly, we steadily increased our attributable EBITDA margin through the year, tracking the gold price higher and demonstrating the operating leverage our business provides to the gold price. All of this enabled the highest annual shareholder returns in Barrick's history with more to come. We ended the year with a net cash position of $2 billion. Building on the capital allocation framework we highlighted last quarter, Barrick's balance sheet is in a phenomenally good shape, and our future capital investment programs are well funded. Suffice to say, Barrick is generating significant excess cash flow in the present environment. As I mentioned earlier, we generated $7.7 billion in operating cash flow of which we reinvested $3 billion back into the business and bought back $1.5 billion of our stock, reducing our share count by 3%. You will recall that with our Q3 results, we increased the base dividend by 25% to $0.125 per quarter. But on the back of the strong annual results, the Board has authorized a further 40% increase to $0.175 per quarter. In addition, the Board has determined that it will target to pay out 50% of attributable free cash flow, incorporating a further discretionary component to reach the target. On this basis, the Board has authorized a Q4 dividend payable in March of $0.42 per share, which is a 140% increase on the quarter 3 dividend. This new policy will replace the previous performance dividend policy. And at the same time, given the focus of cash returns to shareholders through increased dividends, the Board has determined not to renew the annual share buyback program. I will now turn the call back over to Mark. Mark Hill: Okay. Thanks, Graham. So turning back to our operation and looking first at North America where we had strong performance. Gold production increased 11% from last quarter, driven by a 25% quarter-on-quarter increase at Carlin. Phoenix production hit its guidance range for the year, while Cortez and Turquoise Ridge achieved the top end of their ranges. Importantly, we did not high-grade the operation at the end of the year. We'd rather maintain focus on consistent, disciplined delivery and compliance to our plan. As a result, we are seeing a smoother transition from December into January. This has helped to achieve one of the best starts the year since the NGM joint venture was established. The Carlin roaster had its highest January throughput in the last 5 years. In fact, the new management team and the focus on operational discipline, the processing team at Carlin has delivered its best 60 days since the formation of the joint venture. The underground mines at Carlin, Turquoise Ridge and Goldrush have also had their best January since the joint venture formation in terms of tonnes mined and develop. This performance is exactly what we wanted to achieve from the operational review we highlighted last quarter. The teams have rebuilt their plans from the bottom-up based on achievable metrics. The mines implemented this disciplined approach to their operation, enabling delivery of these solid results in Q4 and now in January. It is also clear that we've experienced challenges attracting and retaining talent at NGM. As a result of that, we have looked at many employment conditions as part of the operational review. We will be adjusting the remuneration framework to help attract and retain the best people. And importantly, will be simplifying the bonus structure at the operational level to focus clearly on safety, our #1 focus for the year and then production costs and growth. We also restructured the executive team, both at the group level and in North America. We've added a Chief Technical Officer, Megan Tibbals and an evaluation team. So this brings stronger operational experience into our senior leadership. PV had a better year with plant throughput up 12% and gold production up 8% from 2024. That said, the recoveries are not where we expected them to be. As we said last year, the main issue is the performance of the weathered stockpile. There is metallurgical inconsistency across those 90 million tonnes of stockpiles, and we are not getting the same results in the plant that we saw in the lab for the initial feasibility study. We undertook extensive test work in 2025, and this will be reflected in the updated 43-101 report, which is due out next month. So although the life mine recovery rate is lower, we have been able to extend the life of 2048, maintaining the total overall ounce produced. Work on the new TSF is progressing well and the housing project is well advanced with more than 600 homes constructed and over 300 families now resettled. So just briefly on Fourmile, which continues to demonstrate potential as a world-class gold asset in Nevada. 2025 was a major derisking year. We successfully delivered on our commitment to double Fourmile's resell at a higher grade. And as you can see from this updated model, there's a lot more to come. The next step will be working on the Bulyanhulu declines which will enable efficient resource convert from underground. So moving down to South America and Asia Pacific region, which included Veladero and Porgera. This region also performed well against its plan in the quarter and the year. Veladero exceeded the top end of its 2025 guidance and be its cost guidance by over $100 an hour. Work is continuing at Veladero to expand the resource. In the same vein, Porgera achieved the top end of its guidance range while keeping costs within guidance, demonstrating strong operational flexibility. So on Africa, Middle East region, they achieved their production guidance and point out for the seventh consecutive year. And as I've said, we successfully resolved the dispute in Mali securing the release of our incarcerated colleague. At Kibali, the ARK discovery delivered significant progress in 2025, adding 3.5 million ounces to resources, including 1 million converted to reserve. Further drilling in 2026 is expected to continue to grow this high potential discovery. North Mara reported a strong finish to 2025 with production in the top half of its 2025 guidance range and Bulyanhulu overcame grade dilution and dewatering challenges in Q4, ending the year within guide. So we regained operational control at Loulo-Gounkoto at the end of the year, and we are ramping up the most accretive areas of the mine. We expect production to steadily increase throughout the year. And lastly, copper. So Luwmana finished the year on a high with production up 11% over Q3, thanks to higher throughput, ending the year with a record high annual production. C1 cash costs were up in the quarter due to the higher maintenance and interim power cost. And the super pit expansion is tracking slightly ahead of schedule with good progress during the quarter on the mill building, which is on the project's critical path. Okay. So let's move over to guidance for 2026. So we expect our gold production to be in the range of 2.9 million to 3.25 million ounces. Our 2025 gold production, as I said, was 3.26 million ounces. But to give you a like-for-like comparison, that's about 3 million ounces if we remove Tongon and Hemlo, which was sold at the end of the year. We expect Loulo-Gounkoto's ramp-up to be the main contributor to production increase in 2026, along with slightly higher production from PV. Carlin in Turquoise Ridge production is expected to be marginally lower due to the open pit sequencing and the grade in the mine plan. Across the year, we're expecting gold production to be split about 45% in the first half and 55% in the second. Higher production in quarters 3 and 4 will come from the ramp-up of Loulo-Gounkoto and Goldrush and the timing of the shutdown at NGM. For copper, we're guiding 190,000 to 220,000 tonnes, which compares to the annual production of 220,000 tonnes in 2025. Production is expected to be highest in quarters 2 and 3 and lowest in Q1, mainly driven by grade of a miner. And looking a bit further ahead, we continue to expect production uplift in 2027 and again in 2028. Turning now to reserves and resources. For our 2025 gold price assumptions we used $1,500 per ounce for reserves and $2,000 per ounce for resources, both modestly higher than last year. And for copper reserves, we used $3.25 per pound and -- sorry, for reserves and $4.50 per pound for resources. So today, Barrick, we hold one of the largest reserve and resource bases in the industry. And as of year-end, Barrick's attributable proven and probable gold reserves totaled 85 million ounce. On the resource side, attributable measured and indicated gold resources totaled 150 million ounces with a further 43 million ounces of inferred resource. While there were declines as a result of divestitures, we continue to see strong organic growth across the assets in Nevada and at PV. Turning briefly to copper. Our pivotal improvement in probable reserves remain stable at 18 million tonnes. Copper resources increased with measured and indicated resources of 24 million tonnes and an additional 4 million-plus tonnes in the inferred category. Overall, our reserve and resource base continues to support long mine lives and a strong production outlook. So just to wrap up, in 2025, we demonstrated disciplined execution, delivering on our operating plan, strengthening our balance sheet and advancing our growth pipeline and returning record cash to shareholders. Looking ahead, we entered 2026 with momentum flexibility and a clear plan for it. So just before we move to the questions, I just want to acknowledge Graham and thanking for his leadership and significant contribution he has made to Barrick over the past 7 years. Under Graham's stewardship, we strengthened our balance sheet, reinforce capital discipline and delivered record financial performance and shareholder return. So on behalf of everyone at Barrick, I want to thank him for his commitment and wish him well in the future. Also as announced Helen Cai will be joining us as CFO on March 1, and I look forward to working with Helen as we continue to execute our growth strategy and drive long-term value for our shareholders. So thank you, everyone, for your continued interest and support. And I will just remind you, I have just about the whole ExCo team sitting around the table with me, so we should be able to manage any questions you have. So I'll hand it back to the moderator. Operator: [Operator Instructions] Our first question comes from Daniel Major at UBS Securities. Daniel Major: And just Graham, good luck in the future. My first question just around the IPO potential and really, I guess, it's a question on a strategic level why you believe a partial IPO of NGM and PV would unlock more value than a full separation of those assets from the remainder of the group. I mean if we look at previous examples in the sector, conglomerate discounts exist due to complexity of organizations, and this won't dramatically reduce the complexity of Barrick. Mark Hill: Okay. Thanks, Dan. I'm going to hand it over to Graham. Graham Shuttleworth: Thanks, Dan. Dan, I think, as you can imagine, the Board and the team have gone through a lot of different permutations. And you'll recall, we spoke about this last year as well when we first mentioned the opportunities that we were examining. And they've done a lot of analysis and looked at different outcomes, different permutations. And at the end of the day, they feel that this is the best opportunity that's going to drive value uplift for shareholders. We believe that the current portfolio of assets in North America is substantially undervalued within Barrick. And by doing the North American IPO, we'll be able to shine a light on that valuation and that light will then translate into a re-rate for all Barrick shareholders. So that's the focus. That's the intention. And at the end of the day, that was the view from the Board that, that was going to drive the most value of all of those options. Daniel Major: Okay. And then maybe a follow-up question on what would be the intended proceeds from the IPO. Graham Shuttleworth: Again, we're in the middle of that process at the moment. There's still a lot of work that's going to have to be done between now and when we go live. And as we indicated, that's likely to be in the fourth quarter. All of that will be determined as part of the preparation work for the IPO. Daniel Major: Okay. And then just maybe another follow-up on this similar topic. Have you had a discussion with Newmont around the clauses in the JV agreement of pertaining to changes of ownership of the Nevada JV. Graham Shuttleworth: Thanks, Dan. Yes. As you can imagine, we're very well aware of all of the legal contracts and documents that we have and we would always honor and respect those contracts and documents. We are comfortable with the progress that we're making, and we'll continue to progress down this road. Daniel Major: Okay. Great. Actually, if I could just get 1 more in Graham, what's the latest on the Reko Diq financing? Graham Shuttleworth: Thanks, Dan. Yes. I mean, as you saw in the press release, the Board and the management are a little concerned about the security situation on the ground in Balochistan. There's been some escalation in security events there. And as you know, our primary focus on everything we do is the safety and security of our people. And so they've asked us to do a review that situation. And so clearly, as part of that review, we've indicated to the lending consortium that we need to complete that before we can close the financing. So we'll work through that, and then we will take it forward after that. Operator: Our next question comes from Fahad Tariq at Jefferies. Fahad Tariq: Mark, right at the outset, you mentioned that in Nevada, you've done a comprehensive mine plan review from the bottom up. Can you maybe talk a little bit more about how that's changed and has been reflected in the updated guidance and maybe particularly on Carlin. Mark Hill: Okay, sure. I'll give a bit of an introduction, and then I'll hand it actually over to Tim, the new COO. So look, we went back to the teams, and there had been some top-down numbers generated over the last 12 months. And so we just asked the teams to go back and run the mine plans using current productivities that we are actually achieving and then building in obviously upside for productivity improvements only if there was an actual plan and any target to get up to those productivity. So it wasn't just a let's increase things by 10%. Unless there's an actual plan for that continuous improvement than it was taken out. So it's why I said at the end, too, that we have a much higher confidence and certainly in January off to a good start of achieving our guidance. But I'll hand over to Tim, if you want to add anything to that. Tim Cribb: Yes. Thanks, Mark. I think as Mark said, it's about that certainty in delivery of the plan. So you will see some reductions in some of the mines like you have probably noticed in Carlin. So we do see some of them having a lower production, but we're much more confident in the delivery of that production. And I think as Mark said and as he highlighted in the outset that performance at the Carlin roaster, having a record throughput in the last 60 days since the joint venture was formed. That highlights when you can move to a planned maintenance structure, and we can cut out the interruptions and the reactive maintenance. Overall, we expect to get better results. So I think that's at the core of why we reset these plans and built them on actual past performance. Fahad Tariq: Okay. Great. And then just on Reko Diq because you were asked about it in the previous question. Is it fair to assume that all options are on the table up to and including divesting the asset? Mark Hill: I think it's too early to say that. I mean we had the Board meeting yesterday, and they basically asked us to go back and review the project across all areas. So we're in the first stages of that and looking at what we're going to look at and what options we're going to look at. Do you want to add anything to that, Graham. Operator: Our next question comes from Lawson Winder at Bank of America. Lawson Winder: If I could ask 1 follow-up on Barrick North America. Is the intention for the Barrick North America to be domiciled in the United States. Graham Shuttleworth: Again, there's a lot of work going on, on that project. And as it's determined, we'll keep you updated. Lawson Winder: On capital return, the new dividend policy is very clear and makes a lot of sense. How might share repurchases factor into capital return going forward? Graham Shuttleworth: At the moment, Lawson, the Board is very clear that they want to focus on dividends. I will say in my experience of engaging with shareholders. This is an area where everybody has a strong opinion. And I know you're never going to please everyone, because some people favor dividends and some favor buybacks. But for now, the Board is very focused on dividends and hence, the reason why they have not renewed the buyback approval. Lawson Winder: Okay. Very clear. On Veladero, how would you describe that asset in terms of the importance of the overall portfolio? And would you go so far as to describe it as noncore? And have you explored the salability of that asset? And then if so, could Pascua-Lama potentially be packaged as some sort of sale with Veladero. Graham Shuttleworth: So Lawson, we haven't Veladero is not noncore. And in fact, it's one of our top performing assets in the last 12 months. So we haven't looked at divesting it, if that's what you're asking. Operator: Our next question comes from Anita Soni of CIBC World Markets. Anita Soni: So first question, Mark, just moving to PV. I just wanted to understand what the guidance is based on in terms of grades, recoveries given that your -- as you mentioned, the grade the recovery rates are fairly low. I did see you have still some of the blending of stockpiles. Is the plan to take out the stockpiles or continue to forge on with the stockpiles blended in and try to fix the recovery rates with those stockpiles? Mark Hill: Okay. Well, let me start off the answer and then again, I'll hand it over to Tim. But -- it's obviously, the 90% was in the feasibility study. We're not going to achieve that. We're targeting 84%, but to get to the 84%, we're going to have to the blending and a few other things, right? So we're currently sitting, I think, Tim, around 75%, 76%. And so we'll then ramp up over the next years as we get more confidence in how we blend the stockpiles into the fresh material and what we -- when we can actually get up to that 84%. And there's also some projects we have to do as well. But Tim, do you want to expand on that? Tim Cribb: Yes. Thanks, Mark. I think the key is to define the projects. We have hatch working with us at the site on the key projects that we can look to delivered the improvement from 76% up to 84%. Those stockpiles do make a key portion of the feed over the coming 3 to 5 years. So it is important that we do optimize that and get the maximum recovery we can from that. The technical report, which is coming out at the end of February, that will obviously have a lot more detail on this. But for the long assumption, we have basically updated the full recovery model to incorporate this latest test work. So we've ran that through the life of the mine. Graham Shuttleworth: Sorry, just to reiterate that the updated 43-101, which will obviously have all of this information will be available at the end of February. Anita Soni: Right. And I guess the question that I had as a follow-up for that part of it is do you expect to retain all of the ounces that you've reported in the reserve resource statement at year-end in that 43-101 or will that potentially take some of the ounces out? Graham Shuttleworth: No, no, we expect to maintain, Tim correct? Tim Cribb: Yes. Graham Shuttleworth: Yes. Anita Soni: Okay. And then my second question was just with respect to the IPO. I know you're saying you'll have an update at year-end on that -- sorry, it will be completed by year-end. But could you give us an idea of what portion of the -- of Nevada Gold Mines and Fourmile North American assets? What portion of those assets do you intend to IPO? I have heard ranges between 10% to 15% and north of 30%, but I'm not sure what you guys are doing? Mark Hill: I think it's fair to say to be on the lower end of that and be a minority part of those assets. Anita Soni: So 10% more along the lines of 10% to 15%? Mark Hill: Sure, yes. Operator: Our next question comes from Bennett Moore at JPMorgan. Bennett Moore: I wanted to come to Mali. And since gaining control back there, what is the dialogue been with the government? And what are the state of the assets? And is there any incremental investment required there? Mark Hill: Okay. Ben. Let me hand it over to Seth, if he can give us an update. Unknown Executive: Bennett, we -- the relationship is really at a reset and the engagement so far has been really positive. We took control of the asset on the 16th of December. It was actually in much better shape than we expected. So we started all feeding lower-grade stockpiles and at this point, we've now started up all 3 of the underground mines, and we are ramping up the open pit, which we expect to be doing that in the second half of this year. And so the focus is really on getting that ramp up in a safe manner and so that we can achieve our historical run rates by the end of this year. And so you would have seen in our in our guidance that for Loulo-Gounkoto, this year, we are guiding between 260,000, and 290,000 ounces attributable. Bennett Moore: And now with the employees no longer detained and they were seemingly behind. Just wanted to get your latest thoughts on a potential asset sale there. Have you seen any interest or dialogue from other parties? Unknown Executive: Now I think at this point, the focus is really on ramping up that mine and restoring the relationship and everyone's really committed to do that. Operator: Our next question comes from Carey MacRury at Canaccord Genuity. Carey MacRury: Yes. Just coming back to the IPO. Just wondering about the timing. I mean production in Nevada has come down pretty much consistently every year. It looks like it will be lower again this year. So just wondering why now and not when Nevada looks a bit more stabilized. Mark Hill: Okay. So look, Kerry, this is Mark. I'll spend a lot of time in Nevada over the last 4 months, as you can imagine. So I think Nevada is stabilized. And I think what we've demonstrated in a very short time, far quicker than I thought that we have given control back to the general manager. We have a very strong team in Nevada like we've had for 20 years. And you've seen the performance in Q4 and January is even stronger. Again, as I said, I think the best January we've had in 5 years. So I am completely comfortable they're going to deliver this year every quarter, which you're going to see before we go to this IPO. And I think we're now in a position where we won't disappoint and that production over time will actually grow. And again, Tim, anyone else, feel free to chime in if you got anything else. Carey MacRury: Okay. And maybe just on the 2027 outlook, if you can just sort of walk through sort of the big -- what's moving from 2026 to 2027? Graham Shuttleworth: Is that -- sorry, Carey, is that for the group or at NGM. Carey MacRury: No, on the group level. Graham Shuttleworth: Yes. So the biggest move is really our continued to increase at Loulo-Gounkoto and a small increase at Nevada and then an increase in PV. So those are the 3 key areas. Operator: Our next question comes from Josh Wolfson at RBC Capital Markets. Joshua Wolfson: I noticed the new guidance methodology doesn't include costs or CapEx indications for the next couple of years. The historical guidance of the company did indicate that there was a cost reduction over time. How should we think about costs going forward after 2026? Mark Hill: Graham, do you want to address that? Graham Shuttleworth: Yes. I mean, Josh, obviously, we didn't give you guidance. So I'm not about to give you guidance now. But I think broadly, I would say flat would probably be a better way of thinking about it. Joshua Wolfson: And then another question on the IPO. I'm wondering how is the company thinking about the management of NewCo and what sort of governance rights will Barrick have with the stake given it still will be controlling. And then sort of along those lines, how is the company ensuring that both Barrick shareholders will be aligned with the NewCo shareholders? Mark Hill: Well, Josh, I think it's too early to say. I mean we're starting a 9-month process. And as I said, we'll keep you updated as we move along. But I haven't got the answers to those questions at the moment.. Operator: Our next question comes from Martin Pradier at Veritas. Martin Pradier: My question is, if you can unpack a little bit the big cost increase from this year from the outlook compared to 2025. What are the big drivers, if you can provide some color for gold and for copper, please? Graham Shuttleworth: Thanks, Martin. Really, there's sort of 3 buckets, 2 of which are the most significant. The first one is the gold price assumption. Operator: [Operator Instructions] Our next question comes from John Tumazos at Very Independent Research. John Tumazos: Barrick sold 31 million ounces of gold resources for $2.55 billion or $82 an ounce. Will you sell any more gold? Is it because you don't have enough managers for all of your properties? Or would you reverse course and buy gold to offset the gold you sold? Graham Shuttleworth: John, I think it's not a question of just selling gold for the sake of selling gold. It's really about focusing on a strategy. Our strategy has always been to focus on our Tier 1 high-quality assets. And the dispositions that we've made have been in respect of those assets that didn't fit that strategic filter. So we have definitely continued to invest in gold going forward in line with our strategy. We definitely believe in gold and the focus of this company going forward is very much around gold. But it's within the constraints of the strategy. Operator: [Operator Instructions] This concludes our Q&A session. Back to Cleve for any closing remarks. Cleveland Rueckert: Great. Thank you, everyone, for joining us today. We look forward to speaking with you again on our first quarter results call in May. Please get in touch with us if you have any further follow-up questions. Thanks again. Graham Shuttleworth: Thanks, everyone.
Operator: Welcome to Shell's Fourth Quarter and Full Year 2025 Financial Results Announcement. Shell's CEO, Wael Sawan; and CFO, Sinead Gorman, will present the results, then host a Q&A session. [Operator Instructions] We will now begin the presentation. Wael Sawan: Welcome, everyone. Today, Sinead and I will present Shell's Fourth Quarter and Full Year 2025 results. 2025 was another year of consistent delivery and real progress. We continue to execute with discipline and delivered against our targets in service of becoming the world's leading integrated energy company. As always, safety is a top priority. In 2025, four colleagues tragically lost their lives in our operated businesses. We owe it to them, and everyone who works with us, to learn from these incidents and to prevent such tragedies from happening again. On process safety, we continue to make encouraging progress with 30% fewer incidents in 2025 compared to the previous year. Improving personal and process safety is a continuous journey and will remain our top priority. Turning to our strategy of delivering more value with less emissions. Last year, we beat our ambitious CMD23 targets and set out important new financial targets at CMD25. The first of these financial targets is to deliver structural cost reductions of $5 billion to $7 billion by the end of 2028. By the end of 2025, we had already achieved $5.1 billion of reductions with more to come. Nearly 60% of the structural cost reductions came from operational efficiencies, a leaner corporate center and faster value-based decision-making. Achieving this target 3 years early demonstrates the drive of our organization to deliver. The next target is disciplined capital allocation within a cash CapEx range of $20 billion to $22 billion, and we ended 2025 in the middle of that range. This is about greater discipline and better capital allocation to enhance returns and you see that reflected in tough choices like stopping the construction of the biofuels plant in Rotterdam. The third is annual growth and normalized free cash flow per share of over 10% through 2030. We are on track to deliver through a focus on performance and discipline by turning around underperforming capital, and we continue to focus on shareholder distributions through buybacks. This brings me to the fourth financial target. Shareholder distributions of 40% to 50% of CFFO through the cycle. This remains sacrosanct. And in 2025, we delivered at the top end of that range. In short, we are on track to achieve our financial targets, showing that we deliver on what we say we will do. Now turning to our portfolio. In 2025, we executed several deliberate value-driven decisions to strengthen our businesses. In Upstream, we completed the divestment of SPDC in Nigeria, the conclusion of a major multiyear effort. We also completed the Adura joint venture in December, which as of today is the U.K. North Sea's largest independent producer and unlocks additional value. And finally, in Chemicals & Products, we divested our loss-making asset in Singapore and are working to reposition our Chemicals portfolio to unlock further value. These decisive actions demonstrate our focus on value. At our CMD25, we also set an aim of growing our LNG sales through to 2030 by 4% to 5% per annum. And last year, those sales grew by 11%, supported by the highest number of cargoes delivered in a single year. This record was supported by last year's start-up of LNG Canada, where ramp-up to full capacity is continuing. Beyond our organic growth, we also completed the acquisition of Pavilion Energy last year. We also committed to bring new oil and gas projects online that at their peak, will add more than 1 million barrels of oil equivalent per day by 2030, and we're progressing well. By the end of last year, we had already started up more than 1/4 of that new production. We have also further strengthened our deepwater position by increasing our interests in the Gulf of America, in Brazil and in Nigeria. And we took final investment decisions for the Kaikias waterflood in the Gulf of America and for Gato do Mato, now renamed to Orca in Brazil. In addition, we have expanded our footprint for exploration by acquiring acreage in Angola, South Africa, and the Gulf of America. Moving now to marketing, where we continue to high-grade our portfolio. Last year in Mobility, we closed or divested some 800 lower-performing branded sites. And by focusing on performance, discipline and simplification, both Mobility and Lubricants achieved their best-ever results in 2025. And in Power and Low Carbon options, we've continued to high-grade the portfolio through the year, divesting projects like Atlantic Shores and ScotWind, while also diluting parts of the Savion portfolio. These steps are aligning our portfolio with our increased focus on flexible generation and trading. Turning now to the less emissions part of our strategy. At CMD23, we said we would invest between $10 billion to $15 billion in low-carbon energy solutions between 2023 and 2025, which we have delivered on. We have created options in Power and Low Carbon in areas such as CCS and bioenergy. We're now focused on delivering returns on those investments, helping our customers to decarbonize and leveraging our trading capabilities. Last year, we also made significant progress against a number of our ETS24 emissions target. Starting with our target to halve Scope 1 and 2 emissions under our operational control by 2030 on a net basis compared with 2016. We have already achieved some 70% of that target. Next, our target to lower the net carbon intensity of the products we sell by 15% to 20% by 2030. We are on track, delivering 9% in 2025 compared with 2016. Linked to that, we also set an ambition to reduce customer emissions from the use of the oil products we sell by 15% to 20% by 2030, and we met that ambition, achieving a reduction of 18% in 2025. 2025 was also the year we achieved our target of eliminating 100% of routine flaring from our Upstream operations, once again showing that we deliver on what we say. With that, I will hand over to Sinead, who will tell you more about our financial results and our financial framework. Sinead Gorman: Thank you, Wael. Our financial results in the fourth quarter of 2025 were lower due to noncash tax impacts and lower oil prices, which were partly offset by another quarter of strong operational performance. Our adjusted earnings for the quarter were some $3.3 billion. Upstream delivered a strong quarter in the current price environment, and as expected, Integrated Gas results returned to more normal pre-COVID levels as we have outlined in previous quarters. Marketing results were seasonally lower and further impacted by noncash tax adjustments in joint ventures. Products delivered strong results, helped by higher refining margins, partly offset by lower trading, which is typical in the fourth quarter. And in Chemicals, we continue to face challenges due to both low chemical margins and lower operational performance. Fixing and repositioning this business is a key priority in 2026. Turning to cash. Q4 CFFO was robust as we generated $9.4 billion despite some of the typical year-end payments. Moving to the 2025 full year. From a macro perspective, Brent prices on average were over $10 a barrel lower than the year before. Despite this, we are proud that our stronger operational performance drove solid financial results in this lower price environment. Full year adjusted earnings were $18.5 billion, and we generated close to $43 billion in cash flow from operations. And we delivered just over $26 billion of free cash flow. Both Integrated Gas and Upstream had a very strong year operationally, with high controllable availability driving increased production. In particular, we saw increased contributions from higher-margin Upstream volumes, especially in the Gulf of America and Brazil. In Downstream and Renewables & Energy Solutions, Mobility and Lubricants delivered higher margins through increased sales of premium products, whilst also reducing operating costs. As a result, both businesses continue to improve their ROACE year-over-year in 2025, with Mobility increasing to over 15% and Lubricants to over 21%, and with both achieving their highest ever contributions to our results. Chemicals & Products had a mixed year with better refining performance being offset by continued low chemical margins and lower trading and supply contributions, while our Renewables & Energy Solutions business performed in line with expectations. Now moving to our financial framework. Our cash CapEx range for 2026 remains at $20 billion to $22 billion. We continue to maintain a strong balance sheet with gearing of 21% or 9% excluding leases. And our distribution range of 40% to 50% of CFFO remains sacrosanct. We continue to deliver compelling shareholder distributions. And today, we announced a 4% increase in our dividend, in line with our progressive dividend policy as well as a $3.5 billion share buyback program, which we expect to complete by our Q1 results announcement in May. This marks the 17th consecutive quarter in which we've announced $3 billion or more in buybacks. And with that, I will hand back to Wael. Wael Sawan: Thank you, Sinead. Before closing out, I want to take a moment to thank our staff for their hard work, their commitment and their delivery across the year. We're living in a rapidly changing world, but our business model is well positioned for these conditions. That confidence is underpinned by our balance sheet strength, which we've improved in recent years through stronger operational performance and disciplined spending. This has led to enhanced cash generation. We'll continue to focus on what we can control and ensure we are positioned for countercyclical opportunities where they might arise and meet our high bar for investment decisions. Ultimately, we hope it's clear that you can be sure of Shell. You can trust us to stay value focused and disciplined. We have entered 2026 as a more resilient organization. We have raised the bar on operational performance. We are showing more discipline and making great progress to deliver more value with less emissions. And there is so much more to come. Lower costs, further performance improvements supported by the transformative potential of AI and a higher returning portfolio of world-leading franchise businesses. All of this gives us confidence for the road ahead. Thank you. Operator: [Operator Instructions] Wael Sawan: Thank you very much for joining us today. We hope that after watching this presentation, you've seen how we delivered a strong set of results in 2025 and how we are firmly on track to deliver the targets that we set ourselves at Capital Markets Day 2025. And now, Sinead and I will be answering your questions. So please, could we just have one or two questions each so that everyone has the opportunity. With that, could we have the first question please, Jake? Operator: Our first caller is Alastair Syme from Citi. Alastair Syme: I feel obliged to kick us off on reserves. You've listed a huge amount of portfolio refocus in the Upstream. But I guess, to Shell, we've had 3 years of sprint and cost takeout, but at the same time, reserve life has fallen 15%. And if I take you back a couple of years ago, you used to say there was no portfolio problem. And I think now the message is morphed into one that sort of acknowledges there is a bit of a problem to address, but there's no hurry. So I guess the question is what is the plan? How do we frame the time line around hurry? And how can you counter the market concerns that the business is simply shrinking? Wael Sawan: Yes. Thank you very much, Alastair. I'll suggest I kick off and then maybe, Sinead, bring you in. Yes, first, thank you for the question. I think I'll start with what you and I have talked about in the past. Where we start and what I keep saying and I keep hearing back from my investors is that at the end of the day, it's intrinsic value creation that we are driving. And it's particularly value creation per share that we are driving towards. And so there are a few elements of how we are unlocking that. I think you touched on one of them, fundamentally driving the performance culture in the company, the takeout of the $5 billion of cost reduction, and we are now driving towards the higher end of the $5 billion to $7 billion range. There's more to be done on capital efficiency. There's more to be done on improving the returns on the actual capital employed. So there's significant value uplift on that side of it. We also showed, of course, in Capital Markets Day 2025, the trajectory to 2040 for both Integrated Gas and Marketing, where we see our cash flow growing from around $20 billion last year to close to $25-plus billion at a slightly lower capital diet. So all of that is showing the growth. But then let me come specifically to the heart of the question around resource. What we have tried to do is look at the resource as an important KPI in the overall mix, but most importantly, look at the cash flow that's coming from it. I mentioned in Capital Markets Day that we had a gap to 2030 that was close to 100,000 barrels per day to be able to, for example, keep our liquids flat. I'm pleased to say that with the $2 billion of deepwater bolt-ons that we did in 2025 and improved recovery from some of the reservoirs we have, we already have largely plugged that gap of the 100,000 barrels per day. So that actually gives us the runway to be able to derisk the 10% free cash flow per share that we talked about in Capital Markets Day. Your question, though, is a fair one when you look out to 2035. We still have a resource gap there that we plan to fill. But we want to make sure that the bar continues to be high there. And we have a few years to be able to fill that gap. So this is not ignoring the issue. But this is derisking what we can see in front of us, what we can control and making sure that we deliver on our commitment to our shareholders to do it in a highly accretive way. And that's what we want to be able to work on. We are liquidating the 1 million barrels per day of new capacity we're bringing in. Last year, we brought 1/4 of that. We have another 750,000 barrels per day to bring online. We have exciting new projects like Bonga South West, that is also coming in the post 2030 time frame. We need to be able to move those things through. But the core continues to be one of real focus on proper capital stewardship as we unlock that future cash flow. Sinead, maybe you want to add a few words? Sinead Gorman: Yes, just a little bit on that as well because I think you covered indeed how we're closing the gap. Let me just talk you through our thinking a bit. And I think as Wael positioned very well, of course, things like reserves or R/P are important metrics, but it's only one metric as we look at the depth of our portfolio. So let me go specifically on R/P. So roughly speaking, we were at about 7.8 years, as you know, now, which came down from 9. How did we -- what were the decision-making between coming down from 9? Two main elements of that. One was the SPDC sales, so the sale in Nigeria of assets and the other, of course, was the move with respect to oil sands, both of which we've talked over the last year or so with you. And of course, both were very conscious decisions. And of course, the reason they were conscious decisions, if we kept them, we would have stayed at about the same level given all of the additions that we had as well. But we consciously chose not to do that. And that $2 billion of CapEx instead that we move towards deepwater, what did that do? The fact that we put it into deepwater and that was Gulf of America, that was Brazil, that was Nigeria as well and a number of other aspects. Those ended up with very high-margin barrels, but of course, didn't have quite the same length in terms of the R/P or the impact on the R/P. We chose to go with high margin, therefore, creating value rather than just trying to manage to a metric. And of course, as you know, when we talk to the shareholders, it's very much about focus on not moving towards one metric, but actually generating value. Wael Sawan: And so let me close then, Alastair, and thank you for that, Sinead. What I will say is we are, of course, at an inflection point as a company as well. We have really been focused on the performance drive, the embedding the performance culture, and I think made great progress. What I can say and what I will be saying to our investors is both Sinead and I will bring that same focus and rigor now as we have really gotten the self-sustaining performance loop into the company. We will now look at portfolio reallocation, how we are going to be reallocating capital to the opportunities that allow us to unlock even further growth post 2030, and that's where our attention will continue to go in the coming years. Operator: Our next caller is Josh Stone from UBS. Joshua Eliot Stone: Just a question on the buybacks. I'm curious as when you set the buyback, how much of a close call that was this quarter? Because I understand you've got a strong balance sheet, prices seem to be holding up better than expected, but also for the first time in a while, we've got more people buying energy stocks and your shares are clearly rerated with that and they're more expensive. So was that considered at all in your decision to leave it flat? And how much -- how close was that call? Wael Sawan: Thanks for the question, Josh. Sinead? Sinead Gorman: Yes. No, happy to take that. Thanks, Josh. Really good question. And what I like is you're asking us about how we think about it. And it is a conscious decision in terms of capital allocation each quarter, of course. I mean with respect to the buybacks and where do we go on the buyback, I mean, one of the first things I would say is what we've looked at is the fact that we've bought back roughly, what, 25% of our shares, I think, over the last 3 years. And of course, that's at some 20% below where our share price is today. So you can see the allocation around that. So that thoughtfulness is there. The frame that we use has been sort of quite clear. We've always said to you that sort of 40% to 50% in terms of CFFO distribution is sacrosanct. And of course, that varies a little bit quarter-to-quarter because it is through the cycle. So you see that in our thinking. And of course, this quarter was 52%, but you have volatility with price and everything else coming through. So we're very comfortable and very focused on staying within that. But indeed, we still see the buybacks as particularly at this sort of price as very much value led. And of course, we have such a strong balance sheet, as you know, when we're sitting at some 20% of gearing as well. Operator: Our next caller is Irene Himona from Bernstein. Irene Himona: I had two, please. So first, can you please speak around the key financial impacts of the Adura joint venture in the U.K. in 2026 on key metrics like perhaps your cash dividend receipts or Upstream tax rates, et cetera? And then secondly, looking at group return on capital, obviously, it is below double digit. It's clearly not helped by widening Chemicals losses. The Chemicals down cycle appears to be a really prolonged one, which is clearly something that cannot be controlled. So I wanted to talk around what you are controlling in Chemicals and in particular, to ask about progress on the announcement you made at CMD25 of the restructuring intention for Chemicals? So how far has that progressed? Wael Sawan: Thank you very much, Irene. I'll take the second one. Maybe you want to start with the first one on Adura? Sinead Gorman: Certainly. Indeed, Adura really pleased, Irene, to see that actually up and running with our partner on the 1st of December. Teams are doing well there. It's really is a stand-alone venture, of course. You can see them out there looking at raising debt to be able to continue to grow that business and to be able to use capital very efficiently there as well. But you specifically asked about how would we see that play out in some of our metrics. What you see, of course, is because it is a stand-alone entity, you see a lot of the normal aspects pulling out. You see the production reduced coming through in our outlook or that production -- sorry, production being reduced in our Q1 outlook as well. So you see that in the Upstream numbers. And in contrast, what you will see, as you exactly rightly say, we'll see dividends coming in. Now we don't tend to give guidance. Of course, it's a stand-alone venture, as you know, but we expect to see considerable dividends coming through. And of course, I saw yesterday, of course, our partner, of course, made some comments in that respect as well. Venture is strong. It has the ability to grow. It's the largest stand-alone producer, independent in the North Sea now, and they're looking at many more opportunities and are driving hard to be able to return to the shareholders the dividends that they've rightly promised us. Wael Sawan: Thanks, Sinead. Irene to your second question around group ROACE and then the Chems. So a couple of points maybe. Firstly, in my response to Alastair's question, I talked about our real focus on performance, right? We want this company to be the best performing, best returning company in our sector, positioned for longevity and positioned for sustained growth. And so we've been focusing very much on the performance. And actually, that's also starting to show through on the returns. You saw that this past year at 9.4% ROACE. By the way, that was up compared to 2024, despite a $10 drop in oil price. And that shows you we're making progress. Some of that progress is coming through, for example, in Mobility, where we had put a target of getting to 15% ROACE. We're up from 12% to 15% in 2025. Lubricants is up from 19% to 21%. Res, despite the fact that it is still nowhere close to where we need it to be, is up 4% points on ROACE as well between '24 and '25. So we're making progress. And Chemicals is not where it needs to be. And there's a couple of elements around Chemicals that you touched on. Let's talk about, firstly, the strategic element of Chemicals. Nothing's changed from what we talked about in Capital Markets Day. What I also said in Capital Markets Day is we are going to be patient because while we know where we want to go with it, we do not want to be selling at bottom-of-cycle conditions. We have promised our shareholders to be good stewards of their capital. And what we are looking at, at the moment is constructs that could potentially work. I won't update you at this stage on where things are because there's nothing specific to update on. But you can rest assured that we continue to look at opportunities around that. Where I would say I have less patience is in our own self-help. I already indicated a couple of quarters ago that we are looking at what more we can do. So the team did some great work around that. Q4 was a bit more difficult as well because we had a planned downturn in Monaca. But as we come out of that, we hopefully get a bit more tailwind there. But most importantly, we have identified a few hundred million dollars' worth of cost reductions, CapEx reductions to be able to just ensure that we get closer and closer towards free cash flow neutrality. So at least it covers its face in a difficult macro like we have at the moment. Hopefully, that also sets us up for a better performance when we see Chemical margins come through. But we are assuming that if there is a prolonged period of depressed Chemicals margins that we at least need to be able to avoid the bleeding in free cash flow from Chemicals. And that's very much our intent and what we're focused on. Operator: Our next caller is Biraj Borkhataria from RBC. Biraj Borkhataria: My first one is just on operating costs. You've clearly made that a priority in recent years and there's progress being made. When I look at your divisional breakdown, the one thing that surprises me is that when I look at the Renewables business, the OpEx still looks outsized relative to the size of that business and the contribution and I guess, the outlook. So my question on that front is, why aren't you moving faster to reduce costs specifically there? Or is that building options for the future or is there something else? And then just a second question, a follow-up to the resource one. In the past, and even today, you've mentioned you want to be countercyclical. So I guess, there's a balance between knowing where you are in the cycle, but also understanding the competitive landscape. As I'm listening to your peers talk about the same issue over recent months, a number of them have started to talk up M&A. So you could argue there's increased competition on the buyer side. So just some perspectives on your patience and the competitive landscape would be helpful there. Wael Sawan: Biraj, thank you for those questions. Let me take the second one and maybe give you the first one, Sinead. Look, I think you heard me, Biraj, in the third quarter results, open up the space much more for M&A as we start to get much more comfortable that we now have the internal performance to be able to unlock value better than others can. And that to me was an important element of what we needed to do because I didn't want to simply add resource for the sake of it. Of course, we had started with a capital budget of $25 billion to $27 billion. We took it down to $22 million to $25 million in CMD23. We took it down to $20 million to $22 million in CMD25, and we haven't used the full capacity. Not because we can't buy barrels, but because we have said to ourselves that we're only going to go after accretive barrels. That's what's core for us. Now as we look at the landscape, I'd start off by saying the biggest thing we had to do was to continue to create the space for us to have the strategic patience. And to Alastair's question, we now have that line of sight to 2030, which means we built ourselves a few years to be able to really be selective about what we go for. But we are hungry for growth. Don't get me wrong. But we want to do it on the right terms. And so where do we see opportunities to play, where we can synergize, not simply buying the barrels, but where we think we can bring particular technologies where we have synergies with existing assets. You've seen us do deals in Brazil, in Nigeria, and the GOA. Those are the sorts of areas where we can play in, but there are other areas where we are looking for that. We will continue. I can tell you, I have a lot of opportunities coming on -- coming to my desk on a regular basis. And I would say I see more of them starting to screen now than we would have a year ago. But we are looking at making sure that we do not fall into the pitfalls of the past, where we start to sort of do deals for the sake of resource buildup rather than do deals that create value through the life cycle and allow our shareholders to be able to really get the most out of the decisions we're taking. Sinead? Sinead Gorman: Indeed. Thanks, Biraj. You're absolutely right in terms of cost being a focus over the last period, but it's been cost really in service of performance. So what have we done? As you know, we've taken some $5.1 billion out of structural costs over the period. So actually heading into the bandwidth, which we have talked to the band that we talked about as a target for Capital Markets Day '25. So we've done it a couple of years early. So you can really see the business motoring in terms of just as a company, how can we ensure that every dollar is allocated in the right way. And there's a lot more to come. That's clear. And there's a lot of pressure from the boss on making sure we do actually deliver on that as well. But specifically, it's very thoughtful about where we take it out. And as you say, in terms of our Renewables segment, there is more to come. But we've actually taken $1 billion out of OpEx over the last few years there. And we're changing the portfolio mix, remember. So as we change that away from some of the generation assets that we would have had before, we're moving it more towards some of the flex and assets that we can trade around. So of course, what you're seeing is as we make some of the divestments, as we change that portfolio mix, that comes down on that side, but actually goes up in terms of the actual flex side. And actually, we had quite a bit of OpEx that came from our CCGT acquisition in Rhode Island as well. So that's coming through. And remember, that Res portfolio with that Renewables portfolio is continuing to change. And actually, we've done more than 15 deals over the last 2 years in that space, more than half of them actually within the last year as well. So more to come. Operator: Our next caller is Paul Cheng from Scotiabank. Paul Cheng: Wael, can you talk about the new opportunity set. It seems like with the open up of Iraq, Libya and Venezuela and how attractive are those to you guys? And whether you are concerned, the opening up of these countries will compound the oil market oversupply? And if that is the case, how will it shape your capital allocation outlook, if any? Wael Sawan: Thanks for the question, Paul. Look, I'd start maybe first from a longer-term perspective. So we continue to see growth in energy demand for -- well, through to 2050 at the moment. So some 25% uptick between 2025 and 2050 in terms of overall energy demand. We see oil demand continue to grow roughly by that 1 million barrel per day tick, at least for the coming few years. And remember, we're losing around 5% of overall supply due to depletion. So every single year, you're having to refill 6 million barrels per day. So longer term, the fundamentals continue to be very constructive, I would say, on oil. In the shorter term, you're right to sort of hint to the fundamentals being maybe slightly long in terms of supply, but that's being balanced by a lot of geopolitical risk at the moment, whether it is Venezuela, whether it is Iran or others. You're seeing more ships at sea. And that's creating, I think, a bit more balanced and helping the oil price achieve what it has achieved. Now turning to the specific markets that you've talked about. There is, of course, potential to unlock more production, but the world will need that production. So it doesn't concern me. It actually encourages me that we will be able to find the supply to be able to meet that demand. Most importantly, I think we are very well positioned to be able to play in some of these theaters. I was in Kuwait just a couple of days ago where the KPC announced the opening of some opportunities there, which we will be looking with interest in. We are in discussions, of course, with the Libyans. We have an MOU for some fields there. In Venezuela, we are well positioned, in particular, in the gas side, given some of the work that we had been doing even before recent events, and so on and so forth. Iraq, again, we have a strong position there. So we see ourselves as particularly well placed to be able to enter some of these theaters. But again, it's going to depend on the entire sort of risk-adjusted return profile and our ability to be able to say to ourselves, "Is this where we want to deploy our capital?" It doesn't change our appetite in terms of the longer-term fundamentals around oil. We continue to be bullish and constructive on that. Operator: Our next caller is Michele Della Vigna from Goldman Sachs. Michele Della Vigna: I wanted to ask you about LNG. It looks like we're going into a period of oversupply where we may need the shutdown of some U.S. LNG plants at least for a few weeks in the summer. I was just wondering how should we think about that potential outcome into the Shell portfolio with the positive being probably on the trading side, some of the negative in terms of some of the spot gas exposure? And also, in a cheap LNG environment, we should see rising LNG demand. But one of the big areas of growth, which has been China, feels like it may be slowing down and potentially with the geopolitical risk rising, they may not want to depend so much on a commodity, which -- where the U.S. is the largest producer in the world. So just wanted to have, if possible, some of your thoughts on that. Wael Sawan: Thank you, Michele. And let me maybe touch on that. So what do we see in the LNG markets at the moment? Again, if I take the long-term perspective, if anything, we are seeing even more constructive demand on for LNG. We see it more and more playing the role of the stabilizing force in most energy systems. I mean, take Europe, for example, we do not have, of course, the coal assets of past. Nuclear will take a long, long time to be able to bring in as Europe shifts its energy system towards more intermittent renewable energy, you will need more and more of that stabilizing force, which, of course, LNG plays. And that's demonstrated just this year by the fact that we have had record imports of LNG into Europe. You consider now where we are also in the current cycle, even if you think prompt and midterm, just at the moment, we're looking at storage levels in Europe at the low 40% compared to the 5-year average that is closer to 65%. So Europe will continue to play a big role. We see both China and India, actually, also still constructive on LNG, but at a certain price point, which is closer to the $8 to $10 rather than above 10%. So I don't think the Chinese or the Indians are averse to taking more LNG, but they want it at the right price point compared to the alternatives they have, which typically is domestic coal. So where does that leave us as a portfolio? I think we are incredibly privileged to have such a diverse set of supply opportunities, one of the best, of course, being LNG Canada with AECO indexation that allows us to supply our markets in particular in the East. We, of course, also have access -- significant access to U.S. LNG. I don't know whether there will be shutdowns or not in the summer, depending on demand levels and the wave of supply and how quickly it comes. But I would say we are very well positioned given that balance of diversified supply, diversified demand. We have multiple different indexations to whether it's Brent, TTF, we can sell on Henry Hub or AECO and so on and so forth. So the cross-commodity exposure gives us opportunities to be able to create value out of the volatility that comes with that LNG market. So do I expect a length in the LNG market? Who knows? There might be some, but we look through these cycles and create value over the long term for our shareholders. Operator: Our next caller is Kim Fustier from HSBC. Kim Fustier: I wanted to go back to Chemicals. Last quarter, you talked about cutting several hundred millions of dollars from Chemicals. I think you referenced that again today. But I mean, this could be a very extended down cycle of up to another 4 to 5 years. So a few hundred million of cost reductions may not be enough. And presumably somebody has to shut capacity. So what exactly would be stopping you from outright shutting capacity? Is it the benefit of integration with your refining plants? Is it the environmental cleanup costs or labor issues in Europe? And then I wanted to go back also to the Upstream longevity point. You've talked about that and yet we're seeing Shell continuing to put assets up for sale in the market such as Vaca Muerta in Argentina. I would have thought Vaca Muerta has a lot of running room, and you do have plenty of unconventional experience. So if you could help us understand the logic of that particular asset being put up for sale, that would be great. Wael Sawan: I will let, maybe, Sinead start with that second question and correct that fake news article that came out, and then I can address the Chemicals one. Sinead Gorman: I think you just said it perfectly. Kim, I've seen the same article. I don't believe we've said anything about that specific asset at this moment in time. So indeed, lots of things I read in the paper or many other assets apparently that we're selling as well that I wasn't aware of. Wael Sawan: Thank you, Sinead. And Kim to your Chemicals point. Shame on me, I should have also mentioned that, of course, we are also looking at unit by unit shutdowns where required. At the end of the day, we're looking at cash cost of each of these units and making the choices depending on where we are in the cycle. But nothing is off the table. Let me put it that way. We are looking at all the opportunities to be able to really get to free cash flow neutrality at some of these more severe realities around margin, and we are leaving no stone unturned. Operator: Our next caller is Martijn Rats from Morgan Stanley. Martijn Rats: I've got two questions, if I may. I wanted to ask about trading. Sort of full year results is always sort of a good one. I know throughout the year, it can be a bit volatile. But looking back 2025, group return on capital was 9.4%. But often, you're willing to provide a comment about the uplift of the trading created to the group ROACE 200 basis points, 400 basis points, usually they live in that sort of ranges. In 2025, broadly speaking, were we at the upper end of that range, lower end of the range? What was roughly the contribution of trading? And then the other one I wanted to ask, maybe a small point, but it relates to Kazakhstan. There seem to be some punchy compensation claims coming from the government of Kazakhstan now. It's not that -- we've seen this before, but I was hoping you could share some perspective on that situation. Wael Sawan: Thank you, Martijn. Did you want to take the T&S one first? Sinead Gorman: Yes, happy to. Martijn, thank you for that. Indeed, as you know, our trading organization continues to be a core part of Shell's proposition. We have great individuals in there. We have a great set of assets that they get to trade around and some judgments that have to come with that as well. So indeed, we've talked before about the uplift that they provide in terms of being able to optimize across the organization or across the portfolio for us. They've continued to over 2025, as you say, had a very good year as well. Of course, Q4 is typically softer for us in terms of trading, particularly in terms of our crude and products desks. So just about there. And we've talked about that a number of times. And you see that play out in C&P as well, and that continues to be the case this year. They have done more towards the lower end of that range in terms of -- you said 2% to 4% in terms of ROACE. But really pleased with what they deliver, and they're continuing to deliver this quarter as well. So thank you. Wael Sawan: Thanks, Sinead. Martijn, on Kazakhstan, it would be inappropriate, of course, of me to sort of get into details around that given there is some legal proceedings happening at the moment. I think suffice it to say that we are disappointed that we can't see alignment between the joint venture partners and the government on some of these topics. It is -- it does impact our appetite to invest further in Kazakhstan. So we watch the situation with care. We think that there's still a lot of potential investment opportunities in Kazakhstan, but we will hold until we have better line of sight to where things end up. And I leave it to the individual joint venture sort of projects to be able to make sure that they represent the position of the joint venture partners in a unified way. But let me leave it there -- at that point for now. Operator: Our next caller is Lydia Rainforth from Barclays. Lydia Rainforth: A slightly different topic. Agentic AI, I think you signed up with SLB to deploy agentic AI across the Upstream. So I'm just wondering, what does that look like in practice? And what are you trying to get out of that? And possibly linked to that, obviously, you're already at the -- you already achieved $5 billion in structural cost savings. Target is $5 billion to $7 billion by 2028. So why not lift that? And then secondly, I mean just the idea that there's more to come, the free cash flow growth per share target or ambition of more than 10% out to 2025 -- out to 2030. 2025 was sub-5%. So was that a disappointing number to you? Or was it just as you expected? And basically, it does imply that there needs to be an acceleration of free cash flow growth. So when do you actually see that? Is that '26? Or is it more '28 to '30? Wael Sawan: Thank you for that, Lydia. Did you want to take that second question? I can touch on agentic AI and how we're deploying it? Sinead Gorman: Certainly, indeed. So as you say, we had -- so in terms of the free cash flow per share, it is a target, as you say, out to 2030. We also knew that it was going to be variable across the different years as well, Lydia. So you see that year-to-year as it comes through. And of course, in this upfront period, of course, the share buybacks are a key part of that as well as we go through. So in terms of where we disappointed in terms of where it was for 2025? No. We knew where it was expected to come. And we've, of course, got a wave of different projects that are coming through. We've still got LNG Canada, of course, that is still to ramp up to its full capacity, and we talked about it as well, the number of different projects that seem to go. It is not linear. We know that, that portfolio will change over time. And of course, as Wael has already alluded to, there's a lot more to come in terms of performance. So that drive on performance is certainly not over, and you'll see that play out as we continue throughout the rest of the decade as well. Wael Sawan: Yes. And to your question then, Lydia, on -- to the broader bucket around the cost reduction. So I think as you rightly said, we signposted the $5 billion to $7 billion, really pleased with the momentum the team continues to drive getting us to the lower end of that already. My expectation of the team is we do hit the higher end of that come 2028. So we will be driving towards it. And AI is one of those key elements. Agenetic AI is one of those elements. Now where are we on that journey? I'd start off by saying that the investment we have been making in data cleanup over the past few years, the investment we are making to be able to harmonize ERP systems. For example, in trading and supply, we are looking to modernize our ERTMs to standardize them and to make sure that they bring the data-centric architecture that allows us to scale up AI's benefit across the organization. So this is playing out not just in upstream. It's playing out all across. In Upstream, specifically, it's playing very much into the subsurface space and how we high-grade our interpretation of subsurface, both for existing reservoirs, but also as we look into exploration. And it's playing up in areas like proactive technical monitoring and the maintenance that we do. I would say agentic AI is also playing up very much in our functional journey. So as we look to continue to not just apply automation into the way we work, we are challenging the way our workflows are constructed because agenetic AI means that we can fundamentally approach those work outputs in a different way. So I find it an exciting journey for us. We are not yet banking all sorts of cost reductions coming out of agentic AI because, to be honest, we're still learning. There is a lot of hype around it at the moment, and we're trying to focus on where can we actually deliver real cash gains rather than talk about it. And so I will withhold judgment as to how much it will impact the bottom line until I can give you an honest reflection on the impact it can have. Operator: Our next call is Lucas Herrmann from BNP Paribas. Lucas Herrmann: A couple, if I might. Just going back to Alastair's opening question. When you think about resource and you think about resolving the resource issues for want of a better word, are we -- do you think -- we're really thinking about resolving for a deepwater issue in that, that's your greatest strength, should we say one of your greatest strengths certainly in terms of the Upstream. And obviously, the margins there and the return on capital there has the potential to be very attractive. So question one is really just back on Alastair's, what are we trying to resolved for? And question two, far easier. When I think about this year and LNG, it's really about volumes and about growth and opportunity. I mean, it looks as though you've got incremental volume coming from Calcasieu from -- I don't know how free things are around Pavilion, voluming in from Plaquemines, volume coming in from Canada, obviously. So it feels as though we're at a point now where LNG in volume terms at least should really start to drive improvement. And perhaps you can add to that by just commenting on where Nigeria Train 7 is and what your thoughts on timing are there. Wael Sawan: Thank you, Lucas. I'll ask Sinead to take the second question in a moment. Let me just address the first one. When we think about the resource base that we want to sort of add to the funnel, I'll tell you we're agnostic, Lucas. I mean, we start from a position of we have a differentiated strength in deepwater. And of course, we can play into that strength. But we also have some real strengths in a bunch of basins with a bunch of technologies in our conventional oil and gas portfolio. And we have continued to hone our strengths in areas like Shales. I mean, look at what we're doing in Groundbirch, look at what we're doing in the Vaca Muerta, look at what we're doing with QGC, the upstream part of our Queensland assets. And so we are looking at how we can actually complement some of these strengths and create value out of it rather than trying to be too narrow. At the end of the day, this is back to what I talked about earlier, creating value per share and finding ways to be able to actually deploy our capital in something that's going to be accretive. And so that is our -- let's call it our North Star rather than necessarily what particular resource and in what country. Sinead? Sinead Gorman: Thanks, Lucas. Indeed. You're asking about what is our expectation in terms of some of the LNG volumes coming through? I think two ways to take it. Of course, you're right, we have volumes that are coming up, whether that's indeed LNG Canada actually delivering in terms of up and -- ramped up and getting to its full potential. We've got a number of third-party volumes, as you mentioned, coming through. And then, of course, we'll have different items such as Qatar in the years to come. But it's more about what we do with those. At the moment, we have quite a balanced portfolio. We don't have a lot of additional length, and we talked about that before. We're a little bit tighter. And therefore, we haven't had as many opportunities to be able to deploy some of that trading capability that we have had in the past in different positions around the world. Some of those volumes will continue to come in the time period. But also if you look at it, we talked about actually having a growth in terms of our LNG sales of 4% to 5% coming through over the next period per annum, actually, through to 2030. Actually, what we saw in this last year was our sales grew by 11%. So you can see that sales side of things absolutely there and continuing to grow, and we need the volumes to be able to match that. So of course, yes, some of those volumes will start coming through as well. Operator: Our next caller is Doug Leggate from Wolfe Research. Douglas George Blyth Leggate: Wael, I know this reserve number, you've kind of inherited that. It's been flogged to death today. But I want to ask you a direct question. As you inherited the portfolio several years ago now, do you believe legacy Shell has underinvested? And if so, how do you fix it in short order, whether through M&A or without a step-up in CapEx? That's my first question. And my second one is probably for Sinead. And it's just going back to the recommitment to the buyback. Going back to your strategy day, you had assumed a flat real oil price. Can you maintain that 10% free cash flow growth per share without the help of a flat real oil price or without leverage? Wael Sawan: Good. Let me take the first one then, Doug. Look, I mean, I don't often look back. And if I were to look back, I would say, I wish we hadn't walked away from Guyana when we did. That's the honest truth. How do we resolve the issue going forward? Look, at the end of the day, I think we play to our strengths. I mean, today, we can underwrite a production flat line on liquids, and we have said we're growing our gas by 2% between now and 2030. And what we are finding is, as we really focus on understanding of our reservoirs, really focus on making sure that we are going after every drop, that is really unlocking value. I mean, remember, these reservoirs were barely scratching the surface of 25% to 30% recovery. You add 1% or 2% recovery from these reservoirs and you can sustain without massive capital outlays. Now having said all that, that doesn't mean we don't play with seriousness and other opportunities. And so how are we going to look at that? One, we need to keep doing what we're doing inside the fence and do the best that we can to unlock those resources. Number two, we will leverage the strength of this company to be able to be out there to partner with the likes of Venezuela, with the likes of Libya, with the likes of Iraq, with the likes of Kuwait and others as they look to be able to open up with partners that they trust and partners that have worked with them for a long, long time. We continue, by the way, to focus on our own exploration capabilities. which we have recently had a full reset of the exploration team, changed out the leadership of that team. And we're starting to see the early stages of success in terms of really securing some exciting acreage in a place like Angola. We secured acreage in -- more acreage in South Africa, acreage in the Gulf. And so that's the other, call it, value accretive way of doing it. And then selectively, we will continue to look at the right M&A opportunities with that high bar that I have referenced, but it needs to be able to justify itself to be a value accretive deal. Otherwise, we don't do it, and we have the time to be able to play that out into the coming years. Hopefully, that helps, Doug. Sinead? Sinead Gorman: Indeed. Doug, good to hear from you here. You asked a question that can be taken from two different angles, one of which is just the confidence in terms of where we're going to for 2030. So indeed, that confidence comes from two aspects. It's from performance and it's, of course, from returns. On the performance part, I think Wael has talked to that, that's about driving the company hard, ensuring that every asset delivers on what it can and actually going even further than that. So you heard about the wave of projects that are coming. So you hear on that aspect of it as well. The other is about effectively return of capital and return on capital. So in terms of that, if I take you through it in terms of return on capital, we are clearly entering into a phase of capital reallocation. You see it in what we're doing. You see on where we are moving our capital to in terms of allocating it more towards the Upstream and Integrated Gas areas versus where it would have been in the past as well. So that's about return on capital. In terms of return of capital, so let's take you through. We've talked about it before. So what's our thinking in that? How do we go about it? We've got 40% to 50% in terms of distribution, which is sacrosanct. You've heard us talk about it more and more. So I don't need to go into that in great depth. But what also we have is we have a very healthy balance sheet. Our balance sheet is sitting at some 20% in terms of gearing. Now remember, we've had a range of 10% to 30%. You always say to me, let's look back over time. So over the 10 years, we've gone between 10% and 30%. So sitting at some 20% is very healthy. I'm very comfortable with that. And of course, I'm even more comfortable with that because during that time, we've managed to buy back 25% of the shares of this company and done so at a price that averages out at some 20% lower than today's share price as well. So you can see the creation of value there. But of course, one of the things that you ask is how is that going to be in terms of net debt. If you look at the 3-year period, actually, our net debt is roughly the same level as it was before. But what has happened, of course, is that our -- what you see is the gearing has changed, and that gearing has gone up roughly 2%. Where does that 2% come from? Well, actually, interestingly, 3/4 of that 2% is down to those distributions that we just talked about that our shareholders tell us time and time again that they love and they appreciate the way forward we're doing on that. And actually, the last bit of it, so the remainder comes from interestingly, the Netherlands pension reform, if you remember, back a few quarters ago, which is a bit specific to us, but that had an impact in terms of equity as well. So I'm very comfortable with where we are in terms of a balance sheet perspective and where we are from a net debt. And actually, when I look at net debt relative to the cash flow, the CFFO of this company, it is incredibly healthy, not only from our perspective, but also relative to our peers as well. So we're comfortable with the position of where we're at. Operator: [Operator Instructions] Our next call is Henry Tarr from Berenberg. Henry Tarr: The question probably is a follow-on from that. And I guess then, you've talked about securing acreage. Are you happy with sort of recent exploration performance? And I guess then, as you think about resource beyond 2035, is more capital going to be allocated towards exploration? And do you have a plan to sort of improving some of the returns there? Wael Sawan: Henry, thank you for the question. As part of the reset, what we have done is not just put new leadership in, new targets in, but also make sure that we are really restraining the capital that we're putting into exploration to something that we feel is fit for purpose. So this is not an open bucket, let's go back to the swashbuckling days of exploration everywhere. We need to be able to prove to ourselves that we can create value out of that. And so you asked me for my report card on exploration. I'd say it's mixed. Really pleased over the last year where we had a good step-up in commercial discoveries in basins which are familiar and known to us, smaller volumes, but highly valuable barrels that allow us to tie back into existing hubs. Less pleased with the fact that we haven't found the bigger plays that allow us to potentially create big new hubs. And so that's the space we need to continue to work on to improve. That first bucket is motoring on well, and I think we have filled the funnel with good opportunities. I think we've really started to fill the funnel for the second bucket with some exciting ones. I mentioned the likes of Angola, which I'm really keen to sort of see where we can get to with that. And that's one that we need to be able to go. But I would characterize our pursuit of resources as being not one that is dogmatic around exploration or M&A or NBD, new business development. We will look at where best to deploy that capital depending on track record, on that risk-adjusted return, where we think we can create value, and we will pivot depending on where that value can be created. Otherwise, we will start to have tunnel vision down one pathway rather than keeping options open and creating value through whatever is in the money at that point in time. Operator: Our next caller is Christopher Kuplent from Bank of America. Christopher Kuplent: Wael, I wanted to ask you about the state of the M&A market. Not what you're about to buy, I get you. You're agnostic on lots of levels. But I guess it'd be interesting to hear from you, you've been in a number of data rooms, what deals that are currently being signed, what they are telling you whether this is a buyer or a seller's market, particularly when we speak about the assets that you're looking for, i.e., resources that are yet to be developed, whether it's the Namibian farm down that we've seen from Galp or others. Where do you think the bid-ask is currently sitting? And if I may squeeze in another opportunity for Sinead to deny fake news. Tell us what's happening with LNG Canada, whether it's FID of Phase 2 or whether it's a farm down there? Wael Sawan: Do you want to start with that one? Sinead Gorman: Yes. No, absolutely. Thanks, Christopher. And indeed, you know what I will always say on anything is similar to Argentina. Of course, you see a lot of news coming through. We will look at every opportunity to deploy our capital sensibly and to maximize value. So we have no -- what is it, sacred cows, holy cows. We've used both expressions or I've used both expressions throughout. But in terms of LNG Canada, what I would say is we're not divesting from assets that we have high conviction in. So very much in LNG Canada, we're looking at making sure that, that performance is delivered. I think what you're seeing is a commentary in the press about reallocation of capital and speculation as to whether we would look to get out of anything, which is , say, parts or elements of it. The way I think about it is just pure and simple, where are the returns on every part of our asset base, and therefore, is this somewhere where I should have my money tied up, and that's what Wael and I spend our time looking at or is there somewhere else it could go. And that's actually true across the whole of the portfolio. We will look to maximize the value of every dollar we have sitting there. So if it's low-returning assets or if there's a better place to put it, we will do that. And you saw it, for instance, with the Colonial pipeline. We were able to realize value from our stake in the Colonial pipeline. It wasn't a strategic control point for us. We were able to actually exit at some over 9x EBITDA as well. So it's those sorts of things that we will continue to look to do. Wael Sawan: And to Sinead's point there, Christy, that focus on capital reallocation, I would say, is an important now area of my and Sinead's focus in this part of the journey that we're on as a company because we believe there is over 15% of the capital employed that we have, the $225 billion, that we could actually redeploy into higher return opportunities, which we want to actively be looking at. To the heart of your question, and that, of course, plays into it as we redeploy some of that into, for example, M&A opportunities in Upstream and beyond, I would say the market is somewhere in the middle at the moment. It used to be at the higher end of the 60% to 70% range, and now we're closer to the lower end of that 60% to 70% range. And it's sort of in that space. So it is not out of what we have seen, call it, mid-cycle conditions in the past. I think there's different things at play. I mean, there's one interpretation of the subsurface by different players. There's desperation by some to be able to create investment cases for themselves. And what you have seen us do is to look at all of these. And where we have been able to win is where we have had a real differentiated advantage like the bolt-ons that we did in 2025. Now as we look at some of the other opportunities, I'm sure things will continue to evolve. And we'll see how we will compete for those. But the most important thing for me is to keep that broader frame of strategic patience, accretion when we do these deals, and making sure that we can add value to the barrels that we're bringing in, not simply adding resource for the sake of being able to satisfy a KPI in our books. And that's the approach that we will continue to use. It is fair to say that this will take more of our time, of course, as we get that performance muscle much more embedded into the organization. Operator: Our final caller is Ryan Todd from Piper Sandler. Ryan Todd: Maybe if I could ask one on an asset that you mentioned earlier and has also been in the news, Bonga South West. I think reports have suggested that you're targeting the 2027 FID there in Nigeria. Can you talk about what hurdles you need to clear over the next 12 to 18 months to reach FID? And then maybe more broadly, could you talk about the broader resource opportunity in Nigeria and other kind of existing basins within your portfolio like that and what may or may not have changed to make things more attractive in some of those areas? Wael Sawan: Ryan, thank you for that question. Let's start with Nigeria. I was there, I guess, a couple of weeks ago now to meet the President and was very encouraged by the real drive to be able to support investment in the resource base of Nigeria. Of course, you know what we've done on the onshore, having exited that. That's opened up our opportunities now much more in the offshore. Bonga South West is a material resource. And what were the conditions precedent? A key condition precedent was a set of fiscal support to be able to make this an investable project, which I was very pleased that the President was committed to providing in the coming days as part of a gazetting process that needs to happen, which means we already have now kicked off FEED. And indeed, as you say, looking to develop that into hopefully what is an investable project. So now it really is just follow through on all sides to be able to make this -- the project we need it to be. It's important to recognize that there is a lot behind those funnels in deepwater Nigeria for us. We have a project called Bosi. We have projects like Adura. These are all projects that now are starting to make their way through the funnel as the investment climate opens up in Nigeria. And we are talking about hundreds of thousands of barrels there. And so we are actively going after those and developing them. Of course, where we continue to have a lot of music is in Brazil and in the Gulf of America, where we have existing resources. Some of the discoveries that I've mentioned are in the Gulf that tie back into our existing asset bases as well. We're excited by areas like Oman, where we have significant access to gas resources in the blocks that we operate. We're building out in Malaysia at the moment and so on and so forth. So this is a portfolio that has -- that continues to create opportunities for us. And we are making sure that what is within our reach, we are maximizing the value from, while at the same time looking at those exploration and M&A opportunities that I referenced earlier. Let me, therefore, close off, and thank you for your questions and for joining the call on behalf of both Sinead and myself. In conclusion, we delivered a solid set of results in 2025. And looking ahead to 2026, we believe we are well positioned with an investment case that remains robust through the cycle as a result of the actions that we have taken and continue to take. Lastly, I'd like to highlight a number of upcoming publications, including our annual report release on the 12th of March. And on the 16th of March, we will publish our annual LNG outlook, the LNG strategic spotlight as well as the response to the 2025 AGM shareholder resolution. Wishing you all a pleasant end of the week. Thank you very much for joining.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Bullish Global Fourth Quarter 2025 Earnings Call and Q&A. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Today's Q&A will be limited to one question. If you would like to withdraw your question, thank you. I would now like to turn the call over to Michael Fedeli, Vice President of Finance. You may begin. Good morning, and welcome to our fourth quarter earnings call. Michael Fedeli: I'm Michael Fedeli, Vice President of Finance, and I'm joined on today's call by our Chief Executive Officer, Thomas Farley, Chief Financial Officer, David Bonanno, and Director of Corporate Development, Liam Foley. This call will contain forward-looking statements, including those relating to our expected performance and business opportunities. These statements are not assurances of future performance. They are subject to risks and uncertainties, and our actual results could differ materially. For more details on these risks, please refer to today's earnings press release and our SEC filings, including our prospectus dated 08/12/2025. We undertake no obligation to update or revise any forward-looking statements. This call will also include a discussion of non-IFRS financial measures. A reconciliation of these metrics to the most directly comparable IFRS metrics can be found in our earnings press release and presentation, which also contain additional information regarding non-IFRS financial measures and key performance indicators. I'll now turn the call over to Thomas Farley. Thomas Farley: Thanks, Michael. Thanks, everyone, for joining our call, and good morning. It is great to be with you. I'm Thomas Farley, Chairman and CEO of Bullish. We have a lot to cover today. We closed 2025 with strong momentum and have continued to build on the vision we laid out during our IPO process and in the subsequent quarters. We focus on serving institutions, and we are winning a wave of institutional business in the US and globally. The next wave of digital assets growth is taking shape in the form of tokenization of real-world assets and the institutional adoption of blockchain technology. I believe this will be a huge twenty-year-long institutional flood powered by Bullish's purpose-built offerings. In 2025, we executed on our core objectives. We captured the first wave of traditional finance institutions flowing into the digital asset space. We scaled our liquidity services into an industry tokenization offering for issuers of stablecoins and other digital assets. We launched options trading in Q4 and scaled rapidly in terms of our market position. We locked down our tier-one licenses, including the New York BitLicense, MICA in Europe, and additional authorizations from Hong Kong's SFC and Germany's BaFin. And we achieved the key milestone of entering the public markets. We executed on a strong fourth quarter financially as well. We earned record SS and O revenue of $54.6 million, an increase of 284% year-over-year, and our adjusted EBITDA was $44.5 million, an increase of 55% from the prior quarter and 181% from the same period in the preceding year. While 2025 was a great year, I'm even more excited for 2026. For several years now, Bullish has intentionally positioned ourselves at the intersection of three strong ongoing trends that are driving digital assets evolution. Trend one is that increasing regulatory clarity is requiring infrastructure businesses like Bullish and their customers to operate in a compliant and responsible fashion. Trend two is that the number of traditional finance institutions operating in digital assets is increasing dramatically. And trend three is that tokenization use cases are expanding exponentially, including for major asset classes on the back of the successful tokenization of the US dollar via stablecoins. These trends happen sequentially, and now they're happening all at once, with each trend reinforcing the momentum of the others. We're hitting this inflection point here in 2026. In 2026, we are laser-focused on our top three priorities that position us at the intersection of these trends. First, we will continue our exceptional growth in our exchange, prioritizing growth in the regulated institutional derivatives market, as well as building our US presence for all products. Second, we will further establish ourselves as a clear market leader in the successful tokenization of real-world assets by scaling our liquidity services offering and widening our tokenization service and global regulatory footprint to meet the market's needs. And third, we will accelerate our already market-leading position in the digital assets indices and insight spaces. While the last four months have seen digital asset prices drop precipitously, our business continues to grow. And we were built to take advantage of opportunities created by volatility in bear markets as well. In fact, we believe that this current malaise will present promising opportunities to grow Bullish organically as well as through M&A. We are more convicted than ever that our institutional positioning is the right approach at the right time. The next big leg of digital assets growth will be driven by institutional adoption. During tough times like these, our strong balance sheet and solid reputation position us to bring on institutional clients that other less reputable or less capitalized firms simply cannot. In summary, we expect that Bullish can and will thrive in 2026 despite a rough macro beginning to the year for our industry. Shifting to the business update. In the fourth quarter, and sequentially over each month of 2025, we had all-time highs in monthly active customers and set records for total customer funds on platform and open interest for perps and options. The growth of active trading clients on our platform is accelerating around the world. In Europe, Asia, and the United States, we are seeing a wave of institutions onboarding that include notable broker-dealers, divisions of commercial banks, and the world's largest digital assets electronic communications network, for example, among others. The launch of options has attracted a whole new set of clients onto our platform. These new customers are now initiating trades across our spot and perps products as well. Honing in on the options launch, we went live on October 29. And the uptake in volumes and open interest has been remarkable over just about three months. By the end of the quarter, we were over $2 billion in open interest. And earlier this year, we hit a high of more than $4 billion of open interest, as well as reaching a high of 29% volume market share. We are now the clear number two Bitcoin options platform by open interest globally. The launch phase of our option strategy is complete. We are now focused on continuing to gain share and aspire to be the options trading market leader. Our tight spreads and one global order book continue to resonate with clients and set us apart from the competition. Our singular order book allows our institutional clients to cross-margin their spot, futures, and options positions in real-time and also to access deep liquidity. We have reacted to client demand and are proud of the progress we have made in the short time since launching. We're also continuing to add to our regulatory toolkit. We're now registered to act as a transfer agent. And we're actively exploring other licenses, including DCO, DCM, broker-dealer, and ATS licenses in the United States to help enhance our positioning in the multi-year tokenization megatrend. The ability to gain broad regulatory access throughout the world is a feature of our business model that we believe is rare in our industry and is only becoming more important over time. We intend to list tokenized securities here in 2026, and we're working with the market and regulators to successfully execute on this objective. We look forward to keeping everyone updated on progress throughout the year. Speaking of tokenization, our liquidity services business continues to find new use cases and deliver exceptional value to our partners. We believe the service is tailor-made for tokenization, and we are increasingly seeing demand from asset issuers tokenizing real-world assets. To take a step back, imagine you're a tokenized asset issuer. To launch that token, you'd need to design the token, write the smart contract code, possibly perform KYC and AML, and hold a whitelist and finally, tabulate ownership. The good news is that you've tokenized your asset. The bad news is that that was the easy part. For your token to truly be a success, there are several value-added services that you still require. First, you must get the token listed. The listing is typically unregulated and unregulated venues. Second, you must ensure a two-sided marketplace with ample liquidity to allow for efficient trading. Third, you must ensure that the token is being marketed properly and is amply visible to the broader market. High-caliber assets also tend to have research reports. Research analysts, dissimilar from many of our friends I hear on this call, help investors better understand the asset, its value proposition, and its potential. Bullish is now powering our partner's growth with the listing, liquidity, marketing, and now research that they need to maximize their success. These value-added services are required both for tokenization of real-world assets such as dollars in the form of stablecoins, as well as tokenization of other financial market products. We remain exceptionally pleased with the growth of liquidity services for all of these types of customers. In Q4, we added IOTA, VeChain, Paxos, and Midnight. We've also added Canton, the token for the real-world asset-focused chain. And earlier this year, USDAI, the first decentralized credit protocol that connects stablecoin liquidity directly to real-world compute cash flows. Looking ahead, our pipeline remains strong. We continue with a rapid new listing pace, expecting to list five new partner assets, including Fidelity's new stablecoin in this week alone. When major financial institutions, stablecoin issuers, and other digital clients choose a partner for liquidity services, they gravitate to Bullish because we are the only solution of its kind in the market offering, listing, liquidity, marketing, and research. Shifting gears to our information services business. CoinDesk indices completed a breakout year. We served as benchmark data provider for 30 different single token ETFs launched in 2025, and we're especially dominant in the fourth quarter, listing 15 of the 39 new digital asset ETFs brought to market. We're winning mandates from top-tier issuers like ARC and ProShares, and we're well-positioned to win license agreements for upcoming single token ETFs from other major traditional finance players. Next week, expect Intercontinental Exchange or ICE to launch a series of futures benchmarked to our CoinDesk indices. This includes cash-settled futures tracking the CoinDesk 20, CoinDesk five, and five single token indices, including Bitcoin, Ethereum, Solana, XRP, and we believe the first regulated exposure to BNB in the US markets. This partnership will better help us integrate our leading digital assets capabilities with ICE's traditional finance customers. On the insight side, CoinDesk Insights is among the most recognized brands in the digital asset space, and we've continued to leverage this notoriety to better cross-sell our top customers and drive our flywheel of organic revenue growth across all layers of our business. Our research solutions are also growing since the Q3 2025 launch. And we have had nine distinct customers pay for our research in the fourth quarter alone, our first full quarter of offering this service. I'm also excited to quickly touch on Consensus Hong Kong, due to occur next week. The lineup is terrific. The exhibition floor is packed. Enthusiasm around the event is sky-high. We have over 300 side events around Hong Kong, and we have several notable Hong Kong officials, including Honorable John Casey Lee, the Chief Executive of all of Hong Kong, and key partnerships with Solana and Salt. We see this event as an opportunity to drive additional business to Bullish and believe it will serve as an accelerant for our sales pipeline in Asia. With that, I'll turn it over to David Bonanno to discuss our financial performance and business drivers. David Bonanno: Thank you, Thomas. Good morning, everyone. I'm David Bonanno, CFO of Bullish. This morning, we published Bullish's preliminary fourth quarter and full-year 2025 financial results covered in our 6-K filed with the SEC, as well as our earnings release, investor presentation, and January's monthly exchange metrics found on our IR website. We plan to publish our full-year 2025 Form 20-F in early March. As a reminder, reconciliations of our non-IFRS metrics can be found in today's earnings presentation in 6-Ks. Turning to today's financial results. Adjusted total adjusted revenue for the full year and fourth quarter 2025 were $288.5 million and $92.5 million, respectively. Representing approximately 35% full-year growth and nearly 70% growth in the '25 versus the 2024. Fourth quarter SS and O revenue of $54.6 million exceeded the high end of our previously provided guidance and brought full-year 2025 SS and O revenue to $157.7 million, up nearly 160% from 2024. Fourth quarter adjusted operating expenses were $48.1 million, roughly flat from the prior quarter and at the bottom end of our guidance, resulting in 4Q '25 adjusted EBITDA of $44.5 million, a record high 48% margin and nearly half of the full-year 2025 $94.3 million in adjusted EBITDA. Finally, our adjusted net income in Q4 was $28.9 million and $38.8 million for the full year 2025. Before I turn to our 2026 outlook, I want to take a moment to highlight a partner whose services illustrate the types of exciting new tokenization on-chain capital markets innovations enabled by blockchain technology. USDAI's DeFi platform and tokenized dollar product allow users to invest directly into a pool of tokenized treasury bills and fully secured GPU-backed loans with AUM currently exceeding $650 million. These loans benefit from traditional credit protections, afforded to secured creditors such as perfected liens and third-party collateral verification combined with full on-chain transparency and reporting. USDAI's products and services are bringing new investment alternatives directly to consumers and have established clear product market fit for this emerging asset class. As USDAI and other innovators are bringing new assets and investment opportunities on-chain, we believe Bullish's full suite of services will continue to remain indispensable for our partner's success, and we look forward to continued collaboration with USDAI in the future. Now turning to our 2026 guidance. We expect SS and O revenue between $220 million and $250 million and adjusted operating expenses between $210 million and $230 million. We are not providing full-year adjusted transaction revenue guidance and instead encourage investors to review our monthly exchange metrics such as this morning's January release. As previously mentioned, our adjusted transaction revenue can be volatile, and we need look no further than the month of February where we've already exceeded 50% of January's entire adjusted transaction revenue. I encourage everyone to continue following our monthly exchange disclosures to track our progress throughout the year. Turning to our SS and O revenue guidance. The midpoint of the range reflects approximately 50% year-over-year growth driven by a combination of expected positive tailwinds from continued strong momentum across all our business lines, including steadily increasing tokenized RWA liquidity bookings as we move through the year, as well as expanded and more intelligent cross-selling, pricing, and product development throughout the entire organization, partially offset by unfavorable comparable market conditions for asset prices and interest rates as compared to 2025 and selective sunsetting of older liquidity service products as we continue optimizing resources for margin expansion. For adjusted operating expenses, the midpoint of our guidance reflects low single-digit growth in our existing cost structure plus incremental expenses associated with moving our flagship Consensus North America conference to Miami from Toronto, as well as new performance-based incentives designed for and triggered by very specific growth outcomes generated by our Salesforce as well as exchange participants. And finally, 2026 finance expense is expected to be between $52 million and $60 million, which is flat to slightly down from the fourth quarter run rate. We appreciate everyone's time this morning. And with that, I'll turn it back to Thomas Farley for closing remarks. Thomas Farley: Actually, we're gonna open it up for Q&A. Operator: And your first question comes from the line of Owen Lau with Clear Street. Please go ahead. Owen Lau: Good morning and thank you for taking my questions. Going back to your 2026 SS and O guidance, could you please talk about your key assumptions? What are the variables that can get you to the high end versus the low end of your guidance range? Thanks a lot. David Bonanno: Thanks, Owen. Good to hear from you. In terms of the key factors influencing the SS and O for 2026, I laid them out in my prepared remarks. You know, for potential upsides, we would expect that swift and effective passage of an infrastructure bill here in the United States will unlock and accelerate our pipeline in the SS and O line item. Macro headwinds, we already highlighted. Those are baked into the guidance. And we think that the range reflects a good conservative mix of the expected outcomes both from an idiosyncratic regulatory and market-based perspective for 2026. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead. Brian Bedell: Great. Good morning. Thanks for taking my question. Maybe just also focusing on SS and O. Can you talk about the contribution from the Consensus conferences that you're expecting within the SS and O revenue this year? And just a little bit more on the tokenization of real-world assets, the progression of that during the year. And I don't know if you wanna just if I can layer on another one in there just on the USDAI maybe just a couple of use cases. To just better flesh that out in terms of, you know, how that might develop and contribute to SS and O during the year? David Bonanno: Yeah. Sure. Thanks. Appreciate the questions, Brian. With regards to the Consensus events in SS and O, we expect those events to both be larger than they were in 2025. We also expect to continue expanding the way that we use the Consensus conference and franchise to fuel the growth of our remaining business. We often use that as additional product to help serve our partners and give them visibility and visibility around their products and key leaders. We expect that part of our SS and O to continue to grow, but it's probably at the lower end of all the rates within that bucket. Thomas Farley: How do we expect tokenization to roll out in terms of SS and O? Sure. Yeah. In terms of the tokenization, within SS and O, Brian, as we announced this morning, we signed USDAI, which I'll touch on in a second. They're an example of just one type of tokenization partner. Again, I do think the Clarity Act and the infrastructure bill getting passed will unlock and rapidly unlock a new wave of potential customers across all of our different products. We are seeing that in the international market already. We do expect to get regulatory approvals to list and trade and provide liquidity. Securities and other tokenized assets outside of the United States. But we believe that, hopefully, in the back half of the year, we'll have a positive outcome on the market infrastructure bill as well as being able to improve our and expand our regulatory footprint here in the United States, specifically around RWAs and tokenized assets. And just to add one thing to that, Brian. You know, if you remember, our liquidity services business came about in 2023, and it came about because this concept of tokenizing the dollar was really gaining steam. You go back to 2022, there were only a handful of billion stablecoins in the world. And fast forward to today, there's $3.3 trillion. And so people like Ripple and PayPal were coming to us saying, hey. Creating the token is the easy part. Although they would solicit our feedback and advice on perhaps how best to design the token. But do you have any tokenization services that you can offer that will make this thing a success? And that's the business that we built. We chose to call it liquidity services. Could have very easily called it tokenization. But in those days, that was not a buzzword like it is today. As I mentioned in my prepared remarks, the easy part is designing a token, choosing the so-called tokenomics, how many tokens will you have, who will own them, so on and so forth, and writing the smart contract code. I mean, we have dozens of great developers here in Bullish that write smart contract code. That's not a complicated concept. The hard part is making the thing a success. So we are already in the tokenization business. This is what I referred to. We're listing these products. We're providing liquidity for them. We're doing marketing. We're now writing research. So answering your question specifically, like, hey. How do you see tokenization rolling out in SS and O? It's already rolling out, and it's why this business has grown so dramatically and continues to grow. But now think about the future when you have, you know, I'll pick one at random. You know, the US equities market or the global fixed income market. Starts to move into this on-chain future, all of those same requirements still exist from the base level. Hey. Bullish, help us design this thing. Help us write a smart contract. Okay. Easy enough. But what about the hard stuff? Listed on a regulated venue? It's not easy to establish a regulated venue in the United States. In Europe. You have to be a credible player like we are with the balance sheet. You have to be compliant. You have to have a history of three lines of defense and real people you can put in front of a regulator. So that business, we're already in it today. We are already a market leader today. And the industry is going to grow hugely. And the way we're thinking about evolving our product offering is to be able to meet the needs of the market in that eventuality. Operator: Your next question comes from the line of Rayna Kumar with Oppenheimer. Please go ahead. Rayna Kumar: Good morning. Thanks for taking my question. I just want to ask about the Clarity Act. Could you comment where Bullish stands on the Clarity Act and what your thoughts are on some of the key provisions, including tokenization, DeFi, and stablecoin yields? And also, what do you think is the likely timeline for passage? Thank you. Thomas Farley: Sure, Rayna. Thanks. Thanks for the question. Good question. Very relevant. I've spent a lot of time in Washington. I'm not a market prognosticator in the same way. I'm not a legislative prognosticator. I'll give you my innermost thoughts, but don't hold me to them. It does feel like the bill is moving to passage. If you recall on the last earnings call, I was a little less optimistic. But having spent time in Washington, having met one-on-one with most nearly all of the US senators that are actively working on the bill on both Senate Ag and Senate Banking, it feels like there is a path. There's three key issues that require resolution. You hit two of them. And a third is the so-called ethics or conflicts of interest issues. Think of those as, you know, the Dems wanting to put handcuffs on the ability for the administration to be involved in crypto. Those three are all thorny for different reasons, but I see a path through for all of them. I think with respect to the yield question, the level of disingenuousness is almost befitting an SNL skit. Where all of the largest global banks in the world go down to Washington and then say, hey. We're really just here because of community banks. And protecting community banks, which, by the way, represent about 11% of total deposits in the US. God forbid, we would allow exchanges and intermediaries to pay yield because these community banks would be significantly impacted. So I don't think this is really about the community banks. I think it's a competitive issue. But I think there will be a negotiated settlement through this or negotiated agreement through this that all sides can live with. The second issue around DeFi, the big issue to keep an eye on is what will the KYC and AML requirements be? For a DeFi platform? And that's the tough part because on the one hand, the DeFi folks just want to have zero KYC AML. And on the other hand, you know, the heavily regulated folks or the people who espouse heavy regulation want to tie the hands of DeFi entirely, which could really curtail innovation. Again, I think there will be a negotiated path through somewhere in the middle. And then on the conflicts of interest issues, I've spoken to the White House this week. I've spoken to offices of US senators. And also there, it seems like there's a couple of paths perhaps both sides can live with, but that perhaps is the thorniest of all the issues. Because of the potential for presidential politics, 2028 presidential politics to be in play. To put a timeline on it, truthfully, I have no clue, but I'm actually personally hopeful and even a little bit optimistic that it could be before the summer. Operator: Next question comes from the line of Ken Worthington with JPMorgan. Please go ahead. Madeline Delaiden: Hi, good morning. This is Madeline Delaiden on for Ken. Thanks for taking our question. To actually follow-up on the previous question, on market structure legislation, if the banks were to get their way, could you please discuss the impact if any, that intermediaries no longer paying interest on stablecoins would have on the industry, the stablecoin industry broadly, but then your stablecoin promotion business specifically as well? Thank you. David Bonanno: Sure. Great to hear from you, Madeline. I appreciate the question. Given the prevailing text of the multiple markups we've seen so far, we would expect, should the final legislation land in either of those two camps, there would be minimal to really no financial impact on our liquidity services business. You'll note in there, there are specific carve-outs for people providing liquidity and other services to stablecoin issuers to receive rewards. And we believe that in any eventual outcome, our product will continue to thrive, and we're not expecting based on the likely potential outcomes we see from current drafting the legislation any negative impact that would occur to our stablecoin business at this time. Thomas Farley: And if I could just add one note, Rayna had asked kind of what is the impact on Bullish. You know, we're broadly fine with the bill as it sits. Like, there's a whole bunch we would change in a perfect world. But it all kind of works for us. And the most important thing to us, frankly, is getting a bill passed because we've seen it. We saw it with the Genius Act where all of a sudden you had a rush of credible issuers of stablecoins that didn't want to get involved until there was kind of federal law that provides some sort of safe harbor. That's how we feel generally about structure. In fact, we think the absence of the market structure bill has probably contributed in some small to medium-sized way in the swoon in crypto prices. So first and foremost, we'd like to see a bill get done. But we have been warmly received, I will say, in DC as an honest broker. And I didn't know what to expect. If I'm candid, I personally have been out of the lobbying game now for kind of six or seven years. I had enjoyed that reprieve. But jumping back in, we've been received as an honest broker, and where we kind of saw flaws in the text, we've been able to influence changes that will result in better legislation. Operator: Your next question comes from the line of Peter Christiansen with Citi. Please go ahead. Peter Christiansen: Thank you. Good morning. Nice execution, guys. And, Thomas, great to hear that Bullish is at the table during some of these negotiations. Had a question about pipeline growth. Granted, we've had a lot of bouts of volatility in the crypto markets over the years. Just curious how you see the pipeline activity amassed during these periods of heightened volatility, and then just a quick follow-up. I think you mentioned M&A as a potential tool going forward. Is that scale? Is that capabilities, licensure? Just some color on that would just be a little bit helpful. Thank you so much. Thomas Farley: Sure, Peter. I'll let David give his perspective on the pipeline as well. The build in the pipeline has been steady and consistent, and I would say, really starting with kind of early summer last year increasing. But look, I've been around markets for a while, and this is a particularly volatile period. And the price performance has been particularly disappointing. And so I, like you, am waiting to see does that continue. It wouldn't surprise me to see a little bit of a slowdown in terms of the size and the expansion of the pipeline. I mean, this degradation of prices across and it's not just crypto. Right? It's now it's software, and we all see what's happening in silver. Basically, anything risk-on has kind of seen serious price degradation. So it's possible that that will slow down a little bit. I would just say we're up to our eyeballs in being able to service the current pipeline. In fact, if there's a governor on growth for us at this point in our liquidity services business, it's been the ability to add new layer ones and new crypto projects because we have so many in the pipeline. So even if there's a temporary kind of slowdown in the build, that's something that will be fine for us. Financially speaking. Obviously, if that continued for a long period of time, that would not be a good thing. But in general, like, this tokenization thing, it's real, Peter. So if you're running, let's say, a major global prime broker or you're one of these global transfer agents or you're a CFD, a data repository somewhere around the world, you are working on this. You're getting involved in this. The money is being spent, and that is not stopping just because, you know, Bitcoin's down 40%. David Bonanno: Yeah. And I just echo Thomas's statements. And we've been through a lot of volatility before in this industry. Think if you zoom out and you kind of look at our progress over the last year, you know, the combination of the license footprint expansion, notably MICA, SFC, New York BitLicense, and US Access combined with the launch of options in particular, which brought a new customer subset to Bullish, is all layered on top of each other in kind of rapid succession. To bring on, as Thomas mentioned, waves of new trading customers every metric of active customer has been hitting new all-time highs, literally, as we said in the prepared remarks, every single month over the course of the year. With, you know, this year looking like no exception. So, you know, we'll see how long the volatility and bad price action persists. But underneath the hood, we're seeing strong, strong continued growth. And, frankly, looking at our internal metrics, you wouldn't be aware of the external environment. Operator: Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead. Gareth: Hi, guys. This is Gareth on for Brett. I was hoping we could dig in on SS and O revenue for the fourth quarter here. Could you maybe provide some color on the mix of revenue between services, liquidity, and events? David Bonanno: Sure. Appreciate the question. Yeah. As you know, we don't break out the internals of the SS and O revenue line item because we tend to cross-sell them very aggressively. And oftentimes, we will discount certain products or provide complimentary certain other products or find the right combination of products and services that meet the customer's demands and get the job to be done, completed for that partner. With regards to events revenue in the fourth quarter, I was actually mistaken on the last call. I had previously mentioned the fourth quarter had no events revenue. That was incorrect. There was events revenue in the fourth quarter similar to the amount that we had in the third quarter. Both of those were fairly de minimis. Given, you know, the seasonality of our events is focused in the first half of the year, and that probably will be the same trajectory in 2026. Operator: Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Please go ahead. Joseph Vafi: Hello? Hear me? Thomas Farley: Yeah. Hi. Loud and clear, Joe. Joseph Vafi: Okay. Great. Yeah. Good morning. Sorry about that. Congrats on the execution here in the quarter, guys. Just would be interesting here with this macro what customers are saying about their crypto strategy? Digital asset strategies, tokenization strategies, you know, maybe tokenization, you know, moves forward as a value prop, but you know, as the asset class has kind of come in here, how are they thinking about it from your conversations with them? Thanks. Thomas Farley: Hey, Joe. I wish I had new kind of new commentary, new profound commentary over and above what we already said. I'm largely gonna be repeating myself because I was just telling you what's on the ground, and I'm very involved with new business opportunities as is David. And there really is no change in tone. And I know that sounds ridiculous, because with each passing day, we're seeing, you know, the price of Bitcoin go down by several thousand. But I want to caution. I think it was Brett who asked the question before. I want to add a note of caution, which is this is happening in real-time, and I do think there is going to be some form of recalibration. Oh, just how big is my investment? In particular, from crypto-native types because a lot of crypto-native types look not dissimilar from Bullish. They own some crypto. So when crypto is down 40%, when Bitcoin's down 40%, they're feeling a little less eager to go spend a lot of money on the next new project. So I expect there to be some hiccups. Coming out of this period of extreme volatility, but it's really kind of breaking, and it's accelerated over the last couple of weeks. We have not detected any change of tone. The good news is on the tokenization front, I do not expect to see much moderation at all. Why? Because it works. Because it's not just the 24 by seven nature of it. In fact, that's just an interesting byproduct of it. It's the ability to lend and borrow assets much more simply. It's the ability to have an immutable ledger. It's the ability to have many fewer layers of intermediaries involved in the plumbing of global financial markets. It's the ability to allow and it's, you know, this people don't talk about this as much, but some brilliant 22-year-old kid to go build using the composable nature of public blockchains to go build some new novel innovative that enables lending, borrowing, exchanging risk. Exchanging titles, so on and so forth. That is independent from the price of Bitcoin. So we expect to see this market continue. We expect to see continued investment. But in some quarters, you know, I think there will be some form of a slowdown but unclear exactly what shape that will take. And for us, as I said, the pipeline is so full right now. In the near term, that wouldn't be something that would have a meaningful impact. David Bonanno: Yeah. And, Joe, and I'd also just note that our institutional focus and focus on the highest quality assets in crypto, we believe, may make us a little bit more insulated from negative reactions to broader crypto asset prices. What we're seeing in our pipeline across the board is continued strong momentum onboarding, bookings, and activity. We think that's probably partially in part due to our focus on institutions, high-quality assets, and crypto's most liquid assets. Operator: Your next question comes from the line of Ed Engel with Compass Point. Please go ahead. Ed Engel: Hi. Thanks for taking my question. Just wondering, could you comment on maybe some of the progress you're seeing with the US launch and whether that's having any impact on volumes, whether it's in the fourth quarter or kind of your outlook for this year? David Bonanno: Yeah. Great. Great question there, Ed. We, as you know, we only got our New York BitLicense about, you know, midway through the fourth quarter. And as we've previously explained and as I just referenced, our focus is on institutions, regulated entities, people handling customer funds, fiduciaries, that onboarding, testing, integration process, is a several-month process. That said, we do have several active trading customers here in the United States. And most importantly, our pipeline in the United States is the most dense pipeline we have by far of high-quality trading customers servicing customer flow for natural buys and sells. We expect that those types of customers have a duplicative effect, maybe even possibly more than that on our trading activity. Every time an uninformed order hits the order book, it results in at least one, two, three more trades that otherwise wouldn't have occurred. So we view the volume and activity that we will be generating out of the United States increasing throughout the year as more additive than dollar for dollar in terms of trading volume due to the high quality of customers we're bringing on. Thomas mentioned, we're having particular success here in the US with large retail brokerages. We particularly like those customers in the mix they add to our platform. So we're very excited about what the United States can bring to our exchange business. Thomas Farley: We had a hypothesis that the US would be particularly fertile for us because there's a lot of firms that have broad retail and professional trader customer bases in other asset classes that are wildly successful. Tens of millions of customers in some cases. And many of those don't necessarily want to they want really great flow, and they want to do it with a partner who's not in competition with them. And they want to do it with a regulated partner. In other words, a partner that's actively seeking out, you know, in our case, exchange regulation all over the world. For brand reasons, they don't necessarily want to just be dealing, you know, with one-off counterparties. And that has proven to be true, and that is an excellent development for us. It just takes time. These are the same sort of people who are very careful about the partners they choose. You know, it's interesting. I thought our onboarding for customers was tough. The reverse onboarding that they are doing for us is even tougher. And so those things take time. But the beauty is once you've done that, and they've done the work to connect to you, and you've done the work to connect to them, and you've proven yourself a worthy counterparty. Those are, you know, decade-long or multi-decade-long relationships. So it feels good so far in the US. And as David said, the hope and belief, and this is already happening, but the hope and belief is that over the quarters ahead, you will see incremental volume, in many cases, coming from outside the United States. That is only happening because of this volume that originated inside the United States. Operator: Again, if you would like to ask a question, press 1 on your keypad. And your next question comes from the line of Christopher Brendler with Rosenblatt. Please go ahead. Christopher Brendler: Hi, thanks. Good morning, and thanks for taking my question. I wanted to ask a follow-up on the Options business. It seems like it's really hit the ground running, pulling up faster than I would expect it. I think it actually, you know, greatly exceeding sort of the expectations that were laid out at the IPO. So I just wanted to see, you know, your thoughts there on how much that can continue? The momentum in that kind of business, I would think, would, you know, sort of beget more volume. Like, the more liquidity you bring to your customers, the more likely they are to trade continue to trade with you. So, you know, how much bigger does the options business be in 2026 than your expectations were three or four months ago? Thanks. Thomas Farley: No. Thank you. We took a little bit of a flyer on options. Basically, we looked at the data, and this was roundabout fifteen months ago. And we looked at the data, and what we saw was that crypto options was a tiny, tiny market relative to the rest of crypto. And we just said, hey. Pattern recognition, no matter where you look, you know, US equities, global FX, global interest rate swaps, you know, big markets, the options market in relationship to the linear market is always larger than it is in crypto. Sure feels like over time, it will grow. And so we started building that, and we saw that bear out in real time. So if you look at crypto options growth, over the last six months, well greater than the growth of the linear market. So that trend that we bet on actually came to fruition. But there were other competitors. There's kind of five or six notable competitors in crypto. And so we just said, hey. We're gonna do the best we can. We're gonna stick to what we know, which is to go after institutions in a regulated setting. But importantly, let's do it with one global order book. Let's do it with one account. So when a customer signs up with us, they don't have to hook the five different matching engines in different locales to trade different products. There's no confusion like that. Just write to our API or trade on our screen. In one account, you can have Spot, options, and futures. With one global order book. Order books don't like to be split. That's why the New York Stock Exchange for two hundred years, it was the only place you could trade, you know, Coca Cola stock. Markets want to occur in a single global order book. Because that's where you get the deepest liquidity. We stuck to our knitting. We built exactly that, and the exciting byproduct we got from that is it gets really easy to provide significant margin offsets where we're still protecting the sanctity of the clearing operation that we run. But because it's all in one global account, we can provide the maximum offset for the customer. So we have kind of ripped through the competition and, you know, we passed numbers six, five, four, three. We're now two. We hope and believe on our way to number one. Stay tuned. It's not a promise. But it's all moving in the right direction. Open interest is up to the right. Volumes are up to the right. Customer accounts are up to the right. And we think that this market, to answer your question directly in terms of growth, we think there's a lot of growth left, not just market share growth. In fact, we think that's a minority of it. We think it's more about options growth in crypto, which is still relatively immature. Operator: There are no further questions at this time. I'll now turn the call back over to Thomas Farley for closing remarks. Thomas Farley: Everyone, we believe we're at a turning point here for digital assets. Notwithstanding the extreme volatility, we're aware of that as well. Yes. But notwithstanding that or the cyclical nature, this vision of faster, better, cheaper, permissionless capital, it's happening. It's being unlocked, and we're seeing the examples. A market structure bill will only turbocharge that. We'll ensure that we bring all these global markets on-chain. And, you know, frankly, that's why David and I are here at Bullish. And that's why we're super excited, slightly less excited on days when, you know, Bitcoin's down by several thousand. But we came here for that vision, and we positioned Bullish for this moment. And so we hope you'll be there with us. And we appreciate you being on this call and listening to the story in what's clearly a hectic day. And a hectic couple of months here. Thank you, everyone, and have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the EZCORP Quarter Fiscal 2026 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this call may be recorded. I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations Advisor with Elevate IR. Please go ahead, Sean. Sean Mansouri: Thank you, and good morning, everyone. During our prepared remarks, we will refer to slides, which are available for viewing or download from our website at investors.ezcorp.com. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides contain certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results for future periods may differ materially from those expressed due to a number of risks or other factors that are discussed in our annual, quarterly, and other reports filed with the Securities and Exchange Commission. As noted in our presentation materials, and unless otherwise identified, results are presented on an adjusted basis to remove the effect of foreign currency fluctuations and other discrete items. Lachlan P. Given: Joining us on the call today are EZCORP's Chief Executive Officer, Lachlan P. Given, and Timothy K. Jugmans, Chief Financial Officer. Now I'd like to turn the call over to Lachlan. Thank you, Sean. Lachlan P. Given: And good morning, everyone. EZCORP is off to an exceptional start to fiscal 2026, delivering one of the strongest quarters in our history. We achieved record first-quarter revenue in PLO, along with outstanding earnings growth for our shareholders. Our team's disciplined execution and the operating leverage inherent in our platform drove more than 35% growth in both net income and EBITDA. The pawn demand environment remains highly favorable. Consumer credit conditions continue to remain challenged, particularly for lower and middle-income households, as many traditional lenders continue to tighten underwriting standards. The consumers who need immediate, no-obligation access to cash find us a fast, transparent, and trusted solution. At the same time, more consumers are seeking affordable, high-quality pre-owned goods driven by value-conscious shopping and a focus on sustainability. Both sides of our business benefit from these trends. Core financial metrics were very strong across the business for the first quarter. We saw continued momentum in PLO and PSC, merchandise sales and margin, and a material increase in scrap. We ended the quarter with net earning assets of $554 million, up 17%. And our PLO to inventory ratio remains healthy at 1.2 times, reflecting disciplined lending and inventory management. Subsequent to quarter end, we closed two exciting acquisitions that expand our scale and geographic reach. As we've consistently said, we will deploy capital with discipline when the right opportunities emerge, and these transactions deliver on that commitment. Our focus in the immediate term is to successfully integrate these businesses to maximize profitability and returns. We remain excited about our active pipeline of additional M&A opportunities going forward. The first of these transactions was closed on January 2, with the acquisition of Founders One, which owns a majority interest in Simple Management Group, one of the largest pawn platforms in North America. SMG operates 105 stores across 12 countries, including Florida and Puerto Rico in the US, Costa Rica, Panama, and various markets across the Caribbean. We first invested in Founders as a preferred equity holder back in October 2021. The transaction is immediately accretive and expands our pawn footprint into 11 new countries, creating a compelling platform for future domestic and international expansion. Importantly, SMG meaningfully broadens our total addressable market. In Puerto Rico, the stores also offer auto pawn and auto title loans, giving us exposure to a higher ticket secured lending category that complements our traditional pawn offering. SMG was one of the few remaining large independent pawn chains in the United States, and we're very pleased to welcome the team into our EZCORP family. On January 12, we acquired El Buffalo Pawn, adding 12 stores in Texas, further strengthening our position in one of our largest domestic markets. The acquisition brings an experienced local team and a strong presence in a rapidly growing market. We are excited to apply our operating playbook and capital to unlock additional value in this business. Following these two transactions, EZCORP now operates 1,500 pawn stores across 16 countries, marking a significant milestone that highlights the scale of our growing global platform. Turning to slide three, for those new to the story, the pawn business resonates strongly with customers because the transaction is fundamentally customer-friendly. Our loans are nonrecourse, meaning customers have no obligation to repay. We don't credit check, require bank accounts, or verify employment. We don't pursue collections, and we don't report to credit bureaus. These are small short-term transactions, typically $200 to $220 in the US, and $70 to $140 in Latin America, with terms ranging from thirty to ninety days. That core value proposition, together with offering great value for money secondhand goods in an environmentally responsible way, makes it fun to come and shop at a pawn store, which has been critical in driving consistent, outstanding operational and financial results for our shareholders. With that, I'll turn it over to Tim to walk through the financial details. Tim? Timothy K. Jugmans: Thanks, Lachlan. Turning to slide five for the consolidated financial results, we delivered another quarter of exceptional earnings performance. Adjusted EBITDA rose 36% to $70.3 million, with margin expanding 260 basis points to 19%. Diluted EPS improved 34% to $0.55. These results reflect the operating leverage embedded in our model as we scale. Total revenues reached a record $374.5 million, up 17%. Improvement was broad-based with meaningful contributions from PSC merchandise sales and a significant increase in scrap reflecting elevated gold prices. PLO also increased 12% to $307.3 million, marking an all-time Q1 high, fueled by sustained consumer demand and high average loan sizes across all geographies. PSC revenue rose 11% to $129.6 million, generally in line with PLO. On the retail side, merchandise sales climbed 10% to $205.2 million, with same-store sales up 7%. Merchandise margin expanded 230 basis points to 37%, reflecting improved pricing, execution, and product mix. Scrap margins also expanded significantly from 23% to 34% as we benefited from higher gold prices. Gross profit of $218.9 million improved 18%, supported by contributions across all three revenue streams. G&A rose 9%, primarily due to higher incentive compensation and professional fees related to the acquisition activity. With top and bottom-line growth meaningfully outpacing operating expenses, we're demonstrating the scalability and operating leverage inherent in our platform. Before I turn it to the segments, I'd note our presentation change this quarter. We've modified how we allocate certain administrative expenses. These are now reported within corporate G&A rather than allocated store expenses at the segment level. Prior periods have been recast to conform. There's no impact on operating expenses or net income, but please see slide 22 in the earnings presentations for reference. Moving to the US segment on slides six and seven, we ended the quarter with 547 stores across 19 states. Total revenues increased $37.6 million or 16% to $269.8 million. Roughly half of this improvement is attributed to higher scrap sales, which benefited from elevated gold prices and increased jewelry purchasing activity. PLO expanded 9% to $239.9 million, with same-store PLO up 8%. Average loan size rose 12% to $231, largely due to higher prices on jewelry. Jewelry now represents 68% of US PLO, up 310 basis points. PSC improved 8% to $95.2 million, supported by same-store PLO gains. On the retail side, merchandise sales climbed 8%, with same-store sales up 7%. Merchandise margin improved 170 basis points to 38%. Jewelry scrap gross profit rose $8.6 million, reflecting our ability to efficiently monetize inventory in this gold price environment. Inventory increased 29% to $190.9 million, fueled by PLO expansion, higher merchandise purchases, including continued growth of our lightweight product, as well as a decline in turnover from 2.5 times to 2.2 times. This reflects a higher mix of jewelry, which naturally carries a longer sales cycle. Layaway provides customers a flexible path to ownership and supports healthy sell-through and inventory velocity. In addition, jewelry that doesn't sell through retail can be monetized through scrap, providing a natural floor on inventory risk. Despite lower turns, aged general merchandise remains manageable at 3.1% of total GM inventory, or $1.7 million. We have prioritized efforts to optimize inventory velocity and reduce the HGM. Segment EBITDA improved 28% to $73.5 million, as margins expanded 260 basis points to 27%, supported by robust gross profit performance and effective expense management. Same-store expenses were up 6%. Turning to Latin America on slides eight and nine, we ended the quarter with 836 stores across all countries. During the period, we opened seven de novo stores, including in Guatemala, one in Mexico, and one in Honduras, and acquired 14 stores in Mexico. Total revenues rose $16.7 million or 19% to $104.7 million. Roughly half of this improvement is attributable to merchandise sales, reflecting solid retail execution across the region. PLO expanded 23% to $67.4 million, with same-store gains of 12%. Average loan size improved 16% to $102, 9% on a constant currency basis, largely reflecting higher jewelry prices. Jewelry now represents 47% of Latin American PLO, up 650 basis points. PSC rose 18%, supported by the same-store PLO gains and contributions from new stores. Merchandise sales climbed 15%, with same-store sales up 8%. Merchandise margin improved 380 basis points to 34%. Inventory increased 10% to $56.1 million, fueled by PLO expansion. Importantly, inventory turnover improved to 3.1x from 3x. Aged general merchandise increased to 3.6% of total GM inventory, representing $1.2 million. We are applying best practices to reduce aged GM. Segment EBITDA improved 23% to $21.4 million, and margins expanded 70 basis points to 20%, reflecting continued expansion despite a 16% rise in same-store expenses, mainly due to labor costs, including minimum wage increases. From a balance sheet perspective, our robust position of $465.9 million in unrestricted cash will enable us to fund organic expansion, pursue compelling acquisition opportunities, and thoughtfully return capital to shareholders over time. As Lachlan noted, subsequent to quarter end, we completed two acquisitions that meaningfully expand our footprint. On January 2, we closed the SMG transaction. The transaction was funded through a conversion of existing preferred equity investments and notes receivable, plus approximately $9 million of cash for a total consideration of approximately $64 million. This results in approximately 75% economic interest in SMG. Following the transaction, we will consolidate 100% of SMG's financial results, with net income allocated to noncontrolling interest reflected below the net income line. We also provided SMG with an intercompany debt facility to replace its third-party financing. This intercompany debt and associated interest will be eliminated upon consolidation. Also in January, we acquired El Buffalo Pawn, adding 12 stores in Texas, for $27.5 million. Both transactions represent disciplined deployment of capital to drive longer-term shareholder value. Looking ahead on a consolidated basis, we remain focused on expanding PLO, improving inventory efficiency, and scaling operational best practices across all geographies. Based on the current trends, we expect Q2 momentum to remain favorable. Tax refund season typically drives increased loan redemption and retail activity, and the current gold price environment continues to support elevated scrap contributions. With respect to scrap, we're not in the business of predicting gold prices. We can say gold has continued to rise through the quarter. As long as that continues, we expect elevated scrap gross profit contributions. As you will note in the last quarter, once gold stabilizes, we'd expect approximately two quarters of elevated scrap gross profit margin before margins begin to normalize towards historical levels. On expenses, we remain disciplined. That said, we do expect a sequential increase through the year as we onboard our recent acquisitions and continue scaling operational best practices across all geographies. Our M&A pipeline remains active in the US and Latin America as we approach each opportunity with rigorous financial discipline. With 1,500 stores across 16 countries, we've reached a significant scale milestone and are well-positioned to capitalize on further consolidation opportunities. Now I'd like to turn it back to Lachlan for closing remarks. Lachlan P. Given: Thanks, Tim. From a capital allocation perspective, our strategy remains consistent. Our priority is to build scale, given the significant global opportunity in pawn. We are going to do that in a disciplined way that prioritizes growth and return on capital, maintaining a fiscally conservative balance sheet. We believe that this is the clearest path to generating meaningful long-term value for our shareholders. I want to extend my sincere appreciation to our team members in all of our markets. Your dedication to serving our customers with respect and professionalism is the foundation of these outstanding results. Guided by our core values of people, pawn, and passion, we remain confident in our ability to scale with discipline, invest with purpose, and build on our momentum through fiscal 2026 and beyond to deliver sustained long-term value and superior returns for our shareholders. With that, operator, we'll open the line for questions. Operator: And wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Brian McNamara with Canaccord Genuity. You may proceed. Brian McNamara: Congrats on another strong quarter here. Lachlan P. Given: Thanks, Brian. Brian McNamara: Good morning. Congrats on the SMG deal. You guys had a preferred equity interest there since, like, October 2021. I'm curious why was now the right time to kind of take a controlling stake here. It's to me, it's sounded like you wanted to get that a little larger in terms of store count. Was it just a factor of just, you know, the bid-ask spread kind of narrowing to a point you were comfortable? Lachlan P. Given: Yeah. I think it's I think there are a bunch of things, and you've named a couple of them. I think the first one was we wanted to give John and his team the ability to really scale the business quickly, using leverage. And I think after being an investor for four or five years, we were comfortable that he'd done a the team had done a really good job there. And I think that from an operational perspective, we, you know, we got very, very keen on the opportunity. Think secondly, you've gotta have a willing seller and a willing buyer as well. So I you know, on the timing side of it, the deal terms came together in a way that we thought would be really beneficial long-term for our shareholders. So I think operationally, the time was right. Deal terms were right. And, you know, now we are deep into integration and partnering with John and his team on making sure that this is as good an acquisition as we think it can be. That had control environment at the center of what we're doing, but growth and de novo stores and in a whole bunch of countries that EZCORP's never been in. So you know, we shared with you, Brian, and the whole market over the last couple of years that we thought this is the best opportunity out there for EZCORP. So we're really excited that we've been able to solidify that for our shareholders and now get the earnings momentum throughout the income statement that we've never had before. Brian McNamara: Great. And then just talking to you guys about capital allocation the last few quarters, it sounded like the M&A pipeline is pretty robust. I'm curious after the acquisition of, you know, SMG and El Buffalo, how does that pipeline look today? And any changes in your capital allocation priorities here? Lachlan P. Given: No. I think we've been really consistent on that in the last couple of years. I think we are, as I said in my remarks, scale is our number one priority. And so to your question, the M&A pipeline definitely remains strong. Clearly, we've taken the biggest one in North America or one of the biggest ones in North America out of that equation now by buying SMG, but it remains strong, particularly in Mexico and other Latin American countries. So look, you know, while this opportunity I keep saying, is a global one, we still think there is great opportunity in the markets that we're already in. And we're gonna take, you know, we're gonna continue with this disciplined approach to all we're doing, which you know, it prioritizes growth but return on capital at the same time. So to maintain this balance of capital allocation strategy, which is scale, putting money into our existing business. You can see just how quickly we're growing organically. And so we need to fund that. And we're gonna balance that with some thoughtful return to our shareholders when we deem it appropriate. So I think it's the same message. It's one of balance that I think you can see from these results. Prioritizing scale and growth is really working, and that's what I think is delivering such fantastic returns to our shareholders. I think, you know, I think the stock's up 80% in the last twelve months. And we're really excited about where we can go from here. We think we're phenomenally positioned. The remainder of this year, and you know, I'm just really looking forward to our team continuing to deliver on this business. Brian McNamara: So there's an expectation that this tax season's gonna be a pretty big one in terms of refunds. I think it's a thousand dollars more per household. Typically, you have a, you know, a loan pay down in March that we really haven't seen that seasonality in a few years now. How are you guys planning for that? And, like, what's your baseline expectation for Q2? Lachlan P. Given: I think Tim will make some remarks, but it's you know, my perspective is you read a lot about it. A lot of people have very different views, then you've got to segment the market. Right? You've got to look at the lower demographic market and what you think that tax return season's gonna look like. But from, you know, from a corporate perspective, we are preparing for, you know, daily, you know, what we've seen in the last few years. Might be a little different. Tim will walk you through that. But, you know, our focus is we can't control that. All we can control is serving our customers the best we can. And if tax refunds are bigger than normal, then clearly, we'll probably see some higher loan pay down and give us the opportunity to sell some more. But my personal view is that I'm not expecting some monumental change here for our customer demographic, but I can't predict that. But Tim, anything you wanna add? Timothy K. Jugmans: Yeah. That's exactly how we've it's you know, this is a day business. Dealing with customer demands that do change. And so if these extra if there is extra cash, the team knows how to deal with it, and if there's less, the team knows how to deal with it. So they are prepared for any direction. But as Lachlan said, you know, we've generally seen in the US pawn business going from December to March, a, you know, eight, 9% decrease in PLO in the last couple of years. You know, it does look like it's gonna be slightly higher than that. I'm reading various papers, which you know, I think a few of them are really targeting to say that this lower demographic is probably not going to get as a bigger percentage, but they will be it will be slightly higher than prior years. Brian McNamara: Great. Then last one for me before I get back in the queue here. I'm assuming you guys are talking to investors just given what the stock's done over the last year, and I feel like I'm talking to a lot more new investors as it relates to the industry as well. So how should investors new to the industry think about the price of gold here and any inherent risk to your business should it move lower? Like, what kind of buffer is typically embedded in your loan book relative to the price of the underlying commodity? Timothy K. Jugmans: Thank you, Brian. Look. On your first comment, we're absolutely seeing a lot more interest activity in firstly, in the industry and then secondly, in our stock. Know, we are seeing the big active, fundamental, long-only funds showing much more interest than becoming shareholders if they hadn't been previously. They're new to the story. So I've been incredibly excited by that. I think it's been a real change over the last twelve months, and so I'm very happy to see us creating some value for them. And as you know, I think the stock is fundamentally underpriced because we are you know, we are growing so rapidly. We are fiscally conservative. We have a lot of liquidity. We have no short or medium-term debt maturities. So I think the business is set up fundamentally for a really phenomenal future. And as I said, I'm very, very happy to see these new long-only household name funds getting interested or buying stock. On your second question on gold, look. Tim, why don't you give that one a crack? Timothy K. Jugmans: Yep. So from a PLO perspective, the jewelry part of the business was 68% in the quarter. And in Latin America, it was 47%. Both of those are up from last year. So we do see that customers are bringing in more gold as can be expected. So we do see the gold price increasing, there is some it does create activity from a customer perspective where they do bring in more gold. They're getting greater value for the gold they bring in. They also bring in gold to sell. So the amount that we're purchasing is also increased. From a risk perspective, you know, when we lend on gold, we're not adjusting daily. We're looking at longer-term trends. So, you know, the recent up and down of the gold price in the last week no effect whatsoever. So we're really looking at long-term trends. So we build in and, we're not lending at the rate that we're gonna scrap at. So there is a margin already built in to what we can do, and you can see that in our long-term sales margins. Where you do have where we do have some ups at the moment is on the scrap margins. Where we lent some of the gold that we're scrapping we lent a year ago is obviously a very different price now. And so those margins you know, the 25 to 35% on those scrap margins. Which is a temporary nature until gold stabilizes. Brian McNamara: Very helpful. Thank you, guys. Best of luck. Lachlan P. Given: Thanks, Brian. Timothy K. Jugmans: Thank you. Operator: Our next question comes from David Scharf with Citizens Capital Markets. You may proceed. David Scharf: This is Zach on for David. Thanks for taking my question and congrats on the strong quarter. Wanted to dig in a little bit on the growth side of things. You know, with the 11 new countries that are part of the SMG acquisition, wanted to see if we can get some additional color on the growth potential in those specific new geographies, both in the near term and the longer term. Lachlan P. Given: Yeah. Look. Thanks, Zach. So it there is obviously 11 new countries, but there is Florida and Puerto Rico is really where SMG's you know, most of the SMG business or the largest part of the SMG business is in those two regions. So I think, you know, we're looking at we do, as you say, have 11 new countries, but some of them are relatively small in the Caribbean. So what I would say to you is that Puerto Rico represents probably at this point the most significant opportunity for SMG. They are already probably 25, 26 stores, something like that. What? 29 stores? Know, 29 stores with the potential to have I think significantly more there. I think that's a really strong market. And, you know, now that I mean, we only owned it a couple of weeks, so we are assessing the opportunities across Panama, Costa Rica, and those other Caribbean countries. But you know, this SMG team have built their careers on de novos. They built Value Pawn in Florida, which is now our largest business. We bought that from them in 2009. That was almost entirely a de novo chain that we paid $120 million for. Those years ago. So this is a team that is very good at de novo store build-out. So that's what we're looking for from them. I think we're gonna do that in a disciplined and focused way, though, because it does drag earnings. But over the medium to long term, it's exactly what we need to be doing to demonstrate growth to our shareholders. So look, I think it's while SMG still represents a relatively small part of the EZCORP business, I think those new markets represent some really strong opportunities. I think it'll be done mainly through de novo. There'll be some acquisition opportunities as well, but look, we're a few weeks in. We're working really well with the management team there. And I think, you know, as I said, while still relatively small, it's certainly capable of being a very large business that we're excited about. David Scharf: Understood. I wanted to follow-up with one more growth-related question. Just in the US specifically, you wanted to drill down just see what the M&A outlook is for, you know, kind of these five plus, 10 plus store chains. Lachlan P. Given: Yeah. Look. That's it's there aren't many of those left. I've gotta say there's some, but it's you know, I would say that the US, following the SMG deal, I would say that the US is you know, it's more in the single-digit stores now. It's kind of we need to get good at consistently buying one, two, and three. And if as you say, if any of the kind of the five to 15 come up, know, we'll take a good look at them, but as we've demonstrated to everyone, we're gonna do that in a really disciplined way that prioritizes return on capital. So you know, I think the more M&A opportunities are sort of Latin America and beyond, but we will absolutely stay active in the US. I just think with the SMG deal done and El Buffalo as well, the 12 stores in Texas, you know, those opportunities are starting to be, you know, less and less. David Scharf: Great. Thank you very much. Lachlan P. Given: Thanks, Zach. Operator: Our next question comes from Andrew Scutt with Roth Capital Partners. You may proceed. Andrew Scutt: Hey. Good morning, guys. Congrats on the strong results, and thanks for taking my questions. Guys, we've been talking a lot about jewelry, scrapping margins. But you guys did post some really nice numbers in LatAm, and I know that's been a focus recently. So can you just kind of talk about the progress you've seen in LatAm kind of getting the jewelry business up to speed with what you're seeing in the US? Lachlan P. Given: Yeah. It's a really good question. I think it's one of the real highlights of these results. You know, as I said in my remarks, this is probably the best quarter I've seen at EZCORP and potentially one of the best in its, you know, thirty-five-year history. It's a phenomenal set of results. And one of the real highlights, as you point out, is Latin America. And it's not just the sheer growth. You know, we're seeing phenomenal organic growth, but what's really pleasing is just the balance of that growth, you know, the balance in PLO, the balance in inventory, net revenue, and then profit. I think it's just a real testament to Blair and his leadership team down there to have delivered these results. As you also said, we are seeing jewelry become a bigger proportion of our PLO and inventory, and that's clearly by design. We are spending a lot of time training our teams down there that this is such a huge opportunity down in that market. And I think, you know, irrespective of gold price, it has just been too small a part of our business. And so I think we're showing some really great not only numbers but just behaviors in our stores that it's becoming much more a significant strength of our business in Mexico and of our team that we can lend on jewelry. So you know, that's been super pleasing as well. Timothy K. Jugmans: I'd add to that that it's not just jewelry. Right? You know, we talk about jewelry and improving that because that's easier to see in the numbers. But the general merchandise part of that LatAm business continues to go strength to strength as well. So that is the combination of those two is really driving that amazing bottom-line performance. Andrew Scutt: Thanks for the color there, and good segue to my second question, Tim. On just the general merchandise, I know there's some seasonality in the quarter with the holidays. But we saw a nice bump in the margins there. So can you just kind of talk to the margins in the quarter? GM margins, that is? Timothy K. Jugmans: Yes. The GM margins are still well, overall margins are still on merchandise sales margins are still on a low end of what we think we can achieve. But it was up from last year. The you know, I think it's just a testament to our teams in all geographies. Really doing a great job at the sales counter and continue to sell Fresh Velocity. Which is creating that. Lachlan P. Given: And I think what I'd add, Tim, is that we're doing a much better job of using data and AI to lend better at the counter. And that, you know, that has the down the flow impact all sorts of impact on inventory, on margin, and on turns. And so we're at the corporate office, we're employing, I think, much more sophisticated thinking around pricing using AI and deep data machine learning to make sure that we're giving our store managers the best thinking on how to lend. So I think that's also starting to really have an impact on what you're seeing on sales margin. Andrew Scutt: Great. Well, thanks for taking my and congrats again on the strong results. Lachlan P. Given: Thanks, Andrew. Timothy K. Jugmans: Thank you. Operator: Our next question comes from Jonathan Whites with Jefferies. You may proceed. Jonathan Whites: Hey, guys. Congrats on the results. I'm on for John today, but thanks for taking my question. I just wanted to go back to the margins and of the question that was just asked. With the strong performance this quarter, we were just curious, like, how much of that should we think about will maintain, with gold prices, you know, changing? And what are the other factors aside from what you just mentioned that are contributing to that strong performance? Timothy K. Jugmans: Yeah. I think that's going to yeah, our clients have, you know, last couple of quarters have always been that we're gonna continue to operate in the lower end of the range, and it will move around a bit. The you know, this is obviously the strongest quarter of the year. With a lot of demand through the holiday season for buying items. Which does create momentum in the margins. But, you know, we continue to work on what happens on the sales floor is what is happens on pricing in our backrooms in and trying to figure out the best way forward. Our focus is really on making sure that turns continue to be strong, that our stores continue to have fresh inventory in them for our customers and it continues to grow the business. Lachlan P. Given: I think you know, we don't manage the business as we've said to the market. We don't manage the business per sales margin. You know, we are, as Tim said, focused on turns, minimizing aged, it's really all about turns. So, you know, it's a really strong result on the margin side, but know, we want to make sure, as Tim said, that we keep turning this inventory because as the market knows, if you're not doing that, that's what's starting to negatively impact your business. But, you know, strong very strong quarter on margin. Jonathan Whites: Definitely. Really strong quarter. And then just one follow-up kind of going back to the of the first questions asked. Around the M&A pipeline, you'll still have a lot of cash on hand. I was just curious, in terms of capital allocation, how you all were thinking about the balance of growth investment, the debt repayment, and also the shareholder return. Through the rest of the year? Lachlan P. Given: Yeah. I think the keyword is balance, and we've been consistent on that. You know, in M&A, we've done two really strong acquisitions this quarter, and we've done a few the previous quarter as well. So I've got the team focused on making sure that integration is nailed. You know, I think often, often you think the deal part's the big part, and it's just not that at all. You've got to really integrate these businesses to make sure that the growth potential and the return on capital is there for our shareholders. So I'd say, you know, in the short term, nailing the integration is super important, but yeah, as I said earlier, the pipeline is still very strong. There are very large chains across Latin America that are capable of being bought if you can come to a reasonable price. So we will prioritize that. We will prioritize scale, which means M&A as well as scaling our existing organic business. Right? It's hungry for capital because we're growing really nicely. So we'll prioritize that. At the moment, we have got no short or near-term debt repayments. Which is obviously pleasing, and we have plenty of liquidity. And as I said, now that we're through these acquisitions, we will, you know, we'll be relooking at our share buyback program. So to answer your question again, it's really balanced between those three, but we are prioritizing growth and scale. Jonathan Whites: Great. Yep. That makes sense, and it's good to hear. Just had one last quick one. Going back to what you're saying about integration, for the integration of the Founders One, how should we think about expenses related to that? What the plan is and how you'll plan to kind of leverage y'all's operational expertise that you've done for so many years. Over the next twelve months. Lachlan P. Given: Yeah. Look. I think on the expense side, we'll announce next quarter will be our first quarter with SMG ownership. So that's when you'll see much more detail on the numbers. We've given numbers in the announcement of the deal. You know, that's what we're prepared to give the market at the moment while we really get stuck into it in the first quarter of ownership. But you'll have much more visibility at the end of this current quarter on how SMG looks. And, you know, just from a high-level expenses, you know, it's sort of ups and downs. Right? We expect to put some more expense into the control environment to make sure that the finance function, the legal function, the IT function all have the resources needed. Truthfully, you know, my hope is that we can really leverage the existing EZCORP teams to make sure that there's not too much expense there. But we're sort of taking a very responsible approach to what we're doing there. It's a private it was a private company that now has to operate in a public company world. But the great news for shareholders is that we think the revenue upside in working with John and his team, we think that EZCORP sharing operating initiatives and practices and playbook should more than compensate for that expense base. So look, we'll be back at the end of the quarter with more detail on SMG numbers. They'll be in our reporting. But for now, let us sort of get deep into operating the business and be back at the end of the quarter. Jonathan Whites: Right. That makes sense. Thanks for the detail and another great quarter. So I'll hop back in the queue. Lachlan P. Given: Thanks for the question. Operator: Thank you. And as a reminder, to ask a question, please press 11 on your telephone. Our next question comes from Kyle Joseph with Stephens. You may proceed. Kyle Joseph: Hey, good morning, guys. And, yeah, echo, congrats on a strong quarter and the acquisition as well. Most of my questions have been asked. I just want to focus on appreciate the color you gave on tax refunds in the US, but just kind of want to get a macro update on LATAM, recognizing, you know, there's a number of countries there. But in terms of you know, anything you'd highlight on wage growth or inflation in those geographies? Lachlan P. Given: Yeah. Thanks, Kyle. I mean, definitely, we saw the obviously, the impact of the minimum wage increase in Mexico, but we'd flagged that to the market. We often speak to you guys, the analysts, shareholders, and prospective investors. That was coming. It wasn't far off what we thought it was going to be. So but, of course, you can see it in the numbers that, you know, we have got inflated labor numbers down in Mexico, but with that, you can see this very, very strong growth across all that we're doing in Latin America. You know? Ten years ago in pawnbroking, it was sort of a tale of two stories. Right? You'd see poor lending up, and you'd see sales down. What we've been seeing now over a number of years is that we're running a business that's got really strong growth in lending and really strong growth in sales while maintaining some pretty impressive sales margin. So look, yes, the expense base is up down there, but I think the revenue and you can see the numbers. We're able to get that operating leverage out of this business, and even with the minimum wage growth, the numbers are so particularly down in Latin America have been phenomenal. Timothy K. Jugmans: Yeah. The most of the effect is obviously Mexico. Mexico's minimum wage increased by 13% on January 1. So, you know, that will start coming through in the next quarter. On top of last year's increases. Kyle Joseph: Got it. Helpful. And then Tim, I think you talked about earlier, you know, you manage this business almost on a day-to-day basis, you know, on that note. I think tax refunds started hitting last week. Know, have you seen any and you guys talked about your expectations for loan demand, but you know, shifting over to the retail side of things, have you seen any kind of pickup in terms of retail sales domestically? Recognizing it's very early in the season. Timothy K. Jugmans: Yeah. It's very early on. I think momentum out of the fourth quarter has been strong. So we're very happy with where we are today. Kyle Joseph: Great. Thanks very much for taking my questions. Lachlan P. Given: Thanks, Kyle. Operator: Thank you. Our next question comes from Raj Sharma with Texas Capital Bank. You may proceed. Raj Sharma: Hi. Thank you for taking my questions. Fantastic quarter. What a great beat. I just wanted to understand, you've had the increase in revenues quarter up 16%, just higher year over year, you know, higher than, you know, mid-teens, higher than expected. Is that can you give some color on you think that's purely the consumer feeling tight? Or is it elevated gold prices? And do you expect this sort of organic growth to continue at this pace? Lachlan P. Given: I think look, when you separate macro from what we're doing internally, let's start there. I think gold is clearly helpful. You can see that in the scrap numbers, and you can see that in the average loan size. So that has clearly been a tailwind. But I think the real story here is what we're doing internally around everything that's going on inside the store around serving customers. I think that's the main story. It's truly our operational execution that's we've been doing we've been at this as a team for years now. And I think, you know, the US has led the turnaround, but you can still see we have so much to do. You can see it in the organic growth. You can see it in our sales numbers and our margin improvement. So I think, you know, yes, gold and the macro is supportive, but you know, we don't sit around on our hands just hoping that the macro is gonna improve. This is really an internally led story, an operational execution story. And in terms of do I think that's gonna continue? Look. We don't guide the market, as you know, Raj, but I think that there is in every store, Blair and the rest of us walk into, we can see that even when they are best stores that make $2 or $3 million a store, we can see stuff that can be improved. So, you know, my objective here is that we're gonna grow these key metrics. And you know, we're just seeing some, as Tim mentioned, momentum, and momentum builds on momentum. So you know, the key job here is to concentrate on our people, make sure that they are incentivized the right way in stores, that we retain them and that we give them career paths so that they want to stay because retention in our stores really is the key driver. And I think our training and development programs and then our use in the corporate store of much more AI, much more digital initiatives that, you know, the whole industry is essentially backward on this area. So I think selling online, interacting with customers digitally, there is just so much more here to do. And so while I'm not gonna guide you know, where I think organic growth can go, it is certainly our objective to not only grow through acquisition and de novo but to grow these stores organically as well. Raj Sharma: Fantastic. And obviously, you guys are doing a great job. It's showing in the results. Just sort of, how do you think of scrapping? Is that purely related to gold prices? You know, how do we sort of think about it modeling-wise? Is it allocated percentage you want to scrap regardless of price? Timothy K. Jugmans: Yeah. So the way we look at scrapping is we scrap things that have been sitting in our stores close to a year. And then we scrap things that, you know, definitely quite a bit on purchases where people are buying where people are selling stuff to us that we don't think is sellable. So like a broken necklace, heavily personalized items. We'll start scrapping those pretty quickly. So those are the combination of what we scrap. So it really comes down to, you know, on the purchase side, it really comes down to what are people bringing in. So that is quite different. This is not we're not just gonna go scrap to make a profit. We are trying to sell as much jewelry in our stores as possible, and we really just scrapping because of age liquidation. So it's the way we manage our inventory rather than the way to manipulate profit or we're gonna scrap to make a profit. You know, once we scrap, we're gonna make money. But, you know, it's the way Blair talked about it is it's how we actively manage our inventory rather than gonna scrap x percent of some measure. Raj Sharma: Got it. So whether gold is down a lot or up a lot, that shouldn't really impact scrapping. It's what's going on internally. Timothy K. Jugmans: Right. Raj Sharma: Okay. And then just lastly, is it reasonable to think that, you know, something like cash converters would be kind of next? Do you have a planned amount of M&A that you want to do? Lachlan P. Given: No. We don't think about it that way. We don't think about it sort of in a, you know, dollars plan per year or number of stores per year. We look at every opportunity on its own merits. And as I said, we think there's a lot to do in our existing markets. On cash converter specifically, Sam and his team are doing a just a fantastic job. They are, you know, they just did a rights issue that we participated in. I think we put about $7 or $8 million into it to maintain our ownership percentage. But they are, you know, they've done probably I think their largest acquisition ever if you look into their financials. But their business is, you know, their M&A strategy is very, very simple. They are buying back franchisees. Are already on their pods, already use their brand, know them well, know the teams well. So it's, you know, it's a really simple M&A strategy across a whole bunch of countries. They're doing really well in the UK. That's a pawn-only business. So we're, you know, we're really excited about that. But, you know, cash converter still remains a pretty small part of our business. If you look at the balance sheet, we carry it at a pretty small amount. And if you market to market, it's still a relatively small part of the EZCORP business. But that said, it's very strategic. We love that they're in 15 or 16 countries. But just remember, they are pawnbrokers and secondhand goods resellers, but they also have a significant unsecured lending business. So it is different. Know, we're 43 something percent. We recognize the earnings through our P&L, which I know our shareholders love, and we get a nice dividend yield as well. So we're happy with where it sits now. It's strategic. They're doing a great job. And, you know, we'll just continue to assess our ownership position going forward. Raj Sharma: Great. Great. Thank you for taking my questions. I'll take it offline. Again, congratulations. Lachlan P. Given: Thanks, Raj. Timothy K. Jugmans: Talk to you a bit later. Operator: Thank you. And now I'd like to turn the call back over to Lachlan P. Given for any closing remarks. Lachlan P. Given: Thank you, operator. Thank you, everyone, for joining. I just want to echo my remarks to thank the teams for delivering such a phenomenal set of results for our shareholders, and I'm really looking forward to talking to everyone over the next couple of days. Investors, prospective investors, and analysts, even more looking forward to delivering a really great year for our shareholders. So thanks for joining. Talk to you later. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Rainey Mancini: Good day, everyone. And welcome to The Estée Lauder Companies Fiscal 2026 Second Quarter Conference Call. Today's webcast is being recorded. Opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini. Hello. On today's webcast are Stephane de La Fabri, President and Chief Executive Officer, and Akhil Shrivastava, Executive Vice President and Chief Financial Officer. Akhil Shrivastava: Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from those forward-looking statements. To facilitate the discussion of our underlying business, commentary on our financial results and expectations is before and other charges and adjustments disclosed in our press release. Unless otherwise stated, all organic net sales growth also excludes the non-comparable impacts of acquisitions, divestitures, brand closures, and the impact of foreign currency translation. You can find reconciliations between GAAP and non-GAAP measures in our press release and on the Investors section of our website. Retail sales performance discussed is based on information available as of 01/29/2026. As a reminder, references to online sales include sales we make directly to our consumers through our brand.com sites and through third-party platforms. It also includes estimated sales of our products through our retailers' websites. Throughout our discussion, the profit recovery and growth plan will be referred to as our PRGP. During the Q&A session, we ask that you please limit yourself to one question so we can respond to all of you within the time scheduled for this webcast. Now I'll turn the webcast over to Stephane. Stephane de La Fabri: Thank you, Rainey. Hello to everyone today. We reported strong second quarter results, marked the one-year anniversary of Beauty Reimagine, and raised our fiscal 2026 outlook. Our second quarter performance further exemplifies the momentum we have created across our five action plan priorities, having delivered 4% organic sales growth. Our growth and operating margin expanded, and EPS grew 43%, showcasing once again our ability to manage expenses. For the first year, we made promises we kept promises as we expanded consumer coverage across online and brick and mortar in every region, overhauled our innovation engine with new leadership faster to market launches, and a renewed consumer-first mindset. Increase consumer-facing investment, every quarter to accelerate recruitment enabled by significant saving from the PRGP. And created one ELC, one new operating model, aligning brands, regions, and function as one team with one culture and one operating ecosystem. When we introduced Beauty Reimagine, our ambition was bold, execute the biggest operational leadership, and cultural transformation in our history, to become the best consumer-centric prestige beauty company. Thanks to the passion, creativity, and resilience of our team around the world, we have come far in one year. Yes. There is more work to do, but much has been accomplished. In 2026, our global retail sales trend improved from the first to the second quarter, from down 4% to flat as the decline in travel moderated. Even more encouraging, our retail sales grew 4% in the first half excluding travel retail. In Mainland China, we outperformed Prestige Beauty in the quarter again with double-digit growth. We gained share for the quarter and calendar year 2025, led by Lambert and Tom Ford, showcasing the strong desirability of our brands compared to international and local peers. In Hainan, our retail sales grew high single-digit in the quarter led by Estee Lauder and La Mer. In Japan, we outperformed Prestige Beauty in the quarter driven by MAC and Le Labo. For calendar 2025, we gained share in France, strengthening our number one category rank. In The US, for the quarter and calendar 2025, we gained volume share in total prestige beauty. We also grew value share for the quarter and calendar 2025 in skincare led by The Ordinary. And hair care. In addition, Estee Lauder gained share in makeup for calendar 2025. These retail results and share trend reflect the exceptional execution of beauty reimagined over the last year. For our first action plan priority, we moved rapidly to our portfolio presence in consumer-preferred, high-growth channels, market, media, and price tiers. We expanded our presence on Amazon premium beauty stores now with 12 brands across 10 markets. We also announced our brand reach on TikTok shop in The US and Southeast Asia launched our first brand in The UK and Germany. This work coupled with strong performance on Timo, Doink, Jelly, Nottino, and Trundial drove high single-digit online organic sales growth first half, leading us to believe we outperformed prestige beauty in the channel. For fiscal 2026, online is on track to exceed the 31% of reported sales reach in fiscal 2025 as we increasingly tap into the full potential of this high-growth channel. We increased our presence in travel retail across the West, including with duty America as well as new and upgraded doors for our luxury pharmacies in European and Middle Eastern airports. Contributing to double-digit retail sales growth for pharmacies across several major retailers in 2026. This strategic is providing a double win. Driving growth and diversifying our travel retail business. As we expanded our pharmacy reach in Europe and entered the channel in Latin America, while strengthening our ties in specialty multi with Max up and coming launch in The US Sephora. For our second action plan priority, create transformative innovation, We focused on three areas of breakthrough, on-trend and commercial. In China, innovation resonated especially strongly. Estee Lauder's three breakthrough launches in the longevity skincare science space contributed to its double-digit organic sales growth in skincare in the market. Our China Innovation Lab created Ray Nutriv's Oil in fifteen months quick for skincare and demonstrating how we are accelerating our speed to market. And Tom Ford, strong double-digit organic sales growth in China was driven by highly sought-after on-trend launches in LEAP and FACE as well as France. Globally, The Ordinary's innovation and expanded consumer reach drove strong double-digit retail sales growth in the first half. Demonstrating that our new model allows us to support growth for our own indie brands to drive greater scale. For makeup, Estee Lauder's Double Wear Concealer has been a game changer in The US achieving the top-ranked new product in prestige makeup based on unit for calendar year 2025. Within hair care, Aveda's new Miraculous Oil catapulted to be the brand top-selling product through the first half. For fiscal 2026, we are on track for innovation to represent at least 25% of sales And as we work toward increasing the percentage of innovation launched in less than a year from 10% to 30%, We are tracking to 19% for fiscal 2026 above the 16% we initially expected. Turning to our third action plan priority, We boosted consumer-facing investment focused on high ROI opportunities. We invested in our freestanding stores, opening new doors for our luxury fragrance brands to showcase their unit experiential retail while selectively closing doors for Mac and Origin to drive a more productive fleet. Impressively, Le Labo's strong double-digit organic sales growth in 2026 reflects its expanded reach as well as double-digit like-for-like door. We also invested in groundbreaking campaigns commercial innovation with several notable for Mac, which contributed to the brand's return to organic sales growth in 2026. La Mer campaigns for eleven eleven shopping festival and holiday also proved to be a winning investment. Contributing to La Mer being our best performing brand for 2026 given its organic sales growth. For our fourth action plan priority fuel sustainable growth through bold efficiencies. We continue to realize strong saving from the PRGP which Akhil will describe. I want to personally thank the team for working together with speed to bring this fruition. Finally, for our fifth action plan priority, our step to reimagine the way we work evolves today as we unveil ONE ELC, our new operating model, aligning brands, region, and function as one team with one culture one operating ecosystem. We have simplified our structure in support of one team with fewer layers and silos along with clearer ownership to make it easier to get things done and done well. And guided by our newly announced beauty commitment to our team, we are leaning into one culture bold thinking, accountability, agility, unity, and focus. Lastly, we have advanced our work to create a robust operating ecosystem for more connected and scalable enterprise. The second quarter, we've established our new enterprise business services. Selecting Accenture transform how we deliver select shared services globally as we accelerate the deployment of AI throughout the organization. This exciting partnership adds to the ecosystem we are building with leading technology providers. Including Microsoft, Google, and Shopify fuel our ambition to be the best consumer-centric prestige beauty company. With the momentum of beauty reimagine and our first half result, we are raising our fiscal 2026 outlook today by narrowing the organic sales growth range towards the high end increasing operating margin expansion from 165 to 200 basis points at the midpoint, reflecting previously expected headwind like tariffs and now greater consumer-facing investment. And raising EPS growth from 33% to 43% at the midpoint. This outlook reflects the confidence in our turnaround as well as the significant work that we still have ahead to drive better performance in The US as well as in The UK despite its return to growth in the second quarter. And while the macroeconomic environment is challenging in the Western Europe market, we see opportunities to improve our results. For China, we are encouraged by the strong desirability of our brands and innovation. But cognizant of still subdued consumer sentiment. In our priority emerging market, after a significant acceleration to double-digit organic sales growth in the second quarter we are confident that our new organizational design is enabling us to better tap into growth opportunities. For 2026, we have a rich slate of innovation. Already out in skincare, clinic launched in new dermatologist developed skincare line and La Mer introduced eye cream to pair with its successful rejuvenating night cream. For makeup, Estee Lauder's Double Wear is launching next-generation matte foundation with more wear, more shade, more benefits. The brand is already the leader in foundation and looking to strengthen his leadership around the world. And Clinique is fueling the nostalgia trend with the Chubby Stick launch. Fragrance, newness from Kylian Paris, Le Labour, and Tom Ford builds on the category's terrific first half as our best performing category with 10% organic sales growth. In hair care, Bumble and Bumble introduced a styling product at an exciting time as it enters salon centric in The US. In closing, for fiscal 2026 we expect return to organic sales growth and expand our operating margin for the first time in four years. Setting the stage to restore sustainable sales growth and a solid double-digit adjusted operating margin in the next few years. I am immensely grateful for the opportunity to lead this great company especially as we celebrate the eightieth of our founding. We have an extraordinary team, an extraordinary portfolio of brand we have momentum. Onward and upward. I will now turn the call over to Akhil. Akhil Shrivastava: Thank you, Stephane. Hello everyone and thank you for joining us today. Enabled by Beauty Reimagined, our focus continues to be on long-term consumer-centric value creation. Through sales growth, margin improvement, and strong cash generation. We are delivering solid progress across all three priorities driven by the team's unwavering determination to build on a strong foundation advance key initiatives, and increase organizational speed and agility. While there is more work ahead, we remain focused on disciplined execution and are well-positioned to drive sustainable long-term value. Before sharing our updated full-year outlook, I'll start with a recap of our second-quarter performance. For more details on our second-quarter results, please refer to a press release issued this morning. Starting with organic net sales, we grew 4% year on year. This was led by 6% growth in both skincare and fragrance. Which was supported by increased consumer-facing investments behind go-to-market activities and innovation. Targeted expanded consumer reach also drove growth as we continued to execute against our beauty reimagined action plan accelerate best-in-class consumer coverage. These category results fueled double-digit growth in both Mainland China and collectively in our priority emerging markets. In North America, sales were flat with sequential improvement from the first quarter. Growth online from our continued expansion was offset by a decline in brick and mortar. Turning now to margins. Gross margin for the quarter was 76.5%. An expansion of 40 basis points. Compared to last year. Our expansion was again driven by strong net benefits from our PRGP. Including operational efficiencies and bid in excess and obsolescence ongoing reductions through a zero waste initiatives. Our improved sales leverage also contributed to expansion in the quarter. These results helped offset headwinds from incremental tariffs change in a mix of business and inflation. Turning to operating margin, we expanded two ninety basis points delivering 14.4% compared to 11.5% last year. Our disciplined investment allocation and PRGP net benefits drove a 3% reduction in nonconsumer facing expenses. Even with the normalization of employee incentive costs. Helping us to maintain cost efficiency and operating leverage. in consumer-facing investments This funded a 7% increase driving growth and continuing to strengthen brand equity. Our effective tax rate for the quarter was 39.8%. Down from 42.6% last year. This was primarily due to lower tax related to previously issued stock-based compensation. Our rate in the quarter also reflects the estimated unfavorable impact of recently enacted U. S. Tax legislation. Along with a higher effective tax rate on foreign operations due to new valuation allowances on certain deferred tax assets primarily in Latin America. Sales growth and cost leverage drove diluted EPS growth of 43% versus last year. EPS increased to $0.89 from $0.62 last year. Looking at our overall PRGP. We continue to execute with focus and discipline. Advancing initiatives to better position the company to improve its cost structure, fuel growth and deliver sustainable long-term value. This quarter we made significant progress in advancing our restructuring component of our PRGP. Entering into a strategic agreement for enterprise business services in connection with the historic transformation of a global operating ecosystem. As Stephane mentioned, this global initiative includes consolidating certain service providers expanding outsourced services and standardizing end-to-end processes using advanced technology. This enables us to unlock greater productivity and efficiency across the organization. Expected charges for these initiatives include professional service fees, employee costs and contract terminations. We expect these initiatives to deliver net benefits that ramp up over time as the transition progresses and service levels normalize As we execute the migration, we do expect some near-term cost pressure. As we operate in parallel with benefits building thereafter. As operational scale and efficiencies are realized, they are expected to drive OpEx improvement. And keep us on track to achieve our overall PRGP savings and margin progression. In terms of restructuring costs, through December 31, we recorded $904,000,000 of total cumulative charges primarily in employee-related costs. Turning now to cash flows. A key priority. For the six months, we generated $785,000,000 in net cash flows from operating activities. This is a significant improvement compared to the $387,000,000 generated last year primarily reflecting higher earnings excluding non-cash items. Also contributing to the improvement was a favorable change in operating asset and liabilities, despite the meaningful increase in restructuring payments. We invested $2.00 $4,000,000 in CapEx, continuing to prioritize consumer-facing investments to fuel growth while optimizing all other CapEx investments For the six months CapEx was down 25% versus last year. Reflecting the phasing of projects. These results underscore a strategic focus on improving free cash flow Turning now to our expectations for the remainder of the year. We are raising our fiscal 2026 outlook. We remain cautious of potential near-term headwinds including those from macroeconomic geopolitical and retailer-specific uncertainties. Though we are encouraged by our momentum and year-to-date performance. Starting with organic net sales, We are narrowing our range and now expect full-year sales to increase in the range of 1% to 3%, compared to last year. At the midpoint of our outlook range, we assume growth across all regions except for The Americas, where sales are expected to be flat. In the second half, we expect organic net sales to increase low single digits with higher growth anticipated in the fourth quarter relative to the third. This reflects an incremental transitory headwind in the second half of the year in Asia travel retail from the change of duty-free retailers servicing the Beijing and Shanghai airports. Including the related online businesses. Turning now to our outlook on margin and EPS. We now assume an operating margin between 9.810.2% up from our previous assumption of 9.4% to 9.9%. This improvement reflects both our strong first-half performance and greater gross margin expansion than previously expected. We anticipate operating margin expansion in the second half. This reflects third-quarter contraction of approximately 50 basis points compared to last year, as we invest more in consumer-facing programs to support our largest innovation schedule for the year. This contraction also reflects tariff headwinds. Diluted EPS is now expected to range between $2.5 and $2.25 up from a previous range of $1.90 and $2.10. This assumes a weighted average share count of approximately 365,000,000 shares and reflects year-on-year growth of 36% to 49%. Please refer to a press release issued this morning for other assumptions included in our fiscal 2026 full-year outlook including those regarding evolving trade policies, and enacted tariffs. In closing, as we mark the worry one-year anniversary of a beauty reimagined strategic vision we are energized by our performance, and progress towards restoring sustainable growth a solid double-digit operating margin and strong cash generation. We remain focused on disciplined execution and long-term value creation. To our teams around the world, thank you for your dedication passion, and unwavering commitment to be the best consumer-centric beauty company. Together, as one ELC. That concludes our prepared remarks. I'll now turn it over to the operator to begin the Q&A session. Operator: The floor is now open for questions. One on your touch-tone telephone. To ensure everyone can ask their questions. We will limit each person to one question. Time permitting, we will return to you for additional questions. And the digit one. The first question today comes from Bonnie Herzog with Goldman Sachs. Please go ahead. Thank you, and good morning, everyone. Stephane de La Fabri: Good morning, Bonnie. Good morning. I guess I have a question on Americas. Operator: Where you just mentioned that you expect growth to be flat in the year. I guess it does appear a little light in context guess, with the much easier comps from last year and then the progress you've been making with launches on Amazon, etcetera. So just in The Americas. And curious how you're thinking about the underlying performance are some of the key moving parts to keep in mind? And then if you could just also provide any color on the cadence of growth, will it be more balanced or skewed towards FQ4? Just think about in the context of the full company guidance. Thank you. Stephane de La Fabri: No. Thank you, Bonnie. I'll I'll I'll take that, and Akhil can add some. So, look, just let me just go back a little bit in North America. First, and, obviously, I'll talk about The Americas in total. We come out of ten years of market share loss. In The Americas, and I'm really proud of actually the momentum that the team have put into this market because when you look at the calendar 2025, we've been able to gain share in volume. And that was very important, and I've said it multiple time. We needed to reengage our brand to recruit consumers, and we've been able to do it across many of our categories and many of our brands. So we are now in a volume market share gain. And on top of it, we are also in a share gain in value in skincare led by The Ordinary and many of our brands that are, you know, pulling the total. So we are seeing some momentum, but we are coming out of obviously having a lot of share loss over the years. So we still have the number one brand and the number brand in skincare, the number one and the number two brands in makeup. We've you know, Clinique and the ordinary in skincare and Clinique and MAC in makeup. We're seeing a lot of strong performance with Estee Lauder and Mac at Ulta. We're very excited, and I've communicated it in October, November, that we were on touring, Mac US at Sephora. This is actually a big milestone after many, many years of not playing in, like, all specialty multi universe. So, yes, we are seeing great momentum, and we are moving, Bonnie, in the right direction when it comes to North America. That being said, there's still a rebalancing of all the channels that we are in the process of doing as highlighted by Beauty Reimagine. We've moved fast with Amazon. We have we are re the department stores. We know and we are exiting distribution as the distribution erodes, and we are moving fast into the specialty multi. So I believe there is great momentum, and I see a lot of more momentum going forward for our brand overall. Now The Americas is also a combination of North America and Latin America. While Latin America has been very strong at the beginning of the calendar 2025, We've seen a slowdown of consumer in the market. And I think one of the main challenges that we see is the inactive tariffs are starting to hurt consumer confidence in Latin America. But overall, I want to say, I feel very strong. We have momentum in the market. Volume share is back. And we are moving our brand. So I do believe we will see additional momentum going forward into the market. And to the second part of your quite about the cadence, and we didn't get indicated it in the prepared remarks, and in the press release, we see a stronger Q4 than we see in Q3 overall for the company because of some of the adjustment we are seeing, especially in the East with travel retail. You know, one other thing that we are in travel retail and is still some level of disruption especially when it comes to Beijing, Shanghai airports, but also the online business with Sunrise. As you know, certainly, Sunrise has stopped operation. All the operation have been transferred with a mix of China duty free, Avolta, and one Fuji. There's a little bit of a transition that we felt in Q2 that goes into Q3, but I really believe that there's going to be strong normalization based on the great relationship that we have had. Yeah. I want to just remind that Q2 was deliver a very strong Q2 that beat our expectation despite actually challenging in travel retail. Thanks to very strong performance in China and acceleration also in some market in the East in the West. So I think, again, we have momentum, and there's a rebalancing of growth. But our ambition is really to deliver the top end of the guidance that we've put in top line and in bottom line. So we've narrowed the midpoint, but really our objective clearly stated today is to deliver the top end of the guidance. Akhil Shrivastava: All right. Thank you very much. Stephane de La Fabri: Thanks, Bonnie. Operator: The next question comes from Filippo Folorni with Citi. Please go ahead. Akhil Shrivastava: Good morning, Filippo. Hi, good morning, everyone. Operator: Morning. Stephane, I was hoping you could expand a bit on the Travel Retail business, if you can give us a state of the union of the total Travel Retail business. And especially in Hainan, we've seen clearly an improvement in conversion rates, in spending, in duty-free stores. So what's the outlook as you think going forward for that part of the business? Maybe can you comment a bit on the other parts of the travel retail business in North Asia, especially South Korea and Japan? And especially as we think about the back half of the year where you think about on a two-year basis, you're comping more normalized shipment level. So what are you thinking that could play out in the back half of the year? Thank you. Stephane de La Fabri: Oh, thank you, Filippo. And I'll try to make a state of the union that doesn't last too long because it's a very complex thing that is happening in travel retail. Now thing I would say let me start from where we really have strong momentum, and I see, like, you know, travel retail, accelerating. It is indeed in Hainan. And I think it is clearly documented that traffic is picking up in Hainan, and I'm really strong I'm really happy with the work that the team did in I 9. In calendar 2025, we are growing we are head of the department. And we are so we are gaining market share. What I'm excited also with getting market share across a more diverse portfolio of brand that we have done it in the past, which if you remember, our growth was coming from Lauder and Lambert. Now we have Lauder. We have Lambert. We have Mac. We have Joe Malone. We have Tom Ford that are really performing in the channel very well. And one of the reason why we've seen this performance, and we are back up driving retail with a lot of eventing because the traffic is there, but conversion is still low. When you are there and you create really retail entertainment, we are able to convert the consumer. And I'm happy to report today, that the month of January in Hainan was in high double digit for us, again, gaining market share across many of our brands. So very excited by especially going into the Chinese New Year time frame it is very important, very clear indication that we are back able to convert traffic into into cell. Now want to be very clear. Hainan is only a part of Travel Retail East. And I think this is where maybe there's a little bit of a misconception of how big is I nine in the total. But Travel Retail East is a combination of Hainan again, the airport of Beijing, Shanghai, the universal app where people can buy online product, but there's also, frankly, the rest of APAC. That is highly disrupted Korea, and we're seeing recovery in the rest of APAC, but it's still very small in comparison of the China ecosystem. So let me just explain what happened in Q2 our Q2, the last quarter of the calendar year. In the ecosystem of Shanghai and Beijing the Universal App. Obviously, you know that all of this business is being in the midst of being transferred from Sunrise, like I said, to CDF, one Fuji, and Avolta. There's a bit of a disruption the market happening in this moment in time as we are transitioning, and that's the normal course of doing business. Concessions sometimes move from one retailer to another. But the universal app, there was a significant part of the business was shut down in Q2 and remained shut down as we speak. So, obviously, our ability to just, like, you know, convert is more limited. Now if you look at China Mainland and travel retail, we outperformed in China Mainland in Q2, in the total travel retail your expectation, maybe we delivered less. My point is it's a re it's an entire ecosystem that we need to look at where we are capturing the sales. The going forward is very strong. I want to be very clear. It is actually this challenge is a good thing, at the time where we are managing our inventory very carefully. We are shipping only to the demand we see this chance being the right thing. We have very strong partnership with CDF with OneFugin, with Avelta. Locally and globally. And we are in the process of putting the right GBP to make sure that we can accelerate in the course the remaining course of this fiscal year but frankly beyond. And the second part of your question, obviously, like, you know, Japan and the rest, You know, Japan, actually, I'm really happy because we are demonstrating in this moment in time that even in a disrupted market, because you know, obviously, there's some geopolitical tension, between various market in the region. We've seen a dramatic of traffic even though we've been able to just gain market share. And this is the number one thing that we are focused. No matter if there is growth or no growth, we want to be in a market share position, in a market share growth. And that's what we are demonstrating. Now early into this calendar year, we're seeing a shift from Japan to Korea and over market in the region. We are ready the consumers with all our brands really fully deployed. So I want to make it even though there's a bit of a disruption in Q4 into Q2, we remain extremely confident the momentum that we are building and our ability to just convert. Traffic into sales across all our brands. Akhil Shrivastava: And one thing just to add quickly, Filippo, the untold story which Stephan is basically double clicking here is the outperformance by ELC in the channel. It is in the West, where we where we had stated early on as Stefan had said, we'll we'll win in WestDR. Are winning there. We are winning in Hainan by a quieter distance. And we are winning in markets like Japan, Thailand, and other places. So the outperformance by ELC in travel retail parts of travel retail along with China is is the significant encouragement we take for our business as we look forward. Filippo Folorni: Great. Thank you so much, guys. Thanks, Filippo. Operator: The next question comes from Steve Powers with Deutsche Bank. Please go ahead. Stephane de La Fabri: Good morning, Steve. Operator: Good morning. I wanted to pivot if I could to profitability in the quarter, which as you highlighted, you know, was strong. Both on growth and operating margin. If I if I drill in on there, a bit, though, your skincare delivered you know, most of the upside, if not all the upside. Fragrance is also positive, but you know, more in line, I think. I think on the other side of the coin was makeup. Which know, is still know, essentially kinda operating at a breakeven level. If you could just, talk about what you're seeing in that segment and how you see the progression of profitability know, for for makeup to contribute more as we go forward? Thank you. Akhil Shrivastava: Thank you. Thank you, Steve. Couple of things. As we are looking to to solid double-digit margin, we are looking to improve margins across the board. Across categories, and across regions. Now specifically answering your question on the makeup profitability this quarter, it was also impacted by the return we took on the innovation that is coming in quarter three. So there is a temporary effect there which which understates makeup profitability for the quarter. However, your broader point on makeup profitability is very clear to us. And then as Stefan and I have communicated, this is an area where we believe we can have significantly better margins overall. No reason why it should be very dissimilar to other categories over a period of time. Through the work we are doing on rightsizing our fixed cost in these categories, through the work on PRGP and through the acceleration we are now starting to see even in this category on sales and with the big launch coming up of Double Wear. Some of the improvement we are seeing on makeup. We expect to see profitability improve. But this is a key pillar that we are working on on, Steve. In quarter two, you did notice little bit of a one time due to the return we took. On this innovation. But those are the some of the salient points. Stephane de La Fabri: Just one one thing, Steve, on the makeup, because I think it's very important and look. We've been always transparent. We have a lot more work to do on makeup, and we are with the team in New York and frankly, with all our teams around the world, we're continuing just improve things. I'm I'm not going to repeat what Akhil said, but a lot of things that we're doing in this moment in time related to our strategy on Beauty Reimagine is to expand distribution. We've entered TikTok shop in The U. S. With Clinique and Mac. Which has allowed actually Mac to just already be in a market share gain in the leap category, which is so important. For MAC in The US. MAC has entered shop in Germany. I said it again, we are about to enter. We are weeks away to enter Sephora US with Mac, which is going to be a big game changer for the brand. And we are working on more opportunities. Innovation is being ramping up. One other thing mentioned in my opening remark is the fast acceleration of the innovation coming in less than a year. Remember, I've committed to triple that. We're already exceeding our expectation this year. We were thinking about 16% of our innovation was going to come in less than a year. It's going to be 19%. The majority of this innovation is coming from makeup. Obviously, we can go much faster in makeup than we can do in the other categories. We are going fast. We are deploying our makeup brand in the We are rationalizing distribution. I think I also mentioned it in my prepared remark in term of the freestanding store to make sure that we are more profitable. And we are going to have all the added benefit of the PRGP that continues to flow through, like, you know, the p and l this year and in fiscal 2027. Because while the PRGP ends at the end of this fiscal year, the execution of it will continue into fiscal 2027. Fiscal 2027, and we will basically get some benefits. So we are on the path for recovery. It is true that skincare is growing faster because of the scale. We're very pleased with the progress that we are doing in pharmacies. I think makeup requires more scale and this is why we are deploying our brand and accelerating innovation to be able to just resolve also this this issue that we have with the makeup category. Thanks, Steve. Operator: The next question comes from Lauren Lieberman with Barclays. Please go ahead. Thanks. Good morning, everyone. Stephane de La Fabri: Morning, Lauren. Good morning, Lauren. Operator: Wanted to ask a little bit about China. You called out not just the obviously strong results, but in the release you talked about the period around 11:11 being a big component of that. So curious if you could talk about the promotional environment around eleven point one eleven, what you're expecting in that regard for Chinese New Year? I think the market overall, lots of beauty players have talked about wanting the wishing the environment could be less centered around those big selling moments and more balanced across the year. So just curious sort of what you're doing to drive stronger, let's call it, like, everyday performance and to generate excitement outside of those key historically key holiday periods. Thanks. Stephane de La Fabri: Thank thank you, Lauren. It's obviously a very important you know, discussion that we're having with the team So yes. And thank you for acknowledging the very strong performance that we have had in China. I want to say it's now fourth consecutive quarter that we grew share in all four categories in China. And that's very important. And, yes, the big period like 11/11, like 06/18 are more promotional than others. But it is these are highly concentrated level of sales And the good news is that during this period, the Estee Lauder brand became again the number one prestige brand on Tmall and Douyin, La Mer is the number one brand in luxury on Timor and Jo Malone, the number one brand in prestige France is on Timor. So it is important for us to be present and to be strong during this moment because it allows us also to recruit a lot of consumers and retain them through the year. But the interesting thing when you go into China, every day is a moment. Okay? There's every day that there's a shopping festival of some in some sort. Obviously, Chinese New Year, we are about to enter. We are into it because it starts on February 15, and it's a little bit later this year, the one is a bit of disruption in the month of January. We have to look at January and February together. But it's actually traditionally a period that is less promotional. It is about more gifting. It is about more experience. That we are bringing to the consumers. And that's what I mentioned, like, you know, earlier when we had the question on travel retail about also creating retailtainment So our team both in travel retail China and in China Mainland are laser focused in creating eventing VVIP reach to the consumer. So we depend less on the high promotionality of the two major cell shopping festival being six eighteen and eleven eleven. And there's plenty of others. There's, like, international Valentine's Day. There's Chinese Valentine's Day. There's Women's Day. I could go on and on on the number, of events. We're also driving our freestanding store fleet. We're accelerating the number of freestanding store in the market. And this is certainly the part of the distribution we've accelerated the most that allows us to just bring experience to the consumer so we don't rely so much on the high traffic promotional moment. So I feel we're in a good position. I mean, just to quote few results, we've gained in Q2 twenty two basis point in skincare, 87 in makeup, 100% in France, 5% in haircare. These are not small gain by any means. And frankly, that was not only driven by eleven eleven, but also the post eleven eleven going into December in the preparation of Chinese New Year. So rest reassure that we are laser focused on balancing the year so we can continue to raise the consumer facing price in the markets as well as really increasing the number of experience and connection we're creating with the But the the momentum is good. I've been also very clear that China calendar 2025, we were lapsing two years of negative trend. The good news is that we've accelerated and we've accelerated above the market. The concern sentiment is still subdued, but when we create the right not only through promotion, we are able to convert them. So we are thinking that 2026, there's still a lot of opportunities, but we are now starting to lapse much stronger base of 2025 into 2026. And one thing just to add, Lauren, that our discount levels in China are coming down while we are driving this outstanding outgrowth and outperformance of the market. So not only is, of course, sales coming, discounts are reducing, and then, of course, profitability is improving. Stephane de La Fabri: And we are doing the same in travel retail China. Also, are just, like, you know, cutting the discount retailers also and in the midst of this transition with the new retailers, this is obviously, like, you know, conversation to just make sure that there's less discount in the market, and we drive more conversion through experience going forward. All the channel is evolving to be much more experiential, which I think is a good thing for the long term of our brands. Operator: The next question comes from Rupesh Parikh with Oppenheimer. Please go ahead. Akhil Shrivastava: Good morning and thanks for taking my question. So I just wanted to go back to the North America segment. Rupesh Dhinoj Parikh: Hoping to get more color just in terms of some of the dynamics between sell in and sell out. And whether you expect that gap to be improved as you or close as you exit the fiscal year? Thank you. Stephane de La Fabri: So Akhil Shrivastava: Rupesh, thank you. And our when we when we did quarter one, we did have a significant gap, which we talked about and on the call. Had about five point gap, and Stefan and I had said that this gap should reduce. In quarter two, this gap has significantly reduced. We do expect And should continue to be lower than where we were in Q1. a going gap of a couple of points mainly driven by the fact that as we move to these online platforms, some of the media that we are investing which is the a and p on these channels, is gets a a reduction from sales line versus an opex line. So this is not this doesn't impact profitability. It's simply the arrangement or the contract which reduces sales. So when these channels are in growth mode, year on year, that mix causes that. The other factor has been inventory. Where we have made significant progress. So our inventory frankly, everywhere in the world are are lower or in line with where we needed to be including in North America. Now North America is, of course, a shifting retail landscape, so we have to constantly manage it. But what we are seeing is a clear improvement and difference between retail growth growth and net growth. And I also wanted to follow-up on Bonnie's comment earlier, which is that, look, North America first quarter was down. Second quarter is a positive we said full year would be flattish which means the rest of the years after quarter one should be positive. For North America. So we we and that's what we are working towards. So of course, when we combine quarter one net sales growth, which was a negative, we had the full year flat. So North America trends are also improving. And should should a quarter two to quarter three to quarter four we expect more in positive versus flat including quarter one, the full year was flat. Hopefully, that's my observation. Thanks. Thank you. Operator: The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead. Dara Warren Mohsenian: So I just wanted to follow-up on The U. S. Christopher Michael Carey: Could you give us a sense now that calendar 2025 is in the books how much of your business has shifted more to the what you characterize as higher growth channels versus the percent of mix that's maybe in some of the channels that aren't performing as well And just give us an update on where you stand in the brand evolution? As you move some of the brands towards increasingly towards these higher growth channels. Just where we stand in that evolution and and what the plans are going forward. Stephane de La Fabri: Yep. No. Thank you. Thank thank you, Dara, for the question. So look, in North America, you know, today, and I think we've mentioned it, we are continuing to decrease the penetration of department store in our total business. That's your your question. And today, it's like, you know, at 30% or less. Frankly, it is way less on some brands, obviously, Lauder, Clinique, and MAC are still brands that have like a higher penetration. In the department store than other brands that have a very limited penetration. We are, as demonstrated, increasing really fast our penetration to the online players like Amazon and now 12 brands, in The US on Amazon US. So this is really outstanding to have been able to just move that quickly in the channel. Again, Mac is moving into Sephora, but we have really strong partnership with, like, you know, Ulta and with many of our brands there. So, like, you know, the penetration of specialty multi is increasing. The penetration of the online player is increasing. The penetration of our direct to consumer business is also increasing. Especially our brand.com, but also freestanding stores in luxury pharmacies. You know, we've opened some stores we are planning to open more in the future. As the consumer the luxury consumer is gravitating towards even in The US towards more experience unit unique brand proposition selling environments. We are really on the right path you know, Dara, to just, you know, being able to just, you know, make this move and to be less and less dependent. Now I want to be very clear. The department store remain a very important and strategic channel for some of our brands, and we are working with our partners all the way from, like, you know, Macy's to Blue Big Dales like, you know, even Saks in this moment in time to just make sure that we capture you know, the consumer. We have very strong position, often leading position in this department stores, and we need to just protect it. But at the same time, we are clearly steady as part of our beauty reimagine that we are moving where the consumer is moving. There is, like, you know, the no decision there. So so so I feel good we have that's why we've been able to just maintain our market share. And frankly, most of the volume growth that we have had and the gain in volume is coming from the high growth channels. A lot of this growth, it's not hard to just see that it's also coming from the high and very strong performance of the ordinary that is in high double digit growth in this market that is 100% in a high growth channel. And this is actually one of the strengths of being the brand from La Mer to the ordinary that are positioned in all these channels being able to just capture a where they are. Thanks all. Operator: Next question comes from Chris Carey with Wells Fargo. Please go ahead. Stephane de La Fabri: Hey, Chris. Christopher Michael Carey: Hi, good morning, everyone. Good morning, Chris. I wanted to ask about Europe. We've seen some stabilization in the sequential improvement in the market. Can you just expand about State Of The Union And Specifically Comment On The UK and your outlook for the market in the medium term? Stephane de La Fabri: Yeah. No. Thank thank you, Chris. Thank you for noticing the second the sequential improvement. Europe is a tale of multiple cities. You know? I I obviously, our region is and I want to remind everybody it's like, you know, Europe is The UK, and it's obviously the emerging market. So if I look at the sequential improvement that we are seeing, in the total area is really coming from the emerging market, but also for from The UK going into back into positive territory into the last quarter. I've said it multiple time. The UK, were, I not where we should have been. Are still have a lot of work to do, but at least we are moving in the right direction. Europe consumer sentiment is still very subdued. We've seen a lot of challenges in France, in Germany to name, like, know, few market. But at the same time, really strong performance in market like Spain or Italy, where we are gaining share in currencies. And you know, this this region of the world is highly penetrated in the category of perfume. It's very good for us to be able to demonstrate that we are able to just gain market share in this category. So we have a lot work to do. I'm actually pleased with the beginning of momentum that we are getting into The UK and many of the playbook that we've used in The US, are to The UK. We've moved some of our brands into the Amazon platform in The UK. We are rationalizing this We are accelerating the work we are doing with Specialty Multi. We've had really great support and great performance at Sephora UK. Obviously, like, you know, Boots, our historical partner, to name a few. So great, great momentum. And, frankly, where I am the most excited, I based on the new organization we've put in place are the emerging markets. Our priority emerging market delivered double-digit growth into the quarter, which is a sequential improvement it's driven by Turkey, by Middle East, by Thailand and even mid single digit in India. That is such a very strategic market for us. So I think it's a tell of, Chris, of so many different cities. And stories, sorry, like, you know, about, like, you know, this very complex region. But again, it's moving in the dark in the right direction. More work to do, but the team is laser focused. On activating with excellence all the launches, and I think things from clinic to loader innovation that are coming in the second half of this fiscal year are so important for this region. Double Wear is the leading foundation in many of this market, and we expect you know, a lot of things from this launch and hopefully, some sequential improve continuous sequential improvement in the in this geography. Operator: Next question comes from Peter Grom with UBS. Please go ahead. Akhil Shrivastava: Great. Thank you. Good morning, everybody. Morning, Peter. Good morning. Operator: So I I was hoping to just get a sense on on kind of the top line trajectory in the back half of the year and just the expectation for higher growth in the fourth quarter versus the third quarter. You maybe frame the difference you would expect between the quarters I guess, as we think about the fourth quarter, are there still some of these disruptions or repositioning changes that will be impacting growth? And I and I ask this more in context around the the exit rate and and maybe how this should've inform our view on the top line trajectory as we look out to 2027? Thanks. Akhil Shrivastava: Yeah. Thanks. Thanks, Peter. So, essentially, look, we had a strong first half. Plus 3%. Right at the beginning of the year, we had telegraphed. That we would have a back half in Asia, especially in both in China and travel retail will be will be anniversarying more larger basis. We had said that at the beginning of the year. It was a part of our guidance which we had communicated. Now to your point around back half, like Stephane said, we expect to see continued mid single growth in China or better, but but some of this is the stimulus the Chinese economy had, which is anniversarying. Our goal is to outperform that market. We expect market itself to take a little bit of a back step from the from the double digit type growth we put together. One. Secondly, the other point is that when you look at our APAC and PR segment, you see that the largest base period was quarter three. We do see a little bit of that in in the quarter three to quarter four phase And then as we communicated, is this transition, which Shivan and I talked about, of retailers. Which is not a longer term item to your point around exit rate, but it's a transition where one retailer takes business from another. You have ordering transition that goes on. So these are the main things that that impact slightly in the back half. Of course, as we exit the year, our expectation is that we had said beauty market would be two to three this year. That was including travel retail, which has been challenged. As travel retail basis of that period, beauty market itself should be better, assuming other things remain the same in the West and China continues to do mid single. And then goal, our stated mission very clearly is which we are demonstrating in China, in US, in Japan, is that we want to start leading these markets in a very clear way, which we are already doing unquestionably in China, in Japan, in parts of emerging markets. So so I think that is basically what is underlying our background. Half guide and then, of course, what you should expect going forward. Stephane de La Fabri: Yeah. And and and, Peter, I want to be very clear that there's no misunderstanding from anybody. Are going for the top end. Of the new guidance that we are giving both in top line and bottom line for this fiscal year. Okay. So that's very clear. That's the mission that we have. We going for it. Obviously, we are giving ourselves a range because of, like, you know, volatility that we all have you know, to manage and, you know, frankly, being able to deliver this very strong first six months of the year, we the amount of volatility that we have had and consumer sentiment being subdue I think I'm really proud, frankly, what our team has done, and I think it's showing the momentum that we have on Beauty Reimagine, and I think should give you the confidence that on the long term, we are in the right trajectory. We are accelerating, we are doing the right thing, and we are rebalancing also our growth between geographies, between brands. And frankly, we're putting the one operating ecosystem in place for us to just be much more agile. And in this midst of time, we are refreshing our long range plan, and you can expect us when we come at the end of the fiscal year in August that we will give you more visibility of our mid to long term growth. But I've also said it and I repeat it today, Our objective past this transition year is to gain market share. That's what we are doing in this transformation. This is why we are diversifying our growth. This is why we are simplifying the ways of working. We've brought a lot of new partner in house today. We've talked about Accenture. We've talked in the past about Shopify. We have great partners like, Google, Microsoft, and so many others that are helping us to really act with speed and agility and let alone all the PRGP where the saving will continue to flow through this year and into next year and create a lot more efficiency. So I feel really good about what we've done in this first year, of Beauty Re imagine. The momentum in the first half is strong. Even the retail sales ex travel retail at plus four lead us believe that we are gaining market share in many, many market as demonstrated in China, in The US in volume and so on and so forth. So, I feel good We are going for it. We're going for the top of the guidance, and that's the mission that we every single of the employees of the Asterra companies have today and we're going for it. Operator: That concludes today's question and answer session. If you were unable to join the entire webcast, a playback will be available at 1PM Eastern today. Through February 19. Please visit the Investors section of the company's website to view a replay of the webcast That concludes today's Estee Lauder conference call. I would just like to thank you all for your participation. And wish you all a good day.
Operator: Welcome everyone. The Fourth Quarter 2025 Huntington Ingalls Industries, Inc. Earnings Call Conference will begin shortly. In the meantime, if you would like to preregister to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Once again, today's call is going to start shortly. Thank you for your patience. Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2025 Huntington Ingalls Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. During the session, if you change your mind, please press star followed by 2 on your telephone keypad. Please be advised that today's conference is being recorded. If you need further assistance, please star 0 to reach an operator. I would like now to hand the call over to Christie Thomas, Vice President of Investor Relations. Mrs. Thomas, you may begin. Christie Thomas: Thank you, operator, and good morning, everyone. Welcome to the Huntington Ingalls Industries, Inc. Fourth Quarter 2025 Conference Call. Matters discussed on today's call that constitute forward-looking statements, including our estimates regarding the company's outlook, involve risks and uncertainties and reflect the company's judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today's press release and the company's SEC filings. We will also refer to non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website at irhii.com. On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Stiehle, Executive Vice President and Chief Financial Officer. Now I'll turn the call over to Chris. Chris Kastner: Thanks, Christie. Good morning, everyone, and thank you for joining us on our Fourth Quarter 2025 earnings call. Before discussing the results, highlights, and guidance, I'd like to take a moment to reflect upon our progress over the past year. The solid results we posted this morning are the outcome of a measurable increase in shipbuilding throughput, a key indicator for schedule performance. During 2025, in partnership with our government customers, we've taken steps to increase our hiring, improve our retention, and strengthen proficiency levels within our workforce. What these efforts represent are thousands of skilled shipbuilders, engineers, technologists, and professionals who are committed to Huntington Ingalls Industries, Inc.'s mission. I'd like to say thank you to our 44,000 employees. Every improvement in our operations, every efficiency we unlock, every day we reduce from a schedule translates directly into capability our customers urgently need and can deploy to protect American interests. Now turning to our 2025 results, revenues of $12.5 billion grew 8.2%, and EPS was $15.39. 2025 awards totaled $16.9 billion. All three of our divisions reached record revenue levels and hit key milestones. Now I'd like to share some of the 2025 division highlights starting with Mission Technologies. In 2025, Mission Technologies delivered another year of top-line growth with record revenues topping the $3 billion mark for the first time. Throughout 2025, we announced key milestones that highlight the breadth of our defense technology offerings. These included developing the US Army's high-energy laser weapon system, debuting Grimm's spectrum dominance EW solution, delivering Lionfish small unmanned underwater vehicles to the US Navy, expanding shipboard and shore-based training for US and coalition forces, and delivering our 750th Remus autonomous underwater vehicle. To accelerate support of a hybrid fleet, we unveiled the Romulus family of unmanned surface vessels powered by our own Odyssey autonomy software suite. And construction of the first prototype is well underway on the Gulf Coast. In summary, the Mission Technologies team is executing well, and we are confident in continuing this success, particularly given how closely our portfolio maps our defense customers' needs. Shifting to shipbuilding. At Ingalls, we delivered our Flight III destroyer DDG 128 Ted Stevens, launched DDG 129 Jeremiah Denton, and authenticated the keel of DDG 135 Thad Cochrane. Also in January, we completed sea trials on DDG 1,000 Zumwalt. On the amphibious ship programs, we christened LPD 30 Harrisburg and began fabrication of LPD 32 Philadelphia. And LHA 8 Bougainville is actively in the test program and has achieved generator light-off. We also signed a memorandum of agreement with HD Hyundai Heavy Industries reinforcing our strategic collaboration to explore future partnership opportunities. Additionally, in December, the US Navy announced a Golden Fleet which includes a Trump class battleship as well as a frigate which will leverage the proven design of the Ingalls-built Legend class national security Cutter. I have great confidence in Ingalls' team to execute this program and in our ongoing efforts with our partners to successfully expand the US shipbuilding industrial base to meet the Navy's needs. In 2025, at Newport News Shipbuilding, we delivered Virginia class submarine SSN 798 Massachusetts, launched SSN 800 Arkansas, laid the keel of SSN 804 Barb, and undocked SSN 790 New Jersey in preparation for a redelivery to the fleet. We also delivered the bow of the first Columbia class submarine SSBN 826 District of Columbia. Our aircraft carrier programs, last year, we completed dock trials on CVN 79 Kennedy, and the team is now finishing up her first sea trial evolution, moving another step closer to preliminary acceptance and delivery. In addition, having completed deck over of both engine rooms post receipt of the remaining major engine room components, CVN 80 has now reached 50% erected in the dry dock, and CVN 81 keel units are in fabrication, and we continue to receive major material components in support of production. After delivering two ships in 2025, DDG 128 and SSN 798, we expect to deliver another two ships in 2026, SSN 800 and LPD 30, as well as complete preliminary acceptance of CVN 79. I'll note that we've accelerated our forecast of LPD 30 delivery into 2026 and adjusted LHA 8 Bougainville delivery to 2027. This ensures that we avoid any potential conflicts, people, or equipment, and establishes clear and consistent priorities for the joint Ingalls and Navy teams throughout all the interim milestones leading to delivery. Now I'd like to update you on our operational initiatives. In 2025, we set out to improve throughput and achieve a 14% year-over-year increase. As we continue to invest with our customer partner, in our workforce, facilities, technology, and supply chain, we've established our 2026 target to increase throughput by another 15%. Supporting the throughput increase, we hired over 6,600 shipbuilders in 2025 and expect to hire at least this many in 2026. Given recent investments in wages and workforce, we expect continued improvement in our retention rate and will continue to develop our workforce to maximize productivity. We also plan to continue to ramp our distributed shipbuilding strategy. While we doubled outsourcing year-over-year in 2025, we are planning to increase outsourcing by another 30% in 2026. Our second operational initiative in 2025 was a reduction target of $250 million, which we met by removing mostly overhead and support labor costs for improved efficiency. Lastly, we expect several shipbuilding contract awards in 2026, including Virginia class block six, Columbia bill two, CVN 75 RCOH, and CVN 82 longleaf material. Regarding capital allocation, we have historically taken a very balanced approach, leading with reinvestments into our shipyards. Stakeholders that have visited our yards have seen firsthand the tremendous amount of investment we have made over the past decade at both Ingalls and Newport News. In 2026, we will again target hundreds of millions of dollars of capital investment in the shipyards. Specifically, at Newport News, these projects include finishing a multipurpose carrier refueling and overhaul work center, making peer updates to support carrier inactivation, significant investments in manufacturing centers of excellence to support higher submarine throughput, and completion of the new parking garage that began construction in 2025. Now I'd like to say a few words about guidance, and Tom will provide more detail on his remarks. With our keen focus on execution, the progress made this past year, the large investments in shipbuilding, and the unprecedented demand for our products and services, we are raising our medium-term shipbuilding revenue growth guidance from approximately 4% to approximately 6%. We did have some sales driven by material timing move into 2025 that were expected in 2026, so our current year outlook for shipbuilding revenues is between $9.7 and $9.9 billion and shipbuilding margins in the range of 5.5% to 6.5%. For Mission Technologies, we expect revenues between $3 billion and $3.2 billion and margins of approximately 5% with EBITDA margins between 8.4% and 8.6%. Our free cash flow outlook for 2026 is between $500 million and $600 million. Turning to activities in Washington for a moment, Congress on a bipartisan basis passed the National Defense Authorization Act for fiscal year 2026 in December. Fiscal year 2026 NDAA strongly supports our shipbuilding programs, including incremental funding and block buy procurement authorization for CVNs 82 and 83, incremental funding and procurement authorization for up to five Columbia class submarines, and continuous production authority for a range of Virginia class components to optimize construction schedules and supply chain resilience. Fiscal year 2026 defense appropriation bill shows strong support for our programs. The bill includes continued incremental funding for CVNs 80 and 81, along with advanced procurement for CVN 82, continued funding for CVN 74, our COH, funding for the Virginia class and Columbia class submarine programs, advanced procurement for the DDG 51 program, and funding for long lead materials for the new frigate program. Combined with the shipbuilding funding provided in a budget reconciliation bill that was enacted into law in July 2025, FY '26 defense appropriations bill continues the strong support for the shipbuilding industry. In summary, we've made meaningful progress over the past year and have increased throughput and improved execution. We must build on this momentum and continue to increase our shipbuilding throughput. The US Navy and all of our defense customers need our ships and technologies now more than ever. The global security environment demands that we operate with a sense of urgency and purpose that matches the seriousness of the threats our nation faces. Now I will turn the call over to Tom for some remarks on our financial results. Tom? Tom Stiehle: Thanks, Chris, and good morning. Today, I'll review our fourth quarter and full-year results. Also, provide some additional color regarding our outlook for 2026. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on Slide six, our fourth quarter revenues of $3.5 billion increased approximately 16% compared to the same period last year. The higher revenues were driven by growth at all three segments. Ingalls' fourth quarter 2025 revenues of $889 million increased $153 million or 21% compared to the fourth quarter of 2024, driven primarily by higher volumes on amphibious assault ships and surface combatants. At Newport News, fourth quarter 2025 revenues of $1.9 billion increased $303 million or 19% from 2024, primarily due to higher volumes in both submarines and aircraft carriers. At Mission Technologies, fourth quarter 2025 revenues of $731 million increased $18 million or 2.5% from 2024, primarily driven by higher volumes in Warfare Systems, global security, and unmanned systems. Moving to slide seven, segment operating income for the quarter was $195 million, and segment operating margin was 5.6%. This compares to $103 million and 3.4% respectively in 2024. Results at all three segments improved compared to 2024. Ingalls' fourth quarter 2025 operating income of $68 million and margin of 7.6% compared to $46 million and 6.3%, respectively, in 2024. The improvement was due to the higher volumes I noted as well as lower unfavorable cumulative adjustments for amphibious assault ships and surface combatants compared to 2024. Newport News' fourth quarter 2025 operating income of $84 million and margin of 4.4% compares to $38 million and 2.4% respectively, in 2024. If you recall, these results are lapping 2024, which included unfavorable cumulative adjustments for Virginia class submarines and new carrier construction as well as contract incentives related to the Columbia class program. Fourth quarter 2025 results also include favorable contract adjustments on the Virginia class program. Shipbuilding margin for 2025 was 5.5%. Mission Technologies' fourth quarter 2025 operating income of $43 million and segment operating margin of 5.9% compares to $19 million and 2.7%, respectively, in 2024. Improvement was driven by better performance in Warfare Systems, global security, and unmanned systems, as well as the high Mission Technologies volume I noted earlier. Net earnings in the quarter were $159 million compared to $123 million in the fourth quarter of last year. Diluted earnings per share in the quarter were $4.44 compared to $3.15 in the fourth quarter of the previous year. Moving on to consolidated results for 2025 on slide eight. Revenues of $12.5 billion increased $949 million by 8.2% compared to 2024. While each segment contributed to the higher revenue, growth was particularly strong at Ingalls and Newport News Shipbuilding. Ingalls' revenues of $3.1 billion in 2025 increased $311 million or 11.2% from 2024, driven primarily by higher volumes in surface combatants and amphibious assault ships. At Newport News, 2025 revenues of $6.5 billion increased by $538 million or 9% from 2024, due to higher volumes in both submarines and aircraft carriers. At Mission Technologies, 2025 revenues of $3 billion increased $107 million or 3.6% from 2024, primarily driven by higher volumes in warfare systems, global security, and unmanned systems. Moving to slide nine, segment operating income for the year was $717 million, and segment operating margin was 5.7%. This compares to $573 million and 5% respectively in 2024. Ingalls' operating income of $233 million and margin of 7.6% in 2025 compares to $211 million and 7.6% respectively in 2024. The increase in operating income was primarily driven by the higher volumes noted earlier and favorable contract adjustments in surface combatants, partially offset by lower performance in amphibious assault ships. Newport News' 2025 operating income of $331 million and margin of 5.1% compares to $246 million and 4.1% respectively in 2024. The increases were primarily driven by favorable contract adjustments in the Virginia class submarine program, partially offset by contract adjustments and incentives in 2024 in the Aircraft Carrier Refueling and Complex Overhaul program. Shipbuilding margin for 2025 was 5.9%. Tom Stiehle: Within the guidance range we provided for the year and consistent with my commentary on our last earnings call. This represents a 70 basis point improvement over 2024's results. Net cumulative adjustments for the year were negative $28 million. Newport News' net cumulative adjustments were negative $64 million, which included adjustments related to CVN 80 and CVN 81 carrier construction. The negative Newport News cumulative adjustment was partially offset by positive net cumulative adjustments at Ingalls of approximately $16 million and Mission Technologies of approximately $20 million. Moving on, Mission Technologies' 2025 operating income of $153 million and segment operating margin of 5% both improved from $116 million and 3.9% respectively in 2024. Improvement was driven primarily by the lower purchased intangible amortization, better performance in warfare systems, as well as higher revenue volumes noted earlier. Mission Technologies' 2025 results included $89 million of amortization of purchased intangible assets compared to approximately $99 million in 2024. Mission Technologies' EBITDA margin for 2025 was 8.6%, up from 7.9% in 2024. Net earnings in 2025 were $605 million compared to $550 million in 2024. Diluted earnings per share in 2025 were $15.39 compared to $13.96 in 2024. Turning to cash flow on Slide 10, 2025 free cash flow was $800 million, above the guidance range we had provided for the year, as we finished the year very strong from a working capital position. We slightly underran our planned capital expenditures for the year. During the year, the company invested $396 million in capital expenditures, or 3.2% of sales, as we continue to prioritize investments to drive higher throughput in our shipyards. We paid dividends totaling $213 million in the year and did not repurchase any shares during the year. We ended 2025 with $774 million in cash and cash equivalents on hand and liquidity of approximately $2.5 billion. Cash contributions to our pension and other post-retirement benefit plans totaled $54 million in 2025. You can find our updated five-year pension outlook in the appendix of today's presentation on slide 14. Turning to slide 11 and our financial outlook. First, I will highlight that the guidance we are providing today is predicated on achieving the shipbuilding throughput improvements that we've outlined as well as reaching agreement on the next Virginia and Columbia Class submarine contracts in the first half of the year. Regarding our multiyear targets, we are updating the medium-term growth targets that we have provided previously. We now expect the consolidated Huntington Ingalls Industries, Inc. medium-term top-line CAGR of approximately 6%. This is comprised of shipbuilding growth of approximately 6% and Mission Technologies growth of approximately 5%. We believe this shipbuilding growth has additional upside as the forecast does not yet account for the recently announced frigate and battleship programs. We will need to revisit these growth assumptions once we have a better understanding of how each of these programs will proceed forward. Regarding our 2026 expectations, Chris provided our outlook, but let me provide a bit more color on our free cash flow expectation for the year. We expect 2026 free cash flow of between $500 million and $600 million. At the midpoint, that puts combined 2025 and 2026 free cash flow at $1.35 billion, an increase from the $1.2 billion target we discussed last quarter for the two-year projection. As I noted earlier, we finished 2025 very strong from a working capital perspective. Overall, working capital was a tailwind of approximately $170 million in 2025. We think careful working capital management along with beneficial cash tax impacts from the one big beautiful bell will continue to be a cash tailwind in 2026. As Chris mentioned, we continue to prioritize strategic capital investments into our shipyards. We expect 2026 capital expenditures to be approximately 4% to 5% of sales. This represents approximately $500 million to $600 million of investment to drive capacity and throughput. You can find additional 2026 guidance elements on the 2026 outlook table on slide 11 of the presentation or in the earnings release. This includes an anticipated 2026 effective tax rate of approximately 17%. This lower tax rate is primarily attributable to an expected reduction in total tax expense related to research and development credits. Turning to our provided look ahead for 2026, we expect approximately $2.3 billion for shipbuilding revenues and $700 to $750 million of Mission Technologies revenues. With shipbuilding operating margin near 5.5% and Mission Technologies operating margin up between 4% and 4.5%. Consistent with normal cash flow cadence, we expect first quarter free cash flow to be negative, representing a use of approximately $600 million as some of the fourth quarter working capital benefit unwinds. To close my remarks and echo Chris' comments, we have exited 2025 with good momentum and are focused on a clear set of goals and objectives for 2026 that are aligned to our customers' needs and our national security while continuing to create value for the Huntington Ingalls Industries, Inc. enterprise. With that, I'll turn the call back over to Christie for Q&A. Christie Thomas: Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up so we can get as many people through the queue as possible. Operator, I will turn it over to you to manage the Q&A. Operator: Thank you, Christie. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Robert Stallard from Vertical Research. Your line is now open. Please go ahead. Robert Stallard: Thanks so much. Good morning. Chris Kastner: Morning. Robert Stallard: Chris, I'd like to follow-up on those productivity numbers that you gave, the 14% progress in 2025. I was wondering if the performance there was the same across the various shipbuilding programs. Then how much more is needed, for example, on the Virginia class? If you're gonna get consistently to two a year? Chris Kastner: Yeah. It was pretty broad-based improvement across the programs. The Virginia class program actually did very well in 2025. Remember, those schedules were reset post-COVID. So there's an incremental walk-up in throughput required to get to the two Virginia class per year. But they had a very good year last year. But it was really broad-based improvement across the portfolio both at Newport News and Ingalls. Robert Stallard: Okay. And then quickly as a follow-up, you mentioned that there's a step up in CapEx this year. How do you expect the long-term CapEx to progress from here? Do you expect it to remain around 4% of sales going forward? Chris Kastner: Well, we don't have guidance beyond this year yet, Rob. But I do expect it to continue to be elevated simply because there's such opportunity out there. Tom, I don't know if you want to give any more additional details related to that, but I do expect it to continue to be elevated. But we're not gonna provide additional guidance at this point. Tom Stiehle: That's right, Chris. I just comment on that. And as he says, there's opportunity, the awards plenty for going forward. Obviously, that's gonna drive the top line. There's gonna be a need for capital and investments. So from our Navy partner and ourselves in that. Haven't provided that yet, but I would expect it to be higher than where we've been in the past. And probably consistent with where we are right now going forward in 2026. Robert Stallard: Okay. That's great. Thanks so much. Tom Stiehle: Thanks, Rob. Operator: Thank you, Robert. Our next question is from Doug Harned at Bernstein. Your line is now open. Please go ahead. Doug Harned: Good morning. Thank you. Tom Stiehle: Know, you've got Doug Harned: Yeah. Good morning. Tom Stiehle: So you saw really good revenue growth in Q4, and, you know, both yards. And in Newport News, though, your margins are still pretty low. You know, Tom, you mentioned the two negative EACs on the CVN program. But when you look across the programs at Newport News, my assumption is you're working hard to get those margins higher. How do you see each of the programs in terms of their ability to improve and get to the goals that you're really looking for longer term? Chris Kastner: Appreciate the question. There. Yeah. So when we look at Newport News and the EACs are stable, the booking rates, obviously, we want to get those up right there. It's gonna be a function as we've described in the past of working off the existing portfolio we have right now. Have these pre-COVID shifts that have been impacted by schedule inefficiency. And as those continue to evolve out, we talk about the portfolio in 2027. Becoming more post than pre-COVID. That's gonna assist in that list. I believe, you know, what we've done in wages and what we've done in contract adjustments, some change management RIAs that we have in that will assist in that too. A piece of what we're seeing at Newport News is fairly consistent across all four quarters there. It's just a mix. Of, the portfolio itself, contract type, additional work scope that we have. The growth, which is good on the top line, is coming about, both in labor and material. But on the material side, it's hitting contracts that need an advanced procurement. Which have restrictions on margins and fee right now. And then as we kind of work ourselves forward and definitize either those contracts or new contract awards, we'll see, you know, a moderate ramp and either fee on the existing contracts or incentives that can come in place on the new awards there. So that's the playbook going forward. We're working hard to kind of stabilize performance. We've seen, you know, improvement in hiring attrition moderately improvements in rework. So it's stabilization, the AC making on milestones, working off the existing portfolio, and getting into those new start contracts. Doug Harned: Well, when you look at you've got a lot of money you know, for the industrial base off those last two block five. But as you as you commented, the '26 budget has really, you know, big support for shipbuilding. One of the things that, you know, we found challenging is money can be there, but it's getting it through, the throughput that you're talking about. You know, right now, you've probably seen, you know, a lot of the commentary about a pretty significant addition to the, 2027 budget potentially. Which could include money for the industrial base. When you look at it from a shipbuilding standpoint, do you need more? Or are you in already a good position given the large amount of funding that's come in? Is that enabling you to get where you need to be with respect to your industrial base? Chris Kastner: And so, Doug, let me take that, and I can Tom, if he wants to add, that's great. But, definitely, the block five two boat contract, assisted us, from a capital standpoint and a wages standpoint to increase throughput. At Newport News, there is more capital required if we're gonna continue to ramp, the throughput within Newport News on the submarine program and the aircraft carrier program, so there will be additional capital requirements. We hope to partner with our Navy customer to provide that capital, both our internal capital as well as incentives. But there's plenty of opportunity to increase throughput in both internally within the shipyards and then through distributed shipbuilding as well. It's because it's not just labor. It's not just additional labor. And throughput within the shipyards. We need to expand distributed shipbuilding as well. We had a pretty good year last year. We'll have another good year this year. In expanding the industrial base. And some of the investments could go there as well. So we welcome the opportunity to continue investment to increase throughput, and we're gonna continue to do that. Tom Stiehle: I'd piggyback on the backside of that. I'm with you about the, you know, the budgets and opportunities that's there. We're seeing it flow into the company, so it's not just on the budget line. Know, both Q3 and Q4 store Huntington Ingalls Industries, Inc. have quarters of 16% growth. We finished out the year this year in 2025 at 8.2% growth from 25 over 24, We saw a shipbuilding at 9.7%. For the year for '25 over '24. And, you know, I'm inspired by, you know, several quarters down in a row of seeing double-digit growth. In shipbuilding, Ingalls was at 11.2, and Newport News 9% for the year. So the dollars are there. There's a need for our products and services. The funding's in place both with our backlog and anticipated awards that we have coming in 2026, and I'm happy to see an inflection of, you know, the labor material flowing into the yards, increased outsourcing. We've established over 23 vendors last year, and there's more to follow going forward. You can see from our earnings release, we're gonna increase we've increased outsourcing by 100% last year. We have a 30% targeted this year. So the inflection that we've discussed is happening right now. The guide right now at 6% is probably a conservative guide, but the beginning of the year. Let's get into it. We've beaten that the last two quarters, and we'll see, you know, that we can continue hiring, retention, and outsourcing. Doug Harned: Very good. Thank you. Operator: Thank you, Doug. Our next question is from Scott Mikus from Millium Research. Your line is now open. Please go ahead. Scott Mikus: Morning, Chris and Tom. Quick question. Ingalls and Newport News both exited 25 with a lot of top-line momentum. You did note that the fourth quarter had some pull forward, but the first quarter guide, if my math is right, calls for shipbuilding sales to be up 13% year over year. But then that implies that shipbuilding sales are down 1% for the remaining three quarters. Is that just a function of tougher comps? Because it seems like you have a healthy amount of opportunity based on the milestones laid out in the slides. Tom Stiehle: Yeah. I wouldn't get too tied up in how that plays out for the whole year. You know, there's a lot of timing in that. Both we saw a little bit material, you know, even the guide we gave you, going from eight nine to nine one to nine zero to nine one, and then we came out at nine five. So there's some material that got pulled to the left. I would tell you it's not a one-time trick there of getting revenue up in Q4 because we as I just answered in the previous question, Q3 and Q4 saw some good growth. The backlog and the new awards are gonna facilitate that, and then the outsourcing and the hiring is all gonna continue that. I think it's more just a conservative guide that we have right now to begin the year. We wanna make sure we continue with the momentum we're exiting last year on the top line. And I would anticipate I expect that to continue going forward here. So there's always some choppiness, you know, from quarter to quarter. On milestones and margin recognition on ship deliveries and major milestones. So there's nothing overly to highlight that's gonna be problematic as the revenue I expect to continue to ramp into 2026. Scott Mikus: Okay. And then on the new battleships, is there a possibility that a Japanese or Korean shipyard could fund some of the CapEx to fulfill their obligations under the recent trade deals and then you contribute the workforce and the design sort of in a joint venture type format? That way, it would be an attractive investment for Huntington Ingalls Industries, Inc. from a return on invested capital standpoint. Chris Kastner: Yeah. Really not sure. I think the aperture is open relative to the industrial base, and how that battleship is going to get built. There's a need for additional capacity in the industrial base. And could a foreign investor bring more capacity into the industrial base? Sure. I don't know if it'd be necessarily for the battleship. But that's always an opportunity. So you need to keep the aperture open and depending on how that acquisition profile or the acquisition strategy develops, then I think the investments will follow. Scott Mikus: Alright. Thank you. Operator: Our next question is from Noah Poponak from Goldman Sachs. Your line is open. Please go ahead. Noah Poponak: Hey. Good morning, guys. Morning. So I guess, you know, if I kind of zoom out and look at the shipbuilding margin, it's kind of flattish through 2025. I mean, it's actually down sequentially a little bit through '25. '26 guidance kind of flattish versus '25. Recognizing it's a long cycle business and manufacturing process, and these things take time. I guess just with the incremental funding, the throughput achievements, the labor achievements, Tommy just reiterated, you know, better mix of contract by '27. How help us better understand how the shipbuilding margins are flat for that full two-year window? Do they snap in '27 when the mix flips to more post-COVID? And what and to what extent is the waiting on the next batch of nuclear subcontracts pretty binary in this discussion because you have to book so much long lead at a low margin before you that. Chris Kastner: Let me start on that note, and then Tom can chip in. On the back end. But, I mean, you know our process I think, relative to how we evaluate risk and opportunities when we do our plan, and we're very disciplined in how we evaluate them and how we develop our guidance, for the subsequent year, and that's what we've done. I would say that we are there's investment required that we're making in outsourcing and overtime to prioritize schedules on these ships, which is impacting our profitability. There's no doubt. We think that makes sense. We're gonna continue to do it. Because the strategy to get out of these ships into the next into the next ships just makes great sense. Relative, to the submarine program, we think that needs to get done by the end of the end of the first half of the year. We need to make sure that we don't incur risk related to a delayed start on that program. The teams are meeting I have high hopes that after the twenty-sixth budget was done, and then the '27 budget, we get a little more clarity that that everything will fall into place. We'll and we'll get started, but we really need to get that done in the first half of the year. Tom, I don't know if you have anything else. Have some comments for you, Scott, in the street there. So, know, to your point on the with the new contract starts that are coming with the awards and we book low, that's baked in already into the guidance that we provide. Right? So nothing's changed just because those awards are coming and what we gave you in 2026. And then, you know, Chris and I have said that, hey. The nine to 10% is not just aspirational. We've been there before. Wanna get there. We haven't given the street the timing of that. We've said incrementally, we would expect to improve annually. And we still feel that way right now going from '25 to '26. If you think about '24, it was 5.2%. '25 was 5.9%. That's up 13%. And although we give you a range of five five to six five, it's kind of in line. You know, Chris said back at Q3 in '24, heading into eighteen to twenty-four months, it's gonna be choppy. We're gonna work off these old ships. So, you know, a reguide of what we gave you last year is not inconsistent. And even in Q3, when I gave you the hey. I saw that's around the midpoint. It could be a little bit high with the awards. It could be a bit lower with afterwards. We didn't get the awards in '25. They fall into this year. We finished at 5.9%, Ross. So, like, we're not surprised, or it's off what we've been been talking about that we're dealing with here. I tell you that, you know, the range is consistent in '26 as it is in '25. We finished the '25 at $5.05 for the quarter, and when we look at Q1 right here, there's not a plethora of milestones or sell-offs. It's gonna change, you know, what the last thirteen weeks did for the next thirteen weeks. So again, we if you we think about it, we shouldn't be surprised that we got it fairly conservative at the beginning of the year and consistent with what the actuals were for Q4. As we look at, you know, Q4 there's timing in there. There's a higher volume of the new starts that I've talked about. Advanced procurement that kind of either no fee or limits fee. So we'll work that off. And then the material, which is good for the top line, pulls a little less fee on a couple of our contracts as we work ourselves through that. You know, the five five to six five is still, like, a good range of outcomes. Last year, was just about at the midpoint without at the award. So, we're, those awards to happen this year. In my remarks, I said in the first half of the year. And then with the milestones that we've given you in this you know, Q2, Q4, we provide the milestones. We met most of them last year, and we expect to go do that most all of them this year here. So that's gonna be a lift on where we go forward here. The awards will have some incentives to them to do that. We didn't have last year, so that's gonna be an assist as we go forward. And then I mentioned the increase from the five two of '24 to five nine of 2025. And the midpoint at 6%, although moderate, is still kind of better than the actuals of last year and we have a whole year to go work the contracts here. And then kind of lastly, as Chris said, it was baked in already, but, you know, we have had a you know, as we put focus on milestones and delivering a shift of staff as possible for our navy customer, we have put a premium additional overtime. We have both sites working high overtime than usual, so there's a little bit of drawing on cost efficiency on that. And then the first time you know, outsourcing and first-time bills, just a little bit of extra cost in that. Not unanticipated. Again, it's all in our guide and our progression as we turn the portfolio heading towards 2027. I hope that was helpful. Noah Poponak: That was very helpful. It's a lot of detail, and I appreciate it. When you provided the shipbuilding medium-term revenue growth target, the 6%, you have the sub-bullet point there that says additional upside from recently announced programs. Can you talk a little bit more about that? I mean, how much upside and specifically, on the SSC win, when does that start ramping up for you? Chris Kastner: Yeah. So yeah, Noah. The be a frigate win. That pretty confident, very confident we're gonna build the first two boats. Or first two ships in that class. We're unsure what the acquisition strategy is. Beyond that. I think we'll learn, more when the '27 budget comes out. But we're fortunate on that program that we still have a lot of material from 11 which is really a lot of the upfront cost. On a ship. So I don't expect material, impact to sales this year. It should start to ramp in '27. Battle the battleship is a little different. We're still engaged with the Navy on understanding how that design's gonna unfold. With us, the Navy, and BIW. So there'll be modest revenue this year, and then it'll ramp from there. We don't have specific numbers for you right now. But as we as we understand them, we will we will provide them. Noah Poponak: Okay. Thank you. Operator: Thank you, Noah. Our next question is from Pete Skibitski from Alembic Global. Your line is now open. Please go ahead. Pete Skibitski: Hey, good morning, guys. Hey, Chris. Could you talk more about the supply chain Chris, can you talk more about supply chain at Newport News I think you touched on it in your remarks. I didn't quite hear all of it. Did you receive all the equipment from the supply chain that you expected in the fourth quarter on CVN 80? Or was it later than expected? Is that what drove the negative EAC and kind of where are you right now in that program? And get a better sense of that. Chris Kastner: Yeah. So we have received all of the engine room material done deck over. As I said in my prepared remarks, we're 50% erected, and we'll continue to make progress this year. Have a little bit of momentum on that program. Throughput has actually accelerated and the key there is to getting back in sequence, which they're working very hard to do. So it did, there was investment in overtime, on 80 to get back on schedule or try to get back on schedule. And they're as I said, they're working hard to do that. Pete Skibitski: Okay. Sounds good. And then just Chris, on you know, between reconciliation and the 26 appropriations bill that's that's law now, did you get all of your priorities through in the budget this past year that you wanted? You know, just wondering if there's anything that didn't get into those bills that is gonna be a priority for you in, in fiscal twenty-seven. Chris Kastner: No. It's universal support for shipbuilding and reconciliation, the '26 budget. The potential '27 budget, it's all on us to execute now. But all of our programs are supported. Pete Skibitski: Okay. Great. Thank you. Operator: Thank you, Pete. Our next question is from Seth Seifman from JPMorgan. Your line is now open. Please go ahead. Seth Seifman: Hey. Thanks very much, and good morning. Wanted to follow quickly on the frigate. I think you talked about that being a driver potentially of growth in 2027. Mean, given the target of having a boat in the water in 2028, should we think about that ramping up rather quickly? And is there anything you could say about the magnitude of the lift there at Ingalls and what it will do to the mix as well, given that I think the NSC was a very profitable, ship for that yard. Chris Kastner: I think it's a little bit, too early for that. I think if you were to project the cost related to ship getting in the water in two years less the long lead material, there's probably enough data out there for you to figure out what that could mean from a sales standpoint. So that is upside but beyond that, I don't I think it's a little bit too early to talk about potential top-line upside related to that until we get a little bit further along. Seth Seifman: Okay. And should we think about that being, you know, mix-wise being you know, NSC like? Chris Kastner: I wouldn't necessarily think that. Right? We're gonna work with our customer to get a fair deal on that contract. So I wouldn't necessarily think about that. I think on a blended rate, getting to nine to 10% margin is still our objective, and I think we'll eventually get there. Seth Seifman: Okay. Thanks. And then just to follow-up given where you ended the year on with the cash balance, and what you're forecasting for '26, they have a decent amount of excess cash on the balance sheet by year-end. I know there's understandably a certain amount of reticence about repurchases at this point, but good performance, does that become more of an option? Or are there other things you would think about doing with it? Or, you know, do we just kind of you know, maybe sit with some excess cash for a little while? Chris Kastner: Yeah. Remember, in the words of one of my predecessors, cash can be pretty lumpy. So it will continue to be lumpy, and in shipbuilding, but we think the overwhelming opportunity from a value standpoint is to continue to invest in the shipyards. So we're gonna do that. It's gonna improve both the top and bottom line. So that's our focus right now, and it's been our focus for a while. Seth Seifman: Great. Thanks very much. Operator: Sure. Thank you, Seth. Our next question from Judd Goddin from Citigroup. Your line is now open. Please go ahead. Judd Goddin: I wanted to just revisit shipbuilding margins one more time. There is a lot of good detail. I think you made clear that there's some conservatism. In the outlook. What I'm interested in is in the first quarter, you have shipbuilding margins kind of at the low end of the full-year guidance. It suggests that the conservatism is more of a back half event as it plays out. Is that right or is that not? Can you help us just think about the shape of margins throughout the year? And is that conservatism something in the back half? Or might we just see a stronger start to the year than expected, as you suggested? Tom Stiehle: Yeah. So, you know, obviously, we gave you the annual guidance five five to six five. We've been giving for the last couple of years the next quarter, so it's five five. That kind of leaves you guessing for Q2, Q3, Q4. I'd say stay consistent with just what you've seen from us over the years. It's about the milestones. It's about performance. It's about the deliveries. There's nothing that's gonna alter it one way or the other other than timing. How we perform over the next, you know, eleven months. And then the awards themselves will bring about, you know, a good balance of, you know, affordability to profitability, the contract terms and conditions, there'll be some incentives in there, so we'll have to work ourselves through that. Not gonna give any more comment on that as it you know, we're in negotiations through negotiations as that effort's trying to get through approval cycle right now. But yeah, I mean, I think it's the beginning of the year. We don't wanna get ahead of ourselves. And, really, it makes sense that we exit Q4, you know, at five five kind of run rate over there. So we're gonna hold Pat at this number. We'll update you in May, and you'll get a look-see, you know, both for what's gonna happen as a forecast in Q2. We have hinted that, you know, we'd like to see the awards expect the awards the first half of the year. So that's gonna facilitate a good pace and a trajectory of at least midpoint Nevada going forward here for the year. Judd Goddin: Right. I guess my question is, is it even possible that we start the year at the higher end, at 6.5%, that we fast forward a quarter or two when we realize that we deliver numbers like that or in terms of the art of the possible, that's not even on the table. Tom Stiehle: The range is for the entire year, I'd stay focused on what we gave you for the quarter. Judd Goddin: Okay. Fair enough. And then if we just double click on the, on the milestones and the timeline, as you guys know, know, with deliveries, with the milestones, there's an intense focus on different milestones as we get closer to the dates. Are there any milestones or delivery dates that you would just flag for us right now to kind of bracket and sensitize a little that one that might be pushed a little bit more than others just so that we can have that conversation now, you know, instead of on the eve of expecting some sort of delivery or milestone event, any risk around anything that you would just kind of you know, take the opportunity to bound for us? Chris Kastner: Sure. Delivery of 30 and the delivery of 800 towards the end of the year. Very focused on getting both of those boats done. So those that that's how it calls from a risk standpoint and an opportunity standpoint. Those two that boat and that ship are very critical to us. Judd Goddin: Got it. Thank you, guys. Operator: Sure. Thank you, Judd. Our next question is from Scott Deuschle from Deutsche Bank. Your line is now open. Please go ahead. Scott Deuschle: Hey, good morning. Tom, do you expect the company to make money Morning. On CVN 80 and 81? Given this trend of negative EACs? Chris Kastner: Yes. Well, yes. We do. Right? We think we booked accordingly right now. We've described what, you know, transpired on those ships up front. We've impacted by some material that goes deep into the ship. That risk is behind us. Obviously, that's caused an impact on the schedule. So the schedule's a little bit longer, and it's created some cost efficiency. We're working 80 specifically out of sequence. But with the deck over right now, the team's feverishly working with the experience they have building carriers getting that back on sequence, getting it out of the dry dock, and then doing the ship show work kind of going forward here. But we have not forecasted or do not expect it. It not to be profitable. Scott Deuschle: Okay. And then, Chris, there are a lot of data centers under construction in the state of Virginia. It looks like within an hour or two's drive from Newport News. Are you seeing that have any kind of impact on the labor situation at Newport News particularly for trades like electricians or pipe fitters? Chris Kastner: That's interesting. We haven't seen the impact, the applicants and the hiring in Newport News was very, very strong over the back half of the year. So we haven't seen it yet, we'll watch out for it. We're fortunate in the regional workforce development centers have been coordinating with the federal government, state governments, to produce good shipbuilders, and we're gonna continue to work on that pipeline. But we have not seen that. Scott Deuschle: Good to hear. Thank you. Operator: Thank you, Scott. Our next question is from Myles Walton from Wolfe Research. Your line is now open. Please go ahead. Myles Walton: Thanks. Good morning. Tom, I was wondering Fine. Okay. I'm wondering if you can give us a little bit more color on the improvement in attrition because I'm trying to put the math together. You hired 6,600 shipbuilders. I think you got another 500 employees from W International's acquisition. I also think that you finished headcount flat versus the start of the year. So walk me through what your definition of improvement of attrition is. Did you end up with the headcount you expected? And then do you expect headcount to grow in '26? Chris Kastner: So let me start, Tom has anything additional, he can add it. So attrition did improve. Year over year. It's about a 15 to 18% improvement across both shipyards. Both shipyards improved, in that data, the 44,000 employees' miles, we have support labor in that as well. And, obviously, Mission Technologies labor in that as well. So we did increase staff in both shipyards, we ended pretty much where we wanted to be, and we're in a pretty good place from an applicant flow. And a hiring standpoint for next year. So from a labor standpoint, we're in a pretty good place. We do need to continue to improve attrition and efficiency of the workforce, which we're working very hard at. But with that, we also need to continue to focus on distributed shipbuilding because in order to get through all of these ships, it's not just the shipyards that are that are gonna be required to be more efficient. We need to work on distributed shipbuilding, continue to qualify suppliers, and make sure they're efficient in producing what they need to produce as well. Tom Stiehle: That's a comment on that. And, Chris, this is an excellent what's the direct let? It's Tom here. I'll comment just on that. It's the mix of the labor. Right? This direct labor that's support, shop shop is that we have that's not in the number, and then there's outsourced work that we have. So all that goes into our ability to kind of ramp and both get more earned progress and get more work accomplished towards the milestones going forward. Myles Walton: Okay. And then one quick one on mission technologies. Think you're benefiting by another $20 million runoff in amortization. Which would imply, you know, an 80 basis point step down in EBITDA margins basically very little growth in EBIT despite the $20 million runoff. Is that right? And if so, what's driving the year-on-year profile for Mission Technologies profit? Tom Stiehle: Yeah. So you're talking about, I guess, guide, or are you talking about from how we perform this '25 to '24 or the guide to '26? Myles Walton: 2026 is guidance. Right? 5%. Tom Stiehle: 5% EBIT? Yeah. But it should be benefiting, I believe, by about 80 basis points. Myles Walton: Of amortization runoff. Tom Stiehle: Yeah. I think the amortization runoff is about $10 million improvement, so it's not as much as of that. I would tell you that so that's a piece of it. It's about half of it. And then just the other half is what we're seeing in our contract performance. The maturity of how we're executing, had some fee write-ups in 2025 going that we took, and there's a potential of opportunity sets in 2026. Our nuclear business with equity income, always has upside, and we have to see how the year plays out and how our scores are. We get, evaluated by the customer set, so that's included in there. Although your question was specifically on the return on sales side, the EBIT side, I tell you on the EBITDA side, you saw we raised the guidance from eight o to from eight to eight five last year. To eight six eight six finish. So up almost 50 bps on that now to eight four to eight six. Again, just the maturation of the portfolio. I'm trying to although it's predominantly cost-type contracts, trying to see where we can get the additional value of bidding more products than services. A little bit more how we did these jobs, and a focus on profitability there. So an incremental improvement, I like how we finished out from 25 versus 24. It's good to see an incremental improvement on both metrics going forward in '26. Operator: Thank you. Thanks. Thanks for the question. Thank you, Myles. Our next question is from Gautam Khanna from TD Cowen. Your line is now open. Please go ahead. Gautam Khanna: Morning. Morning, Adam. Wanted No. Not at Ingalls. No. No. And what's sort of the timing on that? We expect to get through that in the first quarter. I don't wanna comment directly on a union negotiation but we're engaged heavily with the union to get that done almost daily. So but we expect that to get done in the first quarter. Gautam Khanna: Gotcha. And just on the VCS Block six, and the Columbia class contract, what is your best sense on timing of when that might get awarded? Formally? Chris Kastner: Really? So Donna, it's really hard to say. We needed before the end of the first half of the year. In order to maintain our production schedules but it's just hard to say we're engaged heavily with electric boat and the navy to get it behind us. And I think we will get it done. And as I said previously, the twenty-sixth budget getting done and then clarity around what's gonna happen in '27 in the fit-up, I think, really helps. And after that falls into place, we can get those contracts behind us. One thing I know for sure, the Navy's gonna buy submarines. So we need to get it done before the first half of the year so we can maintain the production schedules make sure that is not a risk that we have to deal with. Gautam Khanna: And I would just love to get your perspective if you're willing to share them on how like, know, this thing was expected at one point to be done north over a year ago. Than we were thinking year-end. 2025. Is there any long bulls in the 10, or is this just sort of t's and c's, you know, minor stuff that needs to get hashed out. Or is there a big if you can give us any sort of update just because we've been talking about it for north of a year. Chris Kastner: Got it. I just think it's a big complicated contract. And you have three parties involved that need to all be comfortable with what the solution is. Fortunately, those teams work very well together. But it's just a big complicated contract, and we need to get to the finish line here. Gautam Khanna: Okay. Thank you, guys. Operator: Sure. Thank you, Gautam. Our last question is from Mariana Perez Mora from the Bank of America. Your line is now open. Please go ahead. Mariana Perez Mora: Thank you very much for taking my question. Good morning, everyone. Morning. So my question is gonna be about Mission Technologies. And how should we think about the share or the mix towards, like, unmanned solutions, autonomy, and those things in that portfolio. Because I could imagine those are growing double digits. And I'm wondering when we should start to see that reflected in the growth for that segment. Chris Kastner: So interesting. Let me start here. Thank you for bringing up that question. We don't break out growth rates within Mission Technologies by market segment. I will say that unmanned is doing very well. Unmanned undersea and unmanned surface, as you can see by the launch of our new Romulus vehicles, think it's interesting when you think about the new or the evolving navy strategy around the hybrid fleet or the hedge fleet, that we're right in the middle of that. With obviously, a very keen understanding of large capital ships, but then also being the largest provider of unmanned undersea vehicles, and then having unmanned surface vehicles, all predicated upon autonomy software that's really world-class. So from an unmanned standpoint, I do believe there's potential tailwinds there. Think there's also tailwinds with the intersection between manned and unmanned. When you think about the Minotaur suite that we provide for the Navy, we're the chief developer of that. So I think it's gonna continue to evolve. I think it's gonna continue to play right into our sweet spot. And I thank you for the question because I think it's something that's gonna be very positive going forward. Mariana Perez Mora: And then when you think about those opportunities, right, and administration that is leaning into what we're gonna call, like, commercial terms. How do you think about, like, investing your own dollars, owning that IP, and actually getting, I don't know, out of this, like, mid-single-digit, like, cost-plus type of, like, margins for that segment. I don't know, five, ten years from now. Is that a possibility? How you think about, like, investments from that end? Chris Kastner: I definitely think there's more profitability potential within that segment. I think the IP situation or that argument gets to be a little bit more complex. Because we actually design our autonomy software to Navy standards, and it's open source. We allow you to plug and play and bring really good providers in. Into the space. So that is a different argument. That's a different discussion on profitability. I do think that there's upside related to the unmanned space. I do think there's upside related to integrating the software into the product sets. And so that's why we've invested against it, and we will continue to invest it. Against it, and it's probably our highest source of IRAD internally within the organization. Mariana Perez Mora: Thank you so much. Operator: Thank you. Thank you, Mariana. I am not showing any further questions at this time. I would now like to hand back the call over to Mr. Kastner for any closing remarks. Chris Kastner: Sure. Thank you, and thanks for joining the call today. Hey. I wanna give a shout-out to the CVN 79 team, both the sailors and the shipbuilders. They had a really great trial this week. It was an excellent week to be a shipbuilder. I'm proud of the team, and I think the ship performed very, very well. And we'll keep that momentum towards delivery on 79. So thanks, everybody, for joining, and we'll see you out there. Operator: That concludes today's conference call. You may now disconnect.
Operator: Welcome to the XPO Logistics, Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. My name is Shamali, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you have a question, please dial 1 on your telephone keypad. Please limit yourself to one question when you come up in the queue. If you have additional questions, welcome to get back in the queue, and we'll take as many as we can. Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which by their nature involves a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statement. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. The forward-looking statements in the company's earnings release or made on this call are made only as of today. And the company has no obligation to update any of these forward-looking statements, except to the extent required by law. This call, the company also may refer to certain non-GAAP financial measures, as defined under applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial table or on its website. You can find a copy of the company's earnings release which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to XPO Logistics, Inc.'s chairman and chief executive officer, Mario Harik. Mister Harik, you may begin. Mario Harik: Good morning, everyone, and thank you for joining us. I'm here with Kyle Wismans, our Chief Financial Officer, and Ali-Ahmad Faghri, our Chief Strategy Officer. This morning, we reported another quarter of strong execution to close out the year. Company-wide, we delivered fourth-quarter adjusted EBITDA of $312 million and adjusted diluted EPS of $0.88. Excluding real estate gains in both periods, adjusted EBITDA increased 11% and adjusted EPS increased 18% year over year. In North American LTL, we generated adjusted operating income of $181 million, which was up 14% from the prior year. And we improved our adjusted operating ratio by 180 basis points, significantly outperforming normal seasonality. We've now expanded our LTL margin by 590 basis points since 2022, which marked the start of one of the most prolonged trade downturns in history. This speaks to the resilience of our strategy, and it will continue to serve us well this year and in the long term regardless of the cycle. The key components of our strategy are fully within our control, and I'll start with our most important lever, customer service. In 2025, we reduced damages and improved service quality to new company records, reflecting our focus on providing a superior customer experience. We're achieving this by balancing our network more precisely, reducing the number of freight rehandles, and implementing tighter operating processes at the service center level. And, critically, our stronger service performance is translating directly to better commercial outcomes. As a result, we've been able to earn higher prices and gain market share by providing consistent world-class service. When we make ongoing investments in the business, we're strengthening the connection between service quality and value creation. For example, we've deliberately invested in the network ahead of the upcycle to create more than 30% excess door capacity. This has given us the flexibility to operate more efficiently in the current environment, and we're positioned to respond quickly in a recovery. On the equipment side, our average sector age at year-end is 3.7 years, giving us one of the youngest fleets in the industry. This improves reliability and safety, reducing our maintenance cost per mile to the lowest level in our history. From a labor standpoint, we're staffed to support any near-term increases in demand while maintaining our high service levels. Combined with lower employee turnover and the national scale of our driver training schools, we're well-positioned to flex labor efficiently as volume grows. Each component of our capacity has a role in making sure we realize significant upside from our operating leverage when demand recovers. Next is pricing, which has a direct correlation to margin performance. Throughout 2025, we saw customers place more value on our service as reflected in the pricing gains we earn. For the full year, we grew yield excluding fuel by 6%. It was also the third consecutive year that we improved revenue per shipment for every quarter. In addition, the expansion we're driving with local customers and premium services is contributing to our above-market pricing growth. These revenue streams come with higher margins, and we see long runways for both core parts of our business. Another highlight of 2025 that contributed to margin was our improved cost efficiency. This was underpinned by productivity gains and a lower reliance on purchase transportation. Productivity improved roughly one and a half points for the year, with the ramp in the second half from our latest technology rollouts. These are proprietary applications that use AI for planning freight flow management and network operations. Importantly, we've completed a successful pilot of our AI-driven route optimization tools for pickup and delivery. And now with expanding this internally developed technology to nearly half of our service centers this quarter, we expect this to further reduce overall miles and improve stops per hour across a cost category of nearly $900 million. And on purchase transportation, we exited the year with the lowest level of outsourced miles in our company's history, at 5.1% of total miles. This has given us greater control over service quality and a more flexible cost structure. These cost efficiencies will scale with volume, and we expect the benefits to margin to grow over time. To sum it up, we entered 2026 from a position of strength, following a year of significant progress and outperformance. While we're pleased to have reported above-market results for another four quarters, we have multiple drivers to improve our LTL operating ratio well into the seventies in the years to come, and a substantial expansion of our operating margin. Number one is pricing. We see a double-digit opportunity to surpass the market in pricing growth over time by continuing to enhance service quality and revenue mix. Another key is our investment in capacity ahead of the cycle. We've built excess capacity across our network, positioning us for profitable share gains and operating leverage as demand recovers. And we have a long runway to improve cost efficiency and productivity for network applications of AI at scale. These are all high-impact initiatives that are already driving results. Importantly, our progress will be amplified by the billions of dollars of cumulative free cash flow we expect to generate in the coming years, starting with a meaningful acceleration in 2026. We'll fund an increase in share repurchases and debt reduction to further compound our earnings growth. With that, I'll turn it over to Kyle to walk through the financials. Kyle, over to you. Kyle Wismans: Thank you, Mario, and good morning, everyone. I'll walk through the fourth-quarter financial results, followed by our balance sheet, liquidity, and capital allocation. For the total company, revenue increased 5% year over year to $2 billion. Revenue in our LTL segment was $1.2 billion, up 1% from last year, as our increase in yield more than offset the decrease in volume. Turning to cost, we continue to make progress in key areas that relate directly to margin. On a year-over-year basis, our salary, wage, and benefits expense decreased 1% or $7 million driven by strong productivity gains. And our purchase transportation expense decreased 46% or $20 million as we continue to insource line haul miles and optimize the network. This is a structural cost reduction that will help support stronger incremental margins as truckload rates rise when the freight market recovers. Depreciation expense increased 11% or $9 million reflecting our ongoing investments in equipment and capacity to support long-term growth. Moving to profitability, Total adjusted EBITDA was $312 million for the quarter, with $285 million generated by our LTL segment. Excluding gains on real estate transactions, adjusted EBITDA increased year over year by 11% both for the company as a whole and for the LTL segment. In Europe, adjusted EBITDA was $32 million while corporate adjusted EBITDA was a loss of $4 million. For the total company, fourth-quarter operating income was $143 million. Net income was $59 million, and diluted earnings per share was $0.50. Net income includes $14 million of gains on real estate and equipment, as well as $33 million of restructuring expense. This was primarily from previously granted equity awards, related to the transition in board leadership. On an adjusted basis, diluted EPS was $0.88. Excluding $0.08 per share of real estate gains in 2025, and $0.21 per share in 2024, adjusted EPS increased 18%. Turning to cash flow and CapEx. We generated $226 million of cash flow from operating activities in the quarter and deployed $84 million of net capital expenditures. We ended the quarter with $310 million cash on hand, after repurchasing $65 million of common stock and paying down $65 million on our term loan facility. Combined with available capacity under our committed borrowing facility, total liquidity at year-end was $910 million. Our net leverage ratio at year-end was 2.4 times trailing twelve months adjusted EBITDA for 2025, down from 2.5 times for 2024 and significantly lower than the three times reported for 2023. As we look ahead, we expect to meaningfully increase free cash flow generation this year, and over the years to come. This will enable us to accelerate share repurchases while also continuing to strengthen the balance sheet through debt pay down. Before I close, I'll summarize this year's planning assumptions to help you with your models. For 2026, we expect total company gross capital expenditures of $500 million to $600 million, interest expense of $205 million to $215 million, pension income of approximately $14 million, an adjusted effective tax rate of 24% to 25%, and a diluted share count of approximately 118 million shares. These assumptions are included in our latest investor presentation. And with that, I'll turn it over to Ali to cover the operating results. Ali-Ahmad Faghri: Thank you, Kyle. I'll begin with our LTL operating performance where we continue to execute well and expand margins, despite the challenging freight environment. On a year-over-year basis, our shipments per day declined 1.6% and weight per shipment was down 3%, resulting in a 4.5% decrease in tonnage per day. These trends reflect ongoing softness in the industrial sector, but importantly, we're continuing to take share in the most attractive parts of the market. We're growing our business with more profitable local customers and by expanding our premium service offerings. Local shipments now represent approximately 25% of revenue, up from 20% just a few years ago. While premium services are now about 12% of revenue, up from less than 10% previously. These are deliberate shifts in our mix that will make increasing contributions to volume, price, and margin performance. Looking at the quarter month by month compared with the prior year, October tonnage was down 3.8%, November was down 5.4%, and December was down 4.5%. On shipments per day, October was down 1.4%, November was down 2.2%, and December was down 1%. In January, however, we saw an improvement. Our January tonnage was roughly flat year over year, which outperformed normal seasonality. We saw this positive trend even with the impact of the major winter storm at the end of the month, which we estimate had about a three-point impact on tonnage. Turning to pricing. Our yield performance in the fourth quarter continued to be strong, increasing 5.2% year over year excluding fuel. Both yield and revenue per shipment improved from the third quarter, and revenue per shipment has now increased sequentially for the twelfth consecutive quarter. We're gaining price through value delivered supported by strong service quality, continued growth in the local channel, and our premium offering. Moving to profitability, our fourth-quarter adjusted operating ratio in LTL improved by 180 basis points from the prior year, accelerating from the third quarter and significantly outperforming normal seasonal pattern. We're driving this margin expansion through a combination of pricing, cost initiatives, and productivity improvements enabled by our proprietary technology. Even in a soft demand environment, these structural advantages are allowing us to outperform our peers and keep elevating that performance over time. Turning to our European business, our results continue to trend favorably. On a year-over-year basis, revenue increased 11%, supported by our eighth consecutive quarter of revenue growth in Europe on a constant currency basis. Adjusted EBITDA increased 19% year over year, and performance tracked better than normal seasonality relative to the third quarter. To wrap up, our fourth-quarter performance highlights the strength of our strategy. We're managing through a soft freight market while continuing to improve mix, deliver consistent pricing gains, and expand margins. We're also making targeted investments in the network to generate high returns over time, and our proprietary technology is leveraging AI for cost and productivity improvement. Together, these capabilities position us to outperform in the current environment and accelerate results as demand recovers. With that, we'll take your questions. Operator, please open the line for Q&A. Thank you. Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. Again, please limit yourself to one question when you come up in the queue. If you have any additional questions, you're welcome to get back in the queue, and we'll take as many as we can. One moment, please, while we pull for questions. Our first question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question. Ken Hoexter: Hey, Greg. Good morning. So I guess you mentioned Ali there at the end, ex-storm, it sounds like tonnage would have been up about 3%. And you're outperforming seasonality. Given the thoughts on IS maybe your initial thoughts on how significant we can see this outperformance? Or versus your normal trends? Talk about what your normal trends are for the first quarter for both revenues and OR and what you think that indicates for the year if you keep this seasonal outperformance? Mario Harik: Ken, this is Mario. So when you look at January, you put us tonnage was flat on a year-on-year basis, and shipments were up by about the point for the month. And when you look at that on a relative basis compared to December, that was a couple of points better than normal sequential seasonality from December into January. And this was after December being roughly about a couple of points also better than seasonality relative to November as well. Now as you mentioned and Ali mentioned earlier, we did see an impact from the winter storm, but we do estimate that to be three points for the full month. So that outperformance would have been even higher versus season trend. Now what's driving that, we are seeing, both from a demand a bit more strength, especially on the industrial side in the month of January, but a lot of it was the company-specific initiatives that we have been driving in terms of gaining market share and higher margin and accretive business. So from one perspective, we continue to grow in our local account segment or the small to medium-sized businesses that we are growing. Through the course of 2025, we added about 10,000 of these customers to our book of business. And similarly, we are growing in new verticals that in the past we were not growing in. Examples are grocery consolidation. Where through the back half of last year, we nearly tripled shipments in that segment of business. And we're also growing in areas like health care, where we onboarded two large customers in that space as well that are very service sensitive obviously, they're seeing all the great progress that we are making there as well. So it's a combination of underlying strength and market share gains in more product muscle segments of the business is what we're seeing here. In terms of OR outlook, if you look at typical seasonality for us from the fourth quarter to the first quarter, if you look over the long term, we typically see OR deteriorate by about 50 basis points sequentially and we do expect to outperform that normal seasonality here in the first quarter. And we do expect our OR to improve sequentially from Q4 into Q1, which is a strong overall outcome driven by all of our initiatives in pricing and cost efficiency in AI and, obviously, the volume environment here being a bit better as well. Operator: Great. Thank you, Mario. Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question. Scott Group: Hey. Thanks. Good morning. So Mario, helpful color on Q1. I know last year, gave some thoughts about how to think about full-year margin improvement. If you have similar thoughts this year on the LTL side. And then maybe if you could just give us an update on where we are on the local penetration and where you think that where you think that can go? Thank you. Mario Harik: You got it, Scott. First of all, for the full year, we do expect another strong year for both margin improvement and earnings growth in 2026. Starting with 100 to 150 basis points of improvement for the full year. Which cost would be an acceleration relative to what we saw last year. And that's without a meaningful macro recovery. So the is assuming that, again, we're not gonna see the market pick up, although with, obviously, with ISM earlier this week, if that strength continues, that would change the outcome. So if we do see the macro recover, we would expect to drive upside due to our results. And the primary drivers for that that we do expect another year of above-market yield growth, driven by all the initiatives that we are driving in that arena. And similarly, we also expect another strong year in cost efficiencies, and that's driven by our AI initiatives. I mentioned earlier that we are in the process now launching our new internally developed AI optimization technology for pickup and delivery, and we expect to roll out half our network here in 10,000 new local accounts to our book of business. You recall, Scott, initially, when we started targeting that segment of business, we were at 20% of the total book was small to medium-sized customers, our goal was to get to about 30% in a period of roughly five years, and that's equivalent to about two and a half points of yield about half a point a year of outperformance driven by that segment of business. And we are currently at 25% of the book It's small to medium-sized customers. We're about halfway to our target of 30%, and we expect that to continue over the years to come as we continue to onboard more of these customers. Scott Group: Appreciate it. Thank you, guys. Operator: Thank you. Our next question comes from the line of Fadi Chamoun with BMO Capital Markets. Please proceed with your question. Fadi Chamoun: Thank you. Good morning. Mario, I wanted to go back to the comment that you made about the cost efficiency think you said 1.5 of productivity gains, I think it was last year. And you talked about technology and AI. Optimization, and some of the things you're implementing affecting $900 million of cost base. I just wanted to kinda dive into what kind of productivity target. Like, we wanna think about cost savings opportunity as we go into 2026. What does this envelope look like? And then just one clarification on the prior couple of question discussion. It seems like you're attributing a lot of the kinda January improvement or your volume performance to the XPO Logistics, Inc. initiatives that you are doing and not necessarily to any meaningful improvement in the end market or in the demand environment. We saw one of your peers talk a little bit more favorably about the demand and talked a little bit more favorably about the progress in the weight per shipment. We didn't see in your numbers. Just wondering if there's if there's more clarification you can provide on that. Thanks. Mario Harik: Yeah. So, Fadi, when you look I'll start with the second question and then come back to AI and cost efficiency. On the volume side, we did see both. So when you look at our outperformance in January, it was a component where if take a step back, in December, we did see more strength on the retail side, and we had a few projects with customers like retail store rollouts through the course of December that also help our results outperform sequential seasonality from November into December. And then the outperformance in January was a combination of both. From one perspective, we thought a switch and a better demand environment for the economy, but it's still overall early innings steady. So if you look at the ISN, when your orders were at 57, the I 10 itself was at 52. These are very strong numbers. We are still not seeing that level of ISN performance materialize in the underlying demand. However, the industrial demand in the month of January has strengthened compared to where we were in the fourth quarter, and that's a very positive sign. Now on top of the performance of the ISM and the industrial complex, Beyond that, we were able to drive all of these initiatives, which we have been working on through the course of all of 2025 and then prior to be able to continue to onboard highly profitable business to the overall mix. So I think the outperformance was driven by a combination of both company-specific, but also early signs of life in the industrial economy, which is very positive. In terms of your first question on technology and AI, we are very excited about the opportunity ahead of us. And if you look at last year and over the last few years, of last year specifically, we were able to improve productivity by about eight point and a half for the full year. And that was driven by our tech initiatives. That accelerated in the back half of the year to above two points of productivity improvements. When you look at '26 and beyond, there are multiple levers where we are using AI to improve our cost structure. The first one is around line haul and line haul efficiency. We just discussed this in the past where for every point of improvement, a line haul we get approximately $16 million of profits for the full year. Now for every point of P and D efficiency improvement, it's now slightly higher than what we discussed in the past, about $900 million worth of cost. And this is where we piloted our new technology across 12 service centers in our network last quarter, and we're gonna be accelerating the rollout here in 2026. And then for every point, it's $9 million to the bottom line per year. Then on the doc side, for every point, it's about $4 million of improvement per year. So this kinda gives you the magnitude of impact. Now in terms of our expectation, what we currently expect for 2026 is a low single-digit improvement in productivity as well, but based on what we're seeing with these initiatives and what the run rate we're exiting at last year, there is a case where the upside could be all the way up to mid-single digit. But we're still early innings at this point, and we'll see how these start compounding over time. As we launch those capabilities. And, of course, we're using AI and pricing and in supporting our sales force as well. So we have multiple other initiatives to continue to improve our operating performance through technology as well. Fadi Chamoun: Thank you. Thank you. Operator: Our next question comes from the line of Jonathan Chappell with Evercore ISI. Please proceed with your question. Jonathan Chappell: Thank you. Good morning. Mario or Ali, on the revenue per shipment side, twelve straight quarters of sequential improvement, which is obviously really good. It feels like the year-over-year rate of change is starting to decelerate. Now we're down to 3% in April. Can you help us think about what you're assuming for 2026? And also, is that a commentary, maybe that's slowing rate of change on now that you've reached 12% accessorial, it's maybe a little bit harder to get incremental accessorial impact? Or is that more indicative of maybe a pricing environment that doesn't have the same momentum as it may have had last year? Ali-Ahmad Faghri: Sure, John. This is Ali. So we expect a strong year from a pricing improvement standpoint here in 2026. For revenue per shipment specifically, we expect revenue per shipment to be up somewhere in that mid-single-digit range, similar to our expectation for overall yield growth. From a weight per shipment standpoint, we'd expect weight per shipment to be flattish on a year-over-year basis. So that's gonna help drive an improving trend year over year for our revenue per shipment here in 2026. The other way you can think about it, John, is you mentioned the 12 consecutive quarters that we've improved revenue per shipment. Through the fourth quarter. We expect that trend to continue here through 2026, so we expect to continue to grow revenue per shipment sequentially each quarter as we move through the year. And that's gonna be driven by all of the initiatives that we're executing on the pricing side. In particular, there's a lot of runway for us on local customers. Mario talked about it earlier in terms of getting those local customers up to 30% of our overall book of business. A similar trend on premium services. A few years ago, we were about 10% of our book of business was premium services. We're at 12% currently, however, we see a path to 15 plus percent over time. So there's a long runway there for us to continue to expand our offering. And continue to drive that above-market, that yield growth and pricing growth here in 2026 and beyond. Jonathan Chappell: Thank you. Thank you. Operator: Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question. Jordan Alliger: Yeah. Hi. Thanks. Just sort of curious. Obviously, you guys are doing a good job from an XPO Logistics, Inc. perspective. I'm thinking though, out over the next several years or a couple years, if we do if some of these demand indicators do wind up becoming more fulsome and we get an inflection across the LTL industry, can you talk a little bit about overall LTL industry capacity relative to what sort of price or yield reaction, you know, would occur if the industry itself went from down volumes to positive volumes. And, again, in the context of overall industry capacity? Thanks. Mario Harik: Yeah. Well, if you look at the overall industry capacity, it has been relatively flat over the last decade. And while there were a few carriers besides us who have capacity, others have been also reducing LTL footprint. And you also couple that with the bankrupt Tiello a few years ago. You tend to see that capacity has gone down quite a bit. Now in terms of how much has it gone down by, if you look if you compare pre-COVID, so 2019, to where we are today on overall service center count, the industry is down 11 points over that period. And on door count, it's down six points. If you compare it to pre-COVID, to post-COVID where we are I mean, pre-yellow to post-yellow, so you go 2022 to 2025, both service center count and door counts are down six points over that period. When you compare that to what volume has done over the same period, keep in mind, we have been in a subseasonal industrial environment now for three years with the ISN being sub 50 for the most part, that has caused LTL volumes to be down in the mid to high teens, give or take, in terms of shipment count across all public and private carriers. Over the same period of time. So as volume if what we're seeing here in the ISM continues against steam, which at some point, it would and, usually, the ISM ISN is inversely correlated with the Fed fund rate. So when you start seeing that Fed fund rate continue to decline, and you see the ISN start to pick up again, at some point, you won't have enough capacity in the sector compared to what we're seeing or what you would see from a demand recovery. That is also another dynamic that has happened over the last few years, and that's between public and private carriers. When yellow one bankrupt, a lot of that freight ended up going or more of that freight ended up going to the private carriers and the public carriers. So the private carriers are currently more strapped on capacity the public carriers, and, obviously, in our case, we have more than 30% excess door capacity to be able support that recovery whenever that recovery comes. So it's very fair to assume that when you start seeing the watermark overall demand go up, and as capacity starts to dry up, you're gonna see more and more customers go to the carrier that do have that capacity. And, naturally, you will see the pricing dynamic of the overall industry industry. Continue to raise on average. And as Ali mentioned earlier on, we have multiple initiatives to catch up with our best-in-class peer but we see a double-digit opportunity of incremental pricing growth just to catch up to those pricing levers through the three levers that we mentioned earlier on. So it would be not only positive for the tonnage environment, but definitely very positive for the yield or pricing environment as well. Jordan Alliger: Thank you. Operator: Our next question comes from the line of Stephanie Moore with Jefferies. Please proceed with your question. Stephanie Moore: Hi. Good morning. Thank you. I guess, I appreciate the color so far for January and your thoughts. For the quarter. But you know, you know, clearly, you guys have invested quite a bit through network2.o and the likes. You know? So maybe as we think about what your incremental margins could like in an upcycle, that might be helpful because, clearly, I don't think looking at historical results would be probably that relevant given the investments that have been made over the last several years. So any help you can give us, Mario, on incremental margins would be appreciated. Thank you. Kyle Wismans: Hey, Stephanie. It's Kyle. So if you think about incremental margins, you know, we'd expect be comfortably above 40%. And if you think about the contributors to that, biggest is yield. So we're talking about that earlier, but if you think about yield, it's gonna have really strong flow through from the bottom line, and we're gonna have a lot of our initiatives really just coming through to push it now. So you think about local shipments, continue to grow as Mario mentioned. Think about as a source continue to grow. That's really gonna help us drive really strong incrementals from a yield perspective. And then if you think about where we are from a demand and capacity standpoint, as Mark just talked about, we're in a great position to continue to deliver. If think about the structural improvements we've made, not only in the count of service centers and our tractors and trailers, but also reductions in structural costs. So, again, we've been able to really improve our third-party line haul spend, get that down to 5%. About the AI initiatives that continue to help us drive more productivity, both from a p and d standpoint as well as on the doc. We're in a great position to not only capture more of that revenue, but also do it with a high amount of productivity. So from our standpoint, we should be easily in the 40 range when you think about incremental margins in an upcycle. Stephanie Moore: Thanks, Kyle. Appreciate it. Operator: Our next question comes from the line of Chris Wetherbee with Wells Fargo. Please proceed with your question. Chris Wetherbee: Yeah. Hey. Thanks. Good morning, guys. Maybe one quick clarification question. Mario, you talked about assumptions for the operating ratio in 2026, and you noted no macro improvements before I make get a sense of what the actual tonnage, sort of underlying tonnage assumption is in the 100 to 150 OR for '26? And then maybe zooming out a little bit and thinking about CapEx and cash flow. And so given the capacity that you have, you noted the tractor age on the lower side, your maintenance per mile is low as well. How do you think about that going forward? And then as you balance that kind of cash out relative to returns to shareholders, how you think about that, that would be great. Ali-Ahmad Faghri: Hey, Chris. It's Ali. I'll answer the part and pass it over to Kyle. In terms of the tonnage assumptions, if you just roll forward normal seasonality from January, that would put full-year tonnage roughly flattish year over year, and that would be supportive of that 100 to 150 basis points of OR improvement. That we expect for the year. Now to the extent that you see that above seasonal volume performance that we've seen the last couple of months continue through the rest of the year, there would be meaningful upside to that OR outlook that we talked about. So, ultimately, it depends how volume trends through the rest of the year. But overall, we expect a strong year of margin improvement with or without the macro recovery. Kyle Wismans: And then, Chris, if you think about CapEx, so when you think about CapEx for last year, we spent about on the LTL business, about 12.4% of revenue on CapEx. And if you think about what we'll do this year, that's gonna moderate a couple points. So obviously lapping a year of significant network expansion. Do think about the service that we brought online. In addition, we had a lot of fleet additions that brought our third-party line haul down to 5.1%. You think about this year, that number will come down probably more towards, like, the midpoint of our long-term guided range, the 8-12%. What that's gonna do for us from an overall free cash flow standpoint, it's really gonna increase our free cash flow. So think about 26 for us from a free cash flow standpoint, we should be up north of 50% year over year. And that's gonna be a combination of both lower CapEx spend as well as a continued improvement from an income base as Marty talked about with OR improved. So when you think about what that can do for us, that's gonna give us a lot of flexibility going to this year to do really two things. So we'll be able to continue the effort on buying back shares. So last, we repurchased about 125 shares. That will accelerate as the free cash flow continues. But then we're also gonna have the flexibility to help continue to pursue our long-term target of being one to two times leverage. We paid about $115 million of term loan B this year. Again, that'll accelerate as well. So gonna have a lot of cash this year, and that's gonna give us a lot of flexibility moving forward. It's to have find the highest return for our shareholders from that cash. Chris Wetherbee: Got it. Thanks very much. Appreciate it. Operator: Our next question comes from the line of Richa Harnain with Deutsche Bank. Please proceed with your question. Richa Harnain: Thanks, operator. Yeah. One quick clarification for me and then a general question. But the clarification is the outlook for the quarter Q1 to achieve margin expansion sequentially. What are you baking in as the assumption for tonnage? Do we expect this better than seasonal lift that we saw in January to continue for the rest of the quarter? Are you assuming more like seasonal trends for February and March? And then you know, the bigger picture question, Mario, you know, in the past, I believe you suggested that in the next upcycle, price is gonna lead. Just wanted to get an update on that. You know, if you have this double-digit, I think you said 30% excess capacity on a door level, why wouldn't you, you know, improve pricing consistent with what you've been doing? But have sort of volumes lead in driving revenue growth to effectively soak up that excess capacity, drive strong incrementals, which you guys are speaking about. And then that 30%, if you can translate that for us in terms of you know, what that means in terms of how many shipments you can absorb how many more shipments you can take on, I should say, without further investment in real estate. Or maybe how much you can do without taking on more trailers and people that would be helpful. Thank you. Ali-Ahmad Faghri: Richa, this is Ali. I'll start on Q1. Then pass it to Mario. So for Q1, from a tonnage perspective, if you just roll forward normal seasonality off of January through the rest of the quarter, that would imply full quarter tonnage being flattish on a year-over-year basis. And keep in mind, that does also factor in the tougher comps to the rest of the quarter, and that's really what's underpinning the OR outlook that we talked about in terms of outperforming normal seasonality and also improving OR sequentially from Q4 to Q1. Ultimately, it is still early in the quarter. March does have the largest impact on the quarter as a whole. So ultimately, that will be the biggest swing factor, and probably a better of whether this, better than seasonal volume performance we've seen here in January is sustainable. Mario Harik: And, Richa, when you look at the overall pricing and in the context of an upcycle, so generally, in our business and our industry, it's a capacity-constrained industry. So, obviously, for the last three years, we have been in a depressed industrial demand environment. Which had made the industry have enough capacity for the volume that we are seeing. But when that start that volume in the industrial economy starts recovering, you won't have enough capacity. When you think about an LTL network, profitability and margin generally comes from yield, comes from pricing. In terms of how we think about it. So naturally, typically in a down cycle, you tend to see the industry be up low single digit on pricing. And good cycle, you would see it in the mid-single digit. And whenever you are in an upcycle, you could tend to see that being in that mid to high single digit type increases in pricing. Now given that we have initiatives to be able to bridge the gap from us from where we are today to where our best-in-class peer we have a double-digit pricing opportunity to go capture. And that's when you normalize our shipment characteristics in terms of weight per shipment and length of haul compared to our best-in-class sphere. So I would go through the initiatives we just mentioned, whether premium services, whether it's small to medium-sized customers, whether it's continue to get a more profitable mix of business, we're gonna be driving those pieces to get a few points above market pricing for all of these components on top of the industry's pricing going up. Now in terms of our ability to gain more tonnage, obviously, in an upcycle, we will also gain more tonnage, but we generally we would wanna get more price because that's gonna have a higher flow through to the bottom line as well. When you look at the volume side and how much we can handle, typically, in an LTL network, you need approximately in the mid-teens excess capacity to be able to handle the psych the up and down cycles related with beginning of month versus end of month type volume fluctuations. Or what the Monday would do versus the Friday would do. Or what beginning of the quarter versus end of the quarter would do. So that fluctuation typically, you need about 15 points or so of excess door capacity so you can handle door all those up and down. So we see anywhere between the mid-teens to the low 20% range of incremental volume we can get with our current door capacity. And beyond that, we would be expanding further and adding more physical capacity. Now there are also other forms of capacity like holding stock and, obviously, people as well, and on the rolling stock side, we would give us we are in a great, great position. Over the last three, four years we have added more than 19,000 new trailer solar fleet and we have added more than 6,000 new trucks to our fleet giving us today one of the youngest fleets in LTL. Our average fleet age is 3.7 years. As we exited the year. So we're feeling great about being able to capitalize on that. And importantly, to be there for our customers when that upcycle starts, we're able to move their freight and provide great service for them along the way. Thank you. Richa Harnain: Thank you. Operator: Our next question comes from the line of Tom Wadewitz with UBS. Please proceed with your question. Tom Wadewitz: Yeah. Good morning, and, congratulations on the momentum in the business. I wanted to see if you could talk a little bit about underlying inflation. It sounds like you got some pretty helpful productivity opportunities related to the tech and AI initiatives. OD had their call yesterday taking a kinda talked about higher inflation. I think five to five and a half percent, so maybe a bit higher versus 25. So maybe a thought on how you see underlying inflation. And then when you weave in productivity, does your kind of do you get maybe more overall cost benefit? And into the margin in '25 or excuse me, in '26 or just how do we look at those different pieces together? Thanks. Kyle Wismans: Yes. If you think about it in a long term, so we could think cost per shipment is gonna be up somewhere in the low single-digit range. And the way to think about that so for us, quota wage inflation is in that three to 4% range. And then on top of that, we see higher benefit cost of maybe a point or two. But as you imply, I mean, we took to offset that with our productivity initiatives. So from an AI standpoint, that's gonna help you know, whether it's line haul, pickup, delivery, or dock. Drive further improvements there. And then I think from a labor standpoint, just more broadly in the fourth quarter, we delivered two points of labor productivity. Expect that to continue. So if you think about on a net basis, once you account for that productivity, you know, we would expect our cost per shipment to be in that low single-digit range despite having that core wage inflation and higher group or higher increase for benefit cost. Tom Wadewitz: Do you think underlying inflation is much different from last year or kinda similar? Kyle Wismans: I think it's gonna be similar. So if think about wage inflation, it's gonna be similar. I think we're seeing, and I think others in the broad space are seeing some of the benefit cost insurance cost are a bit higher this year than prior. I think on a net basis, you're gonna be pretty similar on a cost per shipment. Tom Wadewitz: Okay. Thank you. Operator: Our next question comes from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question. Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Just want to see if can give a little bit more color on two areas of the market. First would be just what you call the vertical or industry expansion into things like grocery and health care. What's the rate of change you expect in '26? And that fall under the premium services or something else? And then just given the move in spot truckload market and worries about capacity getting a little bit tighter, have you started to see any truckload spillover any sort of degree? I know it's not necessarily a big part of your business, but curious to see if that's starting to happen. Mario Harik: Thanks, Brian. Well, first starting with grocery, we see that as being a large market that we're gonna continue to ramp and we estimate the size of that market, Brian, to be in the $1 billion market size range. And it does come with very good margins. Now today, it's a small part of our business as we continue to grow our market share in it. And predominantly, there are two carriers that manage the majority of grocery consolidation business in the industry. And we're starting to make now more and more inroads into that part of the business. We have achieved preferred carrier status now with a number of large grocers, and we have nearly 200 incremental customers in our pipeline that you wanna go after. But if you look at it again, today, are in the low single-digit percentage of total industry size of the billion dollars worth of grocery. Our goal is to continue to grow through that 2026 and beyond. As we continue to gain market share. Now in terms of what's NetSip, it is a premium service from the perspective that you do get the base charges from the actual prey. But then there's a service on top of that, which is your consolidation service you're offering to the grocers. The way that business works is once you achieve preferred area status for the large grocer, we have a lot of these smaller companies that are shipping into the grocer, and we consolidate that freight at a destination terminal before we actually do a trailer drop to that particular grocer where they can optimize their own docks not having to deal with multiple shipments coming in through the course of the day as the an example. This has a benefit both on the overall volume side as well as on the premium side given it's charged through a sodium mechanism as well. The second component on the truckload to LTL shift we do think that as truckload rates go up, you will see some of that freight that has left the LTL segment to go to truckload, come back to LTL. But we've always thought that this is a small number. When you look at direct conversions, between heavy shipments that are call it, 14, 15, 16,000 pounds, this is where it's usually sub 1% of an LTL network. So we see some of that would be coming back to LTL with heavier weight per shipment. As truckload rates go up. The second component is typically customers who are using a transportation management system, that can optimize multiple LTL shipments into truckload granted if the service can be service requirements can be met. We estimate that when truckload rates are lower, you see a bit more of that conversion, but we only estimate that to be a couple of points. So when you look at it on a full numbers basis, we estimate somewhere in the low to mid-single-digit range of tonnage that has gone to truckload would be coming back to the industry. Now with LTL, two to three points of industry volume, that's a decent amount. That we would expect to come back into LTL whenever truckload rates start recovering. But one also one last thing, Brian, I would say, and that's more of a that will help us with higher incremental margins in the next upcycle, is the fact that we have reduced our reliance meaningfully on purchased transportation. So you can imagine that truckload rates eventually recover by 20, 30%, that's gonna be a much lower headwind on our p and l because only mid-single digit of our line haul miles at this point are outsourced, and we're planning on taking that number even further down here in 2026. Which would further isolate our p and l from any truckload rate increases through the course of the year of '27. Brian Ossenbeck: Alright. Thanks, Mario. Appreciate it. Mario Harik: You bet. Operator: Thank you. Our next question comes from the line of Jason Seidl with TD Securities. Please proceed with your question. Jason Seidl: Thanks, operator. Mario and team, good morning, guys. I think a lot of questions have been sort of directed or dancing around sort of a longer-term outlook. The last time you gave an update, was from '21 to '27, and you looked at an OR improvement of at least 600 basis points, and you're tracking quite nicely to that. Given sort of your productivity initiatives given hopefully an industrial recovery, and, you know, a greater push into sort of your premium as well as your local services. How do you see the next couple of years in terms of your OR improvement just had Old Dominion come out and not give a date around it, but talked about sort of a longer-term sub 70 OR. So I was wondering you think XPO Logistics, Inc.'s North American targets could sit. Mario Harik: Well, on the long term, if you compare us our best-in-class peer, I mean, we have all the levers to be able to get there from an OR perspective. It's just gonna take time as we continue to execute. And as you said, Jason, in what was over the last three years, the historic trade recession, we were able to improve our operating margin by nearly 600 basis points while the rest of the industry took a meaningful step backward on overall margin performance. So when you look at that, we do expect our OR over the years to come to that eventually get into low seventies. From an overall margin perspective. And it's all the levers we have discussed in the past. From one perspective, still have a double-digit pricing differential between us and the best-in-class peer through the three levers that we mentioned. A better service product over a longer period of time, has led to some of that outperformance, and I would go to effectively get an incremental point per year on that over the year to come to continue to bridge the gap. On the accessorial side, when we started our plan three, four years ago, we were at nine to 10% of our revenue was as revenue. We're up to 12% now, and I would also get to fifteen. That's an incremental point per year over the next three, four years. And then on the small to medium-sized customers, when we started out plan, 20% of the book was effectively those kind of customers, and our goal is to get that to 30%, and we're halfway through. So we have another two to three years to be able to bridge that gap. So these are the kind of levers on the yield side. When you look at the cost efficiency side, we have been able to improve effectiveness or efficiency overall productivity across our network quite a bit, the combination of technology and AI as well as the investments and capacity by having larger service centers we can operate our network more effectively and succeed. They run way ahead of us. I mean, we are assuming in our plans a low single-digit productivity improvement for the year. When you look at what AI is doing these days, I mean, there's more upside there as well. Then you couple that with as the volume environment recovers and our ability to take market share some of these new verticals like health care or grocery consolidation, that's gonna further give us incremental tonnage as well. So if you add all these things up if we, again, we would see whether these are early signs of an upcycle or not, it's very tough to call the cycle. But without the cycle, we've been able to improve margin and have it long runway of margin improvement. And, obviously, if we have help from the cycle, that's only gonna accelerate our plans. And, eventually, we wanna get our OR went into the seventies. And, eventually, at some point in the sixties as well. Jason Seidl: And, Mario, following up to your comments on what AI can do to your productivity measures, I mean, how meaningful do you think that could be? Could it sort of double your expected productivity gains? Mario Harik: Overall, as we roll them up, still in our expectation, because every time you roll out a new technology solution, so, you know, you have certain targets, but then as you roll it out and you keep on doing changes to it and you train the AI further, and then as it learns from the actual changes and the real freight is seeing in the network, it keeps on evolving. And our current expectation it's a point and a half. Back of half of last year, we had gotten to above two points of productivity. And some of these early solutions could have more upside, as I mentioned earlier on, but we'll see how these kinda get pulled out. We take them as step at a time and keep on investing in them. And our team iterates on them. And the point and a half could be conservative, but we'll see kinda how that materializes here over the quarters and years to come as we launch some of these solutions. Jason Seidl: That's fair. Appreciate the time and color. Mario Harik: Thank you. Operator: Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question. Ravi Shanker: Great. Thanks. Good morning, everyone. Just a quick follow-up on the local accounts. Can you just remind us again kind of who do you compete with for those local accounts? And how does the cyclicality or seasonality of those accounts maybe differ from national accounts or maybe they don't? Mario Harik: Great question, Ravi. If you look at the local accounts, generally, we estimate that the industry, roughly the third of LTL shippers in the industry, so about 30% are small to medium-sized. So they are and think of a small to medium-sized customer as being, say, a small manufacturer that is shipping five tablets a week as opposed to a large company that could be out of one location shipping 100 shipments in a given week. Usually, they have less density and, usually, they operate at a higher margin because effectively as an LTL carrier, we don't get the same density that you get with a large customer, whether you might be doing things like trader pools or swaps that effectively make your cost structure a bit more efficient. Reason why you need a great service product and you need great relationships with the customer. And this is where our local sales force are doing a fantastic job growing that segment of business. We have increased the size of the sales force by about 25% over the last few years, and as they ramp in productivity, they're being able to be out there meeting customers face to face and onboard more of that business. Again, onboarding 10,000 new accounts through the course of 2025, which I couldn't be more proud of. Now in terms of the cycle and how it impacts small to medium-sized customers versus larger customers, usually, the larger the customer, they use a TMS system to optimize their freight flow. So, naturally, what you tend to see in the down cycle, larger accounts, their weight per shipment stays relatively flat. It might still come down a bit. But you see the shipment count come down more. For local customers, what you tend to see is a higher impact on weight per shipment because, naturally, if they had a customer who was buying three pallets worth of skid of the passengers, now maybe they're buying two pallets worth of passengers subsequently having a lower weight per shipment. So, typically, the seasonal changes when the cycle is down, weight per shipment is down. When the cycle is up, weight per shipment is up. Versus the larger the customer, you tend to see when the cycle is down, you can see shipment count is down, and then when the cycle is up, you see shipment count being up. Ravi Shanker: Very helpful. Thank you, Mario. Mario Harik: You got it, Ravi. Operator: Our next question comes from the line of Bruce Chan with Stifel. Please proceed with your question. Bruce Chan: Hey. Good morning, guys. Helpful commentary on the different target end markets so far. I was wondering if you can maybe give any comments on pricing trends or negotiating behavior at this point in the cycle, between them. You know, renewals or bid frequency for SMBs versus enterprise, for example? Kyle Wismans: Yes. If you think about renewals, what we're seeing in fourth quarter pretty consistent with we saw in the third quarter. So you know, we've been pretty consistent from that standpoint. And you think about the cadence of renewals, so, typically, we have about a quarter of book that renews every quarter. Thing to keep in mind is that when you think about local accounts, many of those are on our standard tariff on so they get impacted by the GRI. That's about a quarter of book gets impacted by the GRI versus individual negotiations. Operator: Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back over to Mario Harik for closing remarks. Mario Harik: Thank you, operator, and thanks, everyone, for joining us today. You saw from our results, we're outperforming the market based on our own initiatives. And disciplined execution. Even without a recovery in the demand environment, we expect strong margin expansion and earnings growth this year. And if the recent pickup in demand continues, we're well-positioned to capitalize on it and accelerate our results even further. With that, operator, we've got the call. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.